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

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)

[X] Annual Report Pursuant to Sections 13 or 15(d) of the Securities Exchange
Act of 1934

For the fiscal year ended June 30, 2003
-------------------------------------------------------
or
[ ] Transition Report Pursuant to Sections 13 or 15(d) of the Securities
Exchange Act of 1934

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 (I.R.S. Employer
incorporation or organization) Identification No.)

Ethan Allen Drive, Danbury, CT 06811
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act: None
----

Name of Each Exchange
Title of Each Class On Which Registered
---------------------------- -----------------------------
Common Stock, $.01 par value New York Stock Exchange, Inc.

Securities registered pursuant to Section 12(g) of the Act: None
----

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]

The aggregate market value of Common Stock, par value $.01 per share, held by
non-affiliates (based upon the closing sale price on the New York Stock
Exchange) on December 31, 2002, (the last day of the Company's most recently
completed second fiscal quarter) was approximately $1,298,276,535. As of
December 31, 2002 there were 37,773,539 shares of Common Stock, par value $.01
per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: The definitive Proxy Statement for the 2003
Annual Shareholders Meeting is incorporated by reference into Part III hereof.



TABLE OF CONTENTS

Item Page
- ---- ----

PART I

1. Business 3

2. Properties 11

3. Legal Proceedings 12

4. Submission of Matters to a Vote of Security Holders 12


PART II

5. Market for Registrant's Common Equity and Related
Stockholder Matters 13

6. Selected Financial Data 14

7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16

7A. Quantitative and Qualitative Disclosure About
Market Risk 27

8. Financial Statements and Supplementary Data 28

9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 50

9A. Controls and Procedures 50


PART III

10. Directors and Executive Officers of the Registrant 51

11. Executive Compensation 51

12. Security Ownership of Certain Beneficial Owners
and Management 51

13. Certain Relationships and Related Transactions 51

14. Principal Accountant Fees and Services 51


PART IV

15. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K 52

Signatures 59




2


PART I
------

Item 1. Business
--------

Background
- ----------

Incorporated in Delaware in 1989, Ethan Allen Interiors Inc. (together
with its directly and indirectly-owned subsidiaries, "Ethan Allen" or the
"Company") is a leading manufacturer and retailer of quality home furnishings
and accessories, offering a full complement of home decorating solutions through
the country's largest network of home furnishing retail stores. The Company was
founded in 1932 and has sold products under the Ethan Allen brand name since
1937.

Mission Statement
- -----------------

The Company's primary business objective is to offer its customers a
convenient, full-service, one-stop shopping alternative for their home
decorating needs. In order to meet its stated objective, the Company has
developed and adheres to a focused and comprehensive business strategy. The
elements of this strategy, each of which represent specific home decorating
solutions, include (i) the Company's vertically-integrated operating structure,
(ii) its products, (iii) its retail store network, (iv) its people, and (v) its
numerous customer service offerings.

Operating Segments
- ------------------

The Company's operating segments represent 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 such segments: wholesale and retail.

The wholesale segment is principally involved in the development of the
Ethan Allen brand, which encompasses the design, manufacture, domestic and
off-shore sourcing, sale and distribution of a full range of home furnishings to
a network of independently-owned and Ethan Allen-owned stores as well as related
marketing and brand awareness efforts. 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 to consumers through a network
of Company-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 each respective product line (i.e. case goods, upholstery, or home
accessories and other). Sales of case good items include, but are not limited
to, beds, dressers, armoires, night tables, dining room chairs and tables,
buffets, sideboards, coffee tables, entertainment units, and home offices. Sales
of upholstery home furnishing items include sleepers, recliners, chairs, sofas,
loveseats, cut fabrics and leather. Skilled craftsmen cut and sew
custom-designed upholstery items which are available in a variety of frame and
fabric options. Home accessory and other items include window treatments, wall
decor, lighting, clocks, wood accents, bedspreads, decorative accessories, area
rugs, bedding, and home and garden furnishings.

Revenue information by product line is not readily available within the
retail segment as it is not practicable. However, because wholesale production
and sales are matched to incoming orders, the Company believes that the
allocation of retail sales would be similar to that of the wholesale segment.


3


The Company evaluates performance of its 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 Wholesale Segment:

For fiscal years 2003, 2002 and 2001, the wholesale segment recorded net
sales of $661.0 million, $660.8 million, and $705.6 million, respectively. A
breakdown of wholesale sales by product line for each of the last three fiscal
years is provided below:

Fiscal Year Ended June 30,
--------------------------
2003 2002 2001
---- ---- ----
Case Goods 53% 56% 56%
Upholstered Products 33 31 30
Home Accessories and Other 14 13 14
--- --- ---
100% 100% 100%
=== === ===

The Company has 14 manufacturing facilities which consist of 8 case goods
plants (including 3 sawmill operations), 5 upholstery plants and 1 home accent
plant, all located in the United States. The Company also sources, domestically
and off-shore, selected case goods, upholstery, and home accessory items.

During the third quarter of fiscal 2003, the Company announced a plan to
close three of its smaller manufacturing facilities. Closure of these facilities
resulted in a headcount reduction totaling approximately 580 employees; 340
employees effective April 21, 2003, and 240 employees 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 related to employee
severance and benefits and other plant exit costs, and $8.9 million related to
fixed asset impairment charges, primarily for real property and machinery and
equipment associated with the closed facilities.

In the fourth quarter of fiscal 2002, the Company announced a plan that
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 a
headcount reduction totaling approximately 220 employees; 150 employees
effective June 29, 2002, and 70 employees throughout 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 related to
employee severance and benefits and other plant exit costs, and $3.1 million
related to fixed asset impairment charges, primarily for real property and
machinery and equipment associated with 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 a plan that
involved the closure of three of its manufacturing facilities and a headcount
reduction totaling approximately 350 employees effective August 6, 2001. A
pre-tax restructuring and impairment charge of $6.9 million was recorded for
costs associated with these plant closings, of which $3.3 million related to
employee severance and benefits and other plant exit costs, and $3.6 million
related to fixed asset impairment charges, primarily for real property and
machinery and equipment associated with the closed facilities.

Manufacturing Activities

Ethan Allen is one of the largest manufacturers of home furnishings in the
United States. The Company manufactures and/or assembles approximately 75% of
its products at 14 manufacturing facilities including 3 sawmill operations,
thereby maintaining control over cost, quality and service to its consumers. The
case goods facilities are located close to sources of raw materials and skilled
craftsmen, predominantly in the Northeast and Southeast regions of the country.
Upholstery facilities are located across the country in order to reduce shipping
costs to



4


stores and are located at sites where skilled craftsmanship is available.
Management believes that continued investment in its manufacturing facilities,
combined with appropriate outsourcing, both domestically and abroad, will
accommodate future sales growth.

Raw Materials and Other Suppliers

The most important raw materials used by Ethan Allen in furniture
manufacturing are lumber, veneers, plywood, hardware, glue, finishing materials,
glass, mirrored glass, laminates, fabrics, foam and filling material. The
various types of wood used in Ethan Allen's products include cherry, ash, oak,
maple, prima vera, mahogany, birch and pine, substantially all of which are
purchased domestically.

Fabrics and other raw materials are purchased both domestically and
abroad. Ethan Allen has no significant long-term supply contracts, and has
experienced no significant problems in supplying its operations. Ethan Allen
maintains a number of sources for its raw materials which management believes
contribute to its ability to obtain competitive pricing for raw materials.
Lumber prices fluctuate over time based on factors such as weather and demand,
which, in turn, impact availability. Upward trends in prices could have a
short-term impact on margins.

A sufficient inventory of lumber and fabric is usually stocked to maintain
adequate levels of production. Management believes that its sources of supply
for these materials are sufficient and that it is not dependent on any one
supplier.

The Company enters into standard purchase agreements with certain vendors,
both domestically and abroad, to source selected case goods, upholstery, and
home accessory items. The terms of these arrangements are customary for the
industry and do not contain any long-term contractual obligations on behalf of
the Company. Ethan Allen believes it maintains good relationships with its
vendors.

Distribution and Logistics

Within the wholesale segment, Ethan Allen distributes its products
primarily through a national network of 6 owned and 3 leased distribution
centers strategically located throughout the United States. These distribution
centers hold finished products received from Ethan Allen's manufacturing
facilities and domestic and off-shore vendors for shipment to Ethan Allen retail
stores or home delivery service centers. Ethan Allen stocks case goods and
accessories to provide for quick delivery of in-stock items and to allow for
more efficient production runs.

Approximately 30% of all shipments are made to and from the distribution
and home delivery service centers by the Company's fleet of trucks and trailers.
The remaining shipments are subcontracted to independent carriers. Approximately
83% of the Company's fleet (trucks and trailers) is leased under two to
eight-year leases.

Ethan Allen's policy is to sell its products at the same delivered cost to
all stores nationwide, regardless of their shipping point. The adoption of this
policy has created credibility by offering product at one suggested national
retail price. This policy has also discouraged dealers from carrying significant
inventory in their own warehouses. As a result, Ethan Allen obtains accurate
information regarding sales to better plan production runs and manage inventory
levels.

Backlog and Net Orders Booked

As of June 30, 2003, Ethan Allen had a wholesale backlog of $48.0 million,
compared to a backlog of $47.5 million as of June 30, 2002. The backlog is
anticipated to be serviced in the first quarter of fiscal 2004. Backlog at any
point in time is primarily a result of net orders booked in prior periods,
manufacturing schedules and the timing of product shipments. Net orders booked
at the wholesale level from Ethan Allen stores (including independently-owned
and Company-owned stores) for the twelve months ended June 30, 2003 were $659.7
million as compared to $682.1 million for the twelve months ended June 30, 2002.
Net orders



5


booked in any period are recorded based on wholesale prices and do not reflect
the additional retail margins produced by Company-owned stores.

Advertising

Ethan Allen has developed a highly coordinated, national advertising
campaign designed to increase consumer awareness of the breadth of the Company's
product and service offerings. Ethan Allen's in-house staff, working with a
leading advertising firm, has developed and implemented what the Company
believes is the most cohesive national campaign in the home furnishings
industry. This campaign is designed to support selected retail events and to
increase the flow of traffic into stores.

In support of its national advertising campaign, Ethan Allen routinely
utilizes television, direct mail, newspaper, and radio to market its products
and services. Ethan Allen believes that its ability to coordinate its
advertising efforts for all Ethan Allen stores provides a competitive advantage
over other home furnishing manufacturers and retailers.

The Ethan Allen Interiors direct mail magazine, which features the
Company's home furnishing collections in lifestyle settings, is one of Ethan
Allen's most important marketing tools. Approximately 55 million copies of the
magazine were distributed to consumers during the past year. The Company
publishes and sells the magazines to its Company-owned and independent dealers,
who, with demographic information collected through independent market research,
are able to target potential consumers.

Ethan Allen's television advertising and direct mail efforts are supported
by strong print campaigns in various markets, and in leading home fashion
magazines using advertisements and public relations efforts. The Company
coordinates significant advertisements in major newspapers in its major markets.
During fiscal 2003, the Company introduced a new publication entitled Ethan
Allen Style - Create the Look You Love. This hard-cover book, which is
complimented by a complete catalogue of the Company's home furnishing
collections, helps customers identify their own personal style using Ethan Allen
product offerings. The Company believes these publications represent one of the
most comprehensive and effective home decorating resources in the home
furnishings industry.

Internet

Ethan Allen is located on the worldwide web at www.ethanallen.com. The
Company's primary goal for the website is to drive additional business into the
retail network through lead generation and information sourcing. Customers may
access the Company's website to review home furnishing collections or to
purchase selected home accessories. On average, approximately 14,000 daily users
logged onto the Ethan Allen website during fiscal 2003.

The Company has also developed an extranet website which links the retail
stores with consumer information captured on-line such as customer requests for
design assistance and copies of the Company's catalogue. This medium has become
the primary source of communications between the Company and its retail network
providing a variety of information, including a Company-wide daily news flash,
downloads of current advertising materials, proto-type store display floor plans
and detailed product information.

The Retail Segment:

For fiscal years 2003, 2002, and 2001, the retail segment recorded net
sales of $526.4 million, $459.6 million, and $419.3 million, respectively. For
fiscal 2003, net sales for the Company's retail segment represented 58% of the
Company's total net sales.

Ethan Allen sells its products through an exclusive network of 309 retail
stores. As of June 30, 2003, Ethan Allen owned and operated 119 Company-owned
stores (as compared to 103 at the end of the prior fiscal year) and independent
dealers



6


owned and operated 190 stores. See Item 2 - Properties for the geographic
distribution of all retail store locations. During 2003, the Company acquired 16
stores from independent retailers, opened 3 new stores, and closed 3 stores. In
the past five years, Ethan Allen and its independent dealers have opened 78 new
stores, a number of them being relocations. Wholesale sales to independent
dealers accounted for approximately 41% of total net sales of the Company in
fiscal 2003. The ten largest independent dealers own a total of 36 stores,
which, based on net orders booked, accounted for approximately 13% of total net
sales in fiscal 2003.

Ethan Allen encourages further expansion of the Company-owned retail
business by opening new stores, relocating existing stores and, when
appropriate, acquiring stores from independent dealers. In addition, the Company
continues to promote the development and growth of its independent dealers.
Independent dealers are required to enter into license agreements with the
Company authorizing the use of certain Ethan Allen service marks and requiring
adherence to certain standards of operation, including the exclusive sale of
Ethan Allen products. Additionally, dealers are required to enter into warranty
service agreements. Ethan Allen is not subject to any territorial or exclusive
dealer agreements in the United States.

In October 2001, the Company formed a joint venture with MFI Furniture
Group Plc. to open a chain of retail stores in the United Kingdom. The initial
phase of the agreement, which calls for the two companies to collaborate on the
development of a retail store format that will market their respective retail
concepts, involves up to five stores with approximately 8,000 to 15,000 square
feet in each. The first of these stores, located in the London suburb of
Kingston, opened in May 2002. The second, located in the suburb of Bromley,
opened in December 2002. Both have been included as independently-owned stores
in compiling the Company's store count as of June 30, 2003.

Products
- --------

Ethan Allen's product strategy has been to position its brand as a
'preferred' brand with superior quality and value, offering consumers the
convenience of one-stop shopping for their home furnishing needs. The Company's
continued focus has been on expanding its reach to a broader consumer base
through a larger selection of product lines at attractive price points. During
fiscal 2002, the Company introduced the Townhouse collection which, as Ethan
Allen's first collection primarily sourced off-shore, received favorable
response from consumers and was extremely successful. In fiscal 2003, the
Company introduced its Tuscany, Home Office, Leather Expressions and Ethan Allen
Kids collections. These product lines, too, are reflective of the Company's
continuing efforts to offer well-valued, stylish home furnishings that appeal to
a variety of customers and lifestyles.

Management believes that the two most important style categories in home
furnishings are the 'Classic' and the 'Casual' product lifestyles. Each home
furnishing collection includes case goods, coordinated upholstered products and
home accessories, each styled with its own distinct design characteristics. Home
accessories play an important role in Ethan Allen's marketing program as they
enable the Company to offer the consumer the convenience of one-stop shopping by
creating a comprehensive home furnishing solution. Ethan Allen's store interiors
are designed for the display of these categories in complete room settings,
which utilize the related collections to project the category lifestyle.

Ethan Allen continuously monitors consumer demand through marketing
research and communication with its dealers and store design consultants who
provide valuable input on consumer trends. As a result, the Company is able to
react quickly to changing consumer tastes. For example, 80% of the Company's
current complement of collections are new or have been revised since 1995. This
is indicative of the Company's ability to adapt to the recent consumer trend
toward more casual and eclectic lifestyles while, at the same time, maintaining
a classic appeal. The Company also refines and enhances its product lines by
adding and redesigning pieces within each collection.


7


Retail Store Network
- --------------------

Ethan Allen's interior and exterior design is dependent on the store's
location and size. Ethan Allen stores are located in busy urban settings as
freestanding destination stores or as part of suburban strip malls, depending
upon the real estate opportunities in a particular market. While stores range in
size from approximately 6,000 square feet to 35,000 square feet, the average
size of a store is approximately 15,000 square feet. During fiscal 2004, the
Company intends to open, on a test basis, stand-alone Ethan Allen Kids stores in
selected locations which will range in size from approximately 2,000 to 4,000
square feet.

Ethan Allen maximizes uniformity of store presentation throughout the
retail network through a comprehensive set of operating standards. These
operating standards assist each store in presenting the same high quality image
and offer retail customers consistent levels of product selection and service. A
uniform store image is conveyed through Ethan Allen's ongoing program to model
its retail stores with similar and consistent exterior facades and interior
layouts. This program is carried out by all stores, including
independently-owned stores.

Ethan Allen provides display-planning assistance to all Company-owned
stores and independent dealers to support them in updating the interior
projection of their stores and to maintain a consistent image. Several years
ago, the Company developed a standard interior design format for its retail
stores which, through the use of focused lifestyle settings to display its
products and information displays throughout the store to educate consumers, has
positioned Ethan Allen as a specialist in 'Classic' and 'Casual' lifestyles and
decorative accessory retailing.

People
- ------

At June 30, 2003, Ethan Allen has approximately 7,000 employees, 5% of
which are represented by unions under collective bargaining agreements which
expire at various times in 2005. The Company expects no significant changes in
its relations with these unions and believes it maintains good relationships
with its employees.

The retail network is staffed with a sales force of approximately 3,000
trained design consultants and professionals who provide customers with an
effective home decorating solution at no additional charge. Ethan Allen believes
this design service provides a distinct competitive advantage over other home
furnishing retailers.

Ethan Allen recognizes the importance of its retail store network to its
long-term success. Accordingly, the Company has established strong management
teams within Company-owned stores and maintains an ongoing relationship with
independent dealers. The Company also makes available services to the Ethan
Allen stores in support of their marketing efforts, including coordinated
national advertising, merchandising and display programs, and extensive training
seminars and educational materials. Ethan Allen believes that the development of
design consultants, sales managers, service and delivery personnel and dealers
is important for the growth of its business. As a result, Ethan Allen has
committed to make available a comprehensive training program that will help to
develop retail managers/owners, design consultants and service and delivery
personnel to their fullest potential.

Customer Service Offerings
- --------------------------

Ethan Allen, in an effort to make shopping more convenient and enjoyable
for consumers, offers numerous customer service programs. Each has been
developed and introduced to consumers in an effort to make their shopping
experience easier and more enjoyable.

Gift Card

This program allows customers to purchase, through the Company's website
or at any participating retail store, Gift Cards which can be redeemed for any
of the Company's products or services.



8


Wedding Registry

The primary objectives of the Wedding Registry program are to increase
customer traffic in Ethan Allen's network of retail stores (and on-line),
capture consumers in the early stage of their lifecycle, capitalize on the
growing trend for non-traditional registries and promote the Company's
complimentary design service. Ethan Allen believes this program further
strengthens its competitive advantage by enhancing its current compliment of
service offerings with a national gift registry.

On-Line Room Planning

During fiscal 2003, the Company introduced, on its website, an interactive
on-line room planning resource which serves to further assist consumers with
their home decorating needs. Through the use of this web-based tool, customers
can determine which Ethan Allen product offerings best fit their particular
needs based on their own individual home floor plan.

Ethan Allen Consumer Credit Programs

Prior to February 2003, the Company offered two separate consumer finance
plans: an installment finance plan (also known as "Simple Finance Plan") which
provided credit lines from $2,000 to $50,000 with repayment terms of up to seven
years and standard (non-promotional) fixed interest rates; and a revolving
credit plan that provided revolving credit lines from $1,500 to $25,000 at
variable interest rates. Both plans were administered by separate third-party
financial institutions which granted financing on a non-recourse basis to the
Company.

In February 2003, the Company combined these plans into the EA Finance
Plus program. This program continues to offer consumers two financing options,
but offers them through the use of one account number. Consumers can choose
between the "Simple Finance Plan" which consists of fixed monthly payments
ranging from 12 to 60 months at an interest rate of 9.99% per annum and the
revolving credit line which carries a variable interest rate currently ranging
from 21.00% to 23.75% per annum. Both plans provide credit lines from $1,000 to
$50,000. Financing offered through either program is administered by a single
third-party financial institution and continues to be granted on a non-recourse
basis to the Company. Consumers may apply for an EA Finance Plus card at any
participating retail store.

Competition
- -----------

The home furnishings industry at the retail level is highly competitive
and fragmented. Although Ethan Allen is among the ten largest furniture
manufacturers, industry estimates indicate that there are over 1,000
manufacturers of all types of furniture in the United States, some of which
produce furniture types not manufactured by Ethan Allen. In addition, the number
of foreign manufacturers, many of which have substantially lower production
costs, including the cost of labor, has increased significantly in recent years.
Certain of these domestic and foreign manufacturers, which compete directly with
Ethan Allen, may have greater financial and other resources than the Company.

In an effort to remain competitive, the Company has, in recent years,
entered into agreements with certain manufacturers, both domestically and
abroad, to source selected case goods, upholstery, and home accessory items.
Ethan Allen will continue to balance its domestic production with opportunities
to source from domestic and foreign manufacturers, as appropriate, in order to
maintain its competitive advantage.

In July 2003, a group of U.S. furniture manufacturers announced the filing
of an anti-dumping petition with the U.S. Department of Commerce ("DOC") and the
U.S. International Trade commission ("ITC") seeking tariff protection on bedroom
furniture imported from China. A group of more than 100 Chinese manufacturers
have announced that they are organizing to file their response to the DOC and
the ITC. The outcome of these petition filings is uncertain.


9


Ethan Allen sells its products through an exclusive network of
Company-owned and independently-owned retail stores. Ethan Allen's objective is
to continue to develop and strengthen its retail network by (i) expanding the
Company-owned retail business through the opening of new stores, relocation of
existing stores and, when appropriate, acquisition of stores from independent
dealers, and (ii) obtaining and retaining independent dealers, increasing the
volume of such dealers' sales.

The home furnishings industry competes primarily on the basis of product
styling and quality, personal service, prompt delivery, product availability and
price. Ethan Allen believes that it effectively competes on the basis of each of
these factors and that, more specifically, its vertically-integrated operating
structure, store format and complimentary design service create a distinct
competitive advantage, further supporting the Company's mission of providing
consumers with a complete home furnishing solution.

Trademarks
- ----------

The Company currently holds numerous trademarks, service marks and design
patents for the Ethan Allen name, logos and designs in a broad range of classes
for both products and services in the United States and in many foreign
countries. The Company has additional applications for registration pending both
domestically and abroad. Ethan Allen has registered, or has applications
pending, for many of its major collection names as well as certain of its
slogans utilized in connection with retail sales and other services. Ethan Allen
views its trade and service marks as valuable assets and has an ongoing program
to diligently monitor and defend against their unauthorized use through
appropriate action.

Available Information
- ---------------------

The Company makes available, free of charge via its website, all annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and other information filed with the Securities and Exchange Commission
("SEC"), including amendments to such reports. This information is made
available as soon as reasonably practicable after it is electronically filed
with, or furnished to, the SEC. The Company's website address is
www.ethanallen.com.



10



Item 2. Properties
----------

The Company's corporate headquarters, located in Danbury, Connecticut,
consists of one building containing 144,000 square feet, situated on
approximately 17.5 acres of land, all of which is owned by Ethan Allen. Located
adjacent to the corporate headquarters is the Inn at Ethan Allen, a hotel and
conference center containing 195 guestrooms. This hotel, owned by a wholly-owned
subsidiary of Ethan Allen, is used for Ethan Allen functions and in connection
with training programs as well as for accommodations for the general public.

Ethan Allen has 14 manufacturing facilities (including 3 sawmill
operations) located in 9 states. All of these facilities are owned, with the
exception of a leased upholstery plant in California totaling 141,600 square
feet. The Company's 14 facilities consist of 8 case goods manufacturing plants
(including 3 sawmill operations), totaling 2,795,387 square feet; 5 upholstery
furniture plants, totaling 1,230,100 square feet; and 1 plant involved in the
manufacture and assembly of Ethan Allen's home accessory products, totaling
295,000 square feet.

In addition, Ethan Allen owns 6 and leases 3 ancillary distribution
warehouses, totaling 1,194,870 square feet, and owns 3 and leases 27 retail
delivery service centers, totaling 1,111,734 square feet. The Company's
manufacturing and distribution facilities are located in North Carolina,
Vermont, Pennsylvania, Virginia, New York, Oklahoma, California, New Jersey,
Indiana and Maine. The Company's retail service centers are located throughout
the United States and serve to support Ethan Allen's various sales districts.

The geographic distribution of the Company's retail store network as of
June 30, 2003 is as follows:

Retail Store Category
----------------------------------
Company Independently
Owned Owned
----------------- ---------------
United States 112 170
North America-Other (1) 7 3
Asia - 11
Middle East - 3
West Indies - 1
Europe - 2
----------------- ---------------
Total 119 190
================= ===============

(1) Seven retail stores located in Canada were acquired by the
Company during the first quarter of fiscal 2003.

Of the 119 retail stores owned and operated by the Company, 40 of the
properties are owned and 79 of the properties are leased from independent third
parties. The Company owns an additional 8 retail properties, 7 of which are
leased to independent Ethan Allen dealers. The remaining property is leased to
an unaffiliated third party.

Ethan Allen's manufacturing facility located in Maiden, North Carolina and
the Inn at Ethan Allen located in Danbury, Connecticut, were financed, in part,
with industrial revenue bonds. The Beecher Falls, Vermont manufacturing facility
was financed, in part, by the State of Vermont Economic Development Authority.
Ethan Allen believes that all of its properties are well maintained and in good
condition.

Ethan Allen estimates that its manufacturing division is currently
operating at approximately 75-80% of capacity. Management believes it has
additional capacity at many facilities, which it could utilize with minimal
additional capital expenditures.



11


Item 3. Legal Proceedings
-----------------

Ethan Allen is a party to various legal actions with customers, employees
and others arising in the normal course of its business. Ethan Allen maintains
liability insurance, which is deemed to be adequate for its needs and
commensurate with other companies in the home furnishings industry. Ethan Allen
believes that the final resolution of pending actions (including any potential
liability not fully covered by insurance) will not have a material adverse
effect on the Company's financial condition, results of operations, or cash
flows.

Environmental Matters

The Company is a potentially responsible party ("PRP") for the cleanup of
three active sites currently listed or proposed for inclusion on the National
Priorities List under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"). The Company believes it 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 site. However, liability under CERCLA may be joint and several.
Additionally, the Company has been notified by the State of New York that it may
be a PRP in a separate, unrelated matter. However, 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.

Ethan Allen is subject to other federal, state and local environmental
protection laws and regulations and is involved from time to time in
investigations and proceedings regarding environmental matters. The Company is
regulated under federal, state and local laws and regulations concerning air
emissions, water discharges, and management of solid and hazardous wastes. The
Company believes that its facilities are in material compliance with all
applicable laws and regulations. Regulations issued under the Clean Air Act
Amendments of 1990 required the Company to reformulate certain furniture
finishes or institute process changes to reduce emissions of volatile organic
compounds. These requirements have been implemented via high solids coating
technology and alternative formulations. Ethan Allen has implemented a variety
of technical and procedural controls, such as reformulating of finishing
materials to reduce toxicity, implementation of high velocity low pressure spray
systems, development of inspections/audit teams including coating emissions
reductions teams at all finishing factories and storm water protection plans and
controls, that have reduced emissions per unit of production. In addition, Ethan
Allen is currently reclassifying its waste as part of the factory waste
minimization programs, developing environmental and job safety hazard analysis
programs on the shop floor to reduce emissions and safety risks, and developing
an auditing system to control and ensure consistent protocols and procedures are
applied. The Company will continue to evaluate the best applicable, cost
effective, control technologies for finishing operations and design production
methods to reduce the use of hazardous materials in manufacturing processes.


Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------

The following matters were submitted to security holders of the Company
during the fourth quarter of fiscal 2003:

None.


12


PART II
-------

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------

The Company's Common Stock is traded on the New York Stock Exchange under
ticker symbol "ETH". The following table indicates (i) the high and low stock
prices as reported on the New York Stock Exchange and (ii) dividends declared by
the Company:

Closing Market Price
---------------------- Dividends
High Low Declared
-------- -------- -----------------
Fiscal 2003
-----------
Fourth Quarter $ 37.54 $ 29.95 $ 0.07
Third Quarter 35.75 27.41 0.06
Second Quarter 38.30 27.99 0.06
First Quarter 36.42 29.02 0.06

Fiscal 2002
-----------
Fourth Quarter $ 41.80 $ 34.85 $ 0.06
Third Quarter 42.75 36.25 0.04
Second Quarter 41.70 27.10 0.04
First Quarter 38.00 26.65 0.04


As of August 29, 2003, there were approximately 423 shareholders of record
of the Company's Common Stock.

On July 29, 2003, the Company declared a $0.10 per common share dividend
for all holders of record on October 10, 2003 and a payment date of October 27,
2003. The Company expects to continue to declare quarterly dividends for the
foreseeable future.

Equity Compensation Plan Information

The following table sets forth certain information regarding the Company's
equity compensation plans as of June 30, 2003.



Number of securities
Number of remaining available
securities to be Weighted-average for future issuance
issued upon exercise price under equity
exercise of of outstanding compensation plans
outstanding options, (excluding
options, warrants warrants and securities reflected
Plan Category and rights rights in first column)
- -------------------------- ------------------- ------------------ ----------------------

Equity compensation
plans approved by
security holders (1) 3,932,105 $20.10 1,130,153

Equity compensation
plans not approved by
security holders (2) - - -
------------------- ------------------ ----------------------
Total 3,932,105 $20.10 1,130,153
=================== ================== ======================


(1) Amount includes stock options outstanding under the Company's 1992 Stock
Option Plan (the "Plan") as well as vested shares of restricted stock and
Stock Units which have been provided for under the provisions of the Plan.
See Note 11 to the Company's Consolidated Financial Statements for the
year ended June 30, 2003.

(2) As of June 30, 2003, the Company does not maintain any equity compensation
plans which have not been approved by its shareholders.


13


Item 6. Selected Financial Data
-----------------------

The following table sets forth summary consolidated financial information
of the Company for the years and dates indicated (in thousands, except per share
data):



Fiscal Year Ended June 30,
--------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- ---------

Statement of Operations Data:

Net sales $907,264 $892,288 $904,133 $856,171 $762,233

Cost of sales 457,880 470,975 490,477 455,561 407,234

Selling, general and
administrative expenses 315,578 286,290 280,703 253,029 221,237

Restructuring and impairment
charge (1) 13,223 5,123 6,906 - -
-------- --------- --------- -------- ---------

Operating income 120,583 129,900 126,047 147,581 133,762

Interest and other (income)
expense, net (609) (2,344) (2,056) 811 1,045
--------- --------- --------- -------- ---------

Income before income tax
expense 121,192 132,244 128,103 146,770 132,717

Income tax expense 45,811 49,988 48,423 56,200 51,429
--------- --------- --------- --------- ---------

Net income $ 75,381 $ 82,256 $ 79,680 $ 90,570 $ 81,288
========= ========= ========= ========= =========

Per Share Data: (2)
Net income per basic share $ 2.00 $ 2.12 $ 2.02 $ 2.25 $ 1.97
Basic weighted average
shares outstanding 37,607 38,828 39,390 40,301 41,278

Net income per diluted share $ 1.95 $ 2.06 $ 1.98 $ 2.20 $ 1.92
Diluted weighted average
shares outstanding 38,569 39,942 40,321 41,198 42,287

Cash dividends declared $ 0.25 $ 0.18 $ 0.16 $ 0.16 $ 0.12

Other Information:
Depreciation and
amortization (3) $ 21,296 $ 19,314 $ 20,220 $ 16,975 $ 16,344
Capital expenditures,
including acquisitions $ 38,539 $ 73,481 $ 48,238 $ 54,696 $ 47,792
Working capital $225,836 $191,473 $182,223 $127,519 $123,580
Current ratio 2.68 2.48 2.69 2.18 2.43

Balance Sheet Data (at end of period):

Total assets $731,568 $688,755 $619,118 $543,571 $480,622
Total debt, including
capital lease obligations $ 10,218 $ 9,321 $ 9,487 $ 17,907 $ 10,676
Shareholders' equity $537,699 $511,189 $464,783 $390,509 $350,535
Debt as a percentage of
equity 1.9% 1.8% 2.0% 4.6% 3.1%


Footnotes on following page



14


(1) During the third quarter of fiscal 2003, the Company announced a plan to
close three of its smaller manufacturing facilities. Closure of these
facilities resulted in a headcount reduction totaling approximately 580
employees; 340 employees effective April 21, 2003, and 240 employees
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 related to employee severance and benefits and other plant exit
costs, and $8.9 million related to fixed asset impairment charges,
primarily for real property and machinery and equipment associated with
the closed facilities. Substantially all of related payments associated
with these plant closure costs will be made by the end of the first
quarter of fiscal 2004.

In the fourth quarter of fiscal 2002, the Company announced a plan that
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 a headcount reduction totaling approximately 220 employees;
150 employees effective June 29, 2002, and 70 employees throughout 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 related to employee severance and benefits
and other plant exit costs, and $3.1 million related to fixed asset
impairment charges, primarily for real property and machinery and
equipment associated with 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 a plan that
involved the closure of three of its manufacturing facilities and a
headcount reduction totaling approximately 350 employees effective August
6, 2001. A pre-tax restructuring and impairment charge of $6.9 million was
recorded for costs associated with these plant closings, of which $3.3
million related to employee severance and benefits and other plant exit
costs, and $3.6 million related to fixed asset impairment charges,
primarily for real property and machinery and equipment associated with
the closed facilities.

(2) Amounts have been retroactively adjusted to reflect the three-for-two
stock split on May 21, 1999.

(3) As a result of the Company's adoption of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, amortization of
goodwill and intangible assets ceased on July 1, 2001. The amount of
amortization related to these assets in 2001, 2000 and 1999 was $1.8
million, $1.8 million and $1.7 million, respectively.



15


Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
-----------------------------------------------------------

The following discussion of results of operations and financial condition
is based upon, and should be read in conjunction with, the Consolidated
Financial Statements of the Company and notes thereto included under Item 8 of
this Report.

Forward-Looking Statements

Management's discussion and analysis of financial condition and results of
operations and other sections of this annual 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, risks and uncertainties, including, but not limited to, changes in
political and economic conditions, demand for the Company's products, acceptance
of new products, 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 requires 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. The impairment test uses a discounted cash flow model to
estimate the fair value of a



16


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.

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.

Basis of Presentation

Ethan Allen Interiors Inc. has no material assets other than its ownership
of the capital stock of Ethan Allen Inc. and conducts all significant
transactions through Ethan Allen Inc.; therefore, substantially all of the
financial information presented herein is that of Ethan Allen Inc.



17


Results of Operations

Ethan Allen's revenues are comprised of (i) wholesale sales to
independently-owned and Company-owned retail stores and (ii) retail sales of
Company-owned stores. See Note 17 to the Company's Consolidated Financial
Statements for the year ended June 30, 2003. The components of consolidated
revenues and operating income are as follows (in millions):

Fiscal Year Ended June 30,
--------------------------------
2003 2002 2001
---- ---- ----
Revenue:
--------
Wholesale segment $ 661.0 $ 660.8 $ 705.6
Retail segment 526.4 459.6 419.3
Elimination of inter-segment sales (280.1) (228.1) (220.8)
------ ------ ------
Consolidated Revenue $ 907.3 $ 892.3 $ 904.1
====== ====== ======

Operating Income:
-----------------
Wholesale segment (1) $ 109.3 $ 110.1 $ 100.5
Retail segment 14.6 23.1 23.1
Eliminations (3.3) (3.3) 2.4
------ ------ ------
Consolidated Operating Income $ 120.6 $ 129.9 $ 126.0
====== ====== ======

(1) The Wholesale segment includes pre-tax restructuring and impairment
charges of $13.2 million, $5.1 million and $6.9 million in fiscal
years 2003, 2002 and 2001, respectively.

Fiscal 2003 Compared to Fiscal 2002

Consolidated revenue for fiscal 2003 was $907.3 million, an increase of
$15.0 million, or 1.7%, from fiscal 2002 consolidated revenue of $892.3 million.
The increase was due, primarily, to the continued expansion and strategic
re-positioning of the Company's retail segment, partially offset by softer
business conditions during the past twelve months caused by a sluggish economy
and the unsettled geo-political environment. As a result of these factors,
consumer confidence deteriorated and the incoming order rate was adversely
impacted.

Total wholesale revenue for fiscal 2003 was $661.0 million as compared to
$660.8 million in fiscal 2002, representing a $0.2 million increase. The
wholesale segment experienced only marginal growth as a result of the challenges
posed by the state of the U.S. economy during the past year and the
geo-political concerns leading up to, during, and in the aftermath of, the war
with Iraq. Both of these factors served to adversely affect consumer confidence
and related spending habits. To a lesser extent, wholesale sales volume was also
negatively impacted by one fewer production week in the current fiscal year as
compared to the prior year.

Total retail revenue from Ethan Allen-owned stores for fiscal 2003
increased $66.8 million, or 14.5%, to $526.4 million from $459.6 million in the
prior year. This increase in retail delivered sales by Ethan Allen-owned stores
was attributable to an increase in sales generated by newly-opened or acquired
stores of $95.6 million, partially offset by a decrease in comparable store
delivered sales of $15.4 million, or 3.5%, and a decrease resulting from closed
stores, which generated $13.4 million fewer sales in fiscal 2003 as compared to
fiscal 2002. The number of Ethan Allen-owned stores increased to 119 as of June
30, 2003 as compared to 103 as of June 30, 2002. During the last twelve months,
the Company acquired 16 stores from independent dealers, opened 3 new stores,
and closed 3 stores.

Comparable stores represent newly-opened Company-owned stores that 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 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, increased 1.0% from the prior year,
reflecting the further expansion and strategic re-positioning of the Company's
retail segment, partially offset by softer business conditions caused by the
economic and geo-



18


political climate during the period. Year-over-year, wholesale orders decreased
3.3% while Ethan Allen-owned store orders increased 15.4%. Comparable store
written business decreased 3.1% over that same period.

Gross profit for fiscal 2003 increased $28.1 million, or 6.7%, to $449.4
million from $421.3 million in fiscal 2002. The increase in gross profit was
primarily attributable to (i) a higher percentage of retail sales to total sales
(58% in fiscal 2003 compared to 52% in fiscal 2002) and (ii) lower costs
associated with sales returns and allowances and certain raw materials. Gross
profit for the year was also positively impacted, to a lesser extent, by higher
margins attributable to the off-shore sourcing of selected product lines. These
favorable variances were partially offset by increased costs associated with
excess capacity at our manufacturing facilities and lower wholesale sales
volume. Consolidated gross margin increased to 49.5% for the year ended June 30,
2003 from 47.2% in the prior year. Overall, the gross margin was positively
impacted as a result of the factors identified previously.

The Company recorded pre-tax restructuring and impairment charges of $13.4
million and $5.1 million in the third quarter of fiscal 2003 and the fourth
quarter of fiscal 2002, respectively, relating to the consolidation of certain
manufacturing facilities. The fiscal 2003 consolidation plan involved the
closure of three smaller manufacturing facilities. Closure of these facilities
resulted in a headcount reduction totaling approximately 580 employees; 340
employees effective April 21, 2003, and 240 employees throughout the last
quarter of fiscal 2003 and the first quarter of fiscal 2004. The fiscal 2002
consolidation plan involved the closure of one manufacturing facility as well as
the rough mill operation of a separate facility. Closure of these facilities
resulted in a headcount reduction totaling approximately 220 employees; 150
employees effective June 29, 2002, and 70 employees throughout the first quarter
of fiscal 2003. The closing costs recorded in both periods relate to employee
severance and benefits, the write-down of long-lived assets such as real estate
and machinery and equipment, and other plant exit costs. Adjustments totaling
$0.2 million were recorded during the year to reverse certain other
restructuring accruals established in connection with the fiscal 2002
consolidation plan which are no longer required.

Including restructuring and impairment charges of $13.2 million and $5.1
million in fiscal 2003 and 2002, respectively, operating expenses increased to
$328.8 million, or 36.2% of net sales, for the year ended June 30, 2003 from
$291.4 million, or 32.7% of net sales, for the year ended June 30, 2002. This
increase is primarily attributable to further expansion of the retail segment
and the higher percentage of retail sales to total sales experienced in 2003.
The addition of 16 net new Company-owned stores since June 2002 has resulted in
higher costs associated with design consultant salaries, occupancy, delivery and
warehousing, administrative salaries and advertising. To a lesser extent,
operating expenses also increased as a result of the aforementioned
restructuring and impairment charges. These increases were partially offset by
lower selling, general and administrative costs within the wholesale segment as
a result of a continued Company-wide focus on cost containment and lower
wholesale sales volume.

Including restructuring and impairment charges of $13.2 million and $5.1
million in fiscal 2003 and 2002, respectively, operating income was $120.6
million, or 13.3% of net sales, for the year ended June 30, 2003 compared to
$129.9 million, or 14.6% of net sales, for the year ended June 30, 2002. This
represents a decrease of $9.3 million, or 7.2%, which is primarily attributable
to increased operating expenses resulting from the continued expansion of the
retail segment and the aforementioned restructuring and impairment charges,
partially offset by a higher gross margin and lower selling, general and
administrative expenses at the wholesale level.

Including restructuring and impairment charges of $13.2 million and $5.1
million in fiscal 2003 and 2002, respectively, total wholesale operating income
was $109.3 million, or 16.5% of wholesale net sales, for the year ended June 30,
2003 compared to $110.1 million, or 16.7% of wholesale net sales, for the year
ended June 30, 2002. The decrease of $0.8 million, or 0.7%, is primarily
attributable to the



19


aforementioned restructuring and impairment charges, increased costs associated
with excess capacity at our manufacturing facilities and a decline in wholesale
sales volume, partially offset by a decrease in selling, general and
administrative expenses and lower costs associated with sales returns and
allowances and certain raw materials.

Operating income for the retail segment decreased $8.5 million, or 37%, to
$14.6 million, or 2.8% of net retail sales, for fiscal 2003, as compared to
$23.1 million, or 5.0% of net retail sales, in the prior fiscal year. The
decrease in retail operating income generated by Ethan Allen-owned stores is
primarily attributable to higher operating expenses related to the addition of
16 net new stores since June 2002, a 3.5% decline in comparable store sales, and
reduced sales volume resulting from closed stores, partially offset by increased
sales volume associated with new stores.

Interest and other miscellaneous income decreased $1.7 million to $1.3
million in fiscal 2003 from $3.0 million in fiscal 2002. The decrease is due,
primarily, to (i) the Company's share of current year losses incurred in
connection with its United Kingdom joint venture with MFI Furniture Group Plc.,
(ii) higher gains recorded 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 totaled $45.8 million for the year ended June 30, 2003
as compared to $50.0 million for the year ended June 30, 2002. The Company's
effective tax rate was 37.8% in both periods.

For fiscal 2003, the Company recorded net income of $75.4 million, a
decrease of 8.4%, as compared to $82.3 million in fiscal 2002. Earnings per
diluted share for fiscal year 2003 amounted to $1.95, a decrease of $0.11 per
diluted share, or 5.3%, from $2.06 per diluted share in the prior year.

Fiscal 2002 Compared to Fiscal 2001

Consolidated revenue for fiscal 2002 was $892.3 million, a decrease of
$11.8 million, or 1.3%, from fiscal 2001 consolidated revenue of $904.1 million.
The decrease in revenues was the result of a general decline in consumer
spending throughout most of the year, partially offset by a selective price
increase effective April 2001 and the continued expansion of the retail segment.

Total wholesale revenue for fiscal year 2002 was $660.8 million as
compared to $705.6 million in fiscal 2001. This represents a decrease of $44.8
million, or 6.4%, from fiscal 2001. The decrease in wholesale revenue was due,
primarily, to softening demand as a result of a general decline in consumer
spending during the last twelve months and, to a lesser extent, one less
production day in the current fiscal year as compared to the prior year.

Total retail revenue from Ethan Allen-owned stores for fiscal 2002
increased by $40.3 million, or 9.6%, to $459.6 million from $419.3 million in
the prior year. The increase in retail delivered sales by Ethan Allen-owned
stores was comprised of a $9.5 million, or 2.4%, decrease in comparable store
sales, an increase in sales generated by newly-opened or acquired stores of
$57.6 million, and a decrease resulting from sold and closed stores, which
generated $7.8 million fewer sales in fiscal 2002 compared to fiscal 2001. The
number of Ethan Allen-owned stores increased to 103 as of June 30, 2002 as
compared to 84 as of June 30, 2001. During the last twelve months, the Company
acquired 20 stores from independent dealers, sold 1 to an independent dealer,
opened 1 new store, and closed 1 store. Of the stores acquired during fiscal
2002, 6 stores were purchased from Mr. Edward Teplitz, who subsequently joined
the Company as Vice President of Finance (see Part II, Item 5 of the Form 10-Q
filed on November 15, 2001). In August 2002, Mr. Teplitz was named Chief
Financial Officer of the Company. He currently serves as Vice President and
General Manager of the Company's Retail division, a role he assumed in May 2003.



20


Total booked orders, which include wholesale orders and written business
of Ethan Allen-owned retail stores, increased 2.0% from the prior year,
reflecting further expansion of the Company's retail segment, offset by
softening wholesale demand and a general decline in consumer spending.
Year-over-year, wholesale orders decreased 1.0% while Ethan Allen-owned store
orders increased 13.6%. Comparable store written business remained flat,
increasing by only 0.2%, over that same period.

Gross profit for fiscal 2002 increased $7.6 million, or 1.8%, to $421.3
million from $413.7 million in fiscal 2001. The increase in gross profit was
primarily attributable to (i) a higher percentage of retail sales to total sales
(52% in fiscal 2002 compared to 46% in fiscal 2001), (ii) lower manufacturing
costs resulting from favorable pricing of raw materials, (iii) efficiencies
gained as a result of plant shutdowns undertaken in fiscal 2001 and (iv) the
impact of a selective price increase effective April 2001. These factors were
partially offset by lower wholesale sales volume. Consolidated gross margin
increased to 47.2% for the year ended June 30, 2002 from 45.8% in the prior
year. Overall, the gross margin was positively impacted as a result of the
factors identified previously, offset partially by sales volume associated with
products sold at lower margins.

The Company recorded pre-tax restructuring and impairment charges of $5.1
million and $6.9 million in the fourth quarter of fiscal 2002 and 2001,
respectively, relating to the consolidation of certain manufacturing facilities.
The fiscal 2002 consolidation plan involved the closure of one manufacturing
facility as well as the rough mill operation of a separate facility. Closure of
these facilities resulted in a headcount reduction totaling approximately 220
employees; 150 employees effective June 29, 2002, and 70 employees throughout
the first quarter of fiscal 2003. In fiscal 2001, the Company announced the
closure of three of its manufacturing facilities and a headcount reduction
totaling approximately 350 employees effective August 6, 2001. The closing costs
recorded in both periods relate to employee severance and benefits, the
write-down of long-lived assets such as real estate and machinery and equipment,
and other plant exit costs.

Including restructuring and impairment charges of $5.1 million and $6.9
million in fiscal 2002 and 2001, respectively, operating expenses increased to
$291.4 million, or 32.7% of net sales, for the year ended June 30, 2002 from
$287.6 million, or 31.8% of net sales, for the year ended June 30, 2001. This
increase is primarily attributable to further expansion of the retail segment
and the higher percentage of retail sales to total sales experienced in 2002.
The addition of 19 net new Company-owned stores since June 2001 has resulted in
higher costs associated with delivery and warehousing, occupancy, advertising,
health care and design consultant salaries. These increases were partially
offset by a decrease in distribution costs resulting from a decline in the
volume of wholesale shipments.

Including restructuring and impairment charges of $5.1 million and $6.9
million in fiscal 2002 and 2001, respectively, operating income was $129.9
million, or 14.6% of net sales, for the year ended June 30, 2002 compared to
$126.0 million, or 13.9% of net sales, for the year ended June 30, 2001. This
represents an increase of $3.9 million, or 3.1%, which is primarily attributable
to the higher gross margin noted above, partially offset by increased operating
expenses resulting from the continued expansion of the retail segment.

Including restructuring and impairment charges of $5.1 million and $6.9
million in fiscal 2002 and 2001, respectively, total wholesale operating income
was $110.1 million, or 16.7% of wholesale net sales, for the year ended June 30,
2002 compared to $100.5 million, or 14.2% of wholesale net sales, for the year
ended June 30, 2001. Wholesale operating income increased $9.6 million, or 9.6%,
in fiscal year 2002 due, primarily, to (i) lower manufacturing costs resulting
from favorable pricing of raw materials, (ii) efficiencies gained from plant
shutdowns undertaken in fiscal 2001 and (iii) the impact of a selective price
increase effective April 2001, partially offset by lower wholesale sales volume
and one less production day in the current fiscal year as compared to the prior
year.



21


Operating income for the retail segment remained relatively unchanged at
$23.1 million, representing 5.0% and 5.5% of net retail sales in fiscal years
2002 and 2001, respectively. The level of retail operating income generated by
Company-owned stores is primarily attributable to higher operating expenses
related to the addition of 19 net new stores, a 2.4% decline in comparable store
sales, and reduced sales volume resulting from closed stores, offset by
increased sales volume associated with new stores.

Interest and other miscellaneous income of $3.0 million in fiscal 2002
increased $0.2 million from $2.8 million in fiscal 2001 due, primarily, to an
increase in interest income associated with the Company's investment portfolio.

Interest expense, including the amortization of deferred financing costs,
decreased $0.2 million to $0.6 million in fiscal 2002 compared to $0.8 million
in fiscal 2001 due to a decline in the Company's outstanding borrowings.

Income tax expense totaled $50.0 million for the year ended June 30, 2002
as compared to $48.4 million for the year ended June 30, 2001. The Company's
effective tax rate was 37.8% in both periods.

For fiscal 2002, the Company recorded net income of $82.3 million, an
increase of 3.3%, compared to $79.7 million in fiscal 2001. Earnings per diluted
share for fiscal 2002 amounted to $2.06, an increase of $0.08 per diluted share,
or 4.0%, from $1.98 per diluted share in the prior year.

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 activities totaled $100.5 million for fiscal 2003 as compared to
$125.3 million in fiscal 2002 and $87.6 million in fiscal 2001. The current
year-over-year decrease of $24.8 million in net cash provided by operating
activities was principally the result of (i) inventory levels which, net of
inventories totaling $10.1 million acquired in the purchase of retail stores,
increased $14.0 million during the year, representing a $30.6 million variance
from the decrease in inventory noted in the prior year, (ii) an increase in
prepaid expenses and other current assets ($7.3 million), and (iii) a decrease
in net income ($6.9 million). These unfavorable variances were partially offset
by (i) an increase in cash collected on outstanding accounts receivable ($8.3
million), (ii) increased restructuring and impairment charges ($6.3 million),
and (iii) increase in the Company's net deferred tax liability ($4.6 million).

The increase in inventory levels since June 2002 is the result of several
factors, including (i) increased stock position in off-shore sourced product
lines, including build-up associated with the introduction of both the Tuscany
collection in Spring 2003 and the Ethan Allen Kids collection in early Summer
2003, (ii) an increase in the number of Company-owned retail stores, and (iii)
overall softer business conditions experienced during the period.

During fiscal 2003, capital spending, exclusive of acquisitions, totaled
$27.2 million as compared to $31.1 million and $38.5 million in fiscal 2002 and
2001, respectively. The current level of capital spending is principally
attributable to (i) new store development and renovation (ii) manufacturing
expansion within certain facilities, and (iii) technology improvements. Capital
expenditures in fiscal 2004, exclusive of acquisitions, are anticipated to be
approximately $45.0 million. In addition, the Company expects to incur
expenditures for retail and other acquisitions totaling $5.0 million during the
year. The Company anticipates that cash from operations will be sufficient to
fund such capital expenditures and acquisitions.

Net cash used in financing activities totaled $61.1 million in fiscal
2003 as compared to $29.3 million in fiscal 2002 and $15.0 million in fiscal
2001. The current year-over-year increase of $31.8 million in net cash used in
financing activities was the result of an increase in payments to acquire
treasury stock ($26.0 million), the repayment of debt ($3.4 million), and an
increase in dividends



22


paid ($2.9 million). Total debt outstanding at June 30, 2003 was $10.2 million.
At June 30, 2003 there were no revolving loans outstanding and $19.4 million of
trade and standby letters of credit outstanding under the credit facility. The
Company had $105.6 million available under its revolving credit facility at June
30, 2003.

In June 2002, Standard & Poor's ("S&P") raised its corporate and senior
unsecured credit ratings on Ethan Allen to "A-" from "BBB+". S&P citied the
Company's solid business position and operating performance, both stemming from
a well-known brand name, the effectiveness of its distribution through the Ethan
Allen retail store network, a strong product portfolio, efficient manufacturing
and low-cost position, as the primary factors considered in arriving at the
rating change.

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 fiscal years 2003, 2002 and 2001 the
Company repurchased and/or retired the following shares of its common stock:

2003(1) 2002(1) 2001(2)
------- ------- -------
Common shares repurchased 1,457,000 1,059,226 61,006
Cost to repurchase common shares $43,503,500 $31,865,423 $1,069,587
Average price per share $29.86 $30.08 $17.53

(1) The cost to repurchase shares in fiscal years 2003 and 2002 reflects
$7,197,165 in common stock repurchases with a June 2002 trade date and a
July 2002 settlement date.

(2) Includes the repurchase of 28,000 shares at $.01 per share previously
issued under the Company's Restricted Stock Award Plan. Excluding the
effect of these repurchases, the average price per share was $32.40.

The Company funded its purchases through cash from operations and, in
2001, through revolver loan borrowings under its existing credit facility. As of
June 30, 2003, the Company had a remaining Board authorization to purchase 1.3
million shares.

As of June 30, 2003, aggregate scheduled maturities of long-term debt,
including capital lease obligations, for each of the next five fiscal years are
$1.0 million, $4.7 million, $0.2 million, $0.1 million and $0.1 million,
respectively. 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. As
of June 30, 2003, the Company had working capital of $225.8 million and a
current ratio of 2.68 to 1.

The following table summarizes the timing of cash payments related to the
Company's outstanding contractual obligations (in thousands):

Less More
than 1 1-3 4-5 than 5
Total Year Years Years Years
--------- -------- -------- -------- -------
Long-term debt obligations $ 9,998 $ 844 $ 4,883 $ 78 $ 4,193
Capital lease obligations 220 152 68 - -
Operating lease obligations 151,726 23,680 41,694 33,893 52,459
Purchase obligations (1) - - - - -
Other long-term liabilities
reflected on balance sheet - - - - -
--------- -------- -------- -------- -------
Total contractual obligations $161,944 $24,676 $46,645 $33,971 $56,652
========= ======== ======== ======== =======

(1) The Company is not a party to any significant long-term supply contracts
with respect to lumber, fabric or other raw materials used in production.
Further, the Company refrains from entering into long-term purchase
commitments with vendors utilized in the ordinary course of business.



23


Further discussion of the Company's contractual obligations associated
with long-term debt and leases can be found in Note 7 and Note 8, respectively,
to the Consolidated Financial Statements.

Off-Balance Sheet Arrangements and Other Commitments, Contingencies and
Contractual Obligations

Except as indicated below, the Company does not utilize or employ any
off-balance sheet arrangements in operating its business. As such, the Company
does not maintain any (i) retained or contingent interests, (ii) derivative
instruments, or (iii) variable interests which could serve as a source of
potential risk to its future liquidity, capital resources and results of
operations.

The Company, or its wholly-owned subsidiaries, may, from time to time in
the ordinary course of business, 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 June 30, 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 fifteen 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 June 30, 2003, the amount of remaining contractual
lease payments guaranteed by the Company was approximately $0.4 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 June 30, 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 June 30,
2003, the amount outstanding under the Credit Facility totaled approximately
$0.8 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



24


requiring funding by the Company. Accordingly, as of June 30, 2003, the carrying
amount of the liability related to such obligation is zero.

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 June 30, 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 June 30, 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, based on historical experience and the present condition of
its fleet, expects these guarantees will expire without requiring funding by the
Company. Accordingly, as of June 30, 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



25


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
warranty and other related claims could arise from disputes or other matters
beyond the scope of the Company's historical experience. As of June 30, 2003,
the Company's product warranty liability totaled $0.8 million and, for the
twelve-month period then ended, no settlements (in cash or in-kind) had been
made.

Impact of Inflation

The Company does not believe that inflation has had a material impact on
its profitability during the last three fiscal years. In the past, the Company
has generally been able to increase prices to offset increases in operating
costs and effectively manage its working capital.

Income Taxes

At June 30, 2003, the Company has approximately $6.9 million of net
operating loss carryovers ("NOLs") for federal income tax purposes. The
Recapitalization in 1993 triggered an "ownership change" of the Company, as
defined in Section 382 of the Internal Revenue Code of 1986, as amended,
resulting in an annual limitation on the utilization of the NOLs by the Company
of approximately $3.9 million.

Recent Accounting Pronouncements

In April 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. This standard amends certain financial accounting and reporting
requirements for derivative instruments and hedging activities as prescribed in
SFAS No. 133 and other accounting pronouncements. The adoption of FASB No. 149,
effective July 1, 2003, did not have a material effect on the Company's
consolidated financial statements.

SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, was issued by the FASB in May
2003 and establishes standards on how certain financial instruments with
characteristics of both liabilities and equity are classified and measured. This
standard was adopted by the Company on July 1, 2003. Management does not expect
that the adoption of SFAS No. 150 will have a significant impact on the
Company's consolidated financial statements.

In November 2002, the Emerging Issues Task Force ("EITF") of the FASB
reached a consensus on Issue No. 02-16, "Accounting for Consideration Received
from a Vendor by a Customer", to provide guidance as to how customers should
account for cash consideration received from a vendor. EITF 02-16 presumes that
cash received from a vendor represents a reduction of the prices of the vendor's
products or services, unless the cash received represents a payment for assets
or services provided to the vendor or a reimbursement of costs incurred by the
customer to sell the vendor's products. The provisions of EITF 02-16 apply to
all agreements entered into or modified after December 31, 2002. The provisions
of EITF 02-16 did not have a material impact on the Company's consolidated
financial statements during the six months ended June 30, 2003 and, at this
time, the Company does not believe the adoption of EITF 02-16 will have a
material effect on its future financial position, results of operations or cash
flow.

In May 2003, the EITF reached a consensus on Issue No. 01-08, "Determining
Whether an Arrangement Contains a Lease", to clarify the requirements on
identifying whether an arrangement should be accounted for as a lease at its
inception. The guidance in the consensus is designed to mandate reporting
revenue as rental or leasing income that otherwise would be reported as part of
product sales or service revenue. EITF 01-08 requires both parties to an
arrangement to determine whether a service contract or similar arrangement is,
or includes, a lease within the scope of SFAS No. 13, Accounting for Leases. The
consensus is to be applied prospectively to



26


arrangements agreed to, modified, or acquired in business combinations in fiscal
periods beginning after May 28, 2003 (July 1, 2003 in the case of the Company).
Accordingly, the impact of EITF 01-08 on the Company's results of operations and
financial position is dependent upon the terms contained in contracts entered
into after such date. At this time, the Company does not believe the adoption of
EITF 01-08 will have a material effect on its financial position, results of
operations or cash flow.


Item 7A. Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------

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 rollover 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. At June 30, 2003, the Company had $1.0 million of short-term debt
outstanding and $9.2 million of total long-term debt outstanding.

The Company has one debt instrument outstanding with a variable interest
rate. This debt instrument has a principal balance of $4.6 million and matures
in 2004. Based on the principal outstanding in 2003, a one-percentage point
increase in the variable interest rate would not have had a significant impact
on the Company's 2003 interest expense.

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



27


Item 8. Financial Statements and Supplementary Data
-------------------------------------------

The Company's Consolidated Financial Statements and Supplementary Data are
listed under Part IV, Item 15, of this Report.


INDEPENDENT AUDITORS' REPORT
----------------------------


The Board of Directors and Shareholders
Ethan Allen Interiors Inc.:


We have audited the accompanying consolidated balance sheets of Ethan Allen
Interiors Inc. and Subsidiary (the "Company") as of June 30, 2003 and 2002, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended June 30, 2003.
In connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule listed in the index under Item 15.
The consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ethan Allen
Interiors Inc. and Subsidiary as of June 30, 2003 and 2002, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 2003, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.



/s/ KPMG LLP
Stamford, Connecticut
July 31, 2003



28


ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 2003 and 2002
(In thousands, except share data)

2003 2002
--------- ---------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 81,856 $ 75,688
Accounts receivable, less allowance for
doubtful accounts of $1,490 at June 30,
2003 and $2,019 at June 30, 2002 26,439 32,845
Inventories, net (note 4) 198,212 174,147
Prepaid expenses and other current assets 30,779 20,576
Deferred income taxes (note 12) 22,976 17,345
-------- --------
Total current assets 360,262 320,601

Property, plant and equipment, net (note 5) 289,423 293,626
Intangible assets, net (notes 3 and 6) 78,939 69,708
Other assets 2,944 4,820
-------- --------
Total assets $ 731,568 $ 688,755
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term debt and
capital lease obligations (notes 7 and 8) $ 996 $ 107
Customer deposits 55,939 42,966
Accounts payable 25,375 38,027
Accrued compensation and benefits 29,308 30,190
Accrued expenses and other current liabilities 22,808 17,838
-------- --------
Total current liabilities 134,426 129,128

Long-term debt (note 7) 9,222 9,214
Other long-term liabilities 2,682 2,066
Deferred income taxes (note 12) 47,539 37,158
-------- --------
Total liabilities 193,869 177,566

Shareholders' equity (notes 9, 10 and 11):
Class A common stock, par value $.01, 150,000,000
shares authorized, 45,449,086 shares issued at
June 30, 2003 and 45,252,880 shares issued at
June 30, 2002 454 453
Preferred stock, par value $.01, 1,055,000 shares
authorized, no shares issued and outstanding at
June 30, 2003 and 2002 - -
Additional paid-in capital 281,140 277,694
-------- --------
281,594 278,147
Less:

Treasury stock (at cost), 8,251,510 shares at
June 30, 2003 and 6,794,510 shares at June 30,
2002 (204,931) (161,428)

Retained earnings 460,456 394,470
Accumulated other comprehensive income 580 -
-------- --------
Total shareholders' equity 537,699 511,189
-------- --------
Total liabilities and shareholders' equity $ 731,568 $ 688,755
======== ========

See accompanying notes to consolidated financial statements.


29



ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the years ended June 30, 2003, 2002 and 2001
(In thousands, except per share data)



2003 2002 2001
-------- -------- --------

Net sales $907,264 $892,288 $904,133
Cost of sales 457,880 470,975 490,477
------- ------- -------
Gross profit 449,384 421,313 413,656

Operating expenses:
Selling 178,608 163,122 160,394
General and administrative 136,970 123,168 120,309
Restructuring and impairment charge (note 2) 13,223 5,123 6,906
------- ------- -------
Total operating expenses 328,801 291,413 287,609
------- ------- -------

Operating income 120,583 129,900 126,047

Interest and other miscellaneous
income, net 1,254 2,984 2,814

Interest and other related financing
costs 645 640 758
------- ------- -------
Income before income taxes 121,192 132,244 128,103

Income tax expense (note 12) 45,811 49,988 48,423
------- ------- -------

Net income $ 75,381 $ 82,256 $ 79,680
======= ======= =======

Per share data (notes 9 and 10):
- --------------------------------

Net income per basic share $ 2.00 $ 2.12 $ 2.02
======= ======= =======

Basic weighted average common shares 37,607 38,828 39,390

Net income per diluted share $ 1.95 $ 2.06 $ 1.98
======= ======= =======

Diluted weighted average common shares 38,569 39,942 40,321


Dividends declared per common share $ 0.25 $ 0.18 $ 0.16
======= ======= =======



See accompanying notes to consolidated financial statements.


30


ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the years ended June 30, 2003, 2002 and 2001
(In thousands)



2003 2002 2001
-------- -------- --------

Operating activities:
Net income $ 75,381 $ 82,256 $ 79,680
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 21,296 19,314 20,220
Restructuring and impairment charge 10,400 4,134 6,356
Compensation expense (benefit) related to
restricted stock award (335) 140 552
Provision (benefit) for deferred income
taxes 4,750 189 (3,339)
Other non-cash expense (income) 308 (1,103) (2,289)

Change in assets and liabilities, net of the
effects of acquired and divested businesses:
Accounts receivable 5,891 (2,390) 1,334
Inventories (13,970) 16,641 (18,964)
Prepaid and other current assets (7,771) (481) (1,665)
Other assets 238 2,246 (1,528)
Customer deposits 8,066 7,176 (6,732)
Income taxes and accounts payable (6,130) (4,074) 5,760
Accrued expenses 2,266 1,921 7,083
Other liabilities 90 (646) 1,119
------- ------- ------
Net cash provided by operating activities 100,480 125,323 87,587
------- ------- ------

Investing activities:
Proceeds from the disposal of property,
plant and equipment 5,040 4,873 9,214
Capital expenditures (27,207) (31,078) (38,516)
Acquisitions (11,332) (42,403) (9,722)
Other 262 143 532
------- ------- -------
Net cash used in investing activities (33,237) (68,465) (38,492)
------- ------- -------
Financing activities:
Borrowings on revolving credit facility - - 1,500
Payments on revolving credit facility - - (9,500)
Other payments on long-term debt and
capital leases (3,528) (166) (420)
Payments to acquire treasury stock (50,700) (24,668) (1,069)
Net proceeds from issuance of common stock 2,219 1,753 759
Dividends paid (9,066) (6,201) (6,277)
------- ------- -------
Net cash used in financing activities (61,075) (29,282) (15,007)
------- ------- -------
Net increase in cash and cash equivalents 6,168 27,576 34,088

Cash and cash equivalents - beginning of year 75,688 48,112 14,024
------- ------- -------
Cash and cash equivalents - end of year $ 81,856 $ 75,688 $ 48,112
======= ======= =======

Supplemental disclosure:

Cash payments for:

Income taxes $ 44,596 $ 44,815 $ 50,365
Interest 508 522 618



See accompanying notes to consolidated financial statements.



31


ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
For the years ended June 30, 2003, 2002 and 2001
(In thousands, except share data)



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

Balance at June 30, 2000 $ 451 $272,710 $(128,493) $ - $245,841 $390,509

Issuance of 56,662 shares of common
stock upon the exercise of stock
options and restricted stock
award compensation (notes 9 and 11) - 1,311 - - - 1,311

Purchase of 61,006 shares of
treasury stock (note 9) - - (1,069) - - (1,069)

Tax benefit associated with exercise
of employee stock options and
warrants - 624 - - - 624

Dividends declared on common stock - - - - (6,272) (6,272)

Net income - - - - 79,680 76,680
---- ------- -------- ----- ------- -------
Balance at June 30, 2001 451 274,645 (129,562) - 319,249 464,783

Issuance of 114,834 shares of common
stock upon the exercise of stock
options and restricted stock
award compensation (notes 9 and 11) 2 1,891 - - - 1,893

Purchase of 1,059,226 shares of
treasury stock (note 9) - - (31,866) - - (31,866)

Tax benefit associated with exercise
of employee stock options and
warrants - 1,021 - - - 1,021

Dividends declared on common stock - - - - (7,035) (7,035)

Charge for early vesting of stock
options - 137 - - - 137

Net income - - - - 82,256 82,256
---- ------- ------- ----- ------- -------
Balance at June 30, 2002 453 277,694 (161,428) - 394,470 511,189

Issuance of 196,206 shares of common
stock upon the exercise of stock
options and restricted stock
award compensation (notes 9 and 11) 1 1,883 - - - 1,884

Purchase of 1,457,000 shares of
treasury stock (note 9) - - (43,503) - - (43,503)

Tax benefit associated with exercise
of employee stock options and
warrants - 1,536 - - - 1,536

Dividends declared on common stock - - - - (9,395) (9,395)

Charge for early vesting of stock
options - 27 - - - 27

Other comprehensive income - - - 580 - 580

Net income - - - - 75,381 75,381
-------
Total comprehensive income 75,961
---- ------- -------- ----- ------- -------
Balance at June 30, 2003 $ 454 $281,140 $(204,931) $ 580 $460,456 $537,699
==== ======= ======== ===== ======= =======



See accompanying notes to consolidated financial statements




32


(1) Summary of Significant Accounting Policies

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, its wholly-owned subsidiary Ethan
Allen Inc. ("Ethan Allen") and Ethan Allen's subsidiaries. All
intercompany accounts and transactions have been eliminated in the
consolidated financial statements. 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.

Nature of Operations
--------------------

The Company, through its wholly-owned subsidiary, is a leading
manufacturer and retailer of quality home furnishings and accessories,
selling a full range of products through an exclusive network of 309
retail stores, of which 119 are Ethan Allen-owned and 190 are
independently-owned. Nearly all of the Company's retail stores are located
in the United States, with the remaining stores located in Canada. The
majority of the independently-owned stores are also located in the United
States, with the remaining stores located throughout Asia, the Middle
East, Canada, Mexico, Europe and the West Indies. Ethan Allen has 14
manufacturing facilities including 3 sawmill operations, located
throughout the United States.

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Reclassifications
-----------------

Certain reclassifications have been made to prior years' financial
statements in order to conform to the current year's presentation. These
changes did not have a material impact on previously reported results of
operations or shareholders' equity.

Cash Equivalents
----------------

The Company considers all highly liquid cash investments with original
maturities of three months or less to be cash equivalents.

Inventories
-----------

Inventories are stated at the lower of cost (first-in, first-out) 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).

Property, Plant and Equipment
-----------------------------

Property, plant and equipment are stated at cost, net of accumulated
depreciation. Depreciation of plant and equipment is provided over the
estimated useful lives of the respective assets on a straight-line basis.
Estimated useful lives of the respective assets typically range from
twenty to forty years for buildings and improvements and from three to
twenty years for machinery and equipment. Leasehold improvements are
depreciated based on the underlying lease term, or the asset's estimated
useful life, whichever is shorter.


33


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.

Intangible Assets
-----------------

The Company's intangible assets are comprised, primarily, of goodwill,
which represents the excess of cost over the fair value of net assets
acquired, product technology, and trademarks. On July 1, 2001, the Company
adopted the provisions of SFAS No. 142, Goodwill and Other Intangible
Assets. In re-assessing the useful lives of its goodwill and other
intangible assets upon adoption of the standard, the Company determined
these assets to have indefinite useful lives. Accordingly, amortization of
these assets ceased on that date. Prior to July 1, 2001, these assets were
amortized on a straight-line basis over forty years.

Statement 142 requires that the Company annually perform an impairment
analysis to assess the recoverability of the recorded balance of goodwill
and other intangible assets. The Company conducts its required annual
impairment test during the fourth quarter of each fiscal year. The
provisions of the Statement indicate that the impairment test should be
conducted more frequently if events occur or circumstances change that
would more likely than not reduce the fair value of a reporting unit (as
defined) below its carrying value. In addition, the Company performed an
initial impairment analysis upon adoption of the standard. No impairment
losses have been recorded on the Company's intangible assets as a result
of the adoption of Statement 142.

Financial Instruments
---------------------

The carrying value of the Company's financial instruments approximates
fair value.

Income Taxes
------------

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.

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.



34


Shipping and Handling Costs
---------------------------

Ethan Allen's policy is to sell its products at the same delivered cost to
all retailers nationwide, regardless of their shipping point. Costs
incurred to deliver finished goods to the consumer are expensed and
recorded in selling, general and administrative expenses. Shipping and
handling costs were $67.6 million, $60.4 million, and $59.8 million for
fiscal years 2003, 2002, and 2001, respectively.

Advertising Costs
-----------------

Advertising costs are expensed when first aired or distributed.
Advertising costs for the fiscal years 2003, 2002 and 2001, were $42.8
million, $44.2 million, and $45.9 million, respectively. Prepaid
advertising costs at June 30, 2003 and 2002 were $5.4 million and $4.2
million, respectively.

Earnings Per Share
------------------

The Company computes basic earnings per share by dividing net income by
the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflect the potential dilution that could occur
if all potentially dilutive common shares were exercised.

Stock Compensation
------------------

The Company's 1992 Stock Option Plan (the "Plan") is accounted for 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, compensation expense
is not recognized for fixed stock options if the exercise price of the
option equals the fair value of the underlying stock at the grant date.
For certain stock-based awards, where the exercise price is equal to zero,
the fair value of the award, measured at the grant, is amortized to
compensation expense on a straight-line basis over the vesting period. In
addition, other stock-based award programs provided for under the Plan may
also result in the recognition of compensation expense (benefit) to the
extent they are deemed to be variable (as that term is defined in APB No.
25) in nature.

SFAS No. 123, Accounting for Stock-Based Compensation, encourages
recognition of the fair value of all stock-based awards on the date of
grant as expense over the vesting period. However, as permitted by SFAS
No. 123, the Company continues to apply the intrinsic value-based method
of accounting prescribed by APB Opinion No. 25 and discloses certain
pro-forma amounts as if the fair value approach of SFAS No. 123 had been
applied.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of SFAS No. 123, to
provide alternative methods of transition for a voluntary change to the
fair value method of accounting for stock-based employee compensation. In
addition, this standard amends the disclosure requirements of SFAS No. 123
by requiring more prominent pro-forma disclosures in both the annual and
interim financial statements, which are included in the following table.
See Note 11 for a further discussion of SFAS No. 123.

The following table illustrates the effect on net income and earnings per
share if the fair value recognition provisions of SFAS No. 123 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.


35


Fiscal Year Ended June 30,
--------------------------
2003 2002 2001
------------ ------------ ----------
Net income as reported $ 75,381 $ 82,256 $ 79,680

Add: Stock-based employee
compensation expense (benefit)
included in reported net income,
net of related tax effects (208) 87 343

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 (2,612) (1,640) (2,536)
------------ ------------ ----------
Pro forma net income $ 72,561 $ 80,703 $ 77,487
============ ============ ==========

Earnings per share:
Basic - as reported $ 2.00 $ 2.12 $ 2.02
Basic - pro forma $ 1.93 $ 2.08 $ 1.97

Diluted - as reported $ 1.95 $ 2.06 $ 1.98
Diluted - pro forma $ 1.90 $ 2.02 $ 1.93

Foreign Currency Translation
----------------------------

The functional currency of each Company-owned foreign retail location is
the respective local currency. Assets and liabilities are translated into
United States dollars using the current period-end exchange rate and
income and expense amounts are translated using the average exchange rate
for the period in which the transaction occurred. Resulting translation
adjustments are reported as a component of accumulated other comprehensive
income within shareholders' equity.

Derivative Instruments
----------------------

The Company adopted SFAS No. 133, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, and SFAS No. 138, which later
amended Statement 133, in fiscal year 2001. Upon review of its current
contracts, the Company has determined that it has no derivative
instruments as defined under these standards.

New Accounting Standards
------------------------

In April 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. This standard amends certain financial accounting and
reporting requirements for derivative instruments and hedging activities
as prescribed in SFAS No. 133 and other accounting pronouncements. The
adoption of Statement 149, effective June 30, 2003, did not have a
material effect on the Company's consolidated financial statements.

SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, was issued by the FASB in
May 2003 and establishes standards on how certain financial instruments
with characteristics of both liabilities and equity are classified and
measured. This standard was adopted by the Company on July 1, 2003.
Management does not expect that the adoption of SFAS No. 150 will have a
significant impact on the Company's consolidated financial statements.

In November 2002, the Emerging Issues task Force ("EITF") of the FASB
reached a consensus on Issue No. 02-16, "Accounting for Consideration
Received from a Vendor by a Customer", to provide guidance as to how
customers should account for cash consideration received from a vendor.
EITF 02-16 presumes that cash



36


received from a vendor represents a reduction of the prices of the
vendor's products or services, unless the cash received represents a
payment for assets or services provided to the vendor or a reimbursement
of costs incurred by the customer to sell the vendor's products. The
provisions of EITF 02-16 apply to all agreements entered into or modified
after December 31, 2002. The provisions of EITF 02-16 did not have a
material impact on the Company's consolidated financial statements during
the six months ended June 30, 2003 and, at this time, the Company does not
believe the adoption of EITF 02-16 will have a material effect on its
future financial position, results of operations or cash flow.

In May 2003, the EITF reached a consensus on Issue No. 01-08, "Determining
Whether an Arrangement Contains a Lease", to clarify the requirements on
identifying whether an arrangement should be accounted for as a lease at
its inception. The guidance in the consensus is designed to mandate
reporting revenue as rental or leasing income that otherwise would be
reported as part of product sales or service revenue. EITF 01-08 requires
both parties to an arrangement to determine whether a service contract or
similar arrangement is, or includes, a lease within the scope of SFAS No.
13, Accounting for Leases. The consensus is to be applied prospectively to
arrangements agreed to, modified, or acquired in business combinations in
fiscal periods beginning after May 28, 2003 (July 1, 2003 in the case of
the Company). Accordingly, the impact of EITF 01-08 on the Company's
results of operations and financial position is dependent upon the terms
contained in contracts entered into after such date. At this time, the
Company does not believe the adoption of EITF 01-08 will have a material
effect on its financial position, results of operations or cash flow.

(2) Restructuring and Impairment Charge

In recent years, the Company has developed, announced and executed plans
to consolidate its manufacturing operations as part of an overall strategy
to maximize production efficiencies and maintain its competitive
advantage.

During the third quarter of fiscal 2003, the Company announced a plan to
close three of its smaller manufacturing facilities. Closure of these
facilities resulted in a headcount reduction totaling approximately 580
employees; 340 employees effective April 21, 2003, and 240 employees
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 related to employee severance and benefits and other plant exit
costs, and $8.9 million related to fixed asset impairment charges,
primarily for real property and machinery and equipment associated with
the closed facilities. Substantially all of related payments associated
with these plant closure costs will be made by the end of the first
quarter of fiscal 2004.

In the fourth quarter of fiscal 2002, the Company announced a plan that
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 a headcount reduction totaling approximately 220 employees;
150 employees effective June 29, 2002, and 70 employees throughout 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 related to employee severance and benefits
and other plant exit costs, and $3.1 million related to fixed asset
impairment charges, primarily for real property and machinery and
equipment associated with 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 a plan that
involved the closure of three of its manufacturing facilities and a
headcount reduction totaling approximately 350 employees effective August
6, 2001. A pre-tax restructuring and impairment charge of $6.9 million was
recorded for costs associated with these plant closings, of which $3.3
million related to



37


employee severance and benefits and other plant exit costs, and $3.6
million related to fixed asset impairment charges, primarily for real
property and machinery and equipment associated with the closed
facilities.

As of June 30, 2003, restructuring reserves totaling $1.6 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 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 $(2,823) $ - $ 1,516
Plant exit costs and other 150 (150) - -
Long-lived asset impairment 8,884 - (8,884) -
------ ------ ------ ------
Balance as of June 30, 2003 $13,373 $(2,973) $(8,884) $ 1,516
====== ====== ====== ======

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)(a) $ -
Plant exit costs and other 171 (38) (60)(a) 73
Long-lived asset impairment 3,105 - (3,105) -
------ ------ ------ ------
Balance as of June 30, 2003 $ 5,123 $(1,795) $(3,255) $ 73
====== ====== ====== ======

(a) Amounts represent the reversal of certain previously established
accruals which are no longer required.

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 (295) (34) 3
Long-lived asset impairment 3,600 - (3,600) -
------ ------ ------ ------
Balance as of June 30, 2003 $ 6,906 $(3,211) $(3,692) $ 3
====== ====== ====== ======

(3) Business Acquisitions

During fiscal 2003, the Company acquired, in four separate transactions,
sixteen Ethan Allen retail stores from independent dealers for total cash
consideration of approximately $11.3 million. As a result of these
acquisitions, the Company (i) recorded additional inventory of $10.1
million and other assets of $4.5 million, and (ii) assumed customer
deposits of $4.9 million, third-party debt of $4.3 million and other
liabilities of $2.9 million. As of June 30, 2003, $3.4 million of the
third-party debt had been fully repaid by the Company. Goodwill associated
with these acquisitions totaled $8.9 million and represents the premium
paid to the sellers related to the acquired book of business (i.e. market
presence) and other fair value adjustments to the assets acquired and
liabilities assumed. Further discussion of the Company's intangible assets
can be found in Note 6.



38


A summary of the Company's allocation of purchase price in each of the
last three fiscal years is provided below (in thousands):

Fiscal Year Ended June 30,
--------------------------
2003 2002 2001
-------------- ------------- -------------
1 store;
Nature of acquisition 16 stores 20 stores 1 plant
Cash consideration $ 11,332 42,403 9,722
Assets acquired and
liabilities assumed:
Inventory 10,095 15,381 266
PP&E and other assets 4,489 19,974 9,876
Customer deposits (4,907) (7,927) (154)
Third-party debt (4,300) - -
A/P and other liabilities (2,938) (447) (448)
-------------- ------------- -------------
Goodwill $ 8,893 $ 15,422 $ 182
============== ============= =============

(4) Inventories

Inventories at June 30 are summarized as follows (in thousands):

2003 2002
-------- --------
Finished goods $147,704 $123,906
Work in process 15,333 15,418
Raw materials 35,175 34,823
------- -------
$198,212 $174,147
======= =======

Inventories are presented net of a related valuation allowance of $4.7
million and $4.5 million at June 30, 2003 and 2002, respectively.

(5) Property, Plant and Equipment

Property, plant and equipment at June 30 are summarized as follows (in
thousands):
2003 2002
-------- --------
Land and improvements $ 53,058 $ 54,771
Buildings and improvements 236,313 230,089
Machinery and equipment 150,251 152,860
------- -------
439,622 437,720
Less: accumulated depreciation (150,199) (144,094)
------- -------
$289,423 $293,626
======= =======

(6) Intangible Assets

On July 1, 2001, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets. As of June 30, 2003, the Company had goodwill,
including product technology, (net of accumulated amortization) of $59.2
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 $31.7
million, respectively, at June 30, 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 were formerly being amortized over 40 years. The Company has
re-assessed the useful lives of goodwill and other intangible assets and
both were determined to have indefinite useful lives. As such,
amortization of these assets ceased on July 1, 2001. No impairment losses
have been recorded on these intangible assets as a result of the adoption
of Statement 142.



39


The following table reconciles the Company's reported net income and
earnings per share with pro forma balances from previous periods adjusted
to exclude goodwill amortization, which is no longer required under
Statement 142. Fiscal 2003 and 2002 net income and earnings per share are
presented for comparative purposes only (in thousands, except per share
data):

Fiscal Year Ended June 30,
--------------------------------
2003 2002 2001
------- ------- --------
Net Income:
Reported net income $75,381 $82,256 $79,680
Add back: Goodwill amortization,
after-tax - - 694
Add back: Intangible asset
amortization, after-tax - - 439
------ ------ ------
Adjusted net income $75,381 $82,256 $80,813
====== ====== ======

Basic Earnings per Share:
Reported earnings per share $ 2.00 $ 2.12 $ 2.02
Goodwill amortization - - 0.02
Intangible asset amortization - - 0.01
------ ------ ------
Adjusted basic earnings per share $ 2.00 $ 2.12 $ 2.05
====== ====== ======

Diluted Earnings per Share:
Reported earnings per share $ 1.95 $ 2.06 $ 1.98
Goodwill amortization - - 0.02
Intangible asset amortization - - 0.01
------ ------ ------
Adjusted diluted earnings per share $ 1.95 $ 2.06 $ 2.01
====== ====== ======

(7) Borrowings

Total debt obligations at June 30 consist of the following (in thousands):

2003 2002
------- -------
Industrial revenue bonds $ 8,455 $ 8,455
Other debt and capital lease obligations 1,763 866
------ -----
Total debt 10,218 9,321

Less: current maturities and short-
term capital lease obligations 996 107
------ ------
Long-term debt $ 9,222 $ 9,214
====== ======

The Company has a $125.0 million unsecured Revolving Credit Facility (the
"Credit Agreement") with J. P. Morgan Chase & Co. as administrative agent
and Fleet Bank, NA and Wachovia Bank, NA as co-documentation agents. The
Credit Agreement includes sub-facilities for trade and standby letters of
credit of $25.0 million and swingline loans of $3.0 million. Revolving
loans under the Credit Agreement bear interest at J. P. Morgan Chase &
Co.'s Alternative Base Rate, or adjusted LIBOR plus 0.625%, and is subject
to adjustment arising from changes in the credit rating of Ethan Allen's
senior unsecured debt. The Credit Agreement provides for the payment of a
commitment fee equal to 0.15% per annum on the average daily, unused
amount of the revolving credit commitment. The Company is also required to
pay a fee equal to 0.75% per annum on the average daily letters of credit
outstanding. At June 30, 2003 there were no revolving loans outstanding
and $19.4 million of trade and standby letters of credit outstanding under
the Credit Agreement.

Remaining available borrowing capacity under the Credit Agreement was
$105.6 million at June 30, 2003. For fiscal years ended June 30, 2003,
2002 and 2001 the weighted-average interest rates were 4.49%, 4.45%, and
5.55%, respectively. The Credit Agreement matures in August 2004 and there
are no minimum repayments required during the term of the facility. The
revolving loans may be borrowed, repaid and reborrowed over the term of
the facility until final maturity.

The Credit Agreement also contains various covenants which limit the
ability of the Company and its subsidiaries to: incur debt; engage in
mergers and consolidations; make restricted payments; sell certain assets;
make



40


investments; and issue stock. The Company is also required to meet certain
financial covenants including consolidated net worth, fixed charge
coverage and leverage ratios. As of June 30, 2003, the Company had
satisfactorily complied with all covenants related to the Credit
Agreement.

The majority of the Company's debt is related to industrial revenue bonds
which were issued to finance (i) the construction of its Maiden, North
Carolina manufacturing facility, and (ii) capital improvements at the Inn
at Ethan Allen, which is adjacent to the Company's corporate headquarters
in Danbury, Connecticut. The bonds related to the Maiden, North Carolina
facility bear interest at a floating rate and have a remaining maturity of
15 months. The rate on these bonds did not exceed 2.1% during 2003. The
bonds related to the Inn at Ethan Allen bear interest at a fixed rate of
7.5% and have a remaining maturity of 8 years.

The Company has loan commitments in the aggregate amount of approximately
$0.8 million related to the modernization of its Beecher Falls, Vermont
manufacturing facility. Loans made pursuant to these commitments bear
interest at fixed rates ranging from 3.0% to 5.5% and have remaining
maturities of 3 to 24 years. The loans have a first and second lien in
respect of equipment financed by such loans and a first and second
mortgage interest in respect of the building, the construction of which
was financed by such loans.

As mentioned in Note 3, the Company assumed $4.3 million in third-party
debt in connection with its acquisition of 16 retail stores during fiscal
2003. This debt was in the form of a line of credit, a mortgage on an
existing retail store location and, to a lesser extent, obligations under
certain capital leases. As of June 30, 2003, $3.4 million of this amount
had been fully repaid. Of the remaining outstanding amount, $0.8 million
relates to the aforementioned mortgage which bears interest at a fixed
rate of 7.5% and matures in December 2003.

Aggregate scheduled maturities of long-term debt for each of the five
fiscal years subsequent to June 30, 2003, and thereafter are as follows
(in thousands):

Fiscal Year Ended June 30:
--------------------------
2004 $ 996
2005 4,713
2006 239
2007 38
2008 40
Subsequent to 2008 4,192
--------
Total debt payments $ 10,218
========

(8) Leases

Ethan Allen leases real property and equipment under various operating
lease agreements expiring through 2027. Leases covering retail store
locations and equipment may require, in addition to stated minimums,
contingent rentals based on retail sales and equipment usage. Generally,
the leases provide for renewal for various periods at stipulated rates.

Future minimum payments by year, and in the aggregate, under
non-cancelable operating leases consisted of the following at June 30,
2003 (in thousands):

Fiscal Year Ended June 30:
--------------------------
2004 $ 23,680
2005 22,111
2006 19,583
2007 17,983
2008 15,910
Subsequent to 2008 52,459
--------
Total minimum lease payments $ 151,726
========



41


The above amounts will be offset in the aggregate by minimum future
rentals from subleases of $30.8 million.

Total rent expense for each of the past three fiscal years ended June 30
was as follows (in thousands):

2003 2002 2001
-------- -------- ---------
Basic rentals under operating
leases $ 25,824 $ 21,890 $ 18,496
Contingent rentals under
operating leases 691 729 895
------- ------- -------
26,515 22,619 19,391
Less: sublease rent 2,251 3,307 3,084
------- ------- -------
Total rent expense $ 24,264 $ 19,312 $ 16,307
======= ======= =======

(9) Shareholders' Equity

The Company's authorized capital stock consists of (a) 150,000,000 shares
of Common Stock, par value $.01 per share, (b) 600,000 shares of Class B
Common Stock, par value $.01 per share, and (c) 1,055,000 shares of
Preferred Stock, par value $.01 per share, of which (i) 30,000 shares have
been designated Series A Redeemable Convertible Preferred Stock, (ii)
30,000 shares have been designated Series B Redeemable Convertible
Preferred Stock, (iii) 155,010 shares have been designated as Series C
Junior Participating Preferred Stock, and (iv) the remaining 839,990
shares may be designated by the Board of Directors with such rights and
preferences as they determine (all such preferred stock, collectively, the
"Preferred Stock"). Shares of Class B Common Stock are convertible to
shares of the Company's Common Stock upon the occurrence of certain events
or other specified conditions being met. As of June 30, 2003 and 2002,
there were no shares of Preferred Stock or Class B Common Stock issued or
outstanding.

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 fiscal years 2003, 2002 and 2001 the Company repurchased and/or
retired the following shares of its common stock:

2003(1) 2002(1) 2001(2)
------------ ------------ ---------
Common shares repurchased 1,457,000 1,059,226 61,006
Cost to repurchase common shares $43,503,500 $31,865,423 $1,069,587
Average price per share $29.86 $30.08 $17.53

(1) The cost to repurchase shares in fiscal years 2003 and 2002 reflects
$7,197,165 in common stock repurchases with a June 2002 trade date
and a July 2002 settlement date.

(2) Includes the repurchase of 28,000 shares at $.01 per share
previously issued under the Company's Restricted Stock Award Plan.
Excluding the effect of these repurchases, the average price per
share was $32.40.

The Company funded its purchases through cash from operations and, in
2001, through revolver loan borrowings under the Credit Agreement. As of
June 30, 2003, the Company had a remaining Board authorization to purchase
1.3 million shares.

On May 20, 1996, the Board of Directors adopted a Stockholder Rights Plan
and declared a dividend of one Right for each outstanding share of common
stock as of July 10, 1996. Each Right entitles its holder, under certain
circumstances, to purchase one one-hundredth of a share of the Company's
Series C Junior Participating Preferred Stock at a price of $41.67 on a
post split basis. The Rights may not be exercised until 10 days after a
person or group acquires 15% or more of the Company's common stock, or 15
days after the commencement or the announcement of the intent to commence
a tender offer, which, if



42


consummated, would result in a 15% or more ownership of the Company's
common stock. Until then, separate Rights certificates will not be issued,
nor will the Rights be traded separately from the stock.

Should an acquirer become the beneficial owner of 15% of the Company's
common stock, and under certain additional circumstances, the Company's
stockholders (other than the acquirer) would have the right to receive in
lieu of the Series C Junior Participating Preferred Stock, a number of
shares of the Company's common stock, or in stock of the surviving
enterprise if the Company is acquired, having a market value equal to two
times the purchase price per share. The Rights will expire on May 31,
2006, unless redeemed prior to that date. The redemption price is $0.01
per Right. The Board of Directors may redeem the Rights at its option any
time prior to the announcement that a person or group has acquired 15% or
more of the Company's common stock.

(10) Earnings per Share

The following table sets forth the calculation of weighted average shares
for the fiscal years ended June 30 (in thousands):

2003 2002 2001
------ ------ ------
Weighted average common shares outstanding
for basic calculation 37,607 38,828 39,390

Add: Dilutive effect of stock options and
warrants 962 1,114 931
------ ------ ------

Weighted average common shares outstanding,
adjusted for diluted calculation 38,569 39,942 40,321
====== ====== ======

In 2003 and 2002, stock options to purchase 71,781 and 67,825 shares,
respectively, had exercise prices that exceeded the average market price
for each corresponding period. These options have been excluded from the
respective diluted earnings per share calculation as their impact is
anti-dilutive. No such anti-dilutive stock options existed in 2001.

(11) Employee Stock Plans

The Company has 6,320,139 shares of Common Stock reserved for issuance
pursuant to the following stock-based compensation plans:

1992 Stock Option Plan
----------------------

The 1992 Stock Option Plan (the "Plan") provides for the grant of
non-compensatory stock options to eligible employees and non-employee
directors. Stock options granted under the Plan are non-qualified under
Section 422 of the Internal Revenue code and allow for the purchase of
shares of the Company's Common Stock. The Plan also provides for the
issuance of stock appreciation rights ("SARs") on issued options, however,
no SARs have been issued as of June 30, 2003. The awarding of such options
is determined by the Compensation Committee of the Board of Directors
after consideration of recommendations proposed by the Chief Executive
Officer. Options awarded are exercisable at the market value of the
Company's Common Stock at the date of grant and vest ratably over a
four-year period for awards to employees and a two-year period for awards
to independent directors.

Mr. Kathwari, the Company's President and Chief Executive Officer, entered
into a new employment agreement with the Company dated August 1, 2002 (the
"2002 Employment Agreement"). This agreement was effective as of July 1,
2002 and served to supercede all terms and conditions set forth in his
previous employment agreement dated July 1, 1997, which expired on June
30, 2002 (the "1997 Employment Agreement"). Pursuant to the terms of the
2002 Employment Agreement, Mr. Kathwari was awarded, during fiscal 2003,
options to purchase 600,000 shares of the Company's Common Stock. These
options were issued at an exercise price of $31.02 per share (the price of
a share of the Company's Common Stock on the New York Stock Exchange as of
such date) and vest ratably



43


over a three-year period. In addition, he is also entitled to receive
another 400,000 options in fiscal 2004 (which vest ratably over a two-year
period) and 200,000 options in fiscal 2005 (which vest over a one-year
period).

The maximum number of shares of Common Stock reserved for issuance under
the 1992 Stock Option Plan is 5,490,597 shares.

In connection with the 1992 Stock Option Plan, the following two stock
award plans have also been established:

Restricted Stock Award

Under the terms of the 1997 Employment Agreement, Mr. Kathwari was
granted, as of July 1, 1994 and for each successive year through July 1,
1998, an annual award of 30,000 shares of restricted stock, with vesting
based on the performance of the Company's stock price during the
three-year period subsequent to grant as compared to the Standard and
Poor's 500 index. Under the discretion of the Compensation Committee, Mr.
Kathwari was deemed vested in 92,000 shares as of June 30, 2002.

In connection with the 2002 Employment Agreement, Mr. Kathwari is entitled
to receive, as of August 1, 2002 and for each successive year through
August 1, 2004, an annual award of 10,500 shares of restricted stock, with
vesting based on the performance of the Company's stock price during the
three-year period subsequent to grant as compared to the Standard and
Poor's 500 index. As of June 30, 2003, Mr. Kathwari has not been deemed
vested in any of these shares.

Stock Unit Award

In accordance with the provisions of the 1997 Employment Agreement, the
Company established, during fiscal 1998, a book account for Mr. Kathwari,
which was credited with 21,000 Stock Units as of July 1 of each year,
commencing July 1, 1997, for a total of up to 105,000 Stock Units, over
the initial five-year term of the 1997 Employment Agreement, with an
additional 21,000 Stock Units to be credited in connection with each of
the two optional one-year extensions. Following the termination of his
employment, Mr. Kathwari will receive shares of Common Stock equal to the
number of Stock Units credited to the account. In connection with the
establishment of the 2002 Employment Agreement, Mr. Kathwari was deemed to
have earned 126,000 of the Stock Units contemplated under the performance
provisions of the 1997 Employment Agreement.

Incentive Stock Option Plan
---------------------------

In 1991, pursuant to the Incentive Stock Option Plan, the Company granted
to members of management options to purchase 829,542 shares of Common
Stock at an exercise price of $5.50 per share. These options vested
ratably over a five-year period.

Stock option activity during fiscal years 2003, 2002 and 2001 was as
follows:

Number of Shares
----------------
92 Stock Incentive
Option Plan Options
----------- -------
Options Outstanding - June 30, 2000 3,383,590 14,000
Granted in 2001 35,225 -
Exercised in 2001 (67,882) (6,000)
Canceled in 2001 (55,658) -
--------- --------
Options Outstanding - June 30, 2001 3,295,275 8,000
Granted in 2002 94,625 -
Exercised in 2002 (106,846) (8,000)
Canceled in 2002 (16,073) -
--------- --------
Options Outstanding - June 30, 2002 3,266,981 -
Granted in 2003 694,800 -
Exercised in 2003 (187,896)
Canceled in 2003 (59,780) -
--------- --------
Options Outstanding - June 30, 2003 3,714,105 -
========= =========



44


The following table summarizes the stock awards outstanding and
exercisable at June 30, 2003:

Options Outstanding Options Exercisable
------------------------------ -------------------
Weighted Average
--------------------
Weighted
Remaining Average
Exercise Life Exercise Exercise
Price Range Number (in years) Price Number Price
----------------- ---------- ---------- --------- ---------- ---------

$ 6.33 to 6.50 967,175 1.9 $ 6.37 967,175 $ 6.37
14.50 to 18.21 64,110 3.7 15.03 64,110 15.03
21.17 to 25.00 968,315 4.7 21.93 919,701 21.77
26.25 to 28.31 840,367 4.4 27.44 834,849 27.44
29.23 to 33.78 802,348 8.8 30.94 79,515 31.50
38.00 to 41.59 71,790 8.7 39.05 21,520 38.93
------------ ----------
3,714,105 4.8 21.28 2,886,870 18.50
============ ==========

As stated in Note 1, the Company employs the intrinsic value recognition
and measurement provisions of APB No. 25 in accounting for stock-based
compensation. However, in complying with the disclosure provisions of SFAS
No. 123, the Company estimates the fair value of stock options granted
using the Black-Scholes option-pricing model. The per share weighted
average fair value of stock options granted during fiscal years 2003, 2002
and 2001 was $15.94, $16.06, and $13.60, respectively.

The fair value of each stock option grant was estimated on the date of
grant using the following assumptions: weighted average risk-free interest
rates of 4.26%, 4.50%, and 5.39% for fiscal years 2003, 2002 and 2001,
respectively; dividend yields of 0.83%, 0.48%, and 0.53% for fiscal years
2003, 2002 and 2001, respectively; expected volatility factors of 44.3%,
43.9%, and 45.0% for fiscal years 2003, 2002 and 2001, respectively; and
expected lives of 8.5 years for fiscal 2003 and 5.0 years for both fiscal
2002 and 2001.

The table located in Note 1 illustrates the effect on net income and
earnings per share if the fair value recognition and measurement
provisions of SFAS No. 123 had been applied to all outstanding and
unvested awards in each period.

(12) Income Taxes

Total income taxes were allocated as follows (in thousands):

2003 2002 2001
------- ------- --------
Income from operations $ 45,811 $ 49,988 $ 48,423
Shareholders' equity (1,536) (1,021) (624)
------- ------- -------
$ 44,275 $ 48,967 $ 47,799
======= ======= =======

The income taxes credited to shareholders' equity relate to the tax
benefit arising from the exercise of employee stock options.

Income tax expense (benefit) attributable to income from operations
consists of the following for the fiscal years ended June 30 (in
thousands):

2003 2002 2001
------- ------- --------
Current:
Federal $ 35,909 $ 44,548 $ 46,513
State 5,152 5,251 5,249
------- ------- -------
Total current 41,061 49,799 51,762
------- ------- -------
Deferred:
Federal 4,395 180 (3,157)
State 355 9 (182)
------- ------- -------
Total deferred 4,750 189 (3,339)
------- ------- -------
Income tax expense $ 45,811 $ 49,988 $ 48,423
======= ======= =======


45


The following is a reconciliation of expected income taxes (computed by
applying the Federal statutory rate to income before taxes) to actual
income tax expense (in thousands):

2003 2002 2001
------- ------- -------
Computed "expected" income
tax expense $ 42,417 $ 46,285 $ 44,836
State income taxes, net of
federal income tax benefit 3,211 3,126 3,162
Goodwill amortization 68 109 265
Other, net 115 468 160
------- ------- -------
Actual income tax expense $ 45,811 $ 49,988 $ 48,423
======= ======= =======

The significant components of the deferred tax expense (benefit) are as
follows (in thousands):
2003 2002 2001
-------- -------- --------

Deferred tax expense (benefit) $ 3,294 $ (1,268) $ (4,795)
Utilization of net operating
loss carryforwards 1,456 1,457 1,456
------- ------- -------
Total deferred tax expense (benefit) $ 4,750 $ 189 $ (3,339)
======= ======= =======

The components of the net deferred tax liability as of June 30 are as
follows (in thousands):
2003 2002
-------- ---------
Deferred tax assets:
Accounts receivable $ 733 $ 923
Inventories 4,329 4,407
Employee compensation accruals 8,389 7,743
Restructuring accruals 6,627 1,765
Other accrued liabilities 2,898 2,507
Net operating loss carryforwards 2,620 4,076
------- -------
Total deferred tax asset 25,596 21,421
------- -------

Deferred tax liabilities:
Property, plant and equipment 28,170 23,192
Intangible assets other than goodwill 13,366 13,354
Non-deductible temporary differences
arising as a result of Section 481a
changes in accounting methods 6,329 4,102
Other 2,294 586
------- -------
Total deferred tax liability 50,159 41,234
------- -------

Net deferred tax liability $ 24,563 $ 19,813
======= =======

At June 30, 2003, the Company has, for federal income tax purposes,
approximately $6.9 million of net operating loss carryovers ("NOLs"), all
of which expire in 2008. Pursuant to Section 382 of the Internal Revenue
Code, the Company's utilization of such NOLs is subject to an annual
limitation of approximately $3.9 million.

Management believes that the results of future operations will generate
sufficient taxable income to realize the deferred tax assets.

(13) Employee Retirement Programs

The Ethan Allen Retirement Savings Plan
---------------------------------------

The Ethan Allen Retirement Savings Plan (the "Savings Plan") is a defined
contribution plan, which is offered to substantially all employees of the
Company who have completed three consecutive months of service regardless
of hours worked.

Ethan Allen may, at its discretion, make a matching contribution to the
401(k) portion of the Savings Plan on behalf of each participant, provided
the contribution does not exceed the lesser of 50% of the participant's
contribution or $1,000 per participant per Savings Plan year. Total profit



46


sharing and 401(k) company match expense was $3.9 million in 2003, $5.1
million in 2002, and $5.5 million in 2001.

Other Retirement Plans and Benefits
-----------------------------------

Ethan Allen provides additional benefits to selected members of senior and
middle management in the form of previously entered deferred compensation
arrangements and a management cash bonus and other incentive program. The
total cost of these benefits was $3.3 million, $4.2 million, and $5.0
million in 2003, 2002 and 2001, respectively.

(14) 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 under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA").

The Company believes it 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 site. However,
liability under CERCLA may be joint and several. Additionally, the Company
has been notified by the State of New York that it may be a PRP in a
separate, unrelated matter. However, 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.

(15) Related Party Transactions

On August 31, 2001, the Company acquired certain assets associated with
the retail operations of 6 Ethan Allen Home Interiors stores in the
Pittsburgh and Cleveland metropolitan areas from two entities owned and
controlled by Mr. Edward Teplitz. The total purchase price for the assets
was $10.1 million, net of the assumption of certain liabilities and
subject to post-closing adjustments. Approximately $3.5 million of the
purchase price was allocated to two real estate properties acquired in the
transaction with the remaining $6.6 million allocated to other assets. The
purchase price was determined by mutual negotiation, based upon the fair
value of net assets acquired and supported, as appropriate, by independent
third-party appraisals. Subsequent to the closing, Mr. Teplitz joined the
Company as Vice President of Finance. In August 2002, Mr. Teplitz was
named Chief Financial Officer of the Company. He currently serves as Vice
President and General Manager of the Company's Retail division, a role he
assumed in May 2003.

(16) 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 $0.6 million at June 30,
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.




47


(17) 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 development of the
Ethan Allen brand, which encompasses the design, manufacture, domestic and
off-shore sourcing, sale and distribution of a full range of home
furnishing products to a network of independently-owned and Ethan
Allen-owned stores as well as related marketing and brand awareness
efforts. 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 furnishing products 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 each respective product line
(i.e. case goods, upholstery, or home accessories and other).

A breakdown of wholesale sales by these product lines for each of the last
three fiscal years is provided below:

Fiscal Year Ended June 30,
--------------------------
2003 2002 2001
---- ---- ----
Case Goods 53% 56% 56%
Upholstered Products 33 31 30
Home Accessories and Other 14 13 14
--- --- ---
100% 100% 100%
=== === ===

Similar information by product line is not available within the retail
segment as it is not practicable. However, because wholesale production
and sales are matched to incoming orders, the Company believes that the
allocation of retail sales would be similar to that of the wholesale
segment.

The Company evaluates performance of its segments based upon revenues and
operating income. Inter-segment eliminations primarily comprise the
wholesale sales and profit on the transfer of inventory between segments.
Inter-segment eliminations also include items not allocated to reportable
segments.

During the third quarter of 2001, the Company re-evaluated its operating
segments and as a result changed its segment-reporting format from five
segments (case goods, upholstery, home accessories, retail, and other) to
two segments (wholesale and retail). This change reflects how management
currently manages its operations, resulting in part, from the growth in
the Company's retail business. The following table presents segment
information for each of the fiscal years ended June 30, 2003, 2002, and
2001 (in thousands):

2003 2002 2001
------- ------- -------
Net Sales:
----------
Wholesale segment $660,986 $660,818 $705,651
Retail segment 526,388 459,640 419,322
Elimination of inter-company sales (280,110) (228,170) (220,840)
-------- ------- -------
Consolidated Total $907,264 $892,288 $904,133
======= ======= =======

Operating Income:
-----------------
Wholesale segment (1) $109,281 $110,078 $100,503
Retail segment 14,573 23,125 23,142
Elimination (2) (3,271) (3,303) 2,402
------- ------ ------
Consolidated Total $120,583 $129,900 $126,047
======= ======= =======


48


Capital Expenditures:
---------------------
Wholesale segment $ 11,759 $ 13,601 $ 22,147
Retail segment 15,448 17,477 16,369
Acquisitions (3) 11,332 42,403 9,722
------- -------- ------
Consolidated Total $ 38,539 $ 73,481 $ 48,238
======= ======= =======

Total Assets:
-------------
Wholesale segment $465,017 $459,311 $453,650
Retail segment 303,061 259,770 190,067
Inventory profit elimination (4) (36,510) (30,326) (24,599)
------- ------- -------
Consolidated Total $731,568 $688,755 $619,118
======= ======= =======

(1) Operating income for the wholesale segment includes pre-tax
restructuring and impairment charges of $13.2 million, $5.1 million
and $6.9 million recorded in fiscal years 2003, 2002 and 2001,
respectively.

(2) The adjustment reflects the change in the elimination entry for
profit in ending inventory.

(3) Acquisitions include the purchase of 16 retail stores in 2003, 20
retail stores in 2002 and one retail store and the Dublin, Virginia
manufacturing facility in 2001.

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

There are 20 independent retail stores located outside the United States.
Less than 2.0% of the Company's net sales are derived from sales to these
retail stores.

(18) Selected Quarterly Financial Data (Unaudited)

Tabulated below are certain data for each quarter of the fiscal years
ended June 30, 2003, 2002, and 2001 (in thousands, except per share data):

Quarter Ended
------------------------------------------------
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
Fiscal 2003:
------------
Net sales $216,529 $229,713 $224,574 $236,448
Gross profit 106,715 115,804 111,950 114,915
Net income 20,082 23,086 11,672 20,541
Earnings per basic share 0.53 0.61 0.31 0.55
Earnings per diluted share 0.52 0.60 0.30 0.54
Dividend declared per
common share 0.06 0.06 0.06 0.07

Fiscal 2002:
------------
Net sales $206,725 $222,857 $227,917 $234,789
Gross profit 93,969 103,380 108,436 115,528
Net income 16,731 21,195 22,969 21,361
Earnings per basic share 0.43 0.55 0.59 0.55
Earnings per diluted share 0.42 0.53 0.58 0.54
Dividend declared per
common share 0.04 0.04 0.04 0.06

Fiscal 2001:
------------
Net sales $211,231 $232,667 $233,791 $226,444
Gross profit 99,709 107,737 103,511 102,699
Net income 20,700 23,107 20,030 15,843
Earnings per basic share 0.53 0.59 0.51 0.40
Earnings per diluted share 0.52 0.58 0.50 0.39
Dividend declared per
common share 0.04 0.04 0.04 0.04


49



Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
---------------------------------------------------------------

No changes in, or disagreements with, accountants as a result of
accounting or financial disclosure matters, occurred during fiscal years 2003,
2002 or 2001.


Item 9A. Controls and Procedures
-----------------------

Ethan Allen's management, including the Chairman of the Board and Chief
Executive Officer ("CEO") and the Vice President-Finance ("VPF"), conducted an
evaluation of the effectiveness of disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) as of the end of the period
covered by this report. Based on such evaluation, the CEO and VPF have concluded
that, as of June 30, 2003, 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 manner.

There have been no significant changes in the Company's internal control
over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the Company's most recent fiscal
quarter (the Company's fourth fiscal quarter in the case of this report) that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.



50


PART III
--------

Except as otherwise stated below, Part III is omitted as the Company
intends to file with the Commission within 120 days after the end of the
Company's fiscal year a definitive proxy statement pursuant to Regulation 14A
which will involve the election of directors.


Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------

Code of Ethics

The Company has adopted a code of ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The Company's code of
ethics can be accessed via its website at www.ethanallen.com.

Audit Committee Financial Expert

The Company's Board of Directors has determined that the Company has three
"financial experts", as defined under Item 401 of Regulation S-K of the
Securities Exchange Act of 1934, currently serving on its Audit Committee. Those
members of the Company's Audit Committee who are deemed to be financial experts
are as follows:

Clinton A. Clark
Horace G. McDonell
William W. Sprague

All persons identified as financial experts are independent from management as
defined by Item 7(d)(3), of Schedule 14A.

See reference to the definitive proxy statement under Part III for the remainder
of required disclosures under Item 10.


Item 11. Executive Compensation
----------------------

See reference to the definitive proxy statement under Part III.


Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------

See reference to the definitive proxy statement under Part III.


Item 13. Certain Relationships and Related Transactions
----------------------------------------------

See reference to the definitive proxy statement under Part III.


Item 14. Principal Accountant Fees and Services
--------------------------------------

See reference to the definitive proxy statement under Part III.




51


PART IV
-------

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------

I. Listing of Documents

(1) Financial Statements. The Company's Consolidated Financial
Statements, included in Item 8 hereof, as required at June 30, 2003
and 2002, and for the years ended June 30, 2003, 2002 and 2001,
consist of the following:

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Cash Flows

Consolidated Statements of Shareholders' Equity

Notes to Consolidated Financial Statements

(2) Financial Statement Schedule. Financial Statement Schedule of the
Company appended hereto, as required for the years ended June 30,
2003, 2002 and 2001, consist of the following:

Valuation and Qualifying Accounts

The schedules listed in Reg. 210.5-04, except those listed above,
have been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.

(3) Reports on Form 8-K

On May 13, 2003, the Company filed with the Securities and Exchange
Commission its quarterly report on Form 10-Q for the three month
period ended March 31, 2003. 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 June 30, 2003, the Company filed
a Current Report on Form 8-K dated June 10, 2003, covering
information reported under Item 9. Regulation FD Disclosure. The
Company also filed a Current Report of Form 8-K dated July 31, 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.

(4) The following Exhibits are filed as part of this report on Form 10-K:

Exhibit
Number Exhibit
------ -------

2(a) Agreement and Plan of Merger, dated May 20, 1989, among
the Company, Green Mountain Acquisition Corporation,
INTERCO Incorporated, Interco Subsidiary, Inc. and Ethan
Allen (incorporated by reference to Exhibit 2(a) to the
Registration Statement on Form S-1 of the Company filed
with the Securities and Exchange Commission (the "SEC")
on March 16, 1993)

2(b) Restructuring Agreement, dated March 1, 1991, among
Green Mountain Holding Corporation, Ethan Allen,
Chemical Bank, General Electric Capital Corporation,
Smith Barney Inc. and the stockholder's name on the
signature page thereof (incorporated by reference to
Exhibit 2(b) to the Registration Statement on Form S-1
of the Company filed with the SEC on March 16, 1993)


52


2(c) Purchase and Sale Agreement, dated March 28, 1997,
between the Company and Carriage House Interiors of
Colorado, Inc. (incorporated by reference to Exhibit 2
to the Registration Statement on Form S-3 of the Company
filed with the SEC on May 21, 1997)

3(a) Restated Certificate of Incorporation for Green Mountain
Holding Corporation (incorporated by reference to
Exhibit 3(a) to the Registration Statement on Form S-1
of the Company filed with the SEC on March 16, 1993)

3(b) Restated and Amended By-Laws of Green Mountain Holding
Corporation (incorporated by reference to Exhibit 3(b)
to the Registration Statement on Form S-1 of the Company
filed with the SEC on March 16, 1993)

3(c) Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3(c) to the
Registration Statement on Form S-1 of the Company filed
with the SEC on March 16, 1993)

3(c)-1 Certificate of Designation relating to the Series C
Junior Participating Preferred Stock (incorporated by
reference to Exhibit 1 to Form 8-A of the Company filed
with the SEC on July 3, 1996)

3(c)-2 Certificate of Amendment to Restated Certificate of
Incorporation as of August 5, 1997 (incorporated by
reference to Exhibit 3(c)-2 to the Quarterly Report on
Form 10-Q of the Company filed with the SEC on May 13,
1999)

3(c)-3 Second Certificate of Amendment to Restated Certificate
of Incorporation as of March 27, 1998 (incorporated by
reference to Exhibit 3(c)-3 to the Quarterly Report on
Form 10-Q of the Company filed with the SEC on May 13,
1999)

3(c)-4 Third Certificate of Amendment to Restated Certificate
of Incorporation as of April 28, 1999 (incorporated by
reference to Exhibit 3(c)-4 to the Quarterly Report on
Form 10-Q of the Company filed with the SEC on May 13,
1999)

3(d) Amended and Restated By-laws of the Company
(incorporated by reference to Exhibit 3(d) to the
Registration Statement on Form S-1 of the Company filed
with the SEC on March 16, 1993)

3(e) Certificate of Designation relating to the New
Convertible Preferred Stock (incorporated by reference
to the Registration Statement on Form S-1 of the Company
filed with the SEC on March 16, 1993)

3(e)-1 Certificate of Designation relating to the Series C
Junior Participating Preferred Stock (incorporated by
reference to Exhibit 1 to Form 8-A of the Company filed
with the SEC on July 3, 1996)

3(f) Certificate of Incorporation of Ethan Allen Finance
Corporation (incorporated by reference to Exhibit 3.1 to
Amendment No. 3 to the Registration Statement on Form
S-3 of the Company filed with the SEC on February 1,
1995)

3(g) By-Laws of Ethan Allen Finance Corporation (incorporated
by reference to Exhibit 3.4 to Amendment No. 3 to the
Registration Statement on Form S-3 of the Company filed
with the SEC on February 1, 1995)

3(h) Certificate of Incorporation of Ethan Allen
Manufacturing Corporation (incorporated by reference to
Exhibit 3.2 to Amendment No. 3 to the Registration
Statement on Form S-3 of the Company filed with the SEC
on February 1, 1995)

3(i) By-Laws of Ethan Allen Manufacturing Corporation
(incorporated by reference to Exhibit 3.5 to Amendment
No. 3 to the Registration Statement on Form S-3 of the
Company filed with the SEC on February 1, 1995)



53


4(a) First Amendment to Management Non-Qualified Stock Option
Plan (incorporated by reference to Exhibit 4(a) to the
Registration Statement on Form S-1 of the Company filed
with the SEC on March 16, 1993)

4(b) Second Amendment to Management Non-Qualified Stock
Option Plan (incorporated by reference to Exhibit 4(b)
to the Registration Statement on Form S-1 of the Company
filed with the SEC on March 16, 1993)

4(c) 1992 Stock Option Plan (incorporated by reference to
Exhibit 4(c) to the Registration Statement on Form S-1
of the Company filed with the SEC on March 16, 1993)

4(c)-1 First Amendment to 1992 Stock Option Plan (incorporated
by reference to Exhibit 4(c)-1 to the Quarterly Report
on Form 10-Q of the Company filed with the SEC on
November 14, 1997)

4(c)-2 Amended and Restated 1992 Stock Option Plan
(incorporated by reference to Exhibit 4(c)-2 to the
Quarterly Report on Form 10-Q of the Company filed with
the SEC on November 14, 1997)

4(c)-3 First Amendment to Amended and Restated 1992 Stock
Option Plan (incorporated by reference to Exhibit 4(c)-3
to the Quarterly Report on Form 10-Q of the Company
filed with the SEC on February 12, 1999)

4(c)-4 Second Amendment to Amended and Restated 1992 Stock
Option Plan (incorporated by reference to Exhibit 4(c)-4
to the Quarterly Report on Form 10-Q of the Company
filed with the SEC on February 14, 2000)

4(d) Management Letter Agreement among the Management
Investors and the Company (incorporated by reference to
Exhibit 4(d) to the Registration Statement on Form S-1
of the Company filed with the SEC on March 16, 1993)

4(e) Management Warrant, issued by the Company to members of
the Management of Ethan Allen (incorporated by reference
to Exhibit 4(e) to the Registration Statement on Form
S-1 of the Company filed with the SEC on March 16, 1993)

4(f) Form of Dealer Letter Agreement among Dealer Investors
and the Company (incorporated by reference to Exhibit
4(f) to the Registration Statement on Form S-1 of the
Company filed with the SEC on March 16, 1993)

4(g) Form of Kathwari Warrant, dated June 28, 1989
(incorporated by reference to Exhibit 4(g) to the
Registration Statement on Form S-1 of the Company filed
with the SEC on March 16, 1993)

4(j) Form of Indenture relating to the Senior Notes
(incorporated by reference to Exhibit 4(m) to the
Registration Statement on Form S-1 of the Company filed
with the SEC on March 16, 1993)

4(j)-1 First Supplemental Indenture, dated March 23, 1995,
between Ethan Allen and the First National Bank of
Boston for $75,000,000 8-3/4% Senior Notes due 2007
(incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-3 of the Company filed
with the SEC on October 25, 1994)

4(k) Credit Agreement among the Company, Ethan Allen and
Bankers Trust Company (incorporated by reference to
Exhibit 4(o) to the Registration Statement on Form S-1
of the Company filed with the SEC on March 16, 1993)

4(k)-1 Amended Credit Agreement among the Company, Ethan Allen
and Bankers Trust Company (incorporated by reference to
Exhibit 4(k)-1 to the Annual Report on Form 10-K of the
Company filed with the SEC on September 8, 1994)



54


4(k)-2 110,000,000 Senior Secured Revolving Credit Facility
dated March 10, 1995 between Ethan Allen and J. P.
Morgan Chase & Co. (incorporated by reference to Exhibit
4(k)-2 to the Annual Report on Form 10-K of the Company
filed with the SEC on September 21, 1995)

4(k)-3 Amended and Restated Credit Agreement as of December 4,
1996 between Ethan Allen Inc. and the J. P. Morgan Chase
& Co. (incorporated by reference to Exhibit 4(k)-3 to
the Quarterly Report on Form 10-Q of the Company filed
with the SEC on February 13, 1997)

4(k)-4 First Amendment to Amended and Restated Credit Agreement
as of August 27, 1997 between Ethan Allen Inc. and the
J. P. Morgan Chase & Co. (incorporated by reference to
Exhibit 4(k)-4 to the Quarterly Report on Form 10-Q of
the Company filed with the SEC on February 12, 1999)

4(k)-5 Second Amendment to Amended and Restated Credit
Agreement as of October 20, 1998 between Ethan Allen
Inc. and the J. P. Morgan Chase & Co. (incorporated by
reference to Exhibit 4(k)-5 to the Quarterly Report on
Form 10-Q of the Company filed with the SEC on February
12, 1999)

4(l) Catawba County Industrial Facilities Revenue Bond
(incorporated by reference to Exhibit 4(r) to the
Registration Statement on Form S-1 of the Company filed
with the SEC on March 16, 1993)

4(l)-1 Trust Indenture dated as of October 1, 1994 securing
$4,600,000 Industrial Development Revenue Refunding
Bonds, Ethan Allen Inc. Series 1994 of the Catawba
County Industrial Facilities and Pollution Control
Financing Authority (incorporated by reference to
Exhibit 4(l)-1 to the Annual Report on Form 10-K of the
Company filed with the SEC on September 21, 1995)

4(m) Lease for 2700 Sepulveda Boulevard Torrance, California
(incorporated by reference to Exhibit 4(s) to the
Registration Statement on Form S-1 of the Company filed
with the SEC on March 16, 1993)

4(n) Amended and Restated Warrant Agreement, dated March 1,
1991, among Green Mountain Holding Corporation and First
Trust National Association (incorporated by reference to
Exhibit 4(t) to the Registration Statement on Form S-1
of the Company filed with the SEC on March 16, 1993)

4(o) Exchange Notes Warrant Transfer Agreement (incorporated
by reference to Exhibit 4(u) to the Registration
Statement on Form S-1 of the Company filed with the SEC
on March 16, 1993)

4(p) Warrant (Earned) to purchase shares of the Company's
Common Stock dated March 24, 1993 (incorporated by
reference to Exhibit 4(v) to the Registration Statement
on Form S-1 of the Company filed with the SEC on March
16, 1993)

4(q) Warrant (Earned-In) to purchase shares of the Company's
Common Stock, dated March 23, 1993 (incorporated by
reference to Exhibit 4(w) to the Registration Statement
on Form S-1 of the Company filed with the SEC on March
16, 1993)

4(r) Recapitalization Agreement among the Company, General
Electric Capital Corporation, Smith Barney Inc.,
Chemical Fund Investments, Inc., Legend Capital Group,
Inc., Legend Capital International Ltd., Castle Harlan,
Inc., M. Farooq Kathwari, the Ethan Allen Retirement
Program and other stockholders named on the signature
pages thereto, dated March 24, 1993 (incorporated by
reference to Exhibit 4(x) to the Registration Statement
on Form S-1 of the Company filed with the SEC on March
16, 1993)



55


4(s) Preferred Stock and Common Stock Subscription Agreement,
dated March 24, 1993, among the Company, General
Electric Capital Corporation, and Smith Barney Inc.
(incorporated by reference to Exhibit 4(y) to the Annual
Report on Form 10-K of the Company filed with the SEC on
September 24, 1993)

4(t) Security Agreement, dated March 10, 1995, between Ethan
Allen Inc. and J. P. Morgan Chase & Co. (incorporated by
reference to Exhibit 4(t) to the Quarterly Report on
Form 10-Q of the Company filed with the SEC on February
13, 1997)

4(u) Rights Agreement, dated July 26, 1996, between the
Company and Harris Trust and Savings Bank (incorporated
by reference to Exhibit 10.1 to the Current Report on
Form 8-K of the Company filed with the SEC on July 3,
1996)

4(v) Registration Rights Agreement, dated March 28, 1997,
between the Company and Carriage House Interiors of
Colorado, Inc. (incorporated by reference to Exhibit 4.4
to the Registration Statement on Form S-3 of the Company
filed with the SEC on May 21, 1997)

4(w) Credit Agreement, dated August 24, 1999, by and among
Ethan Allen Inc., Ethan Allen Interiors Inc., the J. P.
Morgan Chase & Co., Fleet Bank, N.A. and Wachovia Bank,
N.A. (incorporated by reference to Exhibit 4(w) to the
Annual Report on Form 10-K of the Company filed with the
SEC on September 13, 2000)

10(b) Employment Agreement, dated June 29, 1989, among Mr.
Kathwari, the Company and Ethan Allen (incorporated by
reference to Exhibit 10(b) to the Registration Statement
on Form S-1 of the Company filed with the SEC on March
16, 1993)

10(c) Employment Agreement, dated July 27, 1994, among Mr.
Kathwari, the Company and Ethan Allen (incorporated by
reference to Exhibit 10(c) to the Annual Report on Form
10-K of the Company filed with the SEC on September 21,
1995)

10(d) Restated Directors Indemnification Agreement dated March
1993, among the Company and Ethan Allen and their
Directors (incorporated by reference to Exhibit 10(c) to
the Registration Statement on Form S-1 of the Company
filed with the SEC on March 16, 1993)

10(e) Registration Rights Agreement, dated March 1993, by and
among Ethan Allen, General Electric Capital Corporation
and Smith Barney Inc. (incorporated by reference to
Exhibit 10(d) to the Registration Statement on Form S-1
of the Company filed with the SEC on March 16, 1993)

10(f) Form of Management Bonus Plan, dated October 30, 1991
(incorporated by reference to Exhibit 10(g) to the
Registration Statement on Form S-1 of the Company filed
with the SEC on March 16, 1993)

10(g) Ethan Allen Profit Sharing and 401(k) Retirement Plan
(incorporated by reference to Exhibit 10(g) to the
Annual Report on Form 10-K of the Company filed with the
SEC on September 21, 1995)

10(h) General Electric Capital Corporation Credit Card Program
Agreement dated August 25, 1995 (incorporated by
reference from Exhibit 10(h) to the Annual Report on
Form 10-K of the Company filed with the SEC on September
21, 1995)

10(h)-1 First Amendment to Credit Card Program Agreement dated
February 22, 2000 (incorporated by reference to Exhibit
10(h)-1 to the Annual Report on Form 10-K of the Company
filed with the SEC on September 13, 2000)



56


10(i) Employment Agreement, dated October 28, 1997, between
Mr. Kathwari and Ethan Allen Interiors, Inc.
(incorporated by reference to Exhibit 10(i) to the
Quarterly Report on Form 10-Q of the Company filed with
the SEC on November 14, 1997)

10(j) Sales Finance Agreement, dated June 25, 1999, between
the Company and MBNA America Bank, N.A. (incorporated by
reference to Exhibit 10(j) to the Annual Report on Form
10-K of the Company filed with the SEC on September 13,
2000)

10(k) Amended and Restated Consumer Credit Card Program
Agreement, dated February 22, 2000, by and among the
Company and Monogram Credit Card Bank of Georgia
(incorporated by reference to Exhibit 10(k) to the
Annual Report on Form 10-K of the Company filed with the
SEC on September 13, 2000)

10(k)-2 Second Amendment to Amended and Restated Consumer Credit
Card Program Agreement, dated February 1, 2002, by and
among the Company and Monogram Credit Card Bank of
Georgia (incorporated by reference to Exhibit 10(k)-2 to
the Quarterly Report on Form 10-Q of the Company filed
with the SEC on May 13, 2002)

10(k)-3 Third Amendment to Amended and Restated Consumer Credit
Card Program Agreement, dated July 26, 2002, by and
among the Company and Monogram Credit Card Bank of
Georgia (incorporated by reference to Exhibit 10(k)-3 to
the Quarterly Report on Form 10-Q of the Company filed
with the SEC on November 12, 2002)

10(l) Employment Agreement, dated August 1, 2002, between Mr.
Kathwari and Ethan Allen Interiors, Inc. (incorporated
by reference to Exhibit 10(l) to the Annual Report on
Form 10-K of the Company filed with the SEC on September
30, 2002)

10(l)-1 First Amendment to Employment Agreement, dated August 1,
2002, between Mr. Kathwari and Ethan Allen Interiors,
Inc. (incorporated by reference to Exhibit 10(l)-1 to
the Quarterly Report on Form 10-Q of the Company filed
with the SEC on May 15, 2003).

21 List of wholly-owned subsidiaries of the Company
(incorporated by reference to Exhibit 22 to the
Registration Statement on Form S-1 of the Company filed
with the SEC on March 16, 1993)

* 23 Consent of KPMG LLP

* 31.1 Rule 13a-14(a) Certification of Principal Executive
Officer

* 31.2 Rule 13a-14(a) Certification of Principal Financial
Officer

* 32.1 Section 1350 Certifications of Principal Executive
Officer and Principal Financial Officer

* Filed herewith.




57


ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
As of and for the Fiscal Years Ended June 30, 2003, 2002 and 2001
(In thousands)


Balance at Additions Adjustments Balance at
Beginning Charged to and/or End of
of Period Income Deductions Period
---------- ---------- ----------- ----------
Accounts Receivable
Sales discounts, sales returns and
allowance for doubtful accounts:

June 30, 2003 $ 2,019 $ (451) $ (78) $ 1,490
June 30, 2002 $ 2,679 $ (660) $ - $ 2,019
June 30, 2001 $ 2,751 $ (22) $ (50) $ 2,679


Inventory
Inventory valuation allowance:

June 30, 2003 $ 4,517 $ 772 $ (621) $ 4,668
June 30, 2002 $ 3,346 $ 1,510 $ (339) $ 4,517
June 30, 2001 $ 1,591 $ (444) $ 2,199 $ 3,346




58


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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)


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

Date: September 19, 2003





59



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on September 19, 2003.




/s/ M. Farooq Kathwari Chairman, President and
- ------------------------------------------ Chief Executive Officer
(M. Farooq Kathwari)




/s/ Clinton A. Clark Director
- ------------------------------------------
(Clinton A. Clark)




/s/ Kristin Gamble Director
- ------------------------------------------
(Kristin Gamble)




/s/ Horace G. McDonell Director
- ------------------------------------------
(Horace G. McDonell)




/s/ Edward H. Meyer Director
- ------------------------------------------
(Edward H. Meyer)




/s/ William W. Sprague Director
- ------------------------------------------
(William W. Sprague)




/s/ Frank G. Wisner Director
- ------------------------------------------
(Frank G. Wisner)




/s/ Jeffrey A. Hoyt Vice President, Finance
- ------------------------------------------
(Jeffrey A. Hoyt)






60