<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: October 3, 1998
-------------------------------------------
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 (I.R.S. Employer
incorporation or organization) Identification No.)
One Village Place, 6436 City West Parkway, Eden Prairie, MN 55344
------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(612) 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 X No
------- -------
As of October 3, 1998, 18,076,896 shares of the registrant's common
stock, par value $.01 per share, were outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEPARTMENT 56, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 3, JANUARY 3,
1998 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,164 $ 37,361
Accounts receivable, net 114,405 23,004
Inventories 26,699 18,070
Other current assets 11,561 9,311
-------- --------
Total current assets 154,829 87,746
PROPERTY AND EQUIPMENT, net 15,176 12,753
GOODWILL, TRADEMARKS AND OTHER, net 158,254 159,042
OTHER ASSETS 121 154
-------- --------
$328,380 $259,695
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 75,500 $ -
Current portion of long-term debt 20,000 20,000
Accounts payable 10,161 9,973
Other current liabilities 23,007 16,916
-------- --------
Total current liabilities 128,668 46,889
DEFERRED TAXES 6,151 6,151
LONG-TERM DEBT 20,000 20,000
STOCKHOLDERS' EQUITY 173,561 186,655
-------- --------
$328,380 $259,695
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
DEPARTMENT 56, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER QUARTER
ENDED ENDED
OCTOBER 3, OCTOBER 4,
1998 1997
---- ----
<S> <C> <C>
NET SALES $71,512 $61,602
COST OF SALES 29,808 25,845
------- -------
Gross profit 41,704 35,757
OPERATING EXPENSES:
Selling, general, and administrative 14,318 12,074
Amortization of goodwill, trademarks and other 1,258 1,144
------- -------
Total operating expenses 15,576 13,218
------- -------
INCOME FROM OPERATIONS 26,128 22,539
OTHER EXPENSE (INCOME)
Interest expense 1,623 1,069
Other, net (71) (142)
------- -------
INCOME BEFORE INCOME TAXES 24,576 21,612
PROVISION FOR INCOME TAXES 9,585 8,537
------- -------
NET INCOME $14,991 $13,075
------- -------
------- -------
NET INCOME PER COMMON SHARE $ 0.82 $ 0.63
------- -------
------- -------
NET INCOME PER COMMON SHARE ASSUMING DILUTION $ 0.81 $ 0.63
------- -------
------- -------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
DEPARTMENT 56, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
39 WEEKS 40 WEEKS
ENDED ENDED
OCTOBER 3, OCTOBER 4,
1998 1997
---- ----
<S> <C> <C>
NET SALES $190,459 $165,895
COST OF SALES 79,112 69,660
-------- --------
Gross profit 111,347 96,235
OPERATING EXPENSES:
Selling, general, and administrative 39,618 34,568
Amortization of goodwill, trademarks and other 3,668 3,432
Recovery of import duties (65) (370)
-------- --------
Total operating expenses 43,221 37,630
-------- --------
INCOME FROM OPERATIONS 68,126 58,605
OTHER EXPENSE (INCOME)
Interest expense 3,364 3,240
Other, net (490) (1,159)
-------- --------
INCOME BEFORE INCOME TAXES 65,252 56,524
PROVISION FOR INCOME TAXES 25,651 22,327
-------- --------
NET INCOME $ 39,601 $ 34,197
-------- --------
-------- --------
NET INCOME PER COMMON SHARE $ 2.10 $ 1.63
-------- --------
-------- --------
NET INCOME PER COMMON SHARE ASSUMING DILUTION $ 2.06 $ 1.62
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
DEPARTMENT 56, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
39 WEEKS 40 WEEKS
ENDED ENDED
OCTOBER 3, OCTOBER 4,
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities $(49,363) $(22,996)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,248) (1,202)
Acquisitions (4,660) -
-------- --------
Net cash used in investing activities (7,908) (1,202)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 2,648 1,059
Net borrowings under revolving credit facility 75,500 2,487
Stock repurchases (56,074) (23,039)
-------- --------
Net cash provided by (used in) financing
activities 22,074 (19,493)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (35,197) (43,691)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 37,361 46,405
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,164 $2,714
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest $2,897 $3,004
Income taxes $22,498 $20,024
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
DEPARTMENT 56, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated balance sheet as of January 3,
1998 was derived from the audited consolidated balances as of that date. The
remaining accompanying condensed consolidated financial statements are
unaudited and, in the opinion of management, include all adjustments
necessary for a fair presentation. Such adjustments were of a normal
recurring nature.
The results of operations for the quarter ended October 3, 1998 and the
39 weeks ended October 3, 1998 are not necessarily indicative of the results
for the full fiscal year.
It is suggested that these financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
1997 Annual Report to Stockholders and Annual Report on Form 10-K filed by
Department 56, Inc. (the "Company") with the Securities and Exchange
Commission.
2. INCOME 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 outstanding stock options been converted to common
stock.
3. STOCKHOLDERS' EQUITY
On April 29, 1998, the Board of Directors of the Company authorized a
stock repurchase program providing for the repurchase in open market and
privately negotiated transactions of up to an additional 1.5 million shares
valid through the end of the Company's 1999 fiscal year. The timing, prices
and number of shares repurchased under these programs will be determined at
the discretion of the Company's management and subject to continued
compliance with the Company's credit facilities. During the quarter ended
October 3, 1998, the Company repurchased 608,000 shares at a cost of $20.6
million. During the 39 weeks ended October 3, 1998, the Company repurchased
1,614,000 shares at a cost of $56.1 million. As of October 3, 1998, the
Company was authorized to repurchase 687,000 additional shares under these
programs.
4. ACQUISITIONS
During January 1998, the Company acquired substantially all of the
assets of the independent sales representative organization that represented
the Company's products in California and several other western states. Also
during January 1998, the Company acquired the inventory and certain other
assets of its Canadian distributor. During May 1998, the Company acquired
substantially all of the assets of the independent sales representative
organization that represented the Company's products in New York and several
other eastern states.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF RESULTS OF OPERATIONS FOR THE QUARTER ENDED OCTOBER 3, 1998 TO
THE QUARTER ENDED OCTOBER 4, 1997.
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
October 3, 1998 October 4, 1997
--------------- ---------------
(Dollars in millions)
% of % of
Dollars Net Sales Dollars Net Sales
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Net sales $71.5 100% $61.6 100%
Gross profit 41.7 58 35.8 58
Selling, general, and
administrative expenses 14.3 20 12.1 20
Amortization of goodwill,
trademarks and other 1.3 2 1.1 2
Income from operations 26.1 37 22.5 37
Interest expense 1.6 2 1.1 2
Other income, net (0.1) - (0.1) -
Income before income taxes 24.6 34 21.6 35
Provision for income taxes 9.6 13 8.5 14
Net income 15.0 21 13.1 21
</TABLE>
NET SALES. Net sales increased $9.9 million, or 16%, from $61.6 million
in the third quarter of 1997 to $71.5 million in the third quarter of 1998.
Sales of the Company's Village Series products increased $7.3 million, or
19%, while sales of General Giftware products increased $2.6 million, or 11%
between the two periods. Village Series and General Giftware products
represented 64% and 36%, respectively, of the Company's net sales during the
third quarter of 1998.
GROSS PROFIT. Gross profit increased $5.9 million, or 17%, between the
third quarter of 1997 and the third quarter of 1998. The increase in gross
profit was principally due to the increase in sales volume. Gross profit as
a percentage of net sales was 58% during the third quarter of both 1997 and
1998.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $2.2 million, or 19%, between the third
quarter of 1997 and the third quarter of 1998 principally due to a 93%
increase in marketing expenses and a 23% increase in distribution expenses.
Marketing expenses increased principally due to costs incurred in connection
with the new Snowbabies Friendship Club and a shift in the timing of certain
other marketing expenditures. Selling, general and administrative expenses
as a percentage of sales was 20% during the third quarter of both 1997 and
1998.
INCOME FROM OPERATIONS. Income from operations increased $3.6 million,
or 16%, between the third quarter of 1997 and the third quarter of 1998 due
to the factors described above. Income from operations was 37% of net sales
during the third quarter of both 1997 and 1998.
INTEREST EXPENSE. Interest expense increased $0.6 million, or 52%,
between the third quarter of 1997 and the third quarter of 1998 principally
due to increased borrowings under the revolving line of credit in 1998 offset
by the payment of $20 million of long term debt during 1997.
PROVISION FOR INCOME TAXES. The effective tax rate was 39.5% and 39.0%
during the third quarter of 1997 and 1998, respectively.
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF RESULTS OF OPERATIONS FOR THE 39 WEEKS ENDED OCTOBER 3, 1998 TO
THE 40 WEEKS ENDED OCTOBER 4, 1997.
<TABLE>
<CAPTION>
39 Weeks 40 Weeks
Ended Ended
October 3, 1998 October 4, 1997
--------------- ---------------
(Dollars in millions)
% of % of
Dollars Net Sales Dollars Net Sales
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Net sales $190.5 100% $165.9 100%
Gross profit 111.3 58 96.2 58
Selling, general, and
administrative expenses 39.6 21 34.6 21
Amortization of goodwill,
trademarks and other 3.7 2 3.4 2
Recovery of import duties (0.1) - (0.4) -
Income from operations 68.1 36 58.6 35
Interest expense 3.4 2 3.2 2
Other income, net (0.5) - (1.2) (1)
Income before income taxes 65.3 34 56.5 34
Provision for income taxes 25.7 13 22.3 14
Net income 39.6 21 34.2 21
</TABLE>
NET SALES. Net sales increased $24.6 million, or 15%, from $165.9
million in 1997 to $190.5 million in 1998. Sales of the Company's Village
Series products increased $17.5 million, or 16%, while sales of General
Giftware products increased $7.1 million, or 12% between the two periods.
Village Series and General Giftware products represented 66% and 34%,
respectively, of the Company's net sales in 1998.
GROSS PROFIT. Gross profit increased $15.1 million, or 16%, between
1997 and 1998. The increase in gross profit was principally due to the
increase in sales volume. Gross profit as a percentage of net sales was 58%
during both 1997 and 1998.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $5.0 million, or 15%, between 1997 and 1998
principally due to a 90% increase in marketing expenses and a 23% increase in
distribution expenses. Marketing expenses increased principally due to costs
incurred in connection with the new Snowbabies Friendship Club and a shift in
the timing of certain other marketing expenditures. Selling, general and
administrative expenses as a percentage of sales was 21% in both 1997 and
1998.
INCOME FROM OPERATIONS. Income from operations increased $9.5 million,
or 16%, between 1997 and 1998 due to the factors described above. Income from
operations as a percentage of sales increased from 35% in 1997 to 36% in 1998.
INTEREST EXPENSE. Interest expense increased $0.1 million, or 4%,
between 1997 and 1998 principally due to increased borrowings under the
revolving line of credit in 1998 offset by the payment of $20 million of long
term debt during 1997.
PROVISION FOR INCOME TAXES. The effective tax rate was 39.5% and 39.3%
during 1997 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of the Company's liquidity are its available cash
balances, internally generated cash flow and a revolving credit agreement
which provides letters of credit, bankers' acceptances and, if required,
short-term seasonal borrowings. The Company believes that these sources of
liquidity will be more than adequate to fund operations, capital expenditures
and required principal payments on its term loan for the next 12 months.
The Company maintains a revolving credit agreement providing for
borrowings of up to $90 million (subject to certain limitations) including
letters of credit and bankers' acceptances. At October 3, 1998, the Company
had $75.5 million of outstanding loans and acceptances and $1.6 million of
outstanding letters of credit under its revolving line of credit. The
available revolving line of credit commitment was $12.9 million.
Consistent with customary practice in the giftware industry, the Company
offers extended accounts receivable terms to many of its customers. This
practice has typically created significant working capital requirements in
the second and third quarters that the Company has generally financed with
net cash balances, internally generated cash flow and seasonal borrowings.
The Company's net cash balances peak in December, following the collection of
accounts receivable with extended payment terms. Accounts receivable
increased $14.4 million from $100.0 million at October 4, 1997 to $114.4
million at October 3, 1998 principally due to the increase in sales in 1998
as compared to 1997.
On April 29, 1998, the Board of Directors of the Company authorized a
stock repurchase program providing for the repurchase in open market and
privately negotiated transactions of up to an additional 1.5 million shares
valid through the end of the Company's 1999 fiscal year. The timing, prices
and number of shares repurchased under these programs will be determined at
the discretion of the Company's management and subject to continued
compliance with the Company's credit facilities. During the quarter ended
October 3, 1998, the Company repurchased 608,000 shares at a cost of $20.6
million. During the 39 weeks ended October 3, 1998, the Company repurchased
1,614,000 shares at a cost of $56.1 million. As of October 3, 1998, the
Company was authorized to repurchase 687,000 additional shares under these
programs.
<PAGE>
YEAR 2000
In 1997, the Company began a project to replace its primary operating and
financial computing systems with a new integrated computer system. The
Company plans to have the new integrated system, which is designed to improve
access to business information, operational at the end of first quarter 1999.
The vendor of the core software program for the new integrated system has
indicated that this system will substantially address Year 2000
requirements, and the Company does not anticipate that it will experience any
material disruption to its transaction processing operations or financial or
accounting functions as a result of the failure of any of its systems to be
Year 2000 compliant. The Company has established the target date of new
system implementation at the end of first quarter 1999 so that, in the event
substantial compliance with Year 2000 needs is not achieved by that time, the
remainder of 1999 can be utilized to achieve necessary functionality.
Total expenditures (aside of internal labor costs) for implementation
of the new system up to the point of substantial operational reliance and
integration with existing business processes is expected to be approximately
$4.5 million. Hardware, software, and certain project costs will be
capitalized and amortized over their useful lives. All other costs will be
expensed as incurred.
The Company believes that substantial completion of the integrated
system implementation by the end of first quarter 1999 will allow it to be
substantially Year 2000 compliant. There can be no assurance, however, that
the systems of third parties on which the Company relies will be Year 2000
compliant in a timely manner. An interruption of the Company's ability to
conduct its business due to a Year 2000 problem with a third party could have
a material adverse effect on the Company. The Company's product vendor and
customer bases are fragmented, and generally are not dependent on computer
control or systematization of their business operations. Management,
therefore, believes that the greatest risks presented by potential Year 2000
failures of third parties are those which would affect the general economy or
certain industries, such as may occur if there were insufficient electric
power or other utilities needed for the Company's operations or manufacture
of its products or insufficient reliable means of transporting the Company's
products. The statements concerning future matters are "forward-looking
statements" and actual results may vary.
FOREIGN EXCHANGE
The dollar value of the Company's assets abroad is not significant. The
Company's sales are denominated in United States dollars and, as a result,
are not subject to changes in exchange rates.
The Company imports most of its products from manufacturers located in
the Pacific Rim, primarily The People's Republic of China, Taiwan (Republic
of China) and The Philippines. These transactions are principally
denominated in U.S. dollars, except for imports from Taiwan which are
principally denominated in New Taiwan dollars. The Company, from time to
time, will enter into foreign exchange contracts or build currency deposits
as a partial hedge against currency fluctuations. The Company intends to
manage foreign exchange risks to the extent possible and take appropriate
action where warranted. The Company's costs could be adversely affected if
the currencies of the countries in which the manufacturers operate appreciate
significantly relative to the U.S. dollar.
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 not had a material impact on the
Company's results of operations.
<PAGE>
SEASONALITY AND CUSTOMER ORDERS
The Company generally records its highest level of sales during the
second and third quarters as retailers stock merchandise in anticipation of
the holiday season. The Company can also experience fluctuations in quarterly
sales and related net income compared with the prior year due to timing of
receipt of product from suppliers and subsequent shipment of product from the
Company to customers.
CUSTOMER ORDERS ENTERED (1)
(IN MILLIONS)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Qtr Qtr Qtr Qtr Total
--- --- --- --- -----
<S> <C> <C> <C> <C> <C>
1996 $178 $35 $28 $8 $249
1997 161 44 34 6 245
1998 174 50 37 - -
</TABLE>
(1) Customer orders entered are orders received and approved by the
Company, subject to cancellation for various reasons, including credit
considerations, inventory shortages and customer requests.
Historically, principally due to the timing of trade shows early in the
calendar year and the limited supply of the Company's products, the Company
has received the majority of its orders in the first quarter of each year.
The Company entered 66% and 71% of its total annual customer orders during
the first quarter of both 1997 and 1996, respectively. Cancellations were
approximately 8% and 6% of total annual orders in 1997 and 1996, respectively.
The Company shipped and recorded as net sales approximately 90% and 92%
of its annual customer orders in 1997 and 1996, respectively. Orders not
shipped in a particular period, net of cancellations, returns, allowances and
cash discounts, are carried into backlog. The backlog was $61.2 million as of
October 3, 1998, as compared to $64.5 million as of October 4, 1997.
Through the third quarter of 1998, customer orders entered increased 9%
as compared to the same period for 1997. Customer orders entered for Village
Series products have increased 10% through the third quarter of 1998 while
customer orders entered for General Giftware products have increased 7%.
Certain General Giftware products have lower gross profit rates than the
Company's average gross profit rate. In addition, from time to time, the
Company liquidates product at lower than average gross profit rates. As a
result, gross profit may vary depending on the mix of product shipped.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 11.1 Computation of net income per share.
(b) A Current Report on Form 8-K, dated April 30, 1998, was filed
reporting in Item 5 thereof and containing no financial statements. A Current
Report on Form 8-K, dated July 31, 1998, was filed reporting in Item 5
thereof and containing no financial statements.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
DEPARTMENT 56, INC.
Date: October 22, 1998 /s/Susan E. Engel
-----------------
Susan E. Engel
Chairwoman, Chief Executive Officer and Director
Date: October 22, 1998 /s/Timothy J. Schugel
---------------------
Timothy J. Schugel
Vice President - Finance and Principal
Accounting Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT PAGE
NUMBER NAME NUMBER
------- ---- ------
<S> <C> <C>
11.1 Computation of net income per share.
</TABLE>
<PAGE>
Exhibit 11.1
DEPARTMENT 56, INC.
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
October 3, October 4,
1998 1997
---- ----
<S> <C> <C>
BASIC:
Net Income $14,991 $13,075
------- -------
------- -------
Weighted average number of common shares outstanding 18,295 20,714
Net Income per Common Share $ 0.82 $ 0.63
------- -------
------- -------
ASSUMING DILUTION:
Net Income $14,991 $13,075
------- -------
------- -------
Weighted average number of common shares outstanding 18,295 20,714
The number of shares resulting from the assumed
exercise of stock options reduced by the number
of shares which could have been purchased with
the proceeds from such exercise, using the average
market price during the period 262 190
------- -------
Weighted average number of common and
common equivalent shares 18,557 20,904
------- -------
Net Income per Common Share Assuming Dilution $ 0.81 $ 0.63
------- -------
------- -------
</TABLE>
<PAGE>
DEPARTMENT 56, INC.
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
39 Weeks 40 Weeks
Ended Ended
October 3, October 4,
1998 1997
---- ----
<S> <C> <C>
BASIC:
Net Income $39,601 $34,197
------- -------
------- -------
Weighted average number of common shares outstanding 18,890 20,989
Net Income per Common Share $ 2.10 $ 1.63
------- -------
------- -------
ASSUMING DILUTION:
Net Income $39,601 $34,197
------- -------
------- -------
Weighted average number of common shares outstanding 18,890 20,989
The number of shares resulting from the assumed
exercise of stock options reduced by the number
of shares which could have been purchased with
the proceeds from such exercise, using the average
market price during the period 294 128
------- -------
Weighted average number of common and
common equivalent shares 19,184 21,117
------- -------
------- -------
Net Income per Common Share Assuming Dilution $ 2.06 $ 1.62
------- -------
------- -------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK>0000902270
<NAME>DEPARTMENT 56,INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> OCT-03-1998
<CASH> 2,164
<SECURITIES> 0
<RECEIVABLES> 114,405
<ALLOWANCES> 0
<INVENTORY> 26,699
<CURRENT-ASSETS> 154,829
<PP&E> 15,176
<DEPRECIATION> 0
<TOTAL-ASSETS> 328,380
<CURRENT-LIABILITIES> 128,668
<BONDS> 20,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 328,380
<SALES> 190,459
<TOTAL-REVENUES> 190,459
<CGS> 79,112
<TOTAL-COSTS> 79,112
<OTHER-EXPENSES> 43,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,364
<INCOME-PRETAX> 65,252
<INCOME-TAX> 25,651
<INCOME-CONTINUING> 39,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,601
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 2.06
</TABLE>
