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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 25, 2000
Date of Earliest Event Reported: FEBRUARY 23, 2000
DEPARTMENT 56, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-11908 13-3684956
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) 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
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ITEM 5. OTHER EVENTS.
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 23, 2000, 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:
(1) The Company expects that its fiscal 2000 Gross Margin Rate (I.E.,
the amount that Gross Profit represents as a percentage of Net
Sales) will approximate or slightly exceed its fiscal 1999 Gross
Margin Rate.
(2) The Company expects that its fiscal 2000 Selling, General &
Administrative expenses (SG&A) will reflect approximately $7
million in infrastructure and strategic initiative expenses in
addition to the Company's usual and customary SG&A expenses. The
expected incremental infrastructure and strategic initiative
expenses are attributable primarily to costs associated with the
Company's ongoing information systems implementation,
distribution facility consolidation and direct retail
initiatives, as well as a new business-to-business e-commerce
initiative. The Company also notes that a reduced base of Net
Sales for fiscal 2000 would imply a current-year deleveraging of
its total SG&A expenses.
Readers are cautioned that actual effective Gross Margin and SG&A rates
are dependent upon numerous factors, as referred to in the
above-mentioned Press Release. Actual results may vary materially from
forward-looking statements and the assumptions on which they are based.
The Company cautions that the factors it has mentioned are not
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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.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
99.1 Press Release, dated February 23, 2000.
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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/ Percy C. Tomlinson, Jr.
----------------------------------------------------
Percy C. Tomlinson, Jr.
Executive Vice President and Chief Financial Officer
Dated: February 25, 2000
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EXHIBIT INDEX
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<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
<S> <C> <C>
99.1 Press Release, dated February 23, 2000. 6
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[LOGO]
Investor Contacts: Tom Tomlinson / Tony Ishaug
Telephone: (612) 944-5600
DEPARTMENT 56 REPORTS 1999 RESULTS AND YTD ORDERS
FEBRUARY 23, 2000 - EDEN PRAIRIE, MN. - DEPARTMENT 56 (NYSE: DFS) today reported
results for the fourth quarter and twelve months ended January 1, 2000.
For the year, revenues increased one percent to $245.9 million compared to
$243.4 million in the prior year. Net income was $42.7 million or $2.45 per
share assuming dilution, compared to $46.5 million or $2.45 per share in the
prior year. For the fourth quarter, revenues were $54.4 million, compared to
$52.9 million in the prior year's fourth quarter. Net income for the quarter was
$5.6 million or $0.35 per share assuming dilution, compared to $6.9 million or
$0.38 per share in the prior year.
"1999 was a challenging year for Department 56," said Susan Engel, Chairwoman
and Chief Executive Officer. "Dealers and consumers continued to respond
strongly to our creative collectible and giftware lines, but results were
impacted by the difficult implementation of our new enterprise-wide computer
system."
Fourth quarter and fiscal year 1999 earnings per share were impacted by a
decline in net margins due to additional reserves on customer balances and
higher operating expenses associated with the Company's implementation of its
new computer system and the one time write-off of certain acquisition related
investigatory costs and costs associated with its distribution facility
consolidation, as reported previously. This was offset by the Company's ongoing
share repurchase program. During 1999, the Company repurchased 2.9 million
shares at a total cost of $70 million, or an average price of $24 per share.
FISCAL 2000 OUTLOOK
"We continue to see this year as a rebuilding year with our dealers," said Ms.
Engel. Dealer orders through February 19 were down approximately 8% against the
comparable period in the prior year. Year-to-date Village orders were
approximately 10% behind the comparable period in the prior year, while General
Giftware orders were down approximately 3%. The Company stated that excluding
the impact of the special one-time Customer Appreciation Discount that it has
offered on early orders for most product categories, as announced in December
1999, dealer orders would be down only approximately 4%.
Commenting on these initial results, Ms. Engel added: "While we are disappointed
with the pace of our current orders, many of our customers have expressed
confidence that we will be able to ship in a more timely fashion, enabling them
to reorder more frequently. Our own successful initiative to, for the first
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Department 56-2
time, have actual samples for all of our Village lines at the early gift shows,
coupled with earlier product availability, may support or reinforce this belief
of our dealers. This potential change in our historical order pattern, combined
with other analyses, suggests that the gap in our order trends may close as we
progress through the year. It is important to keep in mind that, as history has
shown, where we are in terms of orders at this point in the year is not
necessarily indicative of where we will end up at the end of the first quarter
or even the year."
The Company expects certain costs that impacted its 1999 results to continue in
fiscal 2000, primarily related to the ongoing information systems implementation
and distribution facility consolidation costs. In addition, continued strategic
investments in the Company's infrastructure, including business-to-business
e-commerce initiatives, are expected to result in higher costs in fiscal 2000 in
order to position greater operational efficiencies and merchandising
effectiveness for the Company and its dealers in the future. As a result, the
Company believes that fiscal 2000 earnings per share will be below that of
fiscal 1999 results, excluding the impact of its stock repurchase initiatives,
as discussed below.
"I am pleased to report that our systems have performed well during the gift
shows and that our shipping and invoicing operations are back to normal.
Feedback from our dealers suggests that they view our current product offering
as one of the strongest ever," Ms. Engel continued. "We continue to be excited
about the quality and breadth of our product development capabilities.
"We maintain our belief that investment in our infrastructure is necessary to
sustain our industry leadership, maximize long-term growth and create value for
our shareholders. Therefore, we remain committed to investing in programs that
insure the success of our current dealer base. At the same time, we will
continue to look toward other avenues that will allow us to leverage our current
skills and achieve our growth objectives."
STOCK REPURCHASE AND CORPORATE ACTIVITIES
As announced in December 1999, the Board of Directors authorized the repurchase
of $75 million of the Company's common stock, in addition to the buyback of
shares under its previous authorizations. The Company has repurchased 6.9
million shares, or approximately 31% of its outstanding shares, under these
prior authorizations since December 1996, and has approximately 0.6 million
shares remaining in addition to the most recent $75 million authorization, all
of which expire on December 31, 2000. The Company plans to aggressively
repurchase shares in open market or negotiated transactions subject to market
conditions and expects to fund the repurchases through the Company's available
bank borrowings. As of February 22, 2000, the Company had 15.1 million common
shares outstanding.
Additionally, the Company announced it has completed a $4 million strategic
minority investment in 2-Day Designs, Inc., a manufacturer and marketer of
high quality accent furniture and wooden accessories sold primarily through
furniture, home furnishings, and catalog retailers. In addition to a variety
of products under the 2-Day Designs brand name, 2-Day Designs markets
licensed branded collections including Bob Timberlake-Registered Trademark-,
Disney's Classic Pooh-Registered Trademark-, Beatrix Potter-TM-, Warren
Kimble-TM-, Thomas Kinkade-TM-, Judy Buswell-TM-, Ducks Unlimited-Registered
Trademark-, and PGA Tour Home-Registered Trademark-. "We are excited about
the opportunity that we have to partner with an organization that possesses a
creative skill set much like ours. The management of 2-Day has proven success
in marketing differentiated products, and we are excited about the access to
new channels that this investment creates," said Ms. Engel. The terms of the
transaction were not disclosed.
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Department 56-3
ABOUT DEPARTMENT 56
Department 56, Inc. is a leading collectibles and giftware company known for its
lighted Villages, Snowbabies(TM) figurines and extensive lines of holiday and
home decorative products. Its products are sold primarily through gift,
specialty and department store retailers in the United States, Canada and
Europe.
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 EXPECTATIONS REGARDING 2000 EARNINGS PER SHARE
STATED IN THIS RELEASE ARE BASED ON THE COMPANY'S 2000 EXPECTATIONS FOR SALES
AND OPERATING MARGIN. THE COMPANY'S SALES EXPECTATIONS FOR 2000 ARE BASED ON THE
COMPANY'S CURRENT FORECAST OF DEALER ORDERS AND PLANNED SALES THROUGH ITS RETAIL
ARM, 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 HAVE PRINCIPALLY BEEN DEPENDENT ON THE AMOUNT, QUALITY AND
MARKET ACCEPTANCE OF THE NEW PRODUCT INTRODUCTIONS AND RETAILER DEMAND, BUT
ORDER PATTERNS HAVE HISTORICALLY VARIED IN NUMBER, MIX AND TIMING, AND THERE CAN
BE NO ASSURANCE THAT THE YEAR-TO-DATE ORDER LEVELS OR TRENDS WILL NOT
DETERIORATE, OR THAT THEY WILL EXHIBIT LEVELS OR TRENDS SUPPORTIVE OF A SHIFT
TOWARD GREATER ORDERS LATER IN THE YEAR. MOREOVER, THE COMPANY'S ORDER
FORECASTING MODEL IS DEPENDENT ON ASSUMPTIONS CONCERNING RETAIL INVENTORY
LEVELS, CONSUMER DEMAND, AND DEALER EXPECTATIONS. THE COMPANY'S OPERATING MARGIN
MAY BE IMPACTED BY, AMONGST OTHER FACTORS, SHIFTS IN PRODUCT MIX AND/OR GROSS
MARGIN, EXCHANGE RATE FLUCTUATIONS WITH COUNTRIES THE COMPANY IMPORTS FROM,
CHANGES IN FREIGHT RATES AND CHANGES IN THE COMPANY'S HISTORICAL SELLING,
GENERAL AND ADMINISTRATIVE EXPENSE RATE, INCLUDING BAD DEBTS.
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; COST OF DEBT CAPITAL;
FUNCTIONALITY OF INFORMATION, OPERATING AND DISTRIBUTION SYSTEMS;
IDENTIFICATION, COMPLETION AND RESULTS OF ACQUISITIONS, INVESTMENTS, AND OTHER
STRATEGIC BUSINESS INITIATIVES; CAPITAL EXPENDITURES AND DEPRECIATION, AND THE
TIMING THEREOF; 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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DEPARTMENT 56, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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<CAPTION>
ASSETS
January 1, January 2,
2000 1999
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<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,962 $ 2,783
Accounts receivable, net 65,580 26,170
Inventories 15,901 18,287
Other current assets 14,199 10,661
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Total current assets 99,642 57,901
PROPERTY AND EQUIPMENT, net 29,857 17,722
GOODWILL, TRADEMARKS AND OTHER, net 155,936 157,531
OTHER ASSETS 1,673 129
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$ 287,108 $ 233,283
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 42,500 $ -
Accounts payable 9,709 11,100
Other current liabilities 15,144 17,525
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Total current liabilities 67,353 28,625
DEFERRED TAXES 6,831 5,923
LONG-TERM DEBT 60,000 20,000
STOCKHOLDERS' EQUITY 152,924 178,735
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$ 287,108 $ 233,283
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DEPARTMENT 56, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
52 Weeks 52 Weeks
QUARTER ENDED Ended Ended
January 1, January 2, January 1, January 2,
2000 1999 2000 1999
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NET SALES $ 54,394 $ 52,906 $ 245,856 $ 243,365
COST OF SALES 25,564 21,670 103,803 100,782
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Gross profit 28,830 31,236 142,053 142,583
Selling, general, and administrative expenses 16,096 17,095 61,542 56,648
Amortization of goodwill, trademarks and other 1,323 1,258 5,145 4,926
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OPERATING INCOME 11,411 12,883 75,366 81,009
Interest expense 2,583 1,453 6,719 4,817
Other, net (226) 94 (153) (397)
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INCOME BEFORE INCOME TAXES 9,054 11,336 68,800 76,589
INCOME TAXES 3,439 4,421 26,144 30,073
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NET INCOME $ 5,615 $ 6,915 $ 42,656 $ 46,516
========= ========= ========== =========
NET INCOME PER SHARE $ 0.35 $ 0.38 $ 2.48 $ 2.49
======= ======= ======== ======
NET INCOME PER SHARE ASSUMING DILUTION $ 0.35 $ 0.38 $ 2.45 $ 2.45
======= ======= ======== ======
OPERATING CASH FLOW (1) $ 14,553 $ 14,735 $ 84,853 $ 88,717
========= ========= ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 16,164 18,036 17,214 18,676
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WEIGHTED AVERAGE SHARES
OUTSTANDING - ASSUMING DILUTION 16,214 18,290 17,388 18,960
======== ======== ======== =========
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(1) Earnings before interest, income taxes, depreciation and amortization
expenses.
