10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2005
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________ to __________.

Commission file number 1-11908

LENOX GROUP INC.
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	13-3684956 (I.R.S. Employer Identification No.)
One Village Place 6436 City West Parkway Eden Prairie, MN (Address of principal executive offices)	55344 (Zip Code)

(952) 944-5600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $.01 per share	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o Accelerated filer x Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of July 1, 2005 (the last trading day of the registrants most recently completed second fiscal quarter) was $140,892,193 (based on the closing price of the registrant’s Common Stock as reported on the New York Stock Exchange on July 1, 2005).

Number of Shares of Common Stock, par value $.01 per share, outstanding as of March 6, 2006: 14,036,337.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s definitive Proxy Statement for the 2006 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K (the “2006 Proxy Statement”) are incorporated by reference in Part III.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

		Page
Part I
Item 1.	Business	1
Item 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	9
Item 2.	Properties	10
Item 3.	Legal Proceedings	12
Item 4.	Submission of Matters to a Vote of Security Holders	12
Part II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 6.	Selected Financial Data	14
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	29
Item 8.	Financial Statements and Supplementary Data	29
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	29
Item 9A.	Controls and Procedures	30
Item 9B.	Other Information	30
Part III
Item 10.	Directors and Executive Officers of the Registrant	31
Item 11.	Executive Compensation	33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33
Item 13.	Certain Relationships and Related Transactions	33
Item 14.	Principal Accountant Fees and Services	33
Part IV
Item 15.	Exhibits and Financial Statement Schedules	34
Signatures		37

PART I
ITEM 1.	BUSINESS

General

Lenox Group Inc. (the “Company”), including its two main operating subsidiaries, D 56, Inc. (“Department 56”) and Lenox, Incorporated (“Lenox”), is a leading designer, distributor, wholesaler and retailer of fine quality tableware, collectible and other giftware products marketed under the Department 56, Lenox, Gorham and Dansk brand names. These products are sold through gift and specialty retailers, department stores, and general merchandise chains, as well as through the Company’s own retail stores and consumer-direct channels of distribution, including Internet, catalog and mail order.

The Company was incorporated in Delaware in 1992 to hold the equity of a Minnesota corporation formed in 1984 under the name “Department 56, Inc.,” which Minnesota corporation has since changed its name to “D 56, Inc.” and continues as one of the Company’s principal operating subsidiaries. On November 14, 2005, the legal name of the Company was changed to “Lenox Group Inc.” The Company’s principal executive offices are located at One Village Place, 6436 City West Parkway, Eden Prairie, MN, 55344. The Company’s telephone number is (952) 944-5600.

The Company makes its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), available free of charge through a direct link to the Securities and Exchange Commission (the “SEC”) on the Company’s corporate website www.lenoxgroupinc.com, as soon as is reasonably practicable after such material is electronically filed with or furnished to the SEC.

This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act. See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward-Looking Statements and Factors Affecting Future Earnings” herein.

Major Acquisition

On September 1, 2005, the Company completed the acquisition of all of the capital stock of Lenox from Brown-Forman Corporation (“Brown-Forman”) for $204.0 million, which included transaction costs of $7.6 million. The acquisition was effected pursuant to a Stock Purchase Agreement, dated July 21, 2005. The acquisition of Lenox added strong, market-leading brands and complementary product lines and distribution channels to the Company’s portfolio. The Company funded the payment of the purchase price and related transaction costs of the acquisition through a $275 million senior secured credit facility consisting of a $175 million revolving credit facility and a $100 million term loan.

Products

The Company is a market leader in quality tabletop, giftware and collectibles. It markets its products primarily under the Department 56, Lenox, Dansk and Gorham brands. Together, these brands represent over 450 years of tabletop and giftware experience.

Our tabletop business consists of a portfolio of consumer brands that have a rich heritage in the domestic market. The Company sells dinnerware, crystal stemware and giftware, stainless steel flatware, and silver-plated and metal giftware under the Lenox and Gorham brands. Dansk is the Company’s contemporary tabletop, housewares and giftware brand. The Company sells premium casual dinnerware and fine china dinnerware, giftware and collectibles under the Lenox trademark, and sterling silver flatware and sterling silver giftware under the Gorham and Kirk Stieff trademarks. The Company believes that it is the largest domestic marketer of fine tabletop products.

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The Department 56 brand is best known for its use in connection with the Village Series of collectible, handcrafted, lighted ceramic and porcelain houses, buildings and related accessories that depict nostalgic scenes. The Company introduces new pieces, limited edition pieces, figurines and other accessories each year to complement and provide continuity to the collections.

The Company offers a wide range of other decorative giftware and home accessory items under the Department 56 brand, including the Company’s Snowbabies line of figurines and holiday and seasonal decorative items. Giftware product lines are developed around either a seasonal or unique design theme. The Company continues to build its general giftware business by developing new product lines and signing license agreements with nationally recognized artists.

The Company introduces new products and refines its product offerings on a regular basis at national and regional trade shows dedicated to the tabletop and giftware industries.

Operating Segments

In connection with the Company’s acquisition of Lenox, the Company redefined its operating segments to include three reportable segments – Wholesale, Retail and Direct. Although the product produced and sold for each segment is similar, the type of customer for the product and the method used to distribute the product are different. As a result of the Lenox acquisition, the Company is in the process of combining and integrating the Lenox and Department 56 business operations into these segments. The segmentation of these operations also reflects how the Company currently reviews the results of these operations. Financial data for the last three fiscal years by segment is set forth in detail in the Management Discussion and Analysis section of this Annual Report on Form 10-K and in Note 15 within the Notes to Consolidated Financial Statements.

The Wholesale Segment

The Company sells it products through a wide range of wholesale channels including department stores, large specialty retailers, mass merchants, national chains and clubs, small independent specialty accounts and other wholesale accounts.

As of December 31, 2005, the Company had unfilled wholesale orders of approximately $17.8 million compared to $3.2 million as of January 1, 2005. The increase in unfilled wholesale orders was due to the acquisition of Lenox. Based upon historical rates, the Company expects approximately 92% of the order backlog as of December 31, 2005 to ship in fiscal 2006 and the remainder to be cancelled.

Approximately 8% of the Wholesale segment’s sales are to one customer, namely Macy’s Home Store, the entity that represents the combination, through a merger in 2005, of Federated Department Stores and the May Department Stores Company.

The Retail Segment

As of February 1, 2006, the Company’s Retail segment operated 36 retail stores, including six stores operated under the Department 56 trade name and 30 stores operated under the Lenox trade name. On September 13, 2005, the Company approved certain consolidation plans for the Lenox subsidiary, including the closing of 31 Lenox retail stores. Such plans for consolidation were contemplated in conjunction with the acquisition on Lenox. As of January 31, 2006, the Company completed the implementation of this store-closing plan, leaving 30 Lenox retail stores in operation.

This segment experiences no significant unfilled orders and is not dependent on a single customer or group of customers.

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The Direct Segment

The Company markets and sells its products directly to consumers through the following methods of direct marketing: (i) traditional direct-to-consumer methods (media advertising, direct mail and telemarketing); (ii) catalogs and (iii) the Company’s various internet sites, including those located at department56.com, lenox.com and dansk.com.

The Lenox subsidiary, acquired by the Company in September 2005, included a longstanding consumer direct business.

This segment experiences no significant unfilled orders and is not dependent on a single customer or group of customers.

Cessation of Time to Celebrate Business

In October 2005, the Company committed to a plan to cease operations of its Time to Celebrate direct selling business. This business marketed giftware and home decor products to consumers through a network of independent sales consultants who sold these products through the home show sales method.

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company recorded Time to Celebrate’s results in continuing operations until the run-off of operations was completed in the fourth quarter of 2005. The Time to Celebrate results have been reclassified into discontinued operations for all periods presented.

Manufacturing & Sourcing

The Company owns and operates two manufacturing facilities in the United States. The Company manufactures its Lenox branded, fine china dinnerware at its plant located in Kinston, NC. Sterling silver flatware under the Gorham and Kirk Stieff brand names is manufactured at the Company’s Pomona, NJ facility.

Clay and feldspar are the principal raw materials used to manufacture china products. Gold and platinum are significant raw materials used to decorate china products. Sand, potash and lead are used in the manufacture of crystal products. Fine silver is the principal raw material used to manufacture sterling flatware products and steel is the principal raw material used to manufacture stainless steel flatware. The Company anticipates that these raw materials will be in adequate supply. However, the acquisition price of gold, platinum, fine silver, and steel is influenced significantly by worldwide economic events and commodity trading.

The Company also sources product from external manufacturers. Of the total value of product sourced in 2005, 95% was imported from abroad, primarily from manufacturing sources located in the Pacific Rim area including the People’s Republic of China (China), Indonesia, Thailand and the Philippines. The Company also imports a portion of its products from sources in India and Europe.

Distribution

The imported products sold by the Company to its wholesale customers, direct response customers and through its Company-owned retail stores are generally shipped by ocean freight from abroad and then by rail or truck to the Company’s distribution centers located in Hagerstown, MD, Langhorne, PA and Rogers, MN. Certain overseas shipments to some wholesale customers are sent directly to those customers. The products manufactured in the Company’s own facilities are sent via commercial trucking lines to its Hagerstown, MD warehouse or directly to its wholesale customers. Shipments from the Company to its wholesale and direct response customers are handled primarily by parcel post or commercial trucking lines.

The Company’s systems maintain order processing from the time a product enters the Company’s system through shipping and ultimate payment collection from its various customers. The Company uses handheld optical scanners and bar coded labels in accepting orders at its wholesale showrooms. In addition, systems for the Company-operated retail stores monitor and transmit to the Company on a daily basis the POS (point of sales) data for those retail stores.

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Seasonality

The Company records its highest wholesale sales during the third and fourth quarters of each year as wholesale customers stock merchandise in anticipation of the holiday season. In addition, the Company records its highest retail and consumer direct sales in the fourth quarter during the peak holiday shopping season. However, the Company can experience fluctuations in quarterly sales and related net income compared with the prior year due to the timing of receipt of product from suppliers and subsequent shipment of product from the Company to customers, as well as the timing of orders placed by customers.

The extended payment terms that the Company provides to some of its wholesale customers create a significant seasonal pattern in its accounts receivable requirements. Due to the seasonal pattern of shipping and accounts receivable collection, the Company generally has greater working capital needs in its second and third quarters and experiences greater cash availability in its first and fourth quarters. The Company typically finances its operations through short-term seasonal borrowings.

Competition

The Company competes generally for the discretionary income of consumers with other producers of tabletop, collectibles, specialty giftware and home decorative accessory products. These areas are affected by, among other things, changing consumer tastes and interests, changing consumer shopping habits, consolidation of channels of distribution and the shift in supply to Asian sources of manufacture.

The tabletop/giftware industry is highly competitive, with a large number of both large and small participants. The Company’s competitors distribute their products through their company-owned retail stores, independent gift retailers, department stores, mass market and specialty chain stores, televised home shopping networks, Internet commerce and mail order houses, and through the home show sales method or other direct response marketing methods.

The Company believes that the principal elements of competition in the tabletop/specialty giftware industry are design, brand loyalty, quality, display and price. The Company believes that its competitive position is enhanced by a variety of factors, including the design, uniqueness, quality and enduring themes of the Company’s products, its in-house design expertise, its reputation among retailers and consumers, its sourcing and marketing capabilities, and the pricing of its products.

Financial Information Relating to Geographical Areas

Approximately 3% of the Company’s total revenue is derived from customers outside the United States. All long-lived assets are located within the United States.

Trademarks and other Proprietary Rights

The Company owns 226 U.S. trademark registrations and has pending eight U.S. trademark applications for registration. These registrations cover the Company’s brand names, logos and important product names. In addition, the Company owns trademark registrations in select foreign countries where the Company’s products are manufactured, marketed and/or sold.

The Company regards its trademarks and other proprietary rights as valuable assets. The registrations for the Company’s trademarks are currently scheduled to be cancelled at various times over the next ten years, but can be maintained and renewed provided that the trademarks are still in use for the goods and services covered by such registrations. The Company has historically renewed its registered trademarks and expects to continue to do so, as business needs dictate.

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Employees

As of February 10, 2006, the Company had 1,620 full-time employees and 680 part-time and seasonal employees in the United States, four employees in Canada, one in Hong Kong and five in China.

Local Union No. 638 of the Teamsters Union represents 50 of the Company’s employees who work at its warehouse facility located in Rogers, MN. Local Union No. 236A of the Glass, Molders, Pottery, Plastics and Allied Workers International Union represents 34 of the Company’s employees who work at its sterling silver manufacturing facility located in Pomona, NJ. The agreements with Local Union No. 638 and Local Union No. 236A expire on December 31, 2007 and October 2, 2006, respectively.

The Company believes that its labor relations are good and has not experienced a work stoppage.

Environmental Matters

The Company is subject to various federal, state and local laws and regulations governing the use, discharge and disposal of hazardous materials.

As a result of the acquisition of Lenox, the Company is responsible for the cleanup and/or monitoring of two environmental sites located in New Jersey pursuant to an Administrative Consent Order and Memorandum of Understanding with the New Jersey Department of Environmental Protection (“NJDEP”). The Company is also responsible for monitoring solid waste management units at its Pomona, NJ manufacturing facility pursuant to a Hazardous & Solid Waste Amendment (“HSWA”) permit with the U.S. Environmental Protection Agency. The Company accrues for losses associated with environmental cleanup obligations when such losses are probable and can be reasonably estimated.

At one of the NJDEP sites there are other potentially responsible parties who bear part of the cost of the cleanup, in which case the Company’s accrual is based on the Company’s share of the total costs. A portion of the cleanup costs with respect to the two NJDEP sites is paid by insurance. The estimated recovery of cleanup costs is recorded as an asset when receipt is deemed probable.

As of December 31, 2005, the Company estimated, based on engineering studies, total remediation and ongoing monitoring costs to be $4.8 million, including the effects of inflation. Accordingly, the Company recorded a liability of approximately $3.3 million in other noncurrent liabilities, which represents the net present value of the estimated future costs discounted at 5.25%. The estimated insurance recovery assets as of December 31, 2005 were $1.8 million and are included in other assets.

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Executive Officers of the Registrant

Susan E. Engel, 59, has been a Director and Chairwoman of the Board of the Company since September 18, 1997, and a Director since February 1996. She has been Chief Executive Officer of the Company since November 13, 1996, and was president and Chief Operating Officer from 1994 to 1996. From 1991 until joining the Company, she was president and CEO of Champion Products, Inc., the athletic apparel division of Sara Lee Corporation. From 1977 until 1991, she was a vice president with Booz, Allen and Hamilton, heading up that company’s eastern retail practice group. Ms. Engel is a public company director of Wells Fargo & Company and SUPERVALU INC. She is Board President of the Guthrie Theater in Minneapolis and serves on the boards of the Minnesota Women’s Campaign Fund and the Board of Overseers of the Carlson School of Management at the University of Minnesota. She is also a member of the President’s Council of Cornell Women at Cornell University and on the Board of Advisors of the Minneapolis League of Women Voters.

Joel D. Anderson, 41, has been President - Consumer Direct for the Company since December 14, 2005. From June 2 until December 14, 2005, he was Executive Vice President-Consumer Direct for the Company. He was Vice President - New Ventures for Toys“R”Us, Inc. beginning in 2001. From 1999 to 2001, Mr. Anderson was employed by Toysrus.com, LLC, serving as that company’s Vice President, General Manager from 2000 to 2001 and as Vice President – Merchandising from 1999 to 2000.

James G. Berwick, 45, has been Executive Vice President - - Strategic Development and Corporate Planning for the Company since September 2005. He was Senior Vice President and Chief Financial Officer for Lenox, Incorporated from February 1, 2004 until September 2005. From August 1, 2002 until January 31, 2004, Mr. Berwick was Senior Vice President - Supply Chain for Lenox. From July 15, 1997 through July 31, 2002, he was Vice President Finance for the Lenox Brands Division of Lenox.

David J. Enright, 38, has been Senior Vice President - Supply Chain for the Company since September 2005. He held the same position at Lenox, Incorporated from April 16, 2004 until September 2005. From January 9, 1995 until April 15, 2004, Mr. Enright was Director - Forecasting and Planning at Lenox.

Louis A. Fantin, 55, has been Senior Vice President, General Counsel and Secretary for the Company since September 2005. He was Senior Vice President, Secretary and Lenox Counsel for Lenox, Incorporated from May 1, 1995 to September 2005. Prior to that, Mr. Fantin held a succession of positions at Lenox, including Vice President, Secretary and Lenox Counsel from October 1, 1994 until April 30, 1995, Vice President, First Assistant General Counsel and Assistant Secretary from May 1, 1990 to September 30, 1994; First Assistant General Counsel and Assistant Secretary from May 1, 1989 to April 30, 1990 and Assistant General Counsel from August 31, 1981 to April 30, 1989.

Branka Hannon, 48, has been Senior Vice President - Human Resources for the Company since September 2005. Ms. Hannon held the same position at Lenox, Incorporated from February 1, 2004 until September 2005. From June 1, 2002 to January 31, 2004, she was Vice President - Organizational Development at Lenox, and from November 2, 2000 until May 31, 2002, Ms. Hannon was Director - Human Resources for the Lenox Collections Division of Lenox.

Lesa Chittenden Lim, 47, was appointed President of Lenox Brands, one of the Company’s principal business units, on March 7, 2006. From 1998 to that date, Ms. Chittenden Lim worked as an independent consultant specializing in strategy development, mergers and acquisitions and marketing and sales effectiveness. She was retained by the Company as a consultant from September 2005 through March 2006 to assist with the integration of Lenox, Incorporated and D 56, Inc., the Company’s two main operating subsidiaries.

Elise M. Linehan, 44, has been Executive Vice President - - Product Development for the Company since June 2, 2005. She has worked for the Company since July 1998. Ms. Linehan was Executive Vice President - Product Development and Retail from December 16, 2003 until June 2, 2005. She was Senior Vice President - - Retail Stores from January 27, 2002 to December 16, 2003, and Vice President - Marketing from June 28, 2001 to January 27, 2002. She was Managing Director of Product Marketing from September 10, 1999 to June 28, 2001. From July 1, 1998 until September 10, 1999, she was Director of Product Marketing.

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Linda J. Miller, 45, has been Acting President of Department 56 since September 30, 2005, a position which she holds through a consultancy arrangement with the Company. In addition, Ms. Miller has been an independent consultant to the Company since January 2001. From February 1998 until December 2000, she was Senior Vice President, Marketing and General Manager for PSC, Inc., a company that develops retail self-checkout systems. From January 1993 to February 1998, Ms. Miller held a succession of positions in business planning and development, marketing and sales planning at the Champion Products division of Sara Lee Corporation.

Gregg A. Peters, 40, has been Vice President - Finance for the Company since December 14, 2005. From March 20, 2002 until December 13, 2005 he was Managing Director – Finance, and was Director - Finance from April 8, 1999 until March 20, 2002. Mr. Peters was Controller from July 1, 1997 until April 8, 1999 and held various financial positions within the Company from April 1993 to June 30, 1997. Prior to joining the Company, Mr. Peters worked for KPMG Peat Marwick from 1989 until 1993.

David H. Royer, 46, has been Vice President - Sales for the Company since December 16, 2003. He was Vice President - Sales Planning and Development for the Company from February 18, 2002 until December 16, 2003. Mr. Royer was Vice President of Sales Development at Frito-Lay, Inc. from March 2001 to February 2002. Prior to that Mr. Royer was Director of Sales for the Midwest North Region of Frito-Lay, Inc. from March 1997 to March 2001.

Louis C. Scala, 50, has been Chief Merchandising and Brand Officer for the Company since September 2005. Prior to that date, Mr. Scala held a succession of positions at Lenox, Incorporated, including Chief Merchandising Officer from February 1, 2005 until September 2005 and President - Brand Management/Chief Merchandising Officer from November 1, 2002 until January 31, 2005. From July 15, 1997 through October 31, 2002, Mr. Scala was the President of the Lenox Brands Division of Lenox.

Timothy J. Schugel, 47, has been Chief Financial Officer and Chief Operating Officer for the Company since September 28, 2005. He was Executive Vice President and Chief Financial Officer for the Company from April 1, 2002 until September 28, 2005. He was Senior Vice President - Sourcing Management and Production Control from January 29, 2001 until April 1, 2002. Mr. Schugel was Vice President of the Company from April 10, 1995 until January 29, 2001.

Kathleen S. Thie, 58, has been Executive Vice President - - Wholesale for the Company since September 2005. She held the same position for Lenox, Incorporated from November 1, 2002 through September 2005. Prior to November 1, 2002, Ms. Thie was Senior Vice President and General Manager - Dinnerware and Giftware for the Lenox Brands Division of Lenox, a position she assumed in July 1998.

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ITEM 1A. RISK FACTORS

Our business faces many risks. Any of the risks discussed below, or elsewhere in this Annual Report on Form 10-K or in our other SEC filings, could have a material impact on our business, financial condition or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations.

Our sales could be negatively impacted if our key customer substantially reduces orders for our products.

With the exception of our largest account, Macy’s Home Stores, our customer base is relatively dispersed. Our sales to this large account, which was formed in 2005 as the result of a merger between Federated Department Stores and the May Department Stores Company accounted for 8% of our net sales for fiscal year 2005 (reflecting four months of Lenox results). If we lose Macy’s Home Stores as an account, our sales and business would be negatively impacted.

The Company’s reliance on foreign manufacturing is subject to inherent risk, which may affect our ability to procure goods and/or procure them in a timely fashion.

Foreign manufacturing and procurement of imports is subject to the following inherent risks: labor, economic and political instability; cost and capacity fluctuations and delays in transportation, dockage and material handling; restrictive actions by governments; nationalizations; the laws and policies of the United States affecting importation of goods (including duties, quota and taxes); international political, military and terrorist developments; and foreign trade and tax laws. Moreover, we cannot predict what relevant political, legal or regulatory changes may occur, or the type or amount of any financial impact on the Company such changes may have in the future.

Our products are subject to customs duties and regulations pertaining to the importation of goods. In the ordinary course of business, we may be involved in disputes with the U.S. Bureau of Customs and Border Protection (U.S. Customs) regarding the amount of duty to be paid, the value of merchandise to be reported or other Customs regulations, which may result in the payment of additional duties and/or penalties, or in the refund of duties to the Company. Since the terrorist attacks of September 11, 2001, U.S. Customs has enacted various security protocols affecting the importation of goods. Such protocols could adversely affect the speed or cost involved in the Company’s receipt of inventory from its overseas vendors.

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The Company’s reliance on manufacturing from sources within China, in particular, is subject to inherent risk, which may affect our ability to procure goods and/or procure them in a timely fashion.

In fiscal year 2005, approximately 81% of our imports were manufactured in China, and we anticipate that such percentage will hold constant or increase for the foreseeable future.

China has joined the World Trade Organization and been accorded permanent “Normal Trade Relations” status by the U.S. government. However, various commercial and legal practices in China, including the handling of intellectual property and certain labor practices, are under review by the U.S. government. China has been designated a Country of Particular Concern (CPC) pursuant to the International Religious Freedom Act of 1998 (IRFA). The IRFA enumerates several specific retaliatory actions that may be taken by the U.S. government, none of which we believe would have a material impact on our business. The IRFA, however, also accords the President broad discretion in fashioning other or additional actions and, due to the breadth of the Presidential powers under the IRFA, we are unable to predict what, if any, action the President could take in the future.

Accordingly, the ability to continue to conduct business with vendors located in China is subject to political uncertainties, the financial impact of which we are unable to estimate. To the extent China may have its exports or transaction of business with U.S. persons subject to political retaliation, the cost of Chinese imports could increase significantly and/or the ability to import goods from China may be materially impaired. In such an event, there could be an adverse effect on the Company until alternative arrangements for the manufacture of our products were obtained on economic, production and operational terms at least as favorable as those currently in effect.

We are subject to risks associated with changes in foreign currency exchange rates.

Fluctuations in currency exchange rates present risks inherent in our method for inventory procurement. Our costs could be adversely affected if the currencies of other countries in which we source product appreciate significantly relative to the U.S. dollar. This could result, for example, from a decision by China to revalue the Renminbi (“RNB”) relative to the U.S. dollar or to allow the RNB to float instead of being pegged to the U.S. dollar at a fixed rate. The Company monitors this risk carefully.

If interest rates on our variable rate debt were to increase, our financial results would be negatively affected.

A principal market risk affecting the Company is the exposure to changes in the interest rates on our variable rate debt. As the Company’s credit facilities bear interest at variable rates, the Company’s results of operations and cash flows will be exposed to changes in interest rates. Based on debt outstanding at December 31, 2005, a 1% increase or decrease in current market interest rates would have an impact of approximately $1.1 million on an annual basis. The Company monitors this risk carefully.

We may encounter litigation that has a material impact on our business.

The Company is involved on an ongoing basis in litigation arising in the ordinary course of business. Trends in litigation may include claims brought by consumers, shareholders, vendors, accounts and/or injured persons in cases relating to antitrust, employment and labor, environmental, negligence and regulatory matters. Litigation trends and the outcome of litigation cannot be predicted with certainty and adverse litigation trends and outcomes could adversely affect the Company’s financial results.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 2. PROPERTIES

Significant properties owned or leased by the Company are as follows:

Owned Facilities

Office Facilities

The Company’s Executive Office (66,400-sq. ft.) including a creative center and a primary corporate showroom located in Eden Prairie, MN.

Manufacturing Facilities

A china dinnerware manufacturing facility (218,000 sq. ft.) servicing the Wholesale, Retail and Consumer Direct segments (which includes a retail store), located in Kinston, NC (the “Kinston Facility”).

Mixed Use Facilities

A manufacturing/office/retail facility (416,000-sq. ft.) servicing the Wholesale, Retail and Consumer Direct segments located in Pomona, NJ (the “Pomona Facility”).

	The Pomona Facility is currently utilized for sterling silver flatware production, as well as certain technical services, customer service and retail store operations. On September 13, 2005, the Company approved certain consolidation plans for its Lenox subsidiary, including the cessation of fine china production at the Pomona Facility and transfer of those operations to the Kinston Facility, commencing on November 14, 2005. Such plans for consolidation were contemplated in conjunction with the acquisition of Lenox.
An office/warehousing/distribution/retail facility (220,000-sq. ft.) servicing the Consumer Direct segment located in Langhorne, PA (the “Langhorne Facility”).
	On December 30, 2005, the Company’s Lenox subsidiary entered into an Agreement of Sale (the “Sale Agreement”) with PREI Wheeler Way Associates, LP (the “Buyer”) for the sale of the Langhorne Facility. Pursuant to the Sale Agreement, the Company agreed to lease back from the Buyer space in the Langhorne Facility for an initial term of two years, subject to earlier termination or renewal for an additional one-year term. The Company anticipates leasing back at least 140,000-sq. ft. for warehousing, distribution and retail store operations for the Consumer Direct segment. The sale (and partial leaseback) of the Langhorne Facility, as described above, is anticipated to close during the third quarter of 2006.

Warehouse and Distribution Facilities

A warehousing and distribution facility (500,000-sq. ft.) servicing the Wholesale and Retail segments located in Hagerstown, MD.

Leased Facilities

Office Facilities

An office facility (91,380-sq. ft.) servicing the Wholesale segment and corporate function located in Lawrenceville, NJ (the “Lawrenceville Facility”).

On December 30, 2005, the Company’s Lenox subsidiary, as tenant, entered into an Agreement of Lease (the “Lease Agreement”) with Island View TCI, L.P., as landlord, relating to an office complex located in Bristol, PA. Pursuant to the Lease Agreement, the Company will lease 126,000-sq. ft. in the building located in Bristol, PA commonly known as “Island View Crossing” (the “Bristol Office Facility”) for a term of 12 years.

During the third quarter of fiscal 2006, the Company intends to vacate the Lawrenceville Facility and to consolidate all operations of the Lawrenceville Facility and the office operations of the Langhorne Facility into the Bristol Office Facility.

10

Warehouse and/or Distribution Facilities

A warehousing and distribution facility (333,700-sq. ft.) servicing the Wholesale, Retail and Consumer Direct segments located in Rogers, MN.

A warehousing facility (45,000-sq. ft.) servicing the Consumer Direct segment located in Bristol Township, PA.

Mixed Use Facilities

A retail/warehousing facility (125,370-sq. ft.) servicing the Wholesale and Retail segments located in South Brunswick, NJ (the “Cranbury Facility”).

Retail Stores

As of February 1, 2006, the Company’s Retail segment operated 36 retail stores located in 19 states, including six stores operated under the Department 56 trade name and 30 stores operated under the Lenox trade name (including the four retail store operations noted above). The retail stores range from 3,100 to 15,000 sq. ft., excluding the retail space in the Cranbury Facility, which is approximately 48,000 sq. ft.

On September 13, 2005, the Company approved certain consolidation plans for the Lenox subsidiary, including the closing of 31 Lenox retail stores. Such plans for consolidation were contemplated in conjunction with the acquisition of Lenox. As of January 31, 2006, the Company completed the implementation of this store-closing plan, leaving 30 Lenox retail stores in operation.

Showrooms

The Company also operates ten showrooms located in Atlanta, GA, Billerica, MA, Chicago, IL, Columbus, OH, Dallas, TX, Los Angeles, CA and New York, NY.

The terms of the above-referenced leases expire at various dates. The Company believes that the facilities are in good condition and are adequate for the business.

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ITEM 3. LEGAL PROCEEDINGS

In August 2004, plaintiffs purporting to represent a class of consumers who purchased tableware sold in the United States filed suit against Federated Department Stores, the May Department Stores Company, Waterford Wedgwood U.S.A., and Lenox, Incorporated in United States District Court for the Northern District of California. In November 2004, plaintiffs filed a consolidated amended complaint alleging that for the period beginning at least as early as May 1, 2001 through the filing of the amended complaint on November 12, 2004, defendants violated Section 1 of the Sherman Act by conspiring to fix prices and to boycott sales to Bed, Bath & Beyond. Plaintiffs seek to recover an undisclosed amount of damages, trebled in accordance with antitrust laws, as well as costs, attorney’s fees and injunctive relief. This matter is currently in the pre-trial discovery phase. The cut-off dates for fact discovery and expert discovery are March 31, 2006 and June 12, 2006, respectively. The court has set August 24, 2006 as the date for filling defendants’ motions for summary judgment and plaintiffs’ motion for class certification. The trial date is scheduled for October 30, 2006.

On May 26, 2004, Ashley Seaberg filed a product liability suit against Department 56, Inc. and Time to Celebrate in United States District Court for the District of Oregon, claiming that a strand of lights from defendant Time to Celebrate started a house fire. On May 16, 2005, the court granted plaintiff’s motion to amend the complaint to add a claim for $10 million in punitive damages. On January 9, 2006, the court denied the Company’s motion for summary judgment on plaintiff’s punitive damages claim and granted plaintiff’s motion for summary judgment on its negligence per se claim. Trial is set for May 2006.

The Company denies the allegations and claims of the cases above and intends to defend the cases vigorously. It is not possible at this time to estimate possible losses or a range of losses, if any, in these lawsuits. However, an adverse result in either of these lawsuits could have a material adverse effect on the Company’s financial position, results of operations and/or cash flows.

In addition to the above lawsuits, the Company is involved in various legal proceedings, claims, and governmental audits in the ordinary course of its business. The Company believes it has meritorious defenses to all proceedings, claims, and audits. Management believes the impact, if any, of these legal proceedings would not be material to the results of operations, financial position or cash flows of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company’s security holders during the last quarter of the year ended December 31, 2005.

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PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “LNX.” The table below sets forth the high and low sales prices for each quarter during the last two fiscal years, as reported by the NYSE.

	High		Low
Fiscal 2005
First quarter	$	17.46	$	15.83
Second quarter		17.79		9.93
Third quarter		14.78		10.28
Fourth quarter		13.46		10.44
Fiscal 2004
First quarter	$	16.20	$	12.55
Second quarter		17.31		14.05
Third quarter		16.69		14.60
Fourth quarter		17.34		14.88

The Company has not declared or paid dividends on its common stock. As a holding company, the ability of the Company to pay cash dividends will depend upon the receipt of dividends or other payments from its subsidiaries. See “Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” below with respect to restrictions under the Company’s credit facilities pertaining to its ability to pay dividends.

As of March 6, 2006, the number of holders of record of the Company’s common stock was 788.

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ITEM 6. SELECTED FINANCIAL DATA

FIVE-YEAR SUMMARY (In thousands, except per share amounts)
YEARS ENDED DECEMBER 31, 2005, JANUARY 1, 2005, JANUARY 3, 2004, DECEMBER 28, 2002, AND DECEMBER 29, 2001

The following selected consolidated financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements and related Notes thereto, included elsewhere herein. Fiscal year 2005, 2004, 2003, 2002, and 2001 results reflect the reclassification of Geppeddo’s and Time to Celebrate’s financial results as discontinued operations.

	December 31, 20051,2			January 1, 20051			January 3, 20041			December 28, 20021			December 29, 20011
STATEMENTS OF INCOME
Net sales	$	330,915		$	162,908		$	174,957		$	190,348		$	188,477
Cost of sales		174,985			76,617			81,069			84,237			85,975
Gross profit		155,930			86,291			93,888			106,111			102,502
Operating expenses:
Selling, general and administrative		123,441			51,175			52,695			60,079			67,587
Operating income from continuing operations		32,489			35,116			41,193			46,032			34,915
Other expense (income):
Interest expense		5,735			493			1,901			3,425			6,998
Litigation settlement3		—			(6,871	)		—			(5,388	)		—
Impairment and equity in losses of minority investment4		—			—			—			—			3,304
Other, net		(744	)		(414	)		(906	)		(349	)		(659	)
Income from continuing operations before income taxes		27,498			41,908			40,198			48,344			25,272
Provision for income taxes		10,146			15,088			14,529			13,581			10,472
Income from continuing operations before cumulative effect of change in accounting principle		17,352			26,820			25,669			34,763			14,800
(Loss) income from discontinued operations, net of tax5		(2,182	)		(3,036	)		(9,261	)		(2,922	)		1,162
Cumulative effect of change in accounting Principle6		—			—			—			(93,654	)		—
Net income (loss)	$	15,170		$	23,784		$	16,408		$	(61,813	)	$	15,962
Income per share from continuing operations:
Basic	$	1.27		$	2.01		$	1.96		$	2.67		$	1.15
Diluted	$	1.26		$	1.98		$	1.94		$	2.65		$	1.15
BALANCE SHEET DATA
Working capital	$	79,326		$	82,294		$	49,424		$	60,864		$	57,153
Total assets		469,928			167,388			142,304			157,184			258,932
Total debt		110,718			—			—			54,000			85,000
Total stockholders’ equity7		161,749			143,757			114,296			88,607			145,855

1	The year ended January 3, 2004 is a 53-week fiscal year whereas all other fiscal years presented are 52-week periods.
2	Effective September 1, 2005, the Company completed the acquisition of Lenox from Brown-Forman.
3	During 2002, the Company received net proceeds (before income taxes) of $11.0 million in settlement of the Company’s litigation against a third party related to the implementation of its information systems. This recovery resulted in other income of $5.4 million and a $5.6 million reduction in net depreciable assets. During 2004, the Company received net proceeds (before income taxes) of $6.9 million in settlement of the Company’s litigation against a third party related to the implementation of its information systems. This recovery was recorded in other income.
4	During 2001, the Company recognized a $3.0 million impairment of the Company’s minority investment in 2-Day Designs, Inc. The impairment charge taken reduced the carrying value of the Company’s minority investment to zero.
5	In December 2005, the Company ceased operations of its Time to Celebrate business. Additionally, during the first quarter of 2004, the Company ceased operations of its Geppeddo seasonal kiosk business. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company reclassified the results of these ceased operations into discontinued operations for all periods presented.
6	During 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. Upon adoption of SFAS No. 142, the Company performed impairment testing and concluded that the goodwill related to the leveraged buy-out of the Company in 1992 was impaired. As a result, the Company recognized a $93.7 million charge to write-down its goodwill.
7	The Company has not declared or paid dividends on its common stock. As a holding company, the ability of the Company to pay cash dividends will depend upon the receipt of dividends or other payments from its subsidiaries.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

STRATEGIC OVERVIEW

Excluding the acquisition of Lenox, the Company’s financial results for 2005 as well as the two prior years were significantly impacted by fundamental changes occurring in the Gift and Specialty account base. In 2005, the Company continued to see substantial attrition of the Gift and Specialty channel, which accounted for over 80% of the Company’s wholesale sales. In addition to this account attrition, on-going accounts have cut back on ordering the Company’s Village product. Due to both account attrition and reduced Village sales with on-going Gift and Specialty dealers, Village product revenue decreased 21% in 2005, which was consistent with the longer term trend.

In response to the changing nature of the Gift and Specialty channel, the Company implemented two strategies designed not only to offset the decline of the Village business but to grow revenues long term. These strategies were 1) expanding the Company’s channels of distribution outside its traditional Gift and Specialty channel, and 2) expanding the Company’s product offering to include year-round gift products. These strategies were pursued both organically, by building upon the Company’s strengths in design and product development to enter new channels and categories, and through acquisition. These strategies are explained in more detail below.

Expanding Channels of Distribution

Wholesale Channels

The Company has adopted a multi-channel wholesale approach to better expose its products and make them more accessible to a broader range of new consumers. New, simpler and less costly Villages, as well as giftware lines were sold to select merchandise chains including Sears and Lowe’s.

Retail Stores

The Company operated six Department 56 retail stores in 2005 to showcase the breadth of its home decorative and celebratory products. These stores are situated in high traffic locations where there is no significant wholesale distribution. The Company plans to open three additional stores in 2006, although appropriate sites have not yet been identified.

Expand Product Offering to Include Year-Round Gift Products

This strategy is to expand the Company’s product offering and reposition the Company from a strong, yet highly seasonal Christmas collectibles business to a Company providing premier home decorative products to celebrate life’s extraordinary moments throughout the year.

This is accomplished through new product offerings, which includes licensed product and well-known artists. Although this has not yet yielded sales growth due to continued channel consolidation, this strategy has begun to reduce the Company’s dependence on Christmas.

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Acquisition Growth

In addition to internal growth, another means of expanded product offering and channels of distribution is through acquisition. Accordingly, the Company looks to acquire businesses that complement its strategy to develop year-round gift products, accelerate its penetration into new markets and new channels as well as leverage its existing channel reach.

On September 1, 2005, the Company acquired Lenox, Incorporated from Brown-Forman Corporation. The Company believes this was a transformational event for the Company not only in terms of executing its dual strategy of expanded distribution and product offering, but also in providing strong brands as a foundation for future growth.

This transaction repositions the Company as an industry leader and a year-round provider of tabletop, gift and collectibles and home décor products. This acquisition has substantially expanded the Company’s product offering to include:

– Fine and casual dinnerware, and serveware

– Glassware and crystal stemware

– Stainless and sterling flatware

In addition, this acquisition augmented the Company’s existing channels of distribution as well as added new channels to include:

Augment Existing Channels	New Channels
-  Department Stores	-  Catalog
-  National Chains	-  Internet
-  Specialty Retailers	-  Direct Mail
-  Club Accounts
-  Retail Stores

The Company is currently in the process of integrating the two businesses to leverage the strengths of each while eliminating redundant costs.

The Company believes that acquisitions will continue to be a means of growth for the Company as it seeks to meet consumer’s needs for tabletop, gift, and collectible and home décor product.

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SUMMARY OF 2005 RESULTS OF OPERATIONS

•            On September 1, 2005, the Company completed the acquisition (“the Acquisition”) of all of the capital stock of Lenox, Incorporated (Lenox) from Brown Forman, Inc. (Brown-Forman). The acquisition of Lenox, which sells products under the Lenox, Dansk, and Gorham brand names, added strong, market-leading brands and complementary product lines and distribution channels to the Company’s portfolio.

•            Income from continuing operations was $17.4 million in 2005 compared to $26.8 million in 2004. Income from continuing operations in 2005 includes the results of operations of Lenox from the acquisition date of September 1, 2005. Income from continuing operations in 2004 included the recovery of $6.9 million in net proceeds (before income taxes) from the settlement of the Company’s litigation against a third party related to the implementation of its information systems in 1999.

•            Excluding the impact of the Lenox acquisition from 2005 results and the recovery from the litigation settlement from 2004 results, income from continuing operations decreased $12.9 million from $22.4 million in 2004 to $9.5 million in 2005, as shown in the table below. The decrease in net income from continuing operations was principally due to an 18% decrease in wholesale sales and a 600 basis point decrease in wholesale gross profit as a percentage of sales. The decrease in wholesale sales was principally due to a reduction in product shipments as a result of the continued contraction experienced in the Gift and Specialty channel. The decrease in wholesale gross profit percentage was primarily due to the Company’s more aggressive pricing of many of its new items and its decision not to pass on cost increases on some of its existing items.

Reconciliation of Non-GAAP Financial Measure
(In millions)

	Year Ended December 31, 2005			Year Ended January 1, 2005
Income from continuing operations, net of tax (GAAP measure)	$	17.4		$	26.8
Income from continuing operations – acquisition, net of tax		(7.9	)		—
Litigation settlement		—			(6.9	)
Income tax effect of litigation settlement		—			2.5
Income from continuing operations – excluding the impact of the acquisition and litigation settlement (non-GAAP measure)	$	9.5		$	22.4
Management believes the non-GAAP measure above provides useful information to investors regarding the Company’s results from continuing operations because it provides a meaningful comparison, on a consistent basis year-over-year, and understanding of the Company’s operating performance for the past two annual periods. This non-GAAP measure should not be considered an alternative to income from continuing operations, which is determined in accordance with GAAP.

•          In October 2005, the Company committed to a plan to cease operations of its Time to Celebrate business. Time to Celebrate ceased operations in December 2005, and in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company has reclassified Time to Celebrate’s results into discontinued operations for all periods presented.

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COMPARISON OF RESULTS OF CONTINUING OPERATIONS FOR 2005 AND 2004

(In millions, except per share amounts)

In connection with the Company’s acquisition of Lenox from Brown-Forman, the Company has redefined its operating segments in accordance with SFAS No. 131 to include three reportable segments – Wholesale, Retail, and Direct. Net sales, gross profit, and specifically identified selling costs are measured for each segment. Expenses not allocated to specific operating segments are reflected in the Corporate category and represent general and administrative costs. Other components of the statement of operations which are classified below income from operations (i.e. interest expense, provision for income taxes, etc.) are not allocated by segment and are discussed separately. In addition, the Company does not account for or report assets, capital expenditures, or certain depreciation and amortization by segment.

	Reconciliation of Non-GAAP Financial Matters
	2005												2004				2003
	Consolidated (GAAP measure)				Lenox adjustment				Department 56 (non-GAAP measure)				Consolidated1 (GAAP measure)				Consolidated1 (GAAP measure)
WHOLESALE:
Net sales		$	217.0			$	92.1			$	124.9			$	153.1			$	166.9
Gross profit			87.6				30.5				57.1				79.1				88.1
Gross profit as a % of net sales			40	%			33	%			46	%			52	%			53	%
Selling expenses			24.1				9.6				14.5				15.5				15.9
Selling expenses as a % of net sales			11	%			10	%			12	%			10	%			10	%
Income from operations			63.5				20.9				42.6				63.6				72.2
RETAIL:
Net sales		$	72.8			$	61.8			$	11.0			$	9.8			$	8.0
Gross profit			42.7				35.2				7.5				7.2				5.8
Gross profit as a % of net sales			59	%			57	%			69	%			74	%			71	%
Selling expenses			23.5				17.0				6.5				6.5				5.4
Selling expenses as a % of net sales			32	%			28	%			59	%			66	%			67	%
Income from operations			19.3				18.2				1.1				0.7				0.3
DIRECT:
Net sales		$	41.1				41.1				—				—				—
Gross profit			25.6				25.6				—				—				—
Gross profit as a % of net sales			62	%			62	%
Selling expenses			17.0				17.0				—				—				—
Selling expenses as a % of net sales			41	%			41	%
Income from operations			8.6				8.6				—				—				—
CORPORATE -
Unallocated general and administrative expenses		$	58.9			$	29.1			$	29.8			$	29.2			$	31.3
CONSOLIDATED:
Net sales		$	330.9			$	195.1			$	135.8			$	162.9			$	174.9
Operating income from continuing operations			32.5				18.6				13.8				35.1				41.2
Other Expense (Income):
Interest expense			5.7				5.5				0.2				0.5				1.9
Litigation settlement			—				—				—				(6.9	)			—
Other, net			(0.7	)			(0.0	)			(0.7	)			(0.4	)			(0.9	)
Income tax expense			10.1				5.3				4.9				15.1				14.5
Income from continuing operations		$	17.4			$	7.9			$	9.5			$	26.8			$	25.7

Management believes the non-GAAP measure above provides useful information to investors regarding the Company’s results from continuing operations because it provides a meaningful comparison and understanding of the Company’s operating performance over the periods presented. This non-GAAP measure should not be considered an alternative to income from continuing operations, which is determined in accordance with GAAP.

¹ Effective September 1, 2005, the Company completed the acquisition of Lenox from Brown-Forman. Therefore, fiscal years 2003, 2004 and the first eight months of fiscal year 2005 do not contain the results of operations of the acquired entity.

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Wholesale

Net sales were up 42% to $217.0 million from $153.1 million in 2004 reflecting the impact of the Acquisition. Excluding the impact of the Acquisition, net sales were down 18% to $124.9 million. This decrease was principally due to a reduction in product shipments as a result of the continued contraction experienced in the Gift and Specialty channel since 1999.

The gross profit percentage was 40% compared to 52% in the prior year reflecting the impact of the Acquisition. The gross profit percentage for the Lenox wholesale business for the year was negatively impacted by an $8.7 million purchase accounting fair market value adjustment related to the write-up of inventory to its estimated selling price less cost of disposal under the purchase method of accounting on the opening balance sheet date. Excluding the impact of the Acquisition, the Company’s gross profit percentage was 46% compared to 52% in 2004. This decrease was primarily due to the Company’s more aggressive pricing of many of its new items and its decision not to pass on cost increases on some of its existing items.

Selling expenses were $24.1 million, or 11% of sales, compared to $15.5 million, or 10% of sales, in the prior year reflecting the impact of the Acquisition. Excluding the impact of the Acquisition, selling expenses were $14.5 million, or 12% of sales compared to $15.5 million, or 10% of sales in the prior year. The increase in selling expense as a percentage of sales was due to certain fixed selling expenses that did not decrease proportionally with the sales decrease.

Operating income from continuing operations decreased $0.1 million to $63.5 million in 2005 from $63.6 million in 2004 reflecting the impact of the Acquisition. Excluding the impact of the Acquisition, operating income from continuing operations decreased $21.0 to $42.6 million in 2005 from $63.6 million in 2004. The decrease in operating income was principally due to the sales decrease in the Gift and Specialty channel and the decline in the gross profit percentage as explained above.

Retail

Net sales were $72.8 million compared to $9.8 million in the prior year reflecting the impact of the Acquisition. Excluding the impact of the Acquisition, net sales were up 12% to $11.0 million. The increase was principally due to a same-store sales increase of 6% and the opening of a new retail store in June 2004 (which operated during the entire year in 2005 but only a portion of 2004). Same-store sales represent a comparison of the sales (during the corresponding weeks of the two fiscal years compared) of the stores included in our same-store sales base. A store first enters our same-store sales base after completing 12 fiscal months of operations. In 2005, there were six stores included in our same-store sales base and one of these stores was included for less than a year.

The gross profit percentage was 59% compared to 74% in the prior year reflecting the impact of the Acquisition. Subsequent to the acquisition date of September 1, 2005, the Lenox retail business was liquidating excess product acquired as part of the Acquisition. The impact of liquidating this excess product normally would have resulted in lower gross margins for the Lenox retail business. However, this impact was offset by the requirement to value Lenox inventory at its estimated selling price less cost of disposal under purchase accounting on the opening balance sheet date. The impact of this purchase accounting adjustment was approximately $5.8 million. Excluding the impact of the Acquisition, the gross margin percentage was 69% compared to 74% in the prior year. The decrease in the gross profit percentage was principally due to higher markdowns and the Company’s more aggressive pricing of many of its new items as discussed under the Wholesale segment above.

Selling expenses were $23.5 million, or 32% of sales, compared to $6.5 million, or 66% of sales in the prior year reflecting the impact of the Acquisition. Excluding the impact of the Acquisition, selling expenses were $6.5 million, or 59% of sales in 2005 compared to $6.5 million, or 66% of sales during 2004. The decrease in selling expense as a percentage of sales was primarily due the relocation of one of the Company’s retail stores and the resulting gain in connection with the buyout of the previous lease.

Operating income from continuing operations increased $18.6 million to $19.3 million in 2005 from $0.7 million in 2004 reflecting the impact of the Acquisition. Excluding the impact of the Acquisition, operating income from continuing operations increased $0.4 million to $1.1 million in 2005 from $0.7 million in 2004.

19

The increase in operating income was due to the increase in net sales described above.

Direct

The Direct business was acquired as part of the Acquisition. Net sales from the Direct business were $41.1 million for the four months ended December 31, 2005. The gross profit percentage was 62%. The gross profit percentage for the Lenox direct business for the year was negatively impacted by a $2.8 million purchase accounting fair market value adjustment related to the write-up of inventory to its estimated selling price less cost of disposal under the purchase method of accounting on the opening balance sheet date. Selling expenses were $17.0 million, or 41% of sales.

Corporate

General and administrative expense was $58.9 million in 2005 reflecting the impact of the Acquisition. Excluding the Acquisition, unallocated general and administrative expense was $29.8 million compared to $29.2 million in 2004.

Interest Expense

Interest expense increased $5.2 million between 2005 and 2004 reflecting the additional financing required to complete the Acquisition.

Litigation Settlement

During 2004, the Company received net proceeds (before income taxes) of $6.9 million in settlement of the Company’s litigation against a third party related to the implementation of its information systems. This recovery was recorded in other income in 2004.

Provision for Income Taxes

The effective income tax rate was 37% in 2005 compared to 36% in 2004. Excluding the impact of the Acquisition on the effective tax rate, the effective income tax rate was 34% in 2005, reflecting a $0.3 million adjustment for the reversal of prior year tax accruals that were no longer necessary. The Company expects its effective income tax rate to be approximately 38% in 2006.

Discontinued Operations

The Company completed the closing of its Time to Celebrate business during the fourth quarter of 2005 and its Geppeddo seasonal kiosk business during the first quarter of 2004. Results for these businesses, which generated losses of $2.2 million and $3.0 million in 2005 and 2004, respectively, have been reclassified as discontinued operations for all periods presented.

COMPARISON OF RESULTS OF CONTINUING OPERATIONS 2004 TO 2003

Wholesale

Net sales decreased $13.8 million, or 8%, to $153.1 million in 2004 from $166.9 million in 2003. The decrease was due to a decrease in product shipments as a result of the continued contraction experienced in the Gift and Specialty channel.

Gross profit decreased $9.0 million, or 10%, to $79.1 million in 2004 from $88.1 million in 2003. Gross profit as a percentage of sales decreased to 52% in 2004 from 53% in 2003. The decrease in gross profit dollars was principally due to the decrease in wholesale net sales. The decrease in gross profit as a percentage of sales was due to a change in the mix of wholesale product shipments from higher margin Village product to lower margin Giftware product, partially offset by lower provisions for both excess product and sales returns and credits.

20

Selling expenses decreased $0.4 million, or 3%, to $15.5 million in 2004 from $15.9 million in 2003. Selling expenses as a percentage of wholesale net sales were 10% in both 2004 and 2003. The decrease in selling expenses in dollars was due to the decrease in wholesale net sales.

Operating income from continuing operations decreased $8.6 million, or 12%, to $63.6 million in 2004 from $72.2 million in 2003. The decrease in operating income was principally due to the decrease in wholesale net sales as explained above.

Retail

Net sales increased $1.8 million, or 23%, to $9.8 million in 2004 from $8.0 million in 2003. Same store sales increased 3% in 2004. In 2004, there were five stores included in our same-store sales base and two of these stores were included for less than a year.

Gross profit increased $1.4 million, or 24%, to $7.2 million in 2004 from $5.8 million in 2003. Gross profit as a percentage of sales increased to 74% in 2004 from 73% in 2003. The increase in gross profit dollars was primarily due to the increase in retail segment sales. The increase in gross profit as a percentage of sales was principally due to the mix of product sales and lower markdowns.

Selling expenses increased $1.1 million, or 20%, to $6.5 million in 2004 from $5.4 million in 2003. Selling expenses as a percentage of retail net sales decreased to 66% in 2004 from 68% in 2003. The increase in selling expenses was due to the addition of two new stores in the fall of 2003 (which were open for a full year in 2004) and the addition of a new store in the summer of 2004.

Operating income from continuing operations increased $0.4 million to $0.7 million in 2004 from $0.3 million in 2003. The increase in income from operations was due to the increase in retail segment sales.

Corporate

General and administrative expenses decreased $2.1 million, or 7%, to $29.2 million in 2004 from $31.3 million in 2003. The decrease in general and administrative expenses was principally due to decreases in depreciation and marketing expenses of $0.9 million and $0.6 million, respectively, partially offset by the $0.7 million charge for severance costs related to staff reductions in the third quarter of 2004.

Interest Expense

Interest expense decreased $1.4 million, or 74%, between 2004 and 2003. The decrease in interest expense was principally due to lower average debt outstanding.

Litigation Settlement

During 2004, the Company received net proceeds (before income taxes) of $6.9 million in settlement of the Company’s litigation against a third party related to the implementation of its information systems. This recovery was recorded in other income in 2004.

Provision for Income Taxes

The effective income tax rate was 36% in both 2004 and 2003.

Discontinued Operations

The Company completed the closing of its Time to Celebrate business during the fourth quarter of 2005 and its Geppeddo seasonal kiosk business during the first quarter of 2004. Results for these businesses have been reclassified as discontinued operations for all periods presented.

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ACQUISITION OF LENOX

As discussed earlier, on September, 1, 2005, the Company completed the acquisition of all of the capital stock of Lenox from Brown-Forman for $204.0 million, which included transaction costs of $7.6 million. The Company funded the payment of the purchase price and related transaction costs of the Acquisition with a $275 million senior secured credit facility consisting of a $175 million revolving credit facility and a $100 million term loan.

The initial purchase price allocation, based on management’s estimates which included the use of independent appraisals which were updated during the fourth quarter of 2005, was as follows:

	Estimated Fair Value
Accounts receivable	$	39,105
Inventories		115,989
Current deferred taxes		5,109
Other current assets		7,080
Property, plant and equipment		78,046
Goodwill		16,695
Trademarks		108,210
Other intangible assets		17,842
Noncurrent deferred taxes		5,555
Other noncurrent assets		4,059
Total assets acquired	$	397,690
Severance and restructuring reserves	$	14,020
Other current liabilities		57,967
Pension obligations		89,414
Postretirement obligations		28,075
Long-term debt		250
Other noncurrent liabilities		3,928
Total liabilities assumed	$	193,654
Net assets acquired	$	204,036

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SEASONALITY

The Company is highly seasonal. It has historically recorded its highest Wholesale segment sales during the third and fourth quarters of each year as wholesale customers stock merchandise in anticipation of the holiday season. In addition, the Company records its highest Retail and Direct segment sales in the fourth quarter during the peak holiday shopping season. However, the Company can experience fluctuations in quarterly sales and related net income compared with the prior year due to the timing of receipt of product from suppliers and subsequent shipment of product from the Company to customers, as well as the timing of orders placed by customers. The Company is not managed to maximize quarter-to-quarter results, but rather to achieve annual objectives designed to achieve long-term growth consistent with the Company’s business strategy.

(In millions, except per share amounts)
	2005											2004
	1st Qtr.			2nd Qtr.		3rd Qtr. 1		4th Qtr. 1		Total		1st Qtr.			2nd Qtr.		3rd Qtr.		4th Qtr.		Total
Net sales	$	19.6		$	36.4	$	99.5	$	175.5	$	330.9	$	19.8		$	48.7	$	52.7	$	41.6	$	162.9
Gross profit		8.9			17.5		48.1		81.4		155.9		10.4			26.5		28.6		20.8		86.3
Income (loss) from continuing operations		(2.2	)		4.5		11.6		3.6		17.4		(1.3	)		13.8		9.8		4.5		26.8
Net income (loss)		(2.6	)		4.1		11.1		2.6		15.2		(3.0	)		13.4		9.2		4.1		23.8
Income (loss) from continuing operations per share assuming dilution		(0.16	)		0.32		0.84		0.26		1.26		(0.10	)		1.02		0.72		0.33		1.98
Net income (loss) per common share assuming dilution		(0.19	)		0.30		0.81		0.19		1.10		(0.22	)		0.99		0.68		0.30		1.76

¹ Effective September 1, 2005 the Company completed the acquisition of Lenox from Brown-Forman. Therefore, the third and fourth quarters of 2005 contain the results of operations of the acquired entity.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary source of cash is the funds generated from operations and its credit facility which is available for working capital and investment needs. Based on current levels of operations, the Company believes its funds generated from operations and its revolving credit facility will be sufficient to finance any working capital needs, capital expenditures, or contractual obligations.

The Company’s cash and cash equivalents declined from $33.7 million at January 1, 2005 to $1.3 million at December 31, 2005 due primarily to financing the Acquisition on September 1, 2005.

Consistent with customary practice in the giftware industry, the Company offers extended payment terms to some of its Wholesale customers. This practice has typically created significant working capital requirements in the second and third quarters that the Company has generally financed with its cash balances and/or seasonal borrowings under its revolving credit facility. The Company’s cash and cash equivalents and short-term investments balances have historically peaked early in the first quarter of the subsequent year, following the collection of Wholesale customer accounts receivable with extended payment terms and cash receipts from the Company’s Retail and Direct operations.

Cash Flows from Operations

Net cash provided by operating activities increased $35.5 million from $24.9 million in 2004 to $60.4 million in 2005. The increase consisted of net cash provided by the operating activities of Lenox of $39.2 million, with the remaining net cash usage of $3.7 million primarily driven by net cash used in the operating activities of discontinued operations.

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Cash Flows from Investing Activities

On September 1, 2005, the Company completed the acquisition of all of the capital stock of Lenox from Brown-Forman for $204.0 million, which included transaction costs of $7.6 million. During 2005, the Company obtained cash of $11.2 million from the sale of available-for-sale securities, which the Company used for working capital purposes and to partially fund the Acquisition.

Capital expenditures in 2005, 2004 and 2003 were $2.2 million (of which $1.9 million was paid and $0.3 million was accrued as of December 31,2005), $2.2 million, and $2.5 million, respectively. We anticipate capital expenditures for 2006 to be approximately $10 to $15 million, primarily for addition of the planned retail stores, capital costs associated with the consolidation of certain of the Company’s office and manufacturing operations, and general maintenance capital.

Cash Flows from Financing Activities

To finance the Acquisition, the Company entered into a new revolving credit facility and a term loan facility. The credit facilities are available to finance the purchase of Lenox, to payoff existing indebtedness under the Company’s old revolving credit facility, and to finance working capital needs. In connection with the new credit facilities, the Company recorded $10.1 million in deferred financing fees, which is included in other assets on the Consolidated Balance Sheets and is being amortized over the lives of the credit facilities. The revolving credit facility expires on September 1, 2010 and the term loan facility expires on September 1, 2011.

The credit facilities contain customary financial conditions and covenants, including restrictions on additional indebtedness, liens, investments, capital expenditures, issuances of capital stock and dividends. The credit facilities also require maintenance of minimum levels of interest coverage and maximum levels of leverage, in each case at the end of each fiscal quarter. The minimum interest coverage ratio (as defined within the credit facility agreements) requires the Company to maintain a minimum ratio of earnings before interest, income taxes, depreciation and amortization (EBITDA) to interest expense over a 12-month period ending on each fiscal quarter. The minimum ratio to be maintained at each quarter-end over the term of the facilities is defined within the credit facility agreements, and ranges from 2.35:1.0 to 3.75:1.0. The maximum leverage ratio (as defined within the credit facility agreements) requires the Company to maintain a maximum ratio of debt (as measured at the end of each fiscal quarter) to EBITDA over a 12-month period ending on each fiscal quarter. The maximum leverage ratio to be maintained at each quarter-end over the term of the facilities is defined within the credit facility agreements, and ranges from 2.0:1.0 to 4.0:1.0. As of December 31, 2005, the Company was in compliance with all material conditions and covenants under the credit facilities.

The credit facilities are secured by a first-priority lien on substantially all of the real and personal property of the Company. In addition, the Company has pledged the common stock of its subsidiaries, direct and indirect, as collateral under the credit facilities, and the Company and its material subsidiaries, direct and indirect, have guaranteed repayment of amounts borrowed under the credit facilities.

The revolving credit facility provides for borrowings up to $175 million, which may be in the form of letters of credit and revolving credit loans. The letters of credit are issued primarily in connection with inventory purchases. The revolving credit facility allows the Company to choose between two interest rate options in connection with its revolving credit loans. The interest rate options are the Alternate Base Rate (as defined) or the Adjusted LIBOR Rate (as defined) plus an applicable margin. The applicable margin ranges from 0% to 0.75% for Alternate Base Rate loans and from 1.75% to 2.5% for Adjusted LIBOR Rate loans.

Borrowings under the revolving credit facility are subject to certain borrowing base limitations. The Company’s borrowing capacity under the revolving credit facility as of December 31, 2005, was $147.0 million and fluctuates based on accounts receivable and inventory levels. The revolving credit facility provides for commitment fees of 0.375% per annum on the daily average of the unused commitment.

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The term loan facility provides for term loans in the aggregate principal amount of up to $100.0 million. The term loan facility allows the Company to choose between two interest rate options in connection with its revolving credit loans. The interest rate options are the Alternate Base Rate (as defined) or the Adjusted LIBOR Rate (as defined) plus an applicable margin. The applicable margin is 2.5% for Alternate Base Rate loans and 3.5% for Adjusted LIBOR Rate loans.

The contractual debt maturity of the long-term debt outstanding on December 31, 2005 is shown in the Contractual Obligations table below. Under the term loan facility, the Company is also obligated to make mandatory prepayments if certain events occur in the future such as asset sales, additional debt issuances, common and preferred stock issuances, and excess cash flow generation.

In conjunction with entering into the new credit facilities, the Company terminated its $75 million revolving credit facility originally entered into in November 2003. Related to this termination, the Company wrote off $0.1 million in unamortized deferred financing fees which were recorded in interest expense in the Company’s Consolidated Statements of Income.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have off-balance sheet arrangements.

CONTRACTUAL OBLIGATIONS

As of December 31, 2005, the Company is obligated to make cash payments in connection with its debt obligations, operating leases, purchase obligations, and royalty guarantees in the amounts listed below. The Company has no off-balance sheet debt or other unrecorded obligations other than the items noted in the following table:

Payments Due (in thousands)
	2006		2007		2008		2009		2010		Thereafter		Total
Revolving Credit Facility1,2		—		—		—		—	$	10,468		—	$	10,468
Long-term Debt2	$	10,000	$	10,000	$	10,000	$	10,000		10,000	$	50,000		100,000
Operating Leases		12,956		10,433		8,505		7,254		4,952		3,872		47,972
Purchase Commitments3		11,050		—		—		—		—		—		11,050
Royalty Guarantees4		1,040		415		25		—		—		—		1,480
Total	$	35,046	$	20,848	$	18,530	$	17,254	$	25,420	$	53,872	$	170,970

1	The Company’s borrowings under the revolving credit facility are classified as current liabilities on the Consolidated Balance Sheets in accordance with Emerging Issues Task Force Issue No. 95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lock-Box Arrangement.
2	In addition to the principal payments on debt included in the summary of significant contractual obligations, the Company will incur interest expense on outstanding variable rate debt. All amounts outstanding under the revolving and term loan credit facilities are variable interest rate debt with weighted average interest rates as of December 31, 2005 of 6.67% and 7.89%, respectively.
3	The Company is committed to pay suppliers of product under the terms of open purchase orders issued in the normal course of business.
4	The Company is committed to pay licensors under the terms of license agreements entered into in the normal course of business.

Total contractual obligations do not include the following:

• Payments made to the Company’s deferred compensation plan – Under this plan, employees may elect to defer a portion of their eligible compensation into the plan. The Company, at its discretion, may also contribute amounts into the plan on behalf of the employees. The Company cannot predict when contributions to and withdrawals from the plan will occur. See Note 12 to the Consolidated Financial Statements.

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• Pension and postretirement obligations – As of December 31, 2005, the Company had accrued pension and postretirement benefit obligations of $115.6 million. Because the specific periods in which those obligations will be funded are not known at this time, no amounts related to these obligations are reflected in the above table. The Company expects to contribute approximately $16 million to its pension plans and approximately $2 million to its postretirement plans in 2006. See Note 10 to the Consolidated Financial Statements.

• Other noncurrent liabilities which principally consist of environmental remediation costs – The Company is responsible for the cleanup and/or monitoring of two environmental sites located in New Jersey. As of December 31, 2005, the Company recorded a liability of approximately $3.3 million in other noncurrent liabilities which represents the net present value of the estimated future costs discounted at 5.25%. Because the liability recorded is based upon management’s estimate and the timing and amount of payments are uncertain no amounts related to these obligations are reflected in the above table. See Note 18 to the Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles of the United States. In connection with the preparation of the financial statements, we are required to make assumptions, make estimates and apply judgment that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. The Company bases its assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time the consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with generally accepted accounting principles. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Management believes the following critical accounting policies require the most difficult, subjective or complex judgments about matters that are inherently uncertain and are therefore particularly important to an understanding of the Company’s results of operations and financial position:

Sales Returns and Credits – An allowance is established for credits related to possible returned or damaged product, markdowns and pricing and shipping discrepancies. The amount of the allowance is based on historical ratios of credits to sales, the historical average length of time between the sale and the credit, and other factors. Changes in customers’ behavior versus historical experience, changes in product damage or defect rates, or changes in the Company’s return policies are among the factors that would result in materially different amounts for this item. Based on 2005 sales and returns and credits (including such returns and credits from the Acquisition from its effective date thru December 31, 2005), a 10% increase or decrease in sales returns and credits would have had an impact of approximately $0.9 million.

Inventory Valuation – Inventory is valued at the lower of cost or net realizable value. The amount is determined by analyzing historical and projected sales information, plans for discontinued products and other factors. The Company procures product based on forecasted sales volume. If actual sales were significantly lower than forecasted sales due to unexpected economic or competitive conditions, it could result in materially higher surplus and discontinued inventories. Based on 2005 inventory write-downs (including such write-downs from the Acquisition from its effective date thru December 31, 2005), a 10% increase or decrease in inventory write-downs would have had an impact of less than $0.4 million.

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Allowance for Doubtful Accounts – The Company records an allowance for estimated uncollectible accounts receivable based on an evaluation of its accounts receivable balance. This evaluation includes a number of factors including the age of the receivable, the financial condition of the customer, the current business environment, and the historical collection experience for customers and consumers of similar background and nature. Additionally, since many of the Company’s wholesale sales have dating terms which come due in November and December, the Company does not have visibility into overdue balances for most of its wholesale customers until the fourth quarter of its fiscal year. Due to the seasonality of the Company’s business, the extended dating terms provided to wholesale customers and the relative size of accounts receivable balances at year–end, it is not uncommon for the Company to experience fluctuations in the provision for bad debt expense from quarter to quarter as the Company refines its estimate. Unexpected changes in the aforementioned factors would result in materially different amounts for this item. In addition, results could be materially different if economic conditions worsened for the Company’s customers. Based on 2005 bad debt write-offs (including such write-offs from the Acquisition from its effective date thru December 31, 2005), a 10% increase or decrease in bad debt write-offs would have had an impact of less than $0.4 million.

Valuation of Long-Lived Assets – Long-lived assets on the Company’s consolidated balance sheet consist primarily of property and equipment. The Company periodically reviews the carrying value of these assets based, in part, upon projections of anticipated undiscounted cash flows. Management undertakes this review when facts and circumstances suggest that cash flows emanating from those assets may be diminished. Any impairment charge recorded reduces earnings. While the Company believes future estimates are reasonable, different assumptions regarding items such as future cash flows and the volatility inherent in markets within which the Company operates could affect evaluations and result in impairment charges against the carrying value of those assets.

Valuation of Goodwill, Trademarks and Other Intangible Assets – The Company evaluates goodwill, trademarks and other intangible assets on a periodic basis. This evaluation relies on assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or related assumptions change, the Company may be required to recognize impairment charges.

Pension and Postretirement Benefits – The Company sponsors various defined benefit pension plans as well as postretirement plans providing retiree health care and retiree life insurance benefits. Benefits are based on such factors as years of service and compensation level during employment. The benefits expected to be paid are expensed over the employee’s expected service. To determine the expected benefits to be paid, the Company has to make assumptions regarding interest rates, return on plan assets, the rate of salary increases, and expected health care trend rates. Actual experience different from these assumptions could result in materially different benefit payments.

Tax Contingencies – The Company is periodically contacted or audited by federal and state tax authorities. These contacts or audits include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various filing positions, the Company records a reserve for estimated probable exposures. The estimate of this reserve contains uncertainty because management must use judgment to estimate the exposure associated with its various filing positions. To the extent the Company does not have to pay taxes for which reserves have been established or is required to pay amounts in excess of its reserves, the Company’s tax rate in a given financial period could be materially impacted.

SUBSEQUENT EVENT

On March 3, 2006, the Company entered into an asset purchase agreement with Willitts Designs International, Inc. (“Willitts”) to acquire certain assets and assume certain liabilities of Willitts. The purchase price will be equal to the historical cost of the assets acquired less the obligations assumed as of the closing date. The net purchase price is estimated to be approximately $3.5 million. In addition to the purchase price, the Company may be required to make additional payments contingent on performance through 2009.

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RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1 to the Consolidated Financial Statements regarding discussion of new accounting standards.

EFFECT OF INFLATION

The Company continually attempts to minimize any effect of inflation on earnings by controlling its operating costs and selling prices. During the past few years, the rate of inflation has been low and has not had a material impact on the Company’s results of operations.

FORWARD-LOOKING STATEMENTS AND FACTORS AFFECTING FUTURE EARNINGS

Certain statements made in this Annual Report on Form 10-K and the documents incorporated by reference in this Annual Report on Form 10-K include forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements regarding the Company’s expected future financial position, results of operations, cash flows, financing plans, business strategy, budgets, tax rates, capital expenditures, competitive positions, growth opportunities, plans and objectives of management, as well as statements containing the words such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,” “should,” “will,” “intend,” “may” and other similar expressions, are forward-looking statements. Forward-looking statements do not relate strictly to historical or current facts.

Such forward-looking statements are inherently uncertain, and you must recognize that actual results may differ materially from forward-looking statements as a result of a variety of factors, including, without limitation, those discussed below and under Item 1A of this Annual Report on Form 10-K. Such forward-looking statements are based on management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company’s actual results or performance to differ materially from any future results or performance expressed or implied by such forward-looking statements. These statements involve risks, uncertainties and other factors discussed below and under Item 1A of this Annual Report on Form 10-K or described from time to time in the Company’s filings with the SEC.

Such factors include, among other things, the following: consumer acceptance of new products; changing public and consumer taste; product development efforts; identification and retention of sculpting and other talent; shift in product mix; completion of third-party product manufacturing; customer reorders and order cancellations; the volume, number, mix and timing of customer orders, reseller inventory policies, and the Company’s ability to forecast and fulfill changes in anticipated product demand; control of operating expenses; collection of accounts receivable; management of inventory; changes in the cost and availability of cargo transportation, dockage and materials handling with respect to both the importation of inventory and the shipment of product to the Company’s customers; the effect of regulations and operating protocols affecting the importation of goods into the United States, including security measures adopted by U.S. Customs in light of heightened terrorism; changes in foreign exchange rates; 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, Company-owned retail expansion, 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; industry, general economic, regulatory, transportation, labor, and international trade and monetary conditions; adverse weather conditions, natural disasters (such as hurricanes and epidemics), terrorist activities and international political/military developments which may, among other things, impair performance at the retail stores of the Company and its customers; and actions of competitors. 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.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion of the Company’s exposure to market risk contains “forward-looking statements” that involve risks and uncertainties. The information presented has been prepared utilizing certain assumptions considered reasonable in light of information currently available to management. Given the unpredictability of interest rates as well as other factors, actual results could differ materially from those projected in such forward-looking information.

The Company’s market risks relate primarily to changes in interest rates and currency exchange rates. The Company’s interest rate risk relates to its debt outstanding. The Company’s credit facilities bear interest at variable rates. As a result of this variable interest rate debt, the Company’s results of operations and cash flows will be exposed to changes in interest rates. Based on debt outstanding at December 31, 2005, a 1% increase or decrease in current market interest rates would have an impact of approximately $1.1 million on an annual basis.

Less than 2% of the Company’s wholesale sales and less than 2% of the Company’s sourced product purchases in fiscal year 2005 were denominated in a foreign currency. Based on these sales and product purchases, a 10% increase or decrease in the foreign currency exchange rates would have an impact of less than $1.0 million. At this time, the Company does not use derivative instruments to manage the exchange rate risk.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Consolidated Financial Statements on page F-5 and quarterly data under the caption “Seasonality” within “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

ITEM 9.          CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that those disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

Management’s Report on Internal Control over Financial Reporting on Page F-1 of this 2005 Annual Report on Form 10-K is incorporated herein by reference.

Report of Independent Registered Public Accounting Firm

The Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting on page F-2 of this 2005 Annual Report on Form 10-K is incorporated herein by reference.

Changes in Internal Control over Financial Reporting

During the fourth quarter, there has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Board of Directors

SUSAN E. ENGEL serves as Chairwoman of the Board and also as Chief Executive Officer of the Company. Ms. Engel’s biographical information is set forth under “Executive Officers of the Registrant” in Item 1 of this Annual Report on Form 10-K.

JAMES E. BLOOM, 63, has been our director since November 2001. Mr. Bloom is a private investor and was a business consultant with Bloom Consulting, Inc. from July 2001 to December 2005. From January 1995 to June 2001, he was Vice President - Sales & Marketing with Charter Systems LLC, a software developer of business communications solutions for the telecommunications industry. Mr. Bloom has held a number of sales, marketing and managerial positions in the business technology area with various companies, starting his career with IBM Corporation in 1967.

CHARLES N. HAYSSEN, 55, has been our director since March 2004. Mr. Hayssen has been Chief Operating Officer of AllOver Media, Inc., an out-of-home media company, since August 2004. Mr. Hayssen was a private investor from April 2004 to August 2004, and Chief Financial Officer of ThinkEquity Partners LLC, an equity capital markets firm, from September 2002 to April 2004. Prior to September 2002, Mr. Hayssen was a private investor from November 2001 to September 2002, and Chief Financial Officer of Access Cash International L.L.C. from February 2000 to November 2001. Previously, Mr. Hayssen held a number of positions over a nineteen-year career with Piper Jaffray Companies Inc., including three years as Chief Information Officer, two years as Chief Operating Officer of Piper Capital Management and eight years as Chief Financial Officer.

STEWART M. KASEN, 66, has been our director since December 2000. Mr. Kasen has been President of S&K Famous Brands, Inc., a retailer of menswear, since April 2002. He was President of Schwarzschild Jewelers, a retail jewelry chain, from September 2001 to April 2002. From October 1999 until September 2001, Mr. Kasen was a consultant to the retail industry and a private investor. He was Chairman, President and Chief Executive Officer of Factory Card Outlet Corp., a specialty retailer, from May 1998 until October 1999. Mr. Kasen is a public company director of S&K Famous Brands, Inc., K2, Inc., Markel Corp., and Retail Holdings N.V.

REATHA CLARK KING, 67, has been our director since May 2002. Dr. King was President and Executive Director of General Mills Foundation from November 1988 until May 2002, and served as Chairperson of the Foundation’s Board of Trustees from May 2002 until June 2003. She performs consulting work in organizational governance and philanthropic programs. Currently, Dr. King is a Senior Advisor for the Council on Foundations in Washington, D.C. Prior to joining General Mills Foundation, Dr. King held a variety of scientific and educational positions. She is a public company director of Exxon Mobil Corporation and Wells Fargo & Company.

JOHN VINCENT (VIN) WEBER, 53, has been our director since February 1993. Mr. Weber served in the United States House of Representatives from 1981 to 1993, representing Minnesota’s 2nd Congressional District. Since 1994, Mr. Weber has been a Partner of Clark & Weinstock, Inc., providing strategic advice to institutions interested in issues before the legislative and executive branches of the federal government. Mr. Weber is Chairman of the National Endowment for Democracy, a private, nonprofit organization created in 1983 to strengthen democratic institutions around the world through non-governmental efforts. He was co-director of the Domestic Policy Project of the Aspen Institute and currently serves as a full Trustee for the Institute. He also is a fellow at the Humphrey Institute at the University of Minnesota, where he is a co-director of the Policy Forum (formerly the Mondale Forum).

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Executive Officers

Information regarding the Company’s executive officers is set forth under “Executive Officers of the Registrant” in Item 1 of this Annual Report on Form 10-K.

Compliance with Section 16(a) of the Exchange Act

Information required by this Item will be included in the 2006 Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Compliance,” and such information is incorporated herein by reference.

Audit Committee Members and Audit Committee Financial Expert

Information required by this Item will be included in the 2006 Proxy Statement under the headings “Corporate Structure and Audit Committee” and such information is incorporated herein by reference.

Code of Ethics and Business Conduct

The Company has in place a Code of Ethics and Business Conduct that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer, all officers, directors, and employees of the Company and all of its subsidiaries. The Code of Ethics and Business Conduct may be accessed free of charge by visiting the Company’s investor relations website at www.lenoxgroupinc.com by clicking on “Corporate Governance”.

The Company intends to post on its website any amendment to, or waiver from, a provision of the Code of Ethics and Business Conduct that applies to its principal executive officer, principal financial officer, principal accounting officer, and other persons performing similar functions, in accordance with the rules of the Securities and Exchange Commission and the New York Stock Exchange.

Certifications

The certifications of the Chief Executive Officer and the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002, regarding the quality of the Company’s disclosure in this Annual Report on Form 10-K, have been filed as exhibits 31.1 and 31.2 to this Annual Report on Form 10-K. The Company’s Annual CEO Certification as required by NYSE Rule 303A.12(a) has been submitted to the New York Stock Exchange.

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ITEM 11. EXECUTIVE COMPENSATION

Information required by this Item will be included in the 2006 Proxy Statement “Director Compensation,” “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” and such information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required by this Item will be included in the 2006 Proxy Statement in the section captioned “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management,” and such information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this Item will be included in the 2006 Proxy Statement in the section captioned “Certain Relationships and Related Transactions” and such information is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this Item will be included in the 2006 Proxy Statement in the section captioned “Principal Accountant Fees and Services” and such information is incorporated herein by reference.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The Exhibits, and other documents filed as part of this Annual Report on Form 10-K, including those exhibits which are incorporated by reference herein, are:

		Page
1.	Financial Statements
	Management’s Report on Internal Control over Financial Reporting	F-1
	Report of Independent Registered Public Accounting Firm – Internal Control over Financial Reporting	F-2
	Report of Independent Registered Public Accounting Firm – Consolidated Financial Statements	F-4
	Consolidated Balance Sheets as of December 31, 2005 and January 1, 2005	F-5
	For the years ended December 31, 2005, January 1, 2005, and January 3, 2004:
	Consolidated Statements of Income	F-6
	Consolidated Statements of Cash Flows	F-7
	Consolidated Statements of Stockholders’ Equity	F-8
	Notes to Consolidated Financial Statements	F-9
2.	Financial Statement Schedule
	II. Valuation and Qualifying Accounts	S-1
	All other schedules have been omitted because they are not applicable.
3.	Exhibits
	Exhibits required in connection with this Annual Report on Form 10-K are listed below.

Exhibit		Description
	3.1	Restated Certificate of Incorporation of the Company. *
	3.2	Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of the Company. (Incorporated herein by reference to Exhibit 1.1 of the Company’s Amendment No. 1, dated May 12, 1997, to Registration Statement on Form 8-A, dated April 23, 1997. SEC File No. 1-11908.)
	3.3	Restated By-Laws of the Company. *
	4.1	Specimen Form of Company’s Common Stock Certificate. (Incorporated herein by reference to Exhibit 4.1 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1994. SEC File No. 1-11908.)
	4.2	Rights Agreement (including Exhibits A, B and C thereto) dated as of April 23, 1997, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent. (Incorporated herein by reference to Exhibit 1 of the Company’s Registration Statement on Form 8-A, dated April 23, 1997. SEC File No. 1-11908.)
	4.3	First Amendment dated as of March 13, 1998, to Rights Agreement between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent. (Incorporated herein by reference to Exhibit 1 to the Company’s Amendment No. 2, dated March 16, 1998, to Registration Statement on Form 8-A, dated April 23, 1997. SEC File No. 1-11908.)
	4.4	Amendment No. 2 to Rights Agreement, dated as of February 25, 1999, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent. (Incorporated herein by reference to Exhibit 99.2 of the Company’s Current Report on Form 8-K dated February 26, 1999. SEC File No. 1-11908.)
	4.5	Letter Agreement Adopting the Rights Agreement, dated as of March 14, 2005, between the Company and Wells Fargo Shareholder Services, as Rights Agent. (Incorporated herein by reference Exhibit 4.5 of the Company’s Report on Form 10-K dated March 17, 2005. SEC File No. 1-11908.)
	10.1	Lease Agreement dated April 14, 1999 between D 56, Inc. and Ryan Companies US, Inc. pertaining to the Rogers warehouse and distribution facility. (Incorporated herein by reference to Exhibit 10.4 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2000. SEC File No. 1-11908.)
	10.2	Guaranty of Lease dated April 14, 1999 between the Company and Ryan Companies US, Inc. pertaining to the Rogers warehouse and distribution facility. (Incorporated herein by reference to Exhibit 10.5 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2000. SEC File No. 1-11908.)
	10.3	First Amendment to Lease Agreement between D 56, Inc. and Ryan Companies US, Inc. pertaining to the Rogers warehouse and distribution facility, dated April 28, 2000. (Incorporated herein by reference to Exhibit 10.3 of the Company’s Report on Form 10-K dated March 17, 2005. SEC File No. 1-11908.)
	10.4	Second Amendment to Lease Agreement between D 56, Inc. and Ryan Companies US, Inc. pertaining to the Rogers warehouse and distribution facility, dated January 23, 2003. (Incorporated herein by reference to Exhibit 10.4 of the Company’s Report on Form 10-K dated March 17, 2005. SEC File No. 1-11908.)
	10.5	Credit Agreement, dated as of November 25, 2003 among the Company, the Bank parties thereto and Bank One NA as LC Issuer, Swing Line Lender and as Administrative Agent. (Incorporated herein by reference to Exhibit 10.1 of the Company’s 8-K filed on December 1, 2003. SEC File No. 1-11908.)

34

10.6	Guarantee and Collateral Assignment, dated as of November 25, 2003, by the Company and certain of its direct or indirect subsidiaries in favor of Bank One, NA (Incorporated herein by reference to Exhibit 10.2 of the Company’s 8-K filed on December 1, 2003. SEC File No. 1-11908.)
10.7	Form of Indemnification Agreement between the Company and its directors and executive officers. (Incorporated herein by reference to Exhibit 10.24 of the Company’s Registration Statement on Form S-1, No. 33-61514.)
10.8	Department 56, Inc. 1992 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.1 of the Company’s Registration Statement on Form S-1, No. 33-61514.) †
10.9	Department 56, Inc. 1993 Stock Incentive Plan. (Incorporated herein by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2001. SEC File No. 1-11908.) †
10.10	Department 56, Inc. 1995 Stock Incentive Plan. (Incorporated herein by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2001. SEC File No. 1-11908.) †
10.11	Department 56, Inc. 1997 Stock Incentive Plan. (Incorporated herein by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2001. SEC File No. 1-11908.) †
10.12	Department 56, Inc. 2004 Cash Incentive Plan. (Incorporated herein by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004. SEC File No. 1-11908.) †
10.13	Department 56, Inc. 2004 Stock Incentive Plan. (Incorporated herein by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004. SEC File No. 1-11908.) †
10.14	Form of Executive Stock Option Agreement in connection with Department 56, Inc. 1992 Stock Option Plan, Department 56, Inc. 1993 Stock Incentive Plan, Department 56, Inc. 1995 Stock Incentive Plan, and Department 56, Inc. 1997 Stock Incentive Plan. (Incorporated herein by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2000. SEC File No. 1-11908.) †
10.15	Form of Performance – Accelerated Vesting Stock Option Agreement in connection with Department 56, Inc. 1993, 1995 and 1997 Stock Incentive Plans. (Incorporated herein by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2000. SEC File No. 1-11908.) †
10.16	Forms of Letter Agreement between the Company and its executive officers. (Incorporated herein by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002. SEC File No. 1-11908.) †
10.17	Form of Department 56, Inc. Restricted Stock Agreement. (Incorporated herein by reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2001. SEC File No. 1-11908.) †
10.18	Form of Department 56, Inc. 2001 Non-Officer Stock Option Plan. (Incorporated herein by reference to Exhibit 10.17 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2001. SEC File No. 1-11908.) †
10.19	Asset Purchase Agreement By and Among Department 56, Inc., Axis Holdings Corporation, Axis Corporation, All Shareholders of Axis Corporation, and Kirk Willey in the Capacity of Shareholders’ Representative. (Incorporated herein by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2001. SEC File No. 1-11908.) †
10.20	Letter Agreement between Department 56, Inc. and David Dewey, dated December 15, 2003. (Incorporated herein by reference to Exhibit 10.18 of the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004. SEC File No. 1-11908.) †
10.21	Separation Agreement and General Release between Department 56, Inc. and David Weiser, dated November 9, 2004. (Incorporated herein by reference to Exhibit 10.21 of the Company’s Report on Form 10-K dated March 17, 2005. SEC File No. 1-11908.) †
10.22	Form of Stock Option Agreement for Officers under the Department 56, Inc. 2004 Stock Incentive Plan. (Incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed March 14, 2005. SEC File No. 1-11908.) †
10.23	Form of Performance Share Agreement under the Department 56, Inc. 2004 Stock Incentive Plan. (Incorporated herein by reference to Exhibit 10.2 of the Company’s Form 8-K filed March 14, 2005. SEC File No. 1-11908.) †
10.24	Form of Stock Option Agreement for Directors under the Department 56, Inc. 2004 Stock Incentive Plan. (Incorporated herein by reference to Exhibit 10.3 of the Company’s Form 8-K filed March 14, 2005. SEC File No. 1-11908.) †
10.25	Form of Restricted Stock Agreement under the Department 56, Inc. 2004 Stock Incentive Plan. (Incorporated herein by reference to Exhibit 10.4 of the Company’s Form 8-K filed March 14, 2005. SEC File No. 1-11908.) †
10.26	Department 56, Inc. Executive Nonqualified Excess Plan Adoption Agreement, dated February 17, 2005, and Plan Document. (Incorporated herein by reference to Exhibit 10.26 of the Company’s Report on Form 10-K dated March 17, 2005. SEC File No. 1-11908) †
10.27	Stock Purchase Agreement, dated as of July 21, 2005, by and between Department 56, Inc. and Brown-Forman Corporation. (Incorporated herein by reference to Exhibit 10.1 of the Company’s Report on Form 8-K, filed on July 25, 2005. SEC File No. 1-11908.)
10.28	Revolving Credit Agreement dated as of September 1, 2005, among D 56, Inc., Department 56 Retail, Inc., Time to Celebrate Inc. and Lenox, Incorporated, as Borrowers, Department 56, Inc. and the other Guarantors party thereto, as Guarantors, the Lenders party thereto, UBS Securities LLC, as Arranger and Co-Syndication Agent, UBS AG, Stamford Branch, as Issuing Bank and Administrative Agent, UBS Loan Finance LLC, as Swingline Lender, JP Morgan Chase Bank, N.A., as Collateral Agent and Co-Syndication Agent, and Wells Fargo Foothill, LLC and Bank of America, N.A. as Co-Documentation Agents. (Incorporated herein by reference to Exhibit 10.1 of the Company’s Report on Form 8-K, filed on September 6, 2005, SEC File No. 1-11908.)
10.29	Term Loan Credit Agreement dated as of September 1, 2005, among D 56, Inc., Department 56 Retail, Inc., Time to Celebrate, Inc. and Lenox, Incorporated, as Borrowers, Department 56, Inc. and the other Guarantors party thereto, as Guarantors, the Lenders party thereto, UBS Securities LLC, as Sole Arranger and Syndication Agent, UBS AG,Stamford Branch, as Administrative Agent and Collateral Agent, and Wells Fargo Foothill, LLC, as Documentation Agent. (Incorporated herein by reference to Exhibit 10.2 of the Company’s Report on Form 8-K, filed on September 6, 2005, SEC File No. 1-11908.)

35

10.30	Security Agreement by D 56, Inc., Department 56 Retail, Inc., Time To Celebrate, Inc. and Lenox, Incorporated, as Borrowers, Department 56, Inc., and the other Guarantors party thereto, as Guarantors and UBS AG, Stamford Branch, as Administrative Agent, dated as of September 1, 2005. (Incorporated herein by reference to Exhibit 10.3 of the Company’s Report on Form 8-K, filed on September 6, 2005, SEC File No. 1-11908.)
10.31	Security Agreement by D 56, Inc., Department 56 Retail, Inc., Time To Celebrate, Inc. and Lenox, Incorporated, as Borrowers, Department 56, Inc., and the other Guarantors party thereto, as Guarantors and UBS AG, Stamford Branch, as Administrative Agent, dated as of September 1, 2005. (Incorporated herein by reference to Exhibit 10.4 of the Company’s Report on Form 8-K, filed on September 6, 2005, SEC File No. 1-11908.)
10.32	Letter Agreement, dated September 26, 2005, between Linda Jones Miller and Department 56, Inc. (Incorporated herein by reference to Exhibit 10.1 of the Company’s Report on Form 8-K, filed on September 28, 2005, SEC File No. 1-11908.)†
10.33	Form of Retention Agreement between Lenox, Inc. and certain executive officers. (Incorporated herein by reference to Exhibit 10.1 of the Company’s Report on Form 8-K, filed on November 2, 2005, SEC File No. 1-11908.) †
10.34	Form of Letter Agreement between Department 56, Inc. and certain executive officers. (Incorporated herein by reference to Exhibit 10.2 of the Company’s Report on Form 8-K, filed on November 2, 2005, SEC File No. 1-11908.) †
10.35	Form of Restricted Stock Agreement for certain executive officers under the Department 56 2004 Stock Incentive Plan. (Incorporated herein by reference to Exhibit 10.3 of the Company’s Report on Form 8-K, filed on November 2, 2005, SEC File No. 1-11908.) †
10.36	2005 Form of Stock Option Agreement for Officers under the Lenox Group Inc. 2004 Stock Incentive Plan. (Incorporated herein by reference to Exhibit 10.1 of the Company’s Report on Form 8-K, filed on December 14, 2005, SEC File No. 1-11908.) †
10.37	2005 Form of Stock Option Agreement for Directors under the Lenox Group Inc. 2004 Stock Incentive Plan. (Incorporated herein by reference to Exhibit 10.2 of the Company’s Report on Form 8-K, filed on December 14, 2005, SEC File No. 1-11908.) †
10.38	Agreement of Lease, dated as of December 30, 2005, by and between Island View TCI, L.P. and Lenox, Incorporated. (Incorporated herein by reference to Exhibit 10.1 of the Company’s Report on Form 8-K, filed on December 30, 2005, SEC File No. 1-11908.)
10.39	Agreement of Sale, dated as of December 30, 2005, by and between PREI Wheeler Way Associates, LP and Lenox, Incorporated. (Incorporated herein by reference to Exhibit 10.2 of the Company’s Report on Form 8-K, filed on December 30, 2005, SEC File No. 1-11908.)
21.1	Subsidiaries of the Company. *
23.1	Consent of Independent Registered Public Accounting Firm. *
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1	Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. *

†	Management contract or compensatory plan.
*	Filed herewith.

36

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	LENOX GROUP INC.
Date: March 16, 2006	By:	/s/ SUSAN E. ENGEL
		Susan E. Engel
		Chairwoman of the Board
		and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Capacity in which signed	Date
/s/ SUSAN E. ENGEL	Chairwoman of the Board and	March 16, 2006
	Chief Executive Officer
Susan E. Engel	(Principal Executive Officer)
/s/ TIMOTHY J. SCHUGEL	Chief Financial Officer and	March 16, 2006
	Chief Operating Officer
Timothy J. Schugel	(Principal Financial Officer)
/s/ GREGG A. PETERS	Vice President of Finance and	March 16, 2006
	Principal Accounting Officer
Gregg A. Peters	(Principal Accounting Officer)
/s/ JAMES E. BLOOM	Director	March 16, 2006
James E. Bloom
/s/ STEWART M. KASEN	Director	March 16, 2006
Stewart M. Kasen
/s/ DR. REATHA CLARK KING	Director	March 16, 2006
Dr. Reatha Clark King
/s/ CHARLES N. HAYSSEN	Director	March 16, 2006
Charles N. Hayssen
/s/ JOHN V. WEBER	Director	March 16, 2006
John V. Weber

37

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Lenox Group Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control system was designed to provide reasonable assurance to management and the board of directors regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.

Based on this assessment and those criteria, management believes the Company’s internal control over financial reporting was effective as of December 31, 2005. Management has excluded from its assessment the internal control over financial reporting at Lenox, Inc. which was acquired on September 1, 2005 and whose financial statements reflect total assets and total revenues constituting 75 percent and 59 percent, respectively, of the related consolidated financial statement amounts of the Company as of and for the year ended December 31, 2005.

The Company’s independent auditors have issued an attestation report on management’s assessment of the Company’s internal control over financial reporting. This report appears on the following page.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Internal Control over Financial Reporting

To the Board of Directors and Stockholders of
    Lenox Group Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Controls over Financial Reporting, that Lenox Group Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). As described in Management’s Report on Internal Controls over Financial Reporting, management excluded from their assessment the internal control over financial reporting at the Lenox, Inc. business acquired on September 1, 2005 and whose financial statements reflect total assets and revenues constituting 75 percent and 59 percent, respectively, of the related Consolidated financial statement amount as of and for the year ended December 31, 2005. Accordingly, our audit did not include the internal control over financial reporting at the Lenox, Inc. business. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

F-2

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in the COSO Framework. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in the COSO Framework.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2005, of the Company and our report dated March 16, 2006, expressed an unqualified opinion on those financial statements and financial statement schedule.

Minneapolis, Minnesota
March 16, 2006

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Consolidated Financial Statements

To the Board of Directors and Stockholders of
   Lenox Group Inc.:

We have audited the accompanying consolidated balance sheets of Lenox Group Inc. and subsidiaries (the “Company”) (formerly Department 56, Inc.) as of December 31, 2005 and January 1, 2005 and the related consolidated statements of income, cash flows, and stockholders’ equity for the years ended December 31, 2005, January 1, 2005, and January 3, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2005 and January 1, 2005, and the results of their operations and their cash flows for the years ended December 31, 2005, January 1, 2005 and January 3, 2004, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 16, 2006 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Minneapolis, Minnesota
March 16, 2006

F-4

LENOX GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

AS OF DECEMBER 31, 2005 AND JANUARY 1, 2005

	2005			2004
ASSETS
Current assets:
Cash and cash equivalents	$	1,279		$	33,743
Short-term investments		—			11,150
Accounts receivable, net of allowances of $13,534 and $6,403, respectively		55,563			28,488
Inventories		94,346			13,581
Deferred taxes		13,380			4,304
Other current assets		8,411			3,045
Current assets of discontinued operations		—			2,430
Total current assets		172,979			96,741
Property and equipment, net		71,428			15,708
Assets held for sale		17,018			—
Goodwill, net of accumulated amortization of $38,708		53,769			37,074
Trademarks, net of accumulated amortization of $4,139		121,971			13,761
Other intangibles, net of accumulated amortization of $3,510 and $2,049, respectively		17,037			656
Marketable securities		2,449			2,930
Other assets		13,277			293
Noncurrent assets of discontinued operations		—			225
	$	469,928		$	167,388
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	10,000
Borrowings on revolving credit facility		10,468
Accounts payable		31,270		$	6,028
Accrued compensation and benefits payable		16,538			5,303
Income taxes payable		6,590			1,547
Severance and restructuring reserves		12,201			—
Other current liabilities		6,554			1,516
Current liabilities of discontinued operations		32			53
Total current liabilities		93,653			14,447
Deferred compensation obligation		2,489			2,929
Pension obligations		87,014			—
Postretirement obligations		28,560			—
Deferred taxes		1,424			5,425
Long-term debt		90,250			—
Other noncurrent liabilities		4,789			830
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, $.01 par value; authorized 20,000 shares; no shares issued
Common stock, $.01 par value; authorized 100,000 shares; issued 23,244 and 22,769 shares, respectively		232			228
Additional paid-in capital		65,691			59,558
Unearned compensation – restricted shares		(3,469	)		(233	)
Treasury stock, at cost; 9,214 and 9,204 shares, respectively		(217,188	)		(217,109	)
Retained earnings		316,483			301,313
Total stockholders’ equity		161,749			143,757
	$	469,928		$	167,388

See notes to consolidated financial statements.

F-5

LENOX GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

YEARS ENDED DECEMBER 31, 2005, JANUARY 1, 2005 AND JANUARY 3, 2004

		2005			2004			2003
NET SALES	$	330,915		$	162,908		$	174,957
COST OF SALES		174,985			76,617			81,069
Gross profit		155,930			86,291			93,888
OPERATING EXPENSES -
Selling, general and administrative		123,441			51,175			52,695
OPERATING INCOME FROM CONTINUING OPERATIONS		32,489			35,116			41,193
OTHER EXPENSE (INCOME):
Interest expense		5,735			493			1,901
Litigation settlement		—			(6,871	)		—
Other, net		(744	)		(414	)		(906	)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		27,498			41,908			40,198
PROVISION FOR INCOME TAXES		10,146			15,088			14,529
INCOME FROM CONTINUING OPERATIONS		17,352			26,820			25,669
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX		(2,182	)		(3,036	)		(9,261	)
NET INCOME	$	15,170		$	23,784		$	16,408
INCOME PER SHARE – BASIC:
INCOME FROM CONTINUING OPERATIONS	$	1.27		$	2.01		$	1.96
LOSS FROM DISCONTINUED OPERATIONS		(0.16	)		(0.23	)		(0.71	)
NET INCOME PER SHARE – BASIC	$	1.11		$	1.78		$	1.25
INCOME PER SHARE – DILUTED:
INCOME FROM CONTINUING OPERATIONS	$	1.26		$	1.98		$	1.94
LOSS FROM DISCONTINUED OPERATIONS		(0.16	)		(0.22	)		(0.70	)
NET INCOME PER SHARE – DILUTED	$	1.10		$	1.76		$	1.24

See notes to consolidated financial statements.

F-6

LENOX GROUP INC. AND SUBSIDIARIES

REVISED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

YEARS ENDED DECEMBER 31, 2005, JANUARY 1, 2005 AND JANUARY 3, 2004

		2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	15,170		$	23,784		$	16,408
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations		2,182			3,036			9,261
Depreciation		6,872			3,609			4,331
Loss on disposal of assets		674			184			37
Amortization of other intangibles		1,460			140			144
Amortization of deferred financing fees		796			75			474
Compensation expense – restricted shares		766			262			240
Deferred taxes		(2,413	)		1,311			(89	)
Tax benefit related to stock options exercised		272			519			162
Changes in assets and liabilities:
Accounts receivable		12,030			(7,489	)		11,621
Inventories		36,442			(2,281	)		(1,896	)
Other assets		2,600			(667	)		(2,396	)
Accounts payable		(15,425	)		536			(553	)
Accrued compensation and benefits payable		(146	)		(46	)		(3,908	)
Income taxes payable		2,275			(1,966	)		261
Pension & postretirement obligations		(1,915	)		—			—
Other liabilities		(414	)		623			1,241
Net cash (used in) provided by operating activities from discontinued operations		(803	)		3,303			3,677
Net cash provided by operating activities		60,423			24,933			39,015
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(1,905	)		(2,184	)		(2,451	)
Acquisition of Lenox		(204,036	)		—			—
Net sale (purchase) of available-for-sale securities		11,150			(1,150	)		(1,175	)
Net cash used in investing activities from discontinued operations		—			(29	)		(59	)
Net cash used in investing activities		(194,791	)		(3,363	)		(3,685	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of common stock options		1,640			4,862			909
Payments of deferred financing fees		(10,125	)		—			(225	)
Borrowings on revolving credit agreement		121,500			15,000			42,000
Principal payments on revolving credit agreement		(111,032	)		(15,000	)		(42,000	)
Purchases of treasury stock		(79	)		(146	)		(221	)
Borrowings (payments) on long-term debt		100,000			—			(54,000	)
Net cash provided by (used in) financing activities		101,904			4,716			(53,537	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(32,464	)		26,286			(18,207	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		33,743			7,457			25,664
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,279		$	33,743		$	7,457

See notes to consolidated financial statements.

F-7

LENOX GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

YEARS ENDED DECEMBER 31, 2005, JANUARY 1, 2005 AND JANUARY 3, 2004

	Common Stock										Unearned Compensation Restricted Shares
	Shares Issued		Treasury Shares Purchased			Amount		Additional Paid-in Capital						Treasury Stock			Retained Earnings		Total Stockholders’ Equity
BALANCE AS OF DECEMBER 28, 2002		22,259		(9,178	)	$	223	$	52,900		$	(754	)	$	(216,742	)	$	261,121	$	96,748
Net income																		16,408		16,408
Shares issued upon the exercise of common stock options		100					1		908											909
Tax benefit related to stock options exercised									162											162
Restricted shares surrendered				(17	)										(221	)				(221	)
Restricted shares vested												240								240
Other		4							50											50
BALANCE AS OF JANUARY 3, 2004		22,363		(9,195	)		224		54,020			(514	)		(216,963	)		277,529		114,296
Net income																		23,784		23,784
Shares issued upon the exercise of common stock options		398					4		4,858											4,862
Tax benefit related to stock options exercised									519											519
Restricted shares surrendered				(9	)							53			(146	)				(93	)
Restricted shares vested									34			228								262
Other		8							127											127
BALANCE AS OF JANUARY 1, 2005		22,769		(9,204	)		228		59,558			(233	)		(217,109	)		301,313		143,757
Net income																		15,170		15,170
Shares issued upon the exercise of common stock options		148					1		1,639											1,640
Tax benefit related to stock options exercised									272											272
Restricted shares surrendered				(10	)				(67	)		67			(79	)				(79	)
Restricted shares vested												766								766
Restricted shares issued		309					3		4,066			(4,069	)							0
Other		18							223											223
BALANCE AS OF DECEMBER 31, 2005		23,244		(9,214	)	$	232	$	65,691		$	(3,469	)	$	(217,188	)	$	316,483	$	161,749

See notes to consolidated financial statements.

F-8

LENOX GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business – Lenox Group Inc. and its subsidiaries (the Company) is a leading designer, distributor, wholesaler and retailer of fine quality tabletop, collectibles and other giftware products. The Company sells its product through gift, specialty retailers, department stores, and general merchandise chains, as well as through the Company’s own retail stores and consumer-direct channels of distribution, including Internet, catalog and mail order. The Company markets its products principally under the Department 56, Lenox, Dansk and Gorham brand names. The majority of the Company’s products are developed and designed by the Company’s in-house creative team and are manufactured for the Company by independently owned foreign manufacturers located primarily in the People’s Republic of China. The Company also owns and operates two domestic manufacturing facilities that produce certain of its products. Approximately 3% of total revenue is derived from customers outside the United States and all long-lived assets are located within the United States.

Principles of Consolidation – The consolidated financial statements of the Company include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Effective September 1, 2005, the Company completed the acquisition of Lenox, Inc. (“Lenox”). These financial statements and footnotes reflect the Lenox assets acquired, liabilities assumed, and results of operations of Lenox from the acquisition date of September 1, 2005. See Note 3.

Fiscal Year End – The Company’s policy is to end its fiscal year on the Saturday closest to December 31. The year ended January 3, 2004 includes 53 weeks and the years ended December 31, 2005 and January 1, 2005 include 52 weeks.

Management Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash Equivalents – All highly liquid debt instruments with original maturities of three months or less are considered to be cash equivalents. These investments are carried at cost, which approximates market value.

Short-Term Investments – The Company’s short-term investments consist of Auction Rate Securities which represent funds available for current operations. In accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, these short-term investments are classified as available-for-sale and are carried at cost, or par value which approximates the fair market value. These securities have stated maturities beyond three months but are priced and traded as short-term instruments due to the liquidity provided through the interest rate mechanism of 28 to 49 days.

F-9

Marketable Securities – The Company classifies the marketable securities designated to fund its deferred compensation plan as “trading” securities under SFAS No. 115. In accordance with the provisions of this statement, the investment balance is stated at fair market value, based on quoted market prices. Realized and unrealized gains and losses are reflected in earnings. As the assets designated to fund the deferred compensation plan reflect amounts due to employees (but available for general creditors of the Company in the event the Company becomes insolvent), the Company has recorded the investment balance as a non-current asset and has established a corresponding other long-term liability entitled “Deferred compensation obligation” on the Consolidated Balance Sheets.

Allowance for Sales Returns and Credits – The Company records an allowance for credits related to possible returned or damaged product, markdowns and pricing and shipping discrepancies. The allowance is based on historical ratios of credit to sales, the historical average length of time between the sale and the credit, and other factors.

Allowance for Doubtful Accounts – The Company records an allowance for estimated uncollectible accounts receivable based on an evaluation of its accounts receivable balance. This evaluation includes a number of factors including the age of the receivable, the financial condition of the customer, the current business environment, and the historical collection experience for customers of similar background and nature.

Inventories – Inventories consist of raw materials, work-in-process and finished goods and are stated at the lower of average cost, which approximates first-in, first-out cost, or net realizable value. For product sourced from independent manufacturers, the Company records inventory at the date of taking title, which typically occurs when product is delivered to a foreign port. As a result, at certain times during the year, the Company has significant in-transit quantities, as inventory is sourced primarily from the People’s Republic of China and other Pacific Rim countries. Each period, the Company adjusts identified excess and slow-moving inventory to its net realizable value.

Property and Equipment – Property and equipment are stated at cost. Depreciation is computed on a straight-line method over the estimated useful lives of the assets (or in the case of leasehold improvements, the shorter of the estimated useful lives or lease terms). Estimated useful lives of the Company’s property and equipment are as follows:

Leasehold improvements	7-10 years
Furniture and fixtures	5-7 years
Computer hardware and software	2-5 years
Tooling	3-5 years
Other equipment	3-10 years
Building and improvements	20-45 years

Major improvements and replacements of property are capitalized. Maintenance, repairs, and minor improvements are expensed. Assets held for sale are stated at the lower of their carrying amount or fair value, less costs to sell.

Long-Lived Assets – The Company’s principal long-lived assets are its property and equipment which consists of its corporate headquarter buildings, its manufacturing facilities, its distribution centers, and the computer equipment, furniture and fixtures, machinery, and leasehold improvements at its corporate headquarter buildings, distribution centers, showrooms and retail stores. The Company annually reviews its long-lived assets for impairment.

F-10

Goodwill, Trademarks, and Other Intangible Assets – Goodwill represents the excess of the cost of acquired businesses over the fair value of identifiable tangible net assets and identifiable intangible assets purchased. The Company’s recorded goodwill results primarily from the 1992 purchase of the Company by Forstmann Little and the 2005 acquisition of Lenox by the Company. Goodwill is tested for impairment on an annual basis. During the fourth quarter of 2005, the Company completed its annual impairment test of goodwill and determined there was no impairment.

The primary identifiable intangible assets of the Company include trademarks, customer relationships, favorable lease interests and non-compete agreements. Under the provisions of SFAS No. 142, identifiable intangibles with finite lives are amortized and those identifiable intangibles with indefinite lives are not amortized. Identifiable intangible assets that are subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Identifiable intangible assets not subject to amortization are tested for impairment annually or more frequently if events warrant. The impairment test consists of a comparison of the fair value of the intangible asset with its carrying amount. During the fourth quarter of 2005, the Company completed its annual impairment test for those identifiable assets not subject to amortization and determined there was no impairment.

Deferred Financing Fees – The Company amortizes deferred financing fees over the life of the related debt agreement. Deferred financing fee amortization is included in interest expense in the Company’s Consolidated Statements of Income.

Revenue Recognition – The Company sells its products through wholesale channels, through Company-owned retail stores, and directly to consumers. Revenue from sales to wholesale customers and from sales direct to the consumer is recognized when product is shipped, while revenue from sales of merchandise to retail customers is recognized at the time of sale. The Company believes that these are the times when persuasive evidence of an arrangement exists, delivery has occurred, the Company’s price is fixed and collectibility is reasonably assured. Revenue is recognized net of any applicable discounts and allowances. Customers, whether wholesale, retail or direct, do have the right to return product in certain limited situations. Such rights of return have not precluded revenue recognition because the Company has a long history with such returns on which it constructs a reserve.

Cost of Sales – The Company’s cost of sales principally includes the cost of product purchased from manufacturers, cost of manufactured product, inbound and outbound freight cost, duties, royalties, provisions for excess and obsolete product, and certain costs to develop new product samples, sculpt product, purchase and receive product, inspect product and warehouse product.

Selling, General and Administrative Expense – The Company’s selling, general and administrative expenses principally consist of expenses associated with the company’s wholesale sales force and retail stores, corporate compensation and benefit expense, facilities expense, bad debt expense, marketing and advertising expense, and other general and administrative expenses.

Advertising Expense – The Company records advertising expense in accordance with Statement of Position No. 93-7. Advertising expense is principally expensed when incurred. Certain direct response advertising costs are capitalized and amortized over periods not exceeding one year. Capitalized direct response advertising costs included on the Company’s Consolidated Balance Sheets in other current assets for December 31, 2005 and January 1, 2005 were $2,061 and $0, respectively. Advertising expense (including amortization of direct response advertising costs and “Payments to Customers” described below) for 2005, 2004, and 2003 was $19,561, $1,476, $2,487, respectively. The significant increase in advertising expense for 2005 compared to 2004 and 2003 was due to the acquisition of Lenox. These amounts are included in selling, general and administrative expense within the Company’s Consolidated Statements of Income.

F-11

Payments to Customers – The Company reimburses certain customers for cooperative advertising based on pre-negotiated amounts or up to a pre-determined percentage of the amount of product shipped to the customer. Cooperative advertising costs under these programs are expensed when product is shipped to the customer. Cooperative advertising expense for 2005, 2004, and 2003 was $4,711, $1,203, and $986, respectively.

Product Development Expense – The Company’s product development costs consist principally of salaries for internal creative talent, royalties paid to outside artists, and costs incurred in developing product samples. The Company expenses as incurred the salaries of creative talent and records it in selling, general and administrative expense. The Company capitalizes into inventory the cost of royalties paid to outside artists and records it in cost of sales as the product is sold. The cost to develop product samples is expensed as incurred.

Freight Expense – Freight expenses for products shipped to customers (freight-out) are included in the cost of products sold, in accordance with Emerging Issues Task Force Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs.

Pre-Opening Costs – Non-capital expenditures associated with opening new Company-operated retail stores are expensed as incurred.

Income Taxes – Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.

Foreign Currency Exchange Rate Gains and Losses – The Company imports most of its products and, while the majority of these purchases are denominated in United States dollars, some of the purchases are denominated in foreign currency. In addition, the Company’s sales to Canadian customers are denominated in Canadian dollars. Foreign exchange rate gains and losses are included in other expense (income) within the accompanying Consolidated Statements of Income. During 2005, 2004, and 2003 the Company benefited from the appreciation of the Canadian dollar relative to the United States dollar and recognized gains in foreign currency of $181, $303 and $677, respectively. The Company may periodically enter into foreign exchange contracts or build foreign currency deposits as a partial hedge against currency fluctuations. The Company has not entered into any foreign exchange contracts during 2005, 2004 or 2003.

Pension and Postretirement Benefits – The Company sponsors various defined benefit pension plans as well as postretirement plans providing retiree health care and retiree life insurance benefits. Benefits are based on such factors as years of service and compensation level during employment. The benefits expected to be paid are expensed over the employee’s expected service. To determine the expected benefits to be paid, the Company has to make assumptions regarding interest rates, return on plan assets, the rate of salary increases, and expected health care trend rates. Actual experience different from these assumptions could result in materially different benefit payments.

Fair Value of Financial Instruments – The Company’s financial instruments are cash, short-term investments, marketable securities, accounts receivable, accounts payable, borrowings on revolving credit facility and long-term debt. The recorded amounts of cash, marketable securities, accounts receivable, accounts payable and borrowings on revolving credit facility approximate their fair value based on their short term nature. The recorded value of long term-debt approximates its fair market value as the Company’s interest rates are variable and approximate market rates.

F-12

Stock-Based Compensation – The Company’s stock-based compensation plans consist of fixed stock options and restricted stock.

The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for options granted. Had compensation cost been determined based on the fair value of the 2005, 2004, and 2003 stock option grants consistent with the method of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, the Company’s net income and net income per common share assuming dilution would have been reduced to the pro forma amounts indicated below:

	2005		2004		2003
Net income:
As reported	$	15,170	$	23,784	$	16,408
Pro forma		12,782		22,197		14,518
Net income per common share – basic:
As reported	$	1.11	$	1.78	$	1.25
Pro forma		0.94		1.66		1.11
Net income per common share – assuming dilution:
As reported	$	1.10	$	1.76	$	1.24
Pro forma		0.93		1.64		1.10

In determining the preceding pro forma amounts under SFAS No. 148, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2005, 2004, and 2003, respectively: risk-free interest rates of 4.1 percent, 3.8 percent, and 3.3 percent; expected volatility of 32, 50, and 50 percent; expected lives of six years; and no expected dividends. The effects of applying SFAS No. 148 in this pro forma disclosure are not indicative of future compensation costs; additional awards are anticipated.

For issuances of restricted stock, the Company records unearned compensation expense on the grant date based on the fair market value of the Company’s stock and amortizes the balance over the vesting period.

Net Income (Loss) per Common Share –Net income per common share is calculated by dividing net income by the weighted average number of shares outstanding during the period. Net income per common share assuming dilution reflects per share amounts that would have resulted had the Company’s dilutive outstanding stock options been converted to common stock. Restricted stock is considered outstanding on the date the stock becomes vested when computing net income per common share – basic. Restricted stock, to the extent it is probable that the stock will become vested, is considered outstanding on the grant date when computing net income per common share – assuming dilution. See Note 17.

Reclassifications – Certain previous year amounts have been reclassified to conform to current year presentation. These reclassifications had no impact on consolidated net income or retained earnings as previously reported.

Auction rate securities, previously classified as cash and cash equivalents, are now classified as short-term investments for all periods presented. The Company classifies these short-term investments as “available-for-sale” securities under SFAS No. 115. As of December 31, 2005 and January 1, 2005 auction rate securities were $0 and $11,150, respectively.

F-13

In 2005, the Company has separately disclosed the operating and investing portion of the cash flows attributable to its discontinued operations, which in prior periods were reported on a combined basis as a single amount.

New Accounting Standards – In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R (revised 2004), Share-Based Payment, which replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. On April 14, 2005, the SEC announced a deferral of the effective date of SFAS 123(R) which will require the Company’s adoption in the first quarter of 2006. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. Under SFAS No. 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include modified prospective and modified retrospective adoption options. Under the modified retrospective option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The modified prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The Company has determined that it will adopt the modified prospective transition method. The Company is evaluating the requirements of SFAS No. 123R and expects that the adoption of SFAS No. 123R will have a material impact on its consolidated results of operations and earnings per share.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs - an amendment of ARB No. 43, Chapter 4. SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Among other things, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling costs be recognized as current period charges regardless of whether they meet the criterion of “so abnormal” as stated in ARB No. 43. Additionally, SFAS No. 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005 and is required to be adopted by the Company on January 1, 2006. The Company is currently evaluating the effect that the adoption of SFAS No. 151 will have on its consolidated results of operations and financial condition but does not expect SFAS No. 151 to have a material impact.

F-14

2.	DISCONTINUED OPERATIONS
	In October 2005, the Company committed to a plan to cease operations of its Time to Celebrate business. Time to Celebrate ceased operations in December 2005, and in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144), the Company has reclassified Time to Celebrate’s results into discontinued operations for all periods presented. Prior to being classified as discontinued operations, Time to Celebrate’s operating results had been presented in the retail reportable segment.
	As a result of the decision to cease Time to Celebrate’s operations, in 2005 the Company recognized a $594 charge within cost of sales to write-down inventory to its net realizable value.
	The results from Time to Celebrate’s operations are as follows:

	2005					2004					2003
	Dollars			Percent of Net Sales		Dollars			Percent of Net Sales		Dollars			Percent of Net Sales
Net sales	$	2,038		100	%	$	1,807		100	%	$	879		100	%
Gross profit		(215	)	(11	)		176		10			(187	)	(21	)
Selling, general and administrative expenses		3,054		150			2,689		149			1,219		139
Loss from operations		(3,269	)	(160	)		(2,513	)	(139	)		(1,406	)	(160	)
Other expense		140		7			87		5			37		4
Loss before income taxes		(3,409	)	(167	)		(2,600	)	(144	)		(1,443	)	(164	)
Income tax benefit		1,227		60			936		52			520		59
Net loss		(2,182	)	(107	)		(1,664	)	(92	)		(923	)	(105	)

In December 2003, the Company committed to a plan to cease operations of its Geppeddo seasonal kiosk business. Geppeddo ceased operations during the first quarter of 2004, and in accordance with SFAS No. 144, the Company has reclassified Geppeddo’s results into discontinued operations for all periods presented. Prior to being classified as discontinued operations, Geppeddo’s operating results had been presented in the retail reportable segment.

As a result of the decision to cease Geppeddo’s operations, the Company recognized $9,140 in asset impairment charges in 2003. The charges included an $8,193 charge related to the full write-off of goodwill, trademarks, and other intangible assets, and a $947 charge related to the impairment of long-lived assets. In addition, the Company recognized a $607 charge within cost of sales to write-down inventory to its net realizable value.

The results from Geppeddo’s operations are as follows:

	2004					2003
	Dollars			Percent of Net Sales		Dollars			Percent of Net Sales
Net sales	$	3,396		100	%	$	15,877		100	%
Gross profit		855		25			8,960		56
Selling, general and administrative expenses		3,147		93			12,861		81
Impairment of assets		—		—			9,140		58
Amortization of other intangibles		—		—			92		1
Loss from operations		(2,292	)	(67	)		(13,133	)	(83	)
Other income		(147	)	4			(14	)	—
Loss before income taxes		(2,145	)	(63	)		(13,119	)	(83	)
Income tax benefit		773		23			4,781		30
Net loss		(1,372	)	(40	)		(8,338	)	(53	)

F-15

3.	ACQUISITION
	Effective September 1, 2005, the Company completed the acquisition of all of the capital stock of Lenox from Brown-Forman, Inc. (Brown-Forman) for $204.0 million, which included transaction costs of $7.6 million. The acquisition of Lenox, which sells products under the Lenox, Dansk, and Gorham brand names, added strong, market-leading brands and complementary product lines and distribution channels to the Company’s portfolio. The Company funded the payment of the purchase price and related transaction costs of the Lenox acquisition with a $275 million senior secured credit facility consisting of a $175 million revolving credit facility and a $100 million term loan.
	Goodwill recorded as part of the initial purchase price allocation in the third quarter of 2005 was $21.1 million. During the fourth quarter ended December 31, 2005, goodwill recorded as part of the initial purchase price allocation was adjusted to $16.7 million. The $4.4 million decrease in goodwill was primarily due to further evaluation of the preliminary valuations of the acquired intangible assets, inventories and assumed liabilities. No adjustment was made to goodwill as a result of finalizing the estimated working capital adjustment, as defined in the purchase agreement, in the Company’s fourth quarter. We will continue to evaluate the purchase price allocation for the Lenox acquisition, principally relating to the closure of the Pomona manufacturing facility and the sale of the Langhorne office facility.
	The initial purchase price allocation, based on management’s estimates which included the use of independent appraisals which were updated during the fourth quarter of 2005 as described above, is as follows:

	Estimated Fair Value
Accounts receivable	$	39,105
Inventories		115,989
Current deferred taxes		5,109
Other current assets		7,080
Property, plant and equipment		78,046
Goodwill		16,695
Trademarks		108,210
Other intangible assets		17,842
Noncurrent deferred taxes		5,555
Other noncurrent assets		4,059
Total assets acquired	$	397,690
Severance and restructuring reserves	$	14,020
Other current liabilities		57,967
Pension obligations		89,414
Postretirement obligations		28,075
Long-term debt		250
Other noncurrent liabilities		3,928
Total liabilities assumed	$	193,654
Net assets acquired	$	204,036

F-16

A valuation of the acquired intangible assets was performed by a third party valuation specialist to assist the Company in determining the fair value of each identifiable intangible asset. Standard valuation procedures were utilized in determining the fair value of the acquired intangible assets. The following table summarizes the identified intangible asset categories and their weighted average amortization period:

	Weighted Average Amortization Period	Fair Value
Finite-life intangible assets
Customer relationships	9.9 Years	$	15,300
Favorable lease interests	2.0 Years		2,542
		$	17,842
Indefinite-life intangible assets
Trademarks and trade names	N/A	$	108,210
Goodwill	N/A		16,695	*
* There is no tax goodwill.		$	124,905

The following pro forma condensed consolidated financial results of operations for the years ended December 31, 2005 and January 1, 2005 are presented as if the acquisition described above had been completed at the beginning of each period presented.

	2005			2004
Pro forma net sales	$	561,682		$	650,168
Pro forma income from continuing operations		1,321			17,271
Pro forma net income		(861	)		14,234
Pro forma income per share from continuing operations
Basic	$	0.10		$	1.29
Assuming dilution		0.10			1.28
Weighted average shares outstanding
Basic		13,669			13,342
Assuming dilution		13,752			13,530

These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments, such as increased interest expense on acquisition debt. They do not reflect the effect of synergies that would have been expected to result from the integration of these acquisitions. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.

F-17

4.	ASSETS HELD FOR SALE
	In September 2005, the Company approved certain consolidation plans for it Lenox subsidiary, including cessation of fine china production at its facility in Pomona, NJ. Fine ivory china dinnerware production at Pomona had been declining over the past ten years as consumer trends have shifted from ivory to bone and from formal to upscale casual dinnerware. The plant had been operating at a very low percentage of its capacity during the past several years, and the assets associated with this production were deemed to be incompatible with the future direction of the business. Production of fine china at this plant ceased in the fourth quarter of 2005 and these assets, including land, building, machinery and equipment have been listed for sale and we are actively attempting to sell them. As these assets were recently purchased as part of the acquisition of Lenox, no gain or loss has been recognized and the assets are listed on the balance sheet as held for sale at their carrying amount less expected selling costs in the cumulative amount of $6,749.
	During the fourth quarter of 2005, as part of the consolidation plans indicated above, the Company also began seeking office facilities to consolidate certain office operations located at its leased facility in Lawrenceville, NJ and owned facility in Langhorne, PA. In December 2005, the Company entered into an agreement for the sale of the Langhorne facility, and the sale is anticipated to close during the third quarter of 2006. As these assets, including land and building, were recently purchased as part of the acquisition of Lenox, no gain or loss has been recognized and the assets are listed on the balance sheet as held for sale at their carrying amount less expected selling costs in the cumulative amount of $10,269.
5.	SEVERANCE AND RESTRUCTURING COSTS
	In connection with the acquisition of Lenox, the Company assumed severance reserves of $0.2 million related to plant closings, retail store closings and general restructurings that took place prior to the Company’s acquisition of Lenox. At September 1, 2005, the acquisition date, the Company accrued an additional $13.8 million related to an additional plant closing, retail store closings, and general restructurings that were planned as part of the acquisition. This additional charge increased goodwill recorded from the acquisition of Lenox.
	The severance and restructuring reserves recorded at the acquisition date were based on preliminary estimates and may be revised as the plans are finalized. The Company expects to substantially complete the plant closing, retail store closings, and general restructuring by the end of the second quarter of fiscal 2006.
	The table below shows a reconciliation of the severance and restructuring reserve activity as of December 31, 2005:

	Plant Closings						Retail Store Closings Severance			General Restructuring Severance			Total Reserves
	Severance			Other
Assumed at acquisition date		—			—		$	115		$	87		$	202
Recorded at acquisition date And charged to goodwill	$	4,804		$	2,790			1,822			4,402			13,818
Incurred		(1,110	)		(181	)		(144	)		(384	)		(1,819	)
Balance, December 31, 2005	$	3,694		$	2,609		$	1,793		$	4,105		$	12,201

F-18

6.	INVENTORIES
	Inventories from continuing operations were comprised of:

	December 31, 2005		January 1, 2005
Raw materials	$	4,038		—
Work-in-process		6,442		—
Finished goods		83,866	$	13,581
Total inventories	$	94,346	$	13,581

7.	PROPERTY AND EQUIPMENT
	Property and equipment at December 31, 2005 and January 1, 2005 is comprised of the following:

	2005		2004
Land	$	3,186	$	906
Leasehold improvements		10,118		7,395
Furniture and fixtures		8,100		4,741
Computer hardware and software		17,503		8,658
Tooling		931		—
Other equipment		21,847		6,127
Building and improvements		33,696		7,304
Construction in process		1,580		81
		96,961		35,212
Less accumulated depreciation		25,533		19,504
Property and equipment, net	$	71,428	$	15,708

F-19

8.	GOODWILL AND OTHER INTANGIBLE ASSETS
	Changes in the carrying amount of goodwill for the year ended December 31, 2005 by segment were as follows:

	Wholesale		Retail		Direct		Other*		Consolidated
Balance at January 1, 2005	$	37,074		—		—		—	$	37,074
Acquired		—		—		—	$	16,695		16,695
Balance at December 31, 2005	$	37,074		—		—	$	16,695	$	53,769

* The acquired goodwill listed above was from the Company’s acquisition of Lenox. The Company has not yet allocated the acquired goodwill to a reporting segment as it continues to evaluate the purchase allocation. See Note 3.

Intangible assets, other than goodwill, are comprised of the following:

	December 31, 2005							January 1, 2005
	Gross carrying amount		Accumulated amortization			Net		Gross carrying amount		Accumulated amortization			Net
Finite-life intangible assets
Customer relationships	$	15,300	$	(551	)	$	14,749		—		—			—
Favorable lease interests		2,542		(770	)		1,772		—		—			—
Non-compete agreements		2,705		(2,189	)		516	$	2,705	$	(2,049	)	$	656
Indefinite-life intangible assets
Trademarks		126,110		(4,139	)		121,971		17,900		(4,139	)		13,761
Total Intangibles	$	146,657	$	(7,649	)	$	139,008	$	20,605	$	(6,188	)	$	14,417

F-20

Intangible asset amortization expense for the years ended December 31, 2005, January 1, 2005 and January 3, 2004 was $1,460, $140 and $144, respectively. The increase in amortization expense for the year ended December 31, 2005 was the result of the Lenox acquisition. Expected future amortization expense for finite-lived intangible assets is as follows:

2006	$	2,905
2007		2,149
2008		1,938
2009		1,846
2010		1,560
Thereafter		6,639
	$	17,037

	The above amortization expense forecast is an estimate. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, impairment of intangible assets, accelerated amortization of intangible assets, purchase price reallocations and other events.
9.	DEBT
	Debt is comprised of the following:

	Average Interest rate December 31, 2005		December 31, 2005		January 1, 2005
Note payable to Maryland Department of Business and Economic Development	3	%	$	150		—
Note payable to the County Commissioners of Washington County, Maryland	0	%		100		—
Term loan facility*	7.89	%		100,000		—
Long-term debt				100,250		—
Revolving credit facility	6.67	%		10,468		—
Total debt			$	110,718		—
* Includes current portion of long-term debt of $10.0 million.

The note payable to the Maryland Department of Business and Economic Development is a conditional promissory note that accrues interest at 3% per year. The principal and interest payments are deferred until December 31, 2006 and thereafter are subject to multiple maturity dates determined by the Company’s employment levels at the Hagerstown, Maryland distribution facility. If the Company meets certain employment levels at December 31, 2006, 2007, and 2008 as defined by the terms of the agreement, the note may be fully or partially forgiven. As of December 31, 2005, the Company had not achieved levels required to qualify for full or partial debt forgiveness.

F-21

The note payable to the County Commissioners of Washington County, Maryland is a conditional grant agreement that bears no interest charges. The principal payments are deferred until December 31, 2006 and thereafter are subject to multiple maturity dates determined by the Company’s employment levels at the Hagerstown, Maryland distribution facility. If the Company meets certain employment levels at December 31, 2006, 2007, and 2008 as defined by the terms of the agreement, the note may be fully or partially forgiven. As of December 31, 2005, the Company had not achieved levels required to qualify for full or partial debt forgiveness.

On September 1, 2005, the Company completed the acquisition of Lenox. To finance the acquisition, the Company entered into a new revolving credit facility and a term loan facility. The credit facilities are available to finance the purchase of Lenox, to payoff existing indebtedness under the Company’s old revolving credit facility, and to finance working capital needs. In connection with the new credit facilities, the Company recorded $10.1 million in deferred financing fees, which is included in other assets on the Consolidated Balance Sheets and is being amortized over the lives of the credit facilities. The revolving credit facility expires on September 1, 2010 and the term loan facility expires on September 1, 2011.

The credit facilities contain customary financial conditions and covenants, including restrictions on additional indebtedness, liens, investments, capital expenditures, issuances of capital stock and dividends. The credit facilities also require maintenance of minimum levels of interest coverage and maximum levels of leverage, in each case at the end of each fiscal quarter. The minimum interest coverage ratio (as defined within the credit facility agreements) requires the Company to maintain a minimum ratio of earnings before interest, income taxes, depreciation and amortization (EBITDA) to interest expense over a 12-month period ending on each fiscal quarter. The minimum ratio to be maintained at each quarter-end over the term of the facilities is defined within the credit facility agreements, and ranges from 2.35:1.0 to 3.75:1.0. The maximum leverage ratio (as defined within the credit facility agreements) requires the Company to maintain a maximum ratio of debt (as measured at the end of each fiscal quarter) to EBITDA over a 12-month period ending on each fiscal quarter. The maximum leverage ratio to be maintained at each quarter-end over the term of the facilities is defined within the credit facility agreements, and ranges from 2.0:1.0 to 4.0:1.0. As of December 31, 2005, the Company was in compliance with all material conditions and covenants under the credit facilities.

The credit facilities are secured by a first-priority lien on substantially all of the real and personal property of the Company. In addition, the Company has pledged the common stock of its subsidiaries, direct and indirect, as collateral under the credit facilities, and the Company and its material subsidiaries, direct and indirect, have guaranteed repayment of amounts borrowed under the credit facilities.

F-22

The revolving credit facility provides for borrowings up to $175 million, which may be in the form of letters of credit and revolving credit loans. The letters of credit are issued primarily in connection with inventory purchases. The revolving credit facility allows the Company to choose between two interest rate options in connection with its revolving credit loans. The interest rate options are the Alternate Base Rate (as defined) or the Adjusted LIBOR Rate (as defined) plus an applicable margin. The applicable margin ranges from 0% to 0.75% for Alternate Base Rate loans and from 1.75% to 2.5% for Adjusted LIBOR Rate loans.

Borrowings under the revolving credit facility are subject to certain borrowing base limitations. The Company’s borrowing capacity under the revolving credit facility as of December 31, 2005, was $147.0 million and fluctuates based on accounts receivable and inventory levels. The revolving credit facility provides for commitment fees of 0.375% per annum on the daily average of the unused commitment.

The term loan facility provides for term loans in the aggregate principal amount of up to $100.0 million. The term loan facility allows the Company to choose between two interest rate options in connection with its revolving credit loans. The interest rate options are the Alternate Base Rate (as defined) or the Adjusted LIBOR Rate (as defined) plus an applicable margin. The applicable margin is 2.5% for Alternate Base Rate loans and 3.5% for Adjusted LIBOR Rate loans.

The contractual debt maturity of the long-term debt outstanding on December 31, 2005 is as follows:

	Contractual
Year	Maturities
2006		$	10,000
2007			10,000
2008			10,000
2009			10,000
2010			10,000
2011			50,000

Under the term loan facility, the Company is also obligated to make mandatory prepayments if certain events occur in the future such as asset sales, additional debt issuances, common and preferred stock issuances, and excess cash flow generation.

In conjunction with entering into the new credit facilities, the Company terminated its $75 million revolving credit facility originally entered into in November 2003. Related to this termination, the Company wrote off $0.1 million in unamortized deferred financing fees which were recorded in interest expense in the Company’s Consolidated Statements of Income.

F-23

10. BENEFIT PLANS

Pension and Postretirement benefits

In connections with the acquisition of Lenox, The Company assumed various defined benefit pension plans and postretirement health care plans providing retirement and health care benefits (and related assets associated with the plans). The following discussion provides information about our obligations related to these plans, the assets dedicated to meeting the obligations, and the amounts we recognized in our financial statements as a result of sponsoring these plans. We use a measurement date of September 30 to determine the amounts of the plan obligations and assets presented below.

Obligations

We provide eligible employees with pension and other postretirement benefits based on such factors as years of service and compensation level during employment. The pension obligation shown below (“projected benefit obligation”) consists of: (a) benefits earned by employees to date based on current salary levels (“accumulated benefit obligation”); and (b) benefits to be received by the employees as a result of expected future salary increases. (The obligation for medical and life insurance benefits is not affected by future salary increases.). This table shows how the present value of our obligation changed since the acquisition of Lenox on September 1, 2005.

					Medical and Life
	Pension Benefits				Insurance Benefits
	FY 2005				FY 2005
Obligation at Lenox acquisition date		$	200,380			$	28,075
Service cost			2,001				172
Interest cost			3,329				454
Actuarial gain			(16,188	)			(869	)
Benefits paid			(591	)			(60	)
Obligation at end of the year		$	188,931			$	27,772

Service cost represents the present value of the benefits attributed to service rendered by employees during the year. Interest cost is the increase in the present value of the obligation due to the passage of time. Actuarial loss (gain) is the change in the value of the obligation resulting from experience different from that assumed or from a change in actuarial assumptions. (The actuarial assumptions used are discussed at the end of this note).

As shown above, our pension and postretirement obligations were reduced by benefit payments in 2005 of $591 and $60, respectively. Expected benefit payments and expected Medicare Part D subsidy receipts over the next ten years are as follows:

				Medical and Life			Medicare
	Pension Benefits			Insurance Benefits			Subsidies
2006		$	15,477		$	1,877		$	(222	)
2007			7,623			1,915			(226	)
2008			7,848			1,910			(226	)
2009			8,093			1,924			(227	)
2010			8,408			1,949			(229	)
2011-2015			20,489			10,638			(1,255	)

F-24

Assets

We specifically invest certain assets in order to fund our pension benefit obligations. Our investment goal is to earn a total return over time that will grow assets sufficient to fund our plans’ liabilities, after providing appropriate levels of contributions and accepting prudent levels of investment risk. In order to achieve this goal, plan assets are invested primarily in funds or portfolios of funds actively managed by outside managers. Investment risk is managed to prudent levels by company policies that require diversification of asset classes, manager styles and individual holdings. We measure and monitor investment risk through periodic performance reviews and periodic asset/liability studies.

Asset allocation is the most important method of achieving our investment goals and is based on our assessment of the plans’ long-term return objectives and the appropriate balances needed for liquidity, stability, and diversification. The allocation of our pension plan assets at fair value on December 31, 2005 and the target allocation for 2006, by asset category, are as follows:

	Actual 2005			Target 2006
Equity securities		71	%		75	%
Debt securities		15	%		15	%
Real estate		5	%		5	%
Other		9	%		5	%
Total		100	%		100	%

This table shows how the fair value of the pension assets changed from the Lenox acquisition date until the end of the year. (We do not have assets set aside for postretirement medical or life insurance benefits).

					Medical and Life
	Pension Benefits				Insurance Benefits
	FY 2005				FY 2005
Fair value at Lenox acquisition date		$	110,966				—
Actual return on plan assets			1,305				—
Company contributions			4,480			$	60
Benefits paid			(591	)			(60	)
Fair value at end of the year		$	116,160			$	—

Consistent with our funding policy, we expect to contribute approximately $16 million to our pension plans and approximately $2 million to our postretirement plans in 2006.

F-25

Funded Status

The funded status of a plan refers to the difference between its assets and its obligations. This amount differs from the amount recognized on the balance sheet because, as discussed below, certain changes in the present value of the obligation and the fair value of plan assets are amortized over several years for accounting purposes. This table reconciles the funded status of the plans to the net amount recognized on the consolidated balance sheet.

					Medical and Life
	Pension Benefits				Insurance Benefits
	FY 2005				FY 2005
Assets		$	116,160				—
Obligations			(188,931	)		$	(27,772	)
Funded status			(72,771	)			(27,772	)
Unrecognized net gain			(14,243	)			(788	)
Accrued postretirement benefits		$	(87,014	)		$	(28,560	)

The unrecognized net gain for the pension and postretirement health care plans primarily relates to the difference between the actual cumulative return on plan assets versus the expected cumulative return on plan assets and a change in the assumed discount rate which decreased the present value of the benefit obligation.

The projected and accumulated benefit obligations for each of our pension plans exceed the plan assets. The total accumulated benefit obligation for all plans was $176,547 at the end of 2005.

Pension Expense

This table shows the components of the pension expense recognized from the Lenox acquisition date until the end of 2005.

					Medical and Life
	Pension Benefits				Insurance Benefits
	FY 2005				FY 2005
Service cost		$	2,001			$	172
Interest cost			3,329				454
Expected return on assets			(3,154	)			—
Net periodic pension expense		$	2,176			$	626

The pension expense recorded during the year was estimated at the Lenox acquisition date. As a result, the amount is calculated using an expected return on plan assets rather than the actual return. The difference between actual and expected returns is included in the unrecognized net gain at the end of the year.

F-26

Assumptions and Sensitivity

We use various assumptions to determine the obligations and expense related to our pension and postretirement healthcare plans. The assumptions used in computing benefit plan obligations as of the end of the year were as follows:

				Medical and Life
	Pension Benefits			Insurance Benefits
	FY 2005			FY 2005
Discount rate		5.25	%		5.25	%
Rate of salary increase		4.00	%		—
Expected return on plan assets		8.50	%		—

The assumptions used in computing benefit plan expense during the year were as follows:

				Medical and Life
	Pension Benefits			Insurance Benefits
	FY 2005			FY 2005
Discount rate		5.00	%		5.00	%
Rate of salary increase		4.00	%		—
Expected return on plan assets		8.00	%		—

The discount rate represents the interest rate used to discount the cash flow stream of benefit payments to a net present value as of the current date. A lower assumed discount rate increases the present value of the benefit obligation.

The assumed rate of salary increase reflects the expected annual increase in salaries as a result of inflation, merit increases, and promotions. A lower assumed rate decreases the present value of the benefit obligation.

The expected return on plan assets represents the long-term rate of return that we assume will be earned over the life of the pension assets, considering the distribution of those assets among investment classes and the related historical rates of return.

The assumed healthcare cost trend rates as of the end of the year were as follows:

	Medical and Life
	Insurance Benefits
	FY 2005
Healthcare cost trend rate:
Present rate before age 65		8.31	%
Present rate age 65 and after		9.56	%

We project healthcare cost trend rates to decline gradually to 5.5% by 2010 and to remain level after that. Assumed healthcare cost trend rates have a significant effect on the amounts reported for postretirement healthcare plans. A one percentage point increase in assumed healthcare cost trend rates would increase the accumulated postretirement benefit obligation as of December 31, 2005 by $3,700 and the annual aggregate service and interest cost by $430. A one percentage point decrease in assumed healthcare cost trend rates would decrease the accumulated postretirement benefit obligation as of December 31, 2005 by $3,600 and the annual aggregate service and interest cost by $420.

F-27

Savings Plan

The Company has qualified contributory retirement plans (the Plans) under Section 401(k) of the Internal Revenue Code which covers substantially all full-time and certain part-time employees who meet certain eligibility requirements. Voluntary contributions are made by participants and Company matching contributions are made at the discretion of the Board of Directors, subject to certain limitations. Certain of the Plans also allow the Company to make discretionary profit-sharing contributions to the Plan up to the maximum amount deductible for income tax purposes. All Company contributions are invested in a series of diversified investment options at the election of the employee. The Company does not make matching or profit sharing contributions in Company stock. The Company’s total profit-sharing contributions were $1,254, $1,717, and $1,817 for the years ended December 31, 2005, January 1, 2005, and January 3, 2004, respectively.

11.	INCOME TAXES
	The provision for income taxes for the years ended December 31, 2005, January 1, 2005, and January 3, 2004 consisted of the following:

	2005			2004			2003
Current:
Federal	$	10,830		$	13,138		$	13,622
State		1,964			787			1,052
Foreign		16			25			44
Deferred:
Federal		(2,154	)		991			(111	)
State		(510	)		147			(78	)
Provision for income taxes from continuing operations		10,146			15,088			14,529
Provision for income taxes from discontinued operations		(1,227	)		(1,709	)		(5,301	)
Provision for income taxes	$	8,919		$	13,379		$	9,228

The reconciliation between income tax expense based on statutory income tax rates and the provision for income taxes is as follows:

	2005			2004			2003
Income taxes at federal statutory rate	$	9,624		$	14,667		$	14,070
State income taxes, net of federal income tax deductions		979			664			827
Charitable donations of inventory		(32	)		(66	)		(255	)
Other		(425	)		(177	)		(113	)
Provision for income taxes from continuing operations		10,146			15,088			14,529
Provision for income taxes from discontinued operations		(1,227	)		(1,709	)		(5,301	)
Provision for income taxes	$	8,919		$	13,379		$	9,228

F-28

The components of the net deferred tax asset at December 31, 2005 and January 1, 2005 were as follows:

	2005			2004
DEFERRED TAX ASSETS:
Defined benefit pension reserve obligation	$	28,919			—
Asset valuation reserves		8,890		$	3,775
Loss on minority investment		1,520			1,520
Deferred compensation		1,014			994
Accrued liabilities		783			519
Severance and restructuring reserves		5,184			—
Other		891			831
Less: Deferred tax valuation allowance		(1,520	)		(1,520	)
Total deferred tax assets		45,681			6,119
DEFERRED TAX LIABILITIES:
Intangible assets		(26,127	)		(5,565	)
Property and equipment depreciation		(5,294	)		(1,260	)
Prepaids and other		(2,304	)		(415	)
Total deferred tax liabilities		(33,725	)		(7,240	)
	$	11,956		$	(1,121	)

	The $11,956 net deferred tax asset at December 31, 2005 is presented as a net deferred current asset of $13,380 and a net deferred noncurrent liability of $1,424. The $1,121 net deferred tax liability at January 1, 2005 is presented as a net deferred current asset of $4,304 and a net deferred noncurrent liability of $5,425.
	The Company paid income taxes of $8,979, $10,746, and $11,616 during the years ended December 31, 2005, January 1, 2005, and January 3, 2004, respectively.
12.	DEFERRED COMPENSATION OBLIGATION
	The Company has a deferred compensation plan with certain key employees. Under this plan, employees may elect to defer (contribute) a portion of their eligible compensation into the plan. The Company, at its discretion, may also contribute amounts into the plan on behalf of the key employees. The Company funds this plan by purchasing and owning securities which are considered “trading” securities in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and are consequently marked-to-market. These securities are recorded in Marketable Securities in the Company’s Consolidated Balance Sheets. The plan participants bear the potential economic risks and rewards of the investment’s performance and their interests in the underlying plan assets are subordinate to general creditors.
13.	CONCENTRATIONS
	At December 31, 2005 one customer accounted for approximately 19% of the Company’s total accounts receivable. For the twelve months ended December 31, 2005, this same customer accounted for approximately 8% of the Company’s total net sales.

F-29

14.	COMMITMENTS AND CONTINGENCIES
	Operating Leases – The Company leases warehouse, office and retail store space, equipment, and showroom display facilities under renewable operating leases with remaining terms of up to 10 years. In addition to the base rent, the Company pays its proportionate share of taxes, special assessments, and operating expenses of the warehouse and retail store space and showroom display facilities.
	The following is a schedule of future annual minimum lease payments for noncancelable operating leases as of December 31, 2005:

2006	$	12,956
2007		10,433
2008		8,505
2009		7,254
2010		4,952
Thereafter		3,872
	$	47,972

Certain of the Company’s leases contain pre-determined rent increases over the life of the lease. These rent increases are included in the above-referenced minimum lease table in the year in which the rent increase occurs. When recording rent expense, the Company amortizes the total amount of the rent payments on a straight-line basis over the term of the lease. When the Company receives leasehold improvement funding as an incentive to enter into a lease, the Company amortizes these incentives against rent expense on a straight line basis over the term of the lease. The Company’s rent expense was $7,275, $4,157, and $4,660 for the years ended December 31, 2005, January 1, 2005, and January 3, 2004, respectively.

Letters of Credit – The Company had outstanding standby and commercial letters of credit of $3,760 at December 31, 2005 relating primarily to securing our performance to third-parties under self-insurance programs as well as for purchase commitments issued to foreign suppliers and vendors.

Legal Proceedings – In August 2004, plaintiffs purporting to represent a class of consumers who purchased tableware sold in the United States filed suit against Federated Department Stores, the May Department Stores Company, Waterford Wedgwood U.S.A., and Lenox, Incorporated in United States District Court for the Northern District of California. In November 2004, plaintiffs filed a consolidated amended complaint alleging that for the period beginning at least as early as May 1, 2001 through the filing of the amended complaint on November 12, 2004, defendants violated Section 1 of the Sherman Act by conspiring to fix prices and to boycott sales to Bed, Bath & Beyond. Plaintiffs seek to recover an undisclosed amount of damages, trebled in accordance with antitrust laws, as well as costs, attorney’s fees and injunctive relief. This matter is currently in the pre-trial discovery phase. The cut-off dates for fact discovery and expert discovery are March 31, 2006 and June 12, 2006, respectively. The court has set August 24, 2006 as the date for filling defendants’ motions for summary judgment and plaintiffs’ motion for class certification. The trial date is scheduled for October 30, 2006.

On May 26, 2004, Ashley Seaberg filed a product liability suit against Department 56, Inc. and Time to Celebrate in United States District Court for the District of Oregon, claiming that a strand of lights from defendant Time to Celebrate started a house fire. On May 16, 2005, the court granted plaintiff’s motion to amend the complaint to add a claim for $10 million in punitive damages. On January 9, 2006, the court denied the Company’s motion for summary judgment on plaintiff’s punitive damages claim and granted plaintiff’s motion for summary judgment on its negligence per se claim. Trial is set for May 2006.

F-30

	The Company denies the allegations and claims of the cases above and intends to defend the cases vigorously. It is not possible at this time to estimate possible losses or a range of losses, if any, in these lawsuits. However, an adverse result in either of these lawsuits could have a material adverse effect on the Company’s financial position, results of operations and/or cash flows.
	In addition to the above lawsuits, the Company is involved in various legal proceedings, claims, and governmental audits in the ordinary course of its business. The Company believes it has meritorious defenses to all proceedings, claims, and audits. Management believes the impact, if any, of these legal proceedings would not be material to the results of operations, financial position or cash flows of the Company.
15.	SEGMENTS OF THE COMPANY AND RELATED INFORMATION
	In connection with the Company’s acquisition of Lenox, the Company has redefined its operating segments to include three reportable segments – Wholesale, Retail, and Direct. Although the product produced and sold for each segment is similar, the type of customer for the product and the method used to distribute the product are different. The segmentation of these operations also reflects how the Company’s chief executive officer currently reviews the results of these operations. Operating income (loss) from continuing operations for each operating segment includes specifically identifiable operating costs such as cost of sales and selling expenses. General and administrative expenses are generally not allocated to specific operating segments and are therefore reflected in the corporate category. Other components of the statement of operations, which are classified below operating income (loss) from continuing operations, are also not allocated by segment. In addition, the Company does not account for or report assets, capital expenditures or certain depreciation and amortization by segment. All transactions between operating segments have been eliminated and are not included in the following table.
	The following table presents the Company’s segment information for the last three fiscal years:

(In thousands)	52 WEEKS ENDED DECEMBER 31, 2005		% of Net Sales		52 WEEKS ENDED JANUARY 1, 2005		% of Net Sales		53 WEEKS ENDED JANUARY 3, 2004		% of Net Sales
WHOLESALE:
Net sales	$	217,009	100.0	%	$	153,139	100.0	%	$	166,895	100.0	%
Gross profit		87,574	40.4	%		79,106	51.7	%		88,133	52.8	%
Selling expenses		24,076	11.1	%		15,520	10.1	%		15,942	9.6	%
Income from continuing operations		63,498	29.3	%		63,586	41.5	%		72,191	43.3	%
RETAIL:
Net sales	$	72,777	100.0	%	$	9,769	100.0	%	$	8,062	100.0	%
Gross profit		42,745	58.7	%		7,185	73.6	%		5,755	71.4	%
Selling expenses		23,483	32.3	%		6,474	66.3	%		5,405	67.0	%
Income from continuing operations		19,262	26.5	%		711	7.3	%		350	4.3	%
DIRECT:
Net sales	$	41,129	100.0	%
Gross profit		25,611	62.3	%
Selling expenses		16,971	41.3	%
Income from continuing operations		8,640	21.0	%
CORPORATE:
Unallocated general and administrative expenses	$	58,911			$	29,181			$	31,348
CONSOLIDATED:
Net sales	$	330,915			$	162,908			$	174,957
Operating income from continuing operations		32,489	9.8	%		35,116	21.6	%		41,193	23.5	%

F-31

16.	STOCKHOLDERS’ EQUITY
	Stock-Based Compensation Plans – At December 31, 2005, the Company had compensation plans allowing the Company to grant options, stock appreciation rights, shares or performance units to employees, directors, officers, consultants, and advisors. Under the stock option plans, all employee options granted have an exercise price equal to the market value of the common stock at the date of grant, generally have a term of ten years, and generally are exercisable in equal installments beginning on each of the first, second, and third anniversaries of the date of the grant. At December 31, 2005, 256,651 shares were available for granting under the stock option and incentive plans.
	A summary of the status of the Company’s stock option and incentive plans as of December 31, 2005, January 1, 2005, and January 3, 2004, and changes during the years then ended is presented below:

	2005					2004					2003
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of year		1,850,066		$	15.42		2,184,781		$	15.08		2,266,409		$	14.96
Granted		622,562			13.49		263,000			16.00		46,405			16.05
Exercised		(147,539	)		11.12		(397,641	)		12.23		(100,066	)		9.08
Forfeited		(117,898	)		29.11		(200,074	)		18.38		(27,967	)		18.77
Outstanding at end of year		2,207,191			14.32		1,850,066			15.42		2,184,781			15.08
Options exercisable at end of year		2,139,525			14.28		1,696,223			15.52		1,665,676			15.83
Weighted average fair value of options granted during the year	$	5.25				$	8.27				$	6.85

The following table summarizes information about the Company’s stock option and incentive plans at December 31, 2005:

Range of Exercise Prices		Number Outstanding at December 31, 2005	WeightedAverage Remaining Contractual Life (years)	Weighted Average Exercise Price		Number Exercisable at December 31, 2005	Weighted Average Exercise Price
$	6.54-12.50	383,519	6.8	$	9.84	382,019	$	9.84
	12.51-13.75	957,723	6.8		12.94	950,723		12.94
	13.76-15.00	197,833	4.7		13.86	195,333		13.86
	15.01-37.75	668,116	5.4		19.01	611,450		19.30
		2,207,191	6.2		14.32	2,139,525		14.28

Shareholder Rights Plan  – In April 1997, the Company adopted a shareholder rights plan. Under the shareholder rights plan, each shareholder received a dividend of one preferred share purchase right for each share held of the Company’s common stock. Each right entitles the holder to purchase one one-thousandth of a share of Series A Participating Preferred Stock at an exercise price of $100, subject to adjustment, or at the discretion of the Board of Directors of the Company, the right to purchase common stock of the Company at a 50% discount. The rights become exercisable only upon the occurrence of certain events involving a buyer acquiring 18.5% or greater beneficial ownership in the Company’s common stock or the announcement of a tender offer or exchange offer which, if consummated, would give the buyer beneficial ownership of an 18.5% or greater position in the Company. Preferred share purchase rights owned by the buyer become null and void following this occurrence. The rights will expire April 2007, and the Company may redeem the rights at any time (prior to the occurrence of a specified event) at a price of one cent per right. If the Company is acquired in a merger or similar transaction after such an occurrence, all rights holders, except the buyer, will have the right to purchase stock in the buyer at a 50% discount.

F-32

	Performance- and Time- Vesting Restricted Stock– The Company granted 309,112 restricted shares of common stock to executive officers, directors, and employees during 2005. Of these shares, 171,257 shares were performance-vesting and 137,855 shares were time-vesting. Performance-vesting shares may be earned and become vested in a specific percentage depending upon the extent to which the target performance is met as of the last day of the performance cycle. Time-vesting shares generally become vested after the duration of a specified period of time. There were no restricted stock issuances during 2004 and 2003. At December 31, 2005, there were 310,852 restricted shares outstanding.
	The Company records unearned compensation expense on the grant date based on the publicly quoted fair market value of the Company’s common stock, and amortizes the balance over the vesting period. The Company recorded unearned compensation of approximately $4.6 million in 2005, which is included within stockholders’ equity. The Company recognized compensation expense of $588, $262, and $240 for the years ended December 31, 2005, January 1, 2005, and January 3, 2004, respectively.
17.	INCOME PER COMMON SHARE
	The following tables reconcile income from continuing operations per common share and income from continuing operations per common share assuming dilution:

	2005		2004		2003
Income from continuing operations	$	17,352	$	26,820	$	25,669
Weighted average number of shares outstanding		13,669,000		13,342,000		13,118,000
Income per share from continuing operations – basic	$	1.27	$	2.01	$	1.96
Income from continuing operations	$	17,352	$	26,820	$	25,669
Weighted average number of shares outstanding		13,669,000		13,342,000		13,118,000
Dilutive impact of options outstanding		83,000		188,000		92,000
Weighted average number of shares and potential dilutive shares outstanding		13,752,000		13,530,000		13,210,000
Income per share from continuing operations – assuming dilution	$	1.26	$	1.98	$	1.94

Options to purchase 865,949, 618,477, and 998,884 shares of common stock were outstanding at December 31, 2005, January 1, 2005, and January 3, 2004, respectively, but were not included in the computation of income per common share assuming dilution because the exercise prices were greater than the average market price of the common stock.

F-33

18.	ENVIRONMENTAL MATTERS
	As a result of the acquisition of Lenox, the Company is responsible for the cleanup and/or monitoring of two environmental sites located in New Jersey pursuant to an Administrative Consent Order and Memorandum of Understanding with the New Jersey Department of Environmental Protection (“NJDEP”). The Company is also responsible for monitoring solid waste management units at its Pomona, NJ manufacturing facility pursuant to a Hazardous & Solid Waste Amendment (“HSWA”) permit with the U.S. Environmental Protection Agency. The Company accrues for losses associated with environmental cleanup obligations when such losses are probable and can be reasonably estimated.
	At one of the NJDEP sites there are other potentially responsible parties who bear part of the cost of the cleanup, in which case the Company’s accrual is based on the Company’s share of the total costs. A portion of the cleanup costs with respect to the two NJDEP sites is paid by insurance. The estimated recovery of cleanup costs is recorded as an asset when receipt is deemed probable.
	As of December 31, 2005, the Company estimated, based on engineering studies, total remediation and ongoing monitoring costs to be $4.8 million, including the effects of inflation. Accordingly, the Company recorded a liability of approximately $3.3 million in other noncurrent liabilities, which represents the net present value of the estimated future costs discounted at 5.25%. The estimated insurance recovery assets as of December 31, 2005 were $1.8 million and are included in other assets.
19.	SUBSEQUENT EVENTS
	On March 3, 2006, the Company entered into an asset purchase agreement with Willitts Designs International, Inc. (“Willitts”) to acquire certain assets and assume certain liabilities of Willitts. The purchase price will be equal to the historical cost of the assets acquired less the obligations assumed as of the closing date. The net purchase price is estimated to be approximately $3.5 million. In addition to the purchase price, the Company may be required to make additional payments contingent on performance through 2009.

F-34

LENOX GROUP INC. AND SUBSIDIARIES

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

	Balance		Charged to								Balance
	Beginning		Costs and		Other						End of
Description	of Period		Expenses		Changes			Deductions			Period
Year ended December 31, 2005:
Allowance for doubtful accounts	$	5,051	$	3,025	$	2,729	(a)	$	3,939	(b)	$	6,866
Allowance for sales returns and credits		1,352		9,734		4,373	(a)		8,791			6,668
	$	6,403	$	12,759	$	7,102	(a)	$	12,730		$	13,534
Year ended January 1, 2005:
Allowance for doubtful accounts	$	5,714	$	1,614		—		$	2,277	(b)	$	5,051
Allowance for sales returns and credits		2,964		3,043		—			4,655			1,352
	$	8,678	$	4,657	$	—		$	6,932		$	6,403
Year ended January 3, 2004:
Allowance for doubtful accounts	$	6,529	$	1,761		—		$	2,576	(b)	$	5,714
Allowance for sales returns and credits		3,853		4,582		—			5,471			2,964
	$	10,382	$	6,343	$	—		$	8,047		$	8,678

(a)	Amounts acquired as part of the acquisition of Lenox, Inc. See footnote 3.
(b)	Accounts determined to be uncollectible and charged against allowance account, net of collections on accounts previously charged against allowance account.

S-1

EX-3.1

Exhibit 3.1

RESTATED CERTIFICATE OF INCORPORATION
OF
DEPARTMENT 56, INC.
(as of June 17, 1993)

* * *

Incorporated on September 9, 1992, under the General Corporation Law of the State of Delaware (the “GCL”).

* * *

          FIRST: The name of the corporation is Department 56, Inc. (hereinafter the “Corporation”).

          SECOND: The address of the Corporation’s registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New castle, Delaware 1981. The name of its registered agent at such address is The Corporation Trust Company.

          THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the GCL.

          FOURTH: The total number of shares of all classes of capital stock which the Corporation shall have the authority to issue is 120,000,000 shares, divided into two classes of which 20,000,000 shares of par value $.01 per share shall be designated Preferred Stock and 100,000,000 shares of par value $.01 per share shall be designated Common Stock. At the Effective Time [i.e., 8:00 p.m., June 17, 1993], each share of Series A Common Stock of the Corporation and each share of Series B Common Stock of the Corporation issued and outstanding immediately prior to the Effective Time shall be converted into and reclassified as 300 shares of Common Stock.

PAGE 1 OF 4

                    A. Preferred Stock

                              1. Issuance. The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of shares of Preferred Stock in one or more series, to establish the number of shares to be included in each such series and to fix the designations, powers, preferences and rights of the shares of each such series, and any qualifications, limitations or restrictions thereof.

                    B. Common Stock

                              1. Dividends. Subject to the preferential rights, if any, of the Preferred Stock, the holders of shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the Corporation which are by law available therefor, dividends payable either in cash, in property or in shares of Common Stock.

                              2. Voting Rights. Except as otherwise required by law, at every annual or special meeting of stockholders of the Corporation, every holder of Common Stock shall be entitled to one vote, in person or by proxy, for each share of Common Stock standing in his name on the books of the Corporation.

                              3. Liquidation, Dissolution or Winding Up. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation and of the preferential amounts, if any, to which the holders of Preferred Stock shall be entitled, the holders of all outstanding shares of Common Stock shall be entitled to share ratably in the remaining net assets of the Corporation.

          FIFTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, repeal, alter, amend or rescind the By-Laws of the Corporation. In addition, the By-Laws of the Corporation may be adopted, repealed, altered, amended or rescinded by the affirmative vote of a majority of the outstanding stock of the Corporation entitled to vote thereon.

PAGE 2 OF 4

          SIXTH: Elections of directors need not be by written ballot unless the By-Laws of the Corporation shall otherwise provide.

          SEVENTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that the foregoing shall not eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the GCL or (iv) for any transaction from which the director derived an improper personal benefit. If the GCL is hereafter amended to permit further elimination or limitation of the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the GCL as so amended. Any repeal or modification of this Article SEVENTH by the stockholders of the Corporation or otherwise shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.

PAGE 3 OF 4

          EIGHTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agreed to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which said application has been made, be binding on all of the creditors or class of creditors, and/or on all of the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.

          NINTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

PAGE 4 OF 4

         PAGE 1

The first State                         

          I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP, WHICH MERGES:

          “LENOX GROUP INC.”, A DELAWARE CORPORATION,

          WITH AND INTO “DEPARTMENT 56, INC.” UNDER THE NAME OF “LENOX GROUP INC.”, A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE FOURTEENTH DAY OF NOVEMBER, A.D. 2005, AT 4:10 O’CLOCK P.M.

          A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS.

		Harriet Smith Windsor, Secretary of State
2308902           8100M		AUTHENTICATION:   4295561
050926542		DATE:  11-15-05

State of Delaware
Secretary of State
Division of Corporations
Delivered 05:20 PM 11/14/2005
FILED 04:10 PM 11/14/2005
SRV 050926542 - 2308902 FILE

CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
LENOX GROUP INC. INTO DEPARTMENT 56, INC.

          Pursuant to Section 253 of the Delaware General Corporation Law, Department 56, Inc. (the “Corporation”), a corporation organized and existing under the laws of the State of Delaware, does hereby certify:

                    FIRST, that the Corporation owns all of the outstanding shares of stock of Lenox Group Inc., a corporation incorporated on the 14^th day of November, 2005, pursuant to the laws of the State of Delaware.

                    SECOND, that the Corporation by the following resolutions duly adopted by unanimous consent of its Board of Directors determined to merge Lenox Group Inc. into the Corporation on the 14th day of November, 2005:

          RESOLVED, that Department 56, Inc. does hereby merge into itself its wholly owned subsidiary, Lenox Group Inc., and does hereby assume all of the liabilities and obligations of such subsidiary.

          FURTHER RESOLVED, that said merger shall become effective upon the filing of a Certificate of Ownership and Merger with the Secretary of State of the State of Delaware.

          FURTHER RESOLVED, that, upon the effectiveness of said merger, all of the outstanding shares of stock of Lenox Group Inc. owned by the Corporation shall be canceled, and no securities of the Corporation or any other Corporation nor any money or other property shall be issued to the Corporation in exchange therefor.

          FURTHER RESOLVED, that upon effectiveness of said merger, the name of the Corporation shall be changed to “Lenox Group Inc.”

          FURTHER RESOLVED, that the proper officers of the Corporation be, and they are hereby, directed to make and execute a Certificate of Ownership and Merger setting forth a copy of these resolutions and the date of their adoption to cause the same to be filed with the Secretary of State of the State of Delaware and a certified copy to be recorded in the office of the Recorder of Deeds of New Castle County and to do all acts and things whatsoever, whether within or without the State of Delaware, which may be necessary or proper to effect said merger and change of name.

          IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by its Chairwoman and Chief Executive Officer and attested by its Secretary this 14^th day of November, 2005.

	Department 56, Inc.
	By
	Susan E. Engel
	Chairwoman and Chief Executive Officer
Louis A. Fantin, Secretary

         PAGE 1

The first State                         

          I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF INCORPORATION OF “LENOX GROUP INC.”, FILED IN THIS OFFICE ON THE FOURTEENTH DAY OF NOVEMBER, A.D. 2005, AT 11:08 O’CLOCK A.M.

          A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS.

4056780   8100 050924043		Harriet Smith Windsor, Secretary of State         AUTHENTICATION: 4294193                                     DATE: 11-14-05

State of Delaware

Secretary of State

Division of Corporations

Delivered 11:08 AM 11/14/2005

FILED 11:08 AM 11/14/2005

SRV 050924043 - 4056780 FILE

CERTIFICATE OF INCORPORATION

OF

LENOX GROUP INC.

          FIRST: The name of this corporation shall be: Lenox Group, Inc.

          SECOND: Its registered office in the State of Delaware is to be located at 1209 Orange
Street, City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.

          THIRD: The purpose or purposes of the corporation shall be:

To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

          FOURTH: The total number of shares of stock which this corporation is authorized to issue is
One Thousand Shares of Common Stock with a par value of $.001 per share.

          FIFTH: The name and address of the incorporator is as follows: Louis A. Fantin, c/o Lenox, Incorporated, 100 Lenox Drive, Lawrenceville, NJ 08648.

          SIXTH: The Board of Directors shall have the power to adopt, amend or repeal the by-laws.

          SEVENTH: No director shall be personally liable to the corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law, (i) for breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article Seventh shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment.

          IN WITNESS WHEREOF, the undersigned, being the incorporator herein before named, has executed signed and acknowledged this certificate of incorporation this 11^th day of November 2005.

Louis A. Fantin, Incorporator

EX-3.3

Exhibit 3.3

RESTATED
(as of February 15, 1996)
BY-LAWS OF
DEPARTMENT 56, INC.
(formerly “FL 56 HOLDING CORP.”)
(hereinafter called the “Corporation”)

ARTICLE I
OFFICES

Section 1.  Registered Office.

The registered office of the Corporation within the State of Delaware shall be in the City of Wilmington, County of New Castle.

Section 2.  Other Offices.

The Corporation may also have an office or offices other than said registered office at such place or places, either within or without the State of Delaware, as the Board of Directors shall from time to time determine or the business of the Corporation may require.

ARTICLE II
MEETINGS OF STOCKHOLDERS

Section 1.  Place of Meetings.

All meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof.

Section 2.  Annual Meetings.

Annual meetings of stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meetings the stockholders shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting in accordance with these Restated By-laws. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder of record entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Notice of any meeting shall not be required to be given to any person who attends such meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or who, either before or after the meeting, shall submit a signed written waiver of notice, in person or by proxy.

PAGE 1 OF 17

Section 3. Special Meetings.

Special meetings of stockholders, for any purpose or purposes, unless otherwise prescribed by statute may be called by the Board of Directors, the Chairman of the Board of Directors, if one shall have been elected, the President, the Chief Financial Officer or the General Counsel. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten (10) nore more than sixty (60) days before the date of the meeting to each stockholder of record (as determined pursuant to Article V, Section 7 hereof) entitled to vote at such meeting, and only such business as is stated in such notice shall be acted upon thereat. Notice of any meeting shall not be required to be given to any person who attends such meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or who, either before or after the meeting, shall submit a signed written waiver of notice, in person or by proxy.

Section 4.  Organization.

At each meeting of stockholders, the Chairman of the Board, if one shall have been elected, or, in his absence or if one shall not have been elected, the President, shall act as chairman of the meeting. The Secretary or, in his absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting, shall act as secretary of the meeting and keep the minutes thereof.

Section 5.  Order of Business.

The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting.

Section 6.  Quorum, Adjournments.

The holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders, except as otherwise provided by statute or by the Restated Certificate of Incorporation. If, however, such quorum shall not be present or represented by proxy at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented by proxy. At such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called. If the adjournment is for more than thirty days, or, if after adjournment a new record date is set, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

PAGE 2 OF 17

Section 7.  Voting.

Except as otherwise provided by statute or the Restated Certificate of Incorporation, each stockholder of the Corporation shall be entitled at each meeting of stockholders to one vote for each share of capital stock of the Corporation standing in his name on the record of stockholders of the Corporation:

                         (a)     on the date fixed pursuant to the provisions of Section 7 of Article V of these Restated By-laws as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or

                         (b)     if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the date next preceding the day on which the meeting is held.

Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy signed by such stockholder or his attorney-in-fact, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period. Any such proxy shall be delivered to the secretary of the meeting at or prior to the time designated in the order of business for so delivering such proxies. When a quorum is present at any meeting, the affirmative vote of the holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereon, present in person or represented by proxy, shall decide any question brought before such meeting, except (i) in the case of the election of directors, directors shall be elected by a plurality of the votes cast and (ii) if the question is one upon which by express provision of statute or of the Restated Certificate of Incorporation or of these Restated By-Laws, a different vote is required, then in such case such express provision shall govern and control the decision of such question. Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted.

Section 8.  Action by Consent.

Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any provision of statute or of the Restated Certificate of Incorporation or of these Restated By-Laws, the meeting and vote of stockholders may be dispensed with, and the action taken without such meeting and vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of stock of the Corporation entitled to vote thereon were present and voted.

PAGE 3 OF 17

Section 9. List of Stockholders Entitled to Vote.

At least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder shall be prepared. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present.

Section 10. Inspectors.

The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If any of the inspectors so appointed shall fail to appear or act, the chairman of the meeting shall, or if inspectors shall not have been appointed, the chairman of the meeting may, appoint one or more inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares of capital stock of the Corporation outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not be stockholders.

Section 11. Notice of Stockholder Proposals and Nominations.

                         (a)     At any annual meeting, only such business shall be conducted, and only such proposals shall be acted upon, including, without limitation, the nomination of persons for election to the Board of Directors, as shall have been brought before the annual meeting (i) by, or at the direction of, the Board of Directors or (ii) by any stockholder of the Corporation who properly complies with the notice procedures set forth in paragraph (b) of this Section 11.

                         (b)      For a nomination or proposal to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, such stockholder’s notice must be delivered to, or mailed to and received at, the principal executive offices of the Corporation not less than sixty (60) days and not more than ninety (90) days prior to the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that if less than seventy (70) days’ notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the stockholder, to be timely, must be so delivered or received not later than the close of

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business on the tenth (10th) day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. A stockholder’s notice to the Secretary shall set forth (i) (A) as to each person whom the stockholder proposes to nominate for election to the Board of Directors, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, and Rule 14a-11 thereunder, including, without limitation, such person’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected and (B) as to any other matter the stockholder proposes to bring before the annual meeting, a brief description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; and (ii) as to any matter the stockholder proposes to bring before the annual meeting (including the nomination for election of Directors), (A) the name and address as they appear on the Corporation’s books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal (or nomination), (B) the class and number of shares of the Corporation’s stock which are beneficially owned by the stockholder on the date of such stockholder’s notice and by any other stockholders known by such stockholder to be supporting such proposal (or nomination) on the date of such stockholder’s notice and (C) any financial interest of the stockholder in such proposal (or nomination).

                         (c)     The chairman of the meeting of stockholders, determined in accordance with Section 4 of this Article II, shall have the power and duty to determine whether a stockholder proposal or nomination, as the case may be, was made in accordance with the terms of this Section 11 and, if a stockholder proposal or nomination was not made in accordance with such terms, to declare that such proposal or nomination shall be disregarded.

                         (d)     Nothing in this Section 11 shall prevent the consideration and approval or disapproval at a meeting of stockholders of reports of officers, directors and committees of the Board of Directors; but, in connection with such reports, no business shall be acted upon at such meeting unless the procedures set forth in this Section 11 are complied with.

ARTICLE III
DIRECTORS

Section 1. Duties and Powers.

The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Restated Certificate of Incorporation or by these Restated By-laws directed or required to be exercised or done by the stockholders.

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Section 2. Number, Qualification, Election and Term of Directors.

Subject to the rights, if any, of holders of the Preferred Stock of the Corporation, the Board of Directors shall consist of not less than one nor more than twenty-one members, the exact number of which shall be fixed from time to time by the affirmative vote of a majority of the entire Board of Directors. Any decrease in the number of directors shall be effective at the time of the next succeeding annual meeting of stockholders unless there shall be vacancies in the Board of Directors, in which case such decrease may become effective at any time prior to the next succeeding annual meeting to the extent of the number of such vacancies. Directors need not be stockholders. Except as otherwise provided by statute or these Restated By-Laws, the directors (other than members of the initial Board of Directors) shall be elected by a plurality of votes cast at the annual meeting of stockholders. Each director shall hold office until his successor shall have been elected and qualified, or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these Restated By-Laws.

Section 3. Vacancies.

Any vacancy in the Board of Directors, whether arising from death, resignation, removal (with or without cause), an increase in the number of directors or any other cause, may be filled by the vote of a majority of the directors then in office, though less than a quorum, or by the sole remaining director or by the stockholders at the next annual meeting thereof or at a special meeting thereof. Each director so elected shall hold office until his successor shall have been elected and qualified.

Section 4. Meetings.

The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors, if one shall have been elected, by a majority of the Board of Directors or by the President of the Corporation. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight hours before the date of the meeting, or personally or by telephone, telegram, telex or similar means of communication on twenty-four hours’ notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances.

Section 5. Quorum and Manner of Acting.

A majority of the entire Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and, except as otherwise expressly required by statute or the Restated Certificate of Incorporation or these Restated By-laws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn such meeting to another time and place. Notice of the time and place of any such adjourned meeting shall be given to all of the directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice need only be given to the directors who were not present thereat. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a Board and the individual directors shall have no power as such.

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Section 6. Action by Consent.

Unless restricted by the Restated Certificate of Incorporation, any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors or such committee, as the case may be.

Section 7. Telephonic Meeting.

Unless restricted by the Restated Certificate of Incorporation, any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting.

Section 8. Committees.

The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, including an executive committee, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.

Except to the extent restricted by statute or the Restated Certificate of Incorporation, each such committee, to the extent provided in the resolution creating it, shall have and may exercise all the powers and authority of the Board of Directors and may authorize the seal of the Corporation to be affixed to all papers which require it. Each such committee shall serve at the pleasure of the Board of Directors and have such name as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors.

Section 9. Fees and Compensation.

Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the Board of Directors. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

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Section 10. Resignations.

Any director of the Corporation may resign at any time by giving written notice of his resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 11. Removal of Directors.

Any director may be removed, either with or without cause, at any time, by the holders of a majority of the voting power of the issued and outstanding capital stock of the Corporation entitled to vote at an election of directors.

Section 12. Interested Directors.

No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purposes if (a) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the directors or committee who then in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum, or (b) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

ARTICLE IV
OFFICERS

Section 1. General.

The officers of the Corporation shall be chosen by the Board of Directors and shall include a President, one or more Vice Presidents, the Secretary, and the Treasurer. The Board of Directors, in its discretion, may also choose as an officer of the Corporation a Chairman of the Board and may elect other officers (including a Vice Chairman of the Board, one or more Assistant Secretaries and one or more Assistant Treasurers) as may be necessary or desirable for the business of the Corporation. Such officers as the Board of Directors may choose shall have such terms of office, shall perform such duties and shall have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any officer of the Corporation the power to choose such other officers and to proscribe their respective duties and powers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Restated Certificate of Incorporation or these Restated By-laws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman or _:Vice-Chairman of the Board of Directors, need such officers be directors of the Corporation.

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Section 2. Election and Removal.

All officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the Board of Directors with or without cause. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The compensation of all officers of the Corporation shall be fixed by the Board of Directors or such committee or officers as the Board of Directors in its sole discretion may designate. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the Corporation.

Section 3. Resignations.

Any officer of the Corporation may resign at any time by giving written notice of his resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon receipt. Unless otherwise specified therein, the acceptance of any such resignation shall not be necessary to make it effective.

ARTICLE V
STOCK CERTIFICATES AND THEIR TRANSFER

Section 1. Stock Certificates.

Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman of the Board or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restriction of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

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Section 2. Facsimile Signatures.

Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.

Section 3. Lost Certificates.

The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct sufficient to indemnify it against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

Section 4. Transfers of Stock.

Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its records; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so.

Section 5. Transfer Agents and Registrars.

The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars.

Section 6. Regulations.

The Board of Directors may make such additional rules and regulations, not inconsistent with these Restated By-laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation.

Section 7. Fixing the Record Date.

In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

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Section 8. Registered Stockholders.

The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VI
NOTICES

Section 1. Notices.

Whenever written notice is required by law, the Restated Certificate of Incorporation or these Restated By-laws to be given to any director or stockholder, such notice may be given by mail, addressed to such director or stockholder, at his or her address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telex, cable or facsimile transmission.

Section 2. Waivers of Notice.

Whenever any notice is required by law, the Restated Certificate of Incorporation or these Restated By-laws to be given to any director or stockholder, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

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ARTICLE VII
INDEMNIFICATION OF OFFICERS AND DIRECTORS

Section 1. General.

The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) (“Proceeding”) by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (“Indemnitee”), against expenses (including attorneys’ fees) and losses, claims, liabilities, judgments, fines and amounts paid in settlement actually incurred by him in connection with such Proceeding (“Losses”) if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; provided, however, that except as provided in Section 6 of this Article VII, the Corporation shall indemnify any such Indemnitee in connection with a Proceeding initiated by such Indemnitee only if such Proceeding was authorized by the Board of Directors.

Section 2. Actions by or in the Right of the Corporation.

The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any Proceeding brought by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (also an “Indemnitee”) against expenses (including attorneys’ fees) and Losses actually incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, provided that no indemnification shall be made in respect of any claim, issue or matter as to which Delaware law expressly prohibits such indemnification by reason of an adjudication of liability of such person to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine equitable under the circumstances.

Section 3. Indemnification in Certain Cases.

Notwithstanding any other provision of this Article VII, to the extent that an Indemnitee has been wholly successful on the merits or otherwise in any Proceeding referred to in Sections 1 or 2 of this Article VII on any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) and Losses actually incurred by him in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Corporation shall indemnify Indemnitee, against expenses (including attorneys’ fees) and Losses actually incurred by Indemnitee in connection with each successfully resolved claim, issue or matter. In any review or Proceeding to determine such extent of indemnification, the Corporation shall bear the burden of proving any lack of success and which amounts sought in indemnity are allocable to claims, issues or matters which were not successfully resolved. For purposes of this Section 3 and without limitation, the termination of any such claim, issue or matter by dismissal with or without prejudice shall be deemed to be a successful resolution as to such claim, issue or matter.

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Section 4. Procedure.

                    (a)   Any indemnification under Sections 1 and 2 of this Article VII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the Indemnitee is proper (except that the right of Indemnitee to receive payments pursuant to Section 5 of this Article VII shall not be subject to this Section 4) in the circumstances because he has met the applicable standard of conduct set forth in such Sections 1 and 2. Such determination shall be made promptly, but in no event later than 90 days after receipt by the Corporation of Indemnitee’s written request for indemnification. The Secretary of the Corporation shall, promptly upon receipt of Indemnitee’s request for indemnification, advise the Board of Directors that Indemnitee has made such request for indemnification.

                    (b)   The entitlement of Indemnitee to indemnification shall be determined in the specific case by a majority vote of a quorum of the Board of Directors consisting of disinterested directors unless such a quorum is not obtainable or the Board of Directors, by the majority vote of disinterested directors, directs that the determination shall be made by independent legal counsel.

                    (c)   In the event the determination of entitlement is to be made by independent legal counsel, such independent legal counsel shall be selected by the Board of Directors and approved by Indemnitee. Upon failure of the Board of Directors to so select such independent legal counsel or upon failure of Indemnitee to so approve, such independent legal counsel shall be selected by the American Arbitration Association in New York, New York or such other person as such Association shall designate to make such selection.

                    (d)   If the Board of Directors or independent legal counsel shall have determined that Indemnitee is not entitled to indemnification to the full extent of Indemnitee’s request, Indemnitee shall have the right to seek entitlement to indemnification in accordance with the procedures set forth in Section 6 of this Article VII.

                    (e)   If the person or persons empowered pursuant to Section 4 (b) of this Article VII to make a determination with respect to entitlement to indemnification shall have failed to make the requested determination within 90 days after receipt by the Corporation of such request, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be absolutely entitled to such indemnification, absent (i) misrepresentation by Indemnitee of a material fact in the request for indemnification or (ii) a final judicial determination that all or any part of such indemnification is expressly prohibited by law.

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                    (f)   The termination of any proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, adversely affect the rights of Indemnitee to indemnification hereunder except as may be specifically provided herein, or create a presumption that Indemnitee did not act in good faith and in a manner which indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation or create a presumption that (with respect to any criminal action or proceeding) Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful.

                    (g)   For purposes of any determination of good faith hereunder, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Corporation or an affiliate, including financial statements, or on information supplied to Indemnitee by the officers of the Corporation or an affiliate in the course of their duties, or on the advice of legal counsel for the Corporation or an affiliate or on information or records given or reports made to the Corporation or an affiliate by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or an affiliate. The Corporation shall have the burden of establishing the absence of good faith. The provisions of this Section 4(g) of this Article VII shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in these Restated By-Laws.

                    (h)   The knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Corporation or an affiliate shall not be imputed to Indemnitee for purposes of determining the right to indemnification under these Restated By-Laws.

Section 5. Advances for Expenses and Costs.

All expenses (including attorneys fees) incurred by or on behalf of Indemnitee (or reasonably expected by Indemnitee to be incurred by Indemnitee within three months) in connection with any Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding within twenty days after the receipt by the Corporation of a statement or statements from Indemnitee requesting from time to time such advance or advances whether or not a determination to indemnify has been made under Section 4 of this Article VII. Indemnitee’s entitlement to such advancement of expenses shall include those incurred in connection with any Proceeding by Indemnitee seeking an adjudication or award in arbitration pursuant to these Restated By-Laws. Such statement or statements shall reasonably evidence such expenses incurred (or reasonably expected to be incurred) by Indemnitee in connection therewith and shall include or be accompanied by a written undertaking by or on behalf of Indemnitee to repay such amount if it shall ultimately be determined that Indemnitee is not entitled to be indemnified therefor pursuant to the terms of this Article VII.

Section 6. Remedies in Cases of Determination not to Indemnify or to Advance Expenses.

                    (a)   In the event that (i) a determination is made that Indemnitee is not entitled to indemnification hereunder, (ii) advances are not made pursuant to Section 5 of this Article VII or (iii) payment has not been timely made following a determination of entitlement to indemnification pursuant to Section 4 of this Article VII, Indemnitee shall be entitled to seek a final adjudication either through an arbitration proceeding or in an appropriate court of the State of Delaware or any other court of competent jurisdiction of Indemnitee’s entitlement to such indemnification or advance.

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                    (b)   In the event a determination has been made in accordance with the procedures set forth in Section 4 of this Article VII, in whole or in part, that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration referred to in paragraph (a) of this Section 6 shall be de novo and Indemnitee shall not be prejudiced by reason of any such prior determination that Indemnitee is not entitled to indemnification, and the Company shall bear the burdens of proof specified in Sections 3 and 4 of this Article VII in such proceeding.

                    (c)   If a determination is made or deemed to have been made pursuant to the terms of Sections 4 or 6 of this Article VII that Indemnitee is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding or arbitration in the absence of (i) a misrepresentation of a material fact by Indemnitee or (ii) a final judicial determination that all or any part of such indemnification is expressly prohibited by law.

                    (d)   To the extent deemed appropriate by the court, interest shall be paid by the Corporation to Indemnitee at a reasonable interest rate for amounts which the Corporation indemnifies or is obliged to indemnify Indemnitee for the period commencing with the date on which Indemnitee requested indemnification (or reimbursement or advancement of expenses) and ending with the date on which such payment is made to Indemnitee by the Corporation.

Section 7. Rights Non-Exclusive.

The rights of indemnification and advancement of expenses provided by, or granted pursuant to, this Article VII shall not be deemed exclusive of any other rights to which any person seeking indemnification or advancement of expenses may be entitled under any law, certificate of incorporation, by-law, agreement, vote of stockholders or resolution of directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.

Section 8. Insurance.

The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VII.

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Section 9. Definition of Corporation.

For the purposes of this Article VII, references to “the Corporation” include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporations as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article VII with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity.

Section 10. Survival of Rights.

The indemnification and advancement of expenses provided by, or granted pursuant to this Article VII shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

Section 11. Indemnification of Employees and Agents of the Corporation.

The Corporation may, by action of the Board of Directors from time to time, grant rights to indemnification and advancement of expenses to employees and agents of the Corporation with the same scope and effect as the provisions of this Article VII with respect to the indemnification of directors and officers of the Corporation.

ARTICLE VIII
GENERAL PROVISIONS

Section 1. Dividends.

Subject to the provisions of statute and the Restated Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of stock of the Corporation, unless otherwise provided by statute or the Restated Certificate of incorporation.

Section 2. Reserves.

Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may think conducive to the interests of the Corporation. The Board of Directors may modify or abolish any such reserve in the manner in which it was created.

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Section 3. Seal.

The seal of the Corporation shall be in such form as shall be approved by the Board of Directors.

Section 4. Fiscal Year.

The fiscal year of the Corporation shall be fixed, and once fixed, may thereafter be changed, by resolution of the Board of Directors.

Section 5. Checks, Notes, Drafts, Etc.

All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation.

Section 6. Execution of Contracts, Deeds, Etc.

The Board of Directors may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances.

Section 7. Voting of Stock in Other Corporations.

Unless otherwise provided by resolution of the Board of Directors, the Chairman of the Board or the President, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of the shares or other securities of such other corporation. In the event one or more attorneys or agents are appointed, the Chairman of the Board or the President may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. The Chairman of the Board or the President may, or may instruct the attorneys or agents appointed to, execute or cause to be executed in the name and on behalf of the Corporation and under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the circumstances.

ARTICLE IX
AMENDMENTS

These Restated By-Laws may be altered, amended or repealed, in whole or in part, or new By-laws may be adopted by either the affirmative vote of the holders of a majority of the outstanding capital stock of the Corporation entitled to vote thereon or by the Board of Directors.

PAGE 17 OF 17

EX-21.1

Exhibit 21.1

Subsidiaries of the Company

Name of Subsidiary	Jurisdiction
Department 56 Retail, Inc.	Minnesota
Department 56 Sales, Inc.	Minnesota
D 56, Inc.	Minnesota
CAN 56, Inc.	Minnesota
Lenox, Incorporated	New Jersey
Axis Holdings Corporation	Delaware
Time to Celebrate, Inc.	Minnesota

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 33-95704, No. 33-79960, and No. 333-41639 of Lenox Group Inc. and subsidiaries (formerly Department 56, Inc.) on Form S-8 of our reports dated March 16, 2006, relating to the consolidated financial statements and financial statement schedule of Lenox Group Inc. and subsidiaries and management’s report on the effectiveness of internal control over financial reporting as of December 31, 2005, appearing in the Annual Report on Form 10-K of Lenox Group Inc. and subsidiaries for the year ended December 31, 2005.

Minneapolis, Minnesota
March 16, 2006

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Susan E. Engel, certify that:

1.    I have reviewed this annual report on Form 10-K of Lenox Group Inc.;
2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:           March 16, 2006	/s/ Susan E. Engel
	Susan E. Engel
	Chairwoman of the Board and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy J. Schugel, certify that:

1.    I have reviewed this annual report on Form 10-K of Lenox Group Inc.;
2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:           March 16, 2006	/s/ Timothy J. Schugel
	Timothy J. Schugel
	Chief Financial Officer and Chief Operating Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

OFFICER CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002,
18 U.S.C. SECTION 1350

In connection with the Annual Report on Form 10K of Lenox Group Inc. (the “Company”) for the year ended December 31, 2005, as filed with the Securities and Exchange Commission (“Form 10-K”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:

(1)    The Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)    The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:            March 16, 2006	/s/ Susan E. Engel
	Susan E. Engel
	Chairwoman of the Board and Chief Executive Officer
Date:            March 16, 2006	/s/ Timothy J. Schugel
	Timothy J. Schugel
	Chief Financial Officer and Chief Operating Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form 10-K or as a separate disclosure document.