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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: FEBRUARY 26, 1999
Date of Earliest Event Reported: FEBRUARY 24, 1999
DEPARTMENT 56, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-11908 13-3684956
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
ONE VILLAGE PLACE, 6436 CITY WEST PARKWAY, EDEN PRAIRIE, MN 55344
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (612) 944-5600
Page 1 of 12
Exhibit Index on Page 4
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ITEM 5. OTHER EVENTS.
(I.) CAUTIONARY DISCLOSURE FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 CONCERNING
"FORWARD-LOOKING STATEMENTS"
Department 56, Inc. (the "Company") is filing this Current Report on Form
8-K in order to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 (the "Act"). Readers are
cautioned that each of the expectations and estimates stated or referenced
within the Press Release referred to below constitute an expectation or
estimate that would be a "forward-looking statement" within the meaning of
the Act. However, to the extent that any such information (singularly or
in combination) or that any conclusion or expectation drawn from such
information would be a "forward-looking statement", readers are cautioned
that forward-looking statements involve inherent risks and uncertainties
and that a number of important factors could cause actual results to differ
materially from the goals, strategies, prospects, sales, plans, objectives,
expectations, estimates, beliefs, views and intentions expressed in such
forward-looking statements. Such factors are discussed below or within the
Press Release referred to below.
A copy of the Company Press Release, dated February 24, 1999, is attached
hereto as Exhibit 99.1 and is incorporated herein by reference.
In addition to the statements contained in the above-mentioned Press
Release, the Company expects that its effective income tax rate for fiscal
year 1999 may decrease by up to 1 percentage point from the 39.3% rate
experienced in fiscal year 1998.
Readers are cautioned that actual effective tax rates are dependent upon
numerous factors, and that the Company's expectation concerning the 1999
effective tax rate assumes realization of fiscal year 1999 sales
expectations and fiscal year 1999 operating margin assumptions referred to
in the above-mentioned Press Release. In addition, the factors which may
impact sales, operating margin or earnings stated in the above-mentioned
Press Release can significantly impact the Company's effective income tax
rate. Actual results may vary materially from forward-looking statements
and the assumptions on which they are based. The Company cautions that the
foregoing list of factors is not exclusive and that other risks and
uncertainties may cause actual results to differ materially from those in
forward-looking statements. The Company undertakes no obligation to update
or publish in the future any forward-looking statements.
(II.) On February 24, 1999, the Board of Directors of the Company approved an
Amendment No. 2 (the "Amendment") to the Rights Agreement, dated as of April 23,
1997 (as amended by the First Amendment, dated March 13, 1998, the "Rights
Agreement"), between the Company
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and ChaseMellon Shareholder Services, L.L.C., a New Jersey limited liability
company, which amendment became effective as of February 25, 1999. Under the
Amendment, the delayed redemption provisions of the Rights Agreement were
eliminated.
The Amendment is attached hereto as Exhibit 99.2, which is incorporated by
reference herein in its entirety. The foregoing description does not purport to
be complete and is qualified in its entirety by reference to that Exhibit 99.2.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
99.1 Press Release, dated February 24, 1999.
99.2 Amendment No.2, dated as of February 25, 1999 to the Rights Agreement,
dated as of April 23, 1997 and amended March 13, 1998, between
Department 56, Inc. and ChaseMellon Shareholder Services, L.L.C.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DEPARTMENT 56, INC.
/s/ David H. Weiser
David H. Weiser
Senior Vice President and Secretary
Dated: February 26, 1999
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
99.1 Press Release, dated Febraury 24, 1999. 6
99.2 Amendment No. 2, dated as of February 25, 1999 to the 10
Rights Agreement, dated as of April 23, 1997 and amended
March 13, 1998, between Department 56, Inc. and ChaseMellon
Shareholder Services, L.L.C.
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[LOGO]
Investor Contacts: Mark Kennedy/Tim Schugel
Telephone: (612) 944-5600
DEPARTMENT 56 REPORTS RECORD EARNINGS PER SHARE FOR 1998
SOLID OUTLOOK FOR 1999
February 24, 1999 - Eden Prairie, MN - Department 56, Inc. (NYSE: DFS) today
reported increased revenue and earnings for the twelve months ended January 2,
1999 and record earnings per share for the year.
For the year, revenue was $243.4 million, 11 percent higher than the $219.5
million reported in the prior year. Net income was $46.5 million or 13 percent
greater than the $41.0 million reported for 1997, excluding the gain on sale of
aircraft in 1997. The company also reported record diluted income per share of
$2.45, 25 percent higher than the $1.96 reported for 1997, excluding the gain on
sale of aircraft.
Earnings per share benefited not only from gains in profitability, but also from
the Company's ongoing share repurchase program. During 1998, the company
returned $58 million to shareholders by repurchasing 1.7 million shares at an
average price of $35 per share.
For the quarter, revenue was $52.9 million, compared to $53.6 million in the
prior year. The slight decline in fourth quarter sales was expected given the
planned acceleration of shipments earlier in the year. Net income for the
quarter was $6.9 million or $0.38 per share assuming dilution, compared to $6.8
million or $0.34 per share in the prior year, excluding the gain on sale of
aircraft in last year's fourth quarter. This represents the sixth quarter in a
row Department 56 has reported growth in earnings per share.
"1998 was an excellent year for Department 56," said Susan Engel, Chairwoman and
CEO of the company. "We reported strong revenues and earnings growth, and record
earnings per share, as retailers and consumers alike continued to respond
strongly across our collectible and giftware product lines."
"Based on orders received to date," Ms. Engel said "we expect that the increase
in our full first quarter orders will be consistent with achieving our goal of
seven to nine percent sales growth and mid-teen earnings per share growth in
1999. Our confidence is underscored by recent dealer feedback indicating that
retail sales for our collectible products grew in 1998 and inventory turnover
improved," Ms. Engel said. "Dealers cited new collectors, attractive new
products, continued collector interest and more marketing support as key reasons
for their growth, and they expect retail sales to increase again in 1999."
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Further, she noted that last month, the company installed a new integrated
enterprise-wide software system. While this new system will be a valuable asset
in facilitating future growth, the installation has changed the timing of the
receipt of orders from customers and product shipping, thereby impacting
comparability to prior years' levels. However, this should not impact full-year
results.
Ms. Engel noted that Department 56 initiated a number of steps in 1998
to help position the company for strong future growth, including launching the
first new Village line in five years, successfully broadening existing lines,
and investing in new marketing and product development resources.
"During this coming year," Ms. Engel continued, "we will continue to invest our
strong cash flow in new growth opportunities, including launching new products,
building our brand through the opening of our first company-owned store at the
Mall of America in May, consolidating our warehouses into a new facility and
exploring attractive acquisition opportunities."
Department 56, Inc. is a leading collectibles and giftware company, whose
products are sold primarily through gift and home accessory retailers. The
Company is best known for its collectible, handcrafted lit ceramic and porcelain
buildings and related accessories in The Original Snow Village and Heritage
Village Collections. In addition, Department 56, Inc. offers an extensive line
of holiday and home decorative products, including its Snowbabies collectible
figurines, Christmas decorative products and other giftware items. Department 56
seeks to expand its market presence through innovative product development and
marketing, as well as through acquisitions.
NOTES CONCERNING FORWARD LOOKING STATEMENTS:
ANY CONCLUSIONS OR EXPECTATIONS EXPRESSED IN, OR DRAWN FROM, THE STATEMENTS IN
THIS PRESS RELEASE CONCERNING MATTERS THAT ARE NOT HISTORICAL CORPORATE
FINANCIAL RESULTS ARE "FORWARD-LOOKING STATEMENTS" THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S FIRST QUARTER 1999 ORDER EXPECTATIONS AND SALES
EXPECTATIONS FOR 1999 ARE BASED ON THE COMPANY'S CURRENT FORECAST OF DEALER
ORDERS AND PLANNED SALES AT THE RETAIL STORE IT PLANS TO OPEN IN MAY, 1999, AND
IS FURTHER DEPENDENT ON THE TIMING AND EXTENT OF PROMOTIONAL AND MARKETING
EFFORTS UNDERTAKEN BY THE COMPANY AS WELL AS THE TIMING AND EXTENT OF PRODUCT
RECEIPTS AND SHIPMENTS, THE EFFICIENCY OF INFORMATION SYSTEMS DEVELOPED TO
COLLECT, COMPILE AND EXECUTE CUSTOMER ORDERS, AND RETAILER AND CONSUMER DEMAND.
DEALER ORDERS ARE PRINCIPALLY DEPENDENT ON THE AMOUNT, QUALITY AND MARKET
ACCEPTANCE OF THE NEW PRODUCT INTRODUCTIONS AND RETAILER DEMAND. DEALER ORDER
PATTERNS HAVE HISTORICALLY VARIED IN NUMBER, MIX AND TIMING, AND THERE CAN BE NO
ASSURANCE THAT THE ORDER TREND EXPERIENCE YEAR-TO-DATE WILL CONTINUE. THE
COMPANY'S EXPECTATIONS REGARDING EARNINGS PER SHARE ARE BASED ON THE COMPANY'S
SALES EXPECTATIONS AND ASSUMES IT WILL MAINTAIN ITS HISTORICAL OPERATING MARGIN.
THE COMPANY'S OPERATING MARGIN MAY BE IMPACTED BY, AMONGST OTHER FACTORS, SHIFTS
IN PRODUCT MIX, EXCHANGE RATE FLUCTUATIONS WITH COUNTRIES THE COMPANY IMPORTS
FROM, CHANGES IN OCEAN FREIGHT RATES AND CHANGES IN THE COMPANY'S HISTORICAL
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE RATE. MOREOVER, THE STATEMENTS IN
THIS PRESS RELEASE CONCERNING RETAIL INVENTORY LEVELS, CONSUMER DEMAND, AND
DEALER EXPECTATIONS ARE BASED ON STATISTICAL RESEARCH CONDUCTED BY OR FOR THE
COMPANY, AND ASSUME THAT SUCH FINDINGS ARE CORRECT AND REPRESENTATIVE OF MARKET
CONDITIONS AS A WHOLE.
IF NOT MENTIONED ABOVE, OTHER FACTORS, INCLUDING CONSUMER ACCEPTANCE OF NEW
PRODUCTS; PRODUCT DEVELOPMENT EFFORTS; IDENTIFICATION AND RETENTION OF SCULPTING
AND OTHER TALENT; COMPLETION OF THIRD PARTY PRODUCT MANUFACTURING; DEALER
REORDERS AND ORDER CANCELLATIONS; CONTROL OF OPERATING EXPENSES; CORPORATE CASH
FLOW APPLICATION, INCLUDING SHARE REPURCHASES; FUNCTIONALITY OF INFORMATION AND
OPERATING SYSTEMS; IDENTIFICATION, COMPLETION AND RESULTS OF ACQUISITIONS,
INVESTMENTS, AND OTHER STRATEGIC BUSINESS INITIATIVES; GRANTS OF STOCK OPTIONS
OR OTHER EQUITY EQUIVALENTS; ACTUAL OR DEEMED EXERCISES OF STOCK OPTIONS; AND
INDUSTRY, GENERAL ECONOMIC, REGULATORY, TRANSPORTATION, AND INTERNATIONAL TRADE
AND MONETARY CONDITIONS, CAN SIGNIFICANTLY IMPACT THE COMPANY'S SALES, EARNINGS
AND EARNINGS PER SHARE. ACTUAL RESULTS MAY VARY MATERIALLY FROM FORWARD-LOOKING
STATEMENTS AND THE ASSUMPTIONS ON WHICH THEY ARE BASED. THE COMPANY UNDERTAKES
NO OBLIGATION TO UPDATE OR PUBLISH IN THE FUTURE ANY FORWARD-LOOKING STATEMENTS.
# Financial Tables follow #
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<TABLE>
<CAPTION>
DEPARTMENT 56, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
<S> <C> <C>
January 2, January 3,
1999 1998
CURRENT ASSETS
Cash and cash equivalents $ 2,783 $ 37,361
Accounts receivable, net 26,170 23,004
Inventories 18,287 18,070
Other current assets 10,661 9,311
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Total current assets 57,901 87,746
PROPERTY AND EQUIPMENT, net 17,722 12,753
GOODWILL, TRADEMARKS AND OTHER, net 157,531 159,042
OTHER ASSETS 129 154
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$ 233,283 $ 259,695
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</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 20,000 $ 20,000
Accounts payable 11,100 9,973
Other current liabilities 17,525 16,916
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Total current liabilities 48,625 46,889
DEFERRED TAXES 5,923 6,151
LONG-TERM DEBT - 20,000
STOCKHOLDERS' EQUITY 178,735 186,655
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$ 233,283 $ 259,695
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</TABLE>
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<TABLE>
<CAPTION>
DEPARTMENT 56, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
52 Weeks 53 Weeks
Quarter Ended Ended Ended
January 2, January 3, January 2, January 3,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
-------------- -------------- -------------- --------------
NET SALES $ 52,906 $ 53,601 $ 243,365 $ 219,496
COST OF SALES 21,670 24,380 100,782 94,040
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Gross profit 31,236 29,221 142,583 125,456
Selling, general, and administrative expenses 17,095 15,574 56,648 49,772
Amortization of goodwill, trademarks and other 1,258 1,145 4,926 4,577
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OPERATING INCOME 12,883 12,502 81,009 71,107
Interest expense 1,453 1,122 4,817 4,362
Gain on sale of aircraft - (2,882) - (2,882)
Other, net 94 73 (397) (1,086)
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INCOME BEFORE INCOME TAXES 11,336 14,189 76,589 70,713
INCOME TAXES 4,421 5,605 30,073 27,932
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NET INCOME (1) $ 6,915 $ 8,584 $ 46,516 $ 42,781
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NET INCOME PER SHARE $ .38 $ .43 $ 2.49 $ 2.06
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NET INCOME PER SHARE ASSUMING DILUTION (1) $ .38 $ .42 $ 2.45 $ 2.05
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OPERATING CASH FLOW (2) $ 14,735 $ 16,970 $ 88,717 $ 81,683
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</TABLE>
(1) Net income for the quarter ended January 3, 1998, excluding the effect of
the $2,882 pretax gain on sale of aircraft, was $6,841 or $.34 per share
assuming dilution. Net income for the year ended January 3, 1998, excluding
the effect of the $2,882 pretax gain on sale of aircraft, was $41,038 or
$1.96 per share assuming dilution.
(2) Earnings before interest, income taxes, depreciation and amortization
expenses.
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AMENDMENT NO. 2
TO RIGHTS AGEEMENT
AMENDMENT NO. 2, dated as of February 25, 1999 (the "Amendment"), to the
Rights Agreement, dated as of April 23, 1997, as amended by the First Amendment
to the Rights Agreement, dated March 13, 1998 (the "Rights Agreement"), between
Department 56, Inc., a Delaware corporation (the "Company"), and Chasemellon
Shareholder Services, L.L.C., a New Jersey limited liability company, as Rights
Agent (the "Rights Agent").
WHEREAS, the Company and the Rights Agent are currently parties to the
Rights Agreement; and
WHEREAS, the Company and the Rights Agent wish to make certain changes to
the Rights Agreement to eliminate the delayed redemption provisions set forth
therein.
NOW THEREFORE, the Company and the Rights Agent hereby agree as follows:
1. AMENDMENTS TO THE RIGHTS AGREEMENT. The Rights Agreement shall be, and
hereby is, amended as provided below, effective as of the date of this
Amendment:
(a) The Defined Term Cross Reference Sheet is hereby amended by deleting
the terms "Transaction" and "Transaction Person", and the corresponding
cross references, therefrom.
(b) Section 1 of the Rights Agreement is hereby amended by deleting
paragraphs (q) and (r) therefrom and by redesignating paragraph (s) thereof
as paragraph (q).
(c) The definition of "Disinterested Directors" set forth in Section 1(h)
of the Rights Agreement is hereby amended by deleting the existing text of
clause (iii) thereof and by substituting in its place the following new
clause (iii):
"(iii) any Person who was directly or indirectly proposed or nominated as
a director of the Company by an Acquiring Person or by any Affiliate or
Associate of an Acquiring Person or by any representative of any of
them."
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(d) Section 23(a)(ii)(x)(B) of the Rights Agreement is hereby amended by
deleting the final three words of such section (i.e., "a Transaction
Person") and by substituting in place of such three words the following:
"an Acquiring Person."
(e) Section 23(a) of the Rights Agreement is hereby further amended by
deleting clause (iii) of such section in its entirety.
(f) Section 27 of the Rights Agreement is hereby amended by deleting the
last sentence of such section in its entirety.
2. REPRESENTATIONS AND WARRANTIES. Each of the Company and the Rights Agent
represents and warrants that (i) the execution, delivery and performance of this
Amendment by such party have been duly authorized by all necessary corporate
action and (ii) this Amendment constitutes a valid and binding agreement of such
party.
3. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
4. GOVERNING LAW. This Amendment shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be governed
by and construed in accordance with the laws of such State applicable to
contracts made and to be performed entirely within such State.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and attested, all as of the date and year first above written.
DEPARTMENT 56, INC.
By: /s/David H. Weiser
Name: David H. Weiser
Title: Senior Vice President -
Legal and Human Resources
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C.
By: /s/Constance A. Adams
Name: Constance A. Adams
Title: Assistant Vice President
