(3)	Income Taxes

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

The Company conducts business globally and, as a result, the Company or one or more of its subsidiaries files income tax returns in the U.S., various state, and foreign jurisdictions. In the normal course of business, the Company is subject to periodic examination in such domestic and foreign ~~jurisdictions. As of September 30, 2016, the~~jurisdictions by tax authorities. The Company and certain subsidiaries are currently under audit in the U.S. from ~~2009~~2012 through ~~2013.~~2014. While the amount of uncertain tax benefits with respect to the entities and years under audit may change within the next twelve months, it is not anticipated that any of the changes will be significant. It is reasonably possible that some of these audits may be completed during the next twelve months. It is reasonable to expect that various issues relating to uncertain tax benefits will be resolved within the next twelve months as exams are completed or as statutes expire and will impact the effective tax rate.

The ~~Company’s~~Company’s consolidated effective tax rate was 35.1% for the three months ended September 30, 2017 and 36.5% for the three months ended September 30, ~~2016 and 36.1% for the three months ended September 30, 2015. Both the~~2016. The current ~~and prior year~~period’s effective tax ~~rates~~rate primarily ~~include~~includes tax expense on the ~~corresponding~~ taxable year’s net income, and tax and interest expense on uncertain tax positions partially offset by tax benefit on the ~~reversal~~vesting of restricted stock units. The prior period’s effective tax rate primarily includes tax expense on the taxable year’s net income, and ~~recognition of some~~tax and interest expense on uncertain tax positions. Effective July 1, 2017 the company adopted ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which requires the Company to present all deferred tax assets and liabilities as noncurrent. The Company has applied the new guidance prospectively and accordingly the prior balance sheets were not retrospectively adjusted. The adoption did not have a material impact on the Company’s consolidated results of operations, cash flows or financial position.

ETHAN ALLEN INTERIORS INC.AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(4)	Restricted Cash and Investments

At September 30, ~~2016~~2017 and June 30, ~~2016,~~2017, we held ~~$7.3~~$7.0 million and ~~$7.8~~$7.3 million respectively, of restricted cash and investments in lieu of providing letters of credit for the benefit of the provider of our workmen’s compensation insurance and other insurance. These funds can be invested in high quality money market mutual funds, U.S. Treasuries and U.S. Government agency fixed income instruments, and cannot be withdrawn without the prior written consent of the secured party. These assets are carried at cost, which approximates market value and are classified as long-term assets because they are not expected to be used within one year to fund operations. See also Note 11, ~~“Fair Value Measurements"~~“Financial Instruments".

~~ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

(5)	Inventories

Inventories at September 30, ~~2016~~2017 and June 30, ~~2016~~2017 are summarized as follows (in thousands):

September 30,
2016

June 30,
2016

Finished goods
$ 124,427 $ 129,627
Work in process
10,383 9,497
Raw materials
27,148 27,554
Valuation allowance
(2,615 ) (4,355 )
Inventories $ 159,343 $ 162,323

	September 30,			June 30,
	2017			2017

Finished goods	$	116,694		$	117,388
Work in process		12,670			10,638
Raw materials		29,945			26,269
Valuation allowance		(1,804	)		(4,812	)
Inventories	$	157,505		$	149,483

(6)	Borrowings

Total debt obligations at September 30, ~~2016~~2017 and June 30, ~~2016~~2017 consist of the following (in thousands):

	September 30, 2016		June 30, 2016		September 30,		June 30,
					2017		2017
Revolving Credit Facility due 10/21/2019	$	25,000	$	25,000
Term Loan due 10/21/2019		15,583		16,167
Capital leases and other		505		671

Term Loan due 2019					$	-	$	13,833
Capital leases						635		1,085
Total debt obligations						635		14,918
Unamortized debt issuance costs						-		(579	)
Total debt		41,088		41,838		635		14,339
Less current maturities		2,941		3,001		372		2,731
Total long-term	$	38,147	$	38,837	$	263	$	11,608

The Company entered into a five year, $150 million senior secured revolving credit and term loan facility on October 21, 2014, as amended (the “Facility”). The Facility, which expires on October 21, 2019, ~~provides~~provided a single-draw term loan of ~~up to~~ $35 million and a revolving credit line of up to $115 million, subject to borrowing base availability. We incurred financing costs of $1.5 million under the ~~Facility, which are~~Facility. The unamortized portion is being amortized by the interest method, over the remaining life of the Facility.

At the ~~Company’s~~Company’s option, revolving loans under the Facility bear interest, based on the average availability, at an annual rate of either (a) the London Interbank Offered rate (“LIBOR”) plus 1.5% to 1.75%, or (b) the higher of (i) the prime rate, (ii) the federal funds effective rate plus 0.50%, or (iii) LIBOR plus 1.0% plus in each case 0.5% to 0.75%. At

During the quarter ended September 30, ~~2016~~2017, the ~~annual interest rate in effect~~remaining balance due on the ~~revolving~~term loan was ~~2.0625%.~~

Atrepaid. The interest on the ~~Company’s option,~~ term ~~loans~~loan under the Facility ~~bear interest,~~had been based on the Company’s rent adjusted leverage ratio atwith an annual rate of ~~either (a)~~ LIBOR plus 1.75% to 2.25%~~, or (b) the higher of (i) the prime rate, (ii) the federal funds effective rate plus 0.50%, or (iii) LIBOR plus 1.0% plus in each case 0.75% to 1.25%~~. ~~At September 30, 2016 the annual interest rate in effect on the term loan was 2.3125%.~~

The Company pays a commitment fee of 0.15% to 0.25% per annum on the unused portion of the Facility, and fees on issued letters of credit at an annual rate of 1.5% to 1.75% based on the average availability. Certain payments are restricted if the availability under the revolving credit line falls below 20% of the total revolving credit line, and the Company is subject to pro forma compliance with the fixed charge coverage ratio if applicable.

Quarterly installments of principal on the term loan are payable based on a straight line 15-year amortization period, with the balance due at maturity. The Company does not expect to repay the revolving credit line portion of the Facility within the next year.

The Facility is secured by all property owned, leased or operated by the Company in the United States and includes certain real property owned by the Company and contains customary covenants which may limit the ~~Company’s~~Company’s ability to incur debt; engage in mergers and consolidations; make restricted payments (including dividends and share repurchases); sell certain assets; and make investments.

ETHAN ALLEN INTERIORS INC. ~~AND~~AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The Facility includes a covenant that requires the Company ~~must~~to maintain a minimum fixed charge coverage ratio of 1.1 toto 1.0 at all ~~times. If~~times unless the outstanding term loans are less than $17.5 million and the fixed charge coverage ratio equals or exceeds 1.25 to 1.0, in which case the fixed charge coverage ratio ceases to apply and thereafter is only triggered if average monthly availability is less than 15% of the amount of the revolving credit ~~line.During November 2015, we made a $16.5 million prepayment on~~line. The Company has met the ~~term loan, bringing the outstanding term loan to $17.3 million,~~exemption conditions and is currently exempt from the fixed charge coverage ratio ~~ceased to apply.Our average subsequent availability exceeded 65.0%, such that the fixed charge coverage ratio did not apply.~~covenant.

The Company intends to use the Facility for working capital and general corporate purposes, including dividend payments and share repurchases. At both September 30, ~~2016~~2017 and June 30, ~~2016,~~2017, there was $0.1 million ~~and $0.2 million respectively,~~ of standby letters of credit outstanding under the Facility. Total availability under the Facility was ~~$89.9~~$114.9 million at both September 30, ~~2016~~2017 and ~~$89.8 million at~~ June 30, ~~2016.~~2017.

At both September 30, ~~2016~~2017 and June 30, ~~2016,~~2017, we were in compliance with all of the covenants under the Facility.

The following table summarizes, as of September 30, ~~2016,~~2017, the timing of cash payments related to our outstanding long-term debt obligations for the remaining nine months of fiscal ~~2017,~~2018, and each of the five fiscal years subsequent to June 30, ~~2017,~~2018, and thereafter (in thousands).

Periods ending June 30,
2018	$	308
2019		139
2020		81
2021		66
2022		41
2023 and thereafter		-
Total scheduled debt payments	$	635

Periods ending June 30,

2017
$ 2,474
2018
2,815
2019
2,396
2020
34,213
2021
-
2022 and thereafter
-
Total scheduled debt payments
$ 41,898

(7)	Litigation

We are routinely party to various legal proceedings, including investigations or as a defendant in litigation, in the ordinary course of business. We are also subject to various federal, state and local environmental protection laws and regulations and ~~are~~are involved, from time to time, in investigations and proceedings regarding environmental matters. Such investigations and proceedings typically concern air emissions, water discharges, and/or management of solid and hazardous wastes. Under these laws, we and/or our subsidiaries are, or may be, required to remove or mitigate the effects on the environment of the disposal or release of certain hazardous materials.

Regulations issued under the Clean Air Act Amendments of 1990 required the industry to ~~reformulate~~reformulate certain furniture finishes or institute process changes to reduce emissions of volatile organic compounds. Compliance with many of these requirements has been facilitated through the introduction of high solids coating technology and alternative formulations. In addition, we have instituted a variety of technical and procedural controls, including reformulation of finishing materials to reduce toxicity, implementation of high velocity low pressure spray systems, development of storm water protection plans and controls, and further development of related inspection/audit teams, all of which have served to reduce emissions per unit of production. We remain committed to implementing new waste minimization programs and/or enhancing existing programs with the objective of (i) reducing the total volume of waste, (ii) limiting the liability associated with waste disposal, and (iii) continuously improving environmental and job safety programs on the factory floor which serve to minimize emissions and safety risks for employees. ~~In order to~~To reduce the use of hazardous materials in the manufacturing process, we will continue to evaluate the most appropriate, cost-effective control technologies for finishing operations and production methods. We believe that our facilities are in material compliance with all such applicable laws and regulations. Our currently anticipated capital expenditures for environmental control facility matters are not material.

On a quarterly basis, we review our litigation activities and determine if an unfavorable outcome to us is considered “remote”, “reasonably possible” or “probable” as defined by U.S. GAAP. Where we determine an unfavorable outcome is probable and is reasonably estimable, we accrue for potential litigation losses. The liability we may ultimately incur with respect to such litigation matters, in the event of a negative outcome, may be in excess of amounts currently accrued, if any; however, we do not expect that the reasonably possible outcome of these litigation matters would, individually or in the aggregate, have a material adverse effect on our financial condition, results of operations or cash flows. Where we determine an unfavorable outcome is not probable or reasonably estimable, we do not accrue for any potential litigation loss.

ETHAN ALLEN INTERIORS INC. ~~AND~~AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Although the outcome of the various claims and proceedings against us cannot be predicted with certainty, management believes that the likelihood is remote that any existing claims or proceedings, individually or in the aggregate, will have a material ~~adverse~~adverse effect on our financial position, results of operations or cash flows.

(8)	Share-Based Compensation

All options are issued at the closing stock price on each grant date, and have a contractual term of 10 years. A summary of stock option activity ~~occurring~~occurring during the three months ended September 30, ~~2016~~2017 is presented below:

	Shares
Outstanding as of June 30, ~~2016~~2017		~~907,073~~
~~Activity during the three months ended September 30, 2016~~		836,020
Granted		~~20,153~~19,482
Exercised		(~~9,191~~250	)
Canceled (forfeited/expired)		(~~10,460~~120,859	)
Outstanding as of September 30, ~~2016~~2017		~~907,575~~734,393

Exerciseable as of September 30, ~~2016~~2017		~~557,844~~444,417

A summary of stock unit activity occurring during the three months ended September 30, ~~2016~~2017 is presented below.

	Units		Weighted Average Grant Date Fair Value					Weighted
Non-vested units at June 30, 2016		218,050	$	24.53
								Average
								Grant Date
					Units			Fair Value
Non-vested units at June 30, 2017						308,330		$	25.92
Granted		81,250		29.92		81,250			25.42
Vested		-		-		(59,211	)		23.96
Canceled (forfeited/expired)		-		-		-			-
Non-vested units at September 30, 2016		299,300		25.99
Non-vested units at September 30, 2017						330,369		$	26.15

A summary of restricted stock activity occurring during the three months ended September 30, 2017 is presented below.

			Weighted
			Average
			Grant Date
	Units		Fair Value
Non-vested shares at June 30, 2017		-	$	-
Granted		16,234		25.62
Vested		-		-
Canceled (forfeited/expired)		-		-
Non-vested units at September 30, 2017		16,234	$	25.62

At September 30, ~~2016,~~2017, there were ~~1,250,264~~1,267,423 shares of common stock available for future issuance pursuant to the Stock Incentive Plan.

ETHAN ALLEN INTERIORS INC.AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(9)	Earnings Per Share

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

					Three months ended
	Three months ended September 30,				September 30,
	2016		2015		2017		2016
Weighted average shares of common stock outstanding for basic calculation		27,725		28,410		27,459		27,725

Effect of dilutive stock options and other share-based awards		287		263		297		287

Weighted average shares of common stock outstanding adjusted for dilution calculation		28,012		28,673		27,756		28,012

As of September 30, ~~2016~~2017 and ~~2015,~~2016, stock options to purchase ~~492,565~~337,761 and ~~576,009~~492,565 common shares, respectively, were excluded from the respective diluted earnings per share calculations because their impact was anti-dilutive.

~~ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

(10)

Accumulated Other Comprehensive Income

Accumulated other comprehensive income consists of foreign currency translation adjustments which are the result of changes in foreign currency exchange rates related to our operations in Canada, Belgium, Honduras, and Mexico, and exclude income taxes ~~given~~given that the earnings of non-U.S. subsidiaries are deemed to be reinvested for an indefinite time. The table following sets forth the activity in accumulated other comprehensive income (loss) for the period ended September 30, ~~2016~~2017 (in thousands).

Balance June 30, 2017	$	(4,131	)
Changes before reclassifications	$	(130	)
Amounts reclassified from accumulated other comprehensive income	$	-
Current period other comprehensive income (loss)	$	(130	)
Balance September 30, 2017	$	(4,261	)

Balance June 30, 2016
$ (4,846 )
Changes before reclassifications
$ (930 )
Amounts reclassified from accumulatedother comprehensive income
$ -
Current period other comprehensive income
$ (930 )
Balance September 30, 2016
$ (5,776 )

(11)

~~Fair Value Measurements~~Financial Instruments

We determine fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value isshould be calculated based on assumptions that market participants would use in pricing the asset or liability, ~~and~~ not on assumptions specific to the Company. In addition, the fair value of liabilities includes consideration of non-performance risk including our own credit risk. Each fair value measurement is reported in one of the three levels, determined by the lowest level input that is significant to the fair value measurement in its entirety. ~~These levels are:~~

Level 1 ~~Inputs~~inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

Level 2 ~~Inputs~~inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 ~~Inputs~~inputs are generally unobservable and typically reflect ~~management’s~~management’s estimates of assumptions that market participants would use in pricing the asset or ~~liability. The fair values are therefore determined~~liability using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

The following section describes the valuation methodologies we use to measure different financial assets and liabilities at fair value.

ETHAN ALLEN INTERIORS INC.AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents our assets and liabilities measured at fair value on a recurring basis at September 30, ~~2016~~2017 and June 30, ~~2016 (in~~2017

(in thousands):

September 30, 2016

Level 1

Level 2

Level 3

Balance

Cash equivalents
$ 76,556 $ - $ - $ 76,556
Total
$ 76,556 $ - $ - $ 76,556

June 30, 2016

Level 1

Level 2

Level 3

Balance

Cash equivalents
$ 60,479 $ - $ - $ 60,479
Total
$ 60,479 $ - $ - $ 60,479

~~ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

	September 30, 2017						June 30, 2017
	Level 1		Level 2		Balance		Level 1		Level 2		Balance
Cash equivalents	$	59,774	$	-	$	59,774	$	65,031	$	-	$	65,031
Available-for-sale securities		-		-		-		-		-		-
Total	$	59,774	$	-	$	59,774	$	65,031	$	-	$	65,031

Cash equivalents consist of money market accounts, and mutual funds in U.S. government and agency fixed income securities. We use quoted prices in active markets for identical assets or liabilities to determine fair value. There were no transfers between level 1 and level 2 during ~~the first three months of~~ fiscal ~~2017~~years 2018 or ~~fiscal 2016.~~2017. At September 30, ~~2016~~2017 and June 30, ~~2016,~~2017, $7.0 million and $7.3 million, ~~and $7.8 million,~~ respectively, of ~~the~~ cash equivalents were restricted and classified as a long-term ~~assets.~~asset. We did not hold any available-for-sale securities at September 30, 2017 or June 30, 2017.

~~No investments have been in a continuous loss position for more than one year, and no other-than-temporary impairments were recognized. See also Note 4, "Restricted Cash and Investments" .~~

Assets and Liabilities Measured at Fair Value on a ~~Non-recurring~~Nonrecurring Basis

We measure certain assets, including our cost and equity method investments, at fair value on a ~~non-recurring~~nonrecurring basis. These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired. During the ~~three month period~~quarter ended September 30, ~~2016,~~2017, we did not record any other-than-temporary impairments on those assets required to be measured at fair value on a non-recurring basis.

(12)

Segment Information

Our ~~operations are classified into two operating segments:~~ wholesale and ~~retail. These~~retail operating segments represent strategic business areas of our vertically integrated ~~business which, although they~~enterprise that operate separately and provide their own distinctive ~~services, enable~~services. This vertical structure enables us to ~~more efficiently control the quality and cost of~~offer our complete line of home furnishings and ~~accents.~~

~~The wholesale segment is principally involved in the development~~accents more effectively while controlling quality and cost. We evaluate performance of the ~~Ethan Allen brand, which encompasses the design, manufacture, domestic~~respective segments based upon revenues and offshore sourcing, sale and distribution of a full range of home furnishings and accents to a network of independently operated and Ethan Allen operated design centers as well as related marketing and brand awareness efforts. Wholesale revenue is generated upon the wholesale sale and shipment of our product to all retail design centers, including those operated by Ethan Allen.

The retail segment sells home furnishings and accents to consumers through a network of Company operated design centers and online through ethanallen.com. Retail revenue is generated upon the retail sale and delivery of our product to our customers.

operating income. Inter-segment ~~eliminations~~transactions result, primarily, from the wholesale sale of inventory to the retail segment, including the related profit margin.

~~We evaluate performance~~As of September 30, 2017, the ~~respective segments based upon revenues~~Company operated 150 design centers (our retail segment) and ~~operating income. While the manner in which~~ our home furnishings and accessories 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 manufacturing, sourcing, and distribution versus retail selling) are different. Within each segment, we maintain revenue information according to each respective product line (i.e. case goods, upholstery, or home accents and other). The proportion ofindependent retailers operated 156 design centers. Our wholesale segment net sales ~~by these product lines~~include sales to our retail segment, which are eliminated in consolidation, sales to our independent retailers and unaffliated third parties. Our retail segment net sales accounted for 78% of our consolidated net sales in the first quarter of fiscal 2018. Our wholesale segment net sales accounted for 22%. Information for the three months ended September 30, ~~2016~~2017 and ~~2015~~2016 is provided ~~as follows:~~below (in thousands):

							Three months ended
	Three months ended Septermber 30,						September 30,
	2016			2015			2017			2016
Case Goods		32	%		33	%		33	%		32	%
Upholstered Products		52	%		49	%		50	%		52	%
Home Accents and Other		16	%		18	%		17	%		16	%
		100	%		100	%		100	%		100	%

The proportion of retail segment sales by these product lines for the three months ended September 30, ~~2016~~2017 and ~~2015~~2016 is provided as follows:

							Three months ended
	Three months ended September 30,						September 30,
	2016			2015			2017			2016
Case Goods		30	%		30	%		31	%		30	%
Upholstered Products		49	%		46	%		47	%		49	%
Home Accents and Other		21	%		24	%		22	%		21	%
		100	%		100	%		100	%		100	%

ETHAN ALLEN INTERIORS INC. ~~AND~~AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Segment information for the three months ended September 30, ~~2016~~2017 and ~~2015~~2016 is provided below (in thousands):

							Three months ended
	Three months ended September 30,						September 30,
	2016			2015			2017			2016
Net sales:
Wholesale segment	$	114,564		$	120,455		$	111,587		$	114,564
Retail segment		152,255			146,040			141,575		$	152,255
Elimination of inter-company sales		(73,532	)		(76,104	)		(71,860	)		(73,532	)
Consolidated Total	$	193,287		$	190,391		$	181,302		$	193,287

Operating income:
Wholesale segment	$	16,491		$	20,587		$	13,462		$	16,491
Retail segment		1,023			1,640			(2,773	)		1,023
Adjustment of inter-company profit (1)		823			(1,327	)		860			823
Consolidated Total	$	18,337		$	20,900		$	11,549		$	18,337

Depreciation & Amortization:
Wholesale segment	$	1,910		$	1,911		$	1,987		$	1,910
Retail segment		3,089			2,872			3,099			3,089
Consolidated Total	$	4,999		$	4,783		$	5,086		$	4,999

Capital expenditures:
Wholesale segment	$	3,639		$	1,516		$	751		$	3,639
Retail segment		3,801			1,622			1,902			3,801
Acquisitions		-			-			-			-
Consolidated Total	$	7,440		$	3,138		$	2,653		$	7,440

September 30,
2016

June 30,
2016

Total Assets:

Wholesale segment
$ 288,800 $ 271,116
Retail segment
335,711 339,942
Inventory profit elimination (2)
(32,918 ) (33,649 )
Consolidated Total
$ 591,593 $ 577,409

	September 30,			June 30,
	2017			2017
Total Assets:
Wholesale segment	$	274,318		$	279,364
Retail segment		319,426			319,341
Inventory profit elimination (2)		(29,318	)		(30,483	)
Consolidated Total	$	564,426		$	568,222

(1)	Represents the change in wholesale profit contained in the retail segment inventory at the end of the period.
(2)	Represents the wholesale profit contained in the retail segment inventory that has not yet been realized. These profits are realized when the related inventory is sold.

(13)

Recently ~~Issued~~Adopted Accounting Pronouncements

~~In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09,~~~~Revenue from Contracts with Customers~~. This ASU provides a framework for revenue recognition that replaces most existing GAAP revenue recognition guidance when it becomes effective. We have an option to use either a retrospective approach or a cumulative effect adjustment approach to implement the guidance. The new standard is effective for us on July 1, 2018, with early adoption permitted in 2017. We are currently evaluating the impact of this guidance on our financial statements and the timing of adoption, and have not yet selected a transition approach.

~~ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

In July 2015, the FASB issued ASU ~~No.~~ 2015-11,,~~“Inventory~~ “Inventory (Topic 330): Simplifying the Measurement of Inventory,” which states that inventory should be measured at the lower of cost and net realizable value. Net realizable value is defined as estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ~~The new guidance is~~We adopted the provisions of ASU 2015-11 effective ~~for the Company on~~ July 1, ~~2017. The new guidance should be~~2017, applied ~~prospectively with earlier application permitted as of~~prospectively. We do not believe that the ~~beginning of an interim or annual reporting period. The Company is currently evaluating the~~adoption will have a material impact on our consolidated financial ~~statements and the timing of adoption.~~statements.

ETHAN ALLEN INTERIORS INC.AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

In November 2015, the FASB issued ASU 2015-17,Balance Sheet Classification of Deferred Taxes,, which requires the Company to present all deferred tax assets and liabilities as noncurrent. ~~This pronouncement is~~We adopted the provisions of ASU 2015-17 effective ~~for the Company on~~ July 1, 2017. At June 30, 2017 ~~and early adoption is permitted. The Company is currently evaluating~~we had net current deferred tax assets of $3.9 million which would have been classified as noncurrent under the ~~impact on our consolidated financial statements and the timing of adoption.~~new standard.

~~In February 2016, the FASB issued ASU 2016-02,~~~~Leases~~, which is intended to improve financial reporting about leasing transactions. The ASU will require lessees that lease assets with lease terms of more than twelve months to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Lessors will remain largely unchanged from current GAAP. In addition, the ASU will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. This pronouncement is effective for the Company on July 1, 2019, and early adoption is permitted. The Company is currently evaluating the impact on our consolidated financial statements and the timing of adoption.

In March 2016, the FASB issued ~~Accounting Standards~~ASU 2016-09,Improvements to Employee Share-Based Payment Accounting,, which amends ASC Topic 718, Stock Compensation. The objective of this amendment is part of the ~~FASB’s~~FASB’s Simplification Initiative as it applies to several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ~~This pronouncement is~~We adopted the provisions of ASU 2016-09 effective ~~for~~July 1, 2017. For the fiscal year ended June 30, 2017, the Company ~~on July 1, 2017, and allows for prospective, retrospective or modified retrospective adoption, depending on~~recorded a credit to additional paid in capital of $0.1 million that under the ~~area covered~~new standard would have been recognized in ~~the update, with early adoption permitted. The Company is currently evaluating the impact on our consolidated financial statements and the timing of adoption.~~income. Excess tax benefits were not material in fiscal year 2017.

(14)

Subsequent Events

None

Item 2. ~~Management’s~~Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, ~~2016.~~2017.

Forward-Looking Statements

Management's discussion and analysis of financial condition and results of operations and other sections of this Quarterly Report on Form 10-Q contain forward-looking statements within the meaning ofthe Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which represent our management’s beliefs and assumptions concerning future events based on information currently available to us relating to our future results. Such forward-looking statements are identified in this Quarterly Report on Form 10-Q and in documents incorporated herein by reference by use of forward-looking words such as "anticipate", "believe", "plan", "estimate", "expect", "intend", “will”, “may”, “continue”, “project”, ”target”, “outlook”, “forecast”, “guidance”, and similar expressions and the negatives of such forward-looking words. These forward-looking statements are subject to management decisions and various assumptions about future events, and are not guarantees of future performance. ~~A number of risks and uncertainties~~Actual results could ~~cause actual results to~~ differ materially from those anticipated in the forward-looking statements due to a number of risks and uncertainties including, but not limited to: competition from overseas manufacturers and domestic retailers; our anticipating or responding to changes in consumer tastes and trends in a timely manner; our ability to maintain and enhance our brand, marketing and advertising efforts and pricing strategies; changes in global ~~or regional political or~~and local economic conditions ~~including~~that may adversely affect consumer demand and spending, our manufacturing operations or sources of merchandise and international operations; changes in ~~governmental~~U.S. policy related to imported merchandise; an economic downturn; our limited number of manufacturing and ~~central bank policies;~~logistics sites; fluctuations in the price, availability and quality of raw materials; environmental, health and safety requirements; product safety concerns; disruption to our technology infrastructure (including cyber attacks); increasing labor costs, competitive labor markets and our continued ability to retain high-quality personnel and risks of work stoppages; loss of key personnel; our ability to ~~secure debt or other forms of financing;~~obtain sufficient external funding to finance our operations and growth; access to consumer credit; the effect of operating losses on our ability to pay cash dividends; changes in business conditions in the furniture industry, including changes in consumer spending patterns, tastes and demand for home furnishings; competition from overseas manufacturers and domestic retailers and competitive factors such as changes in products or marketing efforts of others; 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; fluctuations in interest rates and the cost, availability and quality of raw materials; pricing pressures; the effects of labor strikes; weather conditions that may affect sales; volatility in fuel, utility, transportation and security costs; the potential effects of natural disasters affecting our suppliers or trading partners; the effects of terrorist attacks or conflicts or wars involving the United States or its allies or trading partners;and those matters discussed in “Item 1A – Risk Factors” of our Annual Report on Form 10-K for the year ended June 30, ~~2016,~~2017, and elsewhere in this Quarterly Report on Form 10-Q and our SEC filings. Accordingly, actual circumstances and results could differ materially from those contemplated by the forward-looking statements.

~~ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES~~

Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. Many of these factors are beyond our ability to control or predict. Our forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Other than as required by law, we undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise.

ETHAN ALLEN INTERIORS INC.AND SUBSIDIARIES

Critical Accounting Policies

The ~~Company’s~~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~~other changes with respect to the Company’s critical accounting policies from those disclosed in its ~~2016~~2017 Annual Report on Form 10-K filed with the SEC on August ~~8, 2016.~~2, 2017. Also see Note 13, Recently ~~Issued~~Adopted Accounting Pronouncements.

Overview

We are a leading interior design company and manufacturer and retailer of quality home furnishings. Founded over 80 years ago, today we are a leading international home fashion brand doing business in North America, Europe, Asia and the Middle East. We are vertically integrated from design through delivery, affording our clientele a value ~~equation~~proposition of style, quality and price. We offer complementary interior design service to our clients and sell a full range of furniture products and decorative accents through ethanallen.com and a network of approximately 300 design centers in the United States and abroad. The design centers represent a mix of independent licensees and our own Company operated retail segment. We own and operate nine manufacturing facilities including six manufacturing plants and one sawmill in the United States and one manufacturing plant each in Mexico and Honduras.

Our business model is to maintain continued focus on (i) communicating our messages with strong advertising and marketing campaigns, (ii) capitalizing on the strength of our interior design professionals and management in our retail design centers, (iii) utilizing ethanallen.com as a key marketing tool to drive traffic to a network of 200 North American design centers located near our demographic base, (iv) investing in new technologies across key aspects of our vertically integrated business, and (v) leveraging the benefits of our vertical integration by maintaining our manufacturing capacity in North America where we manufacture approximately 75% of our products.

Our competitive advantages arise from:

●

providing fashionable high quality products of the finest craftsmanship;

●

offering complimentary design service through an estimated 2,000 motivated interior design professionals network-wide, which we believe makes us the world’s leading interior design network;

●

our wide array of custom product offerings across our upholstery, case goods, and accent product categories;

●

enhancing our technology in all aspects of the business; and

●

leveraging our vertically integrated structure.

We believe our network of professionally trained interior design professionals differentiates us significantly from our competitors. We continue ~~to make considerable investments~~ to strengthen the level of service, professionalism, and interior design competence, as well as to improve the efficiency of our retail operations. We believe that over time, we will continue to benefit from (i) continuous repositioning of our retail network, (ii) frequent new product introductions, (iii) new and innovative marketing promotions and effective use of targeted advertising media, and (iv) continued use of the latest technology ~~coupled~~combined with personal service from our interior design professionals. ~~We believe our network of professionally trained interior design professionals differentiates us significantly from others in our industry.~~

~~ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES~~

~~Results of Operations~~

~~A summary of our consolidated operations for the quarters ended September 30, 2016 and 2015 is presented in the following table ($ in millions except per share amounts).~~

Quarter ended September 30,

2016

%

2015

%

Net sales
$ 193.3 100.0 % $ 190.4 100.0 %
Gross profit
108.5 56.1 % 104.7 55.0 %
Selling, general and administrative expenses
90.1 46.6 % 83.8 44.0 %
Operating income
18.3 9.5 % 20.9 11.0 %
Net income
11.5 6.0 % 13.1 6.9 %
Earnings per diluted share
$ 0.41 $ 0.46
Net cash provided by operating activities
$ 27.5 $ 16.1

~~A summary of changes from the preceding fiscal year is presented in the following table.~~

Quarter ended September 30,

2016

2015

Net sales
$ 193.3 1.5 % $ 190.4 -0.2 %
Operating income
18.3 -12.3 % 20.9 2.1 %
Net income
11.5 -12.3 % 13.1 10.7 %
Earnings per diluted share
$ 0.41 -10.9 % $ 0.46 12.2 %
Net cash provided by operating activities
$ 27.5 71.4 % $ 16.1 135.8 %

Beginning in the fall of 2014 and through the fall of 2016; we ~~commenced~~completed a major transformation of our product offerings, ~~with several phases. We introduced Casual Classics during the first phase in the fall~~which refreshed over 70% of ~~2014, focusing on several design projections with relaxed finishes and comfort. In the spring and summer~~our entire line of ~~2015, we launched~~products. During the second phase, Romantic Classics, with design projections featuring unique, stand-alone timeless pieces with new finishes and forms, designed specifically for manufacturing primarily at our North American workshops to obtain maximum benefit from our vertical integration. We launchedhalf of fiscal 2017 we expanded the third phase in the fall of 2015, during which we further developed Romantic Classics, inspired by European designs, taking inspiration from the classics and modernizing them for today’s living, with continued focus on our North American manufacturing. In our current phase, we continue to differentiate our brand by further expanding our Casual Classics, with three new design projections; Buckhead, featuring designs infused with European inspiration and Southern charm, introduced in June 2016; Santa Monica, a blend of breezy beach house and vintage farmhouse flair, introduced in July 2016; and Brooklyn, a sophisticated industrial design, introduced in August 2016. These new product offerings will be followed by the introductionreach of our Ethan Allen | Disney home line by selling a selection on shopdisney.com and launching it in the China market, we were awarded a blanket purchase agreement for the Department of State “Worldwide Residential Furniture Program” and entered into an agreement with Amazon to sell products through the Amazon marketplace. During the first quarter of fiscal 2018 we produced and began shipping our Passport collection, a new fall line of products which will be introduced to the public during our second quarter of fiscal 2018.

During the first quarter of fiscal 2018, we were negatively impacted by Hurricane Harvey and Irma. The hurricanes disrupted several key markets in which the Company operates: 15 Design Centers in Florida, including 11 company-operated locations, plus five company-operated Design Centers in the coastal Carolinas were affected by Hurricane Irma; and 11 Design Centers in Texas, with five independently operated locations in the Houston market, were impacted by Hurricane Harvey. Design Centers and delivery centers were closed anywhere from a couple of days to more than a week, with a negative effect on both written orders, net delivered sales and profitablity for both wholesale and retail segments. Hurricane Harvey also disrupted the Company’s wholesale logistics, as the temporary shutdown of railway shipping through Houston impacted shipments from the Company’s upholstery plant in Mexico, and ocean freight arrivals were delayed into the Port of Houston. Additionally, our net delivered sales and profitability were negatively affected by first run production of floor samples for Passport, our new product assortment launching in November, ~~2016.~~ and first run production of product for the Department of State “Worldwide Residential Furniture Program”. Additionally, high order volume from the Department of State together with the new product runs further impacted production capacity which resulted in production and shipping delays. As a result, going into the second quarter, our retail division and wholesale backlogs have increased from June 30, 2017.

ETHAN ALLEN INTERIORS INC.AND SUBSIDIARIES

While we ~~implement~~implement major product introductions, such as the ~~anticipated~~ introductions described above, our wholesale segment experiences some disruptions in manufacturing as we change tooling and manufacturing methods, build prototypes and then ramp up production. In our retail segment, some disruption also occurs in our design centers as we update floor displays, and sell the remainder of our older products on clearance to make space for the new product. ~~Our continuous product transformation in measured steps helps us minimize these~~These disruptions may affect sales and ~~preserve our reputation for offering high-quality and fashionable products.~~expenses.

~~For~~Results of Operations

A summary of our consolidated operations is presented in the ~~quarter~~following tables. In this Item 2 of this quarterly report, unless otherwise noted, all comparisons in the discussion are from the three month period ended September 30, 2017 to the comparable prior year fiscal three month period ended September 30, 2016 ~~our net sales increased slightly from the comparable prior year period due to a 4.3% increase~~($ in retail sales, partly offset by a 4.9% decrease in our wholesale segment. In our retail segment, our new introductions are being well received by consumers, and with the majority of our major product transformation behind us, our clearance sale activity during the current quarter was lower than one year ago. In our wholesale segment, production was lower in part due to the learning curve associated with producing the new Ethan Allen | Disney product introductions, as well as our desire to build inventory to support our custom quick-ship program. The Ethan Allen | Disney product is shipping to our retail design center network during October and November 2016, in preparation for a planned November 2016 launch.

Expenses during the first quarter of fiscal 2017 increased as a percentage of sales to 46.6% from 44.0% in the first quarter of fiscal 2016. This was due to increased advertising expense, expenses associated with the Ethan Allen | Disney launch, more new design center opening expenses in the current period than the prior year period, a current period loss on sale of real estate in our retail segment, and the impact of reduced sales volume in our wholesale segment. The combination of these factors resulted in earningsmillions except per ~~diluted~~ share ~~of $0.41 during the first quarter of fiscal 2017 compared to $0.46 in the first quarter of fiscal 2016.~~

~~ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES~~amounts).

	Three months ended September 30,
	2017		%			2016		%
Net sales	$	181.3		100.0	%	$	193.3		100.0	%
Gross profit		100.3		55.3	%		108.5		56.1	%
Selling, general and administrative expenses		88.8		49.0	%		90.1		46.6	%
Operating income		11.5		6.4	%		18.3		9.5	%
Net income		7.4		4.1	%		11.5		6.0	%
Earnings per diluted share	$	0.27				$	0.41
Net cash provided by operating activities	$	17.6				$	27.5

Net cash provided by operating activities during the first quarter of fiscal 2017 increased 71.4% to $27.5 million from $16.1 million in the first quarter of fiscal 2016. We paid $4.7 million in cash dividends at $0.17 per share to our shareholders during the first quarter of fiscal 2017 compared to $4.0 million at $0.14 per share during the first quarter of fiscal 2016. At September 30, 2016 we had total cash and securities of $76.6 million, and working capital of $128.3 million.

The components of consolidated revenues and operating income (loss) by business segment are as follows (in millions):

	Quarter Ended September 30,						Three months ended September 30,
	2016			2015			2017			2016
Revenue:
Wholesale segment	$	114.6		$	120.5		$	111.6		$	114.6
Retail segment		152.2			146.0			141.6			152.2
Elimination of inter-segment sales		(73.5	)		(76.1	)		(71.9	)		(73.5	)
Consolidated revenue	$	193.3		$	190.4		$	181.3		$	193.3

Operating income :
Wholesale segment	$	16.5		$	20.6		$	13.5		$	16.5
Retail segment		1.0			1.6			(2.8	)		1.0
Adjustment for inter-company profit (1)		0.8			(1.3	)		0.8			0.8
Consolidated operating income	$	18.3		$	20.9		$	11.5		$	18.3

(1)

Represents the change in wholesale profit contained in Ethan Allen operated design center inventory existing at the end of the period.

~~A summary by business segment of annual percentage changes from the preceeding fiscal years are presented in the following tables.~~

Quarter Ended September 30,
2016 2015
Wholesale segment

Revenue
-4.9 % -3.3 %
Operating Income
-19.9 % -4.4 %

Quarter Ended September 30,
2016 2015
Retail segment

Revenue
4.3 % 0.7 %
Comparable design center revenue
5.7 % 0.2 %
Total written orders
8.1 % -9.3 %
Comparable design center written orders
8.0 % -9.8 %
Operating Income
-37.6 % -6.9 %

Wecontinue to make investments to strengthen the level of service, professionalism, interior design competence, efficiency, and effectiveness of the retail network design center personnel. We believe that over time, we will continue to benefit from (i) continuous repositioning and opening of new design centers in our retail network, (ii) new product introductions, (iii) new and innovative marketing promotions and effective use of targeted advertising media, and (iv) continued use of the latest technology coupled with personal service from our interior design professionals. We believe our network of professionally trained interior design professionals differentiates us significantly from others in our industry.

ETHAN ALLEN INTERIORS INC. ~~AND~~AND SUBSIDIARIES

We measure the performance of our ~~retail~~ design centers based on net sales and written orders booked on a comparable ~~period to~~ period basis. Comparable design centers are those which have been operating for at least 15 ~~months. Minimal net sales derived from~~months, including relocated design centers provided the ~~delivery of customer ordered product are generated during~~original and relocated design center location had been operating for at least 15 months on a combined basis. During the first three months of operations of newly opened ~~(including relocated)~~ design ~~centers.~~centers, written orders are booked but minimal net sales are achieved through the delivery of products. Design centers ~~acquired by us~~we acquire from independent retailers are included in comparable design center sales in their 13th full month of Ethan Allen-owned operations. The frequency of our promotional events as well as the timing of the end of those events can ~~impact~~also affect the comparability of orders booked during a given ~~quarter.~~ period. Our international net sales are comprised of our wholesale segment sales to independent retailers and our retail segment sales to consumers through the Company operated international ~~Design Centers.~~design centers. International net sales as a percent of our consolidated net sales were 11.0% in the current year quarter and 10.9% ~~for~~in the ~~first quarter of fiscal 2017 and 11.9% for the comparable~~ prior year ~~period.~~quarter. The following tables show selected ~~Design Center~~design center location information.

																			Fiscal 2018								Fiscal 2017
	September 30, 2016								September 30, 2015										Independent			Company-					Independent			Company-
	Independent retailers			Company- operated		Total			Independent retailers			Company- operated			Total				retailers			operated		Total			retailers			operated		Total
Retail Design Center location activity:																		Retail Design Center location activity:
Balance at beginning of period		153			143		296			155			144			299				155			148		303			153			143		296
New locations		-			2		2			2			2			4				3			2		5			-			2		2
Closures		(2	)		-		(2	)		(2	)		(1	)		(3	)			(2	)		-		(2	)		(2	)		-		(2	)
Transfers		-			-		-			-			-			-				-			-		-			-			-		-
Balance at end of period		151			145		296			155			145			300				156			150		306			151			145		296
Relocations (in new and closures)		-			-		-			-			1			1				-			-		-			-			-		-

Retail Design Center geographic locations:																		Retail Design Center geographic locations:
United States		50			139		189			57			138			195				48			144		192			50			139		189
International		101			6		107			98			7			105
Canada																				-			6		6			-			6		6
China																				83			-		83			81			-		81
Other Asia																				12			-		12			11			-		11
Europe																				6			-		6			2			-		2
Middle East																				7			-		7			7			-		7
Total		151			145		296			155			145			300				156			150		306			151			145		296

First~~First~~ Quarter Ended September 30 ~~2016~~, 2017 Compared to First Quarter Ended September 30 ~~2015~~, 2016

Consolidated net sales for the ~~first~~ quarter of ~~fiscal 2017 increased $2.9~~$181.3 million ~~or 1.5%~~compared to $193.3 million ~~from $190.4 million~~for the same period in the prior year, a decrease of 6.2%. Sales for the retail and wholesale segments were negatively affected by the hurricanes and disruptions in the manufacturing processes due to first ~~quarter~~production runs of ~~fiscal 2016. Net sales increased in our retail segment and decreased in our wholesale segment.~~new product as discussed previously.

~~Wholesale net sales~~ for the first quarter of fiscal 2017 decreased $5.9 million, or 4.9% to $114.6 million from $120.5 million in the first quarter of fiscal 2016. At September 30, 2015 there were four less Design Centers in total as compared to September 30, 2015.

Retail net sales for the ~~first~~ quarter of ~~fiscal 2017 increased $6.2~~$141.6 million ~~or 4.3%~~compared to $152.3 million ~~from $146.0 million~~ for the ~~first quarter~~prior year period, a decrease of ~~fiscal 2016. Our~~7.0%. Comparative retail net sales decreased 8.8%, partly offset by an increase in net sales at new ~~products are being well received~~locations and ~~our marketing initiatives continue to generate consumer interest. Our clearance sales~~through the internet. There were 150 Company-operated design centers during the quarter, up from 145 in the prior year quarter. The reduction in sales is primarily a reflection of the disruptions caused by hurricanes and first ~~quarter of fiscal 2017 decreased~~production runs that delayed shipments to the retail segment from the ~~first quarter of fiscal 2016. Our~~wholesale segment and caused the retail ~~segment currently operates~~undelivered order backlog to increase from the ~~same number of Design Centers as at September 30, 2015. Our~~prior quarter. Total written business (new orders booked) ~~in the first quarter of fiscal 2017~~ increased ~~8.1% from the first quarter of fiscal 2016 while~~1.7% and comparable design center written business in the quarter increased ~~8.0% from~~0.5%. Written business was also negatively affected by the ~~first quarter of fiscal 2016.~~disruptions caused by the hurricanes.

Wholesale net sales for the quarter of $111.6 million compared to $114.6 million for the prior year period, a decrease of 2.6%. The reduction in sales is primarily a reflection of the production and logistics disruptions caused by hurricanes and first production runs as discussed previously, which caused the wholesale undelivered order backlog to increase from the prior quarter.

Gross profit ~~was~~ for the quarter of $100.3 million compared to $108.5 million for the ~~first quarter of fiscal 2017, an increase of $3.8 million, or 3.6%~~prior year period decreased 7.5%, ~~from $104.7 million~~with a decrease in ~~the first quarter of fiscal 2016 with an increase in~~both our retail segment and ~~a decrease in our~~ wholesale ~~segment.~~segments. This was primarily due to the lower sales. Consolidated gross margin for the ~~first~~ quarter ~~of fiscal 2017~~ was ~~56.1%~~55.3% compared to ~~55.0% in first quarter of fiscal 2016. Decreased wholesale sales of 4.9% had a negative impact on our manufacturing efficiency, decreasing gross profit and gross margins.~~56.1%. Retail sales as a percent of total consolidated sales ~~increased~~was 78.1% for the quarter compared to 78.8% ~~from 76.7%, increasing~~in the prior year quarter, decreasing our consolidated gross margin due to mix. ~~The retail~~

Operating expenses for the quarter of $88.8 million, or 49.0% of net sales, ~~increase~~compared to $90.1 million, or 46.6% of ~~4.3% increased consolidated gross profit. The reduction of retail clearance sale activity compared to~~net sales, for the prior year ~~period also contributed to the improved gross margin.~~

~~Operating expenses~~ ~~for the first quarter of fiscal 2017 increased $6.4~~period. The $1.4 million ~~or 7.6%, to $90.1 million from $83.8 million for the first quarter of fiscal 2016. In the first quarter of fiscal 2017, variable costs increased~~decrease was primarily due to ~~increased sales for the retail segment. Operating expenses~~decreased costs in the ~~first quarter of fiscal 2017 also increased by increased~~current year for advertising ~~expenses to support our new product launches, expenses associated with the Ethan Allen | Disney launch,~~costs, and a loss on the sale of real estate ~~dispositions as compared to no dispositions~~in our retail segment in the prior year period. There were also decreased variable costs during the current period due to the reduced current year sales.

ETHAN ALLEN INTERIORS INC. ~~AND~~AND SUBSIDIARIES

Operating income and profit margin ~~was~~ for the quarter of $11.5 million, or 6.4% of net sales, compared to $18.3 million, or 9.5% of net sales, for the prior year period. The primary causes for the 37.0% decrease in operating income were the negative effects of the hurricanes and first production runs, which resulted in lower sales in the current year quarter.

Retail operating income for the quarter of ~~fiscal 2017,~~ a ~~decrease~~loss of ~~$2.6~~$2.8 million, or ~~12.3%, from $20.9~~-2.0% of sales, compared to income of $1.0 million, or ~~11.0%~~0.7% of ~~net~~ sales, for the ~~first~~prior year period. The lower operating income and margin in the current quarter ~~of fiscal 2016.~~was driven primarily by lower sales, partly offset by reduced operating expenses.

Wholesale operating incomefor the ~~first~~ quarter of ~~fiscal 2017 decreased $4.1~~$13.5 million, or ~~19.9%~~12.1% of sales, compared to $16.5 million, or 14.4% of sales, ~~from $20.6~~for the prior year period. The decrease was largely due to lower current period sales.

Income tax expense for the quarter totaled $4.0 million ~~or 17.1% of sales,~~compared to $6.6 million. Our effective tax rate was 35.1% in the quarter compared to 36.5%. The effective tax rate for the first quarter of fiscal ~~2016, largely due to lower current period sales, expenses related to launch of the Ethan Allen | Disney home line and increased advertising expenses.~~

~~Retail operating income~~ for the first quarter of fiscal 2017 decreased $0.6 million to $1.0 million, or 0.7% of sales, compared to $1.6 million, or 1.1% of sales for the first quarter of fiscal 2016. The lower operating margin in the first quarter of fiscal 2017 was driven primarily by higher advertising costs, new design center operating expenses and the negative impact of a loss on the sale of real estate, partly offset by the positive impact of increased sales.

~~Interest and other related financing costs~~ ~~amounted to $0.3 million in the first quarter of fiscal 2017and were $0.5 million in the first quarter of fiscal 2016.~~

~~Income tax expense~~ for the first quarter of fiscal 2017 totaled $6.6 million compared to $7.4 million for the first quarter of fiscal 2016. Our effective tax rate was 36.5% in the first quarter of fiscal 2017 and 36.1% in the first quarter of fiscal 2016. The effective tax rate for both the first quarter of fiscal 2017 and 20162018 primarily includes tax expense on that quarter’s net income, and tax and interest expense on uncertain tax positions, partially offset by tax benefit on the ~~reversal and recognition~~vesting of ~~some uncertain~~restricted stock units. The effective tax ~~positions.~~

~~Net income~~rate for the first quarter of fiscal 2017 ~~was $11.5~~primarily includes tax expense on that quarter’s net income, and tax and interest expense on uncertain tax positions.

Net income for the quarter of $7.4 million compared to ~~$13.1~~$11.5 million for the ~~first quarter of fiscal 2016.~~prior year period decreased 35.7%. This resulted in net income per diluted share ~~of $0.41~~ for the ~~first~~ quarter of ~~fiscal 2017~~$0.27 compared to ~~$0.46 per diluted share for the first quarter~~$0.41, a decrease of ~~fiscal 2016.~~34.1%.

Liquidity and Capital Resources

At September 30, ~~2016,~~2017, we held unrestricted cash and ~~equivalents of $69.3 million and restricted cash and investments of $7.3 million. At June 30, 2016, we held unrestricted cash and cash~~ equivalents of $52.7 million and restricted cash and investments of ~~$7.8~~$7.0 million. At June 30, 2017, we held unrestricted cash and cash equivalents of $57.7 million and restricted cash and investments of $7.3 million. Our principal sources of liquidity include cash and cash equivalents, cash flow from operations, amounts available under the Facility, and other borrowings.

~~The Company entered into~~For a ~~five year, $150 million senior secured revolving credit~~detailed discussion of our debt obligations and ~~term loan facility on October 21, 2014, as amended (the “Facility”). The Facility, which expires on October 21, 2019, provides a term loan~~timing of upour related cash payments see Note 6 to ~~$35 million and a revolving credit line~~the Consolidated Financial Statements included under Item 1 of up to $115 million, subject to borrowing base availability. We incurred financing costs of $1.5 million under the Facility, which are being amortized by the interest method, over the remaining life of the Facility.

At the Company’s option, loans under the Facility’s revolving credit line bear interest, based on the average availability, at an annual rate of either (a) LIBOR plus 1.5% to 1.75%, or (b) the higher of (i) the prime rate, (ii) the federal funds effective rate plus 0.50%, or (iii) LIBOR plus 1.0% plus in each case 0.5% to 0.75%. At September 30, 2016, the annual interest rate in effect on the revolving loan was 2.0625%.

At the Company’s option, term loans under the Facility bear interest, based on the Company’s rent adjusted leverage ratio, at an annual rate of either (a) LIBOR plus 1.75% to 2.25%, or (b) the higher of (i) the prime rate, (ii) the federal funds effective rate plus 0.50%, or (iii) LIBOR plus 1.0% plus in each case 0.75% to 1.25%. At September 30, 2016, the annual interest rate in effect on the term loan was 2.3125%.

this Quarterly installments of principal on the term loan are payable based on a straight line 15-year amortization period, with the balance due at maturity. The Company does not expect to repay the revolving credit line portion of the Facility within the next year.Report.

ETHAN ALLEN INTERIORS INC. ~~AND~~AND SUBSIDIARIES

The Facility is secured by all property owned, leased or operated by the Company in the United States and includes certain 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 and share repurchases); sell certain assets; and make investments.

The Company must maintain a minimum fixed charge coverage ratio of 1.1 to 1.0 at all times. If the outstanding term loans are less than $17.5 million and the fixed charge coverage ratio equals or exceeds 1.25 to 1.0, the fixed charge coverage ratio ceases to apply and thereafter shall only be triggered if average monthly availability is less than 15% of the amount of the revolving credit line.During November 2015, we made a $16.5 million prepayment on the term loan, bringing the outstanding term loan to $17.3 million, and the fixed charge coverage ratio ceased to apply. Our subsequent average availability exceeded 65.0%, such that the fixed charge coverage ratio did not apply.

The Company intends to use the Facility for working capital and general corporate purposes, including dividend payments and share repurchases, in addition to the refinancing of our Senior Notes which occurred in March 2015. At September 30, 2016 and June 30, 2016, there was $0.1 million and $0.2 million, respectively, of standby letters of credit outstanding under the Facility. Total availability under the Facility was $89.9 million at September 30, 2016 and $89.8 million at June 30, 2016.

~~At both September 30, 2016 and June 30, 2016, we were in compliance with all of the covenants under the Facility.~~

A summary of net cash provided by (used in) operating, investing, and financing activities for the three months ended September 30, ~~2016~~2017 and ~~2015~~2016 is provided below (in millions):

							Three months ended
	Three months ended September 30,						September 30,
	2016			2015			2017			2016
Cash provided by (used in) operating activities
Net income plus depreciation and amortization	$	16.5		$	17.9		$	12.5		$	16.5
Working capital items		9.1			(2.2	)		3.7			9.1
Other operating activities		1.9			0.4			1.4			1.9
Total provided by operating activities	$	27.5		$	16.1		$	17.6		$	27.5

Cash provided by (used in) investing activities
Capital expenditures and acquisitions	$	(7.4	)	$	(3.1	)	$	(2.7	)	$	(7.4	)
Net sales of marketable securities		-			2.1			-			-
Other investing activities		1.8			0.3			0.4			1.8
Total provided by (used in) investing activities	$	(5.6	)	$	(0.7	)	$	(2.3	)	$	(5.6	)

Cash provided by (used in) financing activities
Payments on long-term debt and capital lease obligations	$	(0.8	)	$	(0.8	)	$	(14.1	)	$	(0.8	)
Payment of cash dividends		(4.7	)		(4.0	)		(5.2	)		(4.7	)
Purchase/retirement of company stock								(1.1	)		-
Other financing activities		0.2			0.4			-			0.2
Total provided by (used in) financing activities	$	(5.3	)	$	(4.4	)	$	(20.4	)	$	(5.3	)

Cash Provided by (Used in) Operating Activities

~~In the first three months of fiscal 2017,~~Year-to-date, cash of ~~$27.5~~$17.6 million was provided by operating activities, ~~an increase~~a decrease of ~~$11.4 million from $16.1 million in the prior year comparable period.~~$9.9 million. This was largely due to ~~an increase in cash provided by working capital items in fiscal year 2017~~changes in the ordinary course of business ~~(primarily inventory, which decreased in the current period~~for working capital items and ~~increased in the prior year period, for a net difference of $7.7 million). This was partially offset by~~ a decrease in net income. Working capital items consist of current assets (accounts receivable, inventories, prepaid and other current assets) less current liabilities (customer deposits, payables, and accrued expenses and other current liabilities).

~~ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES~~

Cash Provided by (Used in) Investing Activities

~~In the first three months of fiscal 2017, $5.6~~Year-to-date, $2.3 million of cash was used in investing activities, ~~whereas $0.7 million~~a decrease of $3.3 million. The decrease was ~~used in the first three months of fiscal 2016, which is $4.9 million less cash used in the prior year comparable period. More cash was used in the first three months of fiscal 2017~~ primarily due to ~~an increase~~a decrease in capital expenditures ~~and decreases~~offset by a decrease in ~~net sales of marketable securities in the current fiscal year. There were more~~ proceeds from ~~the sale~~disposal of ~~real estate in the current fiscal~~property, plant and equipment. Current year ~~than in the prior fiscal year, although the losses on sale~~capital expenditures were ~~greater in the current fiscal year than in the prior fiscal year.~~primarily for retail design center improvements. We anticipate that cash from operations will be sufficient to fund future capital expenditures.

Cash Provided by (Used in) Financing Activities

~~In the first three months of fiscal 2017, $5.3~~Year-to-date, $20.4 million was used in financing activities, which is ~~$0.9~~$15.1 million more cash used than ~~$4.4~~the $5.3 million of cash used during the first three months of fiscal ~~2016.~~2017. This was primarily due to changes in prepayments of our credit facility and common stock repurchases. During the current fiscal year, a $13.2 million pre-payment on the term loan was made. During the current fiscal year to date period we ~~increased our~~paid dividends ~~paid by $0.7~~of $5.2 million ~~paying $0.17 per share~~compared to $4.7 million in the ~~current period compared~~prior year to ~~$0.14 in the comparable prior year~~date period, an increase of ~~21.4%~~$0.5 million, paying $0.19 per share compared to $0.17, an increase of 11.8%. In September 2016, we repurchased 107,700 shares of our common stock for $3.4 ~~million. However, the $3.4~~ million, ~~will be reflected in the second fiscal quarter financing activities because the settlement date was~~which settled in October 2016. The Company has continuously paid dividends for every quarter since 1996 and we expect to continue to do so as economic conditions and liquidity permit.

~~Our total debt obligations at September 30, 2016 consist of the following (in millions):~~

Revolving Credit Facility due 10/21/2019
$ 25.0
Term Loan due 10/21/2019
15.6
Capital leases
1.3
Unamortized debt issuance costs
(0.8 )
Total debt
41.1
Less current maturities
3.0
Total long-term
$ 38.1
The following table summarizes, as of September 30, 2016, the timing of cash payments related to our outstanding long-term debt obligations for the remaining three months of fiscal 2017, and each of the five fiscal years subsequent to June 30, 2017, and thereafter (in millions).
Periods ending June 30,

2017
$ 2.5
2018
2.8
2019
2.4
2020
34.2
2021
-
2022 and thereafter
-
Total scheduled debt payments
$ 41.9

We believe that our cash flow from operations, together with our other available sources of liquidity including the Facility and refinancing alternatives, 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 September 30, ~~2016,~~2017, we had working capital of ~~$128.3~~$106.4 million compared to ~~$124.9~~$116.7 million at June 30, ~~2016, an increase~~2017, a decrease of ~~$3.4~~$10.3 million, or ~~2.7%~~8.8%. The Company had a current ratio of ~~1.95~~1.78 to 1 at September 30, ~~2016~~2017 and ~~2.01~~1.92 to 1 at June 30, ~~2016.~~2017.

ETHAN ALLEN INTERIORS INC. ~~AND~~AND SUBSIDIARIES

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’~~shareholders’ equity. During the three months ending September 30, ~~2016 we repurchased the following shares of our common stock on a trade date basis:~~2017 there were no share repurchases.

Three months ended
September 30,

2016

2015

Shares of common stock repurchased
107,700 -
Cost to repurchase common stock
$ 3,367,779 $ -
Average price per share
$ 31.27 $ -

At September 30, ~~2016,~~2017, we had a remaining Board authorization to repurchase ~~1,650,160~~1,400,497 shares of our common stock pursuant to our previously announced share repurchase program.

Contractual Obligations

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, ~~2016~~2017 as filed with the SEC on August ~~8, 2016.~~2, 2017.

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

We do not utilize or employ any off-balance sheet arrangements, including special-purpose entities, in operating our business. As such, we do not maintain any (i) retained or contingent interests, (ii) derivative instruments (other than as specified below), or (iii) variable interests which could serve as a source of potential risk to our future liquidity, capital resources and results of operations.

We 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 may vary based on our underlying relationship with the benefiting party and the business purpose for which the guarantee or obligation is being provided. The only such material program was for our consumer credit program described below, which was in place both at September 30, ~~2016~~2017 and June 30, ~~2016.~~2017.

Ethan Allen Consumer Credit Program

The terms and conditions of our consumer credit program, which is financed and administered by a ~~first-party~~third-party financial institution on a non-recourse basis to Ethan Allen, are set forth in an agreement between the Company and that financial service provider (the “Program Agreement”) which was last amended effective January 2014. Any independent retailer choosing to participate in the consumer credit program is required to enter into a separate agreement with that same ~~first-party~~third-party financial institution which sets forth the terms and conditions under which the retailer is to perform in connection with its offering of consumer credit to its customers (the “Retailer Agreement”). We have obligated ourselves on behalf of any independent retailer choosing to participate in our consumer credit program by agreeing, in the event of default, breach, or failure of the independent retailer to perform under such Retailer Agreement, to take on certain responsibilities of the independent retailer, including, but not limited to, delivery of goods and reimbursement of customer deposits. Customer receivables originated by independent retailers remain non-recourse to Ethan Allen. The Program Agreement will terminate on July 31, 2019, but includes a provision for automatic one-year renewals unless either party gives notice of termination. While the maximum potential amount of future payments (undiscounted) that we could be required to make under this obligation is indeterminable, recourse provisions exist that would enable us to recover, from the independent retailer, any amount paid or incurred by us related to our performance. Based on the underlying creditworthiness of our independent retailers, including their historical ability to satisfactorily perform in connection with the terms of our consumer credit program, we believe this obligation will expire without requiring funding by us. To ensure funding for delivery of products sold, the terms of the Program Agreement also contain a right for the financial services provider to demand from the Company collateral at a variable rate based on the volume of program sales if the Company does not meet certain covenants. At September 30, ~~2016~~2017 and June 30, ~~2016,~~2017, no collateral was required under the Program Agreement.
~~Product Warranties~~

Product Warranties
Our products, including our case goods, upholstery and home accents, generally carry explicit product warranties that extend from one to ten years and are provided based on terms that are generally accepted in the industry. All of our domestic independent retailers are required to enter into and perform in accordance with the terms and conditions of a warranty service agreement. We record provisions for estimated warranty and other related costs at time of sale based on historical warranty loss experience and make periodic adjustments to those provisions to reflect actual experience. On rare occasions, certain warranty and other related claims involve matters of dispute that ultimately are resolved by negotiation, arbitration or litigation. In certain cases, a material warranty issue may arise which is beyond the scope of our historical experience. We provide for such warranty issues as they become known and are deemed both probable 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 our historical experience. ~~As of~~At both September 30, ~~2016~~2017 and June 30, ~~2016,~~2017 our product warranty liability totaled ~~$1.1 million and $1.2 million, respectively.~~$1.3 million.

ETHAN ALLEN INTERIORS INC. ~~AND~~AND SUBSIDIARIES

Business Outlook

We continue to strengthen our vertically integrated structure from concept of idea, to engineering, to manufacturing, to retail and logistics. ~~On the manufacturing side, our objective is~~We intend to maintain strong manufacturing capabilities in North America, which we believe is a long-term competitive advantage that will allow us to advance our objectives of maintaining ~~short~~fast order ~~times,~~delivery, exceptional quality and improving capacity to ship stocked and custom made-to-order items more quickly, which in turn will allow us to grow our business. ~~In September 2015, the Company announced the planned doubling of its upholstery manufacturing facility in Mexico. The expansion is expected to be completed within the next year.~~
Beginning in fiscal 2014, we have been undergoing a major transformation of our product offerings, which is intended to refresh over 70% of our products with the completion of the most current phase in November of 2016. We believe that we are well positioned to leverage all the actions we have taken.

We expect the home furnishings industry to remain extremely competitive with respect to both the sourcing of products and the wholesale and retail sale of those products for the foreseeable future. Domestic manufacturers continue to face pricing pressures because of the lower manufacturing costs ~~in some other countries,~~on imports, particularly ~~within~~from Asia. While we also utilize overseas sourcing for approximately one quarter of our products, we choose to differentiate ourselves by maintaining a substantial North American manufacturing base, ~~where we can~~the majority of which is located in the United States. This structure enables us to leverage our vertically integrated structure to our advantage. We continue to believe that a balanced approach to product sourcing, which includes our own North American manufacturing of about 75% of our product offerings coupled with the import of other selected products, provides the greatest degree of flexibility and shorter lead times and is the most effective approach to ensuring that acceptable levels of quality, service and value are attained.

We therefore remain cautiously optimistic about our performance due to the many strong programs already in place and others we currently plan to introduce in the coming months. Our retail strategy involves (i) a continued focus on providing ~~new~~relevant product ~~introductions,~~offerings, a wide array of product solutions, and superior interior design solutions through our large staff of interior design professionals, (ii) continuing strong advertising and marketing campaigns to get our message across and to continue broadening our customer base, (iii) the opening of new or relocated design centers in more prominent locations, and encouraging independent retailers to do the same, (iv) leveraging the use of technology and personal service within our retail network and online through www.ethanallen.com, and (v) further expansion internationally. We believe this strategy provides an opportunity to grow our business.

Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09, Revenue from Contracts with Customers. This ASU provides a framework for revenue recognition that replaces most existing GAAP revenue recognition guidance when it becomes effective. We have an option to use either a retrospective approach or a cumulative effect adjustment approach to implement the guidance. The new standard is effective for us on July 1, 2018, with early adoption permitted. We are currently conducting a comprehensive review of our revenue streams and contracts as they relate to this guidance to identify potential differences that would result from applying the new requirements. While we are still assessing the overall impact this guidance will have on our consolidated financial statements and financial statement disclosures, based on the work performed to date, we do not believe that the adoption will have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which is intended to improve financial reporting about leasing transactions. The ASU will require lessees that lease assets with lease terms of more than twelve months to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Lessors will remain largely unchanged from current GAAP. In addition, the ASU will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. This pronouncement is effective for the Company on July 1, 2019, and early adoption is permitted. The Company is currently evaluating the impact on our consolidated financial statements. We plan on adopting effective July 1, 2019.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. It is intended to reduce diversity in the presentation of restricted cash and restricted cash equivalents in the statement. The statement requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows. The Company currently does not include restricted cash as a component of cash and equivalents as presented on the statement of cash flows. The new guidance is effective for the Company on July 1, 2018, with early adoption permitted. The Company is currently evaluating the impact on our consolidated financial statements. We plan on adopting effective July 1, 2018.

ETHAN ALLEN INTERIORS INC.AND SUBSIDIARIES
Where You Can Find Other Information

Our website iswww.ethanallen.com. Information contained on our website is not part of this Quarterly Report on Form 10-Q. Information that we furnish or file with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to, or exhibits included in, these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished to the SEC. Our SEC filings, including exhibits filed therewith, are also available on the SEC’s website at www.sec.gov. You may obtain and copy any document we furnish or file with the SEC at the SEC’s public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. You may request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, NE, Room 1580, Washington, D.C. 20549.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks relating to fluctuations in interest rates.

Interest rate risk exists primarily through our borrowing activities. We utilize United States dollar denominated borrowings to fund substantially all our 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 our future financing requirements.

~~ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES~~

For floating-rate obligations, interest rate changes do not affect the fair value of the underlying financial instrument but would impact future earnings and cash flows, assuming other factors are held constant. Conversely, for fixed-rate obligations, ~~interest~~interest rate changes affect the fair value of the underlying financial instrument but would not impact earnings or cash flows. At September 30, ~~2016,~~2017, we ~~had $40.6 million of~~did not have any floating-rate debt obligations outstanding under our Facility. We currently do not engage in any interest rate hedging activity and we have no intention of doing so in the foreseeable future. Based on the average interest rate of the loans under the Facility during the quarter ended September 30, ~~2016,~~2017, and to the extent that borrowings were outstanding, a 10% change in the interest rate would not have a material effect on our consolidated results of operations and financial condition. For information regarding the Company’s other risk factors, ~~seeItem~~see Item 7A – Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year ended June 30, ~~2016~~2017 as filed with the SEC on August ~~8, 2016.~~2, 2017.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including the Chairman of the Board and Chief Executive Officer ("CEO") and the Executive Vice President Administration and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of our 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 CFO have concluded that, as of September 30, ~~2016,~~2017, our disclosure controls and procedures were effective in ensuring that material information relating to us (including our consolidated subsidiaries), which is required to be disclosed by us in our periodic reports filed with or submitted to the SEC is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our 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 fiscal quarter ended September 30, ~~2016~~2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ETHAN ALLEN INTERIORS INC.AND SUBSIDIARIES

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes to the matters discussed in Part I, Item 3 - Legal Proceedings in our Annual Report on Form 10-K for the year ended June 30, ~~2016~~2017 as filed with the SEC on August ~~8, 2016.~~2, 2017. See Note 7 of the Notes to Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of our legal proceedings.

Item 1A. Risk Factors

There have been no material changes to the matters discussed in “Item IA – Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, ~~2016~~2017 as filed with the SEC on August ~~8, 2016.~~

~~ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES~~2, 2017.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Certain information regarding purchases made by or on behalf of us or any affiliated purchaser (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the three months ended September 30, ~~2016~~2017 on a trade date basis is provided below:

Period
(a) Total
Number of
Shares
Purchased

(b)
Average
Price Paid
per Share

(c) Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
or Programs (1)

(d) Maximum
Number of Shares
that May Yet Be
Purchased Under
the Plans or
Programs (1)

July 1, 2016
-
July 31, 2016
- $ - - 1,757,860
August 1, 2016
-
August 31, 2016
- - - 1,757,860
September 1, 2016
-
September 30, 2016
107,700 $ 31.27 107,700 1,650,160

Total / Average
107,700 $ 31.27 107,700
~~(1)~~ On November 21, 2002, our Board of Directors approved a share repurchase program authorizing us to repurchase up to 2,000,000 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. ~~Subsequent to that date, the~~The Board of Directors subsequently increased the aggregate authorization under the repurchase program on several ~~separate~~ occasions, the last of which was on April 13, 2015 when the ~~Board of Directors increased the~~ aggregate authorization was increased to approximately 3,000,000 shares. There is no expiration date on the repurchase authorization and the amount and timing of future share repurchases, if any, will be determined as market and business conditions warrant. There were no repurchases effected by the Company during the quarter ended September 30, 2017. The maximum number of shares that may yet be purchased under our publicly announced repurchase program is 1,400,497 shares.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

ETHAN ALLEN INTERIORS INC. ~~AND~~AND SUBSIDIARIES

Item 6. Exhibits

Exhibit Number
Description

31.1
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

32.2
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

101.INS
XBRL Instance Document

101.SCH
XBRL Taxonomy Extension Schema

101.CAL
XBRL Taxonomy Extension Calculation Linkbase

101.DEF
XBRL Taxonomy Extension Definition Linkbase

101.LAB
XBRL Taxonomy Extension Label Linkbase

101.PRE
XBRL Taxonomy Extension Presentation Linkbase

* - Furnished herewith.

ETHAN ALLEN INTERIORS INC. ~~AND~~AND SUBSIDIARIES

SIGNATURES

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

ETHAN ALLEN INTERIORS INC.
(Registrant)
Date: October 26, ~~2016~~2017
BY: /s/ M. Farooq Kathwari

M. Farooq Kathwari

Chairman, President and Chief Executive Officer

(Principal Executive Officer)

Date: October 26, ~~2016~~2017
BY: /s/ Corey Whitely

Corey Whitely

Executive Vice President Administration
Chief Financial Officer and Treasurer

(Principal Financial Officer)

2624

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

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

Large accelerated filer [X]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting ~~company[~~company[ ]
Emerging growth company [ ]

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements	2

Consolidated Balance Sheets	2

Consolidated Statements of Comprehensive Income (Unaudited)	3

Consolidated Statements of Cash Flows (Unaudited)	4

Consolidated Statements of Shareholders’ Equity	5

~~Notes to Consolidated Financial Statements~~	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3. Quantitative and Qualitative Disclosures About Market Risk	22
	21
Item 4. Controls and Procedures	23 21


PART II - OTHER INFORMATION

Item 1. Legal Proceedings	2322

Item 1A. Risk Factors	2322

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	2422

Item 3. Defaults Upon Senior Securities	2422

Item 4. Mine Safety Disclosures	2422

Item 5. Other Information	2422

Item 6. Exhibits	2523
SIGNATURES
~~SIGNATURES~~	2624

	September 30, 2016			June 30, 2016			September 30, 2017			June 30, 2017
	(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	69,254		$	52,659		$	52,728		$	57,701
Accounts receivable, less allowance for doubtful accounts of $1,539 at September 30, 2016 and $1,639 at June 30, 2016		9,867			9,467
Accounts receivable, less allowance for doubtful accounts of $1,686 at September 30, 2017 and $1,667 at June 30, 2017								10,088			12,293
Inventories		159,343			162,323			157,505			149,483
Prepaid expenses and other current assets		24,494			23,755			21,787			23,621
Total current assets		262,958			248,204			242,108			243,098

Property, plant and equipment, net		273,455			273,615			267,257			270,198
Goodwill and other intangible assets		45,128			45,128			45,128			45,128
Restricted cash and investments		7,302			7,820			7,046			7,330
Other assets		2,750			2,642			2,887			2,468
Total assets	$	591,593		$	577,409		$	564,426		$	568,222

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt	$	2,941		$	3,001		$	372		$	2,731
Customer deposits		62,392			60,958			69,165			62,960
Accounts payable		20,857			15,437			17,231			16,961
Accrued compensation and benefits		23,113			22,067			23,994			20,352
Accrued expenses and other current liabilities		25,393			21,884			24,985			23,441
Total current liabilities		134,696			123,347			135,747			126,445
Long-term debt		38,147			38,837			263			11,608
Other long-term liabilities		22,958			23,023			26,144			29,273
Total liabilities		195,801			185,207			162,154			167,326
Shareholders' equity:
Class A common stock		489			489
Common stock								490			490
Additional paid-in-capital		376,065			374,972			376,251			377,550
Less: Treasury stock (at cost)		(628,300	)		(624,932	)		(634,532	)		(635,179	)
Retained earnings		653,122			646,315			664,148			661,976
Accumulated other comprehensive income (loss)		(5,776	)		(4,846	)		(4,261	)		(4,131	)
Total Ethan Allen Interiors Inc. shareholders' equity		395,600			391,998			402,096			400,706
Noncontrolling interests		192			204			176			190
Total shareholders' equity		395,792			392,202			402,272			400,896
Total liabilities and shareholders' equity	$	591,593		$	577,409		$	564,426		$	568,222

									Accumulated
			Additional						Other						Non-
	Common		Paid-in			Treasury			Comprehensive			Retained			Controlling
	Stock		Capital			Stock			Income (loss)			Earnings			Interests			Total
Balance at June 30, 2017	$	490	$	377,550		$	(635,179	)	$	(4,131	)	$	661,976		$	190		$	400,896

Stock issued on share-based awards		-		4			-			-			-			-			4

Compensation expense associated with share-based awards		-		444			-			-			-			-			444

Purchase/retirement of company stock		-		(1,747	)		647			-			-			-			(1,100	)

Dividends declared on common stock		-		-			-			-			(5,243	)		-			(5,243	)

Comprehensive income		-		-			-			(130	)		7,415			(14	)		7,271
Balance at September 30, 2017	$	490	$	376,251		$	(634,532	)	$	(4,261	)	$	664,148		$	176		$	402,272

	Common Stock		Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Income			Retained Earnings			Non- Controlling Interests			Total
Balance at June 30, 2016	$	489	$	374,972		$	(624,932	)	$	(4,846	)	$	646,315		$	204		$	392,202

Stock issued on share-based awards		-		306			-			-			-			-			306

Compensation expense associated with share-based awards		-		804			-			-			-			-			804

Tax benefit associated with exercise of share based awards		-		(17	)		-			-			-			-			(17	)

Purchase/retirement of company stock		-		-			(3,368	)		-			-			-			(3,368	)

Dividends declared on common stock		-		-			-			-			(4,722	)		-			(4,722	)

Comprehensive income		-		-			-			(930	)		11,529			(12	)		10,587
Balance at September 30, 2016	$	489	$	376,065		$	(628,300	)	$	(5,776	)	$	653,122		$	192		$	395,792

Periods ending June 30,
2017	$	2,474
2018		2,815
2019		2,396
2020		34,213
2021		-
2022 and thereafter		-
Total scheduled debt payments	$	41,898

Balance June 30, 2016	$	(4,846	)
Changes before reclassifications	$	(930	)
Amounts reclassified from accumulatedother comprehensive income	$	-
Current period other comprehensive income	$	(930	)
Balance September 30, 2016	$	(5,776	)

Revolving Credit Facility due 10/21/2019	$	25.0
Term Loan due 10/21/2019		15.6
Capital leases		1.3
Unamortized debt issuance costs		(0.8	)
Total debt		41.1
Less current maturities		3.0
Total long-term	$	38.1

	Period		(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 1, 2016	-	July 31, 2016		-	$	-		-		1,757,860
August 1, 2016	-	August 31, 2016		-		-		-		1,757,860
September 1, 2016	-	September 30, 2016		107,700	$	31.27		107,700		1,650,160

Total / Average				107,700	$	31.27		107,700

Exhibit Number	Description

31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema

101.CAL	XBRL Taxonomy Extension Calculation Linkbase

101.DEF	XBRL Taxonomy Extension Definition Linkbase

101.LAB	XBRL Taxonomy Extension Label Linkbase

101.PRE	XBRL Taxonomy Extension Presentation Linkbase




Date: October 26, ~~2016~~2017	BY: /s/ M. Farooq Kathwari
	M. Farooq Kathwari
	Chairman, President and Chief Executive Officer
	(Principal Executive Officer)

Date: October 26, ~~2016~~2017	BY: /s/ Corey Whitely
	Corey Whitely
	Executive Vice President Administration Chief Financial Officer and Treasurer
	(Principal Financial Officer)