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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
--------------------------------------- --------------------
(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
----------
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
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
----------- --------- -------- ---------- ---------- ----------
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
=========== =========== ========== ========== ===========
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