SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____ .
Commission File Number 0-1349
Enesco Group, Inc.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-1864170
- ------------------------------------ -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Windsor Drive, Itasca, Illinois 60143
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(Address of principal executive offices) (Zip Code)
630-875-5300
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(Registrant's telephone number, including area code)
N/A
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(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
September 30,
1999 1998
---- ----
Shares Outstanding:
Common Stock with
Associated Rights 13,477,936 15,953,929
Total number of pages
contained herein 41
Index to Exhibits is
on page 25
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ENESCO GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(Unaudited)
(In Thousands)
September 30, December 31,
1999 1998
------------- ------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and Certificates of Deposit $ 11,118 $ 17,905
Accounts Receivable, Net 127,272 86,171
Inventories 68,062 81,740
Prepaid Expenses 4,477 4,672
Current Tax Assets 12,981 15,199
------------- -------------
Total Current Assets 223,910 205,687
------------- -------------
PROPERTY, PLANT & EQUIPMENT, at cost 80,769 84,988
Less Accumulated Depreciation 50,338 51,375
------------- -------------
30,431 33,613
------------- -------------
OTHER ASSETS:
Goodwill and Other Intangibles, Net 39,171 40,816
Other 25,414 27,287
Deferred Tax Assets 12,333 12,546
------------- -------------
76,918 80,649
------------- -------------
Total Assets $ 331,259 $ 319,949
============= =============
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
ENESCO GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(Unaudited)
(In Thousands)
September 30, December 31,
1999 1998
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Notes and Loans Payable $ 63,395 $ 7,900
Accounts Payable 21,046 25,373
Federal, State and Foreign Taxes on Income 63,067 56,614
Accrued Expenses
Payroll and Commissions 6,275 5,385
Royalties 6,843 6,826
Post-Retirement Benefits 1,264 5,280
Other 23,436 23,453
------------- ------------
Total Current Liabilities 185,326 130,831
------------- ------------
LONG-TERM LIABILITIES:
Post-Retirement Benefits 30,952 31,494
Deferred Tax Liabilities 6,564 7,043
------------- ------------
Total Long-Term Liabilities 37,516 38,537
------------- ------------
SHAREHOLDERS' EQUITY:
Common Stock 3,154 3,154
Capital in Excess of Par Value 48,739 48,506
Retained Earnings 319,770 315,335
Accumulated Other Comprehensive Income (2,340) (2,258)
------------- ------------
369,323 364,737
Less - Shares Held in Treasury, at Cost (260,906) (214,156)
------------- ------------
Total Shareholders' Equity 108,417 150,581
------------- ------------
Total Liabilities and Equity $ 331,259 $ 319,949
============= ============
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
ENESCO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(In thousands, except per share amounts)
1999 1998
---- ----
<S> <C> <C>
Net Sales $ 107,405 $ 110,170
Cost of Sales 60,584 60,645
-------------- --------------
Gross Profit 46,821 49,525
Selling, Distribution, General and
Administrative Expenses 35,134 36,614
-------------- --------------
Operating Profit 11,687 12,911
Interest Expense (1,078) (988)
Other Income (Expense), Net (383) (812)
-------------- --------------
Income Before Income Taxes 10,226 11,111
Income Taxes 3,617 4,827
-------------- --------------
Net Income $ 6,609 $ 6,284
============== ==============
Earnings Per Common Share:
Basic $ 0.48 $ 0.39
============== ==============
Diluted $ 0.48 $ 0.39
============== ==============
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
ENESCO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(In thousands, except per share amounts)
1999 1998
---- ----
<S> <C> <C>
Net Sales $ 296,263 $ 355,559
Cost of Sales 158,582 190,304
-------------- --------------
Gross Profit 137,681 165,255
Selling, Distribution, General and
Administrative Expenses 107,793 122,851
-------------- --------------
Operating Profit 29,888 42,404
Interest Expense (2,386) (2,590)
Other Income (Expense), Net (678) (1,914)
-------------- --------------
Income Before Income Taxes 26,824 37,900
Income Taxes 10,257 16,346
-------------- --------------
Net Income 16,567 21,554
Retained Earnings, Beginning of Period 315,335 355,806
Cash Dividends, $.84 per share in 1999 and 1998 (12,132) (13,590)
-------------- --------------
Retained Earnings, End of Period $ 319,770 $ 363,770
============== ==============
Earnings Per Common Share:
Basic $ 1.14 $ 1.32
============== ==============
Diluted $ 1.13 $ 1.32
============== ==============
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
ENESCO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
(In Thousands)
1999 1998
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 16,567 $ 21,554
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities (18,342) (35,973)
------------------ ------------------
Net Cash Provided (Used) by Operating Activities (1,775) (14,419)
------------------ ------------------
INVESTING ACTIVITIES:
Purchase of Property, Plant & Equipment (3,401) (3,090)
Proceeds from Sales of Property, Plant & Equipment 2,109 510
Deferred Tax Liabilities (479) (33)
------------------ ------------------
Net Cash Provided (Used) by Investing Activities (1,771) (2,613)
------------------ ------------------
FINANCING ACTIVITIES:
Cash dividends (12,132) (13,590)
Exchanges and Purchases of Common Stock (47,086) (37,441)
Notes and Loans Payable 55,495 43,543
Exercise of Stock Options - 2,085
Other Common Stock Issuance 568 406
------------------ ------------------
Net Cash Provided (Used) by Financing Activities (3,155) (4,997)
------------------ ------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (86) (208)
------------------ ------------------
Increase (Decrease) in Cash and Cash Equivalents (6,787) (22,237)
Cash and Cash Equivalents, Beginning of Year 17,905 35,724
------------------ ------------------
Cash and Cash Equivalents, End of Quarter $ 11,118 $ 13,487
================== ==================
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
ENESCO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The consolidated condensed financial statements and related notes
included herein have been prepared by the Company, without audit except for
the December 31, 1998 condensed balance sheet, which was derived from the
Company's Annual Report on Form 10-K for the year ended December 31, 1998,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. The information
furnished reflects all normal recurring adjustments which are, in the
opinion of management, necessary to a fair statement of the results for the
interim periods. The September 30, 1998 consolidated statement of cash
flows has been restated to reflect deferred taxes as separate
classifications. It is suggested that these condensed financial statements
be read in conjunction with the financial statements and related notes to
consolidated financial statements included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
1. ACCOUNTING POLICIES:
The Company's financial statements for the three and nine months
ended September 30, 1999 have been prepared in accordance with the
accounting policies described in Note 1 to the December 31, 1998
consolidated financial statements included in the Company's 1998 Annual
Report on Form 10-K. The Company considers all highly liquid securities,
including certificates of deposit with maturities of three months or less,
when purchased, to be cash equivalents. Accounts receivable are stated net
of reserves for uncollectible accounts, returns and allowances of $11.9
million at September 30, 1999 and $9.3 million at December 31, 1998.
The Company recognizes revenue as merchandise is turned over to
the shipper and a provision for anticipated merchandise returns and
allowances is recorded based upon historical experience. Amounts billed to
customers for shipping and handling orders and collector club subscriptions
are netted against the associated costs.
The Company paid cash for interest and taxes as follows (in
thousands):
Nine Months Ended
September 30
-------------
1999 1998
---- ----
Interest $ 1,731 $ 3,233
Income taxes $ 2,091 $ 22,093
2. COMPREHENSIVE INCOME:
The other comprehensive income consists only of cumulative
translation adjustments. Comprehensive income (loss) for the three and nine
months ended September 30, 1999 and 1998 was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 6,609 $ 6,284 $16,567 $21,554
Other Comprehensive Income
Cumulative translation adjustments
(no tax effects) 1,120 146 (82) (227)
------- ------- -------- --------
Comprehensive Income $ 7,729 $ 6,430 $16,485 $21,327
======= ======= ======== ========
</TABLE>
3. GEOGRAPHIC OPERATING SEGMENTS:
The Company operates in one industry segment, predominately in two
major geographic areas (United States and International). The following
tables summarize the Company's operations by geographic area for the three
and nine months ended September 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Geographic Areas September 30 September 30
- ---------------- ------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
Net Sales:
<S> <C> <C> <C> <C>
United States $ 83,000 $ 86,815 $233,162 $293,356
United States intercompany (475) (789) (2,217) (3,804)
International 25,543 25,175 67,823 69,545
International intercompany (663) (1,031) (2,505) (3,538)
---------- --------- --------- ---------
Total consolidated $ 107,405 $110,170 $296,263 $355,559
========== ========= ========= =========
Operating Profit:
United States $ 9,088 $ 10,403 $ 24,528 $ 38,055
International 2,599 2,508 5,360 4,349
---------- --------- --------- --------
Total consolidated $ 11,687 $ 12,911 $ 29,888 $ 42,404
========== ========= ========= ========
</TABLE>
Transfers between geographic areas are made at the market value of
the merchandise transferred. No single customer accounted for 10% or more
of consolidated net sales. Export sales to foreign unaffiliated customers
represent less than 10% of consolidated net sales.
There were no material changes in assets from the amount disclosed
in the Company's December 31, 1998 Annual Report and the basis of
geographic area measurement of sales and operating profit did not change in
1999.
4. INVENTORY CLASSES:
The major classes of inventories at September 30, 1999 and
December 31, 1998 were as follows (in thousands):
September 30, December 31,
1999 1998
---- ----
Raw materials and supplies $ 711 $ 1,185
Work in progress 237 396
Finished goods in-transit 8,027 12,202
Finished goods 59,087 67,957
-------- -------
$ 68,062 $81,740
======== =======
5. OTHER INCOME (EXPENSE), NET:
Other income (expense), net for the three and nine months ended
September 30, 1999 and 1998 consists of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income $ 176 $ 11 $ 440 $ 632
Amortization of other assets (514) (774) (1,541) (2,420)
Other, net (45) (49) 423 (126)
------- ------- -------- -------
$ (383) $ (812) $ (678) $(1,914)
======= ======= ======== =======
</TABLE>
6. EARNINGS PER COMMON SHARE (BASIS OF CALCULATION):
Basic earnings per common share are based on the average number of
common shares outstanding during the period covered. Diluted earnings per
common share assumes, in addition to the above, a dilutive effect of common
share equivalents during the period. Common share equivalents represent
dilutive stock options using the treasury stock method.
The number of shares used in the earnings per share calculations
for the three and nine months ended September 30, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basis
Average Common
Shares Outstanding 13,716 16,035 14,585 16,315
Diluted
Stock Options 81 67 54 67
------ ------ ------ ------
Average Shares Diluted 13,797 16,102 14,639 16,382
====== ====== ====== ======
</TABLE>
The lower average number of shares for 1999 primarily resulted
from the repurchase of shares as part of the Company's repurchase program.
7. FINANCIAL INSTRUMENTS
The Company operates globally with various manufacturing and
distribution facilities and product sourcing locations around the world.
The Company may reduce its exposure to fluctuations in foreign interest
rates and exchange rates by creating offsetting positions through the use
of derivative financial instruments. The Company currently does not use
derivative financial instruments for trading or speculative purposes.
The notional amount of forward exchange contracts and options is
the amount of foreign currency bought or sold at maturity. The notional
amount of interest rate swaps is the underlying principal amount used in
determining the interest payments exchanged over the life of the swap. The
notional amounts are not a direct measure of the Company's exposure through
its use of derivatives.
The Company periodically uses interest rate swaps to hedge
portions of interest payable on debt. In addition, the Company may
periodically employ interest rate caps to reduce exposure, if any, to
increases in variable interest rates. In October 1996, the Company entered
into a three-year interest rate swap with a notional amount of $50 million
to effectively convert variable interest on debt to a fixed rate of 6.12%.
The interest rate swap agreement expired on October 28, 1999 and was not
renewed.
The Company may periodically hedge foreign currency royalties, net
investments in foreign subsidiaries, firm purchase commitments, contractual
foreign currency cash flows or obligations, including third party and
inter-company foreign currency transactions. The Company regularly monitors
its foreign currency exposures and ensures that hedge contract amounts do
not exceed the amounts of the underlying exposures.
The Company enters into various short-term foreign exchange
agreements during the year. The purpose of the Company's foreign currency
hedging activities is to protect the Company from risk that the eventual
settlement of foreign currency transactions will be adversely affected by
changes in exchange rates. The Company's various subsidiaries import
products in foreign currencies and from time to time will enter into
agreements or build foreign currency deposits as a partial hedge against
currency fluctuations on inventory purchases. Gains and losses on these
agreements are deferred and recorded as a component of cost of sales when
the related inventory is sold. At September 30, 1999, deferred amounts were
not material. The Company makes short-term foreign currency intercompany
loans to various international subsidiaries and utilizes agreements to
fully hedge these transactions against currency fluctuations. The cost of
these agreements is included in the interest charged to the subsidiaries
and expensed monthly as the interest is accrued. The intercompany interest
eliminates upon consolidation and any gains and losses on the agreements
are recorded as a component of other income. The Company receives
dividends, royalties and other payments from its subsidiaries and
licensees. From time to time, the Company will enter into foreign currency
forward agreements as a partial hedge against currency fluctuations on
these current receivables. Gains and losses are recognized or the credit or
debit offsets the foreign currency payables. As of September 30, 1999, net
deferred amounts on outstanding agreements were not material. The
outstanding agreement amounts (notional value) at September 30, 1999 are
$4.2 million.
In June 1998, the FASB issued SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities." The Statement establishes
accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must
formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. Management does not believe that SFAS No.
133, when adopted by the Company on January 1, 2001, will have a material
impact on the consolidated financial condition or results of operations of
the Company.
8. SALE OF SUBSIDIARIES
During the third quarter of 1999, the Company sold its Via Vermont
assembly and packaging subsidiary located in Mexico for an amount that
approximated the net carrying value of the assets sold.
Also, during the third quarter, the Company sold its Cosmhogar
subsidiary located in Spain for a nominal value that did not result in a
significant gain or loss. The Company's net investment in the Cosmhogar
subsidiary, formerly part of its discontinued direct selling group sold in
December 1997, was classified as an other non-current asset.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ENESCO GROUP, INC.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
The information set forth below should be read in conjunction with
the unaudited condensed consolidated financial statements and notes thereto
included in Part I - Item 1 of the Quarterly Report and the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 which
contains the audited financial statements and notes thereto for the years
ended December 31, 1998, 1997, and 1996 and Management's Discussion and
Analysis of Financial Condition and Results of Operations for those
respective periods.
Forward-looking statements, in this Quarterly Report on Form 10-Q
as well as in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Readers are cautioned
that all forward-looking statements pertaining to the Company involve risks
and uncertainties, including, without limitation, risks detailed from time
to time in the Company's periodic reports and other information filed with
the Securities and Exchange Commission.
RESULTS OF OPERATIONS:
Net sales in the third quarter of 1999 decreased 3%, compared to
the same quarter last year and net sales for the first nine months of 1999
decreased 17% compared to 1998. Most of the sales decrease was in the
United States and was due primarily to the following:
o Starting 1999 with unfilled orders down approximately $28 million
compared to the same period last year.
o A significant year-on-year reduction of stock keeping units due
to profitability analysis.
o Reduction of closeout revenue due to better inventory management.
o Continued reductions in dealer inventory levels.
o Continued improvement in dealer service and deliveries, allowing
dealers to order less in advance and shipping product when the
dealer requests versus when the product is available.
o Significant reduction in reorders from late May through September
due to softness in the Company's card, gift and collectible
channels and even more conservative dealer reorder patterns.
In order to further improve customer communications, relationships
and service in the United States, during the second quarter this year the
Company combined its two independent sales representative divisions into a
single independent sales force representing all the Company's product
lines.
The Company continues to analyze the economic return for all of
its product lines, to eliminate unnecessary costs and reduce working
capital requirements.
Year-to-date 1999 International sales decreased 1% from 1998 and
represented approximately 22% of total 1999 sales compared to 19% in 1998.
Local currency International sales were translated into United States
dollars at lower exchange rates in 1999 versus 1998. If the year-to-date
1999 local currency sales were translated into United States dollars at the
1998 exchange rates, sales would have been approximately $1.5 million
higher.
The Precious Moments line represented approximately 38% of 1999
year-to-date sales compared to 39% in 1998. The Cherished Teddies line
represented 21% of 1999 year-to-date sales compared 20% in 1998. As of
September 30, 1999, compared to the same period last year, members of the
Precious Moments Collector Clubs were down approximately 17% and the
members of the Cherished Teddies Collector Clubs were down approximately
13%.
Total Company unfilled orders as of the end of the third quarter
were down approximately $7 million or 8% compared to the same period last
year. Comparable 1999 year-to-date net new order intake (excluding close
outs) was down approximately 9% compared to the same period in 1998. Orders
entered are orders received and approved by the Company, subject to
cancellation for various reasons, including credit considerations,
inventory shortages and customer requests.
The lower new order intake trend has continued into the fourth
quarter and, if it does not improve, the Company will be reporting a sales
and income decrease in the fourth quarter of 1999 compared to 1998.
The Company's 1999 gross profit margin, expressed as a percentage
of net sales, was 44% and 47% for the quarter and nine months respectively,
compared to the 1998 margins of 45% and 47%. The differences in margins are
due to product sales mix, as all product lines do not have the same gross
profit margin.
Selling, distribution, general and administrative expenses, which
are largely fixed, decreased 4% in the third quarter of 1999 versus 1998
and represented 33% of net sales in both 1999 and 1998. Selling,
distribution, general and administrative expenses decreased 12% in the
first nine months of 1999 versus 1998, but represented 36% of 1999 net
sales compared to 35% in 1998. The 1999 expenses were a higher percentage
of sales principally due to the impact of lower sales on fixed costs. The
1999 reductions in expenses were from lower variable expenses
(approximately 10% of year-to-date sales) due to the lower sales volumes
and reductions from cost controls and work force reductions compared to
1998.
Due to the factors described above, 1999's operating profit
decreased 9% in the third quarter and 30% for the first nine months
compared to 1998. All of the decrease in operating profit was from the
United States. International operating profit increased for both the
quarter and year-to-date periods when compared to 1998.
INTERNATIONAL ECONOMIES AND CURRENCY:
The value of the U.S. dollar versus international currencies where
the Company conducts business impacts the results of these businesses. In
addition to the currency risks, the Company's international operations,
including sources of imported products, are subject to other risks of doing
business abroad, including import or export restrictions and changes in
economic and political climates.
The fluctuations in net sales and operating profit margins from
quarter to quarter are partially due to the seasonal characteristics of the
Company's business.
INTEREST EXPENSE, net of investment income, decreased slightly in
the third quarter and first nine months of 1999 when compared to 1998.
OTHER INCOME/EXPENSE, net in 1999 benefited from a net gain on the
sale of assets in the first quarter of 1999 of approximately $350 thousand
and a reduction in the amount of goodwill amortization resulting from the
lower amount of goodwill to be amortized after the 1998 $46 million
write-off.
THE PROVISION FOR INCOME TAXES of 35% in the third quarter and 38%
in the first nine months of 1999 was lower than comparable periods of 1998,
due primarily to the impact of lower goodwill amortization in 1999 which
does not receive a tax benefit, expected mix between the United States and
International earnings, and a United States tax benefit on the third
quarter sale of the Company's Mexican assembly and packaging subsidiary.
The effective tax rates are dependent upon numerous factors and actual
results may vary.
FINANCIAL CONDITION:
The Company has historically satisfied its capital requirements
with internally generated funds and short-term loans. Working capital
requirements fluctuate during the year and are generally greatest during
the third quarter and lowest at the beginning of the first quarter.
The major sources of funds in the first nine months of 1999 from
operating activities were from net income, depreciation, amortization,
lower levels of inventory and a net increase in current taxes payable, due
primarily to timing of payments. Accounts receivable increased 48% from
year-end 1998, but decreased 12% from the third quarter of 1998. The
decrease from September 1998 reflects lower sales and lower amount of trade
receivable days sales outstanding. Accounts payable and accrued expenses
decreased from year-end levels due to timing of payments and seasonal sales
volumes.
The Company has filed and continues to file tax returns with a
number of taxing authorities worldwide. While the Company believes such
filings have been and are in compliance with applicable laws, regulations
and interpretations, positions taken are subject to challenge by the taxing
authorities often for an extended number of years after the filing dates.
The Company has established accruals for tax assessments. These accruals
are included in current income taxes payable since it is uncertain as to
when assessments may be made and paid. Based upon the Company's current
liquid asset position and credit facilities, the Company believes it has
adequate resources to fund any such assessments. To the extent accruals
differ from actual assessments or when the open tax years are closed, the
accruals will be adjusted through the provision for income taxes. The
majority of the open tax years become closed at the end of December for the
particular open year.
The major use of cash in investing activities in the first nine
months of 1999 was for capital expenditures. Capital expenditure
commitments for $6 million are forecasted for 1999. Proceeds from the sales
of property, plant and equipment primarily represents the sale of the
Company's former Westfield, MA corporate headquarters.
During the third quarter the Company sold the shares in its
Mexican assembly and packaging subsidiary for its net book carrying value.
The assets sold were primarily accounts receivable of $284,000, inventories
of $1,004,000 and property, plant and equipment of $458,000, net of
liabilities of $206,000.
Also, during the third quarter the Company sold the shares in its
Spanish manufacturing subsidiary (Cosmhogar), formerly part of its
discontinued direct selling group, for a nominal value. The net investment
in the subsidiary had been recorded in other non-current assets.
The major uses of cash in financing activities in the first nine
months of 1999 were for dividends to shareholders and purchases of the
Company's common stock. During the first nine months this year, the Company
repurchased 2.4 million shares for $47.1 million. The Company has an
authorized program to purchase shares of stock for the Company treasury
from time to time in the open market or in private transactions, depending
on market and business conditions, and may utilize funds for this purpose
in the future. As of September 30, 1999, approximately 1.0 million shares
remained available for purchase under the program. The Company's earnings,
cash flow, and available debt capacity have made and make stock
repurchases, in the Company's view, one of its best investment
alternatives. The aggregate exercise price of the total number of stock
options outstanding was $94 million at September 30, 1999, and the Company
could receive some or all of these funds in the future if the options are
exercised.
The principal sources of the Company's liquidity are its available
cash balances, cash from operations and available financing alternatives.
The Company is not aware of any trends, events, demands, commitments or
uncertainties which reasonably can be expected to have a material effect on
the liquidity of the Company and its ability to meet anticipated
requirements for working capital, dividends, capital expenditures and the
stock repurchase program.
YEAR 2000 COMPLIANCE PROGRAM
A Company-wide program has been in effect to update all necessary
information technology and non-technology systems to achieve Year 2000
compliance. This effort has been in progress since early 1997. The program
includes impact assessment, correction, testing and implementation stages.
There is continual review and monitoring of progress and achievement
against plan.
In 1998 the Company engaged independent consulting resources to
audit and evaluate its approach and plans to achieve Year 2000 compliance.
This audit was completed at a cost of approximately $300,000. The results
were used to confirm and enhance, where necessary, the Year 2000 program
plans. A follow-up independent audit has been completed. Results have
validated the process followed to achieve compliance.
Impact assessment is complete. Regarding internal issues, the
Company has remedied and tested all mission critical systems and 95% of all
systems. This was accomplished through internal correction or the normal
replacement of existing systems, computer software and hardware. The
Company is confident that all correction and replacement work, including
testing and implementation, will be completed by December 1999.
The capital and operating costs of addressing the Year 2000 issues
are anticipated to be approximately $1,000,000 (excluding internal labor
costs) and are included in the planned capital and operating investment
budgets. The cost breakdown is estimated at approximately 80% capital and
20% expense. Most Year 2000 project work is being accomplished through the
use of internal resources. While this effort is substantial, it has often
been combined with other planned systems improvements, replacements and
maintenance projects. Thus, the Year 2000 work is not adversely affecting
planned improvements in the Company's systems, computer applications and
hardware environment.
Regarding external issues, there is ongoing effort to confirm and
monitor the Year 2000 programs of critical suppliers, customers and third
parties on whom the Company relies. Based on the results of the impact
assessment, if the Company's suppliers, customers and third parties do not
address the Year 2000 issues in a timely manner, there could be a material
financial risk to the Company.
The Company's product vendors and customer bases are fragmented
and generally are not dependent on computer control or systemization for
their business operations. Management, therefore, believes that the
greatest risks presented by potential Year 2000 failures of third parties
are those which would affect the general economy or certain industries,
such as may occur if there were insufficient electric power or other
utilities needed for the Company's operation or manufacture of its products
or insufficient reliable means of transporting the Company's products.
While such failures could affect important operations of the Company,
either directly or indirectly, in a significant manner, the Company cannot
at present estimate either the likelihood or the potential cost of such
failures.
The need for contingency plans has been addressed as part of the
Company's Year 2000 program. While the Company currently believes that its
own systems will be Year 2000 compliant, it cannot guarantee the full
compliance of third parties, therefore, contingency plans, as appropriate,
have been developed. These include purchasing of additional inventory as a
contingency to keep its dealers supplied with product in the case of
delivery problems from its suppliers. Also, contingency plans of key
suppliers and other third parties are being assessed with joint plans being
developed where appropriate. The contingency plans have been subjected to
an independent audit.
Notice: Various statements in this discussion of Year 2000 are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements include statements of the
Company's expectations, statements with regard to schedules and expected
completion dates and statements regarding expected Year 2000 compliance.
These forward-looking statements are subject to various risk factors which
may materially affect the Company's efforts to achieve Year 2000
compliance. These risk factors include the inability of the Company to
complete the plans and modification that it has identified, the failure of
software vendors to deliver the upgrades and repairs to which they have
committed, the wide variety of information technology systems and
components, both hardware and software, that must be evaluated and the
large number of vendors and customers with which the Company interacts. The
Company's assessment of the effects of Year 2000 on the Company are based,
in part, upon information received from third parties upon which the
Company reasonably relied which must be considered as a risk factor that
might affect the Company's Year 2000 efforts. The Company is attempting to
reduce the risks by utilizing an organized approach, extensive testing, and
allowance of ample contingency time to address issues identified by tests.
This Year 2000 Readiness Disclosure (the "Disclosure") is made pursuant to
the Year 2000 Information Readiness Disclosure Act, Public Law 105-271.
This Disclosure is not a warranty, and it does not alter the terms of
service for any customer. This Disclosure should not be used for purposes
of making investment decisions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item either is set forth in Exhibit
13 to the Company's Annual Report on Form 10-K for the year ended December
31, 1998 as updated by Note 7 to the Consolidated Condensed Financial
Statements included in Item 1 herein, or is immaterial.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
- Peter R. Johnson Separation Agreement
- Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
Quarter for which this report is filed.
All other items hereunder are omitted because either such item is
inapplicable or the response to it is negative.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENESCO GROUP, INC.
(Registrant)
Date: November 10, 1999 /s/ Jeffrey A. Hutsell
-----------------------------------------
Jeffrey A. Hutsell
President and Chief Executive Officer
Date: November 10, 1999 /s/ Allan G. Keirstead
-----------------------------------------
Allan G. Keirstead
Chief Administrative and Financial
Officer
EXHIBIT INDEX
<TABLE>
<CAPTION>
Reg. S-K
Item 601 Exhibit 10-Q Page No.
- --------- ------- -------------
<S> <C> <C>
10 Peter R. Johnson Separation Agreement 26
27 Financial Data Schedule 41
</TABLE>
Exhibit 10
AGREEMENT
Agreement (this "Agreement") dated as of August 31, 1999
between Enesco Group, Inc., a Massachusetts corporation formerly known as
Stanhome Inc. ("Enesco"), and Peter R. Johnson, Vice President and General
Counsel of Enesco and Enesco Corporation, an Ohio corporation and a wholly
owned subsidiary of Enesco (the "Executive").
On July 9, 1997, G. William Seawright, President of Stanhome
Inc. ("Seawright"), sent a letter to the Executive regarding intercompany
transfer assistance (the "July 9 Letter").
On August 13, 1997, Seawright sent a letter to the Executive
regarding intercompany transfer assistance that, by its terms, replaced
the July 9 Letter (the "August 13 Letter").
The Executive is eligible to receive compensation under
severance guidelines for Enesco Corporation issued January 1, 1999 (the
"Guidelines").
On or about June 8, 1999, Enesco indicated to the Executive
that it desired to replace him as its Vice President, Secretary, Clerk and
General Counsel and as the Vice President, Secretary and General Counsel of
Enesco Corporation.
Enesco and the Executive desire to fix terms of continued
employment and separation for the Executive and severance payments on
termination of the Executive's employment with and from Enesco and Enesco
Corporation.
In consideration for the Executive's continued employment with
Enesco and Enesco Corporation and the mutual promises set forth in this
Agreement, and for other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), Enesco and the Executive
hereby agree as follows.
1. Effective Date. This Agreement is effective as of June 30,
1999.
2. Sole Agreement. This Agreement supercedes, cancels and
replaces the July 9 Letter, the August 13 Letter, the Guidelines and all
other plans, policies, agreements and arrangements providing for severance
and other post-termination benefits payable to the Executive upon
termination of the Executive's employment with Enesco and Enesco
Corporation, except to the extent set forth herein or in the Release
Agreement attached hereto as Exhibit A.
3. Employment. The Executive agrees to remain in the employ of
Enesco and Enesco Corporation, and Enesco agrees that the Executive shall
remain so employed, until January 1, 2000, except as otherwise
provided herein.
4. Termination. The Executive's employment with Enesco and
Enesco Corporation may be terminated by either Enesco or the Executive upon
30 days' prior written notice to the other party; provided, however, that
neither the Executive nor Enesco may give notice of termination of the
Executive's employment until at least October 1, 1999. Any termination of
employment effected in accordance with the terms of this Agreement shall
be deemed to be an involuntary termination of the Executive, without cause,
for purposes of state labor and employment laws.
5. Compensation and Benefits. During the remaining term of the
Executive's employment with Enesco and Enesco Corporation, the Executive
(a) will continue to be compensated on the same basis and at the same
salary on and at which he was compensated on June 30, 1999 and (b) will
continue to be eligible for (and, as applicable, receive) the same employee
benefits (other than, as provided for herein, severance and
post-termination benefits), including without limitation health and welfare
benefits, employee stock options, MIP bonus and retirement and supplemental
retirement plan benefits, for which he was eligible on June 30, 1999,
in each case, in accordance with the existing terms and provisions of the
applicable employee benefit plan, policy, agreement or arrangement and the
terms and provisions of this Agreement. From and after the date hereof,
severance and post-termination benefits are governed solely by this
Agreement and the Release Agreement attached hereto as Exhibit A.
6. Management Incentive Plan ("MIP") Bonus. Notwithstanding
anything to the contrary in any benefit plan, policy, agreement or
arrangement (or elsewhere), the Executive shall be eligible to receive a
pro rated portion of any MIP bonus that may be payable for the year ended
December 31, 1999 as if he were employed by Enesco and Enesco Corporation
on January 1, 2000 if (and only if) Enesco terminates the Executive's
employment with Enesco and Enesco Corporation prior to January 1, 2000.
This prorated MIP bonus, if any, shall be calculated by (a) determining the
dollar amount of the MIP bonus payment that would have been payable to the
Executive in the event his employment with Enesco Corporation had not been
terminated on or prior to January 1, 2000 and (b) multiplying that dollar
amount by a fraction, the numerator of which shall be the number of days in
1999 through and including the date of termination of the Executive's
employment with Enesco and Enesco Corporation and the denominator of which
is 365.
7. Profit Sharing. Notwithstanding anything to the contrary in
any benefit plan, policy, agreement or arrangement (or elsewhere), the
Executive shall be eligible for profit-sharing contributions, company match
benefits and guaranteed money purchase benefits under and in accordance
with the Enesco Group, Inc. Retirement Plan and the Enesco Group, Inc.
Supplemental Retirement Plan (as the same were amended and restated as of
January 1, 1999) as if he were employed by Enesco and Enesco Corporation on
January 1, 2000 if (and only if) Enesco terminates the Executive's
employment with Enesco and Enesco Corporation prior to January 1, 2000.
8. Employee Stock Options. Subject to any requested approval of
the Compensation and Stock Option Committee of Enesco's Board of Directors,
notwithstanding anything to the contrary in any benefit plan, policy,
agreement or arrangement (or elsewhere), options granted to the Executive
under any of Enesco's stock option plans will continue to vest and remain
exercisable by the Executive or his guardian or legal representative in
accordance with the terms of those stock option plans until the earlier to
occur of (a) the date which is three years after the date of termination of
the Executive's employment with Enesco and Enesco Corporation or (b) the
date which is 10 years after the date of grant of the option.
9. Severance and Post-termination Benefits. On or prior to the
date of termination of the Executive's employment with Enesco and Enesco
Corporation, the Executive will execute and deliver to Enesco, and Enesco
will execute and deliver to the Executive, a Release Agreement in the form
attached hereto as Exhibit A. The terms and provisions of the Release
Agreement are incorporated herein by reference and form a part of this
Agreement.
10. Notices. Any notice required or made under this Agreement
shall be in writing and shall be delivered to the intended recipient: by
hand; by certified mail, return receipt requested; by FedEx or other
overnight delivery service; or by facsimile as follows:
(a) to Enesco
c/o Enesco Corporation
Chancellory Business Park
225 Windsor Drive
Itasca, IL 60143
Attention: Mr. Allan G. Keirstead
Executive Vice President,
Chief Administrative and
Financial Officer
Facsimile: (630) 875-5846
(b) to the Executive
Peter R. Johnson, Esq.
Vice President and General Counsel
Enesco Corporation
Chancellory Business Park
225 Windsor Drive
Itasca, IL 60143
Facsimile: (630) 875-8464
Either party may change the address to which notices are to be sent by
providing notice in writing to the other party in accordance with the terms
hereof.
11. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Illinois, without giving effect to
the conflict of law provisions thereof.
The parties hereto have executed and delivered this Agreement
as of the date first set forth above.
ENESCO GROUP, INC.
By /s/ Allan G. Keirstead
__________________________________
Name: Allan G. Keirstead
Title:Executive Vice President, Chief
Administrative and Financial
Officer
/s/ Peter R. Johnson
_____________________________________
Peter R. Johnson
Exhibit A
RELEASE AGREEMENT
This Release Agreement (this "Agreement") is entered into by and
between Peter R. Johnson, a resident of 26 Stoneridge Drive, South
Barrington, Illinois (hereinafter referred to as "Associate"), and Enesco
Group, Inc., a Massachusetts corporation having a principal place of
business at 225 Windsor Drive, Itasca, Illinois (hereinafter referred to as
the "Company").
This Agreement is incorporated by reference into and forms a
part of the Agreement dated as of August [ ], 1999 between the Company and
Associate (the "Separation Agreement"). To the extent that any term or
provision of this Agreement is inconsistent with any term or provision of
the Separation Agreement, the term or provision of the Separation Agreement
will control.
In consideration for the promises, conditions and
representations set forth herein and the severance payments being provided
to Associate by the Company as set forth below, and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged by Associate and the Company (hereinafter sometimes referred
to collectively as the "Parties"), the Parties hereby agree as follows:
1. Termination Date. Associate's employment with the Company
shall terminate as of the close of business on [ ], 1999 (the "Termination
Date").
2. Continuation of Salary and Benefits After Termination. Prior to
the Termination Date, Associate's salary and his participation in all
compensation and benefit plans and programs in which he currently is a
participant or from which he currently receives benefits will remain in
effect on the same terms as are in effect on the Effective Date (as defined
in Paragraph 20).
As of the Termination Date, Associate's salary and any other
compensation and benefits he receives from the Company will terminate,
other than compensation and/or benefits to which he continues to be
entitled (a) pursuant to terms of this Agreement, (b) as a matter of
federal or state law, (c) pursuant to the agreements between the Parties
listed below or (d) pursuant to the terms of the compensation or benefit
plans or programs in which he continues to be a participant or has a right
to receive such compensation or benefits after the Termination Date listed
below.
The agreements and compensation and benefit plans and programs
referred to herein are as follows:
o the Separation Agreement;
o medical, dental and vision employee group
insurance plan under the existing policy applicable to
Associate or a substantially equivalent successor policy
or policies;
o life/accidental death and dismemberment group insurance
plan under the existing policies applicable to Associate
or a substantially equivalent successor policy or
policies;
o Stanhome Pension Plan Annuity under Policy #GA-20136
issued by Hartford Life Insurance Company;
o Enesco Group, Inc. Retirement Plan, as amended and
restated as of January 1, 1999;
o Enesco Group, Inc. Supplemental Retirement Plan, as
amended and restated as of January 1, 1999;
o Stanhome PAYSOP Plan and related Trust Agreement
dated October 15, 1985, as amended;
o Stanhome Inc. 1984 Stock Option Plan, as amended;
o Stanhome Inc. 1991 Stock Option Plan, as amended;
o Stanhome Inc. 1996 Stock Option Plan, as amended; and
o Stanhome Matching Gifts Program.
With respect to those Company compensation and benefit plans and
programs in which Associate will continue to participate subsequent to the
Termination Date, Associate's participation in such compensation and
benefit plans and programs will be on terms no less favorable than those in
effect as of the Effective Date. Furthermore, the Company and Associate
agree that, except as may be provided for in paragraphs 6, 7 and 8 of the
Separation Agreement, after his Termination Date he will not become
entitled to any increased benefits under such compensation and benefit
plans and programs, but the benefits payable by the Company to Associate
thereunder shall be based upon his length of service and compensation level
as of the Termination Date.
3. Consideration.
A. Severance Payments. Following the Termination Date, and for a
period of 63 consecutive bi-weekly (two-week) periods commencing on [ ] and
ending on [ ] (the "Severance Period"), Associate will receive severance
payments equal to $7,248.45 per bi-weekly (two-week) period, gross, without
giving effect to any federal or state income tax or other withholding pay
ments which the Company may be legally required to deduct therefrom. Such
payments are in addition to anything of value to which Associate is already
entitled or provided pursuant to this Agreement or the Separation
Agreement, or any other agreement between the Parties or other Company plan
or program listed in Paragraph 2. Moreover, such severance payments are not
intended to include any unused, accrued vacation time to which Associate
may be entitled or any other accrued but unpaid compensation or benefit to
which Associate may be entitled under any Company compensation or benefit
plan or program. The Company may, at any time, in its sole discretion,
distribute any remaining payments in a lump sum.
B. Additional Payments/Benefits. Associate is entitled to any
payments and benefits as may be provided for in paragraphs 6, 7 and 8 of
the Separation Agreement.
C. Insurance. During the 31 1/2-month period beginning [ ] and ending
[ ], Associate will continue to be covered by the medical, dental and
vision employee group insurance plan under the existing policy applicable
to Associate or a substantially equivalent successor policy or policies
(the "Plan") regardless of the location of Associate's eventual residence
within the United States and regardless of his coverage by any other
medical, dental or vision insurance plans. Should the Plan be terminated in
the future, the Company and its successors and assigns, as applicable,
agree to provide Associate with coverage that is substantially equivalent
to that provided in the Plan. In the event of the Associate's death, it is
intended that the coverage for Associate's spouse and other dependents
shall continue through the end of the Severance Period.
Associate will contribute to the cost of the personal and dependent
coverage the same dollar amount (currently, $64.70 per month for family
medical and vision coverage and $10.80 per month for family dental
coverage) on the same basis as he would contribute to such coverage if he
had remained in the employ of the Company as its Vice President and General
Counsel, and the Company, its successors and assigns, will contribute the
remainder of such cost, with the Associate's cost being adjusted as
necessary to be the same cost as may be in effect for medical, dental and
vision coverage of similarly situated active employees of the Company and
its successors and assigns (i.e., active employees of the Company at the
same executive level that Associate attained prior to termination of his
employment with the Company). The continued medical, dental and vision
coverage, as set forth in the Plan, and the guaranteed contributions
outlined above toward both personal coverage and dependent coverage, is
binding upon and may not be revoked by the Company or any of its successors
or assigns and will continue until coverage ceases as outlined above
provided that Associate has paid his portion of the premium. In the event
that Associate fails to pay his portion of the premium on time, the Company
will pay the full premium and notify Associate of his failure to make
timely payment. Associate shall have ten (10) days from his receipt of such
notice to cure his failure to pay by repaying to the Company the amount
advanced by the Company on his behalf, and the Company shall not allow his
insurance coverage to be canceled or to lapse until such ten-day period
shall have expired.
The Company, its successors and assigns, shall continue to provide at
its sole expense the life insurance ($381,110 Death Benefit) and accidental
death and dismemberment employee insurance coverage, as presently in
effect, through the end of the Severance Period.
The Termination Date shall be treated as an event under the
Consolidated Budget Reconciliation Act of 1985 ("COBRA"), and Associate
will receive COBRA information under separate cover.
D. Outplacement. The Company also will provide Associate with
outplacement services through Lee Hecht Harrison at its office in
Deerfield, Illinois or elsewhere as mutually agreed upon between the
Parties, provided such outplacement services commence within 12 months
following the Termination Date, and such outplacement services shall
continue at least through the end of the Severance Period.
E. References. The Company will provide references for Associate in
accordance with its policy.
F. Taxes. Applicable taxes on all payments, transfers and other
consider ation referred to herein will be the sole responsibility of
Associate, provided that the Company shall deduct applicable federal and
state income tax withholding on the payments provided for herein.
G. Vacation Pay. Any accrued, unused vacation for calendar year 1999
will be paid to the Associate in a lump sum immediately following the
Termination Date.
4. Annuity. Associate's benefits from the Stanhome Inc. Pension Plan
Annuity under Policy #GA-20136 issued by Hartford Life Insurance Company
also shall remain in full force and effect.
5. Release.
A. From Associate to the Company. In exchange for the compensation
described in Paragraph 2 and for other good and valuable consideration,
Associate hereby agrees that he, his representatives, heirs, executors,
administrators, agents, estate, successors and assigns release and forever
discharge the Company and its affiliates and their successors,
predecessors, assigns, directors, stockholders or shareholders, officers,
employees and/or agents, both individually and in their official capacities
with the Company and/or its affiliates, from any and all actions, causes of
action, suits, claims, demands, obligations, costs, judgments, complaints,
contracts, agreements, promises, debts, damages, and liabilities of
whatever kind or nature, at law, in equity or otherwise, whether existing
or contingent, known or unknown, relating to any matter, cause or thing
whatsoever arising on or prior to the date of this Agreement, including but
not limited to rights or claims relating in any way to Associate's
employment with or his termination of employment from the Company,
including but not limited to claims arising under common law, contract,
implied contract, public policy, tort, personal injury or any federal,
state or local statute, law, constitution, ordinance, regulation or order,
including but not limited to the Age Discrimination in Employment Act, as
amended, 29 U.S.C. Section 621, et seq., Title VII of the Civil Rights Act,
The Americans with Disabilities Act, The Illinois Human Rights Act and/or
any other applicable employment-related federal, state or local statute,
law, ordinance, regulation or order; provided, however, that nothing
contained in this Paragraph 5.A. shall limit Associate's right to enforce
the terms or sue for breach of (i) this Agreement, any agreement listed in
Paragraph 2 of this Agreement or any other agreement whatsoever unrelated
to compensation and severance matters between the Parties hereto whether or
not such agreement is listed in Paragraph 2 of this Agreement, (ii) any
compensation or benefit plan or program in which he remains a participant
or beneficiary beyond the Termination Date in accordance with the
provisions of Paragraph 2 or (iii) Associate's right to indemnification as
an officer or director of the Company and/or its affiliates. This release
is intended by Associate to be a general release as to the claims described
herein.
B. From the Company to Associate. In exchange for Associate's release
of the Company and the covenants made by Associate in Paragraph 10 hereof,
the Company hereby agrees that it and its affiliates and subsidiaries, and
their successors, predecessors, assigns, directors, stockholders or
shareholders, officers, employees and agents, both individually and in
their official capacities with the Company and its affiliates, attorneys
and agents release and forever discharge Associate, his representatives,
heirs, executors, administrators, agents, attorneys, estate, successors and
assigns, from any and all actions, causes of action, suits, claims,
demands, obligations, costs, judgments, complaints, contracts, agreements,
promises, debts, damages and liabilities of whatever kind or nature, at
law, in equity or otherwise, whether existing or contingent, known or
unknown, relating to any matter, cause or thing whatsoever arising on or
prior to the date of this Agreement, including but not limited to rights or
claims relating in any way to Associate's employment with or his
termination of employment from the Company or his representation of the
Company in his capacity as legal counsel; provided, however, that nothing
contained in this Paragraph 5.B. shall limit the Company's right to enforce
the terms or sue for breach of (i) this Agreement, any agreement listed in
Paragraph 2 of this Agreement or any other agreement whatsoever unrelated
to compensation and severance matters between the Parties hereto whether or
not such agreement is listed in Paragraph 2 of this Agreement or (ii) any
compensation or benefit plan or program in which he remains a participant
or beneficiary beyond the Termination Date in accordance with the
provisions of Paragraph 2. This release is intended by the Company to be a
general release as to the claims described herein.
6. Indemnification. To the extent that Associate is not otherwise
indemnified under a Company by-law or insurance policy, the Company will
indemnify and hold harmless Associate against all liabilities and expenses,
including amounts paid in satisfaction of judgments, in compromise or as
fines and penalties, and counsel fees, reasonably incurred by Associate in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which Associate may be involved
or with which Associate may be threatened arising out of actions taken by
Associate in his capacity as an officer, director, employee, agent,
representative of, or legal counsel to, the Company or a direct or
indirect subsidiary of the Company or, at the Company's request, another
organization, or in any capacity with any employee benefit plan of the
Company or such a subsidiary or organization, or in connection with the
prosecution of any action, suit or proceeding, whether civil or criminal,
in which Associate may be acting for or on behalf of the Company, in any
such case with the exception of actions by him with respect to which a
court of competent jurisdiction determines that Associate did not act in
good faith in the reasonable belief that his action was in the best
interest of the Company, or to the extent such claim relates to his service
with respect to an employee benefit plan, in the best interest of the
participants or beneficiaries of such employee benefit plan, without regard
to the date when such claim is brought. Expenses, including without
limitation counsel fees, reasonably incurred by Associate in connection
with the defense or disposition of any such action, suit or other
proceeding shall be paid from time to time by the Company in advance of the
final disposition thereof upon receipt of an undertaking by Associate to
repay to the Company the amounts previously advanced if it shall be
adjudicated that indemnification for such expenses is not authorized
hereunder.
7. Waiver of Rights and Claims Under the Age Discrimination in Employ-
ment Act, as Amended. Associate has been informed that because he is over
40 years of age, he has or might have specific rights and/or claims under
the Age Discrimination in Employment Act, as amended. In consideration for
the compensation described hereunder, Associate specifically waives the
rights and/or claims to the extent that such rights and/or claims arose
prior to the date this Agreement was executed. Associate acknowledges that
he has been provided the information or materials required by law in
connection with this waiver.
8. Company Files, Documents and Other Property. Associate warrants
that he will return to the Company upon its request all keys or other
items, including all Company files, reports, books, data and documents,
that are in his possession or control and that are the property of the
Company (and not his personal files, reports, books, data and documents).
9. Advice and Representations.
A. Associate is hereby advised by the Company to consult with an
attorney prior to executing this Agreement.
B. Associate was further advised, when he was presented with this
Agreement on or before [ ], that he had at least 45 days within which to
consider the Agreement, until the close of business on [ ].
C. This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois, without giving effect to the
principles of conflicts of law thereof.
D. The terms of this Agreement are contractual in nature and not a
mere recital. Captions herein are inserted for convenience, do not
constitute a part of this Agreement and shall not be admissible for the
purpose of proving the intent of the parties.
E. Associate represents that he has read this Agreement, fully
understands the terms and conditions of this Agreement and is knowingly and
voluntarily executing the same without any duress or undue influence.
10. Confidential Information. Associate agrees that he will not use
or disclose to anyone (other than for the benefit of the Company) at any
time hereafter, any Confidential Information obtained by him or made known
to him while employed by the Company and will make all reasonable,
necessary and appropriate efforts to safeguard all such Confidential
Information from disclosure to anyone other than as permitted hereby. As
used herein, "Confidential Information" includes, but is not limited to,
trade secrets, business and sales policies, methods, plans and customer
lists, including any lists (written or other) of such persons or entities,
whether of the Company or any other organization associated or affiliated
with or owned by or owning the Company, but shall not include information
which becomes generally available to the public other than as a result of
disclosure by Associate's act or default or the act or default of
Associate's agents or representatives.
11. Resignation and Stock Transfers. Upon the Termination Date,
Associate agrees to (i) leave and/or resign from any position held by him
with the Company or any direct or indirect affiliated company or
organization, including but not limited to positions as an officer,
director, committee member or any other position, (ii) take any action
necessary to transfer shares of stock held in his name or for his benefit
on behalf of the Company in any direct or indirect affiliate of the
Company, as requested by the Company, to the Company or a designee of the
Company and (iii) take any action and execute anything as may be necessary
to accomplish the foregoing.
12. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of any successor or assign of the Company, and any such
successor or assign shall be deemed substituted for the Company under the
terms of this Agreement, and as a condition thereof, such successor or
assign shall expressly assume in writing the rights, duties and obligations
of the Company. As used in this Agreement, the term "successor or assign" or
"successors or assigns" shall include any person, firm, corporation or
other entity which at any time, whether by merger, consolidation, purchase
or otherwise, acquires all or substantially all of the assets, capital
stock or business of the Company. The rights and obligations of Associate
under this Agreement, including without limitation his right to exercise
vested stock options, shall inure to the benefit of, be binding upon, be
exercisable by and be enforceable by Associate's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Associate should die while any
amount would still be payable to him hereunder if he had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to his devisee, legatee or
other designee or if there is no such designee, to his estate.
13. Amendment or Modification. This Agreement may not be amended,
modified, altered or changed except upon written consent of the Parties.
14. Severability. The illegality, invalidity or unenforceability of
any particular provision of this Agreement shall not affect the legality,
validity or enforceability of the remaining parts, terms or provisions of
this Agreement, but the obligation to be fulfilled under such illegal,
invalid or unenforceable provision shall automatically be reduced to the
limit of legality, validity or enforceability prescribed by law, and this
Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.
15. Waiver. No waiver of any provision of this Agreement shall be
effective unless made in writing and signed by the waiving party. The
waiver of any breach of this Agreement by either party or the failure of
either party to require the performance of any term or obligation of this
Agreement, in whole or in part, in any one instance, shall not constitute a
waiver of or prevent any subsequent enforcement of such term or obligation
in another instance or be deemed a waiver of any subsequent breach.
16. Entire Agreement. Associate and the Company agree that this
Agreement, together with the Separation Agreement, contains and constitutes
the entire understanding and agreement between the Parties hereto
respecting the terms of Associate's termination from the Company and,
except as expressly provided herein, supersedes, cancels and replaces all
previous written or verbal negotiations, agreements, commitments and
writings in connection with severance or compensation arrangements,
including the letters to Associate from G. William Seawright dated July 9,
1997 and August 13, 1997.
17. Execution. This Agreement may be executed in two duplicate
counterparts, each of which shall be treated as an original, but both of
which together shall constitute one and the same instrument, and in
pleading or proving any provision of this Agreement, it shall not be
necessary to produce more than one such counterpart.
18. Change In Control. If a Change In Control, as defined in the
Corporate Severance Policy dated November 1996, occurs after the
Termination Date, any payments yet to be made to Associate under Paragraph
3.A and, if applicable, paragraphs 6 and 7 of the Separation Agreement
shall be paid in a lump sum upon the occurrence of such Change In Control.
Notwithstanding the foregoing, the meaning of the term "Severance Period,"
as defined in Paragraph 3.A, shall not change in this or any other event.
19. Notice. Any notice required or made under this Agreement shall be
in writing and shall be delivered by certified mail, return receipt
requested, by FedEx or other overnight delivery service or by facsimile, if
confirmed, as follows:
a. to Associate
Peter R. Johnson, Esq.
26 Stoneridge Drive
South Barrington, IL 60010
Facsimile: 847-842-9776
b. to the Company
Enesco Group, Inc.
Chancellory Business Park
225 Windsor Drive
Itasca, IL 60143
Facsimile: 630-875-5846
Attention: Allan G. Keirstead,
Executive Vice President,
Chief Administrative and Financial Officer
Either party may change the address to which notices are to be sent
by providing notice in writing to the other Party in accordance with the
terms hereof.
20. Effective Date. Associate may revoke this Agreement for a period
of seven days following its execution by him, and the Agreement shall not
become effective or enforceable until the date upon which this revocation
period has expired (the "Effective Date"). If the Effective Date is later
than the Termination Date, all payments that would have been made prior to
such date shall be paid as of the Effective Date.
Executed this __________ day of ____________, 1999.
_________________________________
Peter R. Johnson
ENESCO GROUP, INC.
By:______________________________
Allan G. Keirstead
Executive Vice President,
Chief Administrative and
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<PERIOD-TYPE> 9-MOS
<CASH> 11,118
<SECURITIES> 0
<RECEIVABLES> 139,182
<ALLOWANCES> 11,910
<INVENTORY> 68,062
<CURRENT-ASSETS> 223,910
<PP&E> 80,769
<DEPRECIATION> 50,338
<TOTAL-ASSETS> 331,259
<CURRENT-LIABILITIES> 185,326
<BONDS> 0
0
0
<COMMON> 3,154
<OTHER-SE> 105,263
<TOTAL-LIABILITY-AND-EQUITY> 331,259
<SALES> 296,263
<TOTAL-REVENUES> 296,263
<CGS> 158,582
<TOTAL-COSTS> 158,582
<OTHER-EXPENSES> 105,183
<LOSS-PROVISION> 2,610
<INTEREST-EXPENSE> 2,386
<INCOME-PRETAX> 26,824
<INCOME-TAX> 10,257
<INCOME-CONTINUING> 16,567
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,567
<EPS-BASIC> 1.14
<EPS-DILUTED> 1.13
<FN>
Note: As per FASB Statement No. 128, earnings per share, "Primary"
is now "Basic"
</FN>
</TABLE>
