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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: APRIL 27, 2000
Date of Earliest Event Reported: APRIL 26, 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 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: (952) 944-5600
Page 1 of 9
Exhibit Index on Page 4
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ITEM 5. OTHER EVENTS.
Further to the investor conference call hosted by the Company on
the morning of April 27, 2000:
- The Company's orders through April 22, 2000 were down 9%
relative to the comparable period for 1999. For the period,
Village orders were down 13%, with General Giftware orders
down 2%. Within the General Giftware segment, orders for the
Company's non-collectible Christmas product lines were up 7%
for the comparable period. Orders include those from customers
whose shipping has been placed on hold by the Company due to
collection concerns and other credit considerations, and
orders are also subject to cancellation for other reasons,
including inventory shortages and customer requests.
- Village Series and General Giftware products represented 71%
and 29%, respectively, of the Company's net sales during the
first quarter of 2000.
A copy of the Company Press Release, dated April 26, 2000, is
attached hereto as Exhibit 99.1 and is incorporated herein by
reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
99.1 Press Release, dated April 26, 2000.
Page 2 of 9
Exhibit Index on Page 4
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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: April 27, 2000
Page 3 of 9
Exhibit Index on Page 4
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EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION PAGE
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99.1 Press Release, dated April 26, 2000. 5
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Page 4 of 9
Exhibit Index on Page 4
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[LOGO]
Investor Contacts: Tom Tomlinson / Tony Ishaug
Telephone: (952) 944-5600
DEPARTMENT 56 REPORTS FIRST QUARTER 2000 RESULTS
APRIL 26, 2000 - EDEN PRAIRIE, MN. - DEPARTMENT 56 (NYSE: DFS) today reported
revenues of $40.4 million for the quarter ended April 1, 2000, compared with
$33.6 million for the same period in the prior year. The increased revenues
reflected unusually low shipments in the first quarter of 1999, and were reduced
by additional reserves for claims in the current year first quarter, as
discussed below. "While our operations and systems continue to perform well in
2000, the results for the first quarter suffered from the impact that our
systems problems of last year have had on our collections process," said Susan
Engel, Chairwoman and Chief Executive Officer.
Reflecting the additional reserve accruals discussed below, the first quarter
resulted in a net loss of $3.2 million or $0.21 per share assuming dilution,
compared to net income of $3.3 million or $0.18 per share in the prior year.
First quarter 2000 profitability was also impacted by the expected higher costs
related to the ongoing systems implementation and distribution facility
consolidation, as previously reported.
FISCAL 2000 OUTLOOK
The Company's overdue accounts receivable, particularly those from 1999, remain
higher than had been initially expected. These overdue accounts receivable
balances are primarily a result of the problems the Company experienced during
the implementation of its new enterprise-wide computer system beginning in early
1999. Invoicing and shipping problems, especially during the first half of 1999,
led to substantially higher than normal receivables at year-end that carried
over into 2000 as customers have had difficulty in reconciling their invoices
and shipments.
At the end of 1999, the Company had overdue accounts receivable in excess of
prior years' levels; therefore the Company increased its bad debt and claims
reserves in the fourth quarter of 1999 by $4 million. Throughout the first
quarter of 2000, the Company was able to reduce the overdue receivables in line
with its expectations established at the beginning of the year. However, based
upon recent trends and the current level of orders on hold due to overdue
receivables, the Company has now determined that it is necessary to further
increase its bad debt and claims reserves by $12 million. These reserve accruals
have been made through pretax charges of approximately $6.5 million to net sales
and $5.5 million to expense, both items reflected in the first quarter 2000
results.
As noted above, the overdue receivables have led to a high level of current-year
orders being placed on hold. "We intend to continue to vigorously pursue the
collection of these receivables over the next several months to put this problem
behind us. We will work with our dealers to accelerate this resolution in order
to release orders before their busy selling season begins; however, we have
already and will terminate some long standing dealer relationships if our
differences cannot be resolved quickly and fairly," said Ms. Engel.
-more-
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Department 56-2
Consequently, as a result of the high level of orders on hold and the charges
for overdue receivables, the Company expects a weakening of its sales for fiscal
2000. In recognition of the soft year-to-date order rate and the potential for
reduced sales, the Company has identified $3-4 million in current year SG&A
reductions (annualized $5 million), which it is in the process of implementing.
FIRST QUARTER ORDERS
Orders during the first quarter of $165.1 million were down 9% relative to 1999
levels. Village orders for the quarter were down 11%, with General Giftware
orders down 5%. The general Christmas and continuity Nativity lines, as well as
the Company's newest continuity line, Candle Crown(TM) Collections, lead the
relative strength in the General Giftware category. The comparative order rate
for the Company's products is heavily impacted by two factors: the one-time
Customer Appreciation Discount which is tied to first quarter orders, and last
years' launch of the Seasons Bay line. Ms. Engel commented, "We continue to be
disappointed with the level of orders this year. However, when we look at the
core Village and General Giftware business adjusted for the first quarter
discount program and Seasons Bay comparisons, orders for the first quarter would
have been down 1%. Department 56 has long been known for creative excellence,
and the strong reception by the marketplace of our new continuity lines
demonstrates this strength."
STOCK REPURCHASE
As part of the Company's share repurchase program, during the quarter,
Department 56 purchased 699,000 shares of stock in the open market and through
privately negotiated transactions for $10.7 million, completing its fourth
authorization announced in May 1999. As of April 1, 2000, the Company had
remaining authorization from the Board of Directors to repurchase $75.0 million
worth of its stock through the remainder of 2000 and had 14.5 million common
shares outstanding. The Company has suspended share repurchase activities until
the accounts receivable issues have been resolved.
WAREHOUSE CONSOLIDATION
In late March the Company moved its full-case shipping operation to a new
warehouse in Rogers, Minnesota. The move is the first phase in a previously
announced plan to consolidate its four current warehouse facilities into a
single site. "We are pleased that we were able to meet our shipping goals for
the quarter while moving one of our two warehouse operations in late March,"
said Ms. Engel. Daily production for the full-case shipping operation began the
week of April 10 and is proceeding in line with expectations. The Company plans
to execute the final phase of the consolidation in May.
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.
The Company's Annual Meeting of Stockholders is scheduled for May 11, 2000 in
San Francisco. Maxine Clark, a member of Department 56's Board of Directors
listed in the proxy statement, will not be standing for re-election due to other
business commitments. Thanking Ms. Clark for her service to the Company, Ms.
Engel noted, "Maxine has been a wonderful contributor since joining our Board in
September 1997, and her strong retailing background has been helpful to us. We
wish her the best."
-more-
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Department 56-3
Investors will have the opportunity to listen to the April 27 conference call
over the Internet through StreetEvents at WWW.STREETEVENTS.COM. To listen to the
live call, please go to the web site prior to the 9:00 a.m. EST call to install
any necessary audio software. For those who cannot listen to the live broadcast,
a replay will be available shortly after the call.
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. PLEASE READ THE BASES, ASSUMPTIONS AND FACTORS SET OUT IN THE
COMPANY'S FORM 10-K FOR 1999 DATED MARCH 29, 2000 AND FILED UNDER THE SECURITIES
EXCHANGE ACT OF 1934, ALL OF WHICH IS INCORPORATED HEREIN BY REFERENCE. 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 #
-More-
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DEPARTMENT 56, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
UNAUDITED
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ASSETS
April 1, January 1,
2000 2000
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CURRENT ASSETS
Cash and cash equivalents $ 46,532 $ 3,962
Accounts receivable, net 48,650 65,580
Inventories 16,334 15,901
Other current assets 16,728 14,199
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Total current assets 128,244 99,642
PROPERTY AND EQUIPMENT, net 30,302 29,857
GOODWILL, TRADEMARKS AND OTHER, net 154,604 155,936
OTHER ASSETS 5,772 1,673
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$ 318,922 $ 287,108
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 22,500
Borrowings on revolving credit agreement - $ 42,500
Accounts payable 8,467 9,709
Other current liabilities 14,558 15,144
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Total current liabilities 45,525 67,353
DEFERRED TAXES 6,824 6,831
LONG-TERM DEBT 127,500 60,000
STOCKHOLDERS' EQUITY 139,073 152,924
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$ 318,922 $ 287,108
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DEPARTMENT 56, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
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QUARTER ENDED
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April 1, April 3,
2000 1999
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NET SALES $ 40,367 $ 33,648
COST OF SALES 18,967 13,752
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Gross profit 21,400 19,896
Selling, general, and administrative expenses 23,166 12,488
Amortization of goodwill, trademarks and other 1,364 1,263
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OPERATING (LOSS)/INCOME (3,130) 6,145
Interest expense 2,143 516
Other, net (180) 236
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(LOSS)/INCOME BEFORE INCOME TAXES (5,093) 5,393
INCOME TAX (BENEFIT)/PROVISION (1,935) 2,049
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NET (LOSS)/INCOME $ (3,158) $ 3,344
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NET (LOSS)/INCOME PER SHARE $ (.21) $ .19
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NET (LOSS)/INCOME PER SHARE ASSUMING DILUTION $ (.21) $ .18
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OPERATING CASH FLOW (1) $ (657) $ 7,999
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WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 14,941 18,039
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WEIGHTED AVERAGE SHARES
OUTSTANDING - ASSUMING DILUTION 15,004 18,285
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(1) Earnings before interest, income taxes, depreciation and amortization
expenses.
