The following discussion of financial condition and results of operations should be read in conjunction with (i) our Consolidated Financial Statements, and notes thereto, included in Item 1 of Part I of this Quarterly Report on Form 10-Q and
(ii) our Annual Report on Form 10-K for the year ended June 30, 2012.

Forward-Looking Statements

Management's discussion and analysis of financial condition and results of operations and other sections of this Quarterly Report contain forward-looking statements relating to our future results. 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 management decisions and various assumptions, risks and uncertainties, including, but not limited to:
the potential effects of natural disasters affecting our suppliers or trading partners; the effects of labor strikes; weather conditions that may affect sales; volatility in fuel, utility, transportation and security costs; changes in global or regional political or economic conditions, including changes in governmental and central bank policies; changes in business conditions in the furniture industry, including changes in consumer spending patterns and demand for home furnishings; effects of our brand awareness and marketing programs, including changes in demand for our existing and new products; our ability to locate new design center sites and/or negotiate favorable lease terms for additional design centers or for the expansion of existing design centers; competitive factors, including changes in products or marketing efforts of others; pricing pressures; fluctuations in interest rates and the cost, availability and quality of raw materials; the effects of terrorist attacks or conflicts or wars involving the United States or its allies or trading partners; those matters discussed in Items 1A and 7A of our Annual Report on Form 10-K for the year ended June 30, 2012 and in our SEC filings; and our future decisions. Accordingly, actual circumstances and results could differ materially from those contemplated by the forward-looking statements.

Critical Accounting Policies

The Company's consolidated financial statements are based on the accounting policies used. Certain accounting polices require that estimates and assumptions be made by management for use in the preparation of the financial statements. Critical accounting policies are those that are central to the presentation of the Company's financial condition and results and that require subjective or complex estimates by management. There have been no material changes with respect to the Company's critical accounting policies from those disclosed in its 2012 Annual Report on Form 10-K filed with the SEC on August 16, 2012.

For the three and six months ended December 31, 2012 and 2011, the Company has presented Selling, general and administrative expenses as a single line on the Consolidated Statements of Comprehensive Income to remove information we believe is not meaningful and to improve comparability with peer companies. Selling expenses, General and administrative expenses, and Restructuring and impairment charges had previously been presented separately.

Results of Operations

Our net sales and profitability have improved for several consecutive quarters as compared to the same prior year periods, and we have positioned the Company for growth. During fiscal 2012, we substantially completed a major overhaul of our products. During the first six months of fiscal 2013 we opened in Montreal, Canada and Brussels, Belgium, our first company operated design centers in non-English speaking markets, and launched www.ethanallen.ca our new multi-lingual website. On October 29, 2012 Hurricane Sandy made landfall in the Northeast U.S., resulting in Federal disaster area designation in portions of several states we do business in. Twenty eight of our Retail division design centers and eight independent retailer locations were affected. Hurricane Sandy negatively impacted our written orders, delivered sales, and our manufacturing margins during the current quarter.

We continue to invest significantly in (i) getting our messages across, (ii) the strength of our interior design professionals and management in our retail business, (iii) new technologies across key aspects of our vertically integrated business, and (iv) the ramp up of our North American manufacturing capacity where we manufacture approximately 70% of our products. Our competitive advantages arise from providing high quality products of the finest craftsmanship, offering complimentary design service through an estimated 2,000 motivated interior design professionals network-wide, giving free local delivery, enhancing our technology in all aspects of the business, and through leveraging our vertically integrated structure. Executing against all of these elements helps us achieve our mission of 'Luxury Made Affordable'.

Quarter Ended December 31, 2012 Compared to Quarter Ended December 31, 2011

Consolidated revenue for the three months ended December 31, 2012 increased 4.4% to $191.3 million, from $183.3 million for the three months ended December 31, 2011. We attribute the current year growth to (i) continued success of our new and innovative marketing initiatives including promotional pricing and our interactive web site ethanallen.com, (ii) the positive effects of our national television and direct mail media campaigns, (iii) significant new product introductions, which began in fiscal 2012, and (iv) our continued repositioning of the retail network.

At December 31, 2012, the Company operated 149 of the 305 global network design centers compared with 147 of the 297 at December 31, 2011. Our global network included 74 design centers in China at the end of the current quarter versus 67 at December 31, 2011. Our international net sales were 5.7% and 5.8% of consolidated net sales for the three months ended December 31, 2012 and 2011 respectively. The majority of our international sales are to our independent retailer in China.

Wholesale revenue for the second quarter of fiscal 2013 increased 1.4% to $108.2 million from $106.6 million in the prior year comparable period. Orders in the current quarter for our wholesale segment decreased by 12.6% compared to the same period last year. Orders for prototype product intended for floor displays occur on a less regular basis than regular orders. Excluding prototype orders in both periods, orders increased by 5.0% in fiscal 2013 compared to fiscal 2012.

Retail revenue from Ethan Allen-operated design centers for the three months ended December 31, 2012 increased 6.1% to $151.8 million from $143.1 million for the three months ended December 31, 2011. We believe the increase in retail sales by Ethan Allen-operated design centers is due to our promotional marketing campaigns and the design solutions approach of our interior design professionals, continued use of both our national television and direct mail media campaigns, our digital communications to prospective clients, the positive effects of repositioning the retail network, and a net increase of two Ethan Allen-operated design centers between December 31, 2011 and December 31, 2012. We ended the current quarter with 149 Ethan Allen-operated design centers.

Comparable design centers are those which have been operating for at least 15 months. Minimal net sales, derived from the delivery of customer ordered product, are generated during the first three months of operations of newly opened (including relocated) design centers. Design centers acquired by us from independent retailers are included in comparable design centers sales in their 13th full month of Ethan Allen-owned operations. Written business of Ethan Allen-operated design centers during the quarter increased 1.2% while comparable design centers written business remained even with prior year quarter. The frequency of our promotional events as well as the timing of the end of those events can impact the orders booked during a given quarter.

We have made considerable investment within the retail network to strengthen the level of service, professionalism, interior design competence, efficiency, and effectiveness of the retail design center personnel. We believe that over time, we will continue to benefit from (i) our repositioning of the retail network,
(ii) significant new product introductions, (iii) new marketing promotions and our interior design affiliate (IDA) program, (iv) continued use of technology including our state-of-the-art multi-lingual website coupled with personal service from our design professionals, and (v) ongoing use of targeted advertising media.

Gross profit increased 5.9% during the quarter to $104.0 million (54.4% of net sales) from $98.2 million (53.6% of net sales) in the prior year comparable quarter. The increase in gross profit was primarily due to improved gross margin rates in our retail segment due to efficiencies and improved pricing, and a higher mix of our retail net sales to our consolidated net sales (79% in the current quarter versus 78% in the prior year quarter). Our wholesale gross profit decreased by $1.8 million (29.7% of net sales from 31.9% of net sales in the prior year comparable quarter) as we reduced production to match the incoming order rate, which included fewer prototype orders than in the prior year, and increased costs of imported product in the second quarter of fiscal 2013.

Operating expenses increased $2.3 million to $86.6 million from $84.3 million in the prior year quarter due primarily to variable costs on higher net sales and costs associated with our retail expansion internationally including new design centers opened during the quarter in Montreal and Brussels. These were partly offset by operating efficiencies in our retail segment due to structural changes.

Operating income and profit margin for the quarter ended December 31, 2012 was $17.4 million, or 9.1% of net sales, an increase of $3.4 million or 24.5% from the prior year quarter's $13.9 million, or 7.6% of net sales. Wholesale operating income for the three months ended December 31, 2012 was $8.9 million, or 8.2% of sales, compared to $15.7 million, or 14.7% of sales, in the prior year comparable quarter. Retail operating income for the second quarter of fiscal 2013 was $6.0 million, or 4.0% of sales, compared to a loss of $2.5 million, or a negative 1.8% of sales the prior year. Improvements in operating income were driven primarily by the 4.4% growth in consolidated net sales and higher retail gross profits as previously discussed.

Interest and other miscellaneous income, net remained consistent with the prior year at $0.1 million.

Interest and other related financing costs were slightly lower at $2.2 million in the current quarter compared to $2.3 million in the prior year comparable quarter, due to the timing of our Senior Note early repurchases in fiscal 2012.

Income tax expense for the three months ended December 31, 2012 totaled $5.4 million compared to $3.7 million for the three months ended December 31, 2011. Our effective tax rate for the current quarter was a 35.6% compared to 31.6% in the prior year quarter. The current quarter effective tax rate includes tax expense on the current quarter's net income, interest expense on uncertain tax positions, and the impact of maintaining valuation allowances on certain deferred tax assets. The prior period effective tax rate includes tax expense on the current quarter's net income, interest expense on uncertain tax positions, and the impact of maintaining valuation allowances on certain deferred tax assets.

Net income for the three months ended December 31, 2012, was $9.8 million compared to $8.1 million in the prior year comparable period. This resulted in net income per diluted share of $0.34 for the quarter ended December 31, 2012 compared to $0.28 per diluted share for the quarter ended December 31, 2011.

Six Months Ended December 31, 2012 Compared to Six Months Ended December 31, 2011

Consolidated revenue for the six months ended December 31, 2012 increased 2.8% to $378.7 million, from $368.2 million for the six months ended December 31, 2011. We attribute the current year growth to (i) continued success of our new and innovative marketing initiatives including promotional pricing and our interactive web site ethanallen.com, (ii) the positive effects of our national television and direct mail media campaigns, (iii) significant new product introductions, which began in fiscal 2012, and (iv) our continued repositioning of the retail network.

Our international net sales were 5.9% and 6.1% of consolidated net sales for the six months ended December 31, 2012 and 2011 respectively, a decrease of less than $0.1 million, or 0.4%.

Wholesale revenue for the first six months of fiscal 2013 decreased 1.5% to $219.6 million from $223.0 million in the prior year comparable period. The prior year net sales benefitted from shipments of prototype product for the first phase of our product overhaul last fiscal year. Orders in the current six months for our wholesale segment decreased by 4.2% compared to the same period last year, due to prototype orders in the prior year related to our new product introductions.

Retail revenue from Ethan Allen-operated design centers for the six months ended December 31, 2012 increased 5.8% to $300.9 million from $284.3 million for the six months ended December 31, 2011. We believe the increase in retail sales by Ethan Allen-operated design centers is due to our promotional marketing campaigns and the design solutions approach of our interior design professionals, continued use of both our national television and direct mail media campaigns, our digital communications to prospective clients, the positive effects of repositioning the retail network, and a net increase of two Ethan Allen-operated design centers between December 31, 2011 and December 31, 2012.

Comparable design centers are those which have been operating for at least 15 months. Minimal net sales, derived from the delivery of customer ordered product, are generated during the first three months of operations of newly opened (including relocated) design centers. Design centers acquired by us from independent retailers are included in comparable design centers sales in their 13th full month of Ethan Allen-owned operations. Year-over-year, written business of Ethan Allen-operated design centers increased 5.3% while comparable design centers written business increased 4.2%. The frequency of our promotional events as well as the timing of the end of those events can impact the orders booked during a given quarter.

We have made considerable investment within the retail network to strengthen the level of service, professionalism, interior design competence, efficiency, and effectiveness of the retail design center personnel. We believe that over time, we will continue to benefit from (i) our repositioning of the retail network,
(ii) significant new product introductions, (iii) new marketing promotions and our interior design affiliate (IDA) program, (iv) continued use of technology including our state-of-the-art website coupled with personal service from our design professionals, and (v) ongoing use of targeted advertising media.

Gross profit increased 6.2% during the period to $208.2 million (55.0% of net sales) from $196.1 million (53.3% of net sales) in the prior year comparable period. The increase in gross profit was primarily due to improved gross margin rates in our retail business due to efficiencies and improved pricing, and a higher mix of our retail net sales to our consolidated net sales (80% in the current year versus 77% in the prior year). Wholesale gross profit was negatively impacted by the reduced production due to reduced need for prototype product previously discussed.

Operating expenses increased $4.4 million to $172.9 million from $168.5 million in the prior year due primarily to variable costs on higher net sales and higher current fiscal year charges related to real estate and our international expansion.

Operating income and profit margin for the six months ended December 31, 2012 was $35.3 million, or 9.3% of net sales, an increase of $7.7million or 28.0% from the prior year's $27.6 million, or 7.5% of net sales. Wholesale operating income for the six months ended December 31, 2012 was $24.9 million, or 11.3% of sales, compared to $31.4 million, or 14.1% of sales, in the prior year comparable period. Retail operating income for the first six months of fiscal 2013 was $7.1 million, or 2.3% of sales, compared to a loss of $4.0 million, or a negative 1.4% of sales the prior year. Improvements in operating income were driven primarily by the 2.8% growth in consolidated net sales and higher gross profits as previously discussed.

Interest and other miscellaneous income, net remained consistent with the prior year at $0.2 million.

Interest and other related financing costs amounted to $4.4 million in the current year compared to $4.6 million in the prior year. This reduction is due to lower interest expense resulting from reductions in debt outstanding primarily due to our Senior Note repurchases.

Income tax expense for the six months ended December 31, 2012 totaled $11.2 million compared to $8.3 million for the six months ended December 31, 2011. Our effective tax rate for the current year was a 36.0% compared to 35.9% in the prior year. The current effective tax rate includes tax expense on the current six months net income, interest expense on uncertain tax positions, and the impact of maintaining valuation allowances on certain deferred tax assets. The prior period effective tax rate includes tax expense on the current quarter's net income, interest expense on uncertain tax positions, and the impact of maintaining valuation allowances on certain deferred tax assets.

Net income for the six months ended December 31, 2012, was $19.9 million compared to $14.8 million in the prior year comparable period. This resulted in net income per diluted share of $0.68 for the current period compared to $0.51 per diluted share in the prior year period.

Liquidity and Capital Resources

At December 31, 2012, we held unrestricted cash and cash equivalents of $57.3 million, marketable securities of $17.9 million, and restricted cash and investments of $15.4 million. At June 30, 2012, we held unrestricted cash and cash equivalents of $79.7 million, marketable securities of $9.0 million, and restricted cash and investments of $15.4 million. Our principal sources of liquidity include cash and cash equivalents, marketable securities, cash flow from operations, amounts available under our credit facility, and other borrowings.

In September 2005, we issued $200.0 million in ten-year senior unsecured notes due 2015 (the "Senior Notes"). The Senior Notes were issued by Global, bearing an annual coupon rate of 5.375% with interest payable semi-annually in arrears on April 1 and October 1. We have used the net proceeds of $198.4 million to improve our retail network, invest in our manufacturing and logistics operations, and for other general corporate purposes. During the full fiscal years 2011 and 2012, the Company reduced its Senior Notes by an aggregate face value of $46.6 through unsolicited purchases.

We also maintain a $50 million senior secured, asset-based revolving credit facility (the "Facility"). We have not had any revolving loans under the Facility at any time. At December 31, 2012 and June 30, 2012, there were $0.6 million of standby letters of credit outstanding under the Facility. The Facility is subject to borrowing base availability and includes a right for the Company to increase the total facility to $100 million subject to certain conditions. The Facility is secured by all property owned, leased or operated by the Company in the United States excluding any real property owned by the Company and contains customary covenants which may limit the Company's ability to incur debt, engage in mergers and consolidations, make restricted payments (including dividends), sell certain assets, and make investments. Remaining availability under the Facility totaled $49.4 million at December 31, 2012 and at June 30, 2012 and as a result, covenants and other restricted payment limitations did not apply. The Facility expires March 25, 2016, or June 26, 2015 if the Senior Notes have not been refinanced prior to that date.

At December 31, 2012 and June 30, 2012, we were in compliance with all covenants of the Senior Notes and the Facility.

                  ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

A summary of net cash provided by (used in) operating, investing, and financing
activities for the six month periods ended December 31, 2012 and 2011 is
provided below (in millions):

                                                                Six months ended
                                                                  December 31,
                                                                2012         2011
   Operating Activities
   Net income plus depreciation and amortization              $    28.9     $  24.4
   Working capital items                                          (12.4 )     (17.4 )
   Other operating activities                                       1.7         4.0
   Total provided by (used in) operating activities           $    18.2     $  11.0

   Investing Activities
   Capital expenditures and acquisitions                      $   (14.1 )   $ (11.4 )
   Net purchases of marketable securities                          (9.1 )       1.7
   Other investing activities                                       1.9         3.6
   Total provided by (used in) investing activities           $   (21.3 )   $  (6.1 )

   Financing Activities
   Payments of long-term debt and capital lease obligations   $    (0.1 )   $ (12.1 )
   Purchases and retirements of company stock                         -        (0.9 )
   Payment of cash dividends                                      (19.6 )      (4.0 )
   Other financing activities                                       0.3         0.3
   Total provided by (used in) financing activities           $   (19.4 )   $ (16.7 )

Operating Activities

In the first six months of fiscal 2013, cash of $18.2 million was generated by operating activities, an increase of $7.2 million from the comparable prior fiscal period. The net increase in cash generated from operating activities was largely due to an increase in net income of $5.1 million, partly offset by a depreciation and amortization decrease of $0.6 million. Working capital items (defined below) used $5.0 million less cash in the current fiscal year as a result of normal fluctuations due to timing of sales and orders. Other operating activities generated $2.3 million less cash during the current period, primarily due to changes in non-cash income tax valuation reserves during fiscal 2012. Working capital items consist of accounts receivable, inventories, prepaid and other current assets, customer deposits, payables, and accrued expenses and other current liabilities.

Investing Activities

In the first six months of fiscal 2013, $21.3 million of cash was used in investing activities, which is $15.2 million more than was used during the first six months of fiscal 2012. More cash was used in fiscal 2013 largely due to an increase in our net purchases of marketable securities, and partly for capital expenditures in the current period for retail real estate and expansion of our manufacturing capacity in Honduras. We anticipate that cash from operations will be sufficient to fund future capital expenditures.

Financing Activities

In the first six months of fiscal 2013, $19.4 million was used in financing activities, which is a $2.7 million increase from cash used in the first six months of fiscal 2012. This increase was primarily related to increased dividend payments in the fiscal 2013 period as a result of (i) an increase in the regular quarterly dividend from $.07 per share to $.09 per share which occurred in July 2012, (ii) the acceleration of the payment of the quarterly dividend which would normally have occurred in January 2013 to December 2012, and (iii) the declaration and payment of a special dividend of $0.41 per share in December 2012. The Board of Directors took the actions described in the foregoing clauses
(ii) and (iii)to provide shareholders an opportunity for favorable tax treatment in 2012. This increase in dividends was partly offset by a reduction in our Senior Note buybacks, which were made in fiscal 2012 and not in fiscal 2013. The Company has continuously paid dividends every quarter since 1996 (subject to the acceleration of the dividend originally planned for the third quarter of fiscal 2013 to the second quarter, as described above) and we expect to continue to do so as economic conditions and liquidity permit.

As of December 31, 2012, our outstanding debt totaled $155.3 million, which consists of $153.0 million in Senior Notes which mature in September 2015 (fiscal 2016), and $2.3 million in capital leases which mature in at various times from December 2016 through February 2018. The aggregate scheduled maturities of long-term debt for each of the next five fiscal years are $0.5 million in each of fiscal 2014 and fiscal 2015, $153.6 million in fiscal 2016, $0.4 million in fiscal 2017 and $0.2 million in fiscal 2018. At June 30, 2012 our outstanding debt totaled $154.5 million, the current and long-term portions of which amounted to $0.3 million and $154.2 million respectively.

There has been no material change to the amount or timing of cash payments related to our outstanding contractual obligations as set forth in Part II, Item
7 - Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended June 30, 2012 as filed with the SEC on August 16, 2012.

We believe that our cash flow from operations, together with our other available sources of liquidity, will be adequate to make all required payments of principal and interest on our debt, to permit anticipated capital expenditures, and to fund working capital and other cash requirements. As of December 31, 2012, we had working capital of $132.6 million compared to $131.7 million at June 30, 2012, an increase of $0.9 million, or 0.7%. The Company had a current ratio of 2.14 to 1 at December 31, 2012 and 1.87 to 1 at June 30, 2012.

In addition to using available cash to fund changes in working capital, capital expenditures, acquisition activity, the repayment of debt, the payment of dividends, and debt repurchases, we have been authorized by our Board of Directors to repurchase shares of our common stock from time to time, either directly or through agents, in the open market at prices and on terms satisfactory to us. All of our common stock repurchases and retirements are recorded as treasury stock and result in a reduction of shareholders' equity.

During the six months ended December 31, 2012 and 2011, we repurchased and/or retired the following shares of our common stock:

. . .