Enesco Group, Inc. (NYSE:ENC), a leader in the giftware, and home
and garden decor industries, today announced financial results for
the fourth quarter and year ended December 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
annualized cost savings of $26.7 million. -- Completed product
rationalization 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 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 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 of $1.1 million of Dartington
goodwill and restructuring and severance provisions of $1.0
million, associated with the transition to third-party warehousing
and distribution, and the closure of non-essential showrooms.
Operating loss 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, which subsequently was
leased back under a five-year operating lease. Fourth quarter net
loss was $14.7 million, or ($0.99) per diluted 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 on the ERP system and incremental costs 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 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 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 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 gifts, brand enthusiast 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 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 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 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 to its existing credit facility,
effective March 31, 2006, and reset Enesco's 2006 cumulative
minimum monthly EBITDA 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 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 to arrange a new $75 million
senior secured credit facility, which is to replace the existing
credit facility with Bank of America, as successor to Fleet
National Bank, and LaSalle Bank 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 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 (4:00 p.m. 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," 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 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, 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 Days, Jim Shore Designs, Lilliput Lane,
Pooh & Friends, Walt Disney Classics Collection, and Walt
Disney Company, among others. Further information is available on
Enesco's web site at www.enesco.com. This press release contains
forward-looking statements, 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 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; changes in the regulations and procedures affecting the
importation of goods into the United States; 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,
or acts of war. In addition, Enesco operates in a continually
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. 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. -0- *T 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% ========= ========= 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% ========= =========
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 ========= ========= *T
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