-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WUbxAB5dFxsg2aMffgtidPhuQ695zNdrDKfImT8GXxrXzKr6B6OsYdl9Ci6P67BX DVE95Gr6zVQOhtwOKOl5Kw== 0000950172-99-001585.txt : 19991111 0000950172-99-001585.hdr.sgml : 19991111 ACCESSION NUMBER: 0000950172-99-001585 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENESCO GROUP INC CENTRAL INDEX KEY: 0000093542 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISCELLANEOUS NONDURABLE GOODS [5190] IRS NUMBER: 041864170 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09267 FILM NUMBER: 99746147 BUSINESS ADDRESS: STREET 1: 333 WESTERN AVE CITY: WESTFIELD STATE: MA ZIP: 01085 BUSINESS PHONE: 4135623631 FORMER COMPANY: FORMER CONFORMED NAME: STANHOME INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: STANLEY HOME PRODUCTS INC DATE OF NAME CHANGE: 19820513 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ . Commission File Number 0-1349 Enesco Group, Inc. - ----------------------------------------------------------------------- (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 - ----------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 630-875-5300 - ----------------------------------------------------------------------- (Registrant's telephone number, including area code) N/A - ------------------------------------------------------------------------ (Former name, address and fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] September 30, 1999 1998 ---- ---- Shares Outstanding: Common Stock with Associated Rights 13,477,936 15,953,929 Total number of pages contained herein 41 Index to Exhibits is on page 25 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
ENESCO GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 (Unaudited) (In Thousands) September 30, December 31, 1999 1998 ------------- ------------ ASSETS CURRENT ASSETS: Cash and Certificates of Deposit $ 11,118 $ 17,905 Accounts Receivable, Net 127,272 86,171 Inventories 68,062 81,740 Prepaid Expenses 4,477 4,672 Current Tax Assets 12,981 15,199 ------------- ------------- Total Current Assets 223,910 205,687 ------------- ------------- PROPERTY, PLANT & EQUIPMENT, at cost 80,769 84,988 Less Accumulated Depreciation 50,338 51,375 ------------- ------------- 30,431 33,613 ------------- ------------- OTHER ASSETS: Goodwill and Other Intangibles, Net 39,171 40,816 Other 25,414 27,287 Deferred Tax Assets 12,333 12,546 ------------- ------------- 76,918 80,649 ------------- ------------- Total Assets $ 331,259 $ 319,949 ============= ============= The accompanying notes are an integral part of these condensed financial statements.
ENESCO GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 (Unaudited) (In Thousands) September 30, December 31, 1999 1998 ------------- ------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes and Loans Payable $ 63,395 $ 7,900 Accounts Payable 21,046 25,373 Federal, State and Foreign Taxes on Income 63,067 56,614 Accrued Expenses Payroll and Commissions 6,275 5,385 Royalties 6,843 6,826 Post-Retirement Benefits 1,264 5,280 Other 23,436 23,453 ------------- ------------ Total Current Liabilities 185,326 130,831 ------------- ------------ LONG-TERM LIABILITIES: Post-Retirement Benefits 30,952 31,494 Deferred Tax Liabilities 6,564 7,043 ------------- ------------ Total Long-Term Liabilities 37,516 38,537 ------------- ------------ SHAREHOLDERS' EQUITY: Common Stock 3,154 3,154 Capital in Excess of Par Value 48,739 48,506 Retained Earnings 319,770 315,335 Accumulated Other Comprehensive Income (2,340) (2,258) ------------- ------------ 369,323 364,737 Less - Shares Held in Treasury, at Cost (260,906) (214,156) ------------- ------------ Total Shareholders' Equity 108,417 150,581 ------------- ------------ Total Liabilities and Equity $ 331,259 $ 319,949 ============= ============ The accompanying notes are an integral part of these condensed financial statements.
ENESCO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) (In thousands, except per share amounts) 1999 1998 ---- ---- Net Sales $ 107,405 $ 110,170 Cost of Sales 60,584 60,645 -------------- -------------- Gross Profit 46,821 49,525 Selling, Distribution, General and Administrative Expenses 35,134 36,614 -------------- -------------- Operating Profit 11,687 12,911 Interest Expense (1,078) (988) Other Income (Expense), Net (383) (812) -------------- -------------- Income Before Income Taxes 10,226 11,111 Income Taxes 3,617 4,827 -------------- -------------- Net Income $ 6,609 $ 6,284 ============== ============== Earnings Per Common Share: Basic $ 0.48 $ 0.39 ============== ============== Diluted $ 0.48 $ 0.39 ============== ============== The accompanying notes are an integral part of these condensed financial statements.
ENESCO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) (In thousands, except per share amounts) 1999 1998 ---- ---- Net Sales $ 296,263 $ 355,559 Cost of Sales 158,582 190,304 -------------- -------------- Gross Profit 137,681 165,255 Selling, Distribution, General and Administrative Expenses 107,793 122,851 -------------- -------------- Operating Profit 29,888 42,404 Interest Expense (2,386) (2,590) Other Income (Expense), Net (678) (1,914) -------------- -------------- Income Before Income Taxes 26,824 37,900 Income Taxes 10,257 16,346 -------------- -------------- Net Income 16,567 21,554 Retained Earnings, Beginning of Period 315,335 355,806 Cash Dividends, $.84 per share in 1999 and 1998 (12,132) (13,590) -------------- -------------- Retained Earnings, End of Period $ 319,770 $ 363,770 ============== ============== Earnings Per Common Share: Basic $ 1.14 $ 1.32 ============== ============== Diluted $ 1.13 $ 1.32 ============== ============== The accompanying notes are an integral part of these condensed financial statements.
ENESCO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) (In Thousands) 1999 1998 ---- ---- OPERATING ACTIVITIES: Net Income $ 16,567 $ 21,554 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities (18,342) (35,973) ------------------ ------------------ Net Cash Provided (Used) by Operating Activities (1,775) (14,419) ------------------ ------------------ INVESTING ACTIVITIES: Purchase of Property, Plant & Equipment (3,401) (3,090) Proceeds from Sales of Property, Plant & Equipment 2,109 510 Deferred Tax Liabilities (479) (33) ------------------ ------------------ Net Cash Provided (Used) by Investing Activities (1,771) (2,613) ------------------ ------------------ FINANCING ACTIVITIES: Cash dividends (12,132) (13,590) Exchanges and Purchases of Common Stock (47,086) (37,441) Notes and Loans Payable 55,495 43,543 Exercise of Stock Options - 2,085 Other Common Stock Issuance 568 406 ------------------ ------------------ Net Cash Provided (Used) by Financing Activities (3,155) (4,997) ------------------ ------------------ Effect of Exchange Rate Changes on Cash and Cash Equivalents (86) (208) ------------------ ------------------ Increase (Decrease) in Cash and Cash Equivalents (6,787) (22,237) Cash and Cash Equivalents, Beginning of Year 17,905 35,724 ------------------ ------------------ Cash and Cash Equivalents, End of Quarter $ 11,118 $ 13,487 ================== ================== The accompanying notes are an integral part of these condensed financial statements.
ENESCO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS The consolidated condensed financial statements and related notes included herein have been prepared by the Company, without audit except for the December 31, 1998 condensed balance sheet, which was derived from the Company's Annual Report on Form 10-K for the year ended December 31, 1998, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The information furnished reflects all normal recurring adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods. The September 30, 1998 consolidated statement of cash flows has been restated to reflect deferred taxes as separate classifications. It is suggested that these condensed financial statements be read in conjunction with the financial statements and related notes to consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 1. ACCOUNTING POLICIES: The Company's financial statements for the three and nine months ended September 30, 1999 have been prepared in accordance with the accounting policies described in Note 1 to the December 31, 1998 consolidated financial statements included in the Company's 1998 Annual Report on Form 10-K. The Company considers all highly liquid securities, including certificates of deposit with maturities of three months or less, when purchased, to be cash equivalents. Accounts receivable are stated net of reserves for uncollectible accounts, returns and allowances of $11.9 million at September 30, 1999 and $9.3 million at December 31, 1998. The Company recognizes revenue as merchandise is turned over to the shipper and a provision for anticipated merchandise returns and allowances is recorded based upon historical experience. Amounts billed to customers for shipping and handling orders and collector club subscriptions are netted against the associated costs. The Company paid cash for interest and taxes as follows (in thousands): Nine Months Ended September 30 ------------- 1999 1998 ---- ---- Interest $ 1,731 $ 3,233 Income taxes $ 2,091 $ 22,093 2. COMPREHENSIVE INCOME: The other comprehensive income consists only of cumulative translation adjustments. Comprehensive income (loss) for the three and nine months ended September 30, 1999 and 1998 was as follows (in thousands):
Three Months Ended Nine Months Ended September 30 September 30 ------------ ------------ 1999 1998 1999 1998 ---- ---- ---- ---- Net Income $ 6,609 $ 6,284 $16,567 $21,554 Other Comprehensive Income Cumulative translation adjustments (no tax effects) 1,120 146 (82) (227) ------- ------- -------- -------- Comprehensive Income $ 7,729 $ 6,430 $16,485 $21,327 ======= ======= ======== ========
3. GEOGRAPHIC OPERATING SEGMENTS: The Company operates in one industry segment, predominately in two major geographic areas (United States and International). The following tables summarize the Company's operations by geographic area for the three and nine months ended September 30, 1999 and 1998 (in thousands):
Three Months Ended Nine Months Ended Geographic Areas September 30 September 30 - ---------------- ------------ ------------ 1999 1998 1999 1998 ---- ---- ---- ---- Net Sales: United States $ 83,000 $ 86,815 $233,162 $293,356 United States intercompany (475) (789) (2,217) (3,804) International 25,543 25,175 67,823 69,545 International intercompany (663) (1,031) (2,505) (3,538) ---------- --------- --------- --------- Total consolidated $ 107,405 $110,170 $296,263 $355,559 ========== ========= ========= ========= Operating Profit: United States $ 9,088 $ 10,403 $ 24,528 $ 38,055 International 2,599 2,508 5,360 4,349 ---------- --------- --------- -------- Total consolidated $ 11,687 $ 12,911 $ 29,888 $ 42,404 ========== ========= ========= ========
Transfers between geographic areas are made at the market value of the merchandise transferred. No single customer accounted for 10% or more of consolidated net sales. Export sales to foreign unaffiliated customers represent less than 10% of consolidated net sales. There were no material changes in assets from the amount disclosed in the Company's December 31, 1998 Annual Report and the basis of geographic area measurement of sales and operating profit did not change in 1999. 4. INVENTORY CLASSES: The major classes of inventories at September 30, 1999 and December 31, 1998 were as follows (in thousands): September 30, December 31, 1999 1998 ---- ---- Raw materials and supplies $ 711 $ 1,185 Work in progress 237 396 Finished goods in-transit 8,027 12,202 Finished goods 59,087 67,957 -------- ------- $ 68,062 $81,740 ======== ======= 5. OTHER INCOME (EXPENSE), NET: Other income (expense), net for the three and nine months ended September 30, 1999 and 1998 consists of the following (in thousands):
Three Months Ended Nine Months Ended September 30 September 30 ------------ ------------ 1999 1998 1999 1998 ---- ---- ---- ---- Interest income $ 176 $ 11 $ 440 $ 632 Amortization of other assets (514) (774) (1,541) (2,420) Other, net (45) (49) 423 (126) ------- ------- -------- ------- $ (383) $ (812) $ (678) $(1,914) ======= ======= ======== =======
6. EARNINGS PER COMMON SHARE (BASIS OF CALCULATION): Basic earnings per common share are based on the average number of common shares outstanding during the period covered. Diluted earnings per common share assumes, in addition to the above, a dilutive effect of common share equivalents during the period. Common share equivalents represent dilutive stock options using the treasury stock method. The number of shares used in the earnings per share calculations for the three and nine months ended September 30, 1999 and 1998 were as follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 1999 1998 1999 1998 ---- ---- ---- ---- Basis Average Common Shares Outstanding 13,716 16,035 14,585 16,315 Diluted Stock Options 81 67 54 67 ------ ------ ------ ------ Average Shares Diluted 13,797 16,102 14,639 16,382 ====== ====== ====== ======
The lower average number of shares for 1999 primarily resulted from the repurchase of shares as part of the Company's repurchase program. 7. FINANCIAL INSTRUMENTS The Company operates globally with various manufacturing and distribution facilities and product sourcing locations around the world. The Company may reduce its exposure to fluctuations in foreign interest rates and exchange rates by creating offsetting positions through the use of derivative financial instruments. The Company currently does not use derivative financial instruments for trading or speculative purposes. The notional amount of forward exchange contracts and options is the amount of foreign currency bought or sold at maturity. The notional amount of interest rate swaps is the underlying principal amount used in determining the interest payments exchanged over the life of the swap. The notional amounts are not a direct measure of the Company's exposure through its use of derivatives. The Company periodically uses interest rate swaps to hedge portions of interest payable on debt. In addition, the Company may periodically employ interest rate caps to reduce exposure, if any, to increases in variable interest rates. In October 1996, the Company entered into a three-year interest rate swap with a notional amount of $50 million to effectively convert variable interest on debt to a fixed rate of 6.12%. The interest rate swap agreement expired on October 28, 1999 and was not renewed. The Company may periodically hedge foreign currency royalties, net investments in foreign subsidiaries, firm purchase commitments, contractual foreign currency cash flows or obligations, including third party and inter-company foreign currency transactions. The Company regularly monitors its foreign currency exposures and ensures that hedge contract amounts do not exceed the amounts of the underlying exposures. The Company enters into various short-term foreign exchange agreements during the year. The purpose of the Company's foreign currency hedging activities is to protect the Company from risk that the eventual settlement of foreign currency transactions will be adversely affected by changes in exchange rates. The Company's various subsidiaries import products in foreign currencies and from time to time will enter into agreements or build foreign currency deposits as a partial hedge against currency fluctuations on inventory purchases. Gains and losses on these agreements are deferred and recorded as a component of cost of sales when the related inventory is sold. At September 30, 1999, deferred amounts were not material. The Company makes short-term foreign currency intercompany loans to various international subsidiaries and utilizes agreements to fully hedge these transactions against currency fluctuations. The cost of these agreements is included in the interest charged to the subsidiaries and expensed monthly as the interest is accrued. The intercompany interest eliminates upon consolidation and any gains and losses on the agreements are recorded as a component of other income. The Company receives dividends, royalties and other payments from its subsidiaries and licensees. From time to time, the Company will enter into foreign currency forward agreements as a partial hedge against currency fluctuations on these current receivables. Gains and losses are recognized or the credit or debit offsets the foreign currency payables. As of September 30, 1999, net deferred amounts on outstanding agreements were not material. The outstanding agreement amounts (notional value) at September 30, 1999 are $4.2 million. In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. Management does not believe that SFAS No. 133, when adopted by the Company on January 1, 2001, will have a material impact on the consolidated financial condition or results of operations of the Company. 8. SALE OF SUBSIDIARIES During the third quarter of 1999, the Company sold its Via Vermont assembly and packaging subsidiary located in Mexico for an amount that approximated the net carrying value of the assets sold. Also, during the third quarter, the Company sold its Cosmhogar subsidiary located in Spain for a nominal value that did not result in a significant gain or loss. The Company's net investment in the Cosmhogar subsidiary, formerly part of its discontinued direct selling group sold in December 1997, was classified as an other non-current asset. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ENESCO GROUP, INC. THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 The information set forth below should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part I - Item 1 of the Quarterly Report and the Company's Annual Report on Form 10-K for the year ended December 31, 1998 which contains the audited financial statements and notes thereto for the years ended December 31, 1998, 1997, and 1996 and Management's Discussion and Analysis of Financial Condition and Results of Operations for those respective periods. Forward-looking statements, in this Quarterly Report on Form 10-Q as well as in the Company's Annual Report on Form 10-K for the year ended December 31, 1998, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward-looking statements pertaining to the Company involve risks and uncertainties, including, without limitation, risks detailed from time to time in the Company's periodic reports and other information filed with the Securities and Exchange Commission. RESULTS OF OPERATIONS: Net sales in the third quarter of 1999 decreased 3%, compared to the same quarter last year and net sales for the first nine months of 1999 decreased 17% compared to 1998. Most of the sales decrease was in the United States and was due primarily to the following: o Starting 1999 with unfilled orders down approximately $28 million compared to the same period last year. o A significant year-on-year reduction of stock keeping units due to profitability analysis. o Reduction of closeout revenue due to better inventory management. o Continued reductions in dealer inventory levels. o Continued improvement in dealer service and deliveries, allowing dealers to order less in advance and shipping product when the dealer requests versus when the product is available. o Significant reduction in reorders from late May through September due to softness in the Company's card, gift and collectible channels and even more conservative dealer reorder patterns. In order to further improve customer communications, relationships and service in the United States, during the second quarter this year the Company combined its two independent sales representative divisions into a single independent sales force representing all the Company's product lines. The Company continues to analyze the economic return for all of its product lines, to eliminate unnecessary costs and reduce working capital requirements. Year-to-date 1999 International sales decreased 1% from 1998 and represented approximately 22% of total 1999 sales compared to 19% in 1998. Local currency International sales were translated into United States dollars at lower exchange rates in 1999 versus 1998. If the year-to-date 1999 local currency sales were translated into United States dollars at the 1998 exchange rates, sales would have been approximately $1.5 million higher. The Precious Moments line represented approximately 38% of 1999 year-to-date sales compared to 39% in 1998. The Cherished Teddies line represented 21% of 1999 year-to-date sales compared 20% in 1998. As of September 30, 1999, compared to the same period last year, members of the Precious Moments Collector Clubs were down approximately 17% and the members of the Cherished Teddies Collector Clubs were down approximately 13%. Total Company unfilled orders as of the end of the third quarter were down approximately $7 million or 8% compared to the same period last year. Comparable 1999 year-to-date net new order intake (excluding close outs) was down approximately 9% compared to the same period in 1998. Orders entered are orders received and approved by the Company, subject to cancellation for various reasons, including credit considerations, inventory shortages and customer requests. The lower new order intake trend has continued into the fourth quarter and, if it does not improve, the Company will be reporting a sales and income decrease in the fourth quarter of 1999 compared to 1998. The Company's 1999 gross profit margin, expressed as a percentage of net sales, was 44% and 47% for the quarter and nine months respectively, compared to the 1998 margins of 45% and 47%. The differences in margins are due to product sales mix, as all product lines do not have the same gross profit margin. Selling, distribution, general and administrative expenses, which are largely fixed, decreased 4% in the third quarter of 1999 versus 1998 and represented 33% of net sales in both 1999 and 1998. Selling, distribution, general and administrative expenses decreased 12% in the first nine months of 1999 versus 1998, but represented 36% of 1999 net sales compared to 35% in 1998. The 1999 expenses were a higher percentage of sales principally due to the impact of lower sales on fixed costs. The 1999 reductions in expenses were from lower variable expenses (approximately 10% of year-to-date sales) due to the lower sales volumes and reductions from cost controls and work force reductions compared to 1998. Due to the factors described above, 1999's operating profit decreased 9% in the third quarter and 30% for the first nine months compared to 1998. All of the decrease in operating profit was from the United States. International operating profit increased for both the quarter and year-to-date periods when compared to 1998. INTERNATIONAL ECONOMIES AND CURRENCY: The value of the U.S. dollar versus international currencies where the Company conducts business impacts the results of these businesses. In addition to the currency risks, the Company's international operations, including sources of imported products, are subject to other risks of doing business abroad, including import or export restrictions and changes in economic and political climates. The fluctuations in net sales and operating profit margins from quarter to quarter are partially due to the seasonal characteristics of the Company's business. INTEREST EXPENSE, net of investment income, decreased slightly in the third quarter and first nine months of 1999 when compared to 1998. OTHER INCOME/EXPENSE, net in 1999 benefited from a net gain on the sale of assets in the first quarter of 1999 of approximately $350 thousand and a reduction in the amount of goodwill amortization resulting from the lower amount of goodwill to be amortized after the 1998 $46 million write-off. THE PROVISION FOR INCOME TAXES of 35% in the third quarter and 38% in the first nine months of 1999 was lower than comparable periods of 1998, due primarily to the impact of lower goodwill amortization in 1999 which does not receive a tax benefit, expected mix between the United States and International earnings, and a United States tax benefit on the third quarter sale of the Company's Mexican assembly and packaging subsidiary. The effective tax rates are dependent upon numerous factors and actual results may vary. FINANCIAL CONDITION: The Company has historically satisfied its capital requirements with internally generated funds and short-term loans. Working capital requirements fluctuate during the year and are generally greatest during the third quarter and lowest at the beginning of the first quarter. The major sources of funds in the first nine months of 1999 from operating activities were from net income, depreciation, amortization, lower levels of inventory and a net increase in current taxes payable, due primarily to timing of payments. Accounts receivable increased 48% from year-end 1998, but decreased 12% from the third quarter of 1998. The decrease from September 1998 reflects lower sales and lower amount of trade receivable days sales outstanding. Accounts payable and accrued expenses decreased from year-end levels due to timing of payments and seasonal sales volumes. The Company has filed and continues to file tax returns with a number of taxing authorities worldwide. While the Company believes such filings have been and are in compliance with applicable laws, regulations and interpretations, positions taken are subject to challenge by the taxing authorities often for an extended number of years after the filing dates. The Company has established accruals for tax assessments. These accruals are included in current income taxes payable since it is uncertain as to when assessments may be made and paid. Based upon the Company's current liquid asset position and credit facilities, the Company believes it has adequate resources to fund any such assessments. To the extent accruals differ from actual assessments or when the open tax years are closed, the accruals will be adjusted through the provision for income taxes. The majority of the open tax years become closed at the end of December for the particular open year. The major use of cash in investing activities in the first nine months of 1999 was for capital expenditures. Capital expenditure commitments for $6 million are forecasted for 1999. Proceeds from the sales of property, plant and equipment primarily represents the sale of the Company's former Westfield, MA corporate headquarters. During the third quarter the Company sold the shares in its Mexican assembly and packaging subsidiary for its net book carrying value. The assets sold were primarily accounts receivable of $284,000, inventories of $1,004,000 and property, plant and equipment of $458,000, net of liabilities of $206,000. Also, during the third quarter the Company sold the shares in its Spanish manufacturing subsidiary (Cosmhogar), formerly part of its discontinued direct selling group, for a nominal value. The net investment in the subsidiary had been recorded in other non-current assets. The major uses of cash in financing activities in the first nine months of 1999 were for dividends to shareholders and purchases of the Company's common stock. During the first nine months this year, the Company repurchased 2.4 million shares for $47.1 million. The Company has an authorized program to purchase shares of stock for the Company treasury from time to time in the open market or in private transactions, depending on market and business conditions, and may utilize funds for this purpose in the future. As of September 30, 1999, approximately 1.0 million shares remained available for purchase under the program. The Company's earnings, cash flow, and available debt capacity have made and make stock repurchases, in the Company's view, one of its best investment alternatives. The aggregate exercise price of the total number of stock options outstanding was $94 million at September 30, 1999, and the Company could receive some or all of these funds in the future if the options are exercised. The principal sources of the Company's liquidity are its available cash balances, cash from operations and available financing alternatives. The Company is not aware of any trends, events, demands, commitments or uncertainties which reasonably can be expected to have a material effect on the liquidity of the Company and its ability to meet anticipated requirements for working capital, dividends, capital expenditures and the stock repurchase program. YEAR 2000 COMPLIANCE PROGRAM A Company-wide program has been in effect to update all necessary information technology and non-technology systems to achieve Year 2000 compliance. This effort has been in progress since early 1997. The program includes impact assessment, correction, testing and implementation stages. There is continual review and monitoring of progress and achievement against plan. In 1998 the Company engaged independent consulting resources to audit and evaluate its approach and plans to achieve Year 2000 compliance. This audit was completed at a cost of approximately $300,000. The results were used to confirm and enhance, where necessary, the Year 2000 program plans. A follow-up independent audit has been completed. Results have validated the process followed to achieve compliance. Impact assessment is complete. Regarding internal issues, the Company has remedied and tested all mission critical systems and 95% of all systems. This was accomplished through internal correction or the normal replacement of existing systems, computer software and hardware. The Company is confident that all correction and replacement work, including testing and implementation, will be completed by December 1999. The capital and operating costs of addressing the Year 2000 issues are anticipated to be approximately $1,000,000 (excluding internal labor costs) and are included in the planned capital and operating investment budgets. The cost breakdown is estimated at approximately 80% capital and 20% expense. Most Year 2000 project work is being accomplished through the use of internal resources. While this effort is substantial, it has often been combined with other planned systems improvements, replacements and maintenance projects. Thus, the Year 2000 work is not adversely affecting planned improvements in the Company's systems, computer applications and hardware environment. Regarding external issues, there is ongoing effort to confirm and monitor the Year 2000 programs of critical suppliers, customers and third parties on whom the Company relies. Based on the results of the impact assessment, if the Company's suppliers, customers and third parties do not address the Year 2000 issues in a timely manner, there could be a material financial risk to the Company. The Company's product vendors and customer bases are fragmented and generally are not dependent on computer control or systemization for their business operations. Management, therefore, believes that the greatest risks presented by potential Year 2000 failures of third parties are those which would affect the general economy or certain industries, such as may occur if there were insufficient electric power or other utilities needed for the Company's operation or manufacture of its products or insufficient reliable means of transporting the Company's products. While such failures could affect important operations of the Company, either directly or indirectly, in a significant manner, the Company cannot at present estimate either the likelihood or the potential cost of such failures. The need for contingency plans has been addressed as part of the Company's Year 2000 program. While the Company currently believes that its own systems will be Year 2000 compliant, it cannot guarantee the full compliance of third parties, therefore, contingency plans, as appropriate, have been developed. These include purchasing of additional inventory as a contingency to keep its dealers supplied with product in the case of delivery problems from its suppliers. Also, contingency plans of key suppliers and other third parties are being assessed with joint plans being developed where appropriate. The contingency plans have been subjected to an independent audit. Notice: Various statements in this discussion of Year 2000 are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include statements of the Company's expectations, statements with regard to schedules and expected completion dates and statements regarding expected Year 2000 compliance. These forward-looking statements are subject to various risk factors which may materially affect the Company's efforts to achieve Year 2000 compliance. These risk factors include the inability of the Company to complete the plans and modification that it has identified, the failure of software vendors to deliver the upgrades and repairs to which they have committed, the wide variety of information technology systems and components, both hardware and software, that must be evaluated and the large number of vendors and customers with which the Company interacts. The Company's assessment of the effects of Year 2000 on the Company are based, in part, upon information received from third parties upon which the Company reasonably relied which must be considered as a risk factor that might affect the Company's Year 2000 efforts. The Company is attempting to reduce the risks by utilizing an organized approach, extensive testing, and allowance of ample contingency time to address issues identified by tests. This Year 2000 Readiness Disclosure (the "Disclosure") is made pursuant to the Year 2000 Information Readiness Disclosure Act, Public Law 105-271. This Disclosure is not a warranty, and it does not alter the terms of service for any customer. This Disclosure should not be used for purposes of making investment decisions. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this item either is set forth in Exhibit 13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 as updated by Note 7 to the Consolidated Condensed Financial Statements included in Item 1 herein, or is immaterial. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - Peter R. Johnson Separation Agreement - Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the Quarter for which this report is filed. All other items hereunder are omitted because either such item is inapplicable or the response to it is negative. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENESCO GROUP, INC. (Registrant) Date: November 10, 1999 /s/ Jeffrey A. Hutsell ----------------------------------------- Jeffrey A. Hutsell President and Chief Executive Officer Date: November 10, 1999 /s/ Allan G. Keirstead ----------------------------------------- Allan G. Keirstead Chief Administrative and Financial Officer EXHIBIT INDEX
Reg. S-K Item 601 Exhibit 10-Q Page No. - --------- ------- ------------- 10 Peter R. Johnson Separation Agreement 26 27 Financial Data Schedule 41
EX-10 2 EXHIBIT 10 - PETER R. JOHNSON SEPARATION AGREEMENT Exhibit 10 AGREEMENT Agreement (this "Agreement") dated as of August 31, 1999 between Enesco Group, Inc., a Massachusetts corporation formerly known as Stanhome Inc. ("Enesco"), and Peter R. Johnson, Vice President and General Counsel of Enesco and Enesco Corporation, an Ohio corporation and a wholly owned subsidiary of Enesco (the "Executive"). On July 9, 1997, G. William Seawright, President of Stanhome Inc. ("Seawright"), sent a letter to the Executive regarding intercompany transfer assistance (the "July 9 Letter"). On August 13, 1997, Seawright sent a letter to the Executive regarding intercompany transfer assistance that, by its terms, replaced the July 9 Letter (the "August 13 Letter"). The Executive is eligible to receive compensation under severance guidelines for Enesco Corporation issued January 1, 1999 (the "Guidelines"). On or about June 8, 1999, Enesco indicated to the Executive that it desired to replace him as its Vice President, Secretary, Clerk and General Counsel and as the Vice President, Secretary and General Counsel of Enesco Corporation. Enesco and the Executive desire to fix terms of continued employment and separation for the Executive and severance payments on termination of the Executive's employment with and from Enesco and Enesco Corporation. In consideration for the Executive's continued employment with Enesco and Enesco Corporation and the mutual promises set forth in this Agreement, and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), Enesco and the Executive hereby agree as follows. 1. Effective Date. This Agreement is effective as of June 30, 1999. 2. Sole Agreement. This Agreement supercedes, cancels and replaces the July 9 Letter, the August 13 Letter, the Guidelines and all other plans, policies, agreements and arrangements providing for severance and other post-termination benefits payable to the Executive upon termination of the Executive's employment with Enesco and Enesco Corporation, except to the extent set forth herein or in the Release Agreement attached hereto as Exhibit A. 3. Employment. The Executive agrees to remain in the employ of Enesco and Enesco Corporation, and Enesco agrees that the Executive shall remain so employed, until January 1, 2000, except as otherwise provided herein. 4. Termination. The Executive's employment with Enesco and Enesco Corporation may be terminated by either Enesco or the Executive upon 30 days' prior written notice to the other party; provided, however, that neither the Executive nor Enesco may give notice of termination of the Executive's employment until at least October 1, 1999. Any termination of employment effected in accordance with the terms of this Agreement shall be deemed to be an involuntary termination of the Executive, without cause, for purposes of state labor and employment laws. 5. Compensation and Benefits. During the remaining term of the Executive's employment with Enesco and Enesco Corporation, the Executive (a) will continue to be compensated on the same basis and at the same salary on and at which he was compensated on June 30, 1999 and (b) will continue to be eligible for (and, as applicable, receive) the same employee benefits (other than, as provided for herein, severance and post-termination benefits), including without limitation health and welfare benefits, employee stock options, MIP bonus and retirement and supplemental retirement plan benefits, for which he was eligible on June 30, 1999, in each case, in accordance with the existing terms and provisions of the applicable employee benefit plan, policy, agreement or arrangement and the terms and provisions of this Agreement. From and after the date hereof, severance and post-termination benefits are governed solely by this Agreement and the Release Agreement attached hereto as Exhibit A. 6. Management Incentive Plan ("MIP") Bonus. Notwithstanding anything to the contrary in any benefit plan, policy, agreement or arrangement (or elsewhere), the Executive shall be eligible to receive a pro rated portion of any MIP bonus that may be payable for the year ended December 31, 1999 as if he were employed by Enesco and Enesco Corporation on January 1, 2000 if (and only if) Enesco terminates the Executive's employment with Enesco and Enesco Corporation prior to January 1, 2000. This prorated MIP bonus, if any, shall be calculated by (a) determining the dollar amount of the MIP bonus payment that would have been payable to the Executive in the event his employment with Enesco Corporation had not been terminated on or prior to January 1, 2000 and (b) multiplying that dollar amount by a fraction, the numerator of which shall be the number of days in 1999 through and including the date of termination of the Executive's employment with Enesco and Enesco Corporation and the denominator of which is 365. 7. Profit Sharing. Notwithstanding anything to the contrary in any benefit plan, policy, agreement or arrangement (or elsewhere), the Executive shall be eligible for profit-sharing contributions, company match benefits and guaranteed money purchase benefits under and in accordance with the Enesco Group, Inc. Retirement Plan and the Enesco Group, Inc. Supplemental Retirement Plan (as the same were amended and restated as of January 1, 1999) as if he were employed by Enesco and Enesco Corporation on January 1, 2000 if (and only if) Enesco terminates the Executive's employment with Enesco and Enesco Corporation prior to January 1, 2000. 8. Employee Stock Options. Subject to any requested approval of the Compensation and Stock Option Committee of Enesco's Board of Directors, notwithstanding anything to the contrary in any benefit plan, policy, agreement or arrangement (or elsewhere), options granted to the Executive under any of Enesco's stock option plans will continue to vest and remain exercisable by the Executive or his guardian or legal representative in accordance with the terms of those stock option plans until the earlier to occur of (a) the date which is three years after the date of termination of the Executive's employment with Enesco and Enesco Corporation or (b) the date which is 10 years after the date of grant of the option. 9. Severance and Post-termination Benefits. On or prior to the date of termination of the Executive's employment with Enesco and Enesco Corporation, the Executive will execute and deliver to Enesco, and Enesco will execute and deliver to the Executive, a Release Agreement in the form attached hereto as Exhibit A. The terms and provisions of the Release Agreement are incorporated herein by reference and form a part of this Agreement. 10. Notices. Any notice required or made under this Agreement shall be in writing and shall be delivered to the intended recipient: by hand; by certified mail, return receipt requested; by FedEx or other overnight delivery service; or by facsimile as follows: (a) to Enesco c/o Enesco Corporation Chancellory Business Park 225 Windsor Drive Itasca, IL 60143 Attention: Mr. Allan G. Keirstead Executive Vice President, Chief Administrative and Financial Officer Facsimile: (630) 875-5846 (b) to the Executive Peter R. Johnson, Esq. Vice President and General Counsel Enesco Corporation Chancellory Business Park 225 Windsor Drive Itasca, IL 60143 Facsimile: (630) 875-8464 Either party may change the address to which notices are to be sent by providing notice in writing to the other party in accordance with the terms hereof. 11. Governing Law. This Agreement shall be construed in accordance with the laws of the State of Illinois, without giving effect to the conflict of law provisions thereof. The parties hereto have executed and delivered this Agreement as of the date first set forth above. ENESCO GROUP, INC. By /s/ Allan G. Keirstead __________________________________ Name: Allan G. Keirstead Title:Executive Vice President, Chief Administrative and Financial Officer /s/ Peter R. Johnson _____________________________________ Peter R. Johnson Exhibit A RELEASE AGREEMENT This Release Agreement (this "Agreement") is entered into by and between Peter R. Johnson, a resident of 26 Stoneridge Drive, South Barrington, Illinois (hereinafter referred to as "Associate"), and Enesco Group, Inc., a Massachusetts corporation having a principal place of business at 225 Windsor Drive, Itasca, Illinois (hereinafter referred to as the "Company"). This Agreement is incorporated by reference into and forms a part of the Agreement dated as of August [ ], 1999 between the Company and Associate (the "Separation Agreement"). To the extent that any term or provision of this Agreement is inconsistent with any term or provision of the Separation Agreement, the term or provision of the Separation Agreement will control. In consideration for the promises, conditions and representations set forth herein and the severance payments being provided to Associate by the Company as set forth below, and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged by Associate and the Company (hereinafter sometimes referred to collectively as the "Parties"), the Parties hereby agree as follows: 1. Termination Date. Associate's employment with the Company shall terminate as of the close of business on [ ], 1999 (the "Termination Date"). 2. Continuation of Salary and Benefits After Termination. Prior to the Termination Date, Associate's salary and his participation in all compensation and benefit plans and programs in which he currently is a participant or from which he currently receives benefits will remain in effect on the same terms as are in effect on the Effective Date (as defined in Paragraph 20). As of the Termination Date, Associate's salary and any other compensation and benefits he receives from the Company will terminate, other than compensation and/or benefits to which he continues to be entitled (a) pursuant to terms of this Agreement, (b) as a matter of federal or state law, (c) pursuant to the agreements between the Parties listed below or (d) pursuant to the terms of the compensation or benefit plans or programs in which he continues to be a participant or has a right to receive such compensation or benefits after the Termination Date listed below. The agreements and compensation and benefit plans and programs referred to herein are as follows: o the Separation Agreement; o medical, dental and vision employee group insurance plan under the existing policy applicable to Associate or a substantially equivalent successor policy or policies; o life/accidental death and dismemberment group insurance plan under the existing policies applicable to Associate or a substantially equivalent successor policy or policies; o Stanhome Pension Plan Annuity under Policy #GA-20136 issued by Hartford Life Insurance Company; o Enesco Group, Inc. Retirement Plan, as amended and restated as of January 1, 1999; o Enesco Group, Inc. Supplemental Retirement Plan, as amended and restated as of January 1, 1999; o Stanhome PAYSOP Plan and related Trust Agreement dated October 15, 1985, as amended; o Stanhome Inc. 1984 Stock Option Plan, as amended; o Stanhome Inc. 1991 Stock Option Plan, as amended; o Stanhome Inc. 1996 Stock Option Plan, as amended; and o Stanhome Matching Gifts Program. With respect to those Company compensation and benefit plans and programs in which Associate will continue to participate subsequent to the Termination Date, Associate's participation in such compensation and benefit plans and programs will be on terms no less favorable than those in effect as of the Effective Date. Furthermore, the Company and Associate agree that, except as may be provided for in paragraphs 6, 7 and 8 of the Separation Agreement, after his Termination Date he will not become entitled to any increased benefits under such compensation and benefit plans and programs, but the benefits payable by the Company to Associate thereunder shall be based upon his length of service and compensation level as of the Termination Date. 3. Consideration. A. Severance Payments. Following the Termination Date, and for a period of 63 consecutive bi-weekly (two-week) periods commencing on [ ] and ending on [ ] (the "Severance Period"), Associate will receive severance payments equal to $7,248.45 per bi-weekly (two-week) period, gross, without giving effect to any federal or state income tax or other withholding pay ments which the Company may be legally required to deduct therefrom. Such payments are in addition to anything of value to which Associate is already entitled or provided pursuant to this Agreement or the Separation Agreement, or any other agreement between the Parties or other Company plan or program listed in Paragraph 2. Moreover, such severance payments are not intended to include any unused, accrued vacation time to which Associate may be entitled or any other accrued but unpaid compensation or benefit to which Associate may be entitled under any Company compensation or benefit plan or program. The Company may, at any time, in its sole discretion, distribute any remaining payments in a lump sum. B. Additional Payments/Benefits. Associate is entitled to any payments and benefits as may be provided for in paragraphs 6, 7 and 8 of the Separation Agreement. C. Insurance. During the 31 1/2-month period beginning [ ] and ending [ ], Associate will continue to be covered by the medical, dental and vision employee group insurance plan under the existing policy applicable to Associate or a substantially equivalent successor policy or policies (the "Plan") regardless of the location of Associate's eventual residence within the United States and regardless of his coverage by any other medical, dental or vision insurance plans. Should the Plan be terminated in the future, the Company and its successors and assigns, as applicable, agree to provide Associate with coverage that is substantially equivalent to that provided in the Plan. In the event of the Associate's death, it is intended that the coverage for Associate's spouse and other dependents shall continue through the end of the Severance Period. Associate will contribute to the cost of the personal and dependent coverage the same dollar amount (currently, $64.70 per month for family medical and vision coverage and $10.80 per month for family dental coverage) on the same basis as he would contribute to such coverage if he had remained in the employ of the Company as its Vice President and General Counsel, and the Company, its successors and assigns, will contribute the remainder of such cost, with the Associate's cost being adjusted as necessary to be the same cost as may be in effect for medical, dental and vision coverage of similarly situated active employees of the Company and its successors and assigns (i.e., active employees of the Company at the same executive level that Associate attained prior to termination of his employment with the Company). The continued medical, dental and vision coverage, as set forth in the Plan, and the guaranteed contributions outlined above toward both personal coverage and dependent coverage, is binding upon and may not be revoked by the Company or any of its successors or assigns and will continue until coverage ceases as outlined above provided that Associate has paid his portion of the premium. In the event that Associate fails to pay his portion of the premium on time, the Company will pay the full premium and notify Associate of his failure to make timely payment. Associate shall have ten (10) days from his receipt of such notice to cure his failure to pay by repaying to the Company the amount advanced by the Company on his behalf, and the Company shall not allow his insurance coverage to be canceled or to lapse until such ten-day period shall have expired. The Company, its successors and assigns, shall continue to provide at its sole expense the life insurance ($381,110 Death Benefit) and accidental death and dismemberment employee insurance coverage, as presently in effect, through the end of the Severance Period. The Termination Date shall be treated as an event under the Consolidated Budget Reconciliation Act of 1985 ("COBRA"), and Associate will receive COBRA information under separate cover. D. Outplacement. The Company also will provide Associate with outplacement services through Lee Hecht Harrison at its office in Deerfield, Illinois or elsewhere as mutually agreed upon between the Parties, provided such outplacement services commence within 12 months following the Termination Date, and such outplacement services shall continue at least through the end of the Severance Period. E. References. The Company will provide references for Associate in accordance with its policy. F. Taxes. Applicable taxes on all payments, transfers and other consider ation referred to herein will be the sole responsibility of Associate, provided that the Company shall deduct applicable federal and state income tax withholding on the payments provided for herein. G. Vacation Pay. Any accrued, unused vacation for calendar year 1999 will be paid to the Associate in a lump sum immediately following the Termination Date. 4. Annuity. Associate's benefits from the Stanhome Inc. Pension Plan Annuity under Policy #GA-20136 issued by Hartford Life Insurance Company also shall remain in full force and effect. 5. Release. A. From Associate to the Company. In exchange for the compensation described in Paragraph 2 and for other good and valuable consideration, Associate hereby agrees that he, his representatives, heirs, executors, administrators, agents, estate, successors and assigns release and forever discharge the Company and its affiliates and their successors, predecessors, assigns, directors, stockholders or shareholders, officers, employees and/or agents, both individually and in their official capacities with the Company and/or its affiliates, from any and all actions, causes of action, suits, claims, demands, obligations, costs, judgments, complaints, contracts, agreements, promises, debts, damages, and liabilities of whatever kind or nature, at law, in equity or otherwise, whether existing or contingent, known or unknown, relating to any matter, cause or thing whatsoever arising on or prior to the date of this Agreement, including but not limited to rights or claims relating in any way to Associate's employment with or his termination of employment from the Company, including but not limited to claims arising under common law, contract, implied contract, public policy, tort, personal injury or any federal, state or local statute, law, constitution, ordinance, regulation or order, including but not limited to the Age Discrimination in Employment Act, as amended, 29 U.S.C. Section 621, et seq., Title VII of the Civil Rights Act, The Americans with Disabilities Act, The Illinois Human Rights Act and/or any other applicable employment-related federal, state or local statute, law, ordinance, regulation or order; provided, however, that nothing contained in this Paragraph 5.A. shall limit Associate's right to enforce the terms or sue for breach of (i) this Agreement, any agreement listed in Paragraph 2 of this Agreement or any other agreement whatsoever unrelated to compensation and severance matters between the Parties hereto whether or not such agreement is listed in Paragraph 2 of this Agreement, (ii) any compensation or benefit plan or program in which he remains a participant or beneficiary beyond the Termination Date in accordance with the provisions of Paragraph 2 or (iii) Associate's right to indemnification as an officer or director of the Company and/or its affiliates. This release is intended by Associate to be a general release as to the claims described herein. B. From the Company to Associate. In exchange for Associate's release of the Company and the covenants made by Associate in Paragraph 10 hereof, the Company hereby agrees that it and its affiliates and subsidiaries, and their successors, predecessors, assigns, directors, stockholders or shareholders, officers, employees and agents, both individually and in their official capacities with the Company and its affiliates, attorneys and agents release and forever discharge Associate, his representatives, heirs, executors, administrators, agents, attorneys, estate, successors and assigns, from any and all actions, causes of action, suits, claims, demands, obligations, costs, judgments, complaints, contracts, agreements, promises, debts, damages and liabilities of whatever kind or nature, at law, in equity or otherwise, whether existing or contingent, known or unknown, relating to any matter, cause or thing whatsoever arising on or prior to the date of this Agreement, including but not limited to rights or claims relating in any way to Associate's employment with or his termination of employment from the Company or his representation of the Company in his capacity as legal counsel; provided, however, that nothing contained in this Paragraph 5.B. shall limit the Company's right to enforce the terms or sue for breach of (i) this Agreement, any agreement listed in Paragraph 2 of this Agreement or any other agreement whatsoever unrelated to compensation and severance matters between the Parties hereto whether or not such agreement is listed in Paragraph 2 of this Agreement or (ii) any compensation or benefit plan or program in which he remains a participant or beneficiary beyond the Termination Date in accordance with the provisions of Paragraph 2. This release is intended by the Company to be a general release as to the claims described herein. 6. Indemnification. To the extent that Associate is not otherwise indemnified under a Company by-law or insurance policy, the Company will indemnify and hold harmless Associate against all liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees, reasonably incurred by Associate in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, in which Associate may be involved or with which Associate may be threatened arising out of actions taken by Associate in his capacity as an officer, director, employee, agent, representative of, or legal counsel to, the Company or a direct or indirect subsidiary of the Company or, at the Company's request, another organization, or in any capacity with any employee benefit plan of the Company or such a subsidiary or organization, or in connection with the prosecution of any action, suit or proceeding, whether civil or criminal, in which Associate may be acting for or on behalf of the Company, in any such case with the exception of actions by him with respect to which a court of competent jurisdiction determines that Associate did not act in good faith in the reasonable belief that his action was in the best interest of the Company, or to the extent such claim relates to his service with respect to an employee benefit plan, in the best interest of the participants or beneficiaries of such employee benefit plan, without regard to the date when such claim is brought. Expenses, including without limitation counsel fees, reasonably incurred by Associate in connection with the defense or disposition of any such action, suit or other proceeding shall be paid from time to time by the Company in advance of the final disposition thereof upon receipt of an undertaking by Associate to repay to the Company the amounts previously advanced if it shall be adjudicated that indemnification for such expenses is not authorized hereunder. 7. Waiver of Rights and Claims Under the Age Discrimination in Employ- ment Act, as Amended. Associate has been informed that because he is over 40 years of age, he has or might have specific rights and/or claims under the Age Discrimination in Employment Act, as amended. In consideration for the compensation described hereunder, Associate specifically waives the rights and/or claims to the extent that such rights and/or claims arose prior to the date this Agreement was executed. Associate acknowledges that he has been provided the information or materials required by law in connection with this waiver. 8. Company Files, Documents and Other Property. Associate warrants that he will return to the Company upon its request all keys or other items, including all Company files, reports, books, data and documents, that are in his possession or control and that are the property of the Company (and not his personal files, reports, books, data and documents). 9. Advice and Representations. A. Associate is hereby advised by the Company to consult with an attorney prior to executing this Agreement. B. Associate was further advised, when he was presented with this Agreement on or before [ ], that he had at least 45 days within which to consider the Agreement, until the close of business on [ ]. C. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without giving effect to the principles of conflicts of law thereof. D. The terms of this Agreement are contractual in nature and not a mere recital. Captions herein are inserted for convenience, do not constitute a part of this Agreement and shall not be admissible for the purpose of proving the intent of the parties. E. Associate represents that he has read this Agreement, fully understands the terms and conditions of this Agreement and is knowingly and voluntarily executing the same without any duress or undue influence. 10. Confidential Information. Associate agrees that he will not use or disclose to anyone (other than for the benefit of the Company) at any time hereafter, any Confidential Information obtained by him or made known to him while employed by the Company and will make all reasonable, necessary and appropriate efforts to safeguard all such Confidential Information from disclosure to anyone other than as permitted hereby. As used herein, "Confidential Information" includes, but is not limited to, trade secrets, business and sales policies, methods, plans and customer lists, including any lists (written or other) of such persons or entities, whether of the Company or any other organization associated or affiliated with or owned by or owning the Company, but shall not include information which becomes generally available to the public other than as a result of disclosure by Associate's act or default or the act or default of Associate's agents or representatives. 11. Resignation and Stock Transfers. Upon the Termination Date, Associate agrees to (i) leave and/or resign from any position held by him with the Company or any direct or indirect affiliated company or organization, including but not limited to positions as an officer, director, committee member or any other position, (ii) take any action necessary to transfer shares of stock held in his name or for his benefit on behalf of the Company in any direct or indirect affiliate of the Company, as requested by the Company, to the Company or a designee of the Company and (iii) take any action and execute anything as may be necessary to accomplish the foregoing. 12. Binding Effect. This Agreement shall be binding upon and inure to the benefit of any successor or assign of the Company, and any such successor or assign shall be deemed substituted for the Company under the terms of this Agreement, and as a condition thereof, such successor or assign shall expressly assume in writing the rights, duties and obligations of the Company. As used in this Agreement, the term "successor or assign" or "successors or assigns" shall include any person, firm, corporation or other entity which at any time, whether by merger, consolidation, purchase or otherwise, acquires all or substantially all of the assets, capital stock or business of the Company. The rights and obligations of Associate under this Agreement, including without limitation his right to exercise vested stock options, shall inure to the benefit of, be binding upon, be exercisable by and be enforceable by Associate's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Associate should die while any amount would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee or if there is no such designee, to his estate. 13. Amendment or Modification. This Agreement may not be amended, modified, altered or changed except upon written consent of the Parties. 14. Severability. The illegality, invalidity or unenforceability of any particular provision of this Agreement shall not affect the legality, validity or enforceability of the remaining parts, terms or provisions of this Agreement, but the obligation to be fulfilled under such illegal, invalid or unenforceable provision shall automatically be reduced to the limit of legality, validity or enforceability prescribed by law, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted. 15. Waiver. No waiver of any provision of this Agreement shall be effective unless made in writing and signed by the waiving party. The waiver of any breach of this Agreement by either party or the failure of either party to require the performance of any term or obligation of this Agreement, in whole or in part, in any one instance, shall not constitute a waiver of or prevent any subsequent enforcement of such term or obligation in another instance or be deemed a waiver of any subsequent breach. 16. Entire Agreement. Associate and the Company agree that this Agreement, together with the Separation Agreement, contains and constitutes the entire understanding and agreement between the Parties hereto respecting the terms of Associate's termination from the Company and, except as expressly provided herein, supersedes, cancels and replaces all previous written or verbal negotiations, agreements, commitments and writings in connection with severance or compensation arrangements, including the letters to Associate from G. William Seawright dated July 9, 1997 and August 13, 1997. 17. Execution. This Agreement may be executed in two duplicate counterparts, each of which shall be treated as an original, but both of which together shall constitute one and the same instrument, and in pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one such counterpart. 18. Change In Control. If a Change In Control, as defined in the Corporate Severance Policy dated November 1996, occurs after the Termination Date, any payments yet to be made to Associate under Paragraph 3.A and, if applicable, paragraphs 6 and 7 of the Separation Agreement shall be paid in a lump sum upon the occurrence of such Change In Control. Notwithstanding the foregoing, the meaning of the term "Severance Period," as defined in Paragraph 3.A, shall not change in this or any other event. 19. Notice. Any notice required or made under this Agreement shall be in writing and shall be delivered by certified mail, return receipt requested, by FedEx or other overnight delivery service or by facsimile, if confirmed, as follows: a. to Associate Peter R. Johnson, Esq. 26 Stoneridge Drive South Barrington, IL 60010 Facsimile: 847-842-9776 b. to the Company Enesco Group, Inc. Chancellory Business Park 225 Windsor Drive Itasca, IL 60143 Facsimile: 630-875-5846 Attention: Allan G. Keirstead, Executive Vice President, Chief Administrative and Financial Officer Either party may change the address to which notices are to be sent by providing notice in writing to the other Party in accordance with the terms hereof. 20. Effective Date. Associate may revoke this Agreement for a period of seven days following its execution by him, and the Agreement shall not become effective or enforceable until the date upon which this revocation period has expired (the "Effective Date"). If the Effective Date is later than the Termination Date, all payments that would have been made prior to such date shall be paid as of the Effective Date. Executed this __________ day of ____________, 1999. _________________________________ Peter R. Johnson ENESCO GROUP, INC. By:______________________________ Allan G. Keirstead Executive Vice President, Chief Administrative and Financial Officer EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 DEC-31-1999 SEP-30-1999 9-MOS 11,118 0 139,182 11,910 68,062 223,910 80,769 50,338 331,259 185,326 0 0 0 3,154 105,263 331,259 296,263 296,263 158,582 158,582 105,183 2,610 2,386 26,824 10,257 16,567 0 0 0 16,567 1.14 1.13 Note: As per FASB Statement No. 128, earnings per share, "Primary" is now "Basic"
-----END PRIVACY-ENHANCED MESSAGE-----