THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Securities and Exchange Commission Washington, D.C. 20549 ---------------------------- FORM 11-K Annual Report Pursuant to Section 15(d) of the Securities Exchange Act of 1974 (Mark One): (X) Annual Report pursuant to Section 15(d) of the Securities Exchange Act of 1934 (No Fee Required) ( ) 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 PROFIT SHARING AND 401(k) RETIREMENT 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 PROFIT SHARING AND 401(k) RETIREMENT PLAN Financial Statements and Schedules December 31, 1996 and 1995 (With Independent Auditors Report Thereon) THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Financial Statements and Schedules December 31, 1996 and 1995 Table of Contents Independent Auditors' Report Statements of Net Assets Available for Plan Benefits, With Fund Information, December 31, 1996 and 1995 Statements of Changes in Net Assets Available for Plan Benefits, With Fund Information, Years Ended December 31, 1996 and 1995 Notes to Financial Statements Schedules*: Item 27a - Schedule of Assets Held for Investment Purposes Schedule 1 Item 27d - Schedule of Reportable Transactions Schedule 2 * All other schedules have been omitted since they are not applicable. Independent Auditors' Report Plan Administrative Committee and Participants The Ethan Allen Profit Sharing and 401(k) Retirement Plan: We have audited the accompanying statements of net assets available for plan benefits, with fund information for the Ethan Allen Profit Sharing and 401(k) Retirement Plan (the "Plan") as of December 31, 1996 and 1995, and the related statement of changes in net assets available for plan benefits, with fund information for the years then ended. 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 from 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 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, 1996 and 1995 and the changes in net assets available for plan benefits for the years then ended 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 schedules of (1) assets held for investments purposes as of December 31, 1996 and (2) reportable transactions for the year ended December 31, 1996 are presented for purposes of additional analysis and are note required as part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosures under the Employee Retirement Income Security Act of 1974. The Fund Information in the statements of net assets available for plan benefits and the statement of changes in net assets available for plan benefits is presented for purposes of additional analysis rather than to present the net assets available for plan benefits and changes in net assets available for plan benefits for each fund. The supplemental schedules and the Fund Information have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. June 2, 1997 /s/ KPMG Peat Marwick, LLP THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Statement of Net Assets Available for Plan Benefits, With Fund Information December 31, 1996
20th Century 20th Century 20th Century 20th Century Strategic Benham Select Ultra International Restricted Unrestricted Allocation Preservation Investors Investors Equity Ethan Allen Ethan Allen Conservative Fund Fund Fund Fund Stock Fund Stock Fund Fund ---- ---- ---- ---- ---------- ---------- ---- Assets: Investments, at fair value ...... $ -- 12,169,271 10,482,690 3,017,927 7,672,051 2,291,395 1,012,126 Investments, at contract value .. 20,290,969 -- -- -- -- -- -- Participant loans ............... -- -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total investments .......... 20,290,969 12,169,271 10,482,690 3,017,927 7,672,051 2,291,395 1,012,126 Employer contributions receivable 270,114 253,146 238,572 68,514 -- 38,122 27,203 Employee contributions receivable 60,815 62,141 65,891 19,361 -- 9,724 6,036 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total assets ............... 20,621,898 12,484,558 10,787,153 3,105,802 7,672,051 2,339,241 1,045,365 Liabilities: Refunds payable for excess contributions ................. 26,610 7,234 9,419 -- -- -- 2,446 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net assets available for plan benefits .......... $20,595,288 12,477,324 10,777,734 3,105,802 7,672,051 2,339,241 1,042,919 =========== =========== =========== =========== =========== =========== ===========
(Continued) THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Statement of Net Assets Available for Plan Benefits, With Fund Information, Continued December 31, 1996
20th Century 20th Century Strategic Strategic Charles Schwab 20th Century Allocation Allocation Personal Choice(R) Vista Investors Moderate Aggressive Retirement Fund Fund 20th Century Loan Fund Fund Value Fund Fund Total ---- ---- -------------- ------ ---------- ---- ------- Assets: Investments, at fair value ....... $5,977,304 1,681,730 194,413 2,496,070 1,832,753 -- 48,827,730 Investments, at contract value ... -- -- -- -- -- -- 20,290,969 Participant loans ................ -- -- -- -- -- 2,101,144 2,101,144 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total investments ........... 5,977,304 1,681,730 194,413 2,496,070 1,832,753 2,101,144 71,219,843 Employer contributions receivable 129,796 66,485 -- 65,151 37,343 -- 1,194,446 Employee contributions receivable 31,343 17,395 -- 19,467 11,102 -- 303,275 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total assets ................ 6,138,443 1,765,610 194,413 2,580,688 1,881,198 2,101,144 72,717,564 Liabilities: Refunds payable for excess contributions .................. 834 3,583 -- 3,678 8,228 -- 62,032 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net assets available for plan benefits ................ $6,137,609 1,762,027 194,413 2,577,010 1,872,970 2,101,144 72,655,532 ========== ========== ========== ========== ========== ========== ==========
See accompanying notes to financial statements. THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Statement of Net Assets Available for Plan Benefits, With Fund Information December 31, 1995
20th 20th 20th Century Century Century Restricted Capital Select Balanced Ultra International Ethan Allen Unrestricted Preservation Investors Investors Investors Equity Stock Ethan Allen Loan Fund Fund Fund Fund Fund Fund Stock Fund Fund Total ---- ---- ---- ---- ---- ---- ---------- ---- ----- Assets: Investments, at fair value ...... $ -- 10,671,053 6,956,346 7,571,644 2,484,553 4,431,807 1,623,604 -- 33,739,007 Investments, at contract value .. 23,455,732 -- -- -- -- -- -- -- 23,455,732 Participant loans ............... -- -- -- -- -- -- -- 1,725,406 1,725,406 --------- ----------- ---------- ---------- ---------- ---------- ---------- --------- --------- Total investments .......... 23,455,732 10,671,053 6,956,346 7,571,644 2,484,553 4,431,807 1,623,604 1,725,406 58,920,145 Employer contributions receivable 798,730 333,564 193,700 192,701 70,642 -- 46,176 -- 1,635,513 Employee contributions receivable 95,528 60,992 35,804 42,461 14,239 -- 9,224 -- 258,248 ---------- ---------- ---------- ---------- ---------- ----------- --------- -------- ---------- Net assets available for plan benefits ................ $24,349,990 11,065,609 7,185,850 7,806,806 2,569,434 4,431,807 1,679,004 1,725,406 60,813,906 =========== ========== ========= ========== ========== ========== ======== ========= ==========
See accompanying notes to financial statements. THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Statement of Changes in Net Assets Available for Plan Benefits, With Fund Information Year ended December 31, 1996
20th 20th 20th 20th 20th Century Century Century Century Century Benham Select Balanced Ultra International Restricted Unrestricted Strategic Preservation Investors Investors Investors Equity Ethan Allen Ethan Allen Allocation Fund Fund Fund Fund Fund Stock Fund Stock Fund Conservative Fund -------- -------- --------- -------- --------- --------- ----------- --------- Additions to net assets: Net appreciation/(depreciation) in fair value of investments .... $-- 839,223 153,476 597,433 70,607 3,752,473 1,165,054 41,201 Interest income ................... 1,101,199 -- -- -- -- -- -- -- Dividend income ................... -- 1,144,198 40,963 599,785 310,231 8,275 2,711 23,036 ----------- ---------- -------- ---------- --------- ------------ --------- ----------- Net investment income (loss) .... 1,101,199 1,983,421 194,439 1,197,218 380,838 3,760,748 1,167,765 64,237 ----------- ---------- -------- ---------- --------- ------------ --------- ----------- Contributions: Employer contributions .......... 252,589 264,282 5,248 244,732 70,699 -- 39,814 27,714 Employee contributions .......... 1,209,723 1,100,605 150,707 1,179,159 356,823 -- 171,810 108,530 ----------- ---------- -------- ---------- --------- ----------- ---------- --------- 1,462,312 1,364,887 155,955 1,423,891 427,522 -- 211,624 136,244 ----------- ---------- -------- ---------- --------- ----------- --------- --------- Total additions ................. 2,563,511 3,348,308 350,394 2,621,109 808,360 3,760,748 1,379,389 200,481 ----------- --------- -------- ---------- --------- ----------- --------- ---------- Deductions from net assets: Distributions to participants ..... (2,481,804) (923,426) (224,840) (629,029) (146,076) (520,504) (158,014) (40,165) Administrative expenses ........... (17,236) (6,077) (817) (1,981) (176) -- (350) (1,417) --------- -------- --------- ---------- --------- --------- ------------ Total deductions ................ (2,499,040) (929,503) (225,657) (631,010) (146,252) (520,504) (158,364) (41,582) ----------- --------- -------- ---------- --------- --------- ---------- ------------ Net transfers between funds ........ (3,819,173) (1,007,090)(7,310,587) 980,829 (125,740) -- (560,788) 884,020 ----------- ---------- --------- -------- --------- --------- --------- ------------ Net increase (decrease) ........ (3,754,702) 1,411,715 (7,185,850) 2,970,928 536,368 3,240,244 660,237 1,042,919 Net assets available for plan benefits: Beginning of year ................ 24,349,990 11,065,609 7,185,850 7,806,806 2,569,434 4,431,807 1,679,004 -- ---------- ---------- --------- --------- --------- --------- --------- --------- End of year ..................... $ 20,595,288 12,477,324 -- 10,777,734 3,105,802 7,672,051 2,339,241 1,042,919 ============ =========== ======== ========== ========= ========== ========== ==========
(Continued) THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Statement of Changes in Net Assets Available for Plan Benefits, With Fund Information, Continued Year ended December 31, 1996
20th Century 20th Century Strategic Charles Schwab Strategic Allocation Personal 20th Century Allocation Aggressive Choice(R) Vista Investors 20th Century Loan Moderate Fund Fund Retirement Fund Fund Value Fund Fund Total ------------- ---- --------------- ---- ---------- ---- ----- Additions to net assets: Net appreciation/(depreciation) in fair value of investments ... $ 383,518 126,088 (3,769) (103,760) 50,689 -- 7,072,233 Interest income ................... -- -- -- -- -- 180,625 1,281,824 Dividend income ................... 106,367 12,202 -- 198,862 174,204 -- 2,620,834 ----------- ----------- --------- ----------- ----------- --------- ---------- Net investment income (loss) ... 489,885 138,290 (3,769) 95,102 224,893 180,625 10,974,891 ----------- ----------- --------- ----------- ----------- --------- ---------- Contributions: Employer contributions ......... 131,062 66,652 -- 65,395 37,553 -- 1,205,740 Employee contributions ......... 478,967 263,621 -- 254,216 179,196 -- 5,453,357 ----------- ----------- --------- ----------- ----------- -------- --------- 610,029 330,273 -- 319,611 216,749 -- 6,659,097 ----------- ----------- --------- ----------- ----------- -------- --------- Total additions ................ 1,099,914 468,563 (3,769) 414,713 441,642 180,625 17,633,988 ----------- ----------- --------- ----------- ----------- -------- ---------- Deductions from net assets: Distributions to participants ..... (394,652) (38,672) -- (16,538) (9,576) (176,022) (5,759,318) Administrative expenses ........... (2,903) (1,547) -- (3) (537) -- (33,044) -------- ----------- --------- ----------- ----------- -------- ---------- Total deductions ............... (397,555) (40,219) -- (16,541) (10,113) (176,022) (5,792,362) -------- ----------- --------- ----------- ----------- -------- ---------- Net transfers between funds ........ 5,435,250 1,333,683 198,182 2,178,838 1,441,441 371,135 -- --------- ----------- ---------- ----------- ----------- --------- --------- Net increase (decrease) ........ 6,137,609 1,762,027 194,413 2,577,010 1,872,970 375,738 11,841,626 Net assets available for plan benefits: Beginning of year ................. -- -- -- -- -- 1,725,406 60,813,906 --------- ----------- ---------- ----------- ----------- ---------- -------- End of year ....................... $ 6,137,609 1,762,027 194,413 2,577,010 1,872,970 2,101,144 72,655,532 ========== =========== ========= =========== =========== ========= =========
See accompanying notes to financial statements. THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Statement of Changes in Net Assets Available for Plan Benefits, With Fund Information Year ended December 31, 1995
20th 20th 20th 20th Capital Century Century Century Century Ethan Allen Ethan Allen Preservation Select Balanced Ultra International Restricted Unrestricted Loan Fund Investors Investors Investors Equity Stock Fund Stock Fund Fund Total Fund Fund Fund Fund ------- ---- ---- ---- ---- -------- --------- ---- ------ Additions to net assets: Net appreciation/(depreciation) in fair value of investments ... $-- 638,649 626,901 1,462,066 259,979 (842,936) (235,980) -- 1,908,679 Interest income ................... 1,264,405 -- -- -- -- -- -- 144,748 1,409,153 Dividend income ................... -- 1,296,692 569,214 357,534 2,306 -- -- -- 2,225,746 ---------- --------- ------- ---------- -------- -------- ---------- --------- --------- Net investment income (loss) ... 1,264,405 1,935,341 1,196,115 1,819,600 262,285 (842,936) (235,980) 144,748 5,543,578 ---------- --------- --------- ---------- -------- -------- ---------- --------- --------- Contributions: Employer contributions ......... 940,171 348,833 212,258 207,910 78,810 322,482 55,220 -- 2,165,684 Employee contributions ......... 1,894,900 1,169,460 691,790 797,523 315,082 -- 191,258 -- 5,060,013 --------- --------- -------- ---------- -------- -------- ---------- --------- --------- 2,835,071 1,518,293 904,048 1,005,433 393,892 322,482 246,478 -- 7,225,697 --------- --------- -------- --------- -------- -------- ---------- --------- --------- Total additions ................ 4,099,476 3,453,634 2,100,163 2,825,033 656,177 (520,454) 10,498 144,748 12,769,275 --------- --------- -------- --------- -------- -------- ---------- --------- ---------- Deductions from net assets: Administrative expenses ........... (26,594) (4,585) (3,630) (2,175) (192) -- (304) -- (37,480) Distributions to participants ..... (2,800,466) (670,199) (428,348) (303,794) (135,584) (322,482) (112,052)(143,446)(4,916,371) --------- --------- --------- --------- -------- -------- ---------- -------- --------- Total deductions ............... (2,827,060) (674,784) (431,978) (305,969) (135,776) (322,482) (112,356)(143,446)(4,953,851) ---------- --------- --------- --------- -------- -------- ---------- -------- --------- Net transfers between funds ......... (421,728) (399,859) (41,024) 710,271 (428,610) -- 181,356 399,594 -- ---------- --------- --------- --------- --------- --------- ----------- -------- -------- Net increase (decrease) ........ 850,688 2,378,991 1,627,161 3,229,335 91,791 (842,936) 79,498 400,896 7,815,424 Net assets available for plan benefits: Beginning of year ................. 23,499,302 8,686,618 5,558,689 4,577,471 2,477,643 5,274,743 1,599,506 1,324,510 52,998,482 ----------- --------- --------- --------- --------- --------- ----------- -------- --------- End of year ....................... $24,349,990 11,065,609 7,185,850 7,806,806 2,569,434 4,431,807 1,679,004 1,725,406 60,813,906 =========== ========== ========= ========= ========= ========= =========== ========= =========
See accompanying notes to financial statements. THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Notes to Financial Statements December 31, 1996 and 1995 (1) Plan Description The Ethan Allen Profit Sharing and 401(k) Retirement Plan (the "Plan") is a defined contribution savings plan sponsored 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 Restricted stock which was transferred directly) were liquidated and the proceeds were transferred to the Plan and allocated to participant accounts at each participant's request. The Plan is offered to substantially all employees of the Company who have completed both one year and 1,000 hours of service during the Plan year. The Plan is subject to 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 $9,500 in 1996 (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) $400 per participant per plan year ($200 in 1995). 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. 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 and are limited to 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 each participant's compensation for that Plan year, reduced by employee contributions and any other employer contributions to defined contribution plans of the Company. The Company declared profit sharing contributions of $0 and $328,421 for the Plan in 1996 and 1995, respectively. The actual contribution, if any, is made in the ensuing year. Participant contributions and employer 401(k) contributions are 100% vested immediately. Effective July 1, 1996, profit sharing contributions are also 100% vested immediately and the profit sharing portion of the participant accounts of active employees became 100% vested (see note 7). Prior to that date, vesting of profit sharing contributions was subject to a vesting schedule based on credited years of service. 2 THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Notes to Financial Statements, Continued (1), Continued During 1996, certain participants contributed $62,032 in excess of the allowable qualified contribution. The excess contribution amounts are reflected as a Plan liability at December 31, 1996. The excess contributions were refunded in 1997 within the penalty free deadline. Investment of Funds During 1996, 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 are as follows: Benham Preservation Fund - The Benham Preservation Fund, formerly known as the Capital Preservation Fund, invests primarily in benefit responsive guaranteed investment contracts issued by major financial institutions, including banks and life insurance companies. The Benham Preservation Fund was created on July 31, 1996 by a transfer of cash and assets in-kind from Bankers Trust Pyramid Trust, the underlying assets of the Capital Preservation Fund, which was discontinued as of this date. The fund is managed by SEI Trust Company, Benham Management Corporation and Dwight Asset Management Company. Twentieth Century Balanced Investors - Effective April 1, 1996, the Balanced Investors Fund is no longer an investment option. Participants who had invested in this fund were required to transfer their balance to other funds. If no fund was selected by the participant, the fund balances were transferred to the Strategic Allocation: Moderate Fund. Twentieth Century Select Investors - 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. Twentieth Century Ultra Investors - The Ultra Investors Fund invests in small to medium-sized companies that show accelerating growth and earnings. Twentieth 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, 1996, the Plan held 199,274 restricted shares and 58,840 unrestricted shares of Ethan Allen Interiors Inc. common stock. At December 31, 1995, the Plan held 217,512 restricted shares and 79,675 unrestricted shares of Ethan Allen Interiors Inc. common stock. 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 180,915 of these shares are restricted from being sold by the 3 THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Notes to Financial Statements, Continued (1), Continued 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. Effective July 1, 1996, 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. Prior to that date all distributions were made in cash. No such restrictions exist on investments in the Unrestricted Stock Fund. Ethan Allen Interiors Inc. common stock is publicly traded and had a readily ascertainable market value of $38.50 per share at December 31, 1996. At June 2, 1997, the closing price of Ethan Allen Interiors Inc. common stock was $52.875 per share. The following investment funds became available as of April 1, 1996: Twentieth Century Strategic Allocation: Conservative - 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. Twentieth Century Strategic Allocation: Moderate - 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. Twentieth Century Strategic Allocation: Aggressive - 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 - The Personal ChoiceAE 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. Twentieth Century Vista Investors - The Vista Investors Fund invests in common stocks of growing small- to medium-sized companies considered to have better than average prospects for appreciation. Twentieth Century Value - The Value Fund invests primarily in equity securities of well established companies that appear to be undervalued at the time of purchase. 4 THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Notes to Financial Statements, Continued (1), Continued 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 vested 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 vested 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 1996 and 1995 ranged from 8.25% to 8.50% and 8.50% to 9.00%, respectively. 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 and, prior to January 1, 1996, all profit sharing forfeitures by participants were allocated to each participant based on each participant's compensation to total compensation of all participants during the year. Effective January 1, 1996, all profit sharing forfeitures are no longer allocated to participants (see note 7). These funds are now used first to restore any prior forfeitures from terminated employees who are rehired within five years of termination, then to reduce the amount of the Company profit sharing contributions, Company match contributions, or administrative expenses paid by the Plan sponsor. In 1996 and 1995, administrative expenses, other than certain transaction fees borne by the participants, were paid by the Plan administrator. Distributions and Withdrawals Participants may elect to receive their benefits when they reach normal retirement age (65), 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 tax-deferred and Company 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 60 days after the close of the Plan Year in which the latest of the following events occurs: the participant's attainment of age 65; the 10th 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. 5 THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Notes to Financial Statements, Continued (2) Summary of Significant Accounting Policies Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting and present the net assets available for plan benefits and the changes in those net assets. 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. Contract value equals the principal of investments in the Benham Preservation Fund plus accrued interest at the contract rate 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 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, the contract value and fair value of the Benham Preservation Fund's assets are reported as equal. Loans to participants are valued at face value which approximates fair value. (3) Certain Significant Risks and Uncertainties The preparation of financial statements requires the use of plan administrator estimates. Actual results may differ from those estimates. (4) 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 net current value of their vested account. 6 THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Notes to Financial Statements, Continued (5) Investments The following table presents the Plan's investments at December 31, 1996 and 1995. An asterisk denotes investments which represent 5% or more of the Plan's net assets at the end of the plan year.
December 31, December 31, 1996 1995 ---- ---- Investments at fair value as determined by quoted market price: Cash equivalents ...................................... $ 26,057 -- Mutual funds: Balanced Investors Fund ............................ -- 6,956,346* 20th Century Select Investors Fund ................. 12,169,271* 10,671,053* 20th Century Ultra Investors Fund .................. 10,482,690* 7,571,644* 20th Century International Equity Fund ............. 3,017,927 2,484,553 20th Century Strategic Allocation: Conservative Fund 1,012,126 -- 20th Century Strategic Allocation: Moderate Fund ... 5,977,304* -- 20th Century Strategic Allocation: Aggressive Fund . 1,681,730 -- 20th Century Vista Investors Fund .................. 2,496,070 -- 20th Century Value Fund ............................ 1,832,753 -- ----------- ----------- 38,669,871 27,683,596 Common Stock: Ethan Allen Interiors Inc. - Restricted ............ 7,672,049* 4,431,807* Ethan Allen Interiors Inc. - Unrestricted .......... 2,265,340* 1,623,604* ----------- ----------- 9,937,389 6,055,411 ----------- ----------- Other: Charles Schwab Personal ChoiceAERetirement Fund .... 194,413 -- ----------- ----------- 48,827,730 33,739,007 Investments at contract value, as determined by issuer: Investment contracts: Benham Preservation Fund (formerly, the Capital Preservation Fund) ................................... 20,290,969* 23,455,732* ----------- ----------- Investments at face value, which approximates fair value: Participant loans ..................................... 2,101,144 1,725,406 ----------- ----------- Total investments ....................................... $71,219,843 58,920,145 =========== ===========
Net investment income (loss) reported on the Statements of Changes in Net Assets Available for Plan Benefits comprises interest income for the Benham Preservation Fund and appreciation or depreciation in the current redemption value of the investments in the other funds plus any dividends paid. 7 THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Notes to Financial Statements, Continued (6) 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 Company believes that the Plan continues to be administered in accordance with the applicable sections of the Internal Revenue Code. (7) Subsequent Events Amendment to Plan On June 2, 1997, an amendment to the Plan was adopted that changed the participants' vesting in profit sharing contributions retroactive to July 1, 1996 and the allocation of forfeitures retroactive to January 1, 1996 (see note 1). Change in Recordkeeper and Investment Manager's Name Effective January 1, 1997, Twentieth Century Services, Inc. (the Recordkeeper and Investment Manager) changed its name to American Century Services Corporation. All funds with "Twentieth Century" in their names were also changed accordingly. Change in Company Matching Contribution Effective January 1, 1997, 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) $600 (previously $400) per participant per plan year. (8) 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 $30,774 and $400,482 at December 31, 1996 and 1995, 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. 8 THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Notes to Financial Statements, Continued (8), Continued The following is a reconciliation of net assets available for benefits reported in these financial statements and on the Form 5500: December 31, 1996 December 31,1995 Net assets available for benefits per the financial statements ................. $ 72,655,532 60,813,906 Benefits payable to participants ........ (30,774) (400,482) ------------ ------------ Net assets available for benefits per the Form 5500 ............................ $ 72,624,758 60,413,424 ============ ============ The following is a reconciliation of benefits paid to participants reported in these financial statements and on the Form 5500: Year ended Year ended December 31, 1996 December 31, 1995 ----------------- ----------------- Benefits paid to participants per the financial statements ................. $ 5,759,318 4,916,371 Add: Benefits payable to participants at December 31, 1996 .................... 30,774 400,482 Less: Benefits payable to participants at December 31, 1995 .................... (400,482) (643,254) ----------- ----------- Benefits paid to participants per the Form 5500 ............................ $ 5,389,610 4,673,599 =========== ========== 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. Schedule 2 THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Item 27a Schedule of Assets Held for Investment Purposes December 31, 1996
Description of investments Fair value at Identity of issuer, borrower, Maturity date Rate of Par or December 31, lessor or similar party Shares date interest maturity value Cost 1996 - ----------------------- ------ ---- -------- -------------- ---- ---- Cash equivalents ....................................... -- -- Variable $- $ 26,057 $ 26,057 Benham Preservation Fund ............................... 20,290,969 -- -- - 20,290,969 20,290,969 Twentieth Century Select Investors Fund ................ 315,839 -- -- - 11,911,087 12,169,271 Twentieth Century Ultra Fund ........................... 373,182 -- -- - 9,134,333 10,482,690 Twentieth Century International Equity Fund ............ 379,137 -- -- - 2,936,697 3,017,927 Restricted Common Stock Ethan Allen Interiors, Inc. .... 199,274 -- -- - 2,953,004 7,672,049 Unrestricted Common Stock Ethan Allen Interiors, Inc. .. 58,840 -- -- - 1,352,938 2,265,340 Twentieth Century Strategic Allocation Conservative Fund 195,769 -- -- - 974,165 1,012,126 Twentieth Century Strategic Allocation Moderate Fund ... 1,117,253 -- -- - 5,621,950 5,977,304 Twentieth Century Strategic Allocation Aggressive Fund . 308,574 -- -- - 1,568,234 1,681,730 Twentieth Century Vista Investors Fund ................. 172,024 -- -- - 2,603,444 2,496,070 Twentieth Century Value Fund ........................... 278,111 -- -- - 1,790,011 1,832,753 Charles Schwab Personal ChoiceAERetirement Fund assets . 194,413 -- -- - 194,413 194,413 Participant Loans ...................................... -- -- Prime + 1% - 2,101,144 2,101,144 ----------- --------- Total Investments .................................. $63,458,446 $71,219,843 =========== ===========
See accompanying independent auditors report. Schedule 2 THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN Item 27d - Schedule of Reportable Transactions Year Ended December 31, 1996 Party Involved - Chase Manhattan Bank - -------------------------------------
Current value of Expenses assets on Description of assets Purchase price Selling price Lease rental incurred Cost of assets transaction date Net gain/(loss) - --------------------- -------------- ------------- ------------ -------- -------------- ---------------- --------------- Benham Preservation Fund Purchases ............... $6,351,018 -- - - -- 6,351,018 -- Sales ................... -- 10,623,251 - - 10,623,251 10,623,251 -- Twentieth Century Select Fund Purchases ............... 3,723,182 -- - - -- 3,723,182 -- Sales ................... -- 4,209,278 - - 4,154,489 4,209,278 54,789 Twentieth Century Ultra Fund Purchases ............... 5,167,813 -- - - -- 5,167,813 -- Sales ................... -- 3,458,861 - - 2,981,624 3,458,861 477,237 Twentieth Century Strategic Allocation: Moderate Fund Purchases ............... 6,544,564 -- - - -- 6,544,564 -- Sales ................... -- 1,057,058 - - 1,029,402 1,057,058 27,656 Twentieth Century Vista Fund Purchases ................. 3,393,325 -- - - -- 3,393,325 -- Sales ..................... -- 992,384 - - 988,823 992,384 3,561 Twentieth Century Balanced Fund Purchases ............... 509,583 -- - - -- 509,583 -- Sales ................... -- 7,660,071 - - 6,976,091 7,660,071 683,980
See accompanying independent auditors report. THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN SIGNATURES The Plan - Pursuant to the requirements of the Securities and Exchange Act of 1934, Ethan Allen Interiors Inc., as administrator of the Retirement Program of Ethan Allen Inc., has duly caused this annual report to be signed on its behalf by the undersigned hereto duly authorized. THE ETHAN ALLEN PROFIT SHARING AND 401(k) RETIREMENT PLAN By Ethan Allen Interiors Inc. Date: June 27, 1997 By (s) Edward P. Schade -------------------- Name: Edward P. Schade Title: Vice President and Treasurer