UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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.
------------------------------------------------------
(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)
Registrant's telephone number, including area code (630) 875-5300
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ----------------------
Common Stock, par value $.125 New York Stock Exchange
per share, together with the Pacific Exchange
Associated Common Stock Purchase
Rights ("Common Stock")
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $315,347,033 on January 31, 1999.
The number of shares outstanding of the registrant's Common Stock as of
March 17, 1999 was 15,862,211 shares.
Parts I, II and IV of this Form 10-K incorporate by reference certain
information from the registrant's Annual Report to Stockholders for the
fiscal year ended December 31, 1998 (the "1998 Annual Report"). Part III of
this Form 10-K incorporates by reference certain information from the
registrant's definitive Proxy Statement, dated March 12, 1999 (the "Proxy
Statement"), for its Annual Meeting of Stockholders to be held on April 22,
1999.
P A R T I
---------
ITEM 1. BUSINESS.
Through its Enesco Giftware Group subsidiaries and licensed distributors,
the Company sells quality branded gifts, collectibles and decorative
accents, including designed and licensed collectible figurines and
ornaments, action musicals, decorative home accessories and other giftware,
principally at wholesale, to independent retailers, mass marketers,
catalogers and other direct response distributors. In 1998, following the
Company's 1997 sales of most of its former Hamilton Direct Response Group
and Stanhome Direct Selling Group businesses as part of a major corporate
and operational restructuring, the stockholders voted to approve changing
the Company's name from Stanhome Inc. to Enesco Group, Inc. The Company has
relocated its principal executive offices to Itasca, Illinois and is
completing its transformation into a singularly focused designer and
marketer of branded gifts, collectibles and decorative accents.
Wholesale sales of branded gifts, collectibles and decorative accents by
the Company's Giftware Group are led by Enesco Corporation ("Enesco"), with
its headquarters located in Itasca, Illinois and its principal showroom,
warehouse and distribution center complex located in nearby Elk Grove
Village, Illinois. Enesco is a leading importer and distributor of
creatively designed giftware items, including proprietary and licensed
lines of collectibles and decorative accents. Its products include diverse
lines of branded porcelain bisque, cold cast and resin figurines, cottages,
musicals, music boxes, ornaments, waterballs, miniatures, tableware,
sculpture, general home accessories and other giftware primarily produced
by independent manufacturers in the Far East, with total production
capacity in several cases being exclusively devoted to Enesco products.
Enesco sells its products through a nationwide sales organization
comprised of independent sales representatives. Approximately 375
independent sales representatives service territories with the Company's
gifts, collectibles and decorative accent lines. Enesco displays the
Giftware Group products in ten showrooms located in the U.S. as well as at
periodic trade and private shows held in major U.S. and foreign cities.
These products are marketed principally in the U.S. through approximately
30,000 independent retail outlets, including gift stores, greeting card and
gift shops, national chains, mail order houses and department stores.
Collector Appreciation, Inc., an Enesco affiliate, administers the Group's
U.S.-based collectors clubs and their related promotional advertising.
During 1998, the number of active memberships for each of the Precious
Moments Collector and Birthday (now known as the Fun Club) Clubs, continued
a downward trend, but that was stabilized through the Company's increased
promotions, including a special series of nationwide marketing events
scheduled to celebrate the 20th Anniversary of the Precious Moments product
line. Foreign affiliates or distributors of the Enesco Giftware Group are
presently located in Australia, Brazil, Canada, Ecuador, France, Germany,
Hong Kong, Japan, Mexico, The Netherlands, The People's Republic of China,
Peru, Philippines, Singapore, South Korea, Taiwan, Thailand and the United
Kingdom.
The product lines of the Giftware Group are based partially on Enesco's
collection of proprietary designs and partially on licenses Enesco and its
affiliates have obtained from independent creative designers. Most of its
products, whether or not produced under license, are protected by trademark
and/or copyright registrations in the U.S. and many foreign countries.
Principal product trademarks of the Giftware Group include ENESCO, GROWING
UP, FESTIVITIES, SMALL WORLD OF MUSIC, CHERISHED TEDDIES, CALICO KITTENS,
VIA VERMONT, TEDDY TOMPKINS, MOOSE CREEK CROSSING, FRIENDS OF THE FEATHER,
CUTE AS A BUTTON, MARY'S MOO MOOS, GAULT, LILLIPUT LANE and BORDER FINE
ARTS. Among its important licensed lines are PRECIOUS MOMENTS, including
its TENDER TAILS line, CHERISHED TEDDIES, PRETTY AS A PICTURE, MEMORIES OF
YESTERDAY, MARY ENGELBREIT, ANNE GEDDES, COUNTRY LIVING, RAGGEDY ANN &
ANDY, CALICO KITTENS, MY BLUSHING BUNNIES, MICKEY & CO./DISNEY, MICKEY
UNLIMITED/DISNEY, COCA COLA, DAVID WINTER COTTAGES, PRISCILLA'S MOUSE
TALES, WIZARD OF OZ, ALL THAT JAZZ, MAHOGANY PRINCESS, BEATRIX POTTER, SNOW
FOLKS and DOWN PETTICOAT LANE.
Intellectual property rights with respect to the licensed lines are
materially important to the Company because of the substantial volume of
sales represented by these products, especially the PRECIOUS MOMENTS and
CHERISHED TEDDIES product lines, which accounted for approximately 38% and
20%, respectively, of the Company's consolidated revenue from continuing
operations during 1998, compared to 36% and 20%, respectively, for 1997 and
27% and 13%, respectively, for 1996. The internal development and licensing
of innovative new product designs is expected to lessen the Company's
dependency on existing trademarks or copyrighted designs. Protection of all
of the Company's intellectual property (whether owned or licensed) is
important to the Company's business, and Enesco has maintained an
aggressive and visible program to identify and challenge companies and
individuals who infringe its registered trademarks and copyrighted designs.
Gifts and collectibles products sold within the Via Vermont, Lilliput and
Border Fine Arts branded lines are supplied in large part by manufacturing
plants owned by the Company's subsidiaries operating in Mexico, England and
Scotland, respectively. Enesco branded lines are supplied directly by
independent manufacturers in the Far East and indirectly through Enesco's
affiliate in Hong Kong, Enesco International (H.K.) Limited, which assists
by ordering and overseeing the production of gifts, collectible and
decorative accent products by independent manufacturers located principally
in The People"s Republic of China (P.R.C.), Hong Kong and Taiwan, and to a
lesser extent in the Philippines, Indonesia and Thailand. In 1998, the
Company's purchases from its two largest contract manufacturer sources
accounted for approximately 15% and 13%, respectively, of its net sales,
with no other single supplier location accounting for more than 10% of that
amount. While the Company believes that there are other available
manufacturing sources for its gifts and collectibles product lines, any
loss or substantial reduction of sourcing capability from one or more of
the predominant manufacturing sources could have a significant short-term
adverse effect on its importing and distribution operations. Moreover,
approximately 69% of the Company's total product purchases during 1998 came
from manufacturing sources located in the P.R.C., which currently enjoys
most-favored nation status. Should the P.R.C.'s status be revoked by the
U.S. government, the cost of importing products from the P.R.C. would
increase significantly. The Company could suffer a resulting short-term
adverse effect until it established satisfactory alternative sourcing
arrangements. N.C. Cameron & Sons Limited, a subsidiary of the Company and
a member of the Enesco Giftware Group located in Mississauga, Ontario,
Canada, sources its products not only through Enesco's manufacturing
subsidiaries and Enesco International (H.K.) Limited but also from other
Far Eastern, European and Canadian manufacturers. Enesco and its affiliates
require all manufacturing sources, whether Company affiliates or
contract manufacturers, to comply with quality standards established and
enforced by the Company and its subsidiaries. In addition to selling
various product lines itself in the U.K. and several other European
countries, Enesco European Giftware Group Limited, a subsidiary of the
Company, with its headquarters located in Carlisle, Cumbria, England,
oversees the distribution operations of affiliated companies located in
Germany and France and administers the Group's collectors clubs that are
based outside of North America.
Competition in the gifts, collectibles and decorative accents business in
North America, Europe and the Far East is highly fragmented among a number
of gifts, collectibles and decorative accents product categories. The
principal factors affecting success in the marketplace are originality of
product design, quality, sourcing, marketing ability, customer service and
price. The Company believes that Enesco is a significant factor in the U.S.
gifts, collectibles and decorative accents business among a small number of
sizable, and largely privately-held, competitors within the industry, which
businesses include Hallmark, Department 56, Lladro, Cast Art, Boyd's Bears
and Midwest Imports, among others. Enesco European Giftware Group Limited,
which manages businesses in the United Kingdom, France and Germany under
the brand names of Lilliput Lane, Border Fine Arts and Enesco, is the
second largest quality giftware marketer in the U.K., behind only Royal
Doulton. It maintains an employed sales organization based in the United
Kingdom along with a network of distributors and multiple independent sales
agents throughout continental Europe.
The Enesco Giftware Group's sales normally tend to peak in the third and
fourth quarters, although in 1998 most sales occurred during the second and
third quarters. As of the end of 1998, the Enesco Giftware Group had a
backlog of firm orders totaling approximately $59,000,000, as compared to
$87,000,000 as of the end of 1997. It is standard practice within the
giftware industry, however, that orders are subject to amendment or
cancellation by customers prior to shipment. Because of the multiplicity of
external factors that can impact the status of unshipped orders at any
particular time, the comparison of backlog orders in a given year with
those at the same date in a prior year is not necessarily indicative of
sales performance for that year or for prospective sales results in future
years. Backlog orders can also be affected by various programs employed by
the Company to provide incentive for customers to place orders and accept
shipments at specified times in the year. In addition, extended credit and
payment terms have been and will continue to be key marketing tools. During
1998, however, the Company continued to tighten its credit controls which
had a negative impact on sales results.
There has been a long-standing issue in the U.S. as to the appropriate
classification of sales representatives as employees or independent
contractors, with resulting tax and other legal consequences to the worker
and company involved. The U.S. Internal Revenue Service and Congress
periodically have expressed interest in this area in general, and some
states have challenged from time to time the classification of positions
within the Enesco sales organization, successfully in three jurisdictions,
as well as other contracted service providers. While the Company has
received determinations from the U.S. Equal Employment Opportunity
Commission as to the independent contractor status of former Enesco sales
representatives, the federal government is continuing to review this issue
based upon other requests and management expects increased attention on the
status of workers from both federal and state governments in the future.
Other Information
As of December 31, 1998, the Company and its U.S. subsidiaries employed
approximately 800 persons on a full-time basis. As of the same date, there
were also approximately 375 independent contractor sales representatives
engaged in selling Enesco's product lines in the U.S. As of the same date,
the Company's foreign subsidiaries employed approximately 950 persons on a
full-time basis.
For financial information about geographic areas in which the Company
conducts its businesses, including financial information regarding foreign
and domestic operations, see Note 8 of "Notes to Consolidated Financial
Statements" included on pages 34 and 35 of the 1998 Annual Report to
Stockholders, which is incorporated herein by reference.
See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations" commencing on page 2 of the 1998 Annual Report,
which is incorporated herein by reference, for a comparison and discussion
of the results of operations and operating profit from foreign and domestic
sources within the Enesco Giftware Group.
ITEM 2. PROPERTIES.
The principal physical properties of the Company and its subsidiaries in
the United States, all of which are owned unless otherwise noted, consist
of the following: Principal executive offices - 225 Windsor Drive, Itasca,
Illinois; and showroom, warehouse and distribution facilities for Enesco's
giftware business in Elk Grove Village, Illinois. Enesco also leases
showrooms in eight other major market locations in the U.S. for the display
of its products. The former Corporate Headquarters property located in
Westfield, Massachusetts was sold in March, 1999 as part of the Company's
ongoing worldwide restructuring.
Most of the principal physical properties relating to the foreign
subsidiaries of the Enesco Giftware Group are owned. These include Via
Vermont, S.A. de C.V., which owns an assembly and distribution facility in
San Miguel de Allende, Guanajuato, Mexico; and Enesco European Giftware
Group Limited, which owns manufacturing plants and warehouse facilities in
Penrith, Workington, and Carlisle, Cumbria, England, and Langholm,
Dumfriesshire, Scotland. These manufacturing facilities are generally
operating at or near capacity. The Mexican facility and the manufacturing
and distribution facility of the Company's remaining Direct Selling Group
subsidiary located in Spain are both currently being offered for sale.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of the Company's business, there have arisen
various legal proceedings pending against the Company and its subsidiaries.
While the Company cannot predict the eventual outcome of these proceedings,
it believes that none of these proceedings will have a material adverse
impact upon the consolidated financial statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Date First
Name Age Positions Elected
- ---- --- --------- ----------
Jeffrey A. Hutsell 45 Director 9/04/97
President 4/23/98
Chief Executive Officer 9/02/98
Member of the Executive
Committee 4/23/98
Prior to Mr. Hutsell's elections as Director, President and Chief
Executive Officer of the Company, he served both as Vice President of the
Company from January, 1997 to January, 1998 and also as President of Enesco
Corporation, a subsidiary of the Company, since January, 1997, Executive
Vice President, Worldwide Creative from January, 1992 to January, 1997,
Vice President, Creative from January, 1989 to December, 1991, Vice
President, Art from April, 1986 to December, 1988, and Vice President,
Product Development from August, 1985 to April, 1986.
Eugene Freedman 74 Director 9/04/97
Founding Chairman 9/02/98
Member of the Executive
Committee 9/04/97
Mr. Freedman previously served as Vice Chairman of the Company from
October, 1997 to September, 1998, Executive Vice President of the Company
from April, 1988 to September, 1998, and Vice President of the Company from
January, 1984 to April, 1998. He also served for many years as Chairman,
President and Chief Executive Officer of Enesco Corporation, a subsidiary
of the Company, of which Mr. Freedman was a founder in 1959.
Allan G. Keirstead 54 Director 4/25/85
Executive Vice President
and Chief Administrative
Officer 4/28/88
Chief Financial Officer 4/28/83
Chief Executive Officer of Enesco
International Businesses 9/02/98
Controller 12/02/81
Member of the Executive
Committee 4/25/85
Mr. Keirstead previously served as Vice Chairman of the Company from
October, 1997 to September, 1998. Prior to Mr. Keirstead's election as
Executive Vice President and Chief Administrative Officer, he served as
Financial Vice President from January, 1983 to April, 1988. He served as
Assistant Controller from April, 1977 to December, 1981.
Thomson J. Hudson 52 Senior Vice President,
U.S. Operations 9/30/98
Prior to Mr. Hudson joining the Company in September, 1998, he was
the President of Decision Management, Inc., a Connecticut-based provider of
management consulting services specializing in company turnarounds and
entrepreneurial ventures, from 1990 to 1998.
Patrick J. Gebhardt 43 Senior Vice President,
Finance and Accounting 9/02/98
Prior to Mr. Gebhardt's elections as Senior Vice President of the
Company and of Enesco Corporation, a subsidiary of the Company, he served
as Executive Vice President and Chief Financial Officer of Enesco
Corporation from January, 1997 to November, 1998, Group Vice
President-Finance, Worldwide Operations from March, 1992 to January, 1997,
Vice President and Chief Financial Officer from March, 1988 to March, 1992,
and Chief Financial Officer and Controller from May, 1985 to March, 1988.
Peter R. Johnson 42 Clerk 3/09/98
Vice President,
General Counsel and
Secretary 4/01/98
Prior to Mr. Johnson's elections as Clerk and Vice President, General
Counsel and Secretary of the Company, he served as Senior Counsel from May,
1993 to March, 1998, and Corporate Counsel from May, 1989 to May, 1993. He
also has served as Vice President, Law of Enesco Corporation, a subsidiary
of the Company, since June, 1997.
Jeffrey W. Lemajeur 37 Treasurer 3/03/99
Prior to Mr. Lemajeur's joining the Company in January, 1999, he was
the Vice President of Finance, Chief Financial Officer and Treasurer of
Binks Sames Corporation, a manufacturer of spray equipment located in
Franklin Park, Illinois, from 1991 to 1998.
NOTE: All officers are elected for the ensuing year and until their
successors are duly elected and qualified.
P A R T II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Information required by this item is set forth in the Section entitled
"Stock Market, Dividend and Shareholder Information" appearing on page 41
of the 1998 Annual Report and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
Information required by this item is set forth in the Section entitled
"Financial Highlights Last Ten Years" appearing on pages 44 and 45 of the
1998 Annual Report and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
Information required by this item is set forth in the Section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing on pages 2 through 11 of the 1998 Annual
Report and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information required by this item either is set forth in Note 10 of the
Financial Statements appearing on pages 37 and 38 of the 1998 Annual Report
and is incorporated herein by reference or is immaterial.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information required by this item is set forth in the Financial
Statements, together with the accompanying Notes and Report of Independent
Public Accountants, appearing on pages 12 through 40 of the 1998 Annual
Report and is incorporated herein by reference. Also incorporated herein by
reference are the Quarterly results (unaudited) during 1998, 1997 and 1996
set forth on pages 42 and 43 of the 1998 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
P A R T III
-----------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item regarding the directors of the Company
is set forth under the captions "Election of Directors" and "Information as
to Board of Directors and Nominees" in the Company's Proxy Statement and is
incorporated herein by reference. Information required by this item
regarding the executive officers of the Company is included under a
separate caption in Part I hereof, and is incorporated herein by reference,
in accordance with General Instruction G(3) of Form 10-K and Instruction 3
to Item 401(b) of Regulation S-K. Information required by this item
regarding reporting compliance is included under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this item is set forth under the captions
"Executive Compensation", "Compensation and Stock Option Committee Report
on Executive Compensation", "Performance Graph" and "Remuneration of
Non-Employee Directors" in the Company's Proxy Statement and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this item is set forth under the caption "Voting
Securities and Principal Holders Thereof" in the Company's Proxy Statement
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this item is set forth under the caption
"Compensation Committee Interlocks and Insider Participation" in the
Company's Proxy Statement and is incorporated herein by reference.
P A R T IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a)(1) and (2) Financial Statements and Schedules. The financial
statements and schedules required by this item are listed in the Index to
Financial Statements and Schedules of Enesco Group, Inc. on page 11 of this
Form 10-K.
(a)(3) Exhibits. The exhibits required by this item are listed in
the Exhibit Index on pages 14 - 17 of this Form 10-K. The management
contracts and compensatory plans or arrangements required to be filed as an
exhibit to this Form 10-K are listed as Exhibits 10(a) to 10(cc) in the
Exhibit Index.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Company during the fourth quarter of 1998.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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, on the
29th day of March, 1999.
ENESCO GROUP, INC.
------------------
(Registrant)
By:/s/ Jeffrey A. Hutsell
-----------------------
Jeffrey A. Hutsell
President and Chief
Executive Officer
By:/s/ Allan G. Keirstead
------------------------
Allan G. Keirstead
Executive Vice President,
Chief Administrative and
Financial Officer and Chief
Executive Officer of Enesco
International Businesses
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 29th day of March, 1999 by the
following persons on behalf of the registrant and in the capacities
indicated.
Signature Title
- --------- ------
/s/ H. L. Tower *
- ---------------------
H. L. Tower Director
/s/ Homer G. Perkins *
- ----------------------
Homer G. Perkins Director
/s/ Allan G. Keirstead
- ------------------------
Allan G. Keirstead Executive Vice President,
Chief Administrative and
Financial Officer, Chief
Executive Officer of Enesco
International Businesses
and Director
/s/ John F. Cauley *
- ------------------------
John F. Cauley Chairman of the Board and
Director
/s/ Anne-Lee Verville *
- -----------------------
Anne-Lee Verville Director
/s/ Judith R. Haberkorn *
- ------------------------
Judith R. Haberkorn Director
/s/ Charles W. Elliott *
- ------------------------
Charles W. Elliott Director
/s/ Eugene Freedman *
- ------------------------
Eugene Freedman Founding Chairman and
Director
/s/ Jeffrey A. Hutsell
- -------------------------
Jeffrey A. Hutsell President, Chief Executive
Officer and Director
*By: /s/ Jeffrey A. Hutsell
------------------------
Jeffrey A. Hutsell
Attorney-In-Fact
ENESCO GROUP, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - Incorporated herein by
reference to "Report of Independent Public Accountants" on page
40 of the Enesco Group, Inc. 1998 Annual Report to
Stockholders.
FINANCIAL STATEMENTS - All of which are incorporated herein by reference to
the Enesco Group, Inc. 1998 Annual Report to Stockholders.
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income For the Years Ended December
31, 1998, 1997 and 1996
Consolidated Statements of Retained Earnings For the Years
Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Comprehensive Income For the Years
Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows For the Years Ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements as of December 31,
1998, 1997 and 1996
Quarterly results (unaudited)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
SCHEDULE SUPPORTING FINANCIAL STATEMENTS:
Schedule
Number Description
- --------- -----------
II Valuation and Qualifying
Accounts and Reserves For
Each of the Three Years
Ended December 31, 1998(a)
NOTES:
(a) All other schedules are not submitted because they are not
applicable, not required or because the required information
is included in the consolidated financial statnotes thereto.
(b) Individual financial statements of the Company have been
omitted since (1) consolidated statements of the Company and
its subsidiaries are filed and (2) the Company is primarily
an operating company and all subsidiaries included in the
consolidated financial statements filed are wholly-owned and
do not have a material amount of debt to outside persons.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Enesco Group, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Enesco Group, Inc.'s
annual report to shareholders incorporated by reference in this Form 10-K,
and have issued our report thereon dated February 18, 1999. Our audit was
made for the purpose of forming an opinion of the consolidated financial
statements taken as a whole. The schedule listed in the accompanying index
is the responsibility of the Company's management and is represented for
purposes of complying with the Securities and Exchange Commission's rules
and is not part of the consolidated financial statements. This schedule has
been subjected to the auditing procedures applied in the audit of the
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
Chicago, Illinois
February 18, 1999
<TABLE>
<CAPTION>
SCHEDULE II
ENESCO GROUP INC.
VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
FOR EACH OF THE THREE YEARS
ENDED DECEMBER 31, 1998(a)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- --------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1996
------------------------------------
Reserves which are deducted in the
balance sheet from assets to which they
apply -
Reserves for uncollectable accounts $4,258,414 $2,579,158 $ 17,277(c) $554,878 $6,299,971
=========== =========== =========== ========== ===========
Reserves for returns and allowances $3,606,419 $3,554,990 $ - $3,570,581 $3,590,828
=========== =========== =========== ========== ===========
Accumulated amortization of other assets $22,118,311 $3,843,526 $ - ($57,347)(d) $26,019,184
=========== =========== =========== ========== ===========
Other reserves $220,493 $ -
=========== ===========
For the year ended December 31, 1997
------------------------------------
Reserves which are deducted in the balance
sheet from assets to which they apply -
Reserves for uncollectable accounts $6,299,971 $3,073,309 $ - $1,102,584 $8,270,696
=========== =========== ========== ========== ===========
Reserves for returns and allowances $3,590,828 $2,819,231 $ - $3,534,408 $2,875,651
=========== =========== ========== ========== ===========
Accumulated amortization of other assets $26,019,184 $3,479,053 $ - $2,653,172 $26,845,065
=========== =========== ========== ========== ===========
Reserve for downsizing corporate
headquarters $ - $18,000,000 $ - $5,187,000 $12,813,000
=========== =========== ========== ========== ===========
Reserve for discontinued operations $ - $16,800,000 $ - $7,735,000 $9,065,000
=========== =========== ========== ========== ===========
For the year ended December 31, 1998 (b)
----------------------------------------
Reserves which are deducted in the balance
sheet from assets to which they apply-
Reserves for uncollectable accounts $8,270,696 $3,017,927 $ - $4,077,335 $7,211,288
=========== =========== ========== ========== ===========
Reserves for returns and allowances $2,875,651 $2,685,248 $ - $3,471,717 $2,089,182
=========== =========== ========== ========== ===========
Accumulated amortization of other assets $26,845,065 $3,194,815 $ - $407,843 $29,632,037
=========== =========== ========== ========== ===========
Reserve for downsizing corporate
headquarters $12,813,000 $ - $ - $2,261,000 $10,552,000
=========== =========== ========== ========== ===========
Reserve for discontinued operations $ 9,065,000 $ - $ - $6,233,000 $2,832,000
=========== =========== ========== ========== ===========
</TABLE>
Note:
(a) The figures for 1997 and 1996 have been restated to separate the
reserves for uncollectable accounts and the reserves for returns
and allowances.
(b) In 1998, the goodwill asset was written down by $46 million to fair
value - this direct writedown of the asset is not reflected in this
schedule.
(c) Represents recorded reserve at date of acquisition.
(d) Includes currency translation losses.
EXHIBIT INDEX
Reg. S-K
Item 601 EXHIBIT
- --------- -------
2 (a)* Agreement of Purchase and Sale dated April 22, 1997
by and among The Crestley Collection, Ltd., The
Bradford Exchange, Ltd. (with respect to Section
12(p) therein only) and Stanhome Inc. (Exhibit 2.1
to Form 8-K filed on June 5, 1997.)
2 (b)* Stock and Asset Purchase Agreement dated as of
November 24, 1997 by and between Stanhome Inc. and
Laboratoires De Biologie Vegetale Yves Rocher.
(Exhibit 2.1 to Form 8-K filed on December 31,
1997.)
3 (a)* Restated Articles of Organization as amended.
(Exhibit 3(a) to Form 10-Q filed for the period
ended March 31, 1998.)
3 (b)* By-Laws as amended. (Exhibit 3 (b) to Form 10-Q
filed for the period ended March 31, 1998.)
4 (a)* Renewed Rights Agreement dated as of July 22, 1998
between Enesco Group, Inc. and ChaseMellon
Shareholder Services, L.L.C. (Exhibit 4 to Form 8-K
filed on July 23, 1998.)
10 (a)* 1984 Stock Option Plan, as amended and restated
through December 4, 1996. (Exhibit 10 (a) to Form
10-K filed for the period ended December 31, 1996.)
10 (b)* 1991 Stock Option Plan, as amended and restated
through December 4, 1996. (Exhibit 10 (b) to Form
10-K filed for the period ended December 31, 1996.)
10 (c)* Special Interim Chief Executive Officer Stock
Option Plan. (Exhibit 10 (c) to Form 10-K filed for
the period ended December 31, 1993.)
10 (d) 1996 Stock Option Plan, as amended and restated
through January 20, 1999.
10 (e)* 1997 President and Chief Executive Officer Stock
Option Plan. (Exhibit 10(e) to Form 10-K filed for
the period ended December 31, 1997.)
10 (f) 1998 Chairman Stock Option Plan.
10 (g)* Non-Employee Director Stock Plan. (Exhibit 10 to
Form 10-Q filed for the period ended March 31,
1995.)
10 (h) Enesco Group, Inc. 1999 Non-Employee Director Stock
Plan.
10 (i)* Outline of Deferred Compensation Plan for
Non-Employee Directors, as amended. (Exhibit 10 (e)
to Form 10-K filed for the period ended December
31, 1988.)
10 (j) Management Incentive Plan, as amended and restated
effective January 1, 1999.
10 (k)* Supplemental Retirement Contract with Homer G.
Perkins, as amended and restated through February
9, 1988. (Exhibit 10 (i) to Form 10-K filed for the
period ended December 31, 1997.)
10 (l)* Supplemental Retirement Contract with H. L. Tower,
as amended and restated through June 5, 1997.
(Exhibit 10 (j) to Form 10-K filed for the period
ended December 31, 1997.)
10 (m)* Amendment of Retirement Agreement with Allan G.
Keirstead. (Exhibit 10 (k) to Form 10-K filed for
the period ended December 31, 1997.)
10 (n)* Supplemental Retirement Contract, as amended, with
Allan G. Keirstead. (Exhibit 10 (l) to Form 10-K
filed for the period ended December 31, 1994.)
10 (o)* Amendment of Allan G. Keirstead Supplemental
Retirement Contract. (Exhibit 10 (c) to Form 10-Q
filed for the period ended June 30, 1997.)
10 (p)* Description of Relocation Benefits for Allan G.
Keirstead. (Exhibit 10 (n) to Form 10-K filed for
the period ended December 31, 1997.)
10 (q) Description of Relocation Benefits for Peter R.
Johnson.
10 (r)* Form of Severance Agreement. A substantially
identical agreement exists with Allan G. Keirstead.
(Exhibit 19 (d) to Form 10-K filed for the period
ended December 31, 1992.)
10 (s)* Form of Retention Benefits Plan as described in the
Estimated Termination Benefits Summary Letters
dated June 16, 1997 and August 13, 1997 for
Stanhome Inc. Corporate Headquarters Exempt
Employees. Such letters exist with Allan G.
Keirstead and Peter R. Johnson. (Exhibit 10 (i) to
Form 10-Q filed for the period ended June 30,
1997.)
10 (t)* Form of Change in Control Agreement. Substantially
identical agreements exist with Allan G. Keirstead
and Jeffrey A. Hutsell. (Exhibit 19 (c) to Form
10-K filed for the period ended December 31, 1992.)
10 (u)* Form of Change in Control Agreement with certain
other executive officers and non-executive
officers. Substantially identical agreements exist
with Thomson J. Hudson, Patrick J. Gebhardt and
Peter R. Johnson. (Exhibit 19 (c) to Form 10-K
filed for the period ended December 31, 1991.)
10 (v)* Second Amendment to Stanhome Inc. Supplemental
Pension Plan, as amended and restated through
December 16, 1996. (Exhibit 10 (s) to Form 10-K
filed for the period ended December 31, 1996 and
Exhibit 10 (j) to Form 10-Q filed for the period
ended June 30, 1997.)
10 (w)* Third Amendment to Stanhome Inc. Supplemental
Pension Plan. (Exhibit 10 (cc) to Form 10-K filed
for the period ended December 31, 1997.)
10 (x)* Fourth Amendment to Stanhome Inc. Supplemental
Pension Plan. (Exhibit 10 (a) to Form 10-Q filed
for the period ended March 31, 1998.)
10 (y) Enesco Group, Inc. Supplemental Retirement Plan, as
amended and restated, effective January 1, 1999.
10 (z)* License Agreement between Precious Moments, Inc.
and Enesco Corporation. (Exhibit 10 to Form 10-Q
filed for the period ended June 30, 1993.)
10 (aa)* First Amendment to License Agreement between
Precious Moments, Inc. and Enesco Corporation.
(Exhibit 10 (hh) to Form 10-K filed for the period
ended December 31, 1997.)
10 (bb) Second Amendment to License Agreement between
Precious Moments, Inc. and Enesco Corporation.
10 (cc) Thomas E. Evangelista Release Agreement.
13 Portions of the 1998 Annual Report to the
Stockholders of Enesco Group, Inc.
21 Subsidiaries of Enesco Group, Inc.
23 Consent of Arthur Andersen LLP
24 Power of Attorney
27 Financial Data Schedule
*Incorporated Herein By Reference
EXHIBIT 10 (d)
STANHOME INC.
1996 Stock Option Plan, as amended
Through January 20, 1999
1. Purpose. The purpose of this 1996 Stock Option Plan (the "Plan")
is to advance the interests of Stanhome Inc. (the "Company") by encouraging
key management employees of the Company and its subsidiaries and
non-employee directors of the Company to acquire a proprietary interest in
the Company through ownership of common stock of the Company. Such
ownership will encourage the optionees to remain with the Company and will
help attract other qualified persons to become employees and directors.
2. Administration. The Plan shall be administered by the
Compensation and Stock Option Committee of the Board of Directors (the
"Committee") which shall be composed of not less than three directors of
the Company elected or to be elected as members of the Committee from time
to time by the Board of Directors of the Company. Each member of the
Committee shall be a "disinterested person" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and an "outside director" within the meaning of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"). Subject to the
provisions of the Plan and the approval of the Board of Directors of the
Company, except that the Board of Directors shall have no discretion with
respect to the selection of officers within the meaning of Rule 16a-1(f),
directors or 10% or more shareholders ("Insiders") for participation and
decisions concerning the timing, pricing and amount of a grant or award to
such "Insiders", the Committee is authorized to grant options under the
Plan and to interpret the Plan and such options, to prescribe, amend and
rescind rules and regulations relating to the Plan and the options, and to
make other determinations necessary or advisable for the administration of
the Plan, all of which determinations shall be conclusive. The Committee
shall act pursuant to a majority vote or by unanimous written consent.
3. Types of Options. Options granted pursuant to the Plan may be
either incentive stock options under Section 422 of the Code ("Incentive
Stock Options") or options not qualifying under that section of the Code
("Non-qualified Stock Options"). It is the intent of the Company that
Non-qualified Stock Options granted under the Plan not be classified as
Incentive Stock Options, that the Incentive Stock Options granted under the
Plan be consistent with and contain or be deemed to contain all provisions
required under Section 422 and the other appropriate provisions of the Code
and any implementing regulations (and any successor provisions thereof),
and that any ambiguities in construction shall be interpreted in order to
effectuate such intent.
4. Eligibility. Options shall be granted under the Plan to such
selected key full-time salaried and commissioned employees (including
officers and directors if they are employees) of the Company or any of its
subsidiaries as the Committee shall determine from time to time. Options
shall also be granted under the Plan to the non-employee directors of the
Company (the "Non-employee Directors") pursuant to Section 9 hereof.
5. Stock Subject to Options. The aggregate number of shares which
may be issued or sold under options granted pursuant to the Plan (the
"Shares") shall not exceed 1,500,000 shares of the Company's common stock
$0.125 par value each. Such Shares shall be either authorized but unissued
shares of said common stock or issued shares of said common stock which
shall have been reacquired by the Company. Such aggregate number of Shares
may be adjusted under Sections 9 and 10 below. If any outstanding option
under the Plan expires or is terminated for any reason, the Shares
allocated to the unexercised portion of such option may again be subjected
to an option or options under the Plan.
6. Allotment of Shares. Except as provided under Section 9 hereof,
the Committee shall determine the total number of Shares to be offered to
each optionee under the Plan; provided, however, that no optionee may be
granted options which exceed 300,000 Shares under the Plan.
7. Option Price. The Shares shall be offered from time to time under
the Plan at a price which shall be not less than the greater of (i) 100
percent of the Fair Market Value of the Company's common stock on the date
the option is granted, or (ii) the par value of the Company's common stock
subject to the option; provided, however, that the price shall be not less
than 110 percent of such Fair Market Value in the case of Shares offered
under any Incentive Stock Option granted to an individual who, at the time
the option is granted, owns stock possessing more than 10 percent of the
total combined voting power of all classes of stock of the Company or of
its subsidiaries.
8. Terms and Conditions of Options. The Committee shall have power,
subject to the limitations contained in the Plan, to prescribe the terms
and conditions of any option granted hereunder. Each such option shall be
evidenced by a certificate in such form as the Committee shall from time to
time determine, which certificate shall prescribe the following terms and
conditions and such other terms and conditions as the Committee may deem
necessary or advisable:
(a) Duration of Options. Except as hereinafter otherwise provided,
options granted under the Plan shall be exercisable for such period of time
as the Committee shall determine. An Incentive Stock Option shall not be
exercisable after the expiration of ten years from the date it is granted;
provided, however, that any Incentive Stock Option granted to an individual
who, at the time the option is granted, owns stock possessing more than 10
percent of the total combined voting power of all classes of stock of the
Company or of its subsidiaries shall by its terms not be exercisable after
the expiration of five years from the date of grant.
(b) Exercise of Options. Except as hereinafter otherwise provided,
each option granted under the Plan may be exercised only after six months
of continued employment by the Company or one of its subsidiaries
immediately following the date the option is granted, or the date of
Stockholder approval under Section 11 below if later, and only during the
continuance of the optionee's employment with the Company or one of its
subsidiaries and such additional period as may be provided in subsection
(e) below. No option shall be exercised for less than 10 Shares except as a
result of an adjustment under Sections 9 or 10 below. Subject to the
foregoing and to the limitations set forth under subsection 8(e) below,
each option granted under the provisions of this Section 8 may be exercised
at any time after six months from the date the option is granted or, if
later, six months after the date of approval of the Plan by the
Stockholders of the Company,(1) as to 50% of the Shares subject to the
option if the Fair Market Value of the common stock is at or above 125% of
the Option Price on each of at least ten consecutive Trading Days, (2) as
to the remaining 50% of the Shares subject to the option if, at any time at
or after the initial 50% of said Shares becomes exercisable, the Fair
Market Value of the common stock is at or above 150% of the Option Price on
each of at least ten consecutive Trading Days, or (3) after the eighth
anniversary of the date the option is granted.
(c) Payment. The purchase price of each Share purchased upon the
exercise of any option granted hereunder shall be paid in full at the time
of such purchase, and a stock certificate representing Shares so purchased
shall be delivered to the person entitled thereto. Until the stock
certificate for such Shares is issued in the optionee's name, he or she
shall have none of the rights of a stockholder. Payment may be made in
whole or in part in (i) cash or (ii) whole shares of the Company's common
stock acquired at least six months previously by the optionee, for which
the optionee has good title, free and clear of all liens and encumbrances,
and evidenced by negotiable certificates, valued at their Fair Market Value
on the date preceding the date the option is exercised. If certificates
representing shares of common stock are used to pay all or part of the
purchase price of an option, separate certificates shall be delivered by
the Company representing the same number of shares as each certificate so
used and an additional certificate shall be delivered representing the
additional shares to which the option holder is entitled as a result of
exercise of the option. It shall be a condition to the performance of the
Company's obligation to issue or transfer Shares upon exercise of an option
or options that the optionee pay, or make provision satisfactory to the
Company for the payment of, any taxes (other than stock transfer taxes)
which the Company is obligated to collect with respect to the issue or
transfer upon such exercise. With respect to the exercise of Non-qualified
Stock Options granted pursuant to this Section 8, optionees may elect to
have the Company withhold a designated number of Shares otherwise issuable
upon the exercise of such stock options, or, in the case of "Insider"
optionees, to commit irrevocably at a time acceptable under the provisions
of Section 16 of the Exchange Act to have the Company withhold whole shares
of common stock to cover Federal and State tax obligations incident to such
exercise, or such other maximum amounts as may be determined by the
Committee.
(d) Nontransferability of Options. No option shall be transferable by
the optionee otherwise than (1) by will or the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by
the Committee, (2) as otherwise permitted under Rule 16b-3 under the
Exchange Act from time to time and allowed by the Committee, or (3)
pursuant to a qualified domestic relations order as defined in Section
414(p) of the Code. Except to the extent permitted by the foregoing
sentence, each option shall be exercisable, during his or her lifetime,
only by the optionee or his or her guardian or legal representative(s).
(e) Termination of Options. (i) Disability, Retirement at or after
age 55, Termination without Substantial Cause, or Death. If the optionee's
employment with the Company or any subsidiary terminates by reason of
Disability, retirement at or after age 55, termination by the Company or
any subsidiary without Substantial Cause, death, or for any other reason
not set forth under clauses (ii) and (iii) below, if not sooner terminated
pursuant to their terms and subject to subsections (a) and (b) above, all
outstanding options then held by the optionee shall be exercisable during
the three year period following any such termination of employment by the
optionee or his or her guardian or legal representative(s), except further
that in the case of Incentive Stock Options the period for such exercise
following such termination shall be limited to three months, or, in the
case of a termination of employment by reason of disability, to twelve
months; (ii) Termination by Voluntary Resignation or Retirement before
reaching age 55. If the optionee's employment with the Company or any
subsidiary is terminated either by voluntary resignation or retirement
before reaching age 55, all outstanding options then held by the optionee
shall be exercisable during the three month period following any such
termination of employment by the optionee or his or her guardian or legal
representative(s); (iii) Termination for Substantial Cause. If the
optionee's employment with the Company or any subsidiary is terminated for
Substantial Cause, all outstanding options then held by the optionee shall
thereupon be forfeited by the optionee and canceled by the Company; and
(iv) Termination within Six Months of Grant. Notwithstanding the foregoing,
upon the optionee's employment with the Company or any subsidiary
terminating at any time for any reason, all outstanding options granted
within the last six months prior to the optionee's termination shall
thereupon be forfeited by the optionee and canceled by the Company.
Cessation of any corporation's relationship with the Company as a
subsidiary shall constitute a "termination without Substantial Cause"
hereunder as to individuals employed by that corporation, and options held
by such individuals shall be terminated in accordance with paragraph (i)
above. For purposes of this subsection, the meaning of the word
"disability" shall be determined under the provisions of Section 422(c)(7)
of the Code or any successor provisions thereof.
(f) Fair Market Value. Fair Market Value shall mean the closing
transaction price of a share of common stock as reported in the New York
Stock Exchange Composite Transactions on the date as of which such value is
being determined, or, if the common stock is not listed on the New York
Stock Exchange, the closing transaction price of a share of common stock on
the principal national stock exchange on which the common stock is traded
on the date as of which such value is being determined; or, if there shall
be no reported transaction for such date, on the next preceding date for
which a transaction was reported; provided, however, that if Fair Market
Value for any date cannot be so determined, Fair Market Value shall be
determined by the Committee by whatever means or method as the Committee,
in the good faith exercise of its sole discretion, shall at such time deem
appropriate.
(g) "Trading Day". A Trading Day shall be a day on which the
Company's common stock may be traded on a stock exchange or, if the
Company's common stock is not listed on any exchange, in the Over The
Counter market.
(h) "Substantial Cause". Substantial Cause shall mean (1) the
willful and continued failure by optionee to perform substantially the
optionee's duties with the Company or a subsidiary (other than any such
failure resulting from the optionee's incapacity due to physical or mental
illness) after a written demand for substantial performance is delivered to
the optionee by the Board, which demand specifically identifies the manner
in which the Board believes that the optionee has not substantially
performed the optionee's duties or (2) the willful engagement by the
optionee in conduct which is demonstrably and materially injurious to the
Company or its subsidiaries, monetarily or otherwise. For purposes of
clauses (1) and (2) of this definition, no act or failure to act by a
optionee shall be deemed "willful" unless done, or omitted to be done, by
the optionee not in good faith and without reasonable belief that the
optionee's act or failure to act was in the best interests of the Company.
9. Non-employee Directors' Options. The Committee shall not have any
discretion with respect to the options granted to the Non-employee
Directors under the provisions of this Section 9. Except as hereinafter
otherwise provided, options granted pursuant to this Section 9 shall be
subject to the terms and conditions set forth in Section 8.
(a) Grant of Options. On the day following each of the 1996 through
and including the 1999 Annual Stockholders' Meeting, each person who is a
Non-Employee Director immediately after such meeting shall automatically be
granted an option to purchase 1,500 Shares. All such options shall be
Non-Qualified Stock Options. The price at which each Share covered by such
options shall be purchased shall be the greater of (i) 100 percent of the
Fair Market Value of the Company's common stock on the date the option is
granted, or (ii) the par value of the Company's common stock subject to the
option.
(b) Exercise of Options. (i) Except as hereinafter otherwise
provided, an option granted to the Non-employee Director may be exercised
only after six months of continued service as a Director of the Company
following the date the option is granted, or the date of Stockholder
approval under Section 11 below if later, and only during the continuance
of the optionee serving on the Board of Directors and such additional
period as is provided for below. The option may be exercised by the
Non-employee Director or his or her guardian or legal representative(s)
during the period that the Non-employee Director remains a member of the
Board of Directors and for a period of three years thereafter, subject to
subsection 8(a) and the conditions of exercise set forth below in this
subsection 9(b) and, provided further, that in no event shall the option be
exercisable more than ten years after the date of grant. Subject to the
foregoing, each option granted to the Non-employee Directors under the
provisions of this Section 9 may be exercised at any time after six months
from the date the option is granted or, if later, six months after the date
of approval of the Plan by the Stockholders of the Company, (1) as to 50%
of the Shares subject to the option if the Fair Market Value of the common
stock is at or above 125% of the Option Price on each of at least ten
consecutive Trading Days, (2) as to the remaining 50% of the Shares subject
to the option if, at any time at or after the initial 50% of said Shares
becomes exercisable, the Fair Market Value of the common stock is at or
above 150% of the Option Price on each of at least ten consecutive Trading
Days, or (3) after the eighth anniversary of the date the option is
granted; and (ii) Notwithstanding the foregoing, upon the Non-employee
Director's service as a Director of the Company terminating at any time for
any reason, all outstanding options granted within the last six months
prior to the Non-employee Director's termination shall thereupon be
forfeited by the Non-employee Director and canceled by the Company.
(c) Payment. An option granted to the Non-employee Director shall be
exercisable only upon payment to the Company in accordance with the
provisions of Section 8(c) of the full purchase price of the Shares with
respect to which the option is being exercised.
(d) Adjustment of Options. In the event of a stock dividend,
split-up or combination of shares, recapitalization, reclassification or
merger in which the Company is the surviving corporation, or other similar
capital or corporate structure change, the number of Shares at the time of
such change remaining subject to any option granted or to be granted
pursuant to the provisions of this Section 9 shall be increased or
decreased, as the case may be, in direct proportion to the increase or
decrease in the number of shares of common stock of the Company by reason
of such change in corporate structure, provided that the number of Shares
shall always be a whole number with any fractional Shares being deleted
therefrom, and the purchase price per Share of any outstanding options
shall, in the case of an increase in the number of Shares, be
proportionately decreased, and in the case of a decrease in the number of
Shares, be proportionately increased. In the event of a consolidation or
merger in which the Company is not the surviving corporation or of a
"Change in Control" as defined in Section 10, including, but not limited
to, "Changes in Control" in which the Company is the surviving corporation,
and notwithstanding the preceding sentence, each option outstanding under
the provisions of this Section 9 shall thereupon terminate, provided that
within ten days of the effective date of any such consolidation, merger, or
"Change in Control", the Company shall pay in cash the difference between
the exercise price of the unpurchased Shares under the options and the
value of consideration receivable in the transaction by a holder of the
number of shares of common stock equal to the number subject to the
options.
10. Changes in Stock. In the event of a stock dividend, split-up or
combination of shares, recapitalization, reclassification or merger in
which the Company is the surviving corporation, or other similar capital or
corporate structure change, the number and kind of Shares at the time of
such change remaining subject to the Plan and to any option granted or to
be granted pursuant to the Plan, except for options granted or to be
granted pursuant to Section 9, the option price and any other relevant
provisions shall be appropriately adjusted by the Board of Directors of the
Company, whose determination shall be binding on all persons. In the event
of a consolidation or merger in which the Company is not the surviving
corporation, (i) each option outstanding hereunder that is held by an
"Insider" optionee and that is not outstanding under the provisions of
Section 9 shall become immediately exercisable and (ii) each option
outstanding hereunder that is held by an optionee who is not an "Insider"
shall terminate, provided that at least twenty days prior to the effective
date of any such consolidation or merger, the Board of Directors of the
Company shall do one of the following with respect to options held by
optionees who are not "Insiders": (1) make such options immediately
exercisable, (2) arrange to have the surviving or consolidated corporation
grant replacement options to the optionees involved, or (3) pay in cash the
difference between the exercise price of the unpurchased Shares under the
options and the value of consideration receivable in the transaction by a
holder of the number of shares of common stock equal to the number subject
to the options. No adjustment provided for in this Section 10 shall require
the Company to issue or sell a fractional share under any option hereunder
and any fractional share resulting from any such adjustment shall be
deleted from the option involved.
Notwithstanding anything herein to the contrary, and without regard
to subsections 8(e)(iv) and 9(b)(ii) and clauses 1, 2 and 3 of subsections
8(b) and 9(b), in the event of a "Change in Control" as defined below,
including certain consolidation or merger events otherwise giving rise to
the adjustments or alternatives described in the above paragraph, each
option outstanding under this Plan shall thereupon terminate, provided that
within ten days of the effective date of such Change in Control, the
Company shall pay in cash the difference between the exercise price of the
unpurchased Shares under the options and the value of consideration
receivable in the transaction by a holder of the number of shares of common
stock equal to the number subject to the options. As used herein, "Change
in Control" means a Change in Control of a nature that would, in the
opinion of the Company counsel, be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange
Act; provided that, without limitation, such a Change in Control shall be
deemed to have occurred if: (i) any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act (other than the Company or any
subsidiary of the Company, any trustee or fiduciary holding securities
under an employee benefit plan of the Company or any of its subsidiaries or
a corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of the
stock of the Company)) becomes the "beneficial owner" (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of the
Company's then outstanding securities; or (ii) during any period of two
consecutive years (not including any period prior to the effective date of
this Plan), individuals who at the beginning of such period constitute the
Board of Directors and any new director (other than a director designated
by a Person who has entered into an agreement with the Company to effect a
transaction described in clause (i), (iii), or (iv) of this paragraph)
whose election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved cease for any reason to constitute a majority
thereof; or (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity), in combination with the ownership of
any trustee or other fiduciary holding securities under an employee benefit
plan of the Company, at least 75% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (B) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no Person acquires 25% or more of the
combined voting power of the Company's then outstanding securities; or (iv)
the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of
all or substantially all the Company's assets.
With respect to all optionees other than the Non-employee Directors,
no Change in Control shall be deemed to have occurred if the optionee is a
member of a management group which first announces a proposal which
constitutes a Potential Change in Control, unless otherwise determined by a
majority of the members of the Board of Directors who are not members of
such management group. A "Potential Change in Control" shall be deemed to
have occurred if the conditions set forth in any one of the following
subsections shall have been satisfied: (i) the Company enters into an
agreement, the consummation of which would result in the occurrence of a
Change in Control; (ii) the Company or any Person publicly announces an
intention to take or to consider taking actions, which if consummated,
would constitute a Change in Control; (iii) any Person who is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's then
outstanding securities, increases such Person's beneficial ownership of
such securities by 5% or more over the percentage so owned by such Person
on the date hereof; or (iv) the Board of Directors adopts a resolution to
the effect that, for purposes of this Plan, a Potential Change in Control
has occurred.
11. Effective Date; Stockholder Approval; Term. The Plan was adopted
by the Board of Directors on January 24, 1996 and shall become effective as
of January 24, 1996 if the Plan is approved by the holders of a majority of
the common stock outstanding and entitled to vote at the Annual Meeting of
Stockholders scheduled for April 25, 1996. No option hereunder shall be
granted after January 23, 2006 or the earlier suspension or termination of
the Plan in accordance with its terms. The Plan shall terminate on January
23, 2006 or on such earlier date as it may be suspended or terminated under
the provisions of Section 12 below or as of which all Shares subject to
options authorized to be granted under the Plan shall have been acquired by
exercise of such options.
12. Amendment or Discontinuance of the Plan. The Board of Directors
of the Company may, insofar as permitted by law, at any time or from time
to time, suspend or terminate the Plan or revise or amend it in any respect
whatsoever except that, without appropriate approval of the stockholders of
the common stock, no such revision or amendment shall increase the maximum
number of Shares subject to the Plan, change the designation of the class
of employees eligible to receive options, decrease the price at which
options may be granted or otherwise change the provisions of this Plan to
the extent approval of the holders of the common stock of the Company is
required under applicable laws, rules or regulations. Notwithstanding the
preceding sentence, amendments to change the provisions of Section 9(a)
shall not be made more frequently than once every six months other than to
comply with the Code or the Employee Retirement Income Security Act.
13. Applicable Laws or Regulations and Notification of Disposition.
The Company's obligation to sell and deliver Shares under an option is
subject to such compliance as the Company deems necessary or advisable with
federal and state laws, rules and regulations applying to the
authorization, issuance, listing or sale of securities. The Company may
also require in connection with any exercise of an Incentive Stock Option
that the optionee agree to notify the Company when making any disposition
of the Shares, whether by sale, gift, or otherwise, within two years of the
date of grant or within one year of the date of exercise.
14. No Employment Right; No Obligation to Exercise Option. Nothing
contained in the Plan, or in any option granted under it, shall confer upon
any optionee any right to continued employment by the Company or any of its
subsidiaries or to continued membership on the Board of Directors of the
Company or limit in any way the right of the Company or any subsidiary to
terminate the optionee's employment at any time. The granting of any option
hereunder shall impose no obligation upon the optionee to exercise such
option.
Exhibit 10 (f)
ENESCO GROUP, INC.
WESTFIELD, MASSACHUSETTS
1998 CHAIRMAN STOCK OPTION PLAN
CERTIFICATE OF GRANT OF NON-QUALIFIED
STOCK OPTION
Date of Grant: October 26, 1998
Total Number of Shares: 14,000
Price per Share: $25.8125
To: John F. Cauley
78 Hilltop Road
Longmeadow, MA 01106
Dear John:
This letter is a certificate formally granting you a Non-qualified
Stock Option with respect to the number of shares of Enesco Group, Inc.
Common Stock, $0.125 par value each indicated above and subject to the
conditions set forth below. The stock option exercise price will be
$25.8125 per share. Your option will vest in full immediately.
Your option is not exercisable during the first six (6) months
following the date of grant. After April 26, 1999, your option will become
exercisable as to all 14,000 shares. The stock option granted under this
certificate is not to be treated as an incentive stock option under the
Internal Revenue Code of 1986, as amended.
You may exercise your right to purchase all or any of the shares
included in any vested increment after April 26, 1999 but, in any event,
not later than October 25, 2008. In order to exercise, you must forward a
completed Stock Option Exercise Order together with payment in full to the
Treasurer, Enesco Group, Inc., 333 Western Avenue, Westfield, Massachusetts
01085, for the shares which you elect to purchase. You can elect to make
your purchase in cash, Enesco Group, Inc. stock, or a combination of cash
and Enesco Group, Inc. stock. Please be advised that the Company will
accept shares acquired under a Stock Option program of the Company in
payment for new option shares only if the shares tendered have been held by
you for a period of at least six months.
No purchase can be made of fewer than ten shares at any one time.
Any exercise of the option will be effective on the date when payment is
received in the office of the Treasurer, except that no payment will be
accepted which is received after October 25, 2008. You will receive a stock
certificate representing shares for which you have made payment.
Under existing law, the difference between the price paid for any
shares purchased under this option and their market value on the date or
dates the option is exercised will be subject to federal income tax at
ordinary rates, to social security tax, and to the usual withholding
requirements. The payment of all such taxes is of course your personal
responsibility. However, the Company is also responsible for meeting the
withholding requirements and in order to do so will retain the required
number of shares purchased under the option unless you elect to deposit
with it an amount equal to any required withholding.
This option is exercisable during your lifetime only by you and is
not transferable by you. In the event of your death, your legal
representatives may, at any time after April 26, 1999 and before October
25, 2008, pay for and receive any shares which were vested as of the date
of your death. Any attempted transfer or other disposition of the option by
you will be void and will constitute valid grounds for its cancellation by
the Company.
The Compensation and Stock Option Committee of the Board of
Directors will administer this grant in its discretion and pursuant to its
interpretation of the changes in stock section and other Director grant
provisions of the Company?s 1991 Stock Option Plan, a copy of which is
attached for your convenience, deemed by it to be applicable.
This option will be of no force or effect and no rights will exist
under it after October 25, 2008.
We would appreciate your signing the enclosed acknowledgment
confirming your receipt of this Certificate of Grant and returning it in
the enclosed envelope.
ENESCO GROUP, INC.
/s/ Peter R. Johnson
--------------------
Peter R. Johnson
Secretary
Enclosures
CONFIRMATION OF RECEIPT
OF
NON-QUALIFIED STOCK OPTION
I hereby acknowledge that I have received my Certificate of Grant
of a Non-qualified Stock Option dated October 26, 1998.
___________________________________
(Signature of Optionee)
Date:______________________________
Name:______________________________
(Printed)
Address:___________________________
___________________________
STANHOME INC.
1991 Stock Option Plan, as amended
Through December 4, 1996
1. Purpose. The purpose of this 1991 Stock Option Plan (the
"Plan") is to advance the interests of Stanhome Inc. (the "Company") by
encouraging key management employees of the Company and its subsidiaries
and non-employee directors of the Company to acquire a proprietary interest
in the Company through ownership of common stock of the Company. Such
ownership will encourage the optionees to remain with the Company and will
help attract other qualified persons to become employees and directors.
2. Administration. The Plan shall be administered by the
Compensation and Stock Option Committee of the Board of Directors (the
"Committee") which shall be composed of not less than three directors of
the Company elected or to be elected as members of the Committee from time
to time by the Board of Directors of the Company. None of the Committee
members shall be, during service on the Committee, nor shall have been,
during the one year prior to service on the Committee, granted or awarded
Shares or options to acquire Shares under this Plan or any other plan
maintained by Stanhome or any of Stanhome's affiliates, other than any
grant or award of options or other equity securities of Stanhome pursuant
to Section 9 of the Stanhome Inc. 1991 Stock Option Plan or any other plan
of Stanhome that would not result in such Committee member failing to
qualify as a 'disinterested person' under Rule 16b-3 of the Securities
Exchange Act of 1934, as amended, as in force from time to time. Members of
the Committee shall be subject to any additional restrictions necessary to
satisfy the requirements for disinterested administration under Rule 16b-3
of the Securities Exchange Act of 1934, as amended, as in force from time
to time. Subject to the provisions of the Plan and the approval of the
Board of Directors of the Company, except that the Board of Directors shall
have no discretion with respect to the selection of officers within the
meaning of Rule 16a-1(f), directors or 10% or more shareholders
("Insiders") for participation and decisions concerning the timing, pricing
and amount of a grant or award to such "Insiders", the Committee is
authorized to grant options under the plan and to interpret the Plan and
such options, to prescribe, amend and rescind rules and regulations
relating to the Plan and the options, and to make other determinations
necessary or advisable for the administration of the Plan, all of which
determinations shall be conclusive. The Committee shall act pursuant to a
majority vote or by unanimous written consent.
3. Types of Options. Options granted pursuant to the Plan may be
either incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended, ("Incentive Stock Options") or options not
qualifying under that section of the Code ("Non-qualified Stock Options").
It is the intent of the Company that Non-qualified Stock Options granted
under the Plan not be classified as Incentive Stock Options, that the
Incentive Stock Options granted under the Plan be consistent with and
contain or be deemed to contain all provisions required under Section 422
and the other appropriate provisions of the Code and any implementing
regulations (and any successor provisions thereof), and that any
ambiguities in construction shall be interpreted in order to effectuate
such intent.
4. Eligibility. Options shall be granted under the Plan to such
selected key full-time salaried and commissioned employees (including
officers and directors if they are employees) of the Company or any of its
subsidiaries as the Committee shall determine from time to time. Options
shall also be granted under the Plan to the non-employee directors of the
Company (the "Non-employee Directors") pursuant to Section 9 hereof.
5. Stock Subject to Options. The aggregate number of shares which
may be issued or sold under options granted pursuant to the Plan (the
"Shares") shall not exceed 2,000,000 shares of the Company's common stock
$0.125 par value each. Such Shares shall be either authorized but unissued
shares of said common stock or issued shares of said common stock which
shall have been reacquired by the Company. Such aggregate number of Shares
may be adjusted under Sections 9 and 10 below. If any outstanding option
under the Plan expires or is terminated for any reason, the Shares
allocated to the unexercised portion of such option may again be subjected
to an option or options under the Plan.
6. Allotment of Shares. Except as provided under Section 9 hereof,
the Committee shall determine the total number of Shares to be offered to
each optionee under the Plan.
7. Option Price. The Shares shall be offered from time to time
under the Plan at a price which shall be not less than the greater of (i)
100 percent of the Fair Market Value of the Company's common stock on the
date the option is granted, or (ii) the par value of the Company's common
stock subject to the option; provided, however, that the price shall be not
less than 110 percent of such Fair Market Value in the case of shares
offered under any Incentive Stock Option granted to an individual who, at
the time the option is granted, owns stock possessing more than 10 percent
of the total combined voting power of all classes of stock of the Company
or of its subsidiaries.
8. Terms and Conditions of Options. The Committee shall have
power, subject to the limitations contained in the Plan, to prescribe the
terms and conditions of any option granted hereunder. Each such option
shall be evidenced by a certificate in such form as the Committee shall
from time to time determine, which certificate shall prescribe the
following terms and conditions and such other terms and conditions as the
Committee may deem necessary or advisable:
(a) Duration of Options. Except as hereinafter otherwise provided,
options granted under the Plan shall be exercisable for such period of time
as the Committee shall determine. An Incentive Stock Option shall not be
exercisable after the expiration of ten years from the date it is granted;
provided, however, that any Incentive Stock Option granted to an individual
who, at the time the option is granted, owns stock possessing more than 10
percent of the total combined voting power of all classes of stock of the
Company or of its subsidiaries shall by its terms not be exercisable after
the expiration of five years from the date of grant.
(b) Exercise of Options. Except as hereinafter otherwise provided,
each option granted under the Plan may be exercised only after one year of
continued employment by the Company or one of its subsidiaries immediately
following the date the option is granted and only during the continuance of
the optionee's employment with the Company or one of its subsidiaries and
such additional period as may be provided in subsection (e) below. No
option shall be exercised for less than 10 Shares except as a result of an
adjustment under Sections 9 or 10 below.
(c) Payment. The purchase price of each Share purchased upon the
exercise of any option granted hereunder shall be paid in full at the time
of such purchase, and a stock certificate representing Shares so purchased
shall be delivered to the person entitled thereto. Until the stock
certificate for such Shares is issued in the optionee's name, he or she
shall have none of the rights of a stockholder. Payment may be made in
whole or in part in (i) cash or (ii) whole shares of the Company's common
stock acquired at least six months previously by the optionee and evidenced
by negotiable certificates, valued at their Fair Market Value on the date
preceding the date the option is exercised. If certificates representing
shares of common stock are used to pay all or part of the purchase price of
an option, separate certificates shall be delivered by the Company
representing the same number of shares as each certificate so used and an
additional certificate shall be delivered representing the additional
shares to which the option holder is entitled as a result of exercise of
the option. It shall be a condition to the performance of the Company's
obligation to issue or transfer Shares upon exercise of an option or
options that the optionee pay, or make provision satisfactory to the
Company for the payment of, any taxes (other than stock transfer taxes)
which the Company is obligated to collect with respect to the issue or
transfer upon such exercise. With respect to the exercise of Non-qualified
Stock Options granted pursuant to this Section 8, optionees may elect to
have the Company withhold a designated number of Shares otherwise issuable
upon the exercise of such stock options, or, in the case of "Insider"
optionees, to commit irrevocably at a time acceptable under the provisions
of Section 16 of the Securities Exchange Act of 1934, as amended, to
surrender to the Company shares of common stock to cover Federal and State
tax obligations incident to such exercise, or such other maximum amounts as
may be determined by the Committee.
(d) Nontransferability of Options. No option shall be transferable
by the optionee otherwise than (1) by will or the laws of descent and
distribution or (2) pursuant to a qualified domestic relations order as
defined in Section 414(p) of the Internal Revenue Code of 1986, as amended,
and each option shall be exercisable, during his or her lifetime, only by
the optionee or his or her guardian or legal representative(s), except to
the extent that options granted hereunder are assigned pursuant to a
qualified domestic relations order.
(e) Termination of Options. If the optionee's full-time employment
by the Company or any of its subsidiaries shall terminate for any reason
other than death, his or her options shall terminate immediately upon such
termination of employment, if not sooner terminated pursuant to their
terms, except that, subject to subsection (a) above, any such options shall
be exercisable by the optionee or his or her guardian or legal
representative(s) during the three-year period following any such
termination of employment as to the number of Shares which the optionee was
entitled to purchase on the day preceding such termination and, if
specified in the certificate of grant or other instrument evidencing a
Non-qualified Stock Option, such additional number of Shares which the
optionee would have become entitled to purchase during such three-year
period (including by reason of Section 10 below) if the optionee's
employment had not so terminated, except further that in the case of
Incentive Stock Options the period for such exercise following such
termination shall be limited to three months, or, in the case of a
termination of employment by reason of disability, to twelve months. If the
optionee's full-time employment by the Company or any of its subsidiaries
shall terminate by reason of death, his or her options shall terminate
immediately upon such termination of employment, if not sooner terminated
pursuant to their terms, except that, subject to subsection (a) above, any
such options shall be exercisable, as of the time of such optionee's death,
to the extent such options were granted to such optionee on or prior to the
date which is one year prior to the date of such optionee's death and any
such options shall be exercisable during the two-year period following any
such termination of employment by the optionee's legal representative(s).
Cessation of any corporation's relationship with the Company as a
subsidiary shall constitute a "termination of employment" hereunder as to
individuals employed by that corporation, and options held by such
individuals shall be terminated in accordance with this subsection. For
purposes of this subsection, the meaning of the word "disability" shall be
determined under the provisions of Section 422(c)(7) of the Internal
Revenue Code of 1986, as amended, or any successor provisions thereof.
(f) Fair Market Value. For purposes of this Plan, "Fair Market
Value" shall be the applicable day's closing sales price of the Company's
common stock as reflected on the consolidated tape of the principal
exchange on which such stock is traded, or, if there are no sales on such
date, such price on the most recent trading day prior thereto.
9. Non-employee Directors' Options. The Committee shall not have
any discretion with respect to the options granted to the Non-employee
Directors under the provisions of this Section 9. Except as hereinafter
otherwise provided, options granted pursuant to this Section 9 shall be
subject to the terms and conditions set forth in Section 8.
(a) Grant of Options. On the day following each of the 1991
through and including the 1995 annual stockholders' meetings, each
Non-employee Director on that date shall automatically be granted an option
to purchase 1,500 Shares. The maximum number of Shares for which options
may be granted to any Non-employee Director under the Plan shall be 7,500.
All such options shall be Non-qualified Stock Options. The price at which
each Share covered by such options shall be purchased shall be the greater
of (i) 100 percent of the Fair Market Value of the Company's common stock
on the date the option is granted, or (ii) the par value of the Company's
common stock subject to the option.
(b) Exercise of Options. Twenty-five percent of the total number
of the Shares subject to an option granted to the Non-employee Director
shall become exercisable on the later of (i) the next February 1 following
the date on which the option was granted or (ii) six months after the date
on which the option was granted and twenty-five percent on February 1 of
each of the next three consecutive calendar years. The right to purchase
Shares with respect to an option which has become exercisable shall be
cumulative during the term of the option. The option may be exercised by
the Non-employee Director or his or her guardian or legal representative(s)
during the period that the Non-employee Director remains a member of the
Board of Directors and for a period of three years thereafter, or a period
of two years thereafter in the case of the Non-employee Director's death
while serving as a member of the Board of Directors, provided that only
those options exercisable on the day preceding the date the Non-employee
Director ceases to be a member of the Board of Directors may be exercised
during said applicable period and, provided further, that in no event shall
the option be exercisable more than ten years after the date of grant. All
options that are not exercisable on the day preceding the date the
Non-employee Director ceases to be a member of the Board of Directors shall
be immediately terminated.
(c) Payment. An option granted to the Non-employee Director shall
be exercisable only upon payment to the Company in accordance with the
provisions of Section 8(c) of the full purchase price of the Shares with
respect to which the option is being exercised.
(d) Adjustment of Options. In the event of a stock dividend,
split-up or combination of shares, recapitalization, reclassification or
merger in which the Company is the surviving corporation, or other similar
capital or corporate structure change, the number of Shares at the time of
such change remaining subject to any option granted or to be granted
pursuant to the provisions of this Section 9 shall be increased or
decreased, as the case may be, in direct proportion to the increase or
decrease in the number of shares of common stock of the Company by reason
of such change in corporate structure, provided that the number of Shares
shall always be a whole number with any fractional Shares being deleted
therefrom, and the purchase price per Share of any outstanding options
shall, in the case of an increase in the number of Shares, be
proportionately decreased, and in the case of a decrease in the number of
Shares, be proportionately increased. In the event of a consolidation or
merger in which the Company is not the surviving corporation or of a
"Change in Control" as defined in Section 10, including, but not limited
to, "Changes in Control" in which the Company is the surviving corporation,
and notwithstanding the preceding sentence, each option outstanding under
the provisions of this Section 9 shall thereupon terminate, provided that
within ten days of the effective date of any such consolidation, merger, or
"Change in Control", the Company shall pay in cash the difference between
the exercise price of the unpurchased Shares under the options and the
value of consideration receivable in the transaction by a holder of the
number of shares of common stock equal to the number subject to the
options.
10. Changes in Stock. In the event of a stock dividend, split-up
or combination of shares, recapitalization, reclassification or merger in
which the Company is the surviving corporation, or other similar capital or
corporate structure change, the number and kind of Shares at the time of
such change remaining subject to the Plan and to any option granted or to
be granted pursuant to the Plan, except for options granted or to be
granted pursuant to Section 9, the option price and any other relevant
provisions shall be appropriately adjusted by the Board of Directors of the
Company, whose determination shall be binding on all persons. In the event
of a consolidation or merger in which the Company is not the surviving
corporation, (i) each option outstanding hereunder that is held by an
"Insider" optionee and that is not outstanding under the provisions of
Section 9 shall become immediately exercisable and (ii) each option
outstanding hereunder that is held by an optionee who is not an "Insider"
shall terminate, provided that at least twenty days prior to the effective
date of any such consolidation or merger, the Board of Directors of the
Company shall do one of the following with respect to options held by
optionees who are not "Insiders": (1) make such options immediately
exercisable, (2) arrange to have the surviving or consolidated corporation
grant replacement options to the optionees involved, or (3) pay in cash the
difference between the exercise price of the unpurchased Shares under the
options and the value of consideration receivable in the transaction by a
holder of the number of shares of common stock equal to the number subject
to the options. No adjustment provided for in this Section 10 shall require
the Company to issue or sell a fractional share under any option hereunder
and any fractional share resulting from any such adjustment shall be
deleted from the option involved.
Notwithstanding anything herein to the contrary, in the event of a
"Change in Control" as defined below, including certain consolidation or
merger events otherwise giving rise to the adjustments or alternatives
described in the above paragraph, each option outstanding under this Plan
shall thereupon terminate, provided that within ten days of the effective
date of such Change in Control, the Company shall pay in cash the
difference between the exercise price of the unpurchased Shares under the
options and the value of consideration receivable in the transaction by a
holder of the number of shares of common stock equal to the number subject
to the options. As used herein, "Change in Control" means a Change in
Control of a nature that would, in the opinion of the Company counsel, be
required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act"); provided that, without limitation, such a Change
in Control shall be deemed to have occurred if: (i) any "Person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act (other than
the Company or any subsidiary of the Company, any trustee or fiduciary
holding securities under an employee benefit plan of the Company or any of
its subsidiaries or a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of the stock of the Company)) becomes the "beneficial owner" (as
defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting
power of the Company's then outstanding securities; or (ii) during any
period of two consecutive years (not including any period prior to the
effective date of this Plan), individuals who at the beginning of such
period constitute the Board of Directors and any new director (other than a
director designated by a Person who has entered into an agreement with the
Company to effect a transaction described in clause (i), (iii), or (iv) of
this paragraph) whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination
for election was previously so approved cease for any reason to constitute
a majority thereof; or (iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other
than (A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, at least 75% of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or (B) a merger
or consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no Person acquires 25% or more of the
combined voting power of the Company's then outstanding securities; or (iv)
the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of
all or substantially all the Company's assets.
With respect to all optionees other than the Non-employee
Directors, no Change in Control shall be deemed to have occurred if the
optionee is a member of a management group which first announces a proposal
which constitutes a Potential Change in Control, unless otherwise
determined by a majority of the members of the Board of Directors who are
not members of such management group. A "Potential Change in Control" shall
be deemed to have occurred if the conditions set forth in any one of the
following subsections shall have been satisfied: (i) the Company enters
into an agreement, the consummation of which would result in the occurrence
of a Change in Control; (ii) the Company or any Person publicly announces
an intention to take or to consider taking actions, which if consummated,
would constitute a Change in Control; (iii) any Person who is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's then
outstanding securities, increases such Person's beneficial ownership of
such securities by 5% or more over the percentage so owned by such Person
on the date hereof; or (iv) the Board of Directors adopts a resolution to
the effect that, for purposes of this Plan, a Potential Change in Control
has occurred.
11. Effective Date; Stockholder Approval; Term. The Plan was
adopted by the Board of Directors on January 23, 1991 and shall become
effective on April 25, 1991 if the Plan is approved by the holders of a
majority of the common stock outstanding and entitled to vote at the Annual
Meeting of Stockholders scheduled for April 25, 1991. No option hereunder
shall be granted after January 23, 2001 or the earlier suspension or
termination of the Plan in accordance with its terms. The Plan shall
terminate on January 23, 2001 or on such earlier date as it may be
suspended or terminated under the provisions of Section 12 below or as of
which all Shares subject to options authorized to be granted under the Plan
shall have been acquired by exercise of such options.
12. Amendment or Discontinuance of the Plan. The Board of
Directors of the Company may, insofar as permitted by law, at any time or
from time to time, suspend or terminate the Plan or revise or amend it in
any respect whatsoever except that, without appropriate approval of the
stockholders of the common stock, no such revision or amendment shall
increase the maximum number of Shares subject to the Plan, change the
designation of the class of employees eligible to receive options, decrease
the price at which options may be granted or otherwise change the
provisions of this Plan to the extent approval of the holders of the common
stock of the Company is required under applicable securities laws.
Notwithstanding the preceding sentence, amendments to change the provisions
of Section 9(a) shall not be made more frequently than once every six
months other than to comply with the Internal Revenue Code or the Employee
Retirement Income Security Act.
13. Applicable Laws or Regulations and Notification of
Disposition. The Company's obligation to sell and deliver Shares under an
option is subject to such compliance as the Company deems necessary or
advisable with federal and state laws, rules and regulations applying to
the authorization, issuance, listing or sale of securities. The Company may
also require in connection with any exercise of an Incentive Stock Option
that the optionee agree to notify the Company when making any disposition
of the Shares, whether by sale, gift, or otherwise, within two years of the
date of grant or within one year of the date of exercise.
14. No Employment Right; No Obligation to Exercise Option. Nothing
contained in the Plan, or in any option granted under it, shall confer upon
any optionee any right to continued employment by the Company or any of its
subsidiaries or to continued membership on the Board of Directors of the
Company or limit in any way the right of the Company or any subsidiary to
terminate the optionee's employment at any time. The granting of any option
hereunder shall impose no obligation upon the optionee to exercise such
option.
Exhibit 10 (h)
ENESCO GROUP, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK PLAN
1. Purposes.
The purposes of the Enesco Group, Inc. 1999 Non-Employee Director
Stock Plan are (i) to align the interests of the stockholders of Enesco
Group, Inc. (the "Company") and non-employee members of the Board by
increasing their proprietary interest in the Company's growth and success,
(ii) to advance the interests of the Company by attracting and retaining
non-employee directors and (iii) to motivate non-employee directors to act
in the long-term best interests of the Company's stockholders.
2. Definitions.
As used in this Plan, the following words and phrases shall have the
meanings indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Committee" shall mean the Compensation and Stock Option
Committee of the Board.
(c) "Company" shall mean Enesco Group, Inc., a corporation organized
under the laws of the Commonwealth of Massachusetts, or any successor
corporation.
(d) "Fair Market Value" shall mean the closing transaction price of
a Share as reported in The Wall Street Journal on the New York Stock
Exchange Composite Transactions list for the date as of which such value is
being determined or, if there shall be no reported transaction for such
date or if such date is not a trading day, on the next immediately
preceding date for which a transaction was reported or which was a trading
day; provided, however, that Fair Market Value may be determined by the
Committee by whatever means or method as the Committee, in the good faith
exercise of its discretion, shall at such time deem appropriate.
(e) "Participant" shall mean a non-employee member of the Board.
(f) "Plan" shall mean this 1999 Enesco Group, Inc. Non-Employee
Director Stock Plan, as amended from time to time.
(g) "Plan Year" shall mean the calendar year.
(h) "Shares" shall mean the common stock of the Company, par value
$0.125 per share.
3. Available Shares.
The number of Shares reserved for the grant of Shares under the Plan
shall be one hundred thousand (100,000) Shares, subject to adjustment as
provided in Article 5 hereof. Such Shares shall be authorized and issued
Shares that have been reacquired by the Company.
4. Grants of Shares.
An individual who is a Participant on the day following the Annual
meeting of the stockholders of the Company during a Plan Year, commencing
in 1999, shall receive on such day and for such Plan Year a grant of a
number of Shares, increased to the nearest whole share, having an aggregate
Fair Market Value equal to the dollar amount designated by the Board from
time to time for purposes of this Plan as part of the Board remuneration
policy of the Company. an individual who becomes a Participant at any later
time during a Plan Year shall receive a prorated grant of Shares for that
Plan Year in which he or she becomes a Participant.
5. Effect of Certain Changes.
In the event of any extraordinary dividend, stock dividend,
recapitalization, merger, consolidation, stock split, warrant or rights
issuance, or combination or exchange of stock, or other similar
transaction, the number and kind of securities available for grant shall be
equitably adjusted by the committee to reflect such event.
6. No Rights to Continuance as Director.
Nothing in the Plan or in any grant made pursuant hereto shall
confer upon any Participant the right to continue to serve as a member of
the Board or to be entitled to any remuneration or benefits not set forth
in the Plan, provided, however, that each Participant shall be entitled to
fees for meetings attended, in accordance with the Board remuneration
policy of the Company.
7. Administration
The Plan shall be administered by the Committee which shall be
composed of not less than three directors of the Company elected as members
of the Committee by the Board. The Committee shall have the authority to
make such interpretations and constructions of the Plan as are necessary to
administer the Plan in accordance with, and subject to, the Plan's
provisions. all determinations of the Committee shall be made by a majority
of its members either present in person or participating by conference
telephone at a meeting or by unanimous written consent. All decisions,
determinations and interpretations of the Committee shall be final and
binding on all persons, including the Company, the participant (or any
person claiming any rights under the Plan from or through any Participant)
and any stockholder of the Company.
8. Amendment and Termination of the Plan.
The Board at any time and from time to time may suspend, terminate,
modify or amend the Plan, provided, however, that an amendment which
requires stockholder approval in order for the Plan to comply with any law,
regulation or stock exchange requirement shall not be effective unless
approved by the requisite vote of stockholders of the Company. Except as
provided in Article 5 hereof, no suspension, termination, modification or
amendment of the Plan may adversely affect any grant previously made,
unless the written consent of the Participant is obtained.
9. Governing Law.
The Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the Commonwealth of
Massachusetts without giving effect to the choice of law principles
thereof, except to the extent that such law is preempted by federal law.
10. Term.
The Plan shall take effect upon its adoption by the Board, and shall
remain in effect until terminated by the Board.
Exhibit 10 (j)
ENESCO GROUP, INC.
MANAGEMENT INCENTIVE PLAN (M.I.P.)
Amended and Restated Effective January 1,1999
I. PURPOSE
The Management Incentive Plan (M.I.P. or the Plan) is an annual
variable compensation plan designed to motivate management to
achieve superior results. It directly links compensation with the
achievement of Company business objectives.
II. ELIGIBILITY
The M.I.P. is offered to executives who are in a position to have an
impact on the results of the business. This is normally defined as
executives in salary grades 15 and above.
Executives who are hired after the first of the year will be
eligible to participate in the Plan as follows:
1) Executives who are hired after the beginning of the year, but
prior to June 30th, are automatically eligible.
2) Executives who are hired after June 30th, but prior to
September 30th, may be eligible to participate in the M.I.P.
if meaningful specific objectives are quickly developed.
3) Executives who are hired after September 30th will not be
eligible for an M.I.P. award in that year.
The M.I.P. payout calculation will be based on the actual prorated
earnings for the year.
III. BONUS FORMULA
An executive's Annual Bonus is based on the following:
A. Individual Portion - 10% to 40% of Target Bonus
This portion consists of clearly stated and measurable
specific personal objectives that are developed and agreed to
between the executive and his or her supervisor.
B. Financial Portion - 60% to 90% of Target Bonus
This portion is based on performance of the Company, the
Group, or the executive's principal business Unit, as
applicable, and indirect relation to the Annual Profit Plan.
For executives in individual business Units, the financial
portion will be split 48%/12% between the executive's
principal business Unit and the total Company.
C. Leveraging & Payout
No leveraging, and no payout, will be earned for performance
below 80% of the Annual Profit Plan or if Operating Profit is
below the prior year. Achievement of both Individual and
Financial Objectives is leveraged in accordance with the
following formula:
% of Financial Plan Achieved % Award/Leverage
---------------------------- ----------------
Less than 80% No Award
Operating profit below prior year No Award
80% 0 Financial +
Individual
(Achieved)
90% 50% Financial+
Individual
(Achieved)
100% 100% Financial &
Individual (Achieved)
105% 125% " "
115% 175% " "
120% or more 200% " "
D. The bonus formula targets between individual goals and
financial will vary by degree of responsibility:
Financial Individual
--------- ----------
Top Group - Officers
And Canada - EEGG Presidents 90% 10%
Labor Grade 23 and above 75% 25%
All others 60% 40%
IV. PLAN ADMINISTRATION
Financial Objective
These objectives are developed from the Annual Profit Plan. Criteria
differ for Corporate executives and executives in operating groups.
Executives are measured on the average of three factors:
Factor Weight
------ ------
Sales 15%
Operating Income 70%
EVA 15%
Each factor in the series is weighted in order to arrive at a
composite number for the Financial Portion of the bonus formula. In
no event will a financial factor be given credit above the maximum
leverage (200% of Plan) or below the minimum leverage (50% of Plan).
Individual Objectives
At the beginning of each year, the executive meets with his/her
supervisor to establish objectives that are consistent with job
responsibilities and with the Annual Profit Plan. These objectives
should represent important goals or projects that the executive
intends to accomplish during the year and that will be fully
challenging. Objectives must be measurable, with clear criteria
specified for evaluating their achievement at year end.
Periodic Review
During the year, management/supervisors should review with the
executive, his or her progress toward achieving each of the
individual objectives. This generally should take place following
the release of the six and nine month earnings results. The
management/supervisor should provide information on how the Company,
Group and business Unit are doing in relation to planned goals, and
should review the status of individual objectives. If a change in
job responsibilities or business focus requires a change in
objectives, these must be approved by senior management of the Group
or the Company and the change clearly documented. In all cases, open
communication is essential to success of the M.I.P.
V. AWARD DETERMINATION
A. Criteria
Individual Portion: At the beginning of the following year,
management reviews all results for the prior year and arrives
at a determination of the extent to which the participants'
individual objectives have been achieved.
Financial Portion: Results are determined based upon the
Company's audited year-end financial statements compared to
the objectives established in the Annual Profit Plan. A
separate calculation is made for each of the applicable
financial criteria.
B. Calculation of Bonus Award
o If Financial Results are equal to or greater than 100% of
Plan:
The sum of Individual Portion achieved III(A) plus the
Financial Portion achieved III(B) is multiplied by the
leveraging formula outlined in III(C) to equal the TOTAL
BONUS AWARD..
o If Financial Results are between 90% and 100% of Plan and
Operating Profit exceeds prior year:
There is no leveraging or change to the Individual
Portion achieved and the Financial Portion achieved
III(B) is reduced by the leveraging formula outlined in
III(C). TOTAL BONUS AWARD equals the sum of III(A) and
III(B X C).
o If Financial Results are between 80% and 90% of Plan and
Operating Profit exceeds prior Year:
There is no leveraging or change to the Individual
Portion achieved, but there will be no Financial Portion.
o If Financial Results are below 80% of Plan and/or
Operating Profits are below prior year:
There is no Bonus Award on either Financial or Individual
Portions.
In order to be eligible for an award, an executive must be on
the payroll in good standing through the end of the calendar
year. Exceptions apply in the case of approved leave of
absence, family or medical leave.
VI. APPROVALS
A. Individual Objectives: These require the approval of the
immediate supervisor and the respective Group President. CEO
approval is required for the first level of direct reports in
each Group.
B. Financial Objectives: Final numbers and calculations will be
prepared by the Corporate Finance Department and require
approval of the CEO.
C. Final Payments: All final bonus calculations and recommended
payments are submitted to the Compensation and Stock Option
Committee of the Board of Directors for review and final
approval at the March Committee meeting.
Exhibit 10 (q)
DESCRIPTION OF RELOCATION BENEFITS
FOR PETER R. JOHNSON
In 1997, the Compensation and Stock Option Committee of the Board of
Directors of Enesco Group, Inc. (the "Company") approved and ratified
intercompany transfer assistance benefits (the "Relocation Benefits") for
Peter R. Johnson to continue as the Company's Senior Counsel and to become
the Vice President, Law and Human Resources of Enesco Corporation, which
Relocation Benefits were offered to him in the form of a letter agreement
summarizing certain continuing compensation matters and employee benefits,
as well as providing for the Relocation Benefits, certain of which are
subject to adjustment in the event of a voluntary termination of employment
by Mr. Johnson. The Relocation Benefits principally consist of certain
supplemental benefits to be received by Mr. Johnson in the event he
relocated his place of business to Illinois at the request of the Company,
including the following benefits to which he may be entitled in connection
with his termination of employment with the Company, whether voluntary or
involuntary, during a period up to July 1, 1999: monthly severance payments
(including without limitation a "retention benefit") as provided for in the
Company's existing Severance Policy and a letter dated August 13, 1997 to
him; pension benefits in accordance with the Company's Pension Plan, as
amended, starting at age 55; continuation of medical and life insurance
benefits for up to 36 months; and continued vesting of stock options for a
three-year period. Mr. Johnson also received certain relocation and related
reimbursements.
Exhibit 10 (y)
ENESCO GROUP, INC.
SUPPLEMENTAL RETIREMENT PLAN
(AS AMENDED AND RESTATED, EFFECTIVE JANUARY 1, 1999)
WHEREAS, Enesco Group, Inc., a Massachusetts corporation (the
"Company"), has for many years maintained the Stanhome Investment Savings
Plan for the benefit of certain of its employees;
WHEREAS, Enesco Corporation, a subsidiary of the Company, has
for many years maintained the Enesco Corporation Profit Sharing Plan for
the benefit of certain of its employees;
WHEREAS, effective as of the close of business on December 31,
1998, the Enesco Corporation Profit Sharing Plan will be merged into the
Stanhome Investment Savings Plan and, effective January 1, 1999, such
merged plan will be substantially modified with respect to the features
contained therein and retitled the "Enesco Group, Inc. Retirement Plan"
(the "Qualified Plan");
WHEREAS, Enesco Corporation has for many years maintained for
the benefit of certain of its key employees the Enesco Corporation
Supplemental Profit Sharing Plan;
WHEREAS, effective January 1, 1999, sponsorship of the Enesco
Corporation Supplemental Profit Sharing Plan will be transferred from
Enesco Corporation to Enesco Group, Inc.;
WHEREAS, effective January 1, 1999, this Plan shall constitute
an amendment and restatement of the Enesco Corporation Supplemental Profit
Sharing Plan, and shall be retitled the "Enesco Group, Inc. Supplemental
Retirement Plan";
WHEREAS, section 401(a)(17) of the Internal Revenue Code of
1986, as amended (the "Code") limits the amount of annual compensation that
may be taken into account under the Qualified Plan to $150,000 (as adjusted
for increases in the cost of living) (the "Compensation Limit");
WHEREAS, section 415 of the Code limits the amount of annual
additions that can be allocated to a participant's account under the
Qualified Plan in a Plan Year to the lesser of (i) $30,000 (as adjusted for
increases in the cost of living) and (ii) 25% of the participant
compensation for such limitation year (the "415 Limit");
WHEREAS, section 404 of the Code limits the amount that an
Employer can deduct in any taxable year with respect to amounts contributed
to the Qualified Plan for a Plan Year (the "Deduction Limit");
WHEREAS, the Company desires to modify the Plan, subject to
certain limitations contained herein, (i) to provide benefits to Key
Associates equal to the contributions which, but for the Compensation
Limit, the Section 415 Limit and the Deduction Limit, would be provided to
such Key Associates under the Qualified Plan and (ii) to permit Key
Associates to have elective deferrals made on their behalf in an amount
greater than is permitted under the terms of the Qualified Plan.
NOW, THEREFORE, the Company hereby agrees as follows:
Section 1. Definitions. All capitalized terms used herein shall
have the respective meanings assigned to such terms by the Qualified Plan,
except as otherwise set forth in the preamble to or text of this Plan or
below:
(a) Account. The Account establish on behalf of each Key
Associate pursuant to Section 2 of the Plan.
(b) Compensation. The amount of a Key Associate's
"Compensation" as determined under the Qualified Plan, but determined
without regard to the Compensation Limit.
(c) Employer. The Company and each other entity that, with the
consent of the Company, adopts this Plan for the benefit of its Key
Associates, as described in Section 11.
(d) Key Associate. For any Plan Year, an employee of an
Employer who is a Participant in the Qualified Plan for a Plan Year
and who either is (i) a senior officer of an Employer (as determined
by the Committee), or (ii) is classified by the Committee as a "key
associate." A person shall cease to be Key Associate upon the
complete distribution of his Account under the Plan.
(e) Plan. This Enesco Group, Inc. Supplemental Retirement Plan,
as from time to time amended.
(f) Trust. A trust entered into between the Company and the
trustee for the purpose of administering assets of the Employers to
be used for the purpose of satisfying the obligations of the
Employers under the Plan. Any such trust shall be established in such
manner so as to be a "grantor trust" of which the Company is the
grantor, within the meaning of section 671 et. seq. of the Code.
(g) Valuation Date. The date as of which earnings (or losses)
are credited to Accounts pursuant to Section 6 of the Plan.
Section 2. Establishment of Accounts. There shall be
established on the books of each Employer an Account in the name and on
behalf of each employee thereof who is a Key Associate who (i) was a Key
Associate in this Plan prior to January 1, 1999 and whose Account balance
had not been distributed in its entirety as of such date, (ii) makes an
election described in Section 3 below to have amounts credited to his
Account on his behalf under this Plan or (iii) during any Plan Year would
have been entitled to an allocation to his Profit Sharing Account or Money
Purchase Account under the Qualified Plan in excess of the amount actually
so allocated because of the application of the Compensation Limit.
Section 3. Elective and Matching Credits. (a) Elective Credits.
For each Plan Year, a Key Associate shall be permitted to elect, on a form
provided by the Committee, to reduce his Compensation for each payroll
period in such Plan Year by a specified whole percentage not less than 1
nor more than 15 percent. In the event a Key Associate makes such an
election to have his Compensation reduced, then, subject to Section 5, an
amount shall be credited to the Key Associate's Account under this Plan for
each such payroll period equal to (i) minus (ii) where:
(i) equals the Key Associate's Compensation for such payroll
period multiplied by the percentage elected by the Key Associate
hereunder; and
(ii) equals the product of (A) the portion of the Key
Associate's Compensation that is taken into account under the
Qualified Plan for such payroll period, in accordance with the
Compensation Limit, multiplied by (B) the lesser of (I) the
percentage elected the Key Associate hereunder and (II) 6%.
Such amount shall be credited under the Plan as of the date salary
reduction contributions of participants under the Qualified Plan are
delivered to the trustee under the Qualified Plan.
Prior to the first day of a Plan Year, a Key Associate may
change or suspend the amount to be credited to his Account for such Plan
Year pursuant to this Section 3(a), subject to such rules and procedures as
may be prescribed by the Committee with respect to the Plan.
(b) Matching Credits. For each payroll period ending in a Plan
Year, an amount shall be credited to each Key Associate's Account under
this Plan equal to 50% of the total amount credited to the Key Associate's
Account in the form of elective credits pursuant to subsection (a) above;
provided, however, that the total amount credited to a Key Associate's
Account under this Section 3(b) and to the Key Associate's Matching Account
under the Qualified Plan for a payroll period shall in no event, in the
aggregate, exceed 3% of the Key Associate's Compensation for such payroll
period. Such amount shall be credited under the Plan as of the date
matching contributions made on behalf of participants under the Qualified
Plan are delivered to the trustee under the Qualified Plan.
Section 4. Profit Sharing and Money Purchase Credits. (a)
Profit Sharing Credits. For each Plan Year, an amount shall be credited to
each Key Associate's Account under this Plan equal to (i) minus (ii) where:
(i) equals the product of the Key Associate's Compensation
multiplied by the "target percentage" for profit sharing
contributions, as determined under Section 4.4 of the Qualified Plan
(relating to the amount of profit sharing contributions that would
be allocated to the Profit Sharing Account of each Key Associate in
the Qualified Plan for the Plan Year, expressed as a percentage of
such Key Associate's Compensation, if such contributions were not
reduced in order to comply with the Deduction Limit);
(ii) equals the total amount of profit sharing contributions
credited to the Key Associate's Profit Sharing Account under the
Qualified Plan for such Plan Year.
(b) Money Purchase Credits. For each Plan Year, an amount shall
be credited to each Key Associate's Account under this Plan in an amount
equal to (i) minus (ii) where:
(i) equals 3% of the Key Associate's total Compensation for
the Plan Year; and
(ii) equals the total amount credited to the Key Associate's
Money Purchase Account under the Qualified Plan for such Plan Year.
Section 5. Earnings and Losses on Accounts. As of the close of
each Plan Year, or as of such other frequency determined by the Committee,
each Employer shall credit to or charge against, as the case may be, each
Account established on its books pursuant to Section 2 of this Plan, an
amount representing investment gains or losses in respect of the balance of
such Account. The amount of such gains or losses in respect of the Account
of any Key Associate shall be determined by the Committee to be equal to
the net gain or loss that would have been earned on an amount equal to the
balance of such Key Associate's Account as of the close of the preceding
business day, as adjusted for any credits, withdrawals or distributions,
based on the hypothetical investment elections made by the Key Associate.
Each Key Associate shall be entitled to elect to have the earnings in
respect of his Plan Account determined as if an amount equal to the balance
thereof were invested among the investment funds available from time to
time under the Qualified Plan, except for the Company Stock Fund. A Key
Associate's hypothetical investment elections under this Plan need not be
the same as the Key Associate's investment elections under the Qualified
Plan. A Key Associate's investment elections under this Plan shall be
subject to the same provisions regarding the time, manner and portion of
the account subject to such election as are applicable from time to time
under the Qualified Plan.
Section 6. Vesting. A Key Associate shall at all times be fully
vested in his Account under the Plan.
Section 7. Withdrawals on Account of Financial Emergency. If a
Key Associate experiences an "unforeseeable financial emergency," as
defined below, he may file a request with the Committee to receive a
complete or partial distribution of the Key Associate's Account under the
Plan. The amount of any distribution pursuant to this Section shall not
exceed the lesser of (i) the balance of the Key Associate's Account under
the Plan, determined as of the Valuation Date next following the date of
such request, and (ii) the amount reasonably necessary to satisfy such
unforeseeable financial emergency. Such Key Associate also shall be
required to certify, in the form and manner prescribed by the Committee,
that the amount reasonably necessary to satisfy such unforeseeable
emergency cannot be satisfied from sources other than a withdrawal from the
Key Associate's Account. For purposes of this Section, "unforeseeable
financial emergency" shall mean an unanticipated emergency that is caused
by an event beyond the control of the Key Associate that would result in
severe financial hardship to the Key Associate resulting from (i) a sudden
and unexpected illness or accident of the Key Associate or a dependent of
the Key Associate, (ii) a loss of the Key Associate's property due to
casualty or (iii) such other extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Key Associate, all
as determined in the sole discretion of the Committee.
Section 8. Distribution to Key Associate Upon Termination of
Employment. The distribution of a Key Associate's Account under this Plan
after the Key Associate's termination of employment shall be made at the
same time and in the same manner as distributions are made to the Key
Associate under the Qualified Plan; provided, however, that no distribution
shall be made under this Plan in any medium other than cash and provided
further that no portion of a Key Associate's Account under this Plan shall
be distributed through the purchase of a single premium annuity contract.
Any distribution made to a Key Associate pursuant to this Section shall be
based on the balance of the Key Associate's Account as of the Valuation
Date coinciding with or next following the valuation date used to determine
the amount to be distributed to or on behalf of the Key Associate under the
Qualified Plan.
Section 9. Distribution to Beneficiary Upon Key Associate's
Death. Upon the death of a Key Associate while any amount remains credited
to the Key Associate's Account under this Plan, payment of the balance of
such Account shall be paid in a single payment to the beneficiary or
beneficiaries as the Key Associate may, from time to time, designate in
writing delivered to the Committee. A Key Associate may revoke or change
his or her beneficiary designation at any time in writing delivered to the
Committee. If a Key Associate does not designate a beneficiary under this
Plan, or if no designated beneficiary survives the Key Associate, the
balance of his or her Account shall be distributed to the person or persons
entitled to his or her account under Section 9.6 of the Qualified Plan (or
who would be so entitled if there were then an amount remaining unpaid
under the Qualified Plan).
Section 10. Participation by Other Employers. (a) With the
consent of the Company, any entity may become a participating Employer
under the Plan by taking such action as shall be necessary to adopt the
Plan and executing and delivering such instruments and taking such other
action as may be necessary or desirable to put the Plan and Trust into
effect with respect to such entity, as prescribed by the Company.
(b) The Company may, by written instrument, exclude an
Employer from continued participation in the Plan. An entity that is an
Employer may withdraw from participation in the Plan at any time by taking
appropriate action as prescribed by the Company. Upon the effective date of
an entity's exclusion or withdrawal from participation in the Plan pursuant
to this Section, such entity shall thereupon cease to be an Employer.
(c) Each entity which becomes a participating Employer
pursuant to this Section by so doing shall be deemed to have appointed the
Company its agent to exercise on its behalf all of the powers and
authorities hereby conferred upon the Company by the terms of the Plan,
including, but not by way of limitation, the power to amend and terminate
the Plan. The authority of the Company to act as such agent shall continue
until such Employer is excluded or withdraws from the Plan.
(d) In the event that any Employer is reorganized by way of
merger, consolidation, transfer of assets or otherwise, so that another
corporation other than an Employer succeeds to all or substantially all of
such Employer's business, and such successor corporation is an Affiliate,
such successor corporation automatically shall be substituted for such
Employer under the Plan, unless such Employer or successor corporation is
removed by the Company or withdraws from participation in the Plan as an
Employer.
Section 11. Amendment and Termination. This Plan shall be
subject to the same reserved powers of amendment and termination as the
Qualified Plan (without regard to any limitations imposed on such powers by
the Code or ERISA), except that no such amendment or termination shall
reduce or otherwise adversely affect the rights of Key Associates or
Beneficiaries in respect of amounts credited to their Accounts as of the
date of such amendment or termination.
Section 12. Application of ERISA. This Plan is intended to be
an unfunded plan maintained primarily for the purpose of providing deferred
compensation to a select group of management or highly compensated
employees within the meaning of sections 201(2), 301(a)(3) and 401(a)(1) of
ERISA and Department of Labor Regulation ss. 2520.104-23. This Plan shall
not be a funded plan, and the Employers shall be under no obligation to set
aside any funds for the purpose of making payments under this Plan. Any
payments hereunder shall be made out of the general assets of the
Employers.
Section 13. Administration. The Committee shall be charged with
the administration of this Plan and shall have the same powers and duties,
and shall be subject to the same limitations, as are described in the
Qualified Plan. The provisions of Article 12 of the Qualified Plan (other
than Section 12.3 relating to qualified domestic relations orders) are
hereby incorporated herein by reference, as the context requires, and shall
be applicable as if such provisions were set forth herein.
Section 14. Nonassignment of Benefits. Notwithstanding anything
contained in the Qualified Plan to the contrary, it shall be a condition of
the payment of benefits under this Plan that neither such benefits nor any
portion thereof shall be assigned, alienated or transferred to any person
voluntarily or by operation of any law, including any assignment, division
or awarding of property under state domestic relations law (including
community property law). If any person shall endeavor or purport to make
any such assignment, alienation or transfer, the amount otherwise provided
hereunder which is the subject of such assignment, alienation or transfer
shall cease to be payable to any person.
Section 15. No Guaranty of Employment. Nothing contained in
this Plan shall be construed as a contract of employment between the
Employers and any employee or as conferring a right on any employee to be
continued in the employment of an Employer.
Section 16. Trust. The Company shall establish the Trust and
shall at least annually contribute to the Trust such assets as the
Committee determines, in its sole discretion, are necessary to provide for
the Employers' future liabilities created with respect to the amounts
credited to the Accounts established hereunder. The existence of the Trust
shall not relieve the Employers of their liabilities under the Plan, but
the Employers' obligations under the Plan shall be deemed satisfied to the
extent paid from the Trust.
Section 17. Miscellaneous. (a) Certain Qualified Plan
Provisions. Except as otherwise provided herein, the miscellaneous
provisions contained in Sections 14.6 (relating to gender and plurals),
14.7 (relating to applicable law) and 14.8 (relating to severability) of
the Qualified Plan are hereby incorporated herein by reference, and shall
be applicable as if such provisions were set forth herein.
(b) Expenses. All costs and expenses incurred in
administering the Plan, including the expenses of the Committee, the fees
of counsel and any agents of the Committee and other administrative
expenses shall be charged against the Accounts in such amounts and at such
time and in such manner as the Committee, in its sole discretion, shall
determine.
(c) FICA Taxes. For each calendar year in which an amount is
deferred on a Key Associate's behalf pursuant to this Plan, his employer
shall withhold an amount from the Key Associate's regular compensation to
provide for the payment of taxes imposed upon the Key Associate pursuant to
section 3121 of the Code in respect of such deferral.
(d) Successors and Assigns. The provisions of this Plan shall
bind and inure to the benefit of the Employers and their successors and
assigns, as well as each Key Associate and his beneficiaries and
successors.
IN WITNESS WHEREOF, the Company has caused this instrument to
be executed by its duly authorized officers this 18th day of December 1998.
ENESCO GROUP, INC.
By: /s/ Jeffrey A. Hutsell
-----------------------
Title: President & CEO
--------------------
ATTEST:
/s/ Peter R. Johnson
----------------------------------
Title: Vice President, Secretary & Clerk
----------------------------------
Exhibit 10 (bb)
SECOND AMENDMENT TO LICENSE AGREEMENT
-------------------------------------
This is a Second Amendment to the July 1, 1993 License Agreement,
as earlier amended on December 29, 1997 (the "Agreement") by and between
PRECIOUS MOMENTS, INC. ("PMI") an Illinois corporation with principal
offices in St. Charles, Illinois; and ENESCO CORPORATION ("Enesco"), an
Ohio corporation with principal offices in Itasca, Illinois.
RECITAL OF FACT
---------------
In an effort to continue working closely to strengthen and improve
the partnership based on sharing, honesty and trust, PMI and Enesco believe
that the following Amendment to the Agreement will enhance and further
their relationship.
PMI and Enesco agree to further amend their Agreement as follows:
I. Exhibit B-2 of the Agreement is hereby further amended as follows
to add the following new non-exclusive product categories and
products:
A. Artplas
Amend Item 20 by adding at the beginning of footnote 1 the
words "Including mass market, but"
F. Miscellaneous Products
39. Animated figures (mass market only)
40. Vinyl tree toppers (mass market only)
41. Christmas tree skirts (mass market only)
42. Christmas bows (mass market only)
43. Tin figures, ornaments, frames and decorative housewares
44. Paper mache ornaments, figurines and frames
45. Silver plated frames, boxes and ornaments
46. Tea sets
I. Wood products
17. Clocks, decorative boxes, frames and figurines
W. 3-D Oversized character visual merchandisers for retail display
use only, not intended for resale
II. Subparagraph 4 (b) of the Agreement is hereby further amended
as follows:
To delete the word "and" prior to (iii); and to add the phrase
"and (iv) beginning December 17, 1998 the percentage royalty for
animated figurines, waterballs and snowdomes (in mass market only)
shall be six percent (6.0%)" just before the period at the end of
the sentence.
III. Exhibit B-1 of the Agreement shall be further amended as follows
to delete the following from the list of Enesco Core Products:
33. Tea sets
IV. EFFECTIVE DATE
Except as otherwise provided for herein, the effective date of
this Second Amendment shall be January 1, 1999.
V. RATIFICATION
All other terms and conditions of the Agreement are ratified and
confirmed and shall continue to remain in full force and effect.
IN WITNESS WHEREOF, the parties have, through their duly authorized
officers, set their hands and seals as of the 22nd day of January, 1999.
WITNESS: PRECIOUS MOMENTS, INC.
an Illinois corporation
/s/ Suzanne Hines By: /s/ Jon Butcher
- ----------------- ------------------------
Jon Butcher, President
WITNESS: ENESCO CORPORATION
an Ohio corporation
/s/ Peter R. Johnson By: /s/ Jeffrey A. Hutsell
- --------------------- ------------------------------
Jeffrey A. Hutsell, President
and Chief Executive Officer
CERTIFICATE OF ACKNOWLEDGEMENT
STATE OF ILLINOIS )
)
COUNTY OF DUPAGE )
This Certificate of Acknowledgment is being made and executed
pursuant to the Uniform Recognition of Acknowledgment Act, as amended, by
me, a Notary Public commissioned in and for the County of DuPage, State of
Illinois.
I Certify that the foregoing Second Amendment to license Agreement
was acknowledged before me this 22nd day of January, 1999, by Jeffrey A.
Hutsell, President and Chief Executive Officer of ENESCO CORPORATION, an
Ohio corporation, on behalf of that corporation.
/s/ Linda DeLazzer
-------------------------------
Notary Public
My Commission expires: 10/4/02
CERTIFICATE OF ACKNOWLEDGEMENT
STATE OF ILLINOIS )
)
COUNTY OF KANE )
This Certificate of Acknowledgment is being made and executed
pursuant to the Uniform Recognition of Acknowledgment Act, as amended, by
me, a Notary Public commissioned in and for the County of DuPage, State of
Illinois.
I Certify that the foregoing Second Amendment to license Agreement
was acknowledged before me this 22nd day of January, 1999, by Jon Butcher,
President of PRECIOUS MOMENTS, INC., an Illinois corporation, on behalf of
that corporation.
/s/ Carol E. Annorino
------------------------------
Notary Public
My Commission expires: 6/11/99
Exhibit 10 (cc)
RELEASE AGREEMENT
This Release Agreement is entered into by and between Thomas E.
Evangelista, a resident of 51 Wyngate, Simsbury, Connecticut (hereinafter
referred to as "Associate"), and Enesco Group, Inc., a Massachusetts
corporation having a principal place of business at 333 Western Avenue,
Westfield, Massachusetts (hereinafter referred to as the "Company").
In consideration of the promises, conditions and representations
set forth herein, the severance payments being provided to Associate by the
Company as set forth below, and 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 involuntarily without cause as of the close of business on
December 31, 1998 (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 as of the effective date of this
Agreement.
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 the terms of this Agreement, (b) as a matter of
federal or state law, (c) pursuant to the agreements between the Parties to
this Agreement listed below, including but not limited to a certain
Retirement Agreement entered into between the Parties dated June 5, 1997,
(the "Retirement Agreement"), 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 Medical and Life Employee Group Insurance Plan under Policy
#2232182 issued by Connecticut General Life Insurance Company to
Stanhome Inc.
o Accidental Death and Dismemberment Group Insurance Plan under
policy issued by AIG Insurance Company to Stanhome Inc.
o Retirement Agreement dated June 5, 1997, and related Trust
Agreement dated March 1, 1988, as amended
o Stanhome Pension Plan and related Trust Agreement dated January 1,
1980, as amended
o Stanhome Supplemental Pension Plan and related Trust Agreement
dated January 1, 1995, as amended
o Stanhome Investment Savings Plan and related Trust Agreement dated
January 1, 1993, as amended
o Stanhome Supplemental Investment Savings Plan and related Trust
Agreement dated January 1, 1995, as amended
o Stanhome PAYSOP Plan and related Trust Agreement dated October 15,
1985, as amended
o Stanhome Inc. 1984 Stock Option Plan
o Stanhome Inc. 1991 Stock Option Plan
o Stanhome Inc. 1996 Stock Option Plan
o Management Incentive Plan
o Change in Control Agreement effective January 1, 1992
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 in
effect as of the effective date of this Agreement. Furthermore, the Company
and Associate agree that 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 thirty-six (36) consecutive monthly periods commencing January 1,
1999 and ending on December 31, 2001 (the "Severance Period"), Associate
will receive severance payments equal to $14,875.00 per month. Payment will
be made on the first business day of each such month, commencing January 4,
1999. Such payments, based on Associate's current base salary, are in
addition to anything of value to which Associate is already entitled or
provided pursuant to this Agreement, any other agreement between the
Parties or other Company plan or program. 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.
B. Stock Options. Upon the Termination Date, the Company will promptly
deliver to Associate appropriate amendments to Associate's Certificates of
Grant relating to the Company's 1991 Stock Option Plan providing that the
options under such plan shall be exercisable by the Associate or his
guardian or legal representative(s) during the three-year period following
termination of employment as to the additional number of shares of the
Company's common stock, par value $.125 per share, which the Associate
would have become entitled to purchase during the three-year period if the
Associate's employment had not terminated.
C. Additional Payments. During the Severance Period, Associate will be
paid an additional $2,233.33 each month of said period at the same time as
he is paid the Severance Payments provided in paragraph 3.A of this
Agreement, which additional payments represent the Associate's present car
allowance ($1,400 per month) plus Associate's present annual $5,000 medical
supplementary bonus and annual $5,000 financial planning bonus converted
for those purposes to a monthly rate ($833.33 per month).
D. Bonus. In the event that the criteria are met for a bonus award to
Associate under the 1998 Management Incentive Plan, Associate will be paid
the bonus by March 15, 1999.
E. Insurance. Associate will continue to be covered by the group
medical insurance coverage as set forth in the Stanhome Group Insurance
Plan booklet dated December, 1994 (the "Plan") under the policy issued by
Connecticut General Life Insurance Company (Policy #2232182) regardless of
the location of Associate's eventual residence within the United States and
regardless of his coverage by any other medical 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 the same as provided in the Plan. Associate's coverage will
cease when he qualifies for Medicare. Dependent coverage will be continued
as to his spouse until Associate's spouse qualifies for Medicare and as to
his other dependents until that dependent reaches age 23. However, if
coverage has not otherwise already ended, then coverage shall end for
Associate's spouse and other dependents when Associate reaches his 71st
birthday or, in the event of Associate's death before he reaches age 71,
the date when Associate would have reached his 71st birthday, it being
intended that coverage for Associate's spouse and other dependents shall
continue until the date when Associate would have reached his 71st
birthday.
During the Severance Period, the Company, its successors and assigns,
will contribute 80% of the cost of the personal and dependent coverage and
Associate will contribute 20% of such cost, which percentages shall be
adjusted as necessary to be the same percentages as may be in effect for
the cost of medical coverage of active employees of the Company and its
successors and assigns. Upon expiration of the Severance Period, the
Associate will contribute monthly 100% of the cost of Associate's personal
and dependent coverage. The continued medical coverage, as set forth in the
Plan, 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 the premium. In the event that
Associate fails to pay 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 cancelled 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 ($357,000 Death Benefit) and accidental
death and dismemberment employee insurance coverage, as presently in
effect, to the Associate during the Severance Period. The life insurance
benefit of the Associate in excess of the first $50,000 will be purchased
by the Associate and reimbursed by the Company, up to the amount it would
have cost the Company to maintain the coverage under the Company's group
policy. The cost of this coverage will be reported annually during the
severance period on the Associate's Form W-2 as wages.
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.
F. Outplacement. The Company also will provide Associate with
outplacement services as mutually agreed upon between the Parties, provided
such outplacement services commence within 12 months following the
Termination Date.
G. Moving Expenses. The Company shall reimburse Associate for
relocation expenses in accordance with present Company Relocation
Guidelines issued September, 1996, incurred by Associate within eighteen
months of the Termination Date unless such expenses are reimbursed to
Associate by a new employer, if any.
H. References. The Company will provide references for Associate in
accordance with its policy.
I. Taxes. Applicable taxes on all payments, transfers and other
consideration referred to herein will be the sole responsibility of
Associate, provided that the Company shall deduct applicable federal and
state withholding income taxes on the payments provided herein.
J. Vacation Pay. All accrued and unused vacation pay was paid to
Associate in December 1998.
4. Retirement Agreement and Pension Plans. The Retirement Agreement
between the Parties entered into on June 5, 1997, shall remain in full
force and effect. In addition, Associate's benefits from the Qualified
Pension Plan and Supplemental Pension Plan shall also remain in full force
and effect. It is agreed that Associate's termination for such purposes is
an involuntary termination without cause.
5. Release.
A. From Associate to the Company. In exchange for the compensation
described in Paragraph 2 and 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, 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 Connecticut Human Rights and
Opportunities Law, The Massachusetts Fair Employment Practices 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 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 9 hereof,
the Company hereby agrees that it and its affiliates and subsidiaries, and
their successors, predecessors, assigns, directors, 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 (other than those involving fraud, gross negligence and
gross willful misconduct) provided, however, that nothing contained in this
Paragraph 5 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 which Associate may be threatened arising out of actions taken by
Associate in his capacity as an officer, director, employee, agent or
representative of 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, 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 interests of the participants or beneficiaries of
such employee benefit plan, without regard of 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
Employment 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 such 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 such information or
materials as is 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. 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 December 14, 1998 that he had at least 45 days
within which to consider the Agreement, until the close of business on
January 29, 1999.
C. This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts, 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 such 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 acts or default of Associate's agents or
representatives.
11. Resignations and Stock Transfers. Upon the Termination Date,
Associate agrees to (i) 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. Change in Control. Associate's Change in Control Agreement
effective as of January 1, 1992 (the "Change in Control Agreement") shall
remain in effect up to and including the Termination Date, and subsequent
to the Termination Date in the event that an agreement with the Company to
effectuate a Change in Control, as defined in the Change of Control
Agreement, is entered into prior to the Termination Date. It is agreed that
Associate's termination under this Agreement is (i) for reasons other than
those set forth under Paragraphs 1(a) and 1(b) of the Change in Control
Agreement and (ii) at the direction of the person (as defined in Paragraph
4(a)(i) of the Change in Control Agreement) who has entered into such an
agreement with the Company to effectuate such a Change in Control as
described under and subject to said Paragraph 1(b). To the extent that any
payments made to Associate under the Change in Control Agreement are made
for the same purpose as the severance amounts specified above in Paragraphs
3.A and 3.D (without giving effect to the Gross-Up Payment in Paragraph
1(c) of the Change in Control Agreement for these purposes), such Change in
Control payments shall be in substitution for such severance amounts except
to the extent that any bonus shall be due and payable with respect to any
year preceding that in which the Change in Control occurs. To the extent
the amounts specified in Paragraphs 3.A and 3.D are greater than those paid
under the change in Control Agreement, the amount by which such amounts and
benefits in Paragraphs 3.A and 3.D exceed the amounts paid under the Change
in Control Agreement shall be paid in accordance with the terms of this
Agreement. If Associate is paid all amounts due him under the Change in
Control Agreement in the event of a Change in Control, then Associate shall
not be paid any amounts due him under Paragraph 3.C for the remaining term
of this Agreement.
If a Change in Control, as defined in the Change in Control Agreement,
occurs after the Termination Date, the payments to be made to Associate
under Paragraphs 3.A, 3.C and 3.D shall be paid in a lump sum upon the
occurrence of such Change in Control.
If any of the payments and benefits under this Agreement are subject
to the Excise Tax imposed under Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") (the "Excise Tax"), such payments and
benefits shall be deemed to be "...other payments or benefits received or
to be received by the Employee in connection with a Change in Control or
the Employee's termination of employment..." under Paragraph 1(c) of the
Change of Control Agreement and the Company shall pay Associate the
Gross-Up Payment as shall be determined in accordance with said Paragraph
1(c) as if it had remained in effect.
Except as provided under this paragraph, all amounts and benefits to
be paid or provided under this Agreement shall be so paid or provided as
set forth herein without regard to the Change in Control Agreement.
13. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of any successor or assigns 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 and
assign shall expressly assume in writing the rights, duties and obligations
of the Company. As used in the 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 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.
14. Amendment or Modification. This Agreement may not be amended,
modified, altered or changed except upon written consent of the Parties.
15. Severability. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions but the
obligation to be fulfilled under such invalid or unenforceable provision
shall automatically be reduced to the limit of validity or enforceability
prescribed by law, and this Agreement shall be construed in all respects as
if such invalid or unenforceable provision were omitted.
16. Validity. If any of the provision of this Agreement are declared
or determined by any court of competent jurisdiction to be illegal, invalid
or inoperative, such determination shall not affect the validity or
efficacy of the remaining parts, terms or provisions of this Agreement and
any such illegal, invalid or inoperative part, term or provision shall be
deemed severable and not to be a part of this Agreement.
17. 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.
18. Entire Agreement. Associate and the Company agree that this
Agreement contains and constitutes the entire understanding and agreement
between the Parties hereto respecting the terms of Associate's termination
from the Company and supersedes and cancels the Severance Agreement
effective as of June 1, 1992, as well as all previous written or verbal
negotiations, agreements, commitments, and writings in connection with
severance or compensation arrangements, including the Letter Agreement
dated June 16, 1997, between Associate and the Company. This Agreement
expressly does not supersede or cancel the Retirement Agreement, a certain
Change of Control Agreement effective January 1, 1992, any compensation and
benefit agreements, plans and programs listed in Paragraph 2 of this
Agreement or any other agreements whether or not listed in Paragraph 2 of
this Agreement not referred to in the preceding sentence.
19. Execution. This Agreement may be executed in two or more duplicate
counterparts, each of which shall be treated as an original, but all 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.
20. Notice. Any notice required under this Agreement shall be in
writing and shall be delivered by certified mail, return receipt requested,
overnight delivery or telecopy to the following addresses:
a. All notices to Associate shall be addressed to him as follows:
Mr. Thomas E. Evangelista
51 Wyngate
Simsbury, Connecticut 06070
b. All notices to the Company shall be addressed to it as follows:
Mr. Allan G. Keirstead
Executive Vice President,
Chief Administrative and Financial Officer
Enesco Group, Inc.
333 Western Avenue
Westfield, Massachusetts 01085
Either Party may change the address to which notices are to be sent by
providing notice in qriting to the other Party in accordance with the terms
hereof.
21. Effective Date. Associate may revoke this Agreement for a period
of seven (7) das 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 30th day of December, 1998.
/s/Thomas E. Evangelisa
-------------------------------------
Thomas E. Evangelista
ENESCO GROUP, INC.
By:/s/Allan G. Keirstead
----------------------------------
Allan G. Keirstead
Executive Vice President,
Chief Administrative & Financial Officer
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ENESCO GROUP, INC.
The following discussion gives more depth on Enesco Group, Inc.
and subsidiaries' (the "Company's") financial condition and results of
operations. You will probably find it helpful to have first read the
financial statements, accompanying notes and the financial highlights of
recent years.
As reported in the Company's Form 10-Q for the quarter ended
March 31, 1998, at the Company's Annual Meeting on April 23, 1998, the
shareholders approved a resolution authorizing the Company to change its
name from Stanhome Inc. to Enesco Group, Inc., to reflect the Company's
transformation into a singularly focused designer and marketer of branded
gifts and collectibles. Commencing on May 1, 1998, shares of the Company's
common stock traded on the New York Stock Exchange and Pacific Exchange
under the symbol "ENC".
1998 Compared with 1997
Sales decreased 5.3% in 1998 with decreases in all geographic
areas. Sales in the United States decreased 5.1% and international sales
decreased 6.2%. International sales amounted to 19.2% of 1998 sales verses
19.4% in 1997. The sales decreases reflected lower retailer ordering, due
in part to high retail inventory levels combined with the Company's
initiatives of tighter credit policies, lower inventories and fewer stock
keeping units. The tighter credit controls and improved customer service
reduced returns and allowances by approximately 1% of sales in the United
States. The Precious Moments line represented 38% of total 1998 sales,
compared to 36% in 1997 and the Cherished Teddies line represented 20% of
sales in 1998 and 1997. Year-end 1998 club members for the Precious Moments
line decreased 8% compared to 1997 and club members for the Cherished
Teddies line decreased 1% compared to 1997.
In the United States, the Company is in the process of analyzing
the total economic return for all of its product lines, with the objective
to improve the supply chain economics from factory to customer and to phase
out those product lines that do not have adequate returns. As these lines
are phased out during the next year, the absence of sales from these lines
will reduce sales volumes. This process will be expanded to the
international locations in 1999. Partly reflecting the reduction of product
offerings and improved deliveries, total unfilled orders as of year-end
1998 were down approximately $28 million or 32% compared to 1997. This
trend is expected to continue. Also, the reduction in unfilled orders was
due to slowing retail demand due, in part, to high retail inventory levels
of certain products and to changing buying practices of many retailers,
reflecting, in part, the improved deliveries of products. In response to
the high retail inventories, the number of new product introductions for
the Precious Moments and Cherished Teddies lines has been reduced and
promotions have been offered to assist retailers in moving inventories. The
fourth quarter sales decrease of 12% was greater than the full year sales
decrease due to the same factors mentioned above, including a weak retail
environment during the fourth quarter of 1998 and the fact that the
economic return analysis was further along.
This trend is expected to continue into 1999 with sales likely
to be down from 1998, with the majority of the decline expected to occur
during the first half of the year, due to strong first half 1998
comparisons and the elimination of product lines that did not have adequate
returns.
Gross profit decreased in 1998 following the sales decrease, but
gross profit as a percentage of net sales improved to 46.3% in 1998
compared to 45.6% in 1997 due, primarily in the United States, to improved
product sales mix reflecting the Company's efforts to eliminate low margin
products and to manage and lower inventory levels.
Selling, distribution, general and administrative expenses,
excluding a third quarter 1997 $18 million pre-tax charge to downsize and
move the Company's Westfield, MA corporate headquarters, decreased 5.2% in
1998 versus 1997 and amounted to 35.4% of sales for both years. The 1998
reduction in expenses was due primarily to lower general and administrative
expenses in the United States. The reductions were from cost controls, the
start of benefits from downsizing the Company's Westfield, MA corporate
headquarters, and a reduction of compensation resulting from the expiration
on December 31, 1997 of an executive officer's employment agreement. The
reductions in expenses resulting from the corporate downsizing and the
expiration of the executive officer's employment agreement were
approximately $5 million. In 1998, the Company reduced the worldwide
workforce by approximately 20%. In the United States, two warehouses were
closed, the third warehouse shift was eliminated and a workforce reduction
during the first quarter resulted in a $1 million pre-tax expense. In the
United Kingdom, two small manufacturing operations were eliminated and
expenses were incurred to further reduce fixed costs and improve margins.
In the United Kingdom these expenses, combined with the impact
of lower sales volumes on fixed costs, resulted in an operating loss for
1998. Expenses as a percentage of sales for the other international
locations increased and operating profit decreased due to the impact of
lower sales on fixed costs. In the United States, expenses decreased as a
percentage of sales and operating profit increased due to lower spending
and cost controls.
Due to the factors described above, operating profit increased
in 1998, and represented 10.9% of sales compared to 10.2% in 1997 excluding
the 1997 $18 million downsizing charge. Due to the same factors, fourth
quarter operating profit increased on lower sales, and represented 7.0% of
sales compared to 4.4% of sales in 1997, with increased operating profit in
the United States more than offsetting international decreases.
1997 Compared with 1996
Sales decreased 7.6% in 1997 primarily due to lower unit volumes
in the United States. Sales in the United States decreased due to a
reduction in customer orders, in part due to tightening retail inventories
and to credit controls, with increased numbers of customers at their credit
limit. International sales increased 5.4% and amounted to 19.4% of 1997
sales compared to 17.0% in 1996. Sales from a new business acquired in
France at the end of the first quarter 1996 accounted for 35% of the total
year international sales increase. The Precious Moments line represented
36.0% of total 1997 sales compared to 40.0% in 1996 and the Cherished
Teddies line represented 20% of total 1997 sales compared to 18% in 1996.
Also, in the case of the Precious Moments Collector and Birthday Clubs,
there has been a significant downward membership trend from 1996 to 1997.
During the past few years, the Company has been able to increase the
available supply of products, particularly the Precious Moments line, to
retailers. Consequently, retailers have not ordered as much product in
advance, and the Company's inventory has increased. Total unfilled orders
at year-end 1997 amounted to $87 million, an 8% increase compared to
year-end 1996.
Gross profit decreased in 1997 due to the impact of lower sales
and to a higher cost of sales percentage compared to 1996. Cost of sales
increased to 54.4% of sales in 1997 compared to 52.8% in 1996, due
primarily to sales mix, which included a higher percentage for royalties
and a greater percentage of products sold at less than normal margins.
Higher cost of sales was the primary reason for the 1997 decrease in
international operating profit.
Selling, distribution, general and administrative expenses
included a third quarter 1997 $18 million pre-tax charge ($11.2 million
after tax) to downsize the Westfield, Massachusetts corporate headquarters.
The charge did not include any future operating expenses or future systems
enhancements. The charge included $10.6 million for severance, $5.7 million
for pension and retirement, $1.4 million for insurance and $.3 million for
outplacement. The charge included the cost associated with the termination
of the Company's then President and CEO. When completed, this downsizing is
expected to reduce future overhead expenses substantially. The Westfield
facility has been listed for sale.
Excluding the $18 million downsizing charge, selling,
distribution, general and administrative expenses for 1997 decreased 3%,
but represented 35.4% of sales in 1997 compared to 33.7% in 1996. The 1997
expenses were a higher percentage of sales due primarily in the United
States to the impact of lower sales on fixed costs, a higher level of
spending, inflationary cost increases and a higher provision for bad debts
to reflect the impact of tighter credit controls.
Due to the factors described above, operating profit decreased
56.1% in 1997 and represented 6.4% of sales compared to 13.5% in 1996. The
fourth quarter percentage decrease in sales and operating profit was
greater than the full year due primarily to the impact of the
implementation of tighter credit controls combined with efforts to
alleviate the high levels of inventory at retailers.
Goodwill - Writedown
As a result of a complete analysis and assessment of all Company
assets and returns, it was determined that the goodwill component of the
1994 United Kingdom acquisitions did not reflect the current market value.
During the fourth quarter of 1994 the Company purchased two United Kingdom
companies, Border Fine Arts, a maker of animal sculptures and figurines,
and Lilliput Lane, a maker of miniature cottages.
These acquisitions resulted in approximately $65 million of
goodwill which was being amortized over forty years. The expected growth
potential of these acquisitions worldwide never materialized and results
have decreased since the acquisitions, with sales decreasing 10% in 1998.
Additionally, the Company's current plans do not project significant rapid
growth of these businesses in the future. These circumstances triggered an
asset impairment review in accordance with SFAS No. 121 "Accounting for the
Impairment of Long-lived Assets". After analyzing the expected future cash
flows of these businesses, the Company determined that the fair value of
the goodwill was $46 million dollars less than the carrying value as of
December 31, 1998, and recorded a fourth quarter non-cash $46 million
charge before and after tax amounting to $2.83 per diluted share. The
remaining goodwill for the 1994 United Kingdom acquisitions as of December
31, 1998 is approximately $14 million and will be amortized over the next
21 years.
Interest Expense and Other Expense
Interest expense, net of investment income, decreased in 1998
compared with 1997, from lower borrowing levels due to the utilization of
cash proceeds from the sale of discontinued operations in 1997 and, in
1998, a reduction in accounts receivable and inventories. Other expense,
net is principally the amortization of goodwill (excluding the $46 million
writedown in 1998) and decreased in 1998 compared to 1997 due to certain
categories being fully amortized.
Interest expense, net of investment income, decreased in 1997
due to lower borrowing levels in 1997 compared to 1996 and to the
utilization of cash proceeds from the sale of discontinued operations,
particularly in the fourth quarter. Other assets amortization of goodwill
decreased due to certain categories being fully amortized. Other expense,
net decreased in 1997 due to lower net losses on the disposal of fixed
assets.
Income Taxes
The effective tax rate in 1998 for continuing operations
(excluding the impact of the $46 million goodwill writedown which did not
receive a tax benefit) was 44.8% and was lower than the 1997 effective tax
rate due primarily to a higher percentage of total before tax income from
the United States, which has a lower effective tax rate. The effective tax
rate for 1997 for continuing operations of 49.4% was higher than the 1996
effective tax rate of 44% due primarily to a lower percentage of total
before tax income from the United States, which has a lower effective tax
rate and to the impact of the amortization of goodwill, which does not
receive a tax benefit. All of the effective tax rates for the years
presented were higher than the expected statutory U.S. rates due primarily
to the impact of goodwill amortization which is not deductible.
Inflation, Changing Prices and Economic Conditions
Although the Company's operations are affected by general
economic trends, inflation and changing prices did not have a material
impact on 1998 and 1997 income statement results compared to prior years.
International operations in total were not materially impacted by currency
translation rates for 1998 and 1997. The value of the U.S. dollar versus
international currencies where the Company conducts business will continue
to impact the future results of these businesses. In addition to the
currency risks, the Company's international operations, including sources
of imported products, are subject to the risks of doing business abroad,
including reliance on third party overseas manufacturers, 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.
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 1998 major sources of funds from operating activities for
continuing operations were from net income, depreciation, amortization,
lower net accounts receivable and inventories. Accounts receivable
decreased primarily due to lower 1998 fourth quarter sales and days sales
outstanding versus 1997. Inventories decreased due to the Company's efforts
to eliminate low margin products and to manage and lower inventory levels.
The $46 million goodwill non-cash writedown and the normal goodwill
amortization accounts for the reduction in other assets. The 1998 major use
of funds from continuing operations was lower accounts payable, accrued
expenses and income taxes payable. Accounts payable and accrued taxes
decreased due to timing of payments and to the payment of amounts due from
the provision to downsize corporate headquarters and for payments due
relating to the 1997 sale of discontinued operations. Taxes payable
decreased in 1998 due to the timing of payments compared to 1997 and
payments related to the 1997 sale of discontinued operations. 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, the accruals will be adjusted through the
provision for income taxes.
The 1997 major sources of funds from operating activities for
continuing operations were from net income, depreciation, amortization,
lower net accounts receivable and higher accounts payable, taxes and
accrued expenses. Accounts receivable decreased primarily due to lower 1997
fourth quarter sales. Accounts payable and accrued expenses increased due
to timing of payments and to the amounts remaining to be paid of
approximately $12.8 million from the third quarter provision to downsize
Corporate headquarters and approximately $8.3 million for payments due
relating to the 1997 sales of discontinued operations. These amounts were
partially offset by decreases in normal accruals due to the lower 1997
operating results. Taxes payable increased in 1997 due to the timing of
payments compared to 1996 and to the $17.3 million taxes payable resulting
from the sale of the majority of the Worldwide Direct Selling operations.
The 1997 major use of funds from continuing operations was higher
inventories in the United States, which resulted from sales that were lower
than anticipated and efforts to alleviate inventory levels at retailers.
Other assets in 1997 were increased by higher levels of funded retirement
benefits and an escrow deposit related to the sale of discontinued
operations. Long-term postretirement benefits increased due to enhanced
benefits relating to the Corporate downsizing and sales of discontinued
operations.
A major use of cash in investing activities has been for capital
expenditures for information systems, equipment and office replacements.
Also, in 1996 a French acquisition and subsequent acquisition payments were
a use of cash in investing activities. The sources of funds for all such
expenditures were from cash and investments. Capital expenditures of $6
million are planned for 1999. Proceeds from the sale of discontinued
operations are from the sale of the Hamilton United States Direct Response
businesses and the sale of the majority of the operations of the Worldwide
Direct Selling business. Part of the proceeds of the sales are being held
in escrow, with up to $3.8 million payable to the Company on or after May
23, 2000, subject to certain conditions. The Company's Westfield, MA
corporate headquarters facility is scheduled to be sold during the first
week of March 1999 for approximately $2.3 million. The Company's Cosmhogar
manufacturing subsidiary in Spain remains to be sold.
The major uses of cash in financing activities were for
dividends to shareholders and purchases of common stock. Purchases of
common stock included shares repurchased by the Company and shares received
from optionees to pay for the exercise price of options. Note 5 to the
Financial Statements provides a detailed summary of Treasury Stock
activity. The Company has an authorized program to purchase shares of
common 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 December 31,
1998, 2.5 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. A source of funds from financing activities
continued to be from the exercise of stock options. The value of total
stock options outstanding at the exercise price amounted to $91 million at
December 31, 1998 and the Company could receive these funds in the future
if the options are exercised. The 1997 decrease in notes and loans payable
was due to the proceeds from the sales of discontinued operations.
Annually, the Company makes provisions to record its obligation
to pay, in the future, insurance premiums for postretirement benefits to
eligible employees, and severance allowances to eligible employees of
certain subsidiaries upon their voluntary or involuntary separation. These
obligations are not funded because there is not a financial benefit to fund
them.
The service cost component of net periodic pension expense
increased in 1997, due principally to the addition of executives to the
non-qualified plans in 1997 and the termination of a chief executive
officer in 1997 (since his service ceased and full benefit was expensed).
In addition, plan enhancements were made in 1997 that were, in some cases,
recognized immediately for executives who terminated in 1997. The Company
has various non-qualified supplemental retirement plans. Benefits from
these supplemental plans will be paid from the Company's assets. The
Company has established grantor trusts to provide assets for some of these
non-qualified plans. The assets are subject to the claims of creditors and,
therefore, they are not considered plan assets and are excluded from
pension computations. As of December 31, 1997, $855,000 remained in the
qualified defined benefit plan after the settlement and curtailment of that
plan. These assets were later used in 1998 in final settlement of the
plan's liabilities.
In August 1995, the Company entered into a five-year $200
million multicurrency revolving credit agreement with various banks, which
can be used for working capital, investing and financing activities. The
agreement has an annual facility and agency fee as well as a margin
supplement for Eurocurrency rate loans where more than one-third of the
commitment is utilized. The agreement contains financial covenants that
include requirements, as defined, for minimum net worth, interest coverage
and maximum borrowings. None of these covenants are expected to have an
adverse effect on the Company's ability to operate in the future. One of
the covenants limits the maximum borrowings under the agreement to the
level of shareholders' equity, which amounted to $150.6 million as of
December 31, 1998.
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.
Fluctuations in the value of the U. S. dollar versus
international currencies affect the U. S. dollar translation value of
international currency denominated balance sheet items. The changes in the
balance sheet dollar values due to international currency translation
fluctuations are recorded as a component of shareholders' equity.
Discontinued Operations
On May 22, 1997, the Company completed the previously announced
sale of the Company's United States Hamilton Direct Response businesses to
The Crestley Collection, Ltd., an affiliate of The Bradford Group, for
approximately $48.3 million, including repayment of $30.8 million of
intercompany debt, subject to certain conditions. In connection with the
sale, the Company recorded in the first quarter of 1997 a $35 million after
tax charge consisting mainly of the write down of goodwill, current assets
and associated transaction and severance costs. Under the sale agreement,
until May 22, 2000, in most cases, the Company agreed to indemnify Bradford
for damages (up to a maximum of $10 million) suffered by Bradford resulting
from certain breaches by the Company and any unpaid taxes for which no
applicable financial reserve existed. As part of the transaction, Bradford
and Enesco Corporation, entered into two license agreements pursuant to
which Enesco will license certain proprietary and licensed lines of
products to Bradford for an initial five-year period.
On December 18, 1997, the Company completed the previously
announced sale of the majority of the operations comprising its Worldwide
Direct Selling Group to Laboratoires de Biologie Vegetale Yves Rocher of
France. Subject to certain conditions, the sale price was approximately
$68.4 million in cash ($44 million after taxes and transaction fees) for
the stock and assets sold in connection with the sale. The Company recorded
in the fourth quarter of 1997 a $6 million after tax charge, primarily to
write down assets that were not part of the sale. Under the sale agreement,
until December 18, 2000, in most cases, the Company agreed to indemnify
Yves Rocher for damages (in amounts up to $20.9 million) suffered by Yves
Rocher resulting from certain breaches by the Company. As part of the
transaction, the Company's manufacturing subsidiary, Cosmhogar S.A.,
located in Spain, entered into a supply agreement and related license
agreement with Yves Rocher for terms of one year for cosmetics and personal
care products and five years for household care products. The Cosmhogar
facility and other retained assets of the Group remain to be sold. Also, as
part of the agreement, the Stanhome name was sold with the business of the
Worldwide Direct Selling Group. In July 1998, the Company paid Yves Rocher,
the purchaser of the Direct Selling business, $1.875 million ($1.125
million after taxes) from previously established reserves to settle and
compromise certain asserted claims relating to the sale of the Direct
Selling business.
Accordingly, the applicable financial statements and related
notes have been reclassified to present these two divested business
segments as discontinued operations. Therefore, the operating results of
these two divested business segments have been segregated and reported as
discontinued operations in the statements of income and statements of cash
flows.
Note 2, Discontinued Operations, to the Consolidated Financial
Statements provides additional information on the two discontinued
operations.
Year 2000 Compliance Program
A company-wide program has been initiated by management 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.
Impact assessment is complete, although 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. Regarding internal
issues, the Company has made substantial progress to remedy all Year 2000
concerns identified. This is being accomplished through internal correction
or the normal replacement of existing systems, computer software and
hardware. All correction and replacement work, including testing and
implementation, is expected to be completed by mid-year 1999.
The capital and operating cost 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.
The Company has engaged independent consulting resources to
audit and evaluate its approach and plans to achieve Year 2000 compliance.
This audit has been completed at a cost of approximately $300,000. The
results are being used to confirm and enhance, where necessary, the current
Year 2000 program plans.
The need for contingency plans will be addressed as part of the
Company's Year 2000 program. While the Company currently anticipates that
its own systems and those of critical business partners will be Year 2000
compliant, contingency plans, as appropriate, will be developed. Critical
external business support functions, such as shipping and transportation,
banking, the Far East supply chain and customs will be included in this
assessment.
Euro Currency Issue
Effective January 1, 1999, 11 of the 15 countries that are
members of the European Union introduced a new, single currency unit, the
euro.
Prior to full implementation for the new currency for the
participating countries on January 1, 2002, there will be a three-year
transition period during which parties may use either the existing
currencies or the euro. However, during the transition period, all
exchanges between currencies of the participating countries are required to
be first converted through the euro.
After a thorough review, the Company anticipates that there will
be minimal impact on its operations during the transition beginning January
1, 1999. The Company is preparing to meet the requirements of critical
suppliers and customers during this period and expects to be ready for the
full conversion by January 1, 2001, one year ahead of the mandatory
conversion date. The Company does not expect the introduction of the euro
currency to have a material impact on its earnings or consolidated
financial position.
The federal securities laws provide "safe harbor" status to
certain statements that go beyond historical information and which may
provide an indication of future results. The statements contained in the
Company's periodic press releases or throughout this annual report
concerning matters that are not historical financial results of the Company
are "forward-looking" statements that involve risks and uncertainties and
are not guarantees of future performance.
Actual results of the Company may differ materially from the
estimates and other projections contained in the Company's forward-looking
statements and the assumptions on which they are based. A description of
some of the important factors that could cause such material differences is
set forth in the Company's Form 10-K for the year ended December 31, 1997,
filed under the Securities Exchange Act of 1934. The Company undertakes no
obligation to update or publish in the future any forward-looking
information.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, 1998 and 1997
ENESCO GROUP, INC.
ASSETS
1998 1997
---- ----
CURRENT ASSETS:
Cash and certificates of deposit (including
interest bearing demand deposits).............. $ 17,905 $ 35,724
Accounts receivable, net......................... 86,171 101,731
Inventories...................................... 81,740 107,752
Prepaid expenses................................. 4,672 2,482
Current tax assets............................... 15,199 16,612
-------- --------
Total current assets................... 205,687 264,301
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and improvements............................ 4,355 4,355
Buildings and improvements....................... 38,231 38,543
Machinery and equipment.......................... 13,262 13,949
Furniture and fixtures........................... 28,634 25,057
Transportation equipment......................... 506 510
-------- --------
84,988 82,414
Less - Accumulated depreciation and amortization. 51,375 46,836
-------- --------
33,613 35,578
-------- --------
OTHER ASSETS:
Goodwill and other intangibles, net.............. 40,816 89,596
Other............................................ 27,287 27,539
-------- --------
68,103 117,135
-------- --------
DEFERRED TAX ASSETS................................ 12,546 14,560
-------- --------
$319,949 $431,574
======== ========
The accompanying notes are an integral part of these financial statements.
LIABILITIES AND SHAREHOLDERS' EQUITY
1998 1997
---- ----
CURRENT LIABILITIES:
Notes and loans payable.......................... $ 7,900 $ 8,388
Accounts payable................................. 25,373 43,576
Federal, state and foreign taxes on income....... 56,614 66,245
Accrued expenses -
Payroll and commissions........................ 5,385 5,396
Royalties...................................... 6,826 6,767
Postretirement benefits........................ 5,280 5,008
Other.......................................... 23,453 23,472
-------- --------
Total current liabilities............... 130,831 158,852
-------- --------
LONG-TERM LIABILITIES:
Postretirement benefits.......................... 31,494 36,723
Deferred tax liabilities......................... 7,043 7,085
-------- --------
Total long-term liabilities............. 38,537 43,808
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY:
Common stock, par value $.125--
Authorized 80,000 shares
Issued 25,228 shares........................... 3,154 3,154
Capital in excess of par value................... 48,506 46,858
Retained earnings................................ 315,335 355,806
Accumulated other comprehensive income........... ( 2,258) ( 1,519)
-------- --------
364,737 404,299
Less - Shares held in treasury, at cost-
Common stock, 9,377 shares in
1998 and 8,027 in 1997....................... 214,156 175,385
-------- --------
Total shareholders' equity.............. 150,581 228,914
-------- --------
$319,949 $431,574
======== ========
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For the Years Ended December 31, 1998, 1997 and 1996
ENESCO GROUP, INC.
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET SALES...................................... $451,040 $476,183 $515,448
COST OF SALES.................................. 242,166 259,097 272,180
-------- -------- --------
GROSS PROFIT................................... 208,874 217,086 243,268
SELLING, DISTRIBUTION, GENERAL
AND ADMINISTRATIVE EXPENSES.................. 159,766 186,468 173,556
-------- -------- --------
OPERATING PROFIT............................... 49,108 30,618 69,712
Interest expense............................. ( 3,575) ( 6,783) ( 8,196)
Goodwill writedown........................... ( 46,000) - -
Other expense, net........................... ( 2,828) ( 3,005) ( 3,274)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES FROM
CONTINUING OPERATIONS........................ ( 3,295) 20,830 58,242
Income taxes................................. 19,148 10,285 25,626
-------- -------- --------
INCOME (LOSS) OF CONTINUING OPERATIONS,
NET OF TAXES................................. ( 22,443) 10,545 32,616
INCOME OF DISCONTINUED OPERATIONS, NET OF TAXES - 2,158 5,821
NET LOSS ON SALE OF DISCONTINUED OPERATIONS.... - ( 41,000) -
-------- -------- --------
NET INCOME (LOSS).............................. ($ 22,443) ($ 28,297) $ 38,437
======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE,
BASIC: Continuing Operations.............. ($1.38) $ .60 $1.81
Discontinued Operations............ - .12 .32
Sale of Discontinued Operations.... - ( 2.33) -
----- ----- -----
Total.............................. ($1.38) ($1.61) $2.13
===== ===== =====
DILUTED: Continuing Operations.............. ($1.38) $ .60 $1.80
Discontinued Operations............ - .12 .32
Sale of Discontinued Operations.... - ( 2.32) -
----- ----- -----
Total.............................. ($1.38) ($1.60) $2.12
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In thousands, except per share amounts)
For the Years Ended December 31, 1998, 1997 and 1996
ENESCO GROUP, INC.
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
BALANCE, beginning of year..................... $355,806 $403,805 $385,008
Net income (loss)............................ ( 22,443) ( 28,297) 38,437
Cash dividends, $1.12 per share in 1998 and
1997 and $1.09 per share in 1996............ ( 18,028) ( 19,702) ( 19,640)
-------- -------- --------
BALANCE, end of year........................... $315,335 $355,806 $403,805
======== ======== ========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 1998, 1997 and 1996
(In thousands)
ENESCO GROUP, INC.
NET INCOME (LOSS).............................. ($ 22,443) ($ 28,297) $ 38,437
-------- -------- --------
OTHER COMPREHENSIVE INCOME:
Cumulative translation adjustments
(no tax effects)........................... ( 739) 19,602 6,288
-------- -------- --------
TOTAL OTHER COMPREHENSIVE INCOME............... ( 739) 19,602 6,288
-------- -------- --------
COMPREHENSIVE INCOME (LOSS).................... ($ 23,182) ($ 8,695) $ 44,725
======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended December 31, 1998, 1997 and 1996
ENESCO GROUP, INC.
1998 1997 1996
---- ---- ----
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss)..................................... ($22,443) ($28,297) $38,437
Less - Net income discontinued operations............. - ( 2,158) ( 5,821)
- Net loss on sale of discontinued operations.... - 41,000 -
Adjustments to reconcile continuing operations net
income to net cash provided by operating activities:
Depreciation and amortization of property,
plant and equipment................................ 5,649 5,701 5,744
Allowance for (gains) losses on accounts receivable. ( 1,846) 1,255 2,026
Amortization of other assets........................ 3,195 3,479 3,843
Goodwill writedown.................................. 46,000 - -
(Gains) losses on sale of capital assets............ ( 3) 1 355
Changes in assets and liabilities, net of effects
from acquisition of businesses:
Notes and accounts receivable..................... 17,256 24,871 ( 29,576)
Inventories....................................... 25,964 ( 25,171) 358
Prepaid expenses.................................. ( 2,182) 994 ( 536)
Other assets...................................... 164 ( 8,820) ( 2,666)
Accounts payable and accrued expenses............. ( 18,113) ( 1,709) 2,755
Taxes on income................................... ( 9,602) 33,281 9,367
Current tax assets................................ 1,413 ( 1,784) ( 426)
Deferred tax assets............................... 2,014 ( 9,297) ( 447)
Long-term postretirement benefits................. ( 5,229) 22,339 1,634
Operating activities of discontinued operations... - ( 5,072) 9,564
------- ------- -------
Net cash provided by operating activities............. 42,237 50,613 34,611
------- ------- -------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment............. ( 4,520) ( 4,944) ( 5,095)
Payments for acquisition of businesses,
net of cash acquired................................. - - ( 1,563)
Proceeds from sales of discontinued operations........ - 85,939 -
Proceeds from sales of property, plant and equipment.. 848 759 1,014
Deferred tax liabilities.............................. ( 42) ( 114) 141
Investing activities of discontinued operations....... - ( 1,181) ( 1,137)
------- ------- -------
Net cash provided (used) by investing activities...... ( 3,714) 80,459 ( 6,640)
------- ------- -------
FINANCING ACTIVITIES:
Cash dividends........................................ ( 18,028) ( 19,702) ( 19,640)
Exchanges and purchases of common stock............... ( 39,841) ( 23,906) ( 15,178)
Notes and loans payable............................... ( 394) ( 69,737) 2,373
Exercise of stock options............................. 2,307 2,144 1,814
Other common stock issuance........................... 411 245 316
Financing activities of discontinued operations....... - 6,071 ( 549)
------- ------- -------
Net cash used by financing activities................. ( 55,545) (104,885) ( 30,864)
------- ------- -------
Effect of exchange rate changes on cash and
cash equivalents..................................... ( 797) ( 769) 340
------- ------- -------
Increase (decrease) in cash and cash equivalents...... ( 17,819) 25,418 ( 2,553)
Cash and cash equivalents, beginning of year.......... 35,724 10,306 12,859
------- ------- -------
Cash and cash equivalents, end of year................ $17,905 $35,724 $10,306
======= ======= =======
The accompanying notes are an integral part of these financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
1. Accounting policies:
The accompanying consolidated financial statements include the
accounts of Enesco Group, Inc. and its subsidiaries (the "Company"). All
significant intercompany transactions have been eliminated in the
consolidated financial statements. The preparation of financial statements
in conformity with generally accepted accounting principles requires the
use of management's estimates. Actual results could differ from those
estimates. Previous years' consolidated balance sheets and statements of
cash flows have been restated to reflect deferred taxes as separate
classifications. Certain reclassifications have been made in the 1996
financial statements to conform to the 1998 presentation, which reflects
certain operations that were discontinued in 1997 and are described in Note
2. The continuing operations, which operate in a single industry, design,
manufacture primarily through third parties located in the Pacific Rim, and
market a wide variety of licensed and proprietary branded gifts and
collectibles to retail stores primarily throughout the United States,
Canada and Europe.
Assets and liabilities of the Company's foreign subsidiaries are
translated at the exchange rate on the balance sheet date, while statement
of income items are translated at the average exchange rates for the year.
Translation gains and losses are reported as a component of accumulated
other comprehensive income in shareholders' equity. Transaction gains and
losses are reported in the consolidated statements of income.
The carrying amount of cash and certificates of deposit and notes
and loans payable approximate fair value.
The Company considers all highly liquid securities, including
certificates of deposit, with maturities of three months or less, when
purchased, to be cash equivalents, except for $2,000 of deposits in 1998
and 1997, respectively, with terms in excess of three months.
The Company recognizes revenue as merchandise that 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.
Accounts receivable were net of reserves for uncollectible
accounts, returns and allowances of $9,300,000 and $11,146,000 at December
31, 1998 and 1997, respectively.
Inventories are valued at the lower of cost or market. Cost
components include labor, manufacturing overhead and amounts paid to
suppliers of materials and products. The Company values all inventories
utilizing the first-in, first-out method. The Company records inventory at
the date of taking title, which at certain times during the year results in
significant in-transit quantities, as inventory is sourced primarily from
China, Taiwan and other Pacific Rim countries.
The major classes of inventories were as follows (in thousands):
1998 1997
---- ----
Raw materials and supplies........... $ 1,185 $ 1,719
Work in process...................... 396 930
Finished goods in transit............ 12,202 14,865
Finished goods....................... 67,957 90,238
-------- --------
$ 81,740 $107,752
======== ========
Concentration of risk for the Company exists in revenue from major
product lines, sources of supply of inventory, markets and geographic
areas, and trade receivables. The majority of product sales are under
licensed rights from third parties. The two largest licensed lines
represented approximately 58% of the Company's total sales for 1998. A
large portion of acquired inventory is sourced from the Far East,
principally China. A significant portion of the Company's operations is
located in Europe. Extended credit terms are offered to customers. The
Company continually monitors and manages the risks associated with all
these activities.
Depreciation is provided over the estimated useful lives of the
assets utilizing straight-line and declining balance methods. The methods
for financial statement and income tax purposes differ in some
circumstances, resulting in deferred income taxes.
The estimated useful lives of the various classes of assets are:
Range in Years
Land improvements.................... 10-15
Buildings and improvements........... 15-40
Machinery and equipment.............. 5-12
Furniture and fixtures............... 5-10
Transportation equipment............. 3-8
Intangible assets, primarily goodwill, result from the allocation
of the excess cost of acquisitions over the value of net tangible assets
acquired. Intangible assets are amortized using the straight-line method
principally over 20 to 40 years. The Company periodically evaluates whether
events or circumstances have occurred indicating that the net book value of
goodwill has been impaired. When factors indicate that goodwill should be
evaluated for possible impairment, the Company uses an estimate of the
acquired business' undiscounted future net cash flows compared to the
carrying value of goodwill to determine if a writedown is necessary. The
results of a year-end 1998 goodwill evaluation are addressed in Note 7.
Intangible assets were net of accumulated amortization of $29,632,000 and
$26,845,000 at December 31, 1998 and 1997, respectively.
Basic earnings per common share are based on the average number of
common shares outstanding during the year. Diluted earnings per common
share assumes, in addition to the above, the dilutive effect of common
share equivalents during the year. Common share equivalents represent
dilutive stock options using the treasury stock method. The number of
shares used in the earnings per common share computation for 1998, 1997 and
1996 were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Basic
<S> <C> <C> <C>
Average common shares outstanding.... 16,208 17,577 18,080
Diluted
Stock options........................ 50 84 12
------ ------ ------
Average shares diluted............... 16,258 17,661 18,092
</TABLE>
In June 1997, the Financial Accounting Standards Board ("FASB")
adopted a new standard on reporting comprehensive income, Statement of
Financial Accounting Standards ("SFAS") No. 130, which established
standards for reporting and display of comprehensive income (net income
(loss) together with other non-owner changes in equity) and its components
in a full set of general purpose financial statements. The standard became
effective for the Company in 1998 and required reclassification of
comparative financial statements for prior years. The other comprehensive
income contained in these accompanying consolidated statements consists
only of cumulative translation adjustments.
At its annual meeting in April 1998, the Company's shareholders
approved a proposal to change its corporate name to "Enesco Group, Inc.",
to reflect the Company's transformation into a singularly focused designer
and marketer of branded gifts and collectibles. The Stanhome Inc. name was
sold as part of the December 1997 agreement to sell the majority of the
business of the Direct Selling discontinued operation, as described in Note
2.
2. Discontinued Operations:
In May 1997, the Company completed the sale of the Company's
United States Hamilton Direct Response businesses to The Crestley
Collection, Ltd., an affiliate of The Bradford Group for approximately
$48.3 million, including the repayment of $30.8 million of intercompany
debt, subject to certain potential indemnification obligations. $3.8
million of the sale proceeds are being held in escrow in other assets, and
are recoverable with interest on May 23, 2000, subject to certain potential
indemnification obligations. In connection with the sale, the Company
recorded in the first quarter of 1997 a $35 million after tax charge
consisting mainly of the writedown of goodwill, current assets and
associated transaction and severance costs. The Company has closed
Hamilton's foreign operations. Under the sales agreement, until May 22,
2000, in most cases, the Company agreed to indemnify Bradford for damages
(in amounts exceeding $500 thousand up to a maximum of $10 million)
suffered by Bradford resulting from certain breaches by the Company of its
representations, warranties or covenants contained in that agreement and any
unpaid taxes for which no applicable financial reserve existed. Except with
respect to breaches by the Company of its representations regarding title
to assets, taxes and certain covenants in the agreement regarding tax
matters, Crestley has no right to indemnification from the Company for
claims made after May 22, 2000. To date, no breaches of the agreement have
been asserted by Crestley, and the Company is not independently aware that
it has breached or may have breached the agreement. In addition, no unpaid,
unreserved taxes have been identified. At the time of the closing of the
sale, a judgmental reserve was established by the Company for any losses
which might be suffered by the Company for any breaches of the agreement or
unpaid, unreserved taxes. As part of the agreement, Bradford and Enesco
Corporation, a wholly-owned subsidiary of the Company, entered into two
license agreements pursuant to which Enesco Corporation will license
certain proprietary and licensed lines of products to Bradford for an
initial five-year period.
In December 1997, the Company completed the sale of the majority
of the operations comprising its Worldwide Direct Selling Group to
Laboratoires de Biologie de Vegetale Yves Rocher of France. Subject to
certain potential indemnification obligations, the sale price was
approximately $68.4 million in cash ($44 million after taxes and
transaction fees) for the businesses and assets sold in connection with the
sale. The Company recorded in the fourth quarter of 1997 a $6 million after
tax charge, primarily to write down assets that were not part of the sale.
Under the sale agreement, until December 18, 2000, in most cases, the
Company agreed to indemnify Yves Rocher for damages (in amounts exceeding
FF 2.5 million up to a maximum of FF 125 million or $20.9 million) suffered
by Yves Rocher resulting from certain breaches by the Company of that
agreement. Except with respect to breaches by the Company of its
representations in the agreement regarding taxes, Yves Rocher has no right
to indemnification from the Company for claims made after December 18,
2000. At the time of the closing of the sale, a judgmental reserve was
established by the Company for any losses which might be suffered by the
Company for any future breaches of the agreement. On March 28, 1998, the
Company received from Yves Rocher a claim notice asserting various breaches
under the purchase and sale agreement. Without admitting any breach of the
agreement or otherwise addressing the merits of Yves Rocher's claims (and
in order to avoid the further expenses and distractions of arbitration and
litigation), the Company agreed to settle and compromise certain asserted
claims of Yves Rocher in a Settlement Agreement with Yves Rocher dated as
of July 10, 1998. The Settlement Agreement required, among other things,
the payment of $1.875 million to Yves Rocher from certain funds escrowed at
the closing under the purchase and sale agreement.
Management of the Company will assess the probability of any
breach of the purchase and sale agreements with Crestley and Yves Rocher on
a continuing basis during the respective indemnification periods. Other
than in connection with the Settlement Agreement with Yves Rocher,
management has not identified or been informed by the other parties of any
alleged breach of either agreement or unpaid, unreserved taxes under the
Crestley purchase and sale agreement requiring an accrual of any amounts in
excess of the previously established judgmental reserves.
Accordingly, the applicable financial statements and related
notes have been reclassified to present these two divested business
segments as discontinued operations. Therefore, the operating results of
these two divested business segments have been segregated and reported as
discontinued operations in the consolidated statements of income and
statements of cash flows. There have not been any significant 1998 changes
in the loss provisions for closing costs and any other loss provisions
previously established in connection with the discontinued operations. All
of the provisions are anticipated to be used.
The approximate components of the discontinued operations charge
were as follows (in thousands):
Direct Response
Loss on sale - Hamilton U.S.(principally
the writedown of goodwill)................ ( $23,500)
Provision for closing costs (principally
international operations) and
termination benefits....................... ( 8,500)
Writedown of international current assets
due to anticipated proceeds being less
than carrying value........................ ( 3,000)
Transaction fees............................. ( 2,000)
-------
Before tax charge............................ ( 37,000)
Anticipated tax benefit...................... 2,000
-------
After tax charge............................. ($35,000)
=======
The anticipated income tax benefits are limited, since most of the
international closing costs and writedown of assets are not expected to
receive a tax benefit and the United States capital loss is limited due to
loss disallowance rules.
Direct Selling
Gain on sale of Direct Selling operations.... $24,300
Writedown of assets of remaining Direct
Selling operations due to anticipated
net proceeds being less than carrying
value...................................... ( 6,000)
Provision for disposition costs of
remaining operations including severance... ( 2,300)
Transaction fees............................. ( 4,000)
-------
Before tax gain.............................. 12,000
Anticipated tax provision.................... ( 18,000)
-------
After tax loss............................... ($ 6,000)
=======
The anticipated taxes are higher than the gain since most of the
disposition costs and writedown of assets are not expected to receive a tax
benefit, the benefit in the United States of utilizing foreign taxes due on
the sale is limited, and the United States tax basis of the companies sold
was less than book value.
The above charges reflect the Company's best estimate at this time
of the value of remaining assets and anticipated closing costs. The amounts
that the Company will ultimately realize could differ materially.
The 1997 operating results of discontinued operations include
three months of Direct Response and nine months of Direct Selling. These
operating results are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales of discontinued operations....... $ - $151,128 $331,740
======== ======== ========
Income before income taxes from
discontinued operations.................. $ - $ 4,632 $11,037
Income taxes............................... - 2,474 5,216
------- ------- -------
Net income of discontinued operations...... $ - $ 2,158 $ 5,821
======= ======= =======
Loss on sale of discontinued operations
before income taxes...................... $ - ($25,000) $ -
Income tax charge.......................... - ( 16,000) -
------- ------- -------
Net loss on sale of discontinued operations $ - ($41,000) $ -
======= ======= =======
</TABLE>
Cash flows from (for) discontinued operations as shown in the
consolidated statements of cash flows are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
For the Year Ended
------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating Activities:
Net income from operations of
discontinued segments.......... $ - $ 2,158 $ 5,821
Net loss on sale of discontinued
segments....................... - ( 41,000) -
Depreciation and amortization,
losses on accounts receivable
and losses on sale of
capital assets................. - 2,837 3,679
Increase in operating activities. - 30,933 64
------- ------- -------
Net cash from (for) operating
activities of discontinued
operations..................... $ - ($ 5,072) $ 9,564
======= ======= =======
Investing Activities:
Purchase of property, plant
and equipment.................. $ - ($ 1,407) ($ 4,172)
Proceeds from sale of property,
plant and equipment............ - 226 3,035
------- ------- -------
Net cash for investing
activities of discontinued
operations..................... $ - ($ 1,181) ($ 1,137)
======= ======= =======
Financing Activities:
Notes and loans payable.......... $ - $ 6,071 ($ 549)
------- ------- -------
Net cash from (for) financing
activities of discontinued
operations..................... $ - $ 6,071 ($ 549)
======= ======= =======
</TABLE>
3. Notes and loans payable:
Notes and loans payable and weighted-average interest rates at
December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
Interest Interest
Balance Rate Balance Rate
------- -------- ------- ---------
<S> <C> <C> <C> <C>
Notes under uncommitted
bank lines............... $ 7,900 5.4% $ 8,388 4.5%
Notes under committed
bank lines............... - - - -
------- ---- ------- ---
Total................. $ 7,900 5.4% $ 8,388 4.5%
======= ==== ======= ====
</TABLE>
Total interest paid was $4,198,000 in 1998, $6,475,000 in 1997 and
$7,959,000 in 1996.
In August 1995, the Company entered into a five year $200 million
multicurrency revolving credit agreement with various banks which can be
used for working capital, investing and financing activities. The revolving
credit agreement includes restrictions as to, among other things, the
amount of indebtedness, liens and other contingent obligations. The
revolving credit agreement also requires maintenance of minimum levels of
interest coverage and consolidated indebtedness. Under the revolving credit
agreement the Company's consolidated indebtedness is limited to 50% of the
total capitalization of the Company. As a result, at December 31, 1998 the
Company's consolidated indebtedness is limited to $150.6 million. The
revolving credit agreement has an annual facility fee of .10% per annum, an
agency fee and a margin supplement for Eurocurrency rate loans where more
than one-third of the commitment is utilized. The revolving credit
agreement has two interest rate options: The Alternate Base Rate (as
defined) and the Eurocurrency Advance Rate (as defined) plus an applicable
margin. At December 31, 1998, there were no open borrowings under the
revolving credit agreement.
At December 31, 1998, the Company had formal and informal unused
lines of credit of approximately $270 million, including the $200 million
multicurrency revolving credit line described above. The informal lines are
bank lines that have no commitment fees. At December 31, 1998, all open
borrowings were demand notes with a weighted-average interest rate of
approximately 5.4%.
4. Employee benefit plans:
As part of the downsizing of the corporate headquarters, the
Company's employee defined benefit plan was terminated on November 15,
1998.
The Company has various non-qualified supplemental retirement
plans. Benefits from these supplemental plans will be paid from the
Company's assets.
The Company has established grantor trusts to provide funding for some of
these non-qualified plans. The trusts are irrevocable and assets
contributed are subject to the claims of creditors and, therefore, they are
not considered plan assets reportable as a funding component under
paragraph 19 of SFAS No. 87. The assets held in these trusts at December
31, 1998 and 1997 consist of fixed income securities accounted for at the
lower of cost or market and amounted to $19.0 million and $17.5 million,
respectively. These assets are included in other assets in the accompanying
consolidated balance sheets.
The service cost component of net periodic pension expense
increased in 1997, due principally to the addition of executives to the
non-qualified plans in 1997 and the termination of the chief executive
officer in 1997 (since his service ceased and the full benefit was
expensed). In addition, plan enhancements were made in 1997 that were, in
some cases, recognized immediately for executives who terminated in 1997.
It is the Company's policy to recognize costs over the remaining service
life based on the earliest possible date that the benefit could be payable.
In 1998 the service cost was reduced as a result of retirements
and terminations in 1997 as discussed above. The interest cost and expected
return on plan assets in 1998 were reduced as a result of the settlement of
97% of the defined benefit plan's liabilities in 1997, in accordance with
SFAS No. 88. This settlement also eliminated the amortization expenses in
1998. The remaining liability of $855,000 was settled in 1998.
In February 1998, the FASB adopted SFAS No. 132 "Employers'
Disclosures about Pensions and Other Postretirement Benefits". This
standard became effective for the Company at year-end 1998 and required
restatement of pension and other postretirement benefit disclosures for
prior years.
The following tables set forth the domestic plans' funded status
and amounts recognized in the Company's consolidated balance sheets at
December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
Change in benefit obligation:
<S> <C> <C>
Benefit obligation at beginning of year............. $20,042 $40,679
Service cost........................................ 375 5,356
Interest cost....................................... 424 2,696
Participant contributions........................... - -
Plan amendments..................................... - -
Curtailment gain.................................... - ( 332)
Settlement payments................................. ( 776) ( 31,100)
Special termination benefits........................ - -
Benefits paid....................................... ( 188) ( 2,030)
Actuarial loss...................................... 115 4,773
------- -------
Benefit obligation at end of year................... $19,992 $20,042
======= =======
Change in plan assets:
Fair value of plan assets at beginning of year...... $ 855 $27,541
Actual return on plan assets, net of expenses........ 1 5,256
Acquisitions/divestitures........................... - -
Employer contributions.............................. 587 1,188
Annuity contract true-up............................ ( 471) -
Participant contributions........................... - -
Settlement payments................................. ( 776) ( 31,100)
Benefits paid....................................... ( 188) ( 2,030)
------- -------
Fair value of plan assets at end of year............ $ 8 $ 855
======= =======
Funded status.......................................
Unrecognized actuarial gain......................... ($19,984) ($19,186)
Unrecognized prior service cost..................... - ( 6)
Prepaid (accrued) benefit cost.................... - -
------- -------
($19,984) ($19,192)
========= =========
Amounts recognized in the consolidated balance
sheets consist of:
Prepaid benefit cost................................
Accrued benefit liability........................... $ 8 $ 28
Intangible asset.................................... ( 19,992) ( 19,220)
Accumulated other comprehensive income.............. - -
Net amount recognized at year-end................... - -
------- -------
($19,984) ($19,192)
======== ========
</TABLE>
<TABLE>
<CAPTION>
1998 1997
---- ----
Additional year-end information for pension plans
with accumulated benefit obligations in excess of
plan assets:
<S> <C> <C>
Projected benefit obligation........................ $19,992 $19,220
Accumulated benefit obligation...................... 16,606 16,052
Fair value of assets................................ - -
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Components of net periodic benefit cost (in thousands):
<S> <C> <C> <C>
Service cost............................. $ 375 $ 5,356 $ 818
Interest cost............................ 424 2,696 2,382
Expected return on plan assets........... ( 37) ( 2,327) ( 2,146)
Amortization of prior service cost....... - 187 ( 15)
Amortization of transitional (asset)
or obligation............................ - 21 21
------ ------ ------
762 5,933 1,060
Additional SFAS No. 88 charge(gain)
recognized due to:
Curtailment............................ - 1,065 -
Settlement............................. 617 ( 229) -
------ ------ ------
Net periodic benefit cost.............. $ 1,379 $ 6,769 $ 1,060
======= ======= =======
</TABLE>
The above schedules for all years presented include various
non-qualified supplemental retirement plans. The weighted-average discount
rate used to measure the projected benefit obligation and the rate of
increase in future compensation levels both range from 5% to 7% and the
expected long-term rate of return on assets is 9%.
The qualified pension plan was terminated for all participants on
November 15, 1998, and an annuity was purchased from Hartford Life
Insurance Company as a settlement under SFAS No. 88. The impacts of the
plan curtailment, settlement and termination were expenses of $617,000 in
1998 and $836,000 in 1997.
In addition to providing pension benefits, the Company sponsors a
defined benefit postretirement health care and life insurance plan.
Employees may become eligible for the benefits under this plan if they
reach allowable retirement age while working for the Company. Those
benefits are provided principally through insurance companies whose
premiums are based on the anticipated benefits to be paid. The total costs
for such retired employee benefits were principally accrued during their
active employment.
The following table sets forth the funded status of the plan
reconciled with the amount shown in the Company's consolidated balance
sheets at December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
Change in benefit obligation:
<S> <C> <C>
Benefit obligation at beginning of year........... $ 3,139 $ 3,452
Service cost...................................... 175 85
Interest cost..................................... 50 55
Participant contributions......................... - -
Plan amendments................................... - -
Actuarial gain.................................... ( 61) ( 453)
Acquisitions...................................... - -
Benefits paid..................................... - -
------- -------
Benefit obligation at end of year................. 3,303 3,139
------- -------
Change in plan assets:
Fair value of plan assets at beginning of year.... - -
Actual return on plan assets...................... - -
Acquisitions...................................... - -
Employer contributions............................ - -
Participant contributions......................... - -
Benefits paid..................................... - -
------- -------
Fair value of plan assets at end of year.......... - -
------- -------
Funded status..................................... ( 3,303) ( 3,139)
Unrecognized actuarial loss....................... - -
Unrecognized prior service cost................... - -
------- -------
Prepaid (accrued) benefit cost.................... ($ 3,303) ($ 3,139)
======= =======
</TABLE>
Net periodic postretirement benefit expense includes the following
components (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost........................... $ 175 $ 85 $ 100
Interest cost.......................... 50 55 70
Expected return on plan assets......... - - -
Amortization of prior service cost..... - - -
Recognized actuarial gain.............. ( 61) ( 453) -
------- ------- -------
Net periodic benefit cost.............. $ 164 ($ 313) $ 170
======= ======= =======
</TABLE>
A 15% annual rate of increase in the per capita cost of covered
health care benefits was assumed for 1999. The cost trend rate was assumed
to decrease gradually but still remain at double digit rates until 2020.
After 2020, the rate was assumed to drop to and stabilize at 8%. Increasing
the assumed health care expense trend rates by one percentage point in each
year would increase the accumulated postretirement benefit obligation as of
December 31, 1998 by $80,000 and the aggregate of the service and interest
cost components of the net postretirement benefit expense for the year then
ended by $5,000.
The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 5%.
In addition, certain subsidiaries have established funded profit
sharing and defined contribution retirement plans. Total consolidated
pension, profit sharing and retirement plan expense amounted to $3,455,000
in 1998, $9,700,000 in 1997 and $6,824,000 in 1996.
5. Shareholders' equity:
Pursuant to action by the Company's Board of Directors (the
"Board") on July 22, 1998, effective with the expiration on September 19,
1998 of the stock purchase rights then existing under the Company's
Stockholder Rights Plan, one new right for each outstanding share of the
Company's common stock ("common stock") was issued (a "New Right") under a
Renewed Rights Agreement. Each New Right initially represents the right to
purchase one share of common stock for $125. The New Rights will only
become exercisable, or separately transferable, promptly after the Company
announces that a person has acquired or tendered for 15% or more, or
promptly after a tender offer commences that could result in ownership of
15% or more, of the common stock then outstanding.
If the New Rights become exercisable after any person acquires or
tenders for 15% or more of the common stock then outstanding (except
through an offer for all common stock that has been approved by the Board),
each New Right not owned by that person or related parties will enable its
holder to purchase, at the New Right's exercise price, common stock (or
other securities or assets, or a combination thereof) having double the
value of the exercise price. In the event of certain merger or asset sale
transactions with another party, similar terms would apply to the purchase
of that party's common stock.
The New Rights, which have no voting power, expire on July 22,
2008, subject to extension. Upon approval by the Board, the New Rights may
be redeemed for $.01 each under certain conditions.
In 1996, the shareholders approved a new Stock Option Plan
previously adopted by the Board of Directors which provides for both
incentive and non-qualified stock options. Options for up to 1,500,000
shares of common stock may be granted under the 1996 Plan. The 1996 Plan,
as amended by the Board in 1998, provides that non-qualified options for
1,500 shares of common stock be granted annually from 1996 through 1999 to
each non-employee Director then serving. The Company also has 1991 and 1984
Stock Option Plans, which provide for both incentive and non-qualified
stock options, under which options for up to 2,000,000 and 3,000,000 shares
of common stock, respectively, may be granted. No further options may be
granted under the 1984 Plan. All three plans provide for the granting to
selected key employees, and non-employee Directors in the case of the 1996
and 1991 Plans, of options to acquire shares of common stock at a price not
less than their fair market value at the time of grant. Other option terms
are determined at the time of grant, but normally under the 1984 and 1991
Plans, options have been exercisable only after a one year waiting period
with vesting in four equal annual installments, and expire ten years from
the date of grant. Under the 1996 Plan, options become exercisable only
after a six month waiting period and upon the Company's achievement of
certain stock value performance criteria at any time during the first eight
years after the date of the grant. On the eighth anniversary of the grant,
all outstanding options granted under the 1996 Plan will become
exercisable. Options granted under the 1996 Plan will expire ten years from
the date of grant.
In 1998, the Board approved a special 1998 Chairman Stock Option
Plan which provided for a one time grant of 14,000 non-qualified stock
options to the Company's Chairman of the Board. The options become
exercisable six months from date of grant and expire ten years from the
date of grant. In 1993 and 1997, the Board approved a Special Interim Chief
Executive Officer Stock Option Plan and a 1997 President and Chief
Executive Officer Stock Option Plan, respectively, which provided for
special grants of non-qualified stock options to the Company's then Chief
Executive Officer. The 1993 options vested fully in increments of 10,000
shares during each of the three months in which he served in that capacity.
The 1997 grant of 100,000 options vested fully in increments of 12,500
shares each month from November 1997 through June 1998. Both the 1993 and
1997 options become exercisable six months from the date of grant and
expire ten years from the date of grant.
At December 31, 1998, the Company has six stock-based compensation
(fixed option) plans, which are described above. The Company applies the
intrinsic value based method allowed under APB Opinion No. 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation
cost has been recognized for its fixed stock option plans. Had compensation
cost for option grants since 1994 under the Company's six stock-based
compensation plans been determined applying the fair value based method
provided for in SFAS No. 123, which became effective in 1996, the Company's
net income and earnings per common share for 1998, 1997 and 1996 would have
been reduced to the pro forma amounts indicated below (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss)....... As reported ($22,443) ($28,297) $38,437
....... Pro forma ($23,866) ($29,181) $37,690
Earnings (loss) per
common share diluted... As reported ($1.38) ($1.60) $2.12
... Pro forma ($1.47) ($1.65) $2.08
</TABLE>
The options granted in 1998 were under the 1998 Chairman Stock
Option Plan and the 1996 Plan. The options granted in 1997 were under the
1997 President and Chief Executive Officer Plan, the 1996 Plan and the 1991
Plan. The options granted in 1996 were under the 1996 Plan and the 1991
Plan. The fair value of each option grant in 1998, 1997 and 1996 was
estimated at the time of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions:
1998 1997 1996
---- ---- ----
Dividend yield yearly................ 4.0% 4.0% 4.0%
Expected volatility.................. 25% 25% 20%
Risk free interest rate.............. 5.56% 5.98% 6.43%
Expected life (years)................ 7.6 6.8 7.2
Weighted-average grant-date
fair value of options granted
during the year, per share.......... $6.55 $6.63 $6.21
Stock option status and activity under the Company's six
stock-based compensation (fixed option) plans is summarized as follows:
Weighted-
Average
Shares Exercise
Fixed Options (000s) Price
------------- ------ ------
Outstanding at December 31, 1995............ 2,653 $30.20
Granted................................... 395 29.50
Exercised................................. ( 78) 21.18
Forfeited................................. ( 155) 30.60
-----
Outstanding at December 31, 1996............ 2,815 30.33
Granted................................... 566 28.81
Exercised................................. ( 84) 23.40
Forfeited................................. ( 116) 30.46
-----
Outstanding at December 31, 1997............ 3,181 30.23
Granted................................... 150 28.17
Exercised................................. ( 87) 24.00
Forfeited................................. ( 231) 31.83
-----
Outstanding at December 31, 1998............ 3,013 $30.18
=====
1998 1997 1996
Shares Shares Shares
Fixed Options (000s) (000s) (000s)
------------- ------ ------ -------
Options exercisable at year-end......... 2,013 1,787 1,862
A summary of information about fixed stock options outstanding at
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- ---------------------------
Weighted-
Number Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise at 12/31/98 Contractual Exercise at 12/31/98 Exercise
Prices (000s) Life Price (000s) Price
- -------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$26 to $30........ 2,005 6.2 years 28.13 1,069 27.59
$31 to $36........ 1,008 4.9 34.25 944 34.41
$26 to $36........ 3,013 5.7 30.18 2,013 30.79
</TABLE>
An analysis of treasury stock transactions for the years ended
December 31, 1998, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
Common
------
Shares Cost
------ ----
<S> <C> <C>
Balance, December 31, 1995......................... 6,898 $137,061
Purchases.......................................... 515 15,160
Stock option exchanges............................. 1 18
Exercise of stock options.......................... ( 78) ( 321)
Issue of PAYSOP shares............................. ( 6) ( 24)
Investment Savings Plan - 401(k) issues............ ( 3) ( 15)
Non-employee Director Stock Plan issues............ ( 2) ( 7)
----- --------
Balance, December 31, 1996......................... 7,325 151,872
Purchases.......................................... 793 23,830
Stock option exchanges............................. 2 76
Exercise of stock options.......................... ( 84) ( 354)
Issue of PAYSOP shares............................. ( 6) ( 26)
Investment Savings Plan - 401(k) issues............ ( 1) ( 6)
Non-employee Director Stock Plan issues............ ( 2) ( 7)
----- --------
Balance, December 31, 1997......................... 8,027 175,385
Purchases.......................................... 1,424 38,982
Stock option exchanges............................. 27 858
Exercise of stock options.......................... ( 87) ( 988)
Issue of PAYSOP shares............................. ( 12) ( 68)
Investment Savings Plan - 401(k) issues............ ( 1) ( 6)
Non-employee Director Stock Plan issues............ ( 1) ( 7)
----- --------
Balance, December 31, 1998......................... 9,377 $214,156
===== ========
</TABLE>
In 1985, the Company approved a Payroll-Based Stock Ownership
Plan ("PAYSOP") which provides common stock to eligible employees and
allows the Company a Federal income tax deduction equal to the market value
of the issued stock. In 1987, the Company introduced an Investment Savings
Plan in accordance with Section 401(k) of the Internal Revenue Code. One of
the features of this retirement savings plan provides common stock to
eligible employees and allows the Company a Federal income tax deduction
equal to the market value of the issued stock. In 1995, the shareholders
approved the Non-Employee Director Stock Plan previously recommended by the
Board which provides for an annual grant of 200 shares of common stock to
each then serving non-employee Director over a five year period ending
December 31, 1999. The maximum number of shares reserved for this plan is
15,000.
The change in capital in excess of par value resulted from the
exercise of stock options, including the related income tax benefit
($1,319,000, $1,790,000, and $1,493,000 in 1998, 1997 and 1996,
respectively), issuance of PAYSOP shares ($286,000 in 1998, $136,000 in
1997 and $141,000 in 1996), issuance of 401(k) Plan shares ($12,000,
$29,000 and $90,000 in 1998, 1997 and 1996, respectively) and issuance of
Non-Employee Director Stock Plan shares ($31,000 in 1998, $41,000 in 1997
and $39,000 in 1996), as noted above.
6. Other income (expense), net:
Other income (expense), net consists of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Investment income................. $ 795 $ 1,456 $ 1,577
Other assets amortization......... ( 3,195) ( 3,479) ( 3,843)
Other items, net.................. ( 428) ( 982) ( 1,008)
------- ------- -------
($ 2,828) ($ 3,005) ($ 3,274)
======= ======= =======
</TABLE>
7. Impairment of Long-lived Assets:
In the fourth quarter of 1994, the Company purchased two United
Kingdom companies, Border Fine Arts, a maker of animal sculptures and
figurines, and Lilliput Lane, a maker of miniature cottages.
These acquisitions resulted in approximately $65 million of
goodwill which was being amortized over forty years. The expected growth
potential of these acquisitions worldwide never materialized and results
have decreased since the acquisitions, with sales decreasing 10% in 1998.
Additionally, the Company's current plans do not project significant rapid
growth of these businesses in the future. These circumstances triggered an
asset impairment review in accordance with SFAS No. 121 "Accounting for the
Impairment of Long-lived Assets".
The application of this statement requires the Company to
evaluate facts and circumstances that indicate the costs of certain
property, plant, and equipment and intangible assets may be impaired. The
evaluation is based upon the estimated future net cash flows (undiscounted
and without interest charges) associated with the property, plant, and
equipment and intangible assets compared to the carrying value of the asset
to determine whether a writedown to fair value is required. Based upon the
Company's undiscounted cash flow projections of these businesses, the
Company determined it would not be able to recover the associated goodwill.
After analyzing the expected future discounted cash flows and
market value of these businesses, the Company determined that the fair
value of the goodwill was $46 million dollars less than the carrying value
as of December 31, 1998, and recorded a fourth quarter non-cash $46 million
charge before and after tax, which is included in other expense, net in the
accompanying consolidated statements of income. The remaining goodwill as
of December 31, 1998 is approximately $14 million and will be amortized
over the next 21 years.
8. Geographic Operating Segments
The Company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information" as of December 31, 1998. The Company
operates in one industry segment, predominately in two major geographic
areas (United States and Europe). This statement established new disclosure
requirements related to operating and geographic segments as presented in
the following tables:
<TABLE>
<CAPTION>
Geographic Areas
1998 1997 1996
---- ---- ----
Net sales
<S> <C> <C> <C>
United States................ $369,221 $388,879 $431,903
United States inter-company.. (4,637) (4,897) (3,911)
International................ 90,987 96,929 89,866
International inter-company.. (4,531) (4,728) (2,410)
-------- -------- --------
Total consolidated....... $451,040 $476,183 $515,448
======== ========= ========
Operating profit
United States................ $ 45,630 $ 24,054 $ 62,030
International................ 3,478 6,564 7,682
-------- -------- --------
Total consolidated....... $ 49,108 $ 30,618 $ 69,712
======== ======== ========
Long-lived assets
United States................ $ 86,545 $ 90,710 $ 77,413
International................ 27,717 76,563 79,417
-------- -------- --------
Long-term assets.......... 114,262 167,273 156,830
Discontinued operations
long-term assets......... - - 101,329
-------- -------- --------
Total consolidated....... $114,262 $167,273 $258,159
======== ======== ========
Capital expenditures
United States............... $ 2,486 $ 2,982 $ 3,370
International............... 2,034 1,962 1,725
-------- -------- --------
Total $ 4,520 $ 4,944 $ 5,095
======== ======== ========
Depreciation and amortization
United States.............. $ 5,067 $ 5,904 $ 6,325
International.............. 49,777 3,276 3,262
-------- -------- --------
Total.................. $ 54,844 $ 9,180 $ 9,587
======== ======== ========
</TABLE>
Total Sales for the United Kingdom for 1998, 1997 and 1996 were in
millions $47.7, $49.3 and $43.9, respectively. Total long-lived assets of
the United Kingdom for 1998, 1997, and 1996 were in millions $17.6, $65.0
and $73.1, respectively.
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.
9. Income taxes (in thousands):
The domestic and foreign components of the current and deferred
tax assets(liabilities) on income consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
Current Tax Assets
------------------
United States
Federal--
<S> <C> <C>
Inventory reserve............................ $ 3,706 $ 4,539
Bad debt reserve............................. 1,632 1,870
Returns and allowances reserve............... 676 929
Deferred compensation........................ 617 780
Other items, net............................. 5,124 4,685
------- -------
11,755 12,803
------- -------
State--
Inventory reserve............................ 897 1,109
Bad debt reserve............................. 401 462
Returns and allowances reserve............... 159 222
Deferred compensation........................ 133 168
Other items, net............................. 1,132 1,042
------- -------
2,722 3,003
------- -------
Foreign
Other items, net............................. 722 806
------- -------
Total $15,199 $16,612
======= =======
Deferred Tax Assets
-------------------
United States
Federal--
Postretirement benefits...................... $10,251 $11,953
State--
Postretirement benefits...................... 2,205 2,571
Foreign
Other items, net............................. 90 36
------- -------
$12,546 $14,560
======= =======
Deferred Tax Liabilities
------------------------
1998 1997
---- ----
United States
Federal--
Acquisition step-up amortization adjustment.. $ 3,992 $ 4,048
Accelerated depreciation..................... 1,248 1,228
------- -------
5,240 5,276
------- -------
State--
Acquisition step-up amortization adjustment.. 992 1,005
Accelerated depreciation..................... 307 303
------- -------
1,299 1,308
------- -------
Foreign
Accelerated depreciation..................... 504 501
------- -------
Total $ 7,043 $ 7,085
======= =======
</TABLE>
The United States net current and deferred tax assets are expected
to become realizable in future years with future United States taxable
income exclusive of reversing temporary differences, consistent with the
Company's history.
The domestic and foreign components of income (loss) before income
taxes from continuing operations are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Domestic.......................... $34,017 $11,581 $46,516
Foreign........................... ( 37,312) 9,249 11,726
------- ------- -------
($ 3,295) $20,830 $58,242
======= ======= =======
</TABLE>
The provision for (benefit from) continuing operations income taxes
consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Currently payable:
<S> <C> <C> <C>
United States Federal................. $ 9,579 $13,633 $22,163
United States State................... 2,917 3,575 4,857
Foreign............................... 3,267 4,272 ( 662)
------- ------- -------
15,763 21,480 26,358
------- ------- -------
Deferred:
United States Federal................. 2,714 ( 8,889) ( 919)
United States State................... 638 ( 2,005) ( 198)
Foreign............................... 33 ( 301) 385
------- ------- -------
3,385 ( 11,195) ( 732)
------- ------- -------
$19,148 $10,285 $25,626
======= ======= =======
</TABLE>
A reconciliation of the total effective income tax rate to the
statutory Federal income tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate...................... 35.0% 35.0% 35.0%
State taxes, net of Federal income tax effect.. 5.4 4.9 5.2
Impact of foreign tax rates and credits........ .2 2.8 .2
Foreign subsidiaries in loss position receiving
little or no tax benefit..................... .8 - .2
Impact of nondeductible expenses............... 3.4 6.7 3.4
--------- ---- ----
Subtotal effective income tax rate............. 44.8% 49.4% 44.0%
Goodwill writedown............................. (625.9) - -
------- ----- ----
Total effective income tax rate................ (581.1)% 49.4% 44.0%
======= ==== ====
</TABLE>
The Company made income tax payments of $25,394,000 in 1998,
$6,477,000 in 1997 and $17,114,000 in 1996.
10. 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 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 intercompany 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 December 31, 1998, 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, technical service fees, 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
December 31, 1998, net deferred amounts on outstanding agreements were not
material. The outstanding agreement amounts (notional value) at December
31, 1998 are $10.0 million (U.S. dollars).
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, 2000, will have a material
impact on the consolidated financial condition or results of operations of
the Company.
11. Commitments and contingencies:
The Company incurred rental expense under operating leases of
$6,048,000 in 1998, $6,480,000 in 1997 and $6,527,000 in 1996.
The minimum rental commitments under noncancelable operating
leases as of December 31, 1998 are as follows (in thousands):
Period Aggregate Amount
------ ----------------
1999.............................. $ 4,194
2000.............................. 2,625
2001.............................. 2,288
2002.............................. 1,468
2003.............................. 1,027
Later years.......................... 1,073
-------
Total minimum future rentals................. $12,675
=======
The Company has entered into various licensing agreements
requiring royalty payments ranging from 1.5% to 18% of specified product
sales. Royalty expenses which are charged to cost of sales under these
licensing agreements totaled $31,700,000 in 1998, $32,600,000 in 1997 and
$34,000,000 in 1996. Pursuant to the various licensing agreements, the
future minimum guaranteed royalty payments are $17,000,000 in 1999,
$16,000,000 in 2000 and $400,000 in 2001.
There are various legal proceedings pending against the Company
which have arisen during the normal course of business. Management does not
believe that the ultimate outcome of those legal proceedings will have a
material adverse impact upon the consolidated financial condition or
results of operations of the Company.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Enesco Group, Inc.:
We have audited the accompanying consolidated balance sheets of
Enesco Group, Inc. (a Massachusetts corporation) and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
income, comprehensive income, retained earnings and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Enesco Group,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Chicago, Illinois
February 18, 1999
<TABLE>
<CAPTION>
Stock Market, Dividend and Shareholder Information
- ---------------------------------------------------------------------------------------------------------
1998 1997
Market Price Market Price
Quarter Dividend High Low Quarter Dividend High Low
- ------- -------- ------ ------ ------- -------- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
First $.28 $29.06 $24.63 First $.28 $27.50 $24.50
Second .28 35.00 25.19 Second .28 33.63 24.00
Third .28 32.50 24.00 Third .28 35.31 28.88
Fourth .28 26.00 19.19 Fourth .28 31.00 22.25
- --------------------------------------------------------------------------------------------------------
</TABLE>
Enesco Group Inc.'s Common Stock is traded on the New York and Pacific
stock exchanges (Symbol: ENC). The table shows, for the indicated periods,
dividends paid and the high and low price range. (Source: New York Stock
Exchange Composite Tape.) As of December 31, 1998, there were 2,868 record
holders of the Common Stock.
Quarterly results (unaudited):
(In thousands, except per share amounts)
ENESCO GROUP, INC.
The following table sets forth information with respect to the
consolidated quarterly results of operations for 1998, 1997 and 1996. The
amounts are unaudited, but in the opinion of management include all
adjustments necessary to present fairly the results of operations for the
periods indicated. In the fourth quarter of 1998, the Company recorded a
non-cash $46 million charge to writedown goodwill associated with two 1994
United Kingdom acquisitions as described in Note 7.
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------------------------
March 31, June 30, Sept. 30, Dec. 3l,
1998 1998 1998 1998
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales........................ $108,220 $137,169 $110,170 $ 95,481
Cost of sales.................... 57,452 72,207 60,645 51,862
-------- -------- -------- --------
Gross profit..................... 50,768 64,962 49,525 43,619
Selling, distribution, general
and administrative expenses.... 43,317 42,920 36,614 36,915
-------- -------- -------- --------
Operating profit................. $ 7,451 $ 22,042 $ 12,911 $ 6,704
======== ======== ======== ========
Net income....................... $ 3,506 $ 11,764 $ 6,284 ($ 43,997)
======== ======== ======== ========
Earnings per common share:
Basic and diluted............... $ .21 $ .72 $ .39 ($ 2.77)
======== ======== ======== ========
For the Three Months Ended
-------------------------------------------------
March 31, June 30, Sept. 30, Dec. 3l,
1997 1997 1997 1997
--------- -------- --------- -------
Net sales........................ $102,060 $137,002 $128,261 $108,860
Cost of sales.................... 52,633 73,203 72,570 60,691
-------- -------- -------- --------
Gross profit..................... 49,427 63,799 55,691 48,169
Selling, distribution, general
and administrative expenses.... 43,225 43,901 55,951 43,391
-------- -------- -------- --------
Operating profit (loss).......... $ 6,202 $ 19,898 ($ 260) $ 4,778
======== ======== ======== ========
Income (loss) of continuing
operations, net of taxes....... $ 2,193 $ 9,759 ($ 2,752) $ 1,345
Income (loss) of discontinued
operations, net of taxes....... 1,048 1,810 ( 700) -
Net loss on sale of discontinued
operations..................... ( 35,000) - - ( 6,000)
-------- -------- -------- --------
Net income (loss)................ ($ 31,759) $ 11,569 ($ 3,452) ($ 4,655)
======== ======== ======== ========
Earnings (loss) per common share,
Basic and diluted:
Continuing operations.......... $ .12 $ .55 ($ .16) $ .07
Discontinued operations........ .06 .10 ( .04) -
Sale of discontinued operations ( 1.95) - - ( .34)
-------- -------- -------- --------
Total.......................... ($ 1.77) $ .65 ($ .20) ($ .27)
======== ======== ======== ========
For the Three Months Ended
-----------------------------------------------
March 31, June 30, Sept. 30, Dec. 3l,
1996 1996 1996 1996
--------- -------- --------- --------
Net sales........................ $ 99,612 $130,823 $144,756 $140,257
Cost of sales.................... 54,196 69,103 76,958 71,923
-------- -------- -------- --------
Gross profit..................... 45,416 61,720 67,798 68,334
Selling, distribution, general
and administrative expenses.... 39,831 42,456 42,771 48,498
-------- -------- -------- --------
Operating profit................. $ 5,585 $ 19,264 $ 25,027 $ 19,836
======== ======== ======== ========
Income of continuing
operations, net of taxes....... $ 1,812 $ 9,320 $ 12,190 $ 9,294
Income (loss) of discontinued
operations, net of taxes....... 2,258 1,631 ( 737) 2,669
-------- -------- -------- --------
Net income....................... $ 4,070 $ 10,951 $ 11,453 $ 11,963
======== ======== ======== ========
Earnings per common share,
Basic and diluted:
Continuing operations.......... $ .10 $ .51 $ .68 $ .52
Discontinued operations........ .12 .09 ( .04) .15
-------- -------- -------- --------
Total.......................... $ .22 $ .60 $ .64 $ .67
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS LAST TEN YEARS
(In thousands, except per share amounts)
ENESCO GROUP, INC.
1998 1997 1996
<S> <C> <C> <C>
Net sales........................................ $451,040 $476,183 $515,448
Cost of sales.................................... 242,166 259,097 272,180
-------- -------- --------
Gross profit..................................... 208,874 217,086 243,268
Selling, distribution, general
and administrative expenses..................... 159,766 186,468 173,556
-------- -------- --------
Operating profit................................. 49,108 30,618 69,712
Interest expense................................. ( 3,575) ( 6,783) ( 8,196)
Other income (expense), net...................... ( 48,828)* ( 3,005) ( 3,274)
-------- -------- --------
Income (loss) before income taxes from
continuing operations........................... ( 3,295) 20,830 58,242
Income taxes..................................... 19,148 10,285 25,626
-------- -------- --------
Income (loss) of continuing operations,
net of taxes.................................... ( 22,443) 10,545 32,616
Income of discontinued operations, net of taxes.. - 2,158 5,821
Net loss on sale of discontinued operations...... - ( 41,000) -
-------- -------- --------
Net income (loss)................................ ($ 22,443) ($ 28,297) $ 38,437
======== ======== ========
Earnings (loss) per common share:
Basic: Continuing operations................. ($ 1.38) $ .60 $ 1.81
Discontinued operations............... - .12 .32
Sale of discontinued operations....... - ( 2.33) -
-------- -------- --------
Total................................. ($ 1.38) ($ 1.61) $ 2.13
======== ======== ========
Diluted: Continuing operations................. ($ 1.38) $ .60 $ 1.80
Discontinued operations............... - .12 .32
Sale of discontinued operations....... - ( 2.32) -
-------- -------- --------
Total................................. ($ 1.38) ($ 1.60) $ 2.12
======== ======== ========
Average shares of common stock outstanding....... 16,208 17,577 18,080
Average shares of common stock diluted........... 16,258 17,661 18,092
Shares of common stock outstanding at year end... 15,852 17,201 17,904
Market value per common share at year end........ $ 23.25 $ 25.69 $ 26.50
Cash dividends paid or provided for.............. $ 18,028 $ 19,702 $ 19,640
Dividends per common share....................... $ 1.12 $ 1.12 $ 1.09
Capital expenditures............................. $ 4,520 $ 4,944 $ 5,095
Depreciation..................................... $ 5,649 $ 5,701 $ 5,744
Working capital.................................. $ 74,856 $105,449 $ 42,252
Total assets..................................... $319,949 $431,574 $498,800
Total long-term liabilities...................... $ 38,537 $ 43,808 $ 21,583
Shareholders' equity............................. $150,581 $228,914 $278,828
Book value per common share...................... $ 9.50 $ 13.31 $ 15.57
Return on average shareholders' equity........... (12%) (11%) 15%
*Includes a non-cash $46 million goodwill writedown
</TABLE>
The financial data set forth above should be read in connection with the
financial statements, accompanying notes and Management's Discussion on the
preceding pages.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
$491,196 $417,685 $367,531 $349,250 $329,527 $302,497 $263,639
255,282 216,743 188,196 176,025 162,843 145,597 124,026
-------- -------- -------- -------- -------- -------- --------
235,914 200,942 179,335 173,225 166,684 156,900 139,613
166,821 144,124 133,237 127,705 124,066 114,565 99,201
-------- -------- -------- -------- -------- -------- --------
69,093 56,818 46,098 45,520 42,618 42,335 40,412
( 7,302) ( 1,736) ( 1,145) ( 1,903) ( 3,343) ( 3,807) ( 4,186)
( 1,273) 736 ( 55) ( 797) ( 957) ( 193) 36
-------- -------- -------- -------- -------- -------- --------
60,518 55,818 44,898 42,820 38,318 38,335 36,262
26,628 24,560 21,102 18,413 16,477 16,484 15,593
-------- -------- -------- -------- -------- -------- --------
33,890 31,258 23,796 24,407 21,841 21,851 20,669
8,010 12,798 9,337 22,309 23,212 29,216 23,955
- - - - - - -
-------- -------- -------- -------- -------- -------- --------
$ 41,900 $ 44,056 $ 33,133 $ 46,716 $ 45,053 $ 51,067 $ 44,624
======== ======== ======== ======== ======== ======== ========
$ 1.81 $ 1.62 $ 1.21 $ 1.24 $ 1.11 $ 1.12 $ 1.07
.42 .66 .48 1.13 1.18 1.50 1.23
- - - - - - -
-------- -------- -------- -------- -------- -------- --------
$ 2.23 $ 2.28 $ 1.69 $ 2.37 $ 2.29 $ 2.62 $ 2.30
======== ======== ======== ======== ======== ======== ========
$ 1.80 $ 1.60 $ 1.21 $ 1.21 $ 1.08 $ 1.09 $ 1.03
.42 .66 .47 1.11 1.14 1.46 1.20
- - - - - - -
-------- -------- -------- -------- -------- -------- --------
$ 2.22 $ 2.26 $ 1.68 $ 2.32 $ 2.22 $ 2.55 $ 2.23
======== ======== ======== ======== ======== ======== ========
18,773 19,323 19,634 19,753 19,681 19,459 19,421
18,851 19,525 19,749 20,152 20,295 20,040 20,024
18,330 19,151 19,392 19,774 19,791 19,550 19,365
$ 29.13 $ 31.63 $ 33.88 $ 34.75 $ 37.00 $ 33.75 $ 25.88
$ 19,838 $ 19,863 $ 19,620 $ 18,950 $ 18,134 $ 16,172 $ 13,727
$ 1.06 $ 1.03 $ 1.00 $ .96 $ .92 $ .83 $ .71
$ 9,829 $ 12,238 $ 2,619 $ 2,810 $ 3,575 $ 4,859 $ 1,813
$ 5,288 $ 3,479 $ 3,450 $ 3,726 $ 3,140 $ 2,968 $ 2,895
$ 36,172 $ 55,630 $110,032 $105,820 $ 85,769 $ 69,681 $ 43,328
$468,537 $429,627 $354,493 $318,759 $309,428 $287,293 $242,442
$ 19,807 $ 16,021 $ 14,111 $ 6,714 $ 5,887 $ 4,981 $ 4,526
$266,790 $269,396 $254,366 $256,956 $241,074 $211,457 $170,399
$ 14.55 $ 14.07 $ 13.12 $ 12.99 $ 12.18 $ 10.82 $ 8.80
16% 17% 13% 19% 20% 27% 29%
</TABLE>
Exhibit 21
SUBSIDIARIES OF ENESCO GROUP, INC.
<TABLE>
<CAPTION>
Jurisdiction Other Names Under
Name of Organization Which Business is Conducted
- ---- --------------- ---------------------------
<S> <C> <C>
Collector Appreciation, Inc. Delaware
Cosmhogar, S.A. Spain
Enesco Corporation Ohio The Back Door Store
Via Vermont
Enesco European Giftware Group
Limited England
Enesco France, S.A. France
Enesco Import GmbH Germany
Enesco International Ltd. Delaware
Enesco International (H.K.)
Limited Hong Kong
Enesco Worldwide Holdings, Inc. Delaware
N.C. Cameron & Sons Limited Ontario, Canada
Stanhome European Development
Center, S.A. Spain
Enesco plc England
Via Vermont, S.A. de C.V. Mexico
</TABLE>
All of the above-listed subsidiaries are included in the Company's
consolidated financial statements for all of both 1997 and 1998.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report incorporated by reference in this Form 10-K into the
Company's previously filed Registration Statements File No. 2-97934, No.
33-11415, No. 33-42974, No. 33-50723, No. 33-58633, No. 333-11501, No.
333-48957, No. 333-68289 and No. 333-69087.
/s/ Arthur Andersen LLP
Chicago, Illinois
March 29, 1999
Exhibit 24
POWER OF ATTORNEY
---------------------
Each of the undersigned Directors of Enesco Group, Inc. whose
signature appears below constitutes and appoints Jeffrey A. Hutsell, Allan
G. Keirstead and Peter R. Johnson, and each of them, his or her true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign an annual report on Form 10-K for the
fiscal year ended December 31, 1998 with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
March 3, 1999 By: /s/ J.F. Cauley
----------------------------------
J. F. Cauley
Chairman of the Board and Director
March 3, 1999 By: /s/ Homer G. Perkins
----------------------------------
Homer G. Perkins
Director
March 3, 1999 By: /s/ H.L. Tower
----------------------------------
H. L. Tower
Director
March 25, 1999 By: /s/ Allan G. Keirstead
-------------------------------------
Allan G. Keirstead
Executive Vice President, Chief
Administrative and Financial Officer,
Chief Executive Officer of Enesco
International Businesses and Director
March 3, 1999 By: /s/ Anne-Lee Verville
----------------------------------
Anne-Lee Verville
Director
March 3, 1999 By: /s/ Judith R. Haberkorn
----------------------------------
Judith R. Haberkorn
Director
March 3, 1999 By: /s/ Charles W. Elliott
----------------------------------
Charles W. Elliott
Director
March 3, 1999 By: /s/ Eugene Freedman
----------------------------------
Eugene Freedman
Founding Chairman and Director
March 3, 1999 By: /s/ Jeffrey A. Hutsell
-------------------------------------
Jeffrey A. Hutsell
President and Chief Executive Officer
and Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 17,905 35,724
<SECURITIES> 0 0
<RECEIVABLES> 95,471 112,877
<ALLOWANCES> 9,300 11,146
<INVENTORY> 81,740 107,752
<CURRENT-ASSETS> 205,687 264,301
<PP&E> 84,988 82,414
<DEPRECIATION> 51,375 46,836
<TOTAL-ASSETS> 319,949 431,574
<CURRENT-LIABILITIES> 130,831 158,852
<BONDS> 0 0
0 0
0 0
<COMMON> 3,154 3,154
<OTHER-SE> 147,427 225,760
<TOTAL-LIABILITY-AND-EQUITY> 319,949 431,574
<SALES> 451,040 476,183
<TOTAL-REVENUES> 451,040 476,183
<CGS> 242,166 259,097
<TOTAL-COSTS> 242,166 259,097
<OTHER-EXPENSES> 161,612 185,213
<LOSS-PROVISION> (1,846) 1,255
<INTEREST-EXPENSE> 3,575 6,783
<INCOME-PRETAX> (3,295) 20,830
<INCOME-TAX> 19,148 10,285
<INCOME-CONTINUING> (22,443) 10,545
<DISCONTINUED> 0 (38,842)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (22,443) (28,297)
<EPS-PRIMARY> (1.38) (1.61)
<EPS-DILUTED> (1.38) (1.60)
<FN>
NOTE: AS PER FASB STATEMENT NO. 128, EARNINGS PER SHARE, "PRIMARY" IS
NOW "BASIC"
</TABLE>
