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, 2002
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 Supplemental Schedule
December 31, 2002 and 2001
(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, 2002 and 2001 2
Statement of Changes in Net Assets Available for Plan Benefits, Year Ended December 31, 2002 3
Notes to Financial Statements 4
SUPPLEMENTAL SCHEDULE:
Schedule H, Line 4i - Schedule of Assets (Held at End of Year) 11
All other schedules have been omitted as 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, 2002 and 2001, and the related statement of changes in net assets available
for plan benefits for the year ended December 31, 2002. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan as
of December 31, 2002 and 2001, and the changes in net assets available for plan
benefits for the year ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.
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
at end of year) 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
- ------------------
June 18, 2003
Stamford, Connecticut
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 2002 and 2001
2002 2001
---------------- -----------------
Assets:
Investments, at fair value $ 121,815,553 136,333,117
Participant loans 5,277,468 5,207,058
---------------- -----------------
Total investments 127,093,021 141,540,175
Employer contributions receivable 4,232,795 4,362,130
Employee contributions receivable 189,650 449,572
---------------- -----------------
Total assets 131,515,466 146,351,877
Liabilities:
Refunds payable for excess contributions -- 49,878
---------------- -----------------
Net assets available for plan benefits $ 131,515,466 146,301,999
================ =================
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, 2002
Additions to net assets:
Interest income $ 415,003
Dividend income 2,106,074
Contributions:
Employer contributions 4,352,360
Employee contributions 13,573,080
------------
Total contributions 17,925,440
------------
Total additions 20,446,517
------------
Deductions from net assets:
Net depreciation in fair value of investments (22,455,159)
Benefits paid to participants (12,722,342)
Administrative expenses (55,549)
------------
Total deductions (35,233,050)
------------
Net decrease (14,786,533)
Net assets available for plan benefits:
Beginning of year 146,301,999
------------
End of year $ 131,515,466
============
See accompanying notes to financial statements.
3
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(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" or the "Employer").
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 all employees who have completed at least three
consecutive months of service with the Company. Effective January 1,
2001, the Plan was amended and restated. The amendments included
extending eligibility to the employees of the newly acquired Dublin,
Virginia manufacturing facility and the merger of the Carriage House
401(k) Plan relating to the purchase of retail stores in Wisconsin. The
Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
CONTRIBUTIONS AND VESTING
Participants may contribute from 1% to 100% (1% to 20% in 2001) of their
compensation (as defined in the Plan), up to a maximum tax deferred
contribution level of $11,000 and $10,500 in 2002 and 2001, respectively,
to the 401(k) portion of the Plan. The Company matches $1.00 for $1.00 on
the first $500 of before-tax contributions and $0.50 on the $1.00 on the
next $1,000 of before-tax contributions. As such, the maximum annual
Company match is $1,000 and such match follows the participants'
investment choices as of the date paid. Participants may, in addition,
contribute amounts in excess of their tax deferred contribution on an
after-tax basis in the amount of 1% to 100% (1% to 20% in 2001) of their
compensation. The participant's tax-deferred contribution and after-tax
contribution, in the aggregate, may not exceed 100% (50% in 2001) 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) $35,000 (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 2002 or 2001.
4
(Continued)
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 2002 and 2001
Participants who are employed by the Company on the last day of the Plan
year are entitled to receive the employer match contributions.
Participant contributions, Employer 401(k) contributions and profit
sharing contributions vest immediately.
During 2001, certain participants contributed $49,878 in excess of the
maximum allowable qualified contribution. These excess contributions were
reflected as a Plan liability at December 31, 2001 and refunded to the
participants in 2002 within the penalty free deadline. There were no
excess contributions during 2002.
INVESTMENT OF FUNDS
During 2002 and 2001, the amounts contributed to the Plan were invested
in one of the following funds at the direction of the participants. A
brief description of the funds is as follows:
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.
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,
2001, the Plan held 397,435 restricted shares of common stock of
the Company. The Plan held no restricted shares of common stock of
the Company at December 31, 2002. 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 360,871 of
these shares are restricted from being sold by the Plan, other
than to the Company, in accordance with applicable securities
laws. During 2002 and 2001, the Company purchased approximately
7,009 and 40,834 of restricted shares, respectively, at a market
value of approximately $278,299 and $1,427,819, respectively.
Through March 31, 2002, the Ethan Allen Restricted Stock Fund
restricted participants from transferring their balances from this
fund to other funds of the Plan. Effective April 1, 2002, the
trading restrictions relating to the portion of Company profit
sharing contributions invested in Ethan Allen Restricted Stock
were lifted. No such restrictions exist on investments in the
Ethan Allen Unrestricted Stock Fund. At December 31, 2002 and
2001, the Plan held unrestricted shares of common stock of the
Company totaling 696,159 and 329,328 shares, respectively.
Ethan Allen Interiors Inc. common stock is publicly traded and had
a readily ascertainable market value of $34.37 and $41.59 per
share at December 31, 2002 and 2001, respectively.
5
(Continued)
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 2002 and 2001
LORD ABBOTT DEVELOPING GROWTH FUND - The Lord Abbott Developing
Growth Fund invests in a diversified portfolio of small company
stocks with long-range growth potential.
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.
This fund was replaced during 2001 with the American Century
Brokerage Fund.
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.
AMERICAN CENTURY BROKERAGE FUND - The fund allows investors to
purchase mutual funds, stocks, and bonds offered through American
Century. Effective July 1, 2001, 75% of participant balances can
be transferred to this account with a minimum balance of $1,000.
LOANS
The Loan Fund is a noncontributory fund used to account for and
administer loans to participants. Each participant may apply to JP
Morgan/American Century, as Plan recordkeeper, 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,
and in certain circumstances, greater than five years as defined in the
Plan document.
Loans are processed by the Plan recordkeeper upon approval of the
application. The Plan administrator has determined that loans shall bear
interest equal to the Prime Rate as of the preceding month's close plus
1%. Loan rates during 2002 and 2001 ranged from 5.25% to 10.50% and 6.00%
to 10.50%, respectively.
6
(Continued)
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 2002 and 2001
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 2002 and 2001, administrative expenses, other than
certain transaction fees borne by the participants, were paid by the
Company.
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 and participant
rollover contributions 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 of 59 1/2 or because of serious financial hardship,
subject to limitations. Distributions are usually made in cash. If your
account includes shares of Company stock, a participant can elect to
receive a distribution in cash or stock.
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 who are no longer active employees must
commence distributions from the Plan within a year of attaining the age
of 70 1/2.
(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, which
approximates fair value. These contracts are fully benefit responsive and
are credited with actual earnings on the underlying investments and are
charged for Plan withdrawals and administration expenses charged by the
issuer of the respective contracts. There are no reserves against the
contract value for credit risk of the contract issuer or otherwise. The
crediting interest rates ranged from 4.98% to 5.30% for 2002.
Purchases and sales of securities are recorded on a trade-date basis.
Dividends are recorded on the ex-dividend date and interest is accrued as
earned. Loans to participants are valued at face value, which
approximates fair value.
7
(Continued)
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 2002 and 2001
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires that
an entity recognize all derivatives as either assets or liabilities in
the Statement of Net Assets Available for Plan Benefits and measure those
instruments at fair value. The provisions of SFAS 133, which were adopted
by the Plan in 2001, did not have a material effect on the financial
statements of the Plan.
(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,
2002 and 2001:
2002 2001
---------------- ------------------
INVESTMENTS AT FAIR VALUE AS DETERMINED BY QUOTED MARKET PRICE:
Mutual funds:
American Century Ultra Investors Fund $ 17,979,701 23,393,481
American Century Select Investors Fund 17,557,455 23,499,182
American Century Strategic Allocation Moderate Fund 10,030,856 10,218,458
American Century International Equity Fund 5,312,656 6,140,421
Common stock:
Ethan Allen Interiors Inc. - Restricted -- 16,546,306
Ethan Allen Interiors Inc. - Unrestricted 23,948,967 13,709,262
Collective trust:
American Century Stable Asset Fund 29,243,801 23,984,724
During 2002, the Plan's investments (including realized gains and losses on
investments bought and sold, as well as held during the year) depreciated
by $22.5 million as follows:
Mutual funds $ (15,061,645)
Common stock (7,392,904)
Collective trust (610)
-----------------
Net depreciation in fair value of investments $ (22,455,159)
=================
(4) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, and changes therein, and disclosure of
contingent assets and liabilities. Actual results may differ from those
estimates.
8
(Continued)
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(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% of
the current value of vested amounts in their accounts.
(6) PARTIES-IN-INTEREST
Certain Plan investments represent shares of mutual funds managed by J.P.
Morgan/American Century, which also serves as Plan recordkeeper.
Therefore, transactions involving these mutual funds qualify as
party-in-interest transactions. Fees paid by the Plan for investment
management services amounted to $47,549 for the year ended December 31,
2002.
(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 21, 2002 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 Plan Administrator and legal counsel believe 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 $276,119 and $279,531 at December 31, 2002 and 2001,
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. The following is a reconciliation of
net assets available for plan benefits reported in these financial
statements and on the Form 5500:
DECEMBER 31
-------------------------------------
2002 2001
-------------------------------------
Net assets available for plan benefits per the financial
statements $ 131,515,466 146,301,999
Benefits payable to participants (276,119) (279,531)
----------------- ------------
Net assets available for plan benefits per the Form 5500 $ 131,239,347 146,022,468
================= ============
9
(Continued)
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 2002 and 2001
The following is a reconciliation of benefits paid to participants
reported in these financial statements and on the Form 5500:
YEAR ENDED
DECEMBER 31,
2002
--------------
Benefits paid to participants per the financial statements $ 12,722,342
Add benefits payable to participants at December 31, 2002 276,119
Less benefits payable to participants at December 31, 2001 (279,531)
--------------
Benefits paid to participants per the Form 5500 $ 12,718,930
==============
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
THE ETHAN ALLEN
RETIREMENT SAVINGS PLAN
Schedule H, Line 4i -- Schedule of Assets (Held at End of Year)
December 31, 2002
IDENTITY OF ISSUE, BORROWER, DESCRIPTION OF INVESTMENT INCLUDING MATURITY DATE,
LESSOR, OR SIMILAR PARTY RATE OF INTEREST, COLLATERAL, PAR, OR MATURITY VALUE CURRENT VALUE
- ----------------------------------------------- --------------------------------------------------------------- -------------
*American Century Stable Asset Fund Collective trust $ 29,243,801
*American Century Select Investors Fund Mutual fund 17,557,455
*American Century Ultra Investors Fund Mutual fund 17,979,701
*American Century International Growth Fund Mutual fund 5,312,656
*Ethan Allen Interiors Inc. Unrestricted common stock 23,948,967
*American Century Strategic Allocation
Conservative Fund Mutual fund 2,644,998
*American Century Strategic Allocation
Moderate Fund Mutual fund 10,030,856
*American Century Strategic Allocation
Aggressive Fund Mutual fund 4,003,133
*American Century Vista Investors Fund Mutual fund 4,616,979
*American Century Value Fund Mutual fund 4,891,248
Lord Abbott Fund Developing Growth Fund Mutual fund 704,081
*American Century Brokerage Fund Mutual fund 881,678
*Participant loans Loans made to Plan participants at Prime plus 1% (5.25%-10.5%) 5,277,468
-------------
Total investments $ 127,093,021
=============
* Denotes a party-in-interest to the Plan.
See accompanying independent auditors' report.
11
EXHIBITS
The following document has been filed as part of this report:
Exhibit 99.1 Certification of Periodic Financial Report Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002,
U.S.C. Section 1350
SIGNATURES
THE PLAN. Pursuant to the requirements of the Securities Exchange Act
of 1934, Ethan Allen Interiors Inc., as administrator of, and issuer of the
securities held pursuant to, The Ethan Allen Retirement Savings Plan, has duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
THE ETHAN ALLEN RETIREMENT SAVINGS PLAN
By: Ethan Allen Interiors Inc.
Date: June 30, 2003 By: /S/ JEFFREY A. HOYT
--------------------------------------
Name: Jeffrey A. Hoyt
Title: Vice President, Finance