UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-K/A
(Amendment No. 1)

(Mark One)

|/x/ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended December 30, 2000   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|    | OR                                                                                                                                                
|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to  to .

Commission file number 1-11908

DEPARTMENT 56, 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 registeredCommon 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 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 / /

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. /x/

The
aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $111,489,536 as of March 22, 2001 (based on the closing price of
consolidated trading in the Common Stock on that date as published inYahoo! Finance). For purposes of this computation, shares held by affiliates and
by directors and officers of the registrant have been excluded. Such exclusion of shares held by directors and officers is not intended, nor shall it be deemed, to be an admission that such persons
are affiliates of the registrant.

Number
of Shares of Common Stock, par value $.01 per share, outstanding as of March 22, 2001: 12,881,813.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's definitive Proxy Statement for the 2001 Annual Meeting of Stockholders filed with the Securities and Exchange Commission concurrently with this
Form 10-K (the "2001 Proxy Statement") are incorporated by reference in Part III.

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This
Form 10-K/A amends the Department 56, Inc. Annual Report on Form 10-K, dated March 30, 2001, for the fiscal year ended December 30, 2000. This Form 10-K/A speaks as of
March 30, 2001 except to the extent this Form 10-K/A speaks of a subsequent event and numerically specifies the date of such subsequent event.

Item 3. LEGAL PROCEEDINGS

The Company is involved in various legal proceedings, claims and governmental audits in the ordinary course of its business.

On
September 14, 2000, Arthur Andersen LLP filed a lawsuit against the Company in The Fourth Judicial District, State of Minnesota alleging breach of contract in connection with computer system
implementation work and seeking $0.6 million plus interest and legal costs. On March 1, 2001, the Company filed suit in The Circuit Court of Baltimore City, State of Maryland against
Andersen Worldwide Société Coopérative and W. Robert Grafton alleging fraud, conspiracy, tortuous conduct and breach of contract in connection with the
computer systems implementation work solicited and performed by Arthur Andersen LLP and seeking $1 billion in compensatory damages, plus punitive damages and legal costs. On January 1,
1999, the Company went "live" with a new enterprise-wide information system that it had retained Arthur Andersen LLP to select and implement. The Company expected that the system would perform a
number of functions in the transaction of business with customers, including order taking and confirmation, initiation of product shipment and shipping documentation, generation of invoices, and
accounts receivable and general ledger posting. Unfortunately, the system did not work as expected, and instead caused multifaceted and complex problems that adversely affected the Company in a
variety of ways. For example, during the first and second quarters of 1999, implementation of the new enterprise-wide information system affected the timing of the receipt of orders from customers,
product shipments, invoices and statements mailed, and resulted in problems in order taking, delayed shipments, customer documentation errors, and a higher than expected rate of merchandise return due
to associated shipping problems. These delays led to a decrease in sales as well as a delay in the Company's cash collection. In the third quarter of 1999, sales were negatively impacted by a rate of
product returns higher than that in recent years, and collection of accounts receivable continued to trail earlier periods by a significant amount. In response to these problems, the Company undertook
several efforts, including a physical inventory and a comparison of historical claim reserves. In the fourth quarter of 1999, the Company retained an outside company to assist in account
reconciliation with the Company's customers. In the first quarter of 2000, the Company continued its account reconciliation efforts and initiated a one-time discount program, as well as undertaking a
systematic analysis of the 1999 year-end allowance for doubtful accounts and bad debt provision. Finally, trends which developed
in the second quarter of 2000, relating to slowdowns in the collection of overdue accounts receivable and an unexpected decrease in the level of orders, led to the Company's determination to
accelerate the resolution of outstanding reconciliation issues by employing more aggressive techniques (including negotiated settlements at significant discounts) which required providing for an
additional $5.5 million to bad debt reserve and an additional $6.5 million to the customer claims reserve. In light of the foregoing, and the adverse impact upon the Company's
relationship with its customers that the information system caused, the Company brought suit against Andersen Worldwide Societe Cooperative and W. Robert Grafton. On April 3, 2001, the
Minnesota State Court presiding over Arthur Andersen LLP's lawsuit against the Company (the "Minnesota Action") issued an order enjoining the Company's suit filed in Maryland. On April 9, 2001,
the Company filed a counterclaim in the Minnesota Action against Andersen Worldwide Societe Cooperative, W. Robert Grafton and Arthur Anderson LLP, alleging

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fraud, conspiracy, tortious conduct and breach of contract in connection with the computer systems work and seeking unspecified damages, interest and legal costs.

On
March 5 and March 9, 2001 lawsuits seeking unspecified compensatory damages were filed against the Company and its Chairwoman and Chief Executive Officer Susan E. Engel, in the United
States District Court for the District of Minnesota purportedly on behalf of the class of persons who purchased Department 56 common stock during the period February 24, 1999 through
April 26, 2000. The purported class action lawsuits allege the Company and its Chairwoman violated federal securities laws by making a series of false and misleading statements concerning the
Company's financial statements. The Company intends to defend these lawsuits vigorously.

The
Company believes it has meritorious defenses to all proceedings, claims and audits. Management is unable however to predict the ultimate outcome of these proceedings, claims and audits or to
reasonably estimate the impact, if any, that the ultimate resolution of these matters will have on the Company's results of operations, financial position or cash flows.

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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the results of operations and financial condition should be read in conjunction with the Department 56, Inc. Consolidated Financial
Statements and related Notes thereto, included elsewhere herein. In addition, the following discussion should be read in connection with the discussion of Legal Proceedings with respect to the suit
filed against Andersen Worldwide Societe Cooperative and W. Robert Grafton arising out of the serious problems experienced and resulting costs incurred in connection with installation and
implementation of an enterprise-wide computer information system solicited and performed by Arthur Andersen LLP. The Company is now confident that the critical pieces of its enterprise-wide system
that impact its customers the mostorder taking, shipping, documentation and invoicingare fully supporting its business.

(In millions, except per share amounts)

|                                                           |  | 2000 |       | 1999 |     | 1998 |  
|---------------------------------------------------------- |  | ---- | ----- | ---- | --- | ---- | -
|
|
|Net sales1                                                 |  | $    | 234.1 |      | 100 | %    | $
|Gross profit                                               |  |      | 124.5 |      | 53  |      |  
|Selling, general and administrative expenses               |  |      | 74.2  |      | 32  |      |  
|Amortization of goodwill, trademarks and other intangibles |  |      | 5.5   |      | 2   |      |  
|Income from operations                                     |  |      | 44.9  |      | 19  |      |  
|Interest expense                                           |  |      | 11.7  |      | 5   |      |  
|Other, net                                                 |  |      | (.4   | )    |    |      |  
|Income before income taxes                                 |  |      | 33.5  |      | 14  |      |  
|Provision for income taxes                                 |  |      | 12.7  |      | 5   |      |  
|Net income                                                 |  |      | 20.8  |      | 9   |      |  
|Net income per common share assuming dilution              |  |      | 1.47  |      |     |      |  
|Operating cash flow2                                       |  |      | 55.9  |      |     |      |  

COMPARISON OF RESULTS OF OPERATIONS 2000 TO 1999

Net Sales Net sales decreased $21.4 million, or 8%, from $255.5 million in 1999 to $234.1 million in 2000. The
decrease in sales was principally due to a decrease in sales volume of approximately $12.6 million, or 5%, the impact of a customer appreciation discount that the Company offered on orders
taken during the first quarter of 2000 of approximately $6.3 million, or 2%, and an increase in the amount provided for returned product. The increase in the amount provided for returned
product was primarily the result of a $6.5 million charge taken during the first quarter of 2000. The offer of the customer appreciation discount to affirm returning customer relationships and
the $6.5 million charge taken for returned product were each a result of the problems experienced during the implementation of the Company's new enterprise-wide information system
beginning in early 1999, as previously communicated. Sales of Village Series products decreased $17.9 million, or 11%, while sales of General Giftware

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products decreased $3.5 million, or 4% between the two periods. Village Series products represented 65% of the Company's sales in 2000 versus 67% in 1999.

Gross Profit Gross profit as a percentage of net sales was 56% and 53% in 1999 and 2000, respectively. Excluding the impact of the
customer appreciation discount and the increase in the amount provided for returned product, gross profit as a percent of sales would have been 56% during both 1999 and 2000.

Selling, General and Administrative Expenses Selling, general and administrative expenses increased $12.6 million, or 21%, between
1999 and 2000. The increase is principally due to an increase in the amount provided for bad debts, an increase in depreciation and expenses related to the Company's continued investment in
information systems and its new distribution center, an increase in expenses related to the Company's launching of its new business-to-business extranet, and an increase in
other administrative expenses. The increase in the provision for bad debts was primarily due to a $5.5 million charge taken during the first quarter of 2000 as a result of the problems
experienced during the implementation of the Company's new enterprise-wide information system beginning in early 1999, as previously communicated. These increases were principally offset
by a decrease in marketing expense, a decrease in commission expense, and a decrease in the write-off of acquisition costs. Selling, general and administrative expenses as a percentage of
sales was 24% and 32% during 1999 and 2000, respectively. Excluding the impact of the customer appreciation discount and increased provisions for returned product and bad debts, selling, general and
administrative expenses as a percentage of sales would have been 28% in 2000.

Income from Operations Income from operations decreased $30.5 million, or 40%, from 1999 to 2000 due to the factors described
above. Operating margins decreased from 29% of net sales in 1999 to 19% of net sales in 2000. Excluding the impact of the customer appreciation discount and the increased provisions for returned
product and bad debts, income from operations would have been 26% of net sales in 2000.

Interest Expense Interest expense increased $5.0 million, or 75%, between 1999 and 2000 principally due to increased borrowings
under the Company's credit facilities in 2000 and increased interest rates paid by the Company. Additional borrowings were required as a result of slower cash collections and share repurchases.

Provision for Income Taxes The effective income tax rate was 38.0% during 1999 and 2000.

COMPARISON
OF RESULTS OF OPERATIONS 1999 TO 1998

Net Sales Net sales increased $4.3 million, or 2%, from $251.2 million in 1998 to $255.5 million in 1999. The
increase in sales was principally due to an increase in sales volume, offset partially by an increase in the amount provided for returned product. Sales of Village Series products increased 5% from
1998 to 1999, while General Giftware product sales decreased 6% during the same period. Village Series products represented 67% of the Company's sales in 1999 versus 65% in 1998.

Gross Profit Gross profit decreased $0.5 million, or less than 1%, between 1998 and 1999. Gross profit as a percentage of sales
decreased from 57% in 1998 to 56% in 1999, principally due to an increase in the amount provided for returned product.

Selling, General and Administrative Expenses Selling, general and administrative expenses increased $4.9 million, or 9%, between
1998 and 1999. The increase is principally due to a 31% increase in distribution expenses, a 12% increase in marketing expenses and a 2% increase in administrative expenses. The increase in
distribution expense was principally due to a $0.9 million charge related to the Company's consolidation of its two current distribution centers and a storage facility into one new

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distribution center in 2000, and a 63% increase in temporary labor due to the shipping difficulties experienced as a result of the implementation of the Company's new integrated computer system. The
increase in administrative expenses is principally due to an increase in bad debt expense, the write-off of failed acquisition costs, an increase in showroom expense as a result of the
Company's acquisition of showrooms during 1999 and 1998, an increase in depreciation expense associated with the implementation of the integrated computer system, and expenses associated with the
operation of the Company's first retail store. These increases were principally offset by a decrease in commission expense due to the acquisition of showrooms, a decrease in bonus expense and a
decrease in other administrative expenses. Selling, general and administrative expenses as a percentage of sales was 23% and 24% during 1998 and 1999, respectively.

Income from Operations Income from operations decreased $5.6 million, or 7%, from 1998 to 1999 due to the factors described above.
Operating margins decreased from 32% of net sales in 1998 to 29% of net sales in 1999.

Interest Expense Interest expense increased $1.9 million, or 40%, between 1998 and 1999 principally due to increased borrowings
under the revolving credit agreement. Additional borrowings were required as a result of slower cash collections which were impacted by the timing and manner in which invoices, shipping documents and
statements were mailed to customers as a result of the implementation of the new integrated computer system. Additional borrowings were also required due to increased capital expenditures.

Provision for Income Taxes The effective income tax rate was 39.3% and 38.0% during 1998 and 1999, respectively.

SEASONALITY

Historically,
principally due to the timing of wholesale trade shows early in the calendar year and the limited supply of the Company's products, the Company has received the majority of its total
annual customer orders during the first quarter of each year. The Company entered 64% and 65% of its total annual customer orders during 2000 and 1999, respectively, during the first quarter of each
of those years. Cancellations of total annual customer orders were approximately 7% and 8% in 2000 and 1999, respectively.

The
Company shipped and recorded as net sales (net of returns, allowances and cash discounts), approximately 91% of its annual customer orders during both 2000 and 1999. Orders not shipped in a
particular year, net of cancellations, are carried into backlog for the following year and have historically been orders for Spring and Easter products. The Company's backlog was $4.6 million
and $5.4 million at December 30, 2000 and January 1, 2000, respectively.

The
Company receives products, pays its suppliers and ships products throughout the year, although historically the majority of shipments occur in the second and third quarters as retailers stock
merchandise in anticipation of the holiday season. As a result of this seasonal pattern, the Company generally records its highest sales during the second and third quarters of each year. As a result
of this historical pattern, the Company can experience fluctuations in quarterly sales growth 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 broader, long-term annual growth consistent with the Company's business strategy.

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|                                                           |  | 2000 |       | 1999
|---------------------------------------------------------- |  | ---- | ----- | ----
|
|
|Customer orders entered1                                   |  | $    | 165.1 |     
|Net sales2                                                 |  |      | 43.0  |     
|Gross profit                                               |  |      | 21.4  |     
|Selling, general and administrative expenses               |  |      | 23.2  |     
|Amortization of goodwill, trademarks and other intangibles |  |      | 1.4   |     
|(Loss) income from operations                              |  |      | (3.1  | )   
|Net (loss) income                                          |  |      | (3.2  | )   
|Net (loss) income per common share assuming dilution3      |  |      | (0.21 | )   

LIQUIDITY AND CAPITAL RESOURCES

The
Company's credit agreement provides for a revolving credit facility and a term loan facility. The revolving credit facility provides for borrowings of up to $100 million including letters
of credit. The letters of credit are issued primarily in connection with inventory purchases. The credit agreement contains numerous financial and operating covenants, including restrictions on
incurring indebtedness and liens, selling property and paying dividends. In addition, the Company is required to satisfy consolidated net worth, interest coverage ratio and leverage ratio tests, in
each case at the end of each fiscal quarter. None of these restrictions are expected to have a material adverse effect on the Company's ability to operate in the future.

During
the first quarter of 2000, the Company borrowed an additional $90 million of term debt under its term loan facility which brought the total outstanding term debt to $150 million
as of April 1, 2000. During the second quarter of 2000, the Company prepaid $45 million of term debt which can not be re-borrowed and included the $22.5 million
payment due March 2001. During the first quarter of 2001, the Company prepaid $20 million of term debt under its current credit facility. As of March 14, 2001, the total term debt
outstanding was $85 million. The Company's remaining term debt requires annual amortization payments of $0.9 million, $32.4 million, and $51.7 due March 2002, 2003 and
2004, respectively.

The
Company believes that its internally generated cash flow and seasonal borrowings under the revolving credit facility will be adequate to fund operations and capital expenditures for the next
12 months.

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 which the Company has generally financed with available cash, internally generated cash flow and seasonal borrowings. The Company's cash and cash
equivalents

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balances peak during the first quarter of the subsequent year, following the collection of accounts receivable with extended payment terms due in November and December.

Accounts
receivable decreased from $65.6 million at January 1, 2000 to $37.0 million at December 30, 2000. The decrease in accounts receivable was principally due to a
decrease in sales and an unusually high balance of accounts receivable open at the end of 1999. Cash collections in 1999 were lower than normal due to the problems experienced in 1999 related to the
implementation of the Company's enterprise-wide information system, as previously communicated. Accounts receivable at December 30, 2000 were approximately $10.0 million
higher than comparable periods at the end of 1997 and 1998, primarily due to slower cash collections from some of the Company's retail customers stemming from a generally weak 2000 holiday season.
Management believes there is adequate provision for any doubtful accounts receivable and sales returns that may arise.

Capital
expenditures were $7.1 million, $16.3 million, and $6.8 million for 2000, 1999 and 1998, respectively. During 2000, capital expenditures related to the Company's new
distribution facility, the Company's second retail store, and the launch of it's business-to-business extranet totaled $2.3 million, $1.1 million and
$2.0 million, respectively. Included in 1999 and 1998 capital expenditures is $7.7 million and $4.1 million, respectively, incurred in connection with the Company's implementation
of its integrated computer system. During 1999, capital expenditures related to the Company's new distribution facility and the Company's first retail store totaled $5.7 million and
$2.0 million, respectively.

During
2000, the Company completed a $4.0 million strategic minority investment in 2-Day Designs, Inc., a manufacturer and marketer of high quality accent furniture and
wooden accessories sold primarily through furniture, home furnishings, and catalog retailers principally in the United States. The transaction is accounted for under the equity method of accounting.

During
1999, the Company acquired substantially all of the assets of the independent sales representative organizations that represented the Company's products in Massachusetts and several other
eastern states, Minnesota and several other midwestern states and Texas and several surrounding southern states. The cost of these acquisitions was $4.0 million.

During
1998, the Company acquired substantially all of the assets of the independent sales representative organizations that represented the Company's products in California and several surrounding
western states and New York and several surrounding eastern states. Also during 1998, the Company acquired the inventory and certain other assets of its Canadian distributor. The cost of these
acquisitions was $4.7 million.

The
impact of these acquisitions on the Company's results of operations are not considered significant.

In
April 1999, the Company executed a lease for a new distribution center in Minnesota. The lease provides for a 10-year term, with options to renew the lease, as well as to expand
and/or acquire the facility. During 2000, the Company consolidated its two current distribution centers and storage facility into the new distribution center. Estimated costs of $0.9 million
were recorded in 1999 related to noncancelable lease contracts associated with the existing rented facilities.

Operating
cash flow, defined as earnings before interest, income tax, depreciation, and amortization expenses, decreased $29.0 million, or 34%, from $84.9 million in 1999 to
$55.9 million in 2000. The decrease was principally due to the decrease in net income.

The
Company has a stock repurchase program. Under the program, the Company repurchased 2.4 million shares during 2000 at an average price of $14 per share. Since January 1997, the
Company has repurchased a total of 9.2 million shares at an average price of $24 per share. As of December 30, 2000,

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the Company had remaining authorization from the Board of Directors to repurchase $52.4 million of its stock through 2001. The timing, prices and amounts of shares repurchased, as well as the
manner of execution, will be determined at the discretion of the Company's management and subject to continued compliance with the Company's credit facilities.

ACCOUNTING
CHANGES

To
conform with the requirements of the Emerging Issues Task Force ("EITF") Issue No. 00-10,Accounting for Shipping and Handling Fees and
Costs, the Company reclassified freight expenses for products shipped to customers into cost of products sold. Such expenses were formerly classified as a reduction of net
sales. This change has no impact on previously reported gross profit amounts or net earnings.

In
December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101,Revenue Recognition in Financial
Statements. SAB No. 101 summarized the SEC's view in applying generally accepted accounting principles to selected revenue recognition issues. Adoption of SAB
No. 101 did not have a material effect on the Company's consolidated financial position or results of operations for 2000.

On
December 31, 2000 (fiscal year 2001), the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 133,Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 138,Accounting for Certain Derivative Instruments and Certain Hedging Activities. SFAS No.
133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that all derivatives, including those embedded in other contracts, be recognized
as either assets or liabilities and that those financial instruments be measured at fair value. The accounting for changes in the fair value of derivatives depends on their intended use and
designation. Management has reviewed the requirements of SFAS No. 133 and has determined that they have no free-standing or embedded derivatives. All contracts that contain provisions meeting the
definition of a derivative also meet the requirements of, and have been designated as, normal purchases or sales.

FOREIGN
EXCHANGE

The
dollar value of the Company's assets abroad is not significant. Substantially all of the Company's sales are denominated in U.S. dollars and, as a result, are not subject to changes in exchange
rates.

The
Company imports its product from manufacturers located in the Pacific Rim, primarily 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 foreign 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 been low
and has not had a material impact on the Company's results of operations.

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FACTORS AFFECTING FUTURE EARNINGS

On
February 22, 2001, the Company issued a press release stating in relevant part: "Retail customer orders through February 17 are down approximately 35% against the comparable period in
the prior year. Village orders are approximately 40% below the comparable period in the prior year, while General Giftware orders are down approximately 24%." The press release also noted, "We are
clearly feeling the impact of a slow December and an overall holiday selling season that was significantly below the increase for which retailers had planned. The combination of this erosion in
consumer confidence across the whole economy and our proven ability to fulfill reorders which come in after the first quarter has caused many retailers to take a wait-and-see
approach. While we cannot project how orders will come in through the remainder of the year, we may see more reorder activity than we have in the past resulting in a shift in our order patterns. Our
informal discussions with approximately seven hundred-fifty of our retailers and more in-depth discussions with a small but representative sample of this group lead us to believe that we
may experience upside order potential from our current run rate."

The
press release further stated: "The largest gap in our orders is from collectible accounts that have not yet ordered. Our informal survey through our sales force leads us to believe that over
ninety percent of these missing accounts are planning to order. Of the small number not planning to order, the vast majority have been closing stores as would be expected in a rotation of channel
entries and exits"

Ms. Engel
continued. "In light of year-to-date orders being substantially below our internal expectations, our focus during the balance of 2001 will be on identifying
and pursuing new revenue opportunities, driving reorders and maximizing earnings and cash flow by closely managing costs and capital investments."

On
Form 8-K dated February 23, 2001, the Company stated: "The Company's orders through February 17, 2001 from retail accounts that fit the Company's definition of a
Like Account were down 21% relative to the full first quarter of 2000. Like Accounts are considered those accounts, excluding Department Store accounts, whose total orders through February 17,
2001 were greater than one third of their total orders for the full first quarter of 2000."

On
March 5 and March 9, 2001 lawsuits seeking unspecified compensatory damages were filed against the Company and its Chairwoman and Chief Executive Officer. See Item 3, Legal
Proceedings.

The
federal securities laws provide "safe harbor" status to certain statements that go beyond historical information and may provide an indication of future results. Any conclusions or expectations
expressed in, or drawn from, the statements in the press release or the Form 8-K or throughout this annual report concerning matters that are not historical corporate financial
results are "forward-looking statements" that involve risks and uncertainties.

The
Company's expectations regarding 2001 are based on the Company's expectations for sales and operating margin. The Company's sales expectations for 2001 are based on the Company's current forecast
of retailer orders and planned sales through its retail arm, and is further dependent on the timing and extent of promotional and marketing efforts undertaken by the Company as well as the timing and
extent of product receipts and shipments, the efficiency of information systems developed to collect, compile and execute customer orders, and retailer and consumer demand. Retailer orders have
principally been dependent on the amount, quality and market acceptance of the new product introductions and retailer demand, but order patterns have historically varied in number, mix and timing, and
there can be no assurance that the year-to-date order levels or trends will not deteriorate, or that they will exhibit levels or trends supportive of a shift toward greater orders later in the year.
Moreover, the

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Company's order forecasting model is dependent on assumptions concerning retail inventory levels, consumer demand, and retailer expectations. The Company's operating margin may be impacted by, amongst
other factors, shifts in product mix and/or gross margin, exchange rate fluctuations with countries the Company imports from, changes in freight rates and changes in the Company's historical selling,
general and administrative expense rate, including bad debts.

If
not otherwise mentioned, other factors, including consumer acceptance of new products; product development efforts; identification and retention of sculpting and other talent; completion of third
party product manufacturing; retailer reorders and order cancellations; control of operating expenses; collection of accounts receivable; 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, 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; and industry, general economic,
regulatory, transportation, and international trade and monetary conditions, can significantly impact the Company's sales, earnings and earnings per share. 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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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-K/A to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                    |  | DEPARTMENT 56, INC.
|------------------- |  | -------------------
|Date: July 12, 2001 |  | By:                

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