Securities and Exchange Commission
Washington, D.C. 20549
----------------------------
FORM 11-K
Annual Report
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
(Mark One):
(X) Annual Report pursuant to Section 15(d) of the Securities Exchange Act
of 1934 (No Fee Required) for the fiscal year ended December 31, 1998
OR
( ) Transition Report pursuant to Section 15(d) of the Securities Exchange Act
of 1934 (No Fee Required)
For the transition period from _____ to _____
Commission file Number 1-11806
A. Full title of plan and the address of plan, if different from that
of the issuer named below:
THE ETHAN ALLEN RETIREMENT SAVINGS PLAN
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal office:
ETHAN ALLEN INTERIORS INC.
ETHAN ALLEN DRIVE
DANBURY, CT 06811
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Financial Statements and Schedule
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Table of Contents
Page
----
Independent Auditors' Report 1
Statements of Net Assets Available for Plan Benefits,
December 31, 1999 and 1998 2
Statements of Changes in Net Assets Available for Plan Benefits,
Years Ended December 31, 1999 3
Notes to Financial Statements 4
Schedules:
Schedule of Assets Held for Investment Purposes - Schedule 1 11
All other schedules have been omitted since they are not applicable.
Independent Auditors' Report
Ethan Allen Retirement Committee and Participants
The Ethan Allen Retirement Savings Plan:
We have audited the accompanying statements of net assets available for plan
benefits of The Ethan Allen Retirement Savings Plan (the "Plan") as of December
31, 1999 and 1998, and the related statement of changes in net assets available
for plan benefits for the year ended December 31, 1999. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits as of December
31, 1999 and 1998 and the changes in net assets available for plan benefits for
the year ended December 31, 1999, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes as of December 31, 1999 is presented for purposes of
additional analysis and is not a required part of the basic financial statements
but is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/S/ KPMG LLP
May 23, 2000
THE ETHAN ALLEN
RETIREMENT SAVING PLAN
Statement of Net Assets Available for Plan Benefits
December 31, 1999 and 1998
1999 1998
------------- ------------
Assets:
Investments, at fair value $ 140,140,707 $ 91,013,953
Investments, at contract value - 19,592,689
Participant loans 4,375,076 3,054,477
------------- ------------
Total investments 144,515,783 113,661,119
Employer contributions receivable 2,843,785 2,615,548
Employee contributions receivable 315,932 144,934
------------- ------------
Total assets 147,675,500 116,421,601
Liabilities:
Refunds payable for excess contributions 18,062 27,665
------------- ------------
Net assets available for plan benefits $147,657,438 $116,393,936
============ ============
See accompanying notes to financial statements.
-2-
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Statement of Changes in Net Assets Available for Plan Benefits
Year ended December 31, 1999
1999
-----------------
Additions to net assets:
Net appreciation
in fair value of investments $ 22,798,260
Interest income 796,791
Dividend income 5,877,666
------------------
Net investment income 29,472,717
------------------
Contributions:
Employer contributions 2,853,970
Employee contributions 9,722,734
-----------------
Total contributions 12,576,704
-----------------
Other receipts:
Transfers from other plans 62,405
-----------------
Total additions 4,211,826
-----------------
Deductions from net assets:
Distributions to participants (10,795,170)
Administrative expenses (53,154)
-----------------
Total deductions 10,848,324
-----------------
Net transfers between funds -
-----------------
Net increase 31,263,502
Net assets available for plan benefits:
Beginning of year 116,393,936
-----------------
End of year $ 147,657,438
=================
See accompanying notes to financial statements.
-3-
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1999 and 1998
(1) Plan Description
The Ethan Allen Retirement Savings Plan (the "Plan") is a defined
contribution savings plan sponsored and administered by Ethan Allen
Interiors Inc. (the "Company").
The following brief description is provided for general information
purposes only. Participants should refer to the Plan Document for a more
complete description of the Plan's provisions.
General
The Plan was formed effective July 1, 1994 through the merger of the
Retirement Program of Ethan Allen Inc. (the "Retirement Program") into
the Ethan Allen 401(k) Employee Savings Plan (the "401(k) Plan"). As a
result of the merger on July 1, 1994, all participant investments in the
Retirement Program (except for the Ethan Allen Interiors Inc. restricted
stock which was transferred directly) were liquidated and the proceeds
were transferred to the Plan, allocated to participants' accounts and
invested, as directed, by each participant. On January 1, 1999, the name
of the Plan was changed from The Ethan Allen Profit Sharing and 401(k)
Retirement Plan to The Ethan Allen Retirement Savings Plan.
The Plan is offered to substantially all employees of the Company who
have completed 1,000 hours of service during their first year of
employment or subsequent plan year. The Plan is subject to the provisions
of the Employee Retirement Income Security Act of 1974 ("ERISA").
Contributions and Vesting
Participants may contribute from 1% to 15% of their compensation (as
defined in the Plan) up to a limit of $10,000 in 1999 (tax-deferred
contribution) to the 401(k) portion of the plan. The Company may, at its
discretion, make a matching contribution on behalf of each participant,
provided the matching contribution does not exceed the lesser of (a) 50%
of the participant's contribution or (b) $1,000 per participant per plan
year. Participants may, in addition, contribute amounts in excess of
their tax deferred contribution on an after-tax basis in the amount of 1%
to 15% of their compensation. The participant's tax-deferred contribution
and after-tax contribution, in the aggregate, may not exceed 15% of their
compensation.
Employer contributions, if any, to the profit sharing portion of the
Plan, on behalf of each participant are determined by the Board of
Directors of the Company at the close of each fiscal year, although the
maximum amount that can be contributed to a participant's account in any
year is the lesser of (i) $30,000 (or, if greater, 25% of the dollar
limitation in effect under Section 415(b)(1)(A) of the Internal Revenue
Code) or (ii) 25% of the participant's compensation for that Plan year,
reduced by any other contributions on the participant's behalf to any
other defined contribution plans of the Company. The actual contribution,
if any, is made in the ensuing year. The Company declared no profit
sharing contributions for the Plan in 1999 and 1998.
Participant contributions, employer 401(k) contributions and profit
sharing contributions are 100% vested immediately.
-4- (Continued)
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1999 and 1998
During 1999 and 1998, certain participants contributed $18,062 and
$27,665, respectively, in excess of the allowable qualified contribution.
The excess contribution amounts are reflected as a Plan liability at
December 31, 1999 and 1998. The excess contributions were refunded in the
subsequent year within the penalty free deadline.
Investment of Funds
During 1999 and 1998, the amounts contributed to the Plan were invested
in one of the following commingled funds at the direction of the
participants. A brief description of the funds is as follows:
Benham Preservation Fund - The Benham Preservation Fund invests
primarily in fully benefit-responsive guaranteed investment
contracts issued by major financial institutions, including
banks and life insurance companies. The fund is managed by SEI
Trust Company, Benham Management Corporation and Dwight Asset
Management Company. Participation in the Benham Preservation
Fund terminated for employees on June 1, 1999. On that date, all
assets of the Benham Preservation Fund were transferred into the
American Century Stable Asset Fund.
American Century Stable Asset Fund - The Stable Asset Fund
invests in a diversified portfolio of high-quality investments
issued by major financial institutions and in collateralized
stable value vehicles, including guaranteed investment
contracts. The fund is managed by SEI Trust Company and Dwight
Asset Management Company.
American Century Select Investors Fund - The Select Investors
Fund invests in common stocks considered by fund managers to
have a better than average prospect for appreciation. In
addition, 80% of the fund's stock investments must have a record
of paying or have committed to paying regular dividends.
American Century Ultra Investors Fund - The Ultra Investors Fund
invests in medium to large-sized companies that show
accelerating growth and earnings.
American Century International Equity Fund - The International
Equity Fund invests in common stocks of foreign companies
considered to have better than average prospects for
appreciation.
Ethan Allen Restricted/Unrestricted Stock Funds - At December
31, 1999 and 1998, the Plan held 478,566 and 517,572,
respectively, restricted shares of common stock, and 332,556 and
356,397, respectively, unrestricted shares of common stock of
the Company. All of the restricted shares are subject to proxies
granted to Mr. Kathwari, the Chairman of the Board of Directors,
President and Chief Executive Officer of the Company, which
expire on the earlier of Mr. Kathwari's termination of
employment with the Company or March 22, 2003, and 434,476 of
these shares are restricted from being sold by the Plan, other
than to the Company, in accordance with applicable securities
laws. Additionally, the Ethan Allen Restricted Stock Fund
restricts participants from transferring their balances in this
fund to other funds of the Plan. Withdrawing participants have
the option of receiving a distribution from the Ethan Allen
Restricted Stock Fund in shares of Ethan Allen Interiors Inc.
stock or cash. No such restrictions exist on investments in the
Ethan Allen Unrestricted Stock Fund.
-5- (Continued)
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1999 and 1998
Ethan Allen Interiors Inc. common stock is publicly traded and
had a readily ascertainable market value of $32.06 and $27.33
per share at December 31, 1999 and 1998, respectively. At May
23, 2000, the closing price of Ethan Allen Interiors Inc.
common stock was $25.69 per share.
All share and per share amounts have been adjusted to reflect a
3 for 2 stock split effected on May 21, 1999.
American Century Strategic Allocation Conservative Fund - The
Strategic Allocation Conservative Fund invests in a diversified
portfolio of stocks, bonds and money market securities with an
emphasis on quality bonds and money market securities over
stocks. The Fund's targeted mix of assets is 45% bonds, 40%
stocks, and 15% money market securities.
American Century Strategic Allocation Moderate Fund - The
Strategic Allocation Moderate Fund invests in a diversified
portfolio of stocks, bonds and money market securities. The
Fund's targeted mix of assets is 60% stocks, 30% bonds and 10%
money market securities.
American Century Strategic Allocation Aggressive Fund - The
Strategic Allocation Aggressive Fund invests in a diversified
portfolio of stocks, bonds and money market securities. The
Fund's targeted mix of assets is 75% stocks, 20% bonds and 5%
money market securities.
Charles Schwab Personal Choice(R) Retirement Fund - The Personal
Choice(R) Retirement Fund allows the investor to purchase mutual
funds, stocks and bonds offered through Charles Schwab & Co.,
Inc. Participants must transfer a minimum of $2,500 from their
current plan balance to elect this option. Participants may
transfer up to a maximum of 50% of their fully vested balance.
American Century Vista Investors Fund - The Vista Investors Fund
invests in common stocks of growing small- to medium-sized
companies considered to have better than average prospects for
appreciation.
American Century Value Fund - The Value Fund invests primarily
in equity securities of well established companies that appear
to be undervalued at the time of purchase.
Loans
The Loan Fund is a non-contributory fund used to account for and
administer loans to participants. Each participant may apply to the Plan
administrator for a loan against the 401(k) portion of that participant's
account. The maximum amount which may be borrowed by the participant is
limited to the lesser of (a) $50,000 or (b) 50% of the 401(k) portion of
such participant's account at the time of such loan. The term of these
loans generally shall not exceed the earlier of five years or such
participant's termination of service.
Loans are processed the first day of each month. The Plan administrator
has determined that loans shall bear interest equal to the Prime Rate as
of the preceding month's close plus 1%. The Prime Rate during 1999 and
1998 ranged from 7.75% to 8.50%, respectively.
-6- (Continued)
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1999 and 1998
Participants' Accounts
A separate account is maintained for each participant. Net investment
income (loss) is allocated daily to each participant's account on a
proportional basis according to account balances so that each account
bears its proportionate share of income or loss. Employer profit sharing
contributions are allocated to each participant based on each
participant's compensation to total compensation of all participants
during the year. In 1999 and 1998, administrative expenses, other than
certain transaction fees borne by the participants, were paid by the Plan
sponsor.
Distributions and Withdrawals
Participants may elect to receive their benefits when they reach 59-1/2,
or when they leave the Company. The Plan also provides death benefits
to the designated beneficiary of eligible participants.
An employee may withdraw any or all of his after tax 401(k) contribution
($250 minimum) at any time; early withdrawal of before tax and Company
match 401(k) contributions may only be made by a participant upon
attaining the age 59-1/2 or because of serious financial hardship,
subject to limitations.
In no event shall distributions commence later than sixty days after the
close of the Plan Year in which the latest of the following events
occurs: the participant's attainment of age 59-1/2; the tenth anniversary
of the date on which the participant began participating in the Plan; or
the participant's termination date. These provisions notwithstanding,
participants must commence distributions from the Plan within a year of
attaining the age of 71.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared on the accrual
basis of accounting.
Valuation of Investments Held in Trust
Under the terms of a trust agreement between Chase Manhattan Bank, N.A.
(the "Trustee") and the Company, the Trustee administers a trust fund on
behalf of the Plan. The value of the investments and changes therein of
this trust have been reported to the Plan by the Trustee, as determined
through the use of quoted market prices, except for the guaranteed
investment contracts, which are valued at contract value. Purchases and
sales of securities are recorded on a trade-date basis.
Contract value equals the principal of investments in the Benham
Preservation Fund plus accrued interest at the contract rate, less
withdrawals, as reported by SEI Trust Company ("SEI"), the manager of the
Benham Preservation Fund. SEI has established procedures to value the
investment contracts of the Benham Preservation Fund in good faith. These
procedures include a review of information provided by investment
managers relating to each investment's contract value relative to its
issuing entity's financial strength, current financial ratings, current
interest rates, and a comparative review of
-7- (Continued)
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1999 and 1998
similar investment vehicles. SEI also provides audited financial
statements of the Benham Preservation Fund that coincide with the Plan's
year-end. In these financial statements, SEI has determined that contract
value approximates fair value. The investment contracts of the Benham
Preservation Fund bear interest rates between 5.60% and 8.54% as of
December 31, 1998. In addition to investment contracts, the Benham
Preservation Fund had approximately 37% of its total net assets invested
in the SEI Stable Asset Fund. The average yield for the Benham
Preservation Fund was approximately 5.5% in 1998. Participation in the
Benham Preservation Fund terminated for employees on June 1, 1999. On
that date, all assets of the Benham Preservation Fund were transferred
into the American Century Stable Asset Fund.
Loans to participants are valued at face value that approximates fair
value.
(3) Investments
The following table presents the Plan's investments which represent 5% or
more of the Plan's net assets available for plan benefits at December 31,
1999 and 1998.
1999 1998
----------- ------------
Investments at fair value as determined by quoted market price:
Mutual funds:
American Century Select Investors Fund $31,021,657 $24,649,934
American Century Ultra Investors Fund 29,752,664 19,740,597
American Century International Equity Fund 8,101,896 4,870,262
American Century Strategic Allocation
Moderate Fund 9,104,635 7,720,362
Common stock:
Ethan Allen Interiors, Inc. - Restricted 15,349,355 14,147,493
Ethan Allen Interiors, Inc. - Unrestricted 10,663,086 9,746,479
Collective trust:
American Century Stable Assets Fund 20,259,314 -
Investment at contract value, as determined by issuer:
Investment contracts:
Benham Preservation Fund - 19,592,689
-8- (Continued)
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1999 and 1998
(4) Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and
changes therein, and disclosure of contingent assets and liabilities.
Actual results may differ from those estimates.
(5) Obligation for Plan Benefits
Although the Plan is intended to be permanent, the Company expressly
reserves the right to amend or terminate the Plan at any time. In the
event that the Plan is terminated, participants are entitled to 100
percent of the current value of their vested account.
(6) Parties in Interest
Certain Plan investments are shares of mutual funds managed by J.P.
Morgan American Century. J.P. Morgan American Century is the recordkeeper
as defined by the Plan, and therefore, transactions involving these
mutual funds qualify as party-in-interest transactions. Fees paid by
the Plan for the investment management service amounted to $53,154 for
the year ended December 31, 1999.
(7) Plan Termination
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA.
(8) Tax Status
The Company has received a determination letter from the Internal Revenue
Service dated May 2, 1996 stating that the Plan is a qualified plan under
Section 401(a) of the Internal Revenue Code and the corresponding trust
is exempt from income tax under Section 501(a) of the Internal Revenue
Code. The Plan has been amended since receiving the determination letter.
However, the Company believes that the Plan continues to be administered
in accordance with the applicable sections of the Internal Revenue Code.
(9) Reconciliation of Financial Statements to Form 5500
Net assets available for plan benefits identified in the financial
statements presented herein have not been reduced for participant
benefits payable of $83,526 and $42,590 at December 31, 1999 and 1998,
respectively. However, these amounts have been identified as a reduction
to net assets available for plan benefits in the Form 5500 to be filed
with the Internal Revenue Service.
-9- (Continued)
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1999 and 1998
The following is a reconciliation of net assets available for benefits
reported in these financial statements and on the Form 5500:
December 31, 1999 December 31,1998
----------------- ----------------
Net assets available for benefits per the
financial statements $147,657,438 $116,393,936
Benefits payable to participants (83,526) (42,590)
------------ ------------
Net assets available for benefits per the
Form 5500 $147,573,912 $116,351,346
============ ============
The following is a reconciliation of benefits paid to participants
reported in these financial statements and on the Form 5500:
Year ended
December 31, 1999
-----------------
Benefits paid to participants per the
financial statements $ 10,795,170
Add: Benefits payable to participants at
year-end 83,526
Less: Benefits payable to participants at
previous year-end (42,590)
--------------
Benefits paid to participants per the
Form 5500 $ 10,836,106
==============
Benefits payable to participants are recorded on the Form 5500 for
benefit claims that have been processed and approved for payment prior to
the Plan year-end, but not yet paid as of that date.
(10) Subsequent Events
The Company amended the Plan effective January 1, 2000. The Company now
matches $1.00 for $1.00 on the first $500 of before-tax contributions and
then $0.50 on the dollar up to $1,000. Participants are now able to
contribute 20% of their compensation to the Plan, an increase from 15% in
1999. Participants were able to contribute 20% of their compensation to
the Plan from 15%. Employees are also eligible to participate in the
Plan after three consecutive months of service regardless of hours
worked.
-10-
Schedule 1
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Schedule of Assets Held for Investment Purposes
December 31, 1999
Description of investment including
Identity of issue, borrower, maturity date, rate of interest,
lessor or similar party collateral, par, of maturity value Current value
- -------------------------------------------------------- -------------------------------------------------- -------------
*American Century Stable Asset Fund Collective Trust $20,259,314
*American Century Select Investors Fund Mutual fund 31,021,657
*American Century Ultra Investors Fund Mutual fund 29,752,664
*American Century International Equity Fund Mutual fund 8,101,896
* Ethan Allen Interiors, Inc. Restricted Common Stock 15,349,355
*Ethan Allen Interiors, Inc. Unrestricted Common Stock 10,663,086
*American Century Strategic Allocation Conservative Fund Mutual fund 1,649,743
*American Century Strategic Allocation Moderate Fund Mutual fund 9,104,635
*American Century Strategic Allocation Aggressive Fund Mutual fund 3,766,961
*American Century Vista Investors Fund Mutual fund 5,545,574
*American Century Value Fund Mutual fund 3,565,287
Charles Schwab Personal Choice(R) Retirement Fund assets Common stocks 1,360,535
* Participant loans Loans made to Plan participants at prime plus 1% 4,375,076
------------
Total investments $144,515,783
============
* Denotes a party-in-interest to the Plan.
See accompanying independent auditors' report.
-11-