Enesco Group, Inc. Reports Fourth Quarter and Fiscal 2005 Financial Results; - Company Provides Update on Operating Improvement Plan -.ITASCA I·tas·ca A lake of northwest Minnesota. It was identified in 1832 as the source of the Mississippi River. , Ill. -- Enesco E·nes·co , Georges 1881-1955. Romanian-born violinist and composer whose works include the opera Oedipus (1936) and three symphonies. Noun 1. Group, Inc. (NYSE NYSE See: New York Stock Exchange :ENC ENC Encoded (File Name Extension) ENC Enclosure ENC Mime-Encoded (virus scanners) ENC Eastern North Carolina ENC Eisenhower National Clearinghouse for Mathematics and Science Education ), a leader in the giftware, and home and garden decor industries, today announced financial results for the fourth quarter and year ended December December: see month. 31, 2005, and also provided an update on its operating improvement plan. Fourth Quarter and Recent Highlights --Fourth quarter net revenues decreased 19.7% to $56.0 million; excluding U.S. sales of Precious Moments products, net revenues decreased 7.6% to $53.6 million. --Full year net revenues decreased 9.1% to $244.4 million; excluding U.S. sales of Precious Moments products, net revenues were down 2.3% from the prior year to $210.9 million. --Reached 2005 goal of reducing expenses that Enesco believes will generate pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. cost savings of $26.7 million. --Completed product rationalization rationalization, in psychology: see defense mechanism. by reducing product lines from 170 to approximately 50. --Initiated the transition to a third-party distribution facility in December 2005. --Entered into a new strategic alliance with Jim Shore Designs, Inc. Fourth Quarter Net revenues for the quarter decreased 19.7% to $56.0 million from $69.7 million in the fourth quarter of 2004, reflecting the significant reduction in U.S. sales of Precious Moments products, which was due primarily to the termination of the U.S. license agreement in the second quarter of 2005. Excluding U.S. sales of Precious Moments, net revenues for the fourth quarter, were down 7.6% from the same period in 2004. Gross profit was $16.5 million compared to $22.3 million in the fourth quarter of 2004. Gross profit margin Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. was 29.5% compared with 32.0% in the fourth quarter of 2004. Gross profit was negatively impacted by lower sales volume, a lower margin achieved on the U.S. sales of Precious Moments products, as well as increases in slow-moving and excess inventory reserves, which resulted from additional discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: inventories related to Enesco's product line rationalization. Gross margin, excluding U.S. sales of Precious Moments products, decreased to 33.4% for the quarter versus 36.4% for the same period last year. Selling, general and administrative expenses (SG&A) decreased 13.5% to $30.8 million compared to $35.5 million reported in the fourth quarter of 2004. This decrease was primarily the result of reduced salary expense and lower selling and marketing costs, as well as other cost saving initiatives implemented throughout the quarter. These factors were offset in part by the write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of $1.1 million of Dartington goodwill and restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when provisions of $1.0 million, associated with the transition to third-party warehousing and distribution, and the closure of non-essential showrooms. Operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. for the fourth quarter was $14.2 million compared to an operating loss of $9.3 million in the same period in 2004. The operating loss for the fourth quarter of 2004 included a gain of $4.0 million on the sale of Enesco's distribution and warehousing facility in Elk Grove Village, Illinois Elk Grove Village is a municipality located in northeastern Illinois adjacent to O'Hare International Airport and the City of Chicago. Elk Grove Village encompasses 10.9 square miles in land area with 10.5 square miles located in Cook County and 0. , which subsequently was leased back under a five-year operating lease Operating Lease A lease contract that allows the use of an asset, but does not convey rights similar to ownership of the asset. Notes: An operating lease is not capitalized it is accounted for as a rental expense. . Fourth quarter net loss was $14.7 million, or ($0.99) per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared to a net loss of $40.7 million, or ($2.80) per diluted share, in the fourth quarter of 2004. The reduction in net loss primarily reflects Enesco's tax benefit of $0.5 million in the fourth quarter of 2005 versus a tax expense of $31.1 million in the fourth quarter of 2004. Fiscal 2005 Net revenues for the year decreased 9.1% to $244.4 million from $269.0 million in 2004, primarily due to the continued decline in sales of collectibles in the U.S., primarily sales related to Precious Moments. Excluding U.S. sales of Precious Moments products, net revenues were down 2.3% from 2004. Gross profit was $82.8 million compared to $106.5 million in 2004. Gross profit margin declined to 33.9% compared to 39.6% last year. Gross profit was negatively impacted by lower sales volume, a loss on the termination of the license agreement with Precious Moments Inc. of $7.7 million, a lower margin achieved on the U.S. sales of Precious Moments products, and increases in slow-moving and excess inventory reserves, which resulted from additional discontinued inventories related to Enesco's product line rationalization. Gross margin, excluding U.S. sales of Precious Moments products, declined to 38.1% for 2005 compared to 40.9% in 2004. SG&A expenses increased 1.9% to $130.0 million compared to $127.5 million last year, primarily reflecting higher bank fees, accelerated depreciation Accelerated Depreciation Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset. Notes: The straight-line depreciation method spreads the cost evenly over the life of an asset. on the ERP (Enterprise Resource Planning) An integrated information system that serves all departments within an enterprise. Evolving out of the manufacturing industry, ERP implies the use of packaged software rather than proprietary software written by or for one customer. system and incremental costs Costs which are additional costs to the Service appropriations that would not have been incurred absent support of the contingency operation. See also financial management. incurred as a result of the Dartington acquisition. These factors were partially offset by reduced selling and marketing costs, as well as lower salary expense. Operating loss for the year was $47.2 million compared with an operating loss of $17.0 million in 2004. The operating loss for 2004 included a gain of $4.0 million on the sale of Enesco's distribution and warehousing facility in Elk Grove Village, Illinois. Fiscal 2005 net loss was $54.0 million, or ($3.67) per diluted share, compared to a net loss of $45.2 million, or ($3.16) per diluted share, in 2004. The increase in net loss reflects the increase in operating loss and additional interest expense in 2005, partially offset by a significantly reduced tax expense as compared to the prior year. Cynthia Passmore, President and Chief Executive of Enesco, stated, "2005 was a year of transition for Enesco as we focused on stabilizing stabilizing, v to hold a limb motionless in order to ground its energy; a standard isometric resistance technique, it releases tension and lengthens muscle fibers. the business. We successfully completed a number of strategic financial and operational initiatives in the first half of the year, including the termination of our Precious Moments license agreement and corporate restructurings, which enabled us to reduce salary expense and streamline operations. In September, we introduced a comprehensive operating improvement plan designed to build on our earlier initiatives and establish a sustainable and profitable business model. While our financial results for the year are not in line with our long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. objectives, we began to see positive impact from the implementation of our operating improvement plan in the second half of 2005. Specifically, we benefited from a reduced cost structure, better inventory management and the completion of the rationalization of our product lines which allowed us to focus on our core merchandising merchandising Element of marketing concerned especially with the sale of goods and services to customers. One aspect of merchandising is advertising, which aims to capture the interest of the segment of the population most likely to buy the product. categories." Operating Improvement Plan Update Enesco made substantial progress in implementing its operating improvement plan and, as of this date, has accomplished the following: --Enesco completed its product rationalization in the fourth quarter of 2005, reducing its product lines by more than 70%, from 170 product lines to approximately 50. The remaining lines in total represent approximately 90% of Enesco's U.S. sales, excluding Precious Moments. The remaining product lines fit into Enesco's core merchandising categories: decorative gifts, inspirational in·spi·ra·tion·al adj. 1. Of or relating to inspiration. 2. Providing or intended to convey inspiration. 3. Resulting from inspiration. gifts, brand enthusiast A person who enjoys using computers and electronic equipment. Enthusiasts like technology and are willing to learn more of the ins and outs of a product than the average consumer, who just wants to use it. An enthusiast is more like a "prosumer." See consumer and prosumer. gifts and occasion-based gifts. Enesco believes that the product lines in these categories generate strong and sustainable market demand and profitability and leverage Enesco's core distribution base. --Enesco began its transition to a third-party distribution center and began shipping from the new facility at the end of January 2006. Enesco experienced a delay in beginning shipments from the new facility, as the new facility ramp-up took longer than expected. Enesco expects to work through the backlog Backlog The total value of sales orders waiting to be fulfilled. Notes: This figure is used mainly in the manufacturing industry. Increases or decreases in a company's backlog indicate the future direction of sales and earnings. by the end of April and, in May, expects to be at the shipping levels required to meet its targets for the year. --Enesco reached its 2005 goal of reducing expenses that will generate pre-tax cost savings on an annualized basis of $26.7 million. These savings are included in the total $34 million to $38 million in pre-tax annualized cost savings, which Enesco expects to realize as a result of the operating improvement plan in 2007. --Enesco established a new Executive Committee which will direct Enesco's turnaround Turnaround A situation where a company that has had poor performance for an extended period of time experiences a positive reversal. Notes: A speculator may profit from a turnaround if he or she accurately anticipates the improvement of a poorly performing company. and help ensure that it is positioned appropriately for sustainable growth when its operating improvement plan objectives are achieved. The Executive Committee will include Ms. Passmore, a future Executive Vice President and Chief Financial Officer, and key business unit leaders in the U.S., the U.K. and Canada. Passmore concluded, "We are making progress with the implementation of our operating improvement plan. We have accomplished a number of goals already in 2006, with the transition to the new third-party distribution facility and the signing of our new strategic alliance with Jim Shore Designs. Further, as a result of our product line rationalization, our sales and marketing teams have been able to focus on our top selling product lines, resulting in a 16% increase in orders taken at this year's January gift shows. In addition, excluding Precious Moments orders in 2005, product orders at the January 2006 gift shows increased 21%. We believe we are driving positive change for the business and anticipate seeing gradual improvements in our performance over the course of 2006." More detailed information is set forth in Enesco's Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December 31, 2005, which was filed on March 31, 2006. Credit Facility On March 31, 2006, Enesco entered into the eleventh amendment The Eleventh Amendment to the U.S. Constitution reads: to its existing credit facility, effective March 31, 2006, and reset Enesco's 2006 cumulative minimum monthly EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become covenants, effective January 30, 2006, based on its reforecast. The eleventh amendment also reduced the credit facility commitment from $75.0 million to $70.00 million and accelerated by one month the tenth amendment The Tenth Amendment to the U.S. Constitution reads: fees payable unless outstanding loans and letters of credit under the existing U.S. credit facility are paid in full prior to specified dates. On December 14, 2005, Enesco Group, Inc. signed a commitment letter with LaSalle Business Credit, LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control to arrange a new $75 million senior secured credit facility, which is to replace the existing credit facility with Bank of America
Bank of America (NYSE: BAC TYO: 8648 ) is the largest commercial bank in the United States in terms of deposits, and the largest company of its kind in the world. , as successor to Fleet National Bank, and LaSalle Bank LaSalle Bank Corporation is the holding company for LaSalle Bank N.A. and LaSalle Bank Midwest N.A. With $116 billion in assets, it is headquartered at 135 South LaSalle Street in Chicago, Illinois. N.A. Under the letter, the commitment was to close on the new credit facility on or before January 31, 2006. Enesco Group, Inc. has subsequently received modifications to its commitment letter from LaSalle Business Credit, LLC, extending the expiration date Expiration Date The day on which an options or futures contract is no longer valid and, therefore, ceases to exist. Notes: The expiration date for all listed stock options in the U.S. from January 31, 2006 to March 31, 2006. On March 31, 2006, Enesco Group, Inc. received another modification to its commitment letter from LaSalle Business Credit, LLC, extending the expiration date from to April 30, 2006. Conference Call A conference call will be broadcast live on Monday, April 3 at 3:00 p.m. CDT CDT abbr. Central Daylight Time CDT Central Daylight Time CDT n abbr (US) (= Central Daylight Time) → hora de verano del centro; (BRIT (4:00 p.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT ). Investors interested in participating on the live call can do so by calling 1-888-271-7222, and ask for the Enesco Quarterly Earnings conference call. Investors also may listen to the live call via a Webcast at http://www.enesco.com and click on "Investor Relations Investor relations The process by which the corporation communicates with its investors. ," or by logging onto http://www.streetevents.com. To listen to the Webcast, your computer must have RealPlayer installed. This Webcast will be available online for 90 days following the live conference call. If you do not have RealPlayer, go to http://www.streetevents.com prior to the call to download To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. RealPlayer for free. For a phone replay, call 1-800-642-1687, Passcode: 7439355. The phone replay will be available for one month following the conference call. About Enesco Group, Inc. Enesco Group, Inc. is a world leader in the giftware, and home and garden decor industries. Serving more than 30,000 customers globally, Enesco distributes products to a wide variety of specialty card and gift retailers, home decor boutiques, as well as mass-market chains and direct mail retailers. Internationally, Enesco serves markets operating in the United Kingdom, Canada, Europe, Mexico, Australia and Asia. With subsidiaries located in Europe and Canada, and a business unit in Hong Kong Hong Kong (hŏng kŏng), Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov. , Enesco's international distribution network is a leader in the industry. Enesco's product lines include some of the world's most recognizable brands, including Border Fine Arts, Bratz, Circle of Love, Foundations, Halcyon hal·cy·on n. 1. A kingfisher, especially one of the genus Halcyon. 2. A fabled bird, identified with the kingfisher, that was supposed to have had the power to calm the wind and the waves while it nested on the sea Days, Jim Shore Designs, Lilliput Lane, Pooh & Friends, Walt Disney Classics Collection The Walt Disney Classics Collection is a series of collectible sculptures of Disney characters and scenes. , and Walt Disney Noun 1. Walt Disney - United States film maker who pioneered animated cartoons and created such characters as Mickey Mouse and Donald Duck; founded Disneyland (1901-1966) Disney, Walter Elias Disney Company, among others. Further information is available on Enesco's web site at www.enesco.com. This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. , which reflect management's current assumptions and beliefs and are based on information currently available to management. Enesco has tried to identify such forward-looking statements by use of such words as "expects," "intends," "anticipates," "could," "estimates," "plans," and "believes," and similar expressions, but these words are not the exclusive means of identifying such statements. Such statements are subject to various risks, uncertainties and other factors, which could cause actual results to vary materially from those anticipated, estimated, expected or projected. Important factors that may cause actual future events or results to differ materially and adversely from those described in the forward-looking statements include, but are not limited to: Enesco's success in implementing its comprehensive plan for operating improvement and achieving its goals for cost savings and market share increases; Enesco's success in developing new products and consumer reaction to Enesco's new products; Enesco's ability to secure, maintain and renew popular licenses, particularly our Cherished Teddies, Disney and Jim Shore Designs licenses; Enesco's ability to grow revenues in mass and niche market A niche market also known as a target market is a focused, targetable portion (subset) of a market sector. By definition, then, a business that focuses on a niche market is addressing a need for a product or service that is not being addressed by mainstream providers. channels; Enesco's ability to comply with covenants contained in its credit facility; changes in general economic conditions, as well as specific market conditions; fluctuations in demand for our products; manufacturing lead times; the timing of orders and shipments and our ability to predict customer demands; inventory levels and purchase commitments exceeding requirements based upon forecasts; collection of accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying ; changes in the regulations and procedures affecting the importation of goods into the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. ; changes in foreign exchange rates; price and product competition in the giftware industry; variations in sales channels, product costs or mix of products sold; and, possible future terrorist attacks, epidemics This article is a list of major epidemics. Worldwide Pandemics
The mobile Regional Operations Center (ROC) in Turkey investigates a dam blown up by Kurdish terrorists. . In addition, Enesco operates in a continually con·tin·u·al adj. 1. Recurring regularly or frequently: the continual need to pay the mortgage. 2. changing business environment and does not intend to update or revise the forward-looking statements contained herein, which speak only as of the date hereof here·of adv. Of this. hereof Adverb Formal or law of or concerning this Adv. 1. hereof - of or concerning this; "the twigs hereof are physic" . Additional information regarding forward-looking statement risk factors is contained in Enesco's reports and filings with the Securities and Exchange Commission. In light of these risks and uncertainties, the forward-looking statements contained herein may not occur and actual results could differ materially from those set forth herein. Accordingly, you should not rely on these forward-looking statements as a prediction of actual future results.
ENESCO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
Three Months Ended December 31, 2005 and 2004
(In thousands, except per share amounts)
2005 2004 % Change
--------- --------- ---------
Net revenues $55,970 $69,658 -20%
Cost of sales 39,450 47,365 -17%
--------- ---------
Gross profit 16,520 22,293 -26%
Gross profit % 29.5% 32.0%
Selling, general and administrative
expense 30,750 35,531 -13%
Gain on sale of building - (3,985)
--------- ---------
Operating income (14,230) (9,253) 54%
Interest expense (744) (524) 42%
Interest income 28 59 -53%
Other income (expense), net (168) 169 199%
--------- ---------
Income (Loss) before income taxes (15,114) (9,549) 58%
Income tax benefit (expense) 456 (31,124) -101%
--------- ---------
Net income (loss) $(14,658) $(40,673) -64%
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ENESCO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
For The Years Ended 2005 and 2004
(In thousands, except per share amounts)
2005 2004 % Change
--------- --------- ---------
Net revenues $244,434 $268,967 -9%
Cost of sales 153,935 162,423 -5%
Cost of sales - loss on license
termination 7,713 - 100%
--------- ---------
Gross profit 82,786 106,544 -22%
Gross profit % 33.9% 39.6%
Selling, general and administrative
expense 129,956 127,543 2%
Sale of building (gain) - (3,985)
--------- ---------
Total selling, general and
administrative expense 129,956 123,558
Operating loss (47,170) (17,014) -177%
Interest expense (2,260) (1,148) 97%
Interest income 201 404 -50%
Other income (expense), net (449) (75) 499%
--------- ---------
Loss before income taxes (49,678) (17,833) -179%
Income tax benefit (expense) (4,347) (27,355) -84%
--------- ---------
Net loss $(54,025) $(45,188) -20%
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Loss per share:
Basic:
Net loss ($3.67) ($3.16) -16%
Average shares outstanding 14,739 14,309 -3%
Diluted:
Net loss ($3.67) ($3.16) -16%
Average shares outstanding 14,739 14,821 1%
ENESCO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2005 AND 2004
(In thousands)
ASSETS
2005 2004
--------- ---------
Current Assets:
Cash and equivalents $12,918 $14,646
Accounts receivable, net 42,285 70,526
Inventories 40,659 65,371
Prepaid expenses 3,471 3,310
Deferred income taxes 783 920
-------------------
Total current assets 100,116 154,773
Property, plant and equipment, net 15,504 22,509
Other assets 14,571 16,601
-------------------
Total assets $130,191 $193,883
===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes and loans payable $30,823 $26,354
Accounts payable 15,306 18,680
Income taxes payable 9,005 6,405
Deferred gain on sale of fixed assets 6,358 1,711
Accrued Expenses 14,592 21,628
-------------------
Total current liabilities 76,084 74,778
Long-term liabilities 1,281 9,838
Total shareholders' equity 52,826 109,267
-------------------
Total liabilities and shareholders' equity $130,191 $193,883
===================
ENESCO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
(Unaudited)
(In thousands)
2005 2004
--------- ---------
Operating Activities:
Net loss $(54,025) $(45,188)
Adjustments to reconcile net loss to net cash used
by operating activities 49,639 23,576
--------- ---------
Net cash used by operating activities (4,386) (21,612)
--------- ---------
Investing Activities:
Acquisition, net of cash acquired -- (14,409)
Purchase of property, plant and equipment 809 19,265
Proceeds from sales of property, plant and
equipment (2,348) (4,552)
--------- ---------
Net cash used by investing activities (1,539) 304
--------- ---------
Financing Activities:
Issuance of notes and loans payable 4,599 22,656
Exercise of stock options 322 1,552
--------- ---------
Net cash provided by financing activities 4,921 24,208
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents (724) 1,101
--------- ---------
Increase/(decrease) in cash and cash equivalents (1,728) 4,001
Cash and cash equivalents, beginning of period 14,646 10,645
--------- ---------
Cash and cash equivalents, end of period $12,918 $14,646
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