UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: July 5, 2003

Commission file number: 1-11908

Department 56, Inc.
(Exact name of registrant as specified in its charter)

Delaware		13-3684956
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Village Place, 6436 City West Parkway, Eden Prairie, MN 55344

(Address of principal executive offices)

(Zip Code)

(952) 944-5600

(Registrant’s telephone number, including area code)

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 ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes ý No o

As of July 5, 2003, 13,116,267 shares of the registrant’s common stock, par value $.01 per share, were outstanding.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

DEPARTMENT 56, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands)

	JULY 5, 2003		DECEMBER 28, 2002		JUNE 29, 2002
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,369	$	42,494	$	3,696
Accounts receivable, net	61,622		32,620		61,306
Inventories	24,881		14,324		15,746
Other current assets	7,946		9,093		9,991
Total current assets	95,818		98,531		90,739

PROPERTY AND EQUIPMENT, net	19,435		20,908		22,425
GOODWILL, TRADEMARKS AND OTHER, net	59,940		60,061		60,176
OTHER ASSETS	2,613		1,825		2,190
	$	177,806	$	181,325	$	175,530

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Current portion of long-term debt	$	22,000	$	2,235	$	2,235
Borrowings on revolving credit agreement	18,000		—		8,000
Accounts payable	6,898		8,172		5,411
Other current liabilities	17,290		16,597		23,470
Total current liabilities	64,188		27,004		39,116

DEFERRED TAXES	5,144		5,808		5,362
LONG-TERM DEBT	—		51,765		51,765
STOCKHOLDERS’ EQUITY	108,474		96,748		79,287
	$	177,806	$	181,325	$	175,530

See notes to condensed consolidated financial statements.

DEPARTMENT 56, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except per share amounts)

	QUARTER ENDED
	JULY 5, 2003			JUNE 29, 2002
NET SALES	$	53,655		$	59,850
COST OF SALES	23,533			26,036
Gross profit	30,122			33,814

OPERATING EXPENSES:
Selling, general, and administrative	12,814			14,545

INCOME FROM OPERATIONS	17,308			19,269

OTHER EXPENSE (INCOME):
Interest expense	369			840
Other, net	(284		)	(46		)

INCOME BEFORE INCOME TAXES	17,223			18,475

INCOME TAX PROVISION	6,200			6,651

NET INCOME	$	11,023		$	11,824

NET INCOME PER SHARE – BASIC	$	0.84		$	0.91

NET INCOME PER SHARE – ASSUMING DILUTION	$	0.84		$	0.89

WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC	13,088			12,974
WEIGHTED AVERAGE SHARES OUTSTANDING – ASSUMING DILUTION	13,172			13,324

See notes to condensed consolidated financial statements.

DEPARTMENT 56, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except per share amounts)

	27 WEEKS ENDED JULY 5, 2003		26 WEEKS ENDED JUNE 29, 2002
NET SALES	$	88,534	$	92,349
COST OF SALES	39,748		40,257
Gross profit	48,786		52,092

OPERATING EXPENSES:
Selling, general, and administrative	30,867		32,788

INCOME FROM OPERATIONS	17,919		19,304

OTHER EXPENSE (INCOME):
Interest expense	953		1,896