EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ENESCO GROUP, INC.
The following discussion provides more depth on the financial condition
and results of operations of Enesco Group, Inc. and subsidiaries ("Enesco"). You
will probably find it helpful to have first read the financial statements,
accompanying notes and financial highlights of recent years.
RESULTS OF OPERATIONS
2001 COMPARED TO 2000
Net revenues decreased $56 million, or 17%, in 2001 due to lower product sales
in the United States. Net sales in the United States decreased 22%, primarily in
the traditional collectible, card and gift channel, continuing a trend in recent
years. The biggest single piece of the decrease was sales of Harry Potter
merchandise, which were $10 million less in 2001 compared to 2000.
Net international sales decreased 1% in 2001 compared to 2000 and
represented approximately 29% of total 2001 sales compared to 24% in 2000. Local
currency international sales were translated into United States dollars at lower
exchange rates in 2001 versus 2000. If the 2001 local currency sales were
translated into United States dollars at the 2000 exchange rates, international
sales would have been greater by approximately $3.3 million, or 4%, in 2001.
Enesco's Precious Moments lines represented approximately 39% of 2001
sales compared to 38% in 2000. The Cherished Teddies lines represented 13% of
2001 sales compared to 14% in 2000. The number of members in the Precious
Moments collector clubs was down approximately 5% and the number of members in
the Cherished Teddies collector clubs was down approximately 24% at December 31,
2001, compared to December 31, 2000.
As of January 1, 2001, in the U.S., Enesco began utilizing a salary-based
employee sales force, replacing its historical independent contractor sales
force for the collectible, card and gift, and home decor channels. Throughout
2001, Enesco serviced these channels with this sales organization but did not
achieve the cost efficiencies, market penetration or customer service levels
expected.
Therefore, as of January 1, 2002 numerous changes were initiated aimed at
improving sales, market penetration and customer service levels. The U.S.
employee-based field sales force was increased and their compensation plan was
changed to a variable commission-based format versus a salary plus bonus format.
Additionally, this sales force has been refocused to serve only the collectible,
card and gift channels. The U.S. home decor channel will be serviced by 11
independent representative selling groups with the capability of reaching
customers not currently served by Enesco. Along with these changes in Enesco's
U.S. sales force, new domestic programs have been initiated providing Enesco
customers better value, including dating terms on seasonal products, more
flexible shipping schedules and improved product availability.
Total unfilled orders (backlog) as of year end were down approximately $20
million, or 42%, compared to the same period last year. Contributing to this
decrease is a decline in orders for Harry Potter products in 2001 versus 2000
and cancellation of future orders for Harry Potter products in early 2001 after
slow sell through during the 2000 Christmas selling season. Net open orders are
orders received and approved by Enesco, subject to cancellation for various
reasons, including credit considerations, product availability and customer
requests.
Gross profit decreased $32 million, or 23%, in 2001 largely as a result of
the sales decrease. Results for 2001 include a non-cash charge of $8.7 million
in the fourth quarter to write down inventory values as part of Enesco's product
rationalization program. In August, based on a product profitability analysis,
we discontinued about 3,000 domestic SKUs. From September through December, we
offered these items at a discount to our list price but still above our cost.
The resulting sales were less than expected and diverted our sales forces'
attention from more profitable sales efforts. The one-time write-down values
these inventories at our expected recovery in the closeout channel where we can
liquidate these items much faster, improving our cash flow. The 2000 results
included a one-time non-cash charge of $2.9 million
recorded in the second quarter related to Precious Moments product that was to
be used as part of the consideration for the agreement to purchase certain
assets of Precious Moments, Inc. The proposed acquisition was terminated, and
the inventory was written down to reflect market conditions and to preserve
collectibility of continuing product lines. Enesco's gross profit margin,
expressed as a percentage of net sales, was 43% of sales in 2001 (exclusive of
the $8.7 million charge) compared to 44% in 2000 (exclusive of the $2.9 million
charge). Enesco recently negotiated lower pricing structures with major
suppliers. We expect the results of these negotiations to have a positive impact
on margins in the second half of 2002.
Selling, distribution, general and administrative expenses ("SD&A"),
decreased $15.3 million, or 12%, in 2001 versus 2000 and represented 43% of
sales in 2001 compared to 40% in 2000. Results for 2001 included one-time
charges totaling $3.2 million, comprised of $2.3 million for the January 2001
U.S. sales force reorganization (recorded in the first and second quarter) and
$930 thousand for severance provisions ($500 thousand in the second quarter,
$360 thousand in the third quarter and $70 thousand in the fourth quarter). The
January 2001 U.S. sales force reorganization costs were primarily commissions
paid in 2001 to former independent contractors for orders placed before January
1, 2001, but shipped during 2001. Commissions are expensed when orders are
shipped. All of the January 2001 sales force reorganization costs were expensed
as incurred.
The January 2002 sales force changes (referenced above) relating to the
change in compensation structure and addition of U.S. field and home decor sales
representatives are separate from the January 2001 sales reorganization. The
January 2002 sales force changes did not generate any one-time charges.
The 2000 results included one-time charges of $2.2 million for termination
of the Precious Moments acquisition and $2.8 million for executive severance,
offset by a gain of $3.0 million on the termination of supplemental retirement
plans.
Exclusive of one-time items, SD&A costs for 2001 were down $16.7 million,
or 13%, from 2000. The decrease from 2000 reflects numerous cost reductions
partially offset by higher domestic bad debt expense early in 2001. SD&A costs,
excluding one-time items, were 42% of sales for 2001, compared to 40% for 2000.
Enesco expects to report continued reductions in recurring operating expenses
going forward.
Enesco initiated numerous cost savings programs in 2001 aimed at
increasing margins, lowering operating costs, and increasing efficiencies
including:
- - Enesco reduced its U.S. workforce by 14% (120 positions) in May 2001
generating annual savings of approximately $8 million.
- - In August 2001, a further domestic workforce reduction eliminated
approximately 45 positions generating an additional estimated $3.5 million
of annual savings.
- - A U.K. manufacturing site was closed in September 2001 eliminating 45
positions which should generate annual savings of $700 thousand.
- - Enesco is restructuring its Operations, Marketing and Creative departments
to generate efficiencies in the supply chain and product development cycle
as well as improving customer service.
- - Operating costs are being more closely scrutinized, unnecessary
expenditures are being eliminated, and all incremental spending must be
cost-justified prior to being incurred.
Amortization of goodwill decreased $700 thousand, or 27%, in 2001 versus
2000 due to the completion of an asset's amortization period at the end of 2000.
Enesco historically had classified amortization expense as a non-operating item
and has reclassified amortization expense as an operating expense. In 2002
amortization of goodwill will cease in accordance with FAS 142. All periods
presented have been reclassified to conform with the current presentation.
Due to the factors described above, 2001 operating profit decreased $16.0
million compared to 2000. Operating profit in the United States was down $16.0
million and international operating profit was flat compared to 2000.
2000 COMPARED TO 1999
Net revenues decreased $67 million, or 17%, in 2000 due mainly to lower sales in
the United States. Net sales in the United States decreased 19%, primarily in
the traditional collectible, card and gift channels, continuing a trend in
recent years. Domestic sales initiatives in 2000 were focused on expansion of
accounts in other retail venues such as direct selling, catalogs, department
stores, chain drug stores and the mass market. In most cases, the products sold
in these alternate channels are designed specifically for those channels and are
different from products offered to our traditional core channel.
Net international sales in 2000 decreased 12% compared to 1999 and
represented approximately 24% of total 2000 sales compared to 23% in 1999. Local
currency international sales were translated into United States dollars at lower
exchange rates in 2000 versus 1999. If the 2000 local currency sales were
translated into United States dollars at the 1999 exchange rates, international
sales would have been greater by approximately $4.3 million, or 5%, in 2000.
The Precious Moments lines represented approximately 38% of 2000 sales
compared to 37% in 1999. The Cherished Teddies lines represented 14% of 2000
sales compared to 22% in 1999. The number of members in the Precious Moments
collector clubs was down approximately 4%, and the number of members in the
Cherished Teddies collector clubs was down approximately 12% at December 31,
2000 versus December 31, 1999.
Total unfilled orders (backlog) as of year-end 2000 were down
approximately $2 million, or 4%, compared to December 31, 1999. Net open orders
are orders received and approved by Enesco, subject to cancellation for various
reasons, including credit considerations, product availability and customer
requests.
Gross profit decreased $27 million, or 16%, in 2000 following the sales
decrease and due to the one-time non-cash charge of $2.9 million recorded in the
second quarter of 2000. The second quarter 2000 $2.9 million inventory
write-down related to Precious Moments product that was to be used as part of
the consideration for the agreement to purchase certain assets of Precious
Moments, Inc. The proposed acquisition was terminated, and the inventory was
written down to reflect market conditions and to preserve collectibility of
continuing product lines. Enesco's gross profit margin, expressed as a
percentage of net sales, was 44% of sales in 2000 (before the second quarter
charge of $2.9 million) compared to 45% in 1999 (before the 1999 fourth quarter
inventory write-down of $9.6 million). The percentage decrease was due to lower
margins in the United States due to product and channel sales mix. Additionally,
Enesco incurred expenses in the fourth quarter of 2000 to meet Christmas
shipping deadlines. International gross profit margins improved slightly
compared to 1999 due to sales mix and lower fixed costs.
Selling, distribution, general and administrative expenses decreased $12.5
million, or 9%, in 2000 versus 1999 and represented 40% of sales in 2000
compared to 37% in 1999. The 2000 expenses were a higher percentage of sales
principally due to the impact of lower sales on fixed costs. The 2000 reductions
in expenses of $12.5 million were from lower variable expenses (approximately
10% of sales) due to the lower sales volumes, reductions from cost controls
initiated in 1999 and 2000, and $1.1 million of actuarial gains relating to
post-retirement benefits. Selling, distribution, general and administrative
expenses for 2000 included one-time items of $2.2 million for costs related to
the termination of the Precious Moments acquisition, $2.8 million for executive
severance and a $3.0 million settlement gain resulting from the termination of
supplemental retirement plans. Excluding the one-time items, the year-on-year
decrease would have been $14.3 million, or 10%.
Due to the factors described above, 2000 operating profit decreased $15.0
million, or 70%, compared to 1999. Operating profit in the United States was
down $14.5 million, or 94%, and international operating profit decreased $500
thousand, or 8%, compared to 1999.
INTEREST EXPENSE, INTEREST INCOME AND OTHER EXPENSE, NET
Interest expense for 2001 was lower by $1.7 million, or 52%, from 2000 due to
lower average borrowings and lower interest rates. Lower interest income in 2001
is due to a non-recurring $675 thousand second quarter 2000 gain related to an
expired warranty term and lower interest rates. Other expense, net, for 2001 are
higher due to a non-recurring $625 thousand gain on an expired warranty term
recorded in the second quarter of 2000.
Interest expense in 2000 increased slightly from 1999 due to higher
interest rates despite lower average borrowings. Interest income increased in
2000 from 1999 due to a non-recurring second quarter 2000 gain related to an
expired warranty term. Other expense, net, in 2000 benefited from a $625
thousand gain on the expiration of a warranty term. Other expense, net, in 1999
benefited from a net gain on the sale of assets of $350 thousand.
INCOME TAXES
The 2001 tax provision includes a $9.4 million benefit, primarily related to
prior year tax accruals which were no longer required due to completed tax
audits and closed tax years for a number of taxing authorities worldwide. The
2001 effective tax rate (excluding the 2001 $9.4 million benefit) was 31.1%
compared to 40.0% in 2000 (excluding a 2000 $12 million benefit). The difference
from the effective rate for 2000
reflects the geographical mix of earnings and the impact of non-deductible
goodwill amortization. The actual effective income tax rates are dependent upon
numerous factors and actual results may vary.
The 2000 tax provision includes a $12 million benefit primarily related to
prior year tax accruals which were no longer required due to completed tax
audits and closed tax years for a number of taxing authorities worldwide. The
2000 effective tax rate (excluding the 2000 $12 million benefit) was 40.0%
compared to 38.4% in 1999 (excluding a 1999 $15 million benefit), due to the
geographical mix of earnings and the 1999 United States tax benefit on the sale
of Enesco's Mexican assembly and packaging subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
Enesco historically had satisfied its capital requirements with internally
generated funds and short-term loans. Working capital requirements fluctuate
during the year and are generally greatest early in the fourth quarter and
lowest early in the first quarter.
Operating cash flows are a function of our earnings plus non-cash expenses
such as depreciation and amortization and our ability to manage working capital.
Operating cash flows in 2001 were $13.2 million versus $13.9 million in the
prior year. The major sources of funds from changes in working capital include
lower accounts receivable, lower inventories and increase accounts payable. The
major uses of funds from operating activities in 2001 were deferred and current
income taxes and lower post-retirement benefits. The lower accounts receivable
is a function of lower sales and faster collections being offset partially by
dating programs. To stimulate sales, Enesco began offering domestic dating
programs to its retailers in the third quarter of 2001. The marginal impact of
the dating programs is that as sales increase, accounts receivable increase and
days sales outstanding also increase. Inventory decreased due to the fourth
quarter inventory write-down of $8.7 million. Accounts payable increased due to
the implementation of extended payment terms to Far East vendors in the second
quarter of 2001. Accrued expenses decreased due to the timing of payments and
the impact of lower sales volumes. Deferred income tax assets were created
relating to the $8.7 million inventory write-down and the 2001 domestic NOL
being carried forward. Current income tax liabilities were reduced by the $9.4
million reversal of prior year accruals which were no longer required. The
corporate headquarters closing reserve (Note 10) at December 31, 2001, totaled
$1.2 million, a decrease of $2.2 million from year-end 2000, relating to
payments made. Due to the duration and timing of severance provisions and
related benefits, the reserve will not be fully utilized until the first quarter
of 2004. The reserve is expected to be utilized as follows: $700 thousand in
2002, $400 thousand in 2003 and $100 thousand in 2004.
Enesco has filed and continues to file tax returns with a number of taxing
authorities worldwide. While we believe 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. Enesco 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 Enesco's
current liquid asset position and credit facilities, Enesco 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. In 2001, the adjustment was
a tax benefit of $9.4 million. 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 2001 was for capital
expenditures. Capital expenditures for 2001 totaled $2.7 million.
The major use of cash in financing activities in 2001 was for the
repayment of debt. Enesco did not declare any dividends in 2001. Any future
dividends and resumption of the stock repurchase program will depend on improved
future financial results. Note 4 to the Financial Statements provides a detailed
summary of Treasury Stock activity. Enesco has an authorized program to purchase
shares of its common stock depending on market and business conditions, and may
utilize funds for this purpose in the future. As of December 31, 2001, one
million shares remained available for purchase under the program. No shares were
purchased in 2000 or 2001.
Enesco makes provisions to record its future payment obligations relating
to insurance premiums for post-retirement benefits and severance allowances.
These obligations are not funded because there is no financial benefit to fund
them.
Enesco has various non-qualified supplemental retirement plans. Benefits
from these supplemental plans will be paid from Enesco's assets. Enesco has
established grantor trusts to provide assets for some of
these non-qualified plans. The assets are subject to the claims of creditors
and, therefore, they are not considered plan assets and are excluded from
pension computations.
In August 2000, Enesco entered into a $50 million revolving credit
facility with Fleet National Bank ("Fleet") to replace an existing credit
facility. The Fleet credit agreement contains financial and operating covenants
including restrictions on indebtedness and liens, selling property, repurchasing
our stock and paying dividends. In addition, Enesco is required to satisfy fixed
charge coverage ratio and leverage ratio tests at the end of each quarter. As of
December 31, 2001, Enesco was in compliance with or has obtained a waiver for
all covenants in the revolving credit facility.
In March 2001, Enesco agreed to modify its credit agreement with Fleet,
which included modification of the financial covenants. Enesco further agreed,
in April 2001, to modify the Fleet credit agreement to reduce the commitment to
$25 million and to grant Fleet a security interest in inventory and accounts
receivable. Enesco further amended the credit agreement with Fleet in June 2001
and August 2001. The amended agreement included an increased revolving credit
commitment to $35 million, increased credit capacity to $50 million including a
letter of credit facility of $15 million, an extension of the facility
termination date and mortgages on two parcels of domestic real estate.
In September 2001, Enesco's credit facility with Fleet was further amended
to extend the termination date to May 2002 and certain financial covenants were
also modified. The size of the credit facility remains at $50 million. However,
the revolving credit commitment was increased to $40 million and the letter of
credit facility was lowered to $10 million. These modifications are not expected
to have a material effect on Enesco's liquidity or the ability to meet working
capital requirements.
Enesco currently is pursuing various options to meet capital and operating
needs after the Fleet agreement expires. Enesco believes it has access to a wide
variety of financing arrangements based on our credit rating and modest
leverage. Enesco is not aware of any trends, events, demands, commitments or
uncertainties which reasonably can be expected to have a material effect on
liquidity and the ability to meet anticipated requirements for working capital
and capital expenditures.
The principal sources of Enesco's liquidity are its available cash
balances, cash from operations and available financing alternatives. At December
31, 2001, Enesco had formal and informal unused lines of credit of approximately
$50 million. The informal lines are bank lines that have no commitment fees. At
December 31, 2001, all open borrowings were notes with a weighted-average
interest rate of approximately 3.6%.
Fluctuations in the value of the U.S. dollar versus international
currencies affect the U.S. dollar translation value of international currency
denominated balance sheet items. The changes in the balance sheet dollar values
due to international currency translation fluctuations are recorded as a
component of shareholders' equity.
A summary of significant contractual obligations is as follows (in
thousands):
PAYMENTS DUE BY PERIOD
Less than 1 After 5
Contractual Obligations Total year 1-3 years 4-5 years years
----- ----------- --------- --------- -------
Short term borrowings $ 6,749 $ 6,749 $ -- $ -- $ --
Letters of credit 7,460 7,460 -- -- --
Operating leases 8,300 2,900 4,700 700 --
License guarantees 92,900 17,100 45,800 30,000 --
-------- ------- ------- ------- ------
Total Contractual Cash
Obligations $115,409 $34,209 $50,500 $30,700 $ --
-------- ------- ------- ------- ------
CRITICAL ACCOUNTING POLICIES
In December 2001, the SEC requested that all registrants list their three to
five most "critical accounting policies" in MD&A. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. We
believe that our following accounting policies fit this definition:
Accounts receivable are reported net of reserves for uncollectible
accounts as well as reserves for returns and allowances. Reserves for
uncollectible accounts are determined using aging data and the related
historical recovery of amounts in the various aging categories. Accounts in
bankruptcy are fully reserved. Subsequent recoveries are adjusted through the
provision for doubtful accounts. Reserves for returns and
allowances are determined using specific claims data from customers as well as
an estimate for incurred but not reported claims determined using historical
claims data.
Inventories are valued at the lower of cost or market. Reserves are
established to value excess and obsolete inventory at its net realizable value
based on historical recoveries for discontinued merchandise. Discontinued
merchandise is a result of market trends and the level of success for Enesco's
product introductions. Also, inventory values are written down where Enesco's
right to sell licensed merchandise has expired or will expire in the near
future.
Enesco has established accruals for taxes payable and tax assessments. The
accruals are included in current income taxes payable since it is uncertain as
to when assessments may be made and paid. Enesco has filed and continues to file
tax returns with a number of taxing authorities worldwide. While Enesco 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. To the
extent accruals differ from assessments or when the open tax years are closed
the accruals are adjusted through the provision for income taxes. The majority
of open tax years become closed for assessments at the end of December for the
particular open year.
The above listing is not intended to be a comprehensive list of all our
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by generally accepted accounting
principles, with no need for management's judgment in their application. There
are also areas in which management's judgment in selecting any available
alternative would not produce a materially different result. See our audited
Consolidated Financial Statements and Notes thereto in this Annual Report which
contain accounting policies and other disclosures required by generally accepted
accounting principles.
EURO CURRENCY
Effective January 1, 1999, 11 of the 15 countries that are members of the
European Economic and Monetary Union introduced a single currency unit, the
euro. Prior to full implementation for the new currency for the participating
countries on January 1, 2002, there was a transition period during which parties
could use either the existing currencies or the euro. During the transition
period all exchanges between currencies of the participating countries were
required to be first converted through the euro. Enesco did not experience any
impact on its operations during the transition period or on full implementation
of the Euro on January 1, 2002.
MARKET RISK
Enesco operates globally with various manufacturing and distribution facilities
and product sourcing locations around the world. As such, Enesco is exposed to
foreign exchange risk since purchases and sales are made in foreign currencies.
In addition, Enesco is subject to interest rate risk on outstanding borrowings.
Enesco may reduce its exposure to fluctuations in interest rates and foreign
exchange rates by creating offsetting positions through the use of derivative
financial instruments. Enesco currently does not use derivative financial
instruments for trading or speculative purposes. Enesco regularly monitors its
foreign currency exposures and ensures that the hedge contract amounts do not
exceed the amounts of the underlying exposures. To manage foreign currency risk,
as of December 31, 2001, Enesco had entered into forward exchange agreements
with a notional value of $17.0 million that will mature within 90 days. These
contracts include sales of British pounds sterling and the purchase of U.S.
dollars at an average exchange rate of 1.44 and a sale of U.S. dollars and the
purchases of British pounds sterling at an average exchange rate of 1.45. The
fair value of these contracts is not significant. As of December 31, 2001,
Enesco had $6.7 million outstanding of interest bearing debt with interest rates
ranging from 3.25% to 4.75% and maturities within 31 days. The fair value
approximates the carrying value of these debt instruments. Enesco currently has
not hedged the interest rate risk on any of its outstanding borrowings.
ACCOUNTING CHANGES
Adoption of SAB 101 "Revenue Recognition" in the fourth quarter of 2000 did not
affect Enesco's accounting and reporting policies.
In accordance with EITF 00-10 "Accounting for Shipping and Handling Fees
and Costs" (which also was adopted in the fourth quarter of 2000), Enesco
classifies shipping and handling costs billed to customers as revenue, and the
related costs are classified as cost of sales. Revenue and cost of sales for
1999 were restated to include $7.8 million of shipping and handling costs billed
to customers.
FAS 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes the accounting and reporting standards for derivatives. Adopted on
January 1, 2001, FAS 133 did not have a material impact on Enesco's consolidated
financial position or results of operations.
Adoption of EITF 00-22 "Accounting for Points and Other Time-Based or
Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to
be Delivered in the Future" in the first quarter of 2001 did not affect Enesco's
accounting and reporting policies.
Financial Accounting Standards (FAS) 141 "Business Combinations" and FAS
142 "Goodwill and Intangible Assets" and FAS 143 "Accounting for Asset
Retirement Obligations" were finalized on June 30, 2001. FAS 144 "Accounting for
the Impairment of or Disposal of Long-Lived Assets" was issued in August of
2001. FAS 141 is not expected to have any impact on the historical financial
statements of Enesco. Under FAS 142, goodwill and intangible assets that have
indefinite useful lives will not be amortized, but rather will be tested at
least annually for impairment. Intangible assets that have finite useful lives
will continue to be amortized over their useful lives. As required, Enesco will
adopt FAS 142 as of January 1, 2002, and will cease amortization of goodwill.
The annual impact of ceasing amortization of goodwill is $1.95 million. Enesco
has not yet determined if the net book value of its existing goodwill of $33.4
million will be impaired. FAS 143 and 144 are not expected to have a material
impact on the financial statements of Enesco when adopted.
EITF 00-14 "Accounting for Certain Sales Incentives" and EITF 00-25
"Vendor Income Statement Characterization of Consideration from a Vendor to
Retailer" became effective this year. Enesco has determined that EITF 00-14 will
not materially impact its results of operations and financial condition. The
impact of EITF 00-25, while not expected to have a material impact is currently
under review.
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report, including all information incorporated by reference into
this Annual Report, contains certain forward-looking statements within the
meaning of the Federal securities laws. These forward-looking statements may
include the words "believe," "expect," "plans" or similar words and are based in
part on Enesco's reasonable expectations and are subject to a number of factors
and risks, many of which are beyond Enesco's control. Enesco's future results
may differ materially from its current results, and actual results could differ
materially from those projected in the forward-looking statements contained in,
and incorporated by reference into, this Annual Report as a result of certain
factors including, but not limited to, those set forth below. Readers should
also carefully review any risk factors described in other documents that we file
from time to time with the Securities and Exchange Commission.
- - Our ability to manufacture, increase capacity, source and ship new and
continuing product in a timely manner and consumers' acceptance of those
products at prices that will be sufficient to profitably recover
development, manufacturing, marketing, royalty and other costs of the
products;
- - Economic conditions including retail sales, higher fuel prices, currency
fluctuations and government regulation and other actions in the various
markets in which we operate throughout the world;
- - The inventory policies of retailers, together with the increased reliance
by retailers on quick response inventory management techniques, which
increase the risk of underproduction of popular items, overproduction of
less popular items and failure to achieve tight and compressed shipping
schedules;
- - The impact of competition on revenues, margins and other aspects of
Enesco's business, including the ability to secure, maintain and renew
popular licenses and the ability to attract and retain talented employees.
In light of these uncertainties and risks, there can be no assurance that the
forward-looking statements in this Annual Report will occur or continue in the
future. Except for required, periodic filings under the Securities Exchange Act
of 1934, Enesco undertakes no obligations to release publicly any revisions to
these forward looking statements that may reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
CONSOLIDATED BALANCE SHEETS
ENESCO GROUP, INC.
December 31, 2001 and 2000
ASSETS
(In thousands)
2001 2000
CURRENT ASSETS:
Cash and certificates of deposit (including interest bearing demand deposits) $ 7,932 $ 4,006
Accounts receivable, net 58,582 72,923
Inventories 56,437 60,491
Prepaid expenses 2,622 3,640
Current tax assets 13,052 12,095
--------- ---------
Total current assets 138,625 153,155
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and improvements 3,710 3,960
Buildings and improvements 34,739 36,624
Machinery and equipment 6,603 12,487
Office furniture and equipment 22,689 31,919
Transportation equipment 458 515
--------- ---------
68,199 85,505
Less - accumulated depreciation and amortization (41,617) (56,256)
--------- ---------
Property, plant and equipment, net 26,582 29,249
--------- ---------
OTHER ASSETS:
Goodwill and other intangibles, net 33,423 35,564
Other 1,141 947
Deferred income taxes 19,780 12,564
--------- ---------
Total other assets 54,344 49,075
--------- ---------
$ 219,551 $ 231,479
========= =========
The accompanying notes are an integral part of these financial statements.
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands)
2001 2000
CURRENT LIABILITIES:
Notes and loans payable $ 6,749 $ 14,000
Accounts payable 28,345 17,867
Federal, state and foreign income taxes 28,713 35,154
Accrued expenses -
Payroll and commissions 3,183 3,698
Royalties 5,782 7,747
Post-retirement benefits 3,246 4,407
Other 8,218 11,351
--------- ---------
Total current liabilities 84,236 94,224
--------- ---------
LONG-TERM LIABILITIES:
Post-retirement benefits 3,718 6,065
Deferred income taxes 5,220 5,497
--------- ---------
Total long-term liabilities 8,938 11,562
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
SHAREHOLDERS' EQUITY:
Commmon stock, par value $.125
Authorized 80,000 shares
Issued 25,228 shares 3,154 3,154
Capital in excess of par value 47,847 48,711
Retained earnings 338,726 337,615
Accumulated other comprehensive income (5,722) (4,388)
--------- ---------
384,005 385,092
Less - Shares held in treasury, at cost
Common stock, 11,459 shares in 2001 and 11,616 shares in 2000 (257,628) (259,399)
--------- ---------
Total shareholders' equity 126,377 125,693
--------- ---------
$ 219,551 $ 231,479
========= =========
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF INCOME
ENESCO GROUP, INC.
For the Years Ended December 31, 2001, 2000 and 1999
(In thousands, except per share amounts) 2001 2000 1999
Net revenues $ 268,979 $ 324,961 $ 391,844
Cost of sales 160,974 184,957 224,806
--------- --------- ---------
Gross profit 108,005 140,004 167,038
Selling, distribution, general and administrative expenses 115,603 130,917 143,387
Amortization of goodwill and other intangibles 1,950 2,658 2,224
--------- --------- ---------
Operating profit (loss) (9,548) 6,429 21,427
Interest expense (1,523) (3,196) (2,994)
Interest income 371 1,161 579
Other income (expense), net (1,342) 759 273
--------- --------- ---------
Income (loss) before income taxes (12,042) 5,153 19,285
Income taxes (benefit) (13,153) (9,939) (7,591)
--------- --------- ---------
Net income $ 1,111 $ 15,092 $ 26,876
--------- --------- ---------
EARNINGS PER COMMON SHARE:
BASIC: $ 0.08 $ 1.11 $ 1.88
========= ========= =========
DILUTED: $ 0.08 $ 1.11 $ 1.87
========= ========= =========
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
ENESCO GROUP, INC.
For the Years Ended December 31, 2001, 2000 and 1999
(In thousands, except per share amounts) 2001 2000 1999
Balance, beginning of year $337,615 $ 326,305 $ 315,335
Net income 1,111 15,092 26,876
Cash dividends, $.28 per share in 2000, $1.12 per share in 1999 -- (3,782) (15,906)
-------- --------- ---------
Balance, end of year $338,726 $ 337,615 $ 326,305
======== ========= =========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
ENESCO GROUP, INC.
For the Years Ended December 31, 2001, 2000 and 1999
(In thousands) 2001 2000 1999
Net income $ 1,111 $ 15,092 $ 26,876
-------- --------- ---------
Other comprehensive income:
Cumulative translation adjustments (no tax effects) (1,334) (1,545) (585)
-------- --------- ---------
Total other comprehensive income (loss) (1,334) (1,545) (585)
-------- --------- ---------
Comprehensive income (loss) $ (223) $ 13,547 $ 26,291
======== ========= =========
The accompanying notes are an integral part of these financial statements
CONSOLIDATED STATEMENTS OF CASH FLOW
ENESCO GROUP, INC.
For the Years Ended December 31, 2001, 2000 and 1999
(In thousands) 2001 2000 1999
OPERATING ACTIVITIES:
Net income $ 1,111 $ 15,092 $ 26,876
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property, plant and equipment 5,071 5,948 5,285
Amortization of goodwill and other intangibles 1,950 2,658 2,224
Deferred income taxes (8,450) (1,052) 3,392
(Gains) losses on sale of capital assets 96 24 (526)
Changes in assets and liabilities:
Accounts receivable 13,707 7,182 4,321
Inventories 3,479 902 18,940
Prepaid expenses 985 32 863
Other assets (194) 5,746 1,847
Accounts payable and accrued expenses 4,174 (11,127) (8,401)
Settlement of supplemental retirment plan -- (928) --
Federal, state and foreign income taxes (6,399) (8,042) (14,296)
Long-term post-retirement benefits (2,347) (2,538) (3,221)
-------- -------- --------
Net cash provided by operating activities 13,183 13,897 37,304
-------- -------- --------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,729) (4,794) (5,058)
Proceeds from sales of property, plant and equipment 37 48 2,713
-------- -------- --------
Net cash used by investing activities (2,692) (4,746) (2,345)
-------- -------- --------
FINANCING ACTIVITIES:
Cash dividends -- (3,782) (15,906)
Exchanges and purchases of common stock -- -- (47,198)
Net issuance (repayment) of notes and loans payable (7,134) (13,925) 20,607
Exercise of stock options 18 -- --
Other common stock issuance 889 1,496 664
-------- -------- --------
Net cash used by financing activities (6,227) (16,211) (41,833)
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents (338) 247 (212)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 3,926 (6,813) (7,086)
Cash and cash equivalents, beginning of year 4,006 10,819 17,905
-------- -------- --------
Cash and cash equivalents, end of year $ 7,932 $ 4,006 $ 10,819
======== ======== ========
The accompanying notes are an integral part of these financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
1. ACCOUNTING POLICIES:
The accompanying Consolidated Financial Statements include the accounts of
Enesco Group, Inc. and subsidiaries ("Enesco"). All significant intercompany
transactions have been eliminated in the Consolidated Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires the use of management's estimates. Actual results
could differ from those estimates. Certain reclassifications have been made in
the 2000 and 1999 financial statements to conform to the 2001 presentation,
including reflection of freight costs billed to customers as revenue and
amortization of goodwill as an operating expense. Enesco's operations, which
operate in a single industry segment, design, manufacture (primarily through
third parties located in the Pacific Rim) and market a wide variety of licensed
and proprietary branded gifts and collectibles to retailers primarily throughout
the United States, Canada and Europe.
Assets and liabilities of Enesco's foreign subsidiaries are translated at
the exchange rate on the balance sheet date, while statement of income items are
translated at the average exchange rates for the year. Translation gains and
losses are reported as a component of accumulated other comprehensive income in
shareholders' equity. Transaction gains and losses are reported in the
consolidated statements of income.
The carrying amount of cash and certificates of deposit and notes and
loans payable approximate fair value. Enesco considers all highly liquid
securities, including certificates of deposit with maturities of three months or
less when purchased, to be cash equivalents.
Advertising costs are expensed in the year incurred. Advertising expense
was $2,645,000 in 2001, $3,245,000 in 2000, and $3,525,000 in 1999.
Enesco recognizes revenue when title passes to its customers which
generally occurs when merchandise is turned over to the shipper. A provision for
anticipated merchandise returns and allowances is recorded based upon historical
experience. Amounts billed to customers for shipping and handling are included
in revenue. License and royalty fees received by Enesco are recognized as
revenue when earned.
Accounts receivable are reported net of reserves for uncollectible
accounts as well as reserves for returns and allowances totaling $4,608,000 and
$7,292,000 at December 31, 2001 and 2000, respectively.
Inventories are valued at the lower of cost or market. Cost components
include labor, manufacturing overhead and amounts paid to suppliers of materials
and products as well as freight and duty costs to import the products. Enesco
values all inventories utilizing the first-in, first-out method. Enesco records
inventory at the date of taking title, which at certain times during the year
results in significant in-transit quantities, as inventory is sourced primarily
from China, Taiwan and other Pacific Rim countries.
The major classes of inventories were as follows (in thousands):
2001 2000
Raw materials $ 504 $ 574
Work in process 68 87
Finished goods in transit 6,906 9,483
Finished goods 48,959 50,347
------- -------
$56,437 $60,491
------- -------
Concentration of risk for Enesco exists in revenue from major product
lines, foreign sources of inventory, market and geographic areas and trade
receivables. The majority of product sales are under licensed rights from third
parties. The two largest licensed lines represented approximately 52% of
Enesco's total sales for 2001, 52% of total sales for 2000 and 59% of total
sales for 1999. Extended credit terms are offered to customers. Enesco
continually monitors and manages the risks associated with all these activities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Depreciation is provided over the estimated useful lives of the assets
utilizing straight-line and declining balance methods. During 2001, Enesco wrote
off numerous fully depreciated assets that were taken out of service. The
methods of depreciation for financial statement and income tax purposes differ
in some circumstances, resulting in deferred income taxes.
The estimated useful lives of the various classes of assets are:
RANGE IN YEARS
Land improvements 10-15
Buildings and improvements 15-40
Machinery and equipment 5-12
Office furniture and equipment 5-10
Transportation equipment 3-8
Intangible assets, primarily goodwill, result from the allocation of the
excess cost of acquisitions over the value of net tangible assets acquired.
Intangible assets are amortized using the straight-line method principally over
20 to 40 years. Enesco historically had classified amortization expense as a
non-operating item but is now classifying amortization expense as an operating
expense. However, amortization of goodwill will cease after 2001 per FAS 142.
All periods presented have been reclassified to conform with the current
presentation. Enesco periodically evaluates whether events or circumstances have
occurred indicating that the net book value of goodwill has been impaired. When
factors indicate that goodwill should be evaluated for possible impairment,
Enesco uses an estimate of the acquired business' undiscounted future net cash
flows compared to the carrying value of goodwill to determine if a write-down is
necessary. Intangible assets were net of accumulated amortization of $36,317,000
and $34,445,000 at December 31, 2001 and 2000, respectively.
Enesco has established accruals for taxes payable and tax assessments. The
accruals are included in current income taxes payable since it is uncertain as
to when assessments may be made and paid. Enesco files and continues to file tax
returns with a number of taxing authorities worldwide. While Enesco 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. To the
extent accruals differ from assessments or when the open tax years are closed
the accruals are adjusted through the provision for income taxes. The majority
of open tax years become closed for assessments at the end of December for the
particular open year.
Basic earnings per common share are based on the average number of common
shares outstanding during the year. Diluted earnings per common share assumes,
in addition to the above, the dilutive effect of common share equivalents during
the year. Common share equivalents represent dilutive stock options and warrants
using the treasury stock method. The number of shares used in the earnings per
common share computation for 2001, 2000 and 1999 were as follows (in thousands):
2001 2000 1999
Basic
Average common shares outstanding 13,708 13,562 14,329
Diluted
Stock options and warrants 128 74 42
------ ------ ------
Average shares diluted 13,836 13,636 14,371
------ ------ ------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Additional options to purchase 1.9 million, 2.5 million and 3.3 million
shares were outstanding during 2001, 2000 and 1999, respectively, but were not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common shares.
2. NOTES AND LOANS PAYABLE:
Notes and loans payable and weighted-average interest rates at December 31, 2001
and 2000 were as follows (in thousands):
2001 2000
---- ----
BALANCE INTEREST RATE Balance Interest Rate
------- ------------- ------- -------------
Notes under uncommitted bank lines $ -- $ -- $10,000 7.9%
Notes under committed bank lines 6,749 3.6% 4,000 6.8%
------ -------- ------- ------
Total $6,749 3.6% $14,000 7.6%
====== ======== ======= ======
Total interest paid was $1,675,000 in 2001, $3.3 million in 2000 and $3.2
million in 1999.
In August 2000, Enesco entered into a $50 million revolving credit
facility to replace an expiring revolving credit facility. The credit agreement
contains financial and operating covenants including restrictions on incurring
indebtedness and liens, selling property, repurchasing Enesco's shares and
paying dividends. In addition, Enesco is required to satisfy fixed charge
coverage ratio and leverage ratio tests at the end of each quarter. The credit
agreement, as amended, grants a security interest in Enesco's domestic accounts
receivable, inventory and real estate. The credit agreement is scheduled to
expire in May 2002. As of December 31, 2001 Enesco was in compliance with all
covenants under the revolving credit agreement or a waiver has been obtained. At
December 31, 2001, Enesco had formal and informal unused lines of credit of
approximately $50 million. The informal lines are bank lines that have no
commitment fees.
3. EMPLOYEE BENEFIT PLANS:
Long-term post-retirement benefits at December 31, 2001 and 2000, were as
follows (in thousands):
2001 2000
---- ----
Post-retirement benefits 1,648 2,308
Corporate downsizing 493 1,400
Supplemental 401(k) 882 690
Deferred compensation/severance 695 1,667
------ ------
Balance sheet total $3,718 $6,065
====== ======
Enesco has established grantor trusts to fund its non-qualified
supplemental retirement plans. The trusts are irrevocable and assets contributed
are subject to the claims of creditors and, therefore, are not considered plan
assets reportable as a funding component under paragraph 19 of FAS 87. The
assets held in these trusts at December 31, 2001 and 2000, are accounted for at
the lower of cost or market and amounted to $800 thousand and $700 thousand,
respectively. These assets are included in other assets in the accompanying
consolidated balance sheets. During 2000, Enesco made lump-sum payments of $17
million and recognized a $3 million settlement gain on the termination of
various non-qualified supplemental retirement plans from a grantor trust.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
The following table summarizes the components of net periodic benefit costs (in
thousands):
2001 2000 1999
---- ---- ----
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ -- $ -- $ 370
Interest cost -- 410 1,000
-------- ------- -------
-- 410 1,370
Additional FAS 88 (gain) recognized due
to settlement/actuarial (gain) -- (3,046) (639)
-------- ------- -------
Net periodic benefit cost (income) $ -- $(2,636) $ 731
======== ======= =======
Enesco had sponsored a defined benefit post-retirement health care and
life insurance plan. Employees became eligible for the benefits under this plan
when they reached allowable retirement age while working for Enesco. Those
benefits are provided principally through insurance companies whose premiums are
based on the anticipated benefits to be paid. The total costs for such retired
employee benefits were principally accrued during their employment. All of the
benefits for these plans are vested and all the participants are former
employees. The $393 thousand service cost in 2000 is attributed to the former
Chief Executive Officer's severance. The benefits to participants are either
fixed dollar amounts per year or a percentage of insurance premiums paid per
year.
The following table sets forth the funded status of the plan included in
Enesco's consolidated balance sheets at December 31, 2001 and 2000 (in
thousands):
2001 2000
---- ----
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 2,308 $ 3,255
Service cost -- 393
Interest cost 82 115
Actuarial (gain) (646) $(1,094)
Benefits paid (96) $ (361)
------- -------
Benefit obligation at end of year $ 1,648 $ 2,308
------- -------
FUNDED STATUS:
(Accrued) benefit cost $(1,648) $(2,308)
======= =======
Net periodic post-retirement benefit expense includes the following
components (in thousands):
2001 2000 1999
---- ---- ----
Service cost $ -- $ 393 $ --
Interest cost 82 115 115
Recognized actuarial (gain) loss (646) (1,094) 207
------- ------- -------
Net period benefit cost (income) $ (564) $ (586) $ 322
======= ======= =======
After the year 2001, a 15% annual rate of increase in per capita cost of
covered health care benefits was assumed. Participants with fixed dollar
benefits are included at actual cost. Increasing the assumed health care expense
trend rates by one percentage point in each year would increase the accumulated
post-retirement benefit obligation as of December 31, 2001, by $61 thousand and
the interest cost components of the net post-retirement benefit expense for the
year then ended by $13 thousand. The weighted-average discount rate used in
determining the accumulated post-retirement benefit was 5%.
In addition, certain subsidiaries have established funded profit sharing
and defined contribution retirement plans. Total consolidated pension, profit
sharing and retirement plan expense amounted to $2.3 million in 2001, $2.1
million in 2000 and $1.7 million in 1999.
4. SHAREHOLDERS' EQUITY:
Pursuant to action by Enesco's Board of Directors (the "Board") on July 22,
1998, effective with the expiration on September 19, 1998, of the stock purchase
rights then existing under Enesco's Stockholder Rights Plan, one new right for
each outstanding share of Enesco's common stock was issued (a "New Right") under
a Renewed Rights Agreement. Each New Right initially represents the right to
purchase one share of common stock for $125. The New Rights only will become
exercisable, or separately transferable, promptly after Enesco announces that a
person has acquired or tendered for 15% or more, or promptly after a tender
offer commences that could result in ownership of 15% or more, of the common
stock then outstanding.
If the New Rights become exercisable after any person acquired or tenders
for 15% or more of the common stock then outstanding (except through an offer
for all common stock that has been approved by the Board), each New Right not
owned by that person or related parties will enable its holder to purchase, at
the New Right's exercise price, common stock (or other securities or assets, or
a combination thereof) having double the value of the exercise price. In the
event of certain merger or asset sale transactions with another party, similar
terms would apply to the purchase of that party's common stock.
The New Rights, which have no voting power, expire on July 22, 2008,
subject to extension. Upon approval by the Board, the New Rights may be redeemed
for $.01 each under certain conditions.
In 1996, the shareholders approved a Stock Option Plan previously adopted
by the Board which provides for both incentive and non-qualified stock options.
Options for up to 1.5 million shares of common stock may be granted under the
1996 Plan. The 1996 Plan, as amended by the Board in 1998, provides that
non-qualified options for 1,500 shares of common stock be granted annually to
each non-employee Director then serving. Enesco also has 1991 and 1984 Stock
Option Plans, which provide for both incentive and non-qualified stock options,
under which options for up to two million and three million shares of common
stock, respectively, may be granted. No further options may be granted under the
1984 and 1991 Plans. All three Plans provide for the granting to selected key
employees, and non-employee Directors in the case of the 1996 and 1991 Plans, of
options to acquire shares of common stock at a price not less than their fair
market value at the time of grant.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Other option terms are determined at the time of grant, but normally under the
1984 and 1991 Plans, options have been exercisable only after a one-year waiting
period with vesting in four equal annual installments, and expire 10 years from
the date of grant. Under the 1996 Plan, options become exercisable only after a
six-month waiting period and upon Enesco's achievement of certain stock value
performance criteria at any time during the first eight years after the date of
the grant. On the eighth anniversary of the grant, all outstanding options
granted under the 1996 Plan will become exercisable. Options granted under the
1996 Plan will expire 10 years from the date of grant.
In 1998, the Board approved a special 1998 Chairman Stock Option Plan
which provided for a one-time grant of 14,000 non-qualified stock options to
Enesco's Chairman of the Board. The options become exercisable six months from
date of grant and expire 10 years from the date of grant. In 1993 and 1997, the
Board approved a Special Interim Chief Executive Officer Stock Option Plan and a
1997 President and Chief Executive Officer Stock Option Plan, respectively,
which provided for special grants of non-qualified stock options to Enesco's
then Chief Executive Officer. The 1993 options vested fully in increments of
10,000 shares during each of the three months in which he served in that
capacity. The 1997 grant of 100,000 options vested fully in increments of 12,500
shares each month from November 1997 through June 1998. Both the 1993 and 1997
options become exercisable six months from the date of grant and expire 10 years
from the date of grant.
At December 31, 2001, Enesco had six stock-based compensation (fixed
option) plans, which are described above. Enesco applies the intrinsic
value-based method allowed under APB Opinion No. 25 and related Interpretations
in accounting for its fixed stock option plans. Accordingly, no compensation
cost has been recognized for its fixed stock option plans. Had compensation cost
for option grants since 1994, under Enesco's six stock-based compensation plans,
been determined applying the fair value based method provided for in FAS 123,
Enesco's net income and earnings per common share for 2001, 2000 and 1999 would
have been reduced to the pro forma amounts indicated below (in thousands, except
per share amounts):
2001 2000 1999
---- ---- ----
Net income As reported $ 1,111 $ 15,092 $ 26,876
Pro forma $ 103 $ 14,274 $ 25,983
Earnings per common As reported $ 0.08 $ 1.11 $ 1.87
share diluted Pro forma $ 0.01 $ 1.05 $ 1.81
The options granted in 2001, 2000 and 1999 were under the 1996 Plan and
the 1991 Plan. The fair value of each option grant in 2001, 2000 and 1999 was
estimated at the time of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions:
2001 2000 1999
---- ---- ----
Dividend yield yearly 0.0% 7.6% 4.5%
Expected volatility 85.0% 65.0% 45.0%
Risk-free interest rate 4.4% 6.4% 5.0%
Expected life (years) 6.0 5.0 8.0
Weighted-average grant-date fair value of
options granted during the year, per share $ 4.13 $ 1.73 $ 5.66
Stock option status and activity under Enesco's six stock-based
compensation (fixed option) plans is summarized as follows:
WEIGHTED-AVERAGE
FIXED OPTIONS SHARES (000s) EXERCISE PRICE
------------- ---------------
Outstanding at December 31, 1998 3,013 $ 30.18
Granted 590 16.78
Forfeited (285) 27.01
--------- --------------
Outstanding at December 31, 1999 3,318 28.07
Granted 636 4.87
Forfeited (1,152) 27.70
--------- --------------
Outstanding at December 31, 2000 2,802 22.95
Granted 826 5.58
Exercised (4) 4.81
Forfeited (778) 17.58
--------- --------------
Outstanding at December 31, 2001 2,846 $ 19.41
========= ==============
FIXED OPTIONS 2001 SHARES 2000 Shares 1999 Shares
(000s) (000s) (000s)
------ ------ ------
Options exercisable at year end 1,301 1,535 2,278
A summary of information about fixed stock options outstanding at December
31, 2001, is as follows:
WEIGHTED-
NUMBER AVERAGE NUMBER
OUTSTANDING REMAINING WEIGHTED- EXERCISABLE WEIGHTED
RANGE OF EXERCISE AT 12/31/01 CONTRACTUAL AVERAGE AT 12/31/01 AVERAGE
PRICES (000s) LIFE EXERCISE PRICE (000s) EXERCISE PRICE
$4 to $15 1,004 9 $ 5.49 161 $ 4.83
$15 to $26 470 7 $ 17.08 230 $ 17.07
$26 to $36 1,372 4 $ 30.39 909 $ 31.00
----- ----- ----------- ----- --------
$4 to $36 2,846 6 $ 19.41 1,301 $ 25.29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
An analysis of treasury stock transactions for the years ended December
31, 2001, 2000 and 1999 is as follows (in thousands):
COMMON STOCK
------------
SHARES COST
------ ----
Balance at December 31, 1998 9,377 $ 214,156
Purchases 2,413 47,198
Issue of PAYSOP shares (7) (77)
Investment Savings Plan - 401(k) issues (25) (277)
Non-Employee Director Stock Plan issues (5) (62)
------ ---------
Balance at December 31, 1999 11,753 260,938
Issue of PAYSOP shares (16) (179)
Investment Savings Plan - 401(k) issues (69) (780)
Non-Employee Director Stock Plan issues (52) (580)
------ ---------
Balance at December 31, 2000 11,616 259,399
Exercise of Stock Options (4) (42)
Issue of PAYSOP shares (17) (190)
Investment Savings Plan - 401(k) issues (85) (957)
Non-Employee Director Stock Plan issues (51) (582)
------ ---------
Balance at December 31, 2001 11,459 $ 257,628
====== =========
In 1985, Enesco approved a Payroll-Based Stock Ownership Plan ("PAYSOP")
which provides common stock to eligible employees and allows Enesco a Federal
income tax deduction equal to the market value of the issued stock. The PAYSOP
Plan was merged into the retirement plan on January 1, 2000.
In 1987, Enesco introduced an Investment Savings Plan in accordance with
Section 401(k) of the Internal Revenue Code. One of the features of this
retirement savings plan provides common stock to eligible employees and allows
Enesco a Federal income tax deduction equal to the market value of the issued
stock. Compensation expense for common stock issued was $481 thousand for 2001
and $412 thousand for 2000.
The Non-Employee Director Stock Plan allows for an annual retainer of 950
shares of common stock and an additional amount of common stock worth $15
thousand per annum valued as of the day following the annual meeting for each
non-employee director who is not the Chairman of the Board. Compensation expense
for common stock issued to non-employee directors was $297 thousand for 2001 and
$102 thousand for 2000.
An analysis of the changes in capital in excess of par value for the years
ended December 31, 2001 and 2000, is as follows (in thousands):
Increase/ (Decrease)
2001 2000
---- ----
PAYSOP $ (80) $ (67)
401(k) plan (476) (352)
Non-employee director (285) (153)
Exercise of stock options (23) --
Stock warrants -- 529
----- -----
Total $(864) $ (43)
===== =====
Other comprehensive income consists only of cumulative foreign currency
translation adjustments.
On June 28, 2000, Enesco entered into a licensing agreement with Time
Warner Entertainment Company, LP. Pursuant to this agreement, Enesco issued Time
Warner a warrant to purchase 200,000 shares of Enesco's common stock at an
exercise price of $4.375 per share. This warrant expires June 27, 2005, subject
to certain extensions. The warrant's fair value of $529 thousand, which was
included in capital in excess of par value, was determined using the
Black-Scholes pricing model, assuming an expected life of five years, a dividend
yield of 0%, a risk-free interest rate of 6.789% and a volatility factor of 64%.
The fair value of the warrant is being amortized as a component of royalty
expense in cost of sales over the term of the licensing agreement.
5. GEOGRAPHIC OPERATING SEGMENTS (IN THOUSANDS):
Enesco operates in one industry segment, giftware and collectible sales at
wholesale, predominately in two major geographic areas (United States and
International).
GEOGRAPHIC AREAS 2001 2000 1999
---- ---- ----
NET SALES
United States $ 193,026 $ 247,969 $ 304,675
United States inter-company (1,984) (2,014) (2,539)
International 78,634 80,028 93,122
International inter-company (697) (1,022) (3,414)
--------- --------- ---------
Total consolidated $ 268,979 $ 324,961 $ 391,844
--------- --------- ---------
OPERATING PROFIT (LOSS)
United States $ (15,028) $ 921 $ 15,422
International 5,480 5,508 6,005
--------- --------- ---------
Total consolidated $ (9,548) $ 6,429 $ 21,427
--------- --------- ---------
LONG-LIVED ASSETS
United States
Property, Plant and Equipment, net $ 21,512 $ 23,238 $ 23,692
Other Assets 40,666 34,232 59,566
--------- --------- ---------
Total United States 62,178 57,470 83,258
International
Property, Plant and Equipment, net 5,070 6,011 7,301
Other Assets 13,678 14,843 15,676
--------- --------- ---------
Total International 18,748 20,854 22,977
--------- --------- ---------
Total consolidated $ 80,926 $ 78,324 $ 106,235
--------- --------- ---------
CAPITAL EXPENDITURES
United States $ 1,880 $ 3,723 $ 2,437
International 849 1,071 2,621
--------- --------- ---------
Total consolidated $ 2,729 $ 4,794 $ 5,058
--------- --------- ---------
DEPRECIATION AND AMORTIZATION
United States $ 4,707 $ 6,065 $ 5,545
International 2,314 2,541 1,964
--------- --------- ---------
Total consolidated $ 7,021 $ 8,606 $ 7,509
========= ========= =========
Total sales for the United Kingdom for 2001, 2000 and 1999 were $45.3
million, $44.9 million and $45.7 million, respectively. Total long-lived assets
of the United Kingdom at December 31, 2001, 2000 and 1999, were $14.5 million,
$15.9 million and $17.4 million, respectively.
Transfers between geographic areas are made at the market value of the
merchandise transferred. No single customer accounted for 10% or more of
consolidated net sales. Export sales to foreign unaffiliated customers represent
less than 10% of consolidated net sales.
6. INCOME TAXES:
The domestic and foreign components of the current and deferred income tax
assets (liabilities) consist of the following (in thousands):
2001 2000
---- ----
CURRENT TAX ASSETS
Federal--
Inventory reserve $ 4,054 $ 1,803
Bad debt reserve 654 937
NOL carryforward 1,402 2,300
Returns and allowances reserve 442 914
Other items, net 3,036 4,302
State--
Inventory reserve 1,013 448
Bad debt reserve 164 233
NOL carryforward 350 300
Returns and allowances reserve 110 227
Other items, net 739 496
Foreign--
Other items, net 1,088 135
------- -------
Total Current Tax Assets $13,052 $12,095
======= =======
DEFERRED TAX ASSETS
Federal--
NOL carryforward $13,849 $ 8,748
Postretirement benefits 1,190 1,972
State--
NOL carryforward 3,462 1,200
Postretirement benefits 298 431
Foreign--
Other items, net 981 213
------- -------
Total Deferred Tax Assets $19,780 $12,564
======= =======
DEFERRED TAX LIABILITIES
Federal--
Acquisition step-up amortization adjustment $ 3,558 $ 3,780
Accelerated depreciation 598 623
State--
Acquisition step-up amortization adjustment 890 939
Accelerated depreciation 149 155
Foreign--
Other items, net 25 --
------- -------
Total Deferred Tax Liabilities $ 5,220 $ 5,497
======= =======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999
The United States net current and long-term deferred tax assets are
expected to become realizable in future years with future United States taxable
income exclusive of reversing temporary differences, consistent with Enesco's
history. The United States NOL carryforwards expire in 2020 and 2021.
The domestic and foreign components of income (loss) before income taxes
are as follows (in thousands):
2001 2000 1999
---- ---- ----
Domestic $(27,669) $ (7,817) $ 6,751
Foreign 15,627 12,970 12,534
-------- -------- --------
$(12,042) $ 5,153 $ 19,285
======== ======== ========
The provision for (benefit from) income taxes consists of the following
(in thousands):
2001 2000 1999
---- ---- ----
CURRENTLY PAYABLE:
United States Federal $ (9,881) $(12,528) $(12,000)
United States State 1,210 (461) (446)
Foreign (326) 1,998 2,263
-------- -------- --------
(8,997) (10,991) (10,183)
======== ======== ========
DEFERRED:
United States Federal (4,110) 1,834 2,027
United States State (1,027) (590) 797
Foreign 981 (192) (232)
-------- -------- --------
(4,156) 1,052 2,592
-------- -------- --------
$(13,153) $ (9,939) $ (7,591)
======== ======== ========
A reconciliation of the total effective income tax rate to the statutory
Federal income tax rate is as follows:
2001 2000 1999
---- ---- ----
Statutory income tax rate 35.0% 35.0% 35.0%
State taxes, net of federal income tax effect (2.8) (13.3) 1.2
Impact of foreign tax rates and credits (5.8) 1.1 (0.3)
Impact of nondeductible expenses 4.7 17.2 2.5
----- ------ -----
Subtotal effective income tax rate 31.1% 40.0% 38.4%
Prior year tax benefit 78.1 (232.9) (77.8)
----- ------ -----
Total effective income tax rate 109.2% (192.9%) (39.4%)
===== ====== =====
The 2001 benefit of $9,402,000, the 2000 benefit of $12 million and the
1999 benefit of $15 million relate primarily to prior year accruals which were
no longer required due to completed tax audits and closed tax years for a number
of taxing authorities worldwide.
Enesco made income tax payments of $2.1 million in 2001, $2 million in
2000 and $3.2 million in 1999.
7. OTHER INCOME (EXPENSE), NET:
Other income (expense), net consists of the following (in thousands):
2001 2000 1999
---- ---- ----
Foreign currency (loss) $ (12) $ (69) $ (35)
Gain (loss) on sale of fixed assets (96) (24) 526
Bank charges and other (1,234) 852 (218)
------- ----- -----
$(1,342) $ 759 $ 273
======= ===== =====
8. FINANCIAL INSTRUMENTS:
Enesco operates globally with various manufacturing and distribution facilities
and product sourcing locations around the world. Enesco may reduce its exposure
to fluctuations in interest rates and foreign exchange rates by creating
offsetting positions through the use of derivative financial instruments. Enesco
currently does not use derivative financial instruments for trading or
speculative purposes. Enesco regularly monitors foreign currency exposures and
ensures that the hedge contract amounts do not exceed the amounts of the
underlying exposures.
Enesco's current hedging activity is limited to foreign currency purchases
and intercompany foreign currency transactions. The purpose of Enesco's foreign
currency hedging activities is to protect Enesco from the risk that the eventual
settlement of foreign currency transactions will be affected adversely by
changes in exchange rates. Enesco hedges these exposures by entering into
various short-term foreign exchange forward contracts. Under FAS 133, the
instruments are carried at fair value in the balance sheet as a component of
other current assets or other current liabilities. Changes in the fair value of
foreign exchange forward contracts that meet the applicable hedging criteria of
FAS 133 are recorded as a component of other comprehensive income and
reclassified into earnings in the same period during which the hedged
transaction affects earnings. Changes in the fair value of foreign exchange
forward contracts that do not meet the applicable hedging criteria of FAS 133
are recorded currently in income as cost of sales or foreign exchange gain or
loss, as applicable. Hedging activities did not have a material impact on
results of operations or financial condition during 2001.
To manage foreign currency risk, as of December 31, 2001, Enesco had
entered into forward exchange agreements with a notional value of $17.0 million
that will mature within 90 days. These contracts include sales of British pounds
sterling and the purchase of U.S. dollars at an average exchange rate of 1.44
and a sale of U.S. dollars and the purchase of British pounds sterling at an
average exchange rate of 1.45. The fair value of these contracts is not
significant. As of December 31, 2001, Enesco had $6.7 million outstanding of
interest bearing debt with interest rates ranging from 3.25% to 4.75% and
maturities within 31 days. The fair value approximates the carrying value of
these debt instruments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
9. COMMITMENTS AND CONTINGENCIES:
Enesco incurred rental expense under operating leases of $4.5 million in 2001,
$5 million in 2000 and $5.2 million in 1999.
The minimum rental commitments under noncancelable operating leases as of
December 31, 2001, are as follows (in thousands):
AGGREGATE
PERIOD AMOUNT
2002 $ 2,900
2003 2,500
2004 1,400
2005 800
2006 400
Later years 300
-------
Total minimum future rentals $ 8,300
=======
Enesco has entered into various licensing agreements requiring royalty
payments ranging from 1.5% to 18% of specified product sales. Royalty expenses,
which are charged to cost of sales under these licensing agreements, totaled
$21.5 million in 2001, $26 million in 2000 and $27 million in 1999. Pursuant to
various licensing agreements, the future minimum guaranteed royalty payments are
$17,100,000 in 2002, $15.7 million in 2003, $15.1 million in 2004, $15 million
in 2005 and $15 million in 2006. Under the terms of certain royalty agreements,
royalty payments made may be subject to audit. Historically, audit adjustments
have not been significant nor does Enesco expect future audit adjustments to be
significant.
There are various legal proceedings pending against Enesco which have
arisen during the normal course of business. Management believes the ultimate
outcome of those legal proceedings will not have a material adverse impact on
the financial position or results of operations of Enesco.
10. CORPORATE HEADQUARTERS CLOSING RESERVE:
Enesco's corporate headquarters closing reserve, established in 1997, provided
for severance and benefit payments due to terminated employees. In 2001, Enesco
made $2.2 million of payments to former employees, which were charged against
the corporate headquarters closing reserve. At December 31, 2001, $1.2 million
remained in the reserve ($700 thousand in current liabilities and $500 thousand
in long-term post-retirement benefits), almost all of which is for future
severance payments and related payroll taxes.
11. 2001 WORKFORCE REDUCTIONS:
On May 3, 2001, Enesco reduced its workforce in the United States by 120
positions, or approximately 14%. This workforce reduction affected clerical and
professional employees and will generate annual savings of approximately $8
million. One-time severance costs approximating $500 thousand were recorded in
the second quarter of 2001. On August 29, 2001, Enesco reduced its workforce in
the United States by an additional 45 positions generating an estimated $3.5
million of annual savings. In September 2001, Enesco closed a manufacturing
plant in the U.K., eliminating approximately 45 positions and generating savings
of $700 thousand annually. The one-time costs associated with the third quarter
U.S. and U.K. workforce reductions totaled $360 thousand. In the fourth quarter
of 2001, Enesco recorded $70 thousand of severance costs related to U.S.
workforce reductions. As of December 31, 2001, $32 thousand remains to be paid
to former employees relating to the 2001 workforce reductions.
12. TERMINATION OF PRECIOUS MOMENTS ACQUISITION:
Enesco entered into an agreement on April 19, 2000, to purchase certain assets
of Precious Moments, Inc. and the Precious Moments Company for $125 million in
cash plus other considerations ranging up to 40% of the cash purchase price. On
June 28, 2000, Enesco announced that it would not proceed with the purchase of
certain assets of Precious Moments, Inc. and the Precious Moments Company.
The cost to terminate the agreement of $5.1 million was recorded in the
second quarter of 2000. Precious Moments product that was to be used as part of
the consideration for the agreement to purchase certain assets of Precious
Moments Inc. was written down by $2.9 million and charged to cost of sales. The
inventory was written down to reflect market conditions and to preserve
collectibility of continuing product lines. The majority of the product was
destroyed. In addition, there were $2.2 million of operating expenses related to
the proposed acquisition which were incurred primarily in the second quarter of
2000 and included a break-up fee.
13. NEW PRESIDENT AND CEO:
Daniel DalleMolle was elected as President and Chief Executive Officer (CEO) of
Enesco as of March 28, 2001. Mr. DalleMolle succeeded interim CEO Anne-Lee
Verville. The President and CEO position had been vacant since June 27, 2000.
Mr. DalleMolle also was appointed to Class II of the Board of Directors on March
28, 2001. His Board term will expire on April 24, 2003.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Enesco Group, Inc.:
We have audited the accompanying consolidated balance sheets of Enesco Group,
Inc., (a Massachusetts corporation) and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of income, retained earnings,
comprehensive income and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principals used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Enesco Group, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
Arthur Andersen LLP
Chicago, Illinois
February 20, 2002
STOCK MARKET, DIVIDEND AND
SHAREHOLDER INFORMATION
2001 2000
MARKET PRICE Market Price
QUARTER DIVIDEND HIGH LOW Quarter Dividend High Low
First $ -- $ 6.85 $ 4.63 First $ 0.28 $ 11.50 $ 6.13
Second -- 7.24 5.12 Second -- 7.38 3.88
Third -- 7.26 3.96 Third -- 13.44 4.81
Fourth -- 7.31 3.30 Fourth -- 7.31 4.25
Enesco Group, Inc.'s Common Stock is traded on the New York and Pacific stock
exchanges (symbol: ENC). The table shows, for the indicated periods, dividends
paid and the high and low price range. As of December 31, 2001, there were 2,693
record holders of the Common Stock.
QUARTERLY RESULTS (UNAUDITED):
ENESCO GROUP, INC.
The following tables set forth information with respect to the consolidated
quarterly results of operations for 2001 and 2000. The amounts are unaudited,
but in the opinion of management include all adjustments necessary to present
fairly the results of operations for the periods indicated.
In the fourth quarter of 2001, Enesco recognized a $9.4 million tax
benefit primarily for prior year tax accruals that were no longer required. Also
in the fourth quarter of 2001, Enesco recorded an $8.7 million pretax charge to
write-down inventory to its net realizable value following a product
rationalization program.
In the fourth quarter of 2000, Enesco recognized a $12 million tax benefit
primarily for prior year tax accruals that were no longer required.
(In thousands, except per share amounts) FOR THE THREE MONTHS ENDED
--------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
2001 2001 2001 2001
---- ---- ---- ----
Net revenues $ 62,745 $ 67,329 $77,812 $ 61,093
Cost of sales 34,228 35,158 45,479 46,109
-------- -------- ------- --------
Gross profit 28,517 32,171 32,333 14,984
Selling, distribution, general
and administrative expenses 34,051 34,048 24,436 23,068
Amortization of goodwill 489 487 487 487
-------- -------- ------- --------
Operating profit (loss) $ (6,023) $ (2,364) $ 7,410 $ (8,571)
-------- -------- ------- --------
Net income (loss) $ (3,440) $ (2,695) $ 4,370 $ 2,876
-------- -------- ------- --------
Earnings (loss) per common share:
Basic $ (0.25) $ (0.20) $ 0.32 $ 0.21
======== ======== ======= ========
Diluted $ (0.25) $ (0.20) $ 0.31 $ 0.21
======== ======== ======= ========
For the Three Months Ended
--------------------------
March 31, June 30, Sept. 30, Dec. 31,
2000 2000 2000 2000
---- ---- ---- ----
Net revenues $ 73,460 $ 73,296 $88,247 $ 89,958
Cost of sales 39,430 43,059 49,697 52,771
-------- -------- ------- --------
Gross profit 34,030 30,237 38,550 37,187
Selling, distribution, general
and administrative expenses 32,642 34,358 32,263 31,654
Amortization of goodwill 535 534 532 1,057
-------- -------- ------- --------
Operating profit (loss) $ 853 $ (4,655) $ 5,755 $ 4,476
======== ======== ======= ========
Net income (loss) $ 164 $ (2,436) $ 2,918 $ 14,446
======== ======== ======= ========
Earnings (loss) per common share:
Basic and diluted $ 0.01 $ (0.18) $ 0.21 $ 1.05
======== ======== ======= ========
FINANCIAL HIGHLIGHTS LAST FIVE YEARS
ENESCO GROUP, INC.
The financial data set forth below should be read in connection with the
Financial Statements, accompanying Notes and Management's Discussion and
Analysis on the preceding pages.
(In thousands, except per share amounts) 2001 2000
---- ----
Net revenues(1) $ 268,979 $ 324,961
Cost of sales(2) 160,974 184,957
--------- ---------
Gross profit 108,005 140,004
Selling, distribution, general and administrative expenses 115,603 130,917
Amortization of goodwill and other intangibles(3) 1,950 2,658
--------- ---------
Operating profit (loss) (9,548) 6,429
Interest expense (1,523) (3,196)
Interest income 371 1,161
Other income (expense), net (1,342) 759
--------- ---------
Income (loss) before income taxes from continuing operations (12,042) 5,153
Income taxes(4) (13,153) (9,939)
--------- ---------
Income (loss) of continuing operations, net taxes 1,111 15,092
Income of discontinued operations, net of taxes -- --
Net loss on sale of discontinued operations -- --
--------- ---------
Net income (loss) $ 1,111 $ 15,092
========= =========
Earnings (loss) per common share:
Basic: Continuting operations $ 0.08 $ 1.11
Discontinued operations -- --
Sale of discontinued operations -- --
--------- ---------
Total $ 0.08 $ 1.11
========= =========
Diluted: Continuing operations $ 0.08 $ 1.11
Discontinued operations -- --
Sale of discontinued operations -- --
--------- ---------
Total $ 0.08 $ 1.11
========= =========
Average shares of common stock outstanding 13,708 13,562
Average shares of common stock diluted 13,836 13,636
Shares of common stock outstanding at year end 13,769 13,612
--------- ---------
Market value per common share at year end $ 6.30 $ 4.69
Cash dividends declared $ -- $ 3,782
Dividends declared per common share $ -- $ 0.28
--------- ---------
Capital expenditures $ 2,729 $ 4,794
Depreciation $ 5,071 $ 5,948
Working capital $ 54,389 $ 58,931
Total assets $ 219,551 $ 231,479
Total long-term liabilities $ 8,938 $ 11,562
Shareholders' equity $ 126,377 $ 125,693
--------- ---------
Book value per common share $ 9.18 $ 9.23
Return on average shareholders' equity 1% 13%
--------- ---------
1) Revenue figures include shipping and handling costs billed to customers.
2) Cost of sales includes non-cash charges of $8.7 million in 2001, $2.9
million in 2000 and $9.6 million in 1999.
3) Amortization of goodwill includes a non-recurring $46 million goodwill
write-down in 1998.
4) The provision for income taxes includes a $9.4 million benefit in 2001
related to the reversal of prior year tax accruals, a $12 million benefit
in 2000 related to the reversal of prior year tax accruals and a $15
million benefit in 1999 related to the reversal of prior year tax
accruals.
(In thousands, except per share amounts) 1999 1998 1997
---- ---- ----
Net revenues(1) $ 391,844 $ 458,540 $ 485,883
Cost of sales(2) 224,806 249,666 268,797
--------- --------- ---------
Gross profit 167,038 208,874 217,086
Selling, distribution, general and administrative expenses 143,387 159,766 186,468
Amortization of goodwill and other intangibles(3) 2,224 49,195 3,479
--------- --------- ---------
Operating profit (loss) 21,427 (87) 27,139
Interest expense (2,994) (3,575) (6,783)
Interest income 579 795 1,456
Other income (expense), net 273 (428) (982)
--------- --------- ---------
Income (loss) before income taxes from continuing operations 19,285 (3,295) 20,830
Income taxes(4) (7,591) 19,148 10,285
--------- --------- ---------
Income (loss) of continuing operations, net taxes 26,876 (22,443) 10,545
Income of discontinued operations, net of taxes -- -- 2,158
Net loss on sale of discontinued operations -- -- (41,000)
--------- --------- ---------
Net income (loss) $ 26,876 $ (22,443) $ (28,297)
========= ========= =========
Earnings (loss) per common share:
Basic: Continuting operations $ 1.88 $ (1.38) $ 0.60
Discontinued operations -- -- 0.12
Sale of discontinued operations -- -- (2.33)
--------- --------- ---------
Total $ 1.88 $ (1.38) $ (1.61)
========= ========= =========
Diluted: Continuing operations $ 1.87 $ (1.38) $ 0.60
Discontinued operations -- -- 0.12
Sale of discontinued operations -- -- (2.32)
--------- --------- ---------
Total $ 1.87 $ (1.38) $ (1.60)
========= ========= =========
Average shares of common stock outstanding 14,329 16,208 17,577
Average shares of common stock diluted 14,371 16,258 17,661
Shares of common stock outstanding at year end 13,476 15,852 17,201
--------- --------- ---------
Market value per common share at year end $ 11.06 $ 23.25 $ 25.69
Cash dividends declared $ 15,906 $ 18,028 $ 19,702
Dividends declared per common share $ 1.12 $ 1.12 $ 1.12
--------- --------- ---------
Capital expenditures $ 5,058 $ 4,520 $ 4,944
Depreciation $ 5,285 $ 5,649 $ 5,701
Working capital $ 42,434 $ 74,856 $ 105,449
Total assets $ 277,367 $ 319,949 $ 431,574
Total long-term liabilities $ 34,237 $ 38,537 $ 43,808
Shareholders' equity $ 114,432 $ 150,581 $ 228,914
--------- --------- ---------
Book value per common share $ 8.49 $ 9.50 $ 13.31
Return on average shareholders' equity 20% (12%) (11%)
--------- --------- ---------