Department 56 meets Chapter 11

Lenox Group Inc., the Eden Prairie-based giftware and collectibles company whose operations include Department 56, filed for Chapter 11 bankruptcy Monday and said it plans a court-approved sale of its business.

Company officials, who maintain executive offices in Bristol, Pa., could not be reached for comment on how a reorganization might affect operations in Minnesota. Earlier this month the company said it would cut 53 jobs, including 30 in Eden Prairie. A cost-reduction plan begun last year resulted in the closing of a warehouse in Rogers, according to filings in U.S. Bankruptcy Court in New York. The court papers said the company currently has about 1,800 employees.

Lenox blamed its financial troubles in part on the faltering economy, which has especially hurt sales of high-end merchandise such as its fine china and crystal stemware. In addition to Department 56 collectibles and holiday-themed merchandise, the company also makes and sells Lenox, Dansk and Gorham brand tableware.

But the company also said many of its problems were its own making, stemming partly from the 2005 transaction in which Department 56 acquired Lenox for about $204 million and then took the Lenox name.

The deal resulted in burdensome debt, and issues related to combining the companies diverted management's attention from developing new products and effectively running the core business, Lenox said.

In its bankruptcy filings, the company said the Lenox-Department 56 sale transaction was financed with a $275 million senior secured credit facility. As of Sept. 27, Lenox owed $72 million on a $175 million revolving loan agreement arranged in 2007. Lenox also owed about $98.75 million on a $100 million term loan.

Lenox said in the court filings that its sales have dropped by about 10 percent in each of the past two years. Its most recent financial results filed with the Securities and Exchange Commission reported a net loss of $50.7 million as of June 28.

Almost three-quarters of its revenues come from its wholesale business, which sells merchandise to department stores, mass merchants and specialty retailers. The rest comes from its own chain of 30 retail stores, including one at the Mall of America, and direct-mail and telemarketing operations.

The company reported $264 million in assets and $238 million in debt as of Oct. 25. Pension Benefit Guaranty Corp., the government agency that insures pensions, tops the list of creditors in the bankruptcy filing with an unsecured claim of $9.97 million, court filings said.

Local creditors include the Minnetonka advertising firm Kay Cunningham Inc., with a claim of $80,377, and the Minneapolis benefits firm Outsource One, with a claim of $80,372.

The Mall of America also is listed with a lease-related claim of $62,524 for its Department 56 store. A spokesperson for the Bloomington mall said Monday that it has received no word from Lenox on the future of the store, which is still open.

Lenox said it plans to sell its business or merge with another company and is seeking court permission to borrow $85 million to finance its operations while it reorganizes.

The company has been working with a turnaround consultant for almost two years and recently said it would discontinue some Department 56 product lines to focus mostly on its Village Series collectibles, which depict nostalgic scenes, and the Snowbabies line of figurines. In July the company said it was in discussions to sell Department 56 after failing to find a buyer for all of Lenox.

Lenox was delisted from the New York Stock Exchange in May after its market capitalization fell below the $25 million minimum. Since then its stock has traded in the over-the-counter market, with its last trade Monday afternoon at 1 cent a share.

The company said it expected trading to be suspended pending release of more information on its financial condition and reorganization plans.

Susan Feyder • 612-673-1723