**UNITED STATES
SECURITIES AND EXCHANGE COMMISSION**Washington, D.C. 20549

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FORM 10-Q

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

For the quarterly period ended: June 30, 2007

Commission File Number: 1-11908

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|Lenox Group Inc                                       
|------------------------------------------------------
|(Exact name of registrant as specified in its charter)

|Delaware                                                      |  | 13-3684956                         
|------------------------------------------------------------- |  | -----------------------------------
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification 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)

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)



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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.

YesxNoo

Indicate by check mark whether the registrant is a
large 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).

YesoNox

As of July 27, 2007, 14,012,125 shares of the registrant’s common stock, par value $.01 per share, were
outstanding.





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PART I - FINANCIAL INFORMATION

|        |                     
|------- | --------------------
|Item 1. | Financial Statements

LENOX GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)(In thousands)

|                                          |  |              |         |                  |   |             |  |   |         | 
|----------------------------------------- |  | ------------ | ------- | ---------------- | - | ----------- |  | - | ------- | 
|                                          |  | June 30,2007 |         | December
30,2006 |   | July 1,2006 | 
|                                          |  |              |         |                  |   |             | 
|ASSETS                                    |  |              |         |                  |   |             |  |   |         | 
|                                          | 
|Current
assets:                           |  |              |         |                  |   |             |  |   |         | 
|Cash and cash equivalents                 |  | $            | 254     |                  | $ | 875         |  | $ | 295     | 
|Accounts receivable, net                  |  |              | 62,407  |                  |   | 52,059      |  |   | 64,810  | 
|Inventories                               |  |              | 109,585 |                  |   | 101,925     |  |   | 121,994 | 
|Assets held for sale                      |  |              | 6,604   |                  |   | —           |  |   | —       | 
|Deferred taxes                            |  |              | 16,328  |                  |   | 13,896      |  |   | 9,864   | 
|Income tax receivable                     |  |              | 16,052  |                  |   | 956         |  |   | 6,200   | 
|Other current assets                      |  |              | 7,251   |                  |   | 9,306       |  |   | 8,942   | 
|                                          |  |              |         |                  |   |             |  |   |         | 
|Total current assets                      |  |              | 218,481 |                  |   | 179,017     |  |   | 212,105 | 
|                                          |  |              |         |                  |   |             |  |   |         | 
|Property and equipment, net               |  |              | 42,979  |                  |   | 49,471      |  |   | 70,027  | 
|Assets held for sale                      |  |              | 1,494   |                  |   | —           |  |   | 6,749   | 
|Goodwill                                  |  |              | —       |                  |   | —           |  |   | 16,926  | 
|Trademarks, net                           |  |              | 119,092 |                  |   | 119,439     |  |   | 122,718 | 
|Other intangibles, net                    |  |              | 13,017  |                  |   | 14,135      |  |   | 15,297  | 
|Marketable securities                     |  |              | 340     |                  |   | 2,098       |  |   | 1,949   | 
|Deferred taxes                            |  |              | —       |                  |   | —           |  |   | 584     | 
|Other assets                              |  |              | 12,392  |                  |   | 9,637       |  |   | 12,640  | 
|                                          |  |              |         |                  |   |             |  |   |         | 
|                                          |  | $            | 407,795 |                  | $ | 373,797     |  | $ | 458,995 | 
|                                          |  |              |         |                  |   |             |  |   |         | 
|LIABILITIES AND STOCKHOLDERS’ EQUITY      |  |              |         |                  |   |             |  |   |         | 
|                                          | 
|Current
liabilities:                      |  |              |         |                  |   |             |  |   |         | 
|Current portion of long-term debt         |  | $            | 1,250   |                  | $ | 49,056      |  | $ | 9,155   | 
|Borrowings on revolving credit facility   |  |              | 68,249  |                  |   | 47,510      |  |   | 79,947  | 
|Accounts payable                          |  |              | 29,415  |                  |   | 35,248      |  |   | 37,147  | 
|Accrued compensation and benefits payable |  |              | 6,683   |                  |   | 6,428       |  |   | 11,842  | 
|Severance and restructuring reserves      |  |              | 5,425   |                  |   | 1,939       |  |   | 5,030   | 
|Other current liabilities                 |  |              | 7,777   |                  |   | 8,576       |  |   | 4,197   | 
|                                          |  |              |         |                  |   |             |  |   |         | 
|Total current liabilities                 |  |              | 118,799 |                  |   | 148,757     |  |   | 147,318 | 
|                                          |  |              |         |                  |   |             |  |   |         | 
|Deferred compensation obligation          |  |              | 328     |                  |   | 2,085       |  |   | 1,964   | 
|Pension obligations                       |  |              | 26,214  |                  |   | 30,664      |  |   | 85,483  | 
|Postretirement obligations                |  |              | 15,373  |                  |   | 15,853      |  |   | 29,120  | 
|Deferred taxes                            |  |              | 18,484  |                  |   | 18,297      |  |   | —       | 
|Long-term debt                            |  |              | 98,750  |                  |   | —           |  |   | 76,450  | 
|Deferred gain on sale-leaseback           |  |              | 3,708   |                  |   | 3,845       |  |   | —       | 
|Other noncurrent liabilities              |  |              | 10,050  |                  |   | 12,617      |  |   | 3,989   | 
|Commitments and contingencies (Note 12)   |  |              |         |                  |   |             |  |   |         | 
|Stockholders’ equity                      |  |              | 116,089 |                  |   | 141,679     |  |   | 114,671 | 
|                                          |  |              |         |                  |   |             |  |   |         | 
|                                          |  | $            | 407,795 |                  | $ | 373,797     |  | $ | 458,995 | 
|                                          |  |              |         |                  |   |             |  |   |         | 

See notes to condensed consolidated financial
statements.

2

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LENOX GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)(In thousands, except per share amounts)

|                                       |  |                            |         |                           |   |         |  
|-------------------------------------- |  | -------------------------- | ------- | ------------------------- | - | ------- | -
|                                       |  | 13 WEEKSENDEDJUNE 30, 2007 |         | 13 WEEKSENDEDJULY 1, 2006 |  
|                                       |  |                            |         |                           |  
|                                       | 
|NET
SALES                              |  | $                          | 92,971  |                           | $ | 98,377  |  
|COST OF
SALES                          |  |                            | 49,658  |                           |   | 50,607  |  
|                                       |  |                            |         |                           |   |         |  
|Gross
profit                           |  |                            | 43,313  |                           |   | 47,770  |  
|                                      
|OPERATING
EXPENSES                     |  |                            |         |                           |   |         |  
|Selling,
general and administrative    |  |                            | 49,860  |                           |   | 52,973  |  
|Restructuring charges                  |  |                            | 2,077   |                           |   | —       |  
|Goodwill
impairment                    |  |                            | —       |                           |   | 37,074  |  
|                                       |  |                            |         |                           |   |         |  
|                                       | 
|OPERATING
LOSS                         |  |                            | (8,624  | )                         |   | (42,277 | )
|                                      
|OTHER
EXPENSE (INCOME)                 |  |                            |         |                           |   |         |  
|Interest
expense                       |  |                            | 4,072   |                           |   | 3,964   |  
|Loss on
refinancing of debt            |  |                            | 5,940   |                           |   | —       |  
|Other,
net                             |  |                            | (93     | )                         |   | (70     | )
|                                       |  |                            |         |                           |   |         |  
|                                       | 
|LOSS BEFORE
INCOME TAXES               |  |                            | (18,543 | )                         |   | (46,171 | )
|                                      
|INCOME TAX
BENEFIT                     |  |                            | (7,232  | )                         |   | (4,989  | )
|                                       |  |                            |         |                           |   |         |  
|                                       | 
|NET
LOSS                               |  | $                          | (11,311 | )                         | $ | (41,182 | )
|                                       |  |                            |         |                           |   |         |  
|                                       | 
|NET LOSS
PER SHARE – BASIC             |  | $                          | (0.82   | )                         | $ | (3.00   | )
|                                       |  |                            |         |                           |   |         |  
|                                       | 
|NET LOSS
PER SHARE – ASSUMING DILUTION |  | $                          | (0.82   | )                         | $ | (3.00   | )
|                                       |  |                            |         |                           |   |         |  
|WEIGHTED
AVERAGE SHARES OUTSTANDING    |  |                            |         |                           |   |         |  
|BASIC                                  |  |                            | 13,812  |                           |   | 13,746  |  
|ASSUMING
DILUTION                      |  |                            | 13,812  |                           |   | 13,746  |  

See notes to condensed consolidated financial
statements.

3

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LENOX GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)(In thousands, except per share amounts)

|                                       |  |                              |         |                             |   |         |  
|-------------------------------------- |  | ---------------------------- | ------- | --------------------------- | - | ------- | -
|                                       |  | 26 WEEKS
ENDED
JUNE 30, 2007 |         | 26 WEEKS
ENDED
JULY 1, 2006 |  
|                                       |  |                              |         |                             |  
|                                      
|NET
SALES                              |  | $                            | 179,365 |                             | $ | 189,174 |  
|COST OF
SALES                          |  |                              | 99,438  |                             |   | 92,081  |  
|                                       |  |                              |         |                             |   |         |  
|Gross
profit                           |  |                              | 79,927  |                             |   | 97,093  |  
|                                       | 
|OPERATING
EXPENSES                     |  |                              |         |                             |   |         |  
|Selling,
general and administrative    |  |                              | 103,107 |                             |   | 110,634 |  
|Restructuring charges                  |  |                              | 6,868   |                             |   | —       |  
|Goodwill
impairment                    |  |                              | —       |                             |   | 37,074  |  
|                                       |  |                              |         |                             |   |         |  
|                                       | 
|OPERATING
LOSS                         |  |                              | (30,048 | )                           |   | (50,615 | )
|                                       | 
|OTHER
EXPENSE (INCOME)                 |  |                              |         |                             |   |         |  
|Interest
expense                       |  |                              | 6,900   |                             |   | 7,008   |  
|Loss on
refinancing of debt            |  |                              | 5,940   |                             |   | —       |  
|Other,
net                             |  |                              | (105    | )                           |   | (70     | )
|                                       |  |                              |         |                             |   |         |  
|                                       | 
|LOSS BEFORE
INCOME TAXES               |  |                              | (42,783 | )                           |   | (57,553 | )
|                                       | 
|INCOME TAX
BENEFIT                     |  |                              | (18,477 | )                           |   | (9,285  | )
|                                       |  |                              |         |                             |   |         |  
|                                       | 
|NET
LOSS                               |  | $                            | (24,306 | )                           | $ | (48,268 | )
|                                       |  |                              |         |                             |   |         |  
|                                       | 
|NET LOSS
PER SHARE – BASIC             |  | $                            | (1.76   | )                           | $ | (3.51   | )
|                                       |  |                              |         |                             |   |         |  
|                                       | 
|NET LOSS
PER SHARE – ASSUMING DILUTION |  | $                            | (1.76   | )                           | $ | (3.51   | )
|                                       |  |                              |         |                             |   |         |  
|WEIGHTED
AVERAGE SHARES OUTSTANDING    |  |                              |         |                             |   |         |  
|BASIC                                  |  |                              | 13,798  |                             |   | 13,736  |  
|ASSUMING
DILUTION                      |  |                              | 13,798  |                             |   | 13,736  |  

See notes to condensed consolidated financial
statements.

4

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LENOX GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)

|                                                                   |  |   |                              |   |   |                             |  
|------------------------------------------------------------------ |  | - | ---------------------------- | - | - | --------------------------- | -
|                                                                   |  |   | 26 WEEKS
ENDED
JUNE 30, 2007 |   |   | 26 WEEKS
ENDED
JULY 1, 2006 |  
|                                                                   |  |   |                              |   |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                              |  |   |                              |   |   |                             |  
|Net cash
used in operating activities                              |  | $ | (61,215                      | ) | $ | (58,004                     | )
|Net cash
used in operating activities from discontinued operations |  |   | —                            |   |   | (32                         | )
|                                                                   |  |   |                              |   |   |                             |  
|Net cash
used in operating activities                              |  |   | (61,215                      | ) |   | (58,036                     | )
|                                                                   |  |   |                              |   |   |                             |  
|                                                                   |  |   |                              |   |   |                             |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                              |  |   |                              |   |   |                             |  
|Purchases
of property and equipment                                |  |   | (1,551                       | ) |   | (4,891                      | )
|Proceeds
from sale of assets                                       |  |   | 407                          |   |   | 10,183                      |  
|Acquisitions                                                       |  |   | (212                         | ) |   | (2,990                      | )
|                                                                   |  |   |                              |   |   |                             |  
|Net cash
(used) provided by investing activities                   |  |   | (1,356                       | ) |   | 2,302                       |  
|                                                                   |  |   |                              |   |   |                             |  
|                                                                   |  |   |                              |   |   |                             |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                              |  |   |                              |   |   |                             |  
|Proceeds
from the exercise of common stock options                 |  |   | —                            |   |   | 340                         |  
|Payments of
debt amendment and refinancing costs                   |  |   | (9,685                       | ) |   | (397                        | )
|Excess tax
benefits from stock-based compensation                  |  |   | (7                           | ) |   | 32                          |  
|Borrowings
on revolving credit facility                            |  |   | 20,739                       |   |   | 69,479                      |  
|Purchases
of treasury stock                                        |  |   | (30                          | ) |   |                            |  
|Principal
payments on capital leases                               |  |   | (11                          | ) |   | (59                         | )
|Borrowings
(payments) on long-term debt                            |  |   | 50,944                       |   |   | (14,645                     | )
|                                                                   |  |   |                              |   |   |                             |  
|Net cash
provided by financing activities                          |  |   | 61,950                       |   |   | 54,750                      |  
|                                                                   |  |   |                              |   |   |                             |  
|                                                                   |  |   |                              |   |   |                             |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                          |  |   | (621                         | ) |   | (984                        | )
|                                                                   |  |   |                              |   |   |                             |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                   |  |   | 875                          |   |   | 1,279                       |  
|                                                                   |  |   |                              |   |   |                             |  
|                                                                   |  |   |                              |   |   |                             |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                         |  | $ | 254                          |   | $ | 295                         |  
|                                                                   |  |   |                              |   |   |                             |  
|                                                                   |  |   |                              |   |   |                             |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                  |  |   |                              |   |   |                             |  
|Depreciation expense                                               |  | $ | 6,397                        |   | $ | 6,197                       |  
|Intangible
amortization expense                                    |  |   | 1,118                        |   |   | 1,741                       |  
|Accrued
capital expenditure purchases                              |  |   | —                            |   |   | 499                         |  
|                                                                   |  |   |                              |   |   |                             |  
|Cash paid (received) for:                                          |  |   |                              |   |   |                             |  
|Interest                                                           |  |   | 4,130                        |   |   | 5,988                       |  
|Income
taxes                                                       |  |   | (94                          | ) |   | 2,142                       |  

See notes to condensed consolidated financial
statements.

5

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LENOX GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In thousands, except per share amounts)

|   |                      
|-- | ---------------------
|1. | Basis of Presentation

The consolidated balance sheet as of June 30, 2007, the consolidated
statements of operations for the quarters and 26 weeks ended June 30, 2007 and July 1, 2006
and the consolidated statements of cash flows for the 26 weeks ended June 30, 2007 and July
1, 2006 are unaudited. The consolidated balance sheet as of December 30, 2006 was derived
from audited consolidated financial statements, but does not include all disclosures
required by generally accepted accounting principles in the United States of America. In
the opinion of management, all adjustments necessary for a fair statement of the
consolidated financial statements are included. Adjustments consist only of normal
recurring items, except for any discussed in the notes below. Interim results are not
necessarily indicative of results for a full year. The condensed consolidated financial
statements and notes are presented in accordance with instructions for Form 10-Q, and
therefore, do not contain certain information included in our consolidated annual financial
statements and notes. The condensed consolidated financial statements and notes appearing
in this report should be read in conjunction with the consolidated audited financial
statements and related notes included in the Annual Report on Form 10-K for the year ended
December 30, 2006 (2006 Form 10-K) filed by Lenox Group Inc. (the Company) with the
Securities and Exchange Commission (SEC).

The Report of Independent Registered Public Accounting
Firm on the financial statements of the Company as of and for the fiscal year ended
December 30, 2006 included in the 2006 Form 10-K contained an explanatory paragraph that
expressed substantial doubt about the Company’s ability to continue as a going
concern due to its non-compliance with certain financial covenants under its then-existing
credit facilities. As discussed in Note 10, on April 20, 2007, the Company completed the
refinancing of its credit facilities by entering into amended and restated revolving and
term loan facilities.

|   |                         
|-- | ------------------------
|2. | New Accounting Standards

Recently Adopted Accounting Standards

The Company adopted Financial Accounting Standards Board
(FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) at
the beginning of fiscal year 2007. FIN 48 prescribes a recognition threshold that a tax
position is required to meet before being recognized in the financial statements and
provides guidance on derecognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition issues. As a result of the
implementation of FIN 48, the Company recognized a $1.5 million increase to the liabilities
for unrecognized tax benefits, an increase of $1.5 million to deferred tax assets and a
decrease of $27 million to retained earnings in the first quarter of 2007.

6

---

The Company had unrecognized tax benefits of
approximately $3.7 million as of December 31, 2007 (excluding related interest and
penalties discussed below). The unrecognized tax benefit decreased by $2.3 million in the
26 weeks ended June 30, 2007 relating to the expiration of statute of limitations in the
first quarter of 2007, which had a positive effect on the tax provision. The Company does
not expect that the amounts of unrecognized tax benefits will change significantly within
the next 12 months.

The Company recognizes interest accrued and penalties
related to unrecognized tax benefits within income tax expense in the Condensed
Consolidated Statements of Operations, which is consistent with the recognition of these
items in prior reporting periods. To the extent these unrecognized tax benefits are
ultimately recognized, there will be an impact on the effective tax rate.

As of January 1, 2007, the Company had recorded
liabilities of approximately $712 and $112, respectively, for the payment of interest and
penalties. The liability for the payment of interest and penalties decreased by $486 for
the 26 weeks ended June 30, 2007 due to the expiration of the statute of limitations as
noted above.

The Company’s federal income tax returns for 2003
through 2006 are open tax years. The Company files tax returns in numerous state
jurisdictions with varying statutes of limitation. The Company’s unrecognized state
tax benefits are primarily related to state returns open from 2002 through 2006 or 2003
through 2006, depending on each state’s statute of limitation.

In March 2006, FASB Emerging Issues Task Force issued
Issue 06-03, How Sales Taxes Collected From Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (EITF 06-03). A consensus was
reached that entities may adopt a policy of presenting sales taxes in the income statement
on either a gross or net basis. If taxes are significant, an entity should disclose its
policy of presenting taxes. The guidance is effective for periods beginning after December
15, 2006. The Company presents sales net of sales taxes. Adoption of EITF 06-03 on December
31, 2006 did not have an effect on its policy related to sales taxes and therefore, did not
have an effect on its consolidated results of operations and financial
condition.

Recently Issued Accounting Standards

In September 2006, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157) to establish
a consistent framework for measuring fair value and expand disclosures on fair value
measurements. The provisions of SFAS 157 are effective for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the effect that the adoption of SFAS
157 will have on its consolidated results of operations and financial condition.

In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159
expands opportunities to use fair value measurement in financial reporting and permits
entities to choose to measure many financial instruments and certain other items at fair
value. This statement is effective for fiscal years beginning after November 15, 2007. The
Company is currently evaluating the effect that the adoption of SFAS 159 will have on its
consolidated results of operations and financial condition.

|   |                         
|-- | ------------------------
|3. | Stock-Based Compensation

Effective January 1, 2006, the Company adopted SFAS No. 123R (revised 2004), Share-Based Payment (SFAS
123R), which requires compensation costs related to share-based payment transactions to be recognized in the financial statements.
The Company adopted the standard using the modified prospective transition method, which requires the application of the
accounting standard to all share-based awards issued on or after the date of adoption and any outstanding share-based payment
awards that were issued but not vested as of the date of adoption. Accordingly, the Company did not restate the financial
information for 2005 as a result of the adoption.

Total share-based compensation expense was $163 and $366 for the three months ended June 30, 2007, and July 1,
2006, respectively, and $(758) and $738 for the six months ended June 30, 2007, and July 1, 2006, respectively. During the three
months ended March 31, 2007, forfeiture of restricted stock with performance conditions that were not met resulted in a reduction
of the associated expense.

During the three months ended June 30, 2007, 15,500 restricted shares of common stock were issued to directors.
These shares were valued at $7.11 per share, the market price on the date of the grant. The shares vest three years from the date
of the grant. No restricted shares were issued during the three months ended March 31, 2007. Two thousand five hundred restricted
shares of common stock were issued during the three months ended July 1, 2006, and 36,500 restricted shares of common stock were
issued during the six months ended July 1, 2006. The weighted average per share price was $10.69 and $12.60, respectively, during
the three month and six month periods ended July 1, 2006. Shares were priced at the market price on the date of the grant. Total
compensation expense for non-vested restricted stock during the three months ended June 30, 2007, and July 1, 2006, was $107 and
$365, respectively. For the six months ended June 30, 2007, and July 1, 2006, compensation expense for non-vested restricted stock
was $(810) and $679, respectively.

7

---

During the three months ended June 30, 2007, 31,000 option awards were granted to directors. These option awards
vest one year from the date of the grant and have an exercise price equal to the market price of the Company’s common stock
on the date of the grant. No option awards were granted during the three months ended March 31, 2007. Compensation expense equal
to the grant date fair value is recognized for these awards over the vesting period. Total compensation expense for stock option
awards for the three months ended June 30, 2007 and July 1, 2006 was $56 and $1, respectively and $52 and $59 for the six months
ended June 30, 2007 and July 1, 2006.

The Company estimates the fair value of each option using the Black-Scholes option pricing model. Assumptions
used were:

|                          |  |                              |      |                             |  |      |  
|------------------------- |  | ---------------------------- | ---- | --------------------------- |  | ---- | -
|                          |  | 26 weeks
ended June
30, 2007 |      | 26 weeks
ended July
1, 2006 | 
|                          |  |                              |      |                             | 
|                          |  |                              |      |                             |  |      |  
|Risk-free interest rate   |  |                              | 4.6  | %                           |  | 4.8  | %
|Expected dividend yield   |  |                              | 0.0  | %                           |  | 0.0  | %
|Expected stock volatility |  |                              | 39.0 | %                           |  | 49.0 | %
|Expected life (in years)  |  |                              | 5.0  |                             |  | 6.0  |  

The weighted average fair value of options granted during the first six
months of 2007 and 2006 was $2.95 and $6.66, respectively.

These estimates require the Company to make assumptions based on
historical results, observance of trends in its stock price, changes in option exercise
behavior, future expectations, and other relevant factors. If other assumptions had been
used, share-based compensation expense, as calculated and recorded under SFAS 123R, could
have been affected.

The Company based the expected life assumption on historical experience.
For purposes of determining expected volatility, the Company considered a rolling average
of historical volatility measured over a period approximately equal to the expected option
term. The risk free interest rate for periods that coincide with the expected life of the
options is based on U.S. Treasury Department yield curve in effect at the time of the
grant.

|   |                      
|-- | ---------------------
|4. | Loss per Common Share

Net loss per common share is calculated by dividing net loss by the
weighted average number of shares outstanding during the period. Net loss 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 loss 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 loss per common share – assuming dilution. All options and
unvested restricted stock were considered anti-dilutive and excluded from the computation
of common equivalent shares at June 30, 2007 and July 1, 2006 because the Company reported
a net loss for both the second quarter and 26 weeks ended June 30, 2007 and July 1,
2006.

8

---

|   |                                  
|-- | ---------------------------------
|5. | Severance and Restructuring
Costs

In connection with the acquisition of Lenox, the Company
assumed severance reserves 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 additional amounts related to
an additional plant closing, retail store closings and general restructurings that were
planned as part of the acquisition. As of June 30, 2007, the severance and restructuring
activities recorded at the time of the acquisition have been substantially completed. The
total amount incurred was $15.0 million of which $14.4 million was recorded to goodwill on
the opening balance sheet and $0.6 million was recorded in Selling, General and
Administrative expense in the Consolidated Statement of Operations in the fourth quarter of
2006 and was principally recorded in the Company’s Corporate segment.

During the first quarter of 2007, the Company engaged
Carl Marks Advisory Group LLC to identify and implement business improvements and
operational changes. Restructuring activities initiated during the first half included the
announcement of the planned closing of the Company’s distribution center located in
Rogers, MN in late 2007 (with distribution activities to be transferred to the
Company’s distribution center located in Hagerstown, MD) along with changes in and
consolidation of our management and operations structure (described as general
restructuring below). The Company incurred $6.9 million of severance and restructuring
costs related to these activities in the 26 weeks ended June 30, 2007. These costs were
included in Restructuring Charges in the Condensed Consolidated Statement of
Operations.

The table below shows a reconciliation of the severance
and restructuring reserve activity through the second quarter of 2007:

|                           |  |                                        |     |                       |   |                |   |       |        |   |   |      |   |   |        |  
|-------------------------- |  | -------------------------------------- | --- | --------------------- | - | -------------- | - | ----- | ------ | - | - | ---- | - | - | ------ | -
|                           |  | Plant and Distribution
Center Closings |     | General Restructuring |   | Total Reserves |  
|                           |  |                                        |     |                       |   |                |  
|                           |  | Severance                              |     | Other                 |   | Severance      |   | Other |        |   |  
|                           |  |                                        |     |                       |   |                |   |       |        |   |  
|Balance, December 30, 2006 |  | $                                      | 7   |                       | $ | 1,001          |   | $     | 931    |   | $ | —    |   | $ | 1,939  |  
|Costs incurred             |  |                                        | 208 |                       |   | 1,044          |   |       | 4,750  |   |   | 866  |   |   | 6,868  |  
|Payments and other         |  |                                        | (3  | )                     |   | (1,208         | ) |       | (2,005 | ) |   | (166 | ) |   | (3,382 | )
|                           |  |                                        |     |                       |   |                |   |       |        |   |   |      |   |   |        |  
|Balance, June 30, 2007     |  | $                                      | 212 |                       | $ | 837            |   | $     | 3,676  |   | $ | 700  |   | $ | 5,425  |  
|                           |  |                                        |     |                       |   |                |   |       |        |   |   |      |   |   |        |  

The Company believes that the severance and restructuring
activities initiated during the first quarter of 2007 will be substantially completed by
the end of its 2007 fiscal year. The total estimated costs expected to be incurred related
to the distribution center closing and the general restructuring that were initiated in the
first half, of 2007 including costs incurred during the 13 and 26 weeks ended June 30,
2007, were as follows:

|                                       |  |                      |       |                              |                |                              |  |   |       | 
|-------------------------------------- |  | -------------------- | ----- | ---------------------------- | -------------- | ---------------------------- |  | - | ----- | 
|                                       |  |                      |       |                              | Costs Incurred |                             
|                                       |  |                      |       |                              |                |                             
|                                       |  | Total costs
expected |       | 13 weeks ended
June 30, 2007 |                | 26 weeks ended
June 30, 2007 | 
|                                       |  |                      |       |                              |                |                              | 
|Plant and Distribution Center
Closings |  | $                    | 2,200 |                              | $              | 154                          |  | $ | 1,252 | 
|General Restructuring                  |  |                      | 6,200 |                              |                | 1,923                        |  |   | 5,616 | 
|                                       |  |                      |       |                              |                |                              |  |   |       | 
|                                       |  | $                    | 8,400 |                              | $              | 2,077                        |  | $ | 6,868 | 
|                                       |  |                      |       |                              |                |                              |  |   |       | 

These costs are allocable to reportable segments as
follows:

|          |  |                      |       |                              |                |                              |  |   |       | 
|--------- |  | -------------------- | ----- | ---------------------------- | -------------- | ---------------------------- |  | - | ----- | 
|          |  |                      |       |                              | Costs Incurred |                             
|          |  |                      |       |                              |                |                             
|          |  | Total Costs
expected |       | 13 weeks ended
June 30, 2007 |                | 26 weeks ended
June 30, 2007 | 
|          |  |                      |       |                              |                |                              | 
|Wholesale |  | $                    | 1,000 |                              | $              | 86                           |  | $ | 687   | 
|Retail    |  |                      | 1,000 |                              |                | 598                          |  |   | 951   | 
|Direct    |  |                      | 165   |                              |                | 165                          |  |   | 165   | 
|Corporate |  |                      | 6,235 |                              |                | 1,228                        |  |   | 5,065 | 
|          |  |                      |       |                              |                |                              |  |   |       | 
|          |  | $                    | 8,400 |                              | $              | 2,077                        |  | $ | 6,868 | 
|          |  |                      |       |                              |                |                              |  |   |       | 

9

---

|   |               
|-- | --------------
|6. | Concentrations

At June 30 2007, one customer accounted for approximately
18% of the Company’s total accounts receivable. For the 13 weeks and 26 weeks ended
June 30, 2007, this same customer accounted for approximately 18% and 15%, respectively, of
the Company’s total net sales.

|   |            
|-- | -----------
|7. | Inventories

Inventories were comprised of:

|                  |  |               |         |                   |   |              |  |   |         | 
|----------------- |  | ------------- | ------- | ----------------- | - | ------------ |  | - | ------- | 
|                  |  | June 30,
2007 |         | December 30,
2006 |   | July 1,
2006 | 
|                  |  |               |         |                   |   |              | 
|Raw materials     |  | $             | 3,080   |                   | $ | 3,925        |  | $ | 3,770   | 
|Work-in-process   |  |               | 4,407   |                   |   | 4,793        |  |   | 6,727   | 
|Finished goods    |  |               | 102,098 |                   |   | 93,207       |  |   | 111,497 | 
|                  |  |               |         |                   |   |              |  |   |         | 
|Total inventories |  | $             | 109,585 |                   | $ | 101,925      |  | $ | 121,994 | 
|                  |  |               |         |                   |   |              |  |   |         | 

The Company received notice from the financial
institution with which it had its precious metals consignment arrangement that such
institution was terminating, and did terminate, the consignment facility, effective May 16,
2007. The Company purchased the remaining outstanding silver balance at a cost of $4,617 on
May 16, 2007. As a result of the termination of this consignment arrangement, the Company
now includes the cost of silver in its ending inventory balances which totaled $4,370 at
June 30, 2007.

|   |                   
|-- | ------------------
|8. | Comprehensive Loss

Comprehensive loss and its components, net of tax, were
as follows:

|                                                              |  |                |         |                |   |             |   |              |         |   |   |         |  
|------------------------------------------------------------- |  | -------------- | ------- | -------------- | - | ----------- | - | ------------ | ------- | - | - | ------- | -
|                                                              |  | 13 weeks ended |         | 26 weeks ended |  
|                                                              |  |                |         |                |  
|                                                              |  | June 302007    |         | July 1,
2006   |   | June 302007 |   | July 1,
2006 |        
|                                                              |  |                |         |                |   |             |   |              |        
|Net loss                                                      |  | $              | (11,311 | )              | $ | (41,182     | ) | $            | (24,306 | ) | $ | (48,268 | )
|Changes in cumulative foreign currency
translation adjustment |  |                | —       |                |   | —           |   |              | (14     | ) |   | —       |  
|Adjustment to pension and postretirement plan
liabilities     |  |                | (319    | )              |   | —           |   |              | (638    | ) |   | —       |  
|                                                              |  |                |         |                |   |             |   |              |         |   |   |         |  
|Comprehensive loss                                            |  | $              | (11,630 | )              | $ | (41,182     | ) | $            | (24,958 | ) | $ | (48,268 | )
|                                                              |  |                |         |                |   |             |   |              |         |   |   |         |  

|   |                                     
|-- | ------------------------------------
|9. | Goodwill and Other Intangible
Assets

During the second quarter of 2006, the Company
re-forecast its 2006 gift and specialty channel sales within the Department 56 wholesale
reporting unit. The Company also experienced a decline in the quoted market price of its
stock in the second quarter of 2006. Given these events, the Company determined it was more
likely than not that a reduction of the fair value of the Department 56 wholesale reporting
unit may have occurred. As a result, the Company completed a review of the Department 56
wholesale reporting unit goodwill in accordance with SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS 142). Based on the results of this analysis, the Company
recorded an impairment charge of $37.1 million to write-down the goodwill related to the
Department 56 wholesale reporting unit. The fair value of that reporting unit was estimated
using the present value of expected future cash flows.

During the fourth quarter of 2006, the Company completed
its annual impairment test of goodwill, originally recorded from the acquisition of Lenox,
in accordance with SFAS 142. The Company recognized a goodwill impairment charge of $18.2
million as a result of lower than projected sales and profits from the Lenox wholesale
reporting unit as compared to that which was originally projected at the date of the Lenox
Acquisition. The fair value of the Lenox wholesale reporting unit was estimated using the
present value of expected future cash flows.

10

---

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

|                                  |  |                       |         |                          |   |              |   |                       |         |                          |   |         |  |                       |         |                          |   |         |  |   |         |  |   |        |   |   |         | 
|--------------------------------- |  | --------------------- | ------- | ------------------------ | - | ------------ | - | --------------------- | ------- | ------------------------ | - | ------- |  | --------------------- | ------- | ------------------------ | - | ------- |  | - | ------- |  | - | ------ | - | - | ------- | 
|                                  |  | June 30, 2007         |         | December 30, 2006        |   | July 1, 2006 |  
|                                  |  |                       |         |                          |   |              |  
|                                  |  | Gross carrying amount |         | Accumulated amortization |   | Net          |   | Gross carrying amount |         | Accumulated amortization |   | Net     |  | Gross carrying amount |         | Accumulated amortization |   | Net     | 
|                                  |  |                       |         |                          |   |              |   |                       |         |                          |   |         |  |                       |         |                          |   |         | 
|                                  |  |                       |         |                          |   |              |   |                       |         |                          |   |         |  |                       |         |                          |   |         |  |   |         |  |   |        |   |   |         | 
|Finite-life intangible assets     |  |                       |         |                          |   |              |   |                       |         |                          |   |         |  |                       |         |                          |   |         |  |   |         |  |   |        |   |   |         | 
|Customer relationships            |  | $                     | 15,300  |                          | $ | (3.028       | ) | $                     | 12,272  |                          | $ | 15,300  |  | $                     | (2,202  | )                        | $ | 13,098  |  | $ | 15,300  |  | $ | (1,377 | ) | $ | 13,923  | 
|Favorable lease interests         |  |                       | 2,542   |                          |   | (2,102       | ) |                       | 440     |                          |   | 2,542   |  |                       | (1,881  | )                        |   | 661     |  |   | 2,542   |  |   | (1,614 | ) |   | 928     | 
|Non-compete agreements            |  |                       | 2,705   |                          |   | (2,400       | ) |                       | 305     |                          |   | 2,705   |  |                       | (2,329  | )                        |   | 376     |  |   | 2,705   |  |   | (2,259 | ) |   | 446     | 
|                                 
|Indefinite-life intangible assets |  |                       |         |                          |   |              |   |                       |         |                          |   |         |  |                       |         |                          |   |         |  |   |         |  |   |        |   |   |         | 
|Trademarks                        |  |                       | 123,231 |                          |   | (4,139       | ) |                       | 119,092 |                          |   | 123,578 |  |                       | (4,139  | )                        |   | 119,439 |  |   | 126,857 |  |   | (4,139 | ) |   | 126,110 | 
|                                  |  |                       |         |                          |   |              |   |                       |         |                          |   |         |  |                       |         |                          |   |         |  |   |         |  |   |        |   |   |         | 
|                                 
|Total Intangibles                 |  | $                     | 143,778 |                          | $ | (11,669      | ) | $                     | 132,109 |                          | $ | 144,125 |  | $                     | (10,551 | )                        | $ | 133,574 |  | $ | 147,404 |  | $ | (9,389 | ) | $ | 146,657 | 
|                                  |  |                       |         |                          |   |              |   |                       |         |                          |   |         |  |                       |         |                          |   |         |  |   |         |  |   |        |   |   |         | 

In the fourth quarter of 2006, the Company recognized a
trademark impairment of $3.7 million related to lower than projected sales of Dansk and
Gorham products from that estimated at the time of the original purchase price allocation.
In determining the fair value of its trademarks, the Company applies the income approach,
using the relief from the royalty method. These trademark costs were originally recorded as
part of the acquisition of Lenox.

As part of the initial purchase accounting for the
acquisition of Willitts Design International, Inc. (Willitts), $1.2 million of the cash
purchase price was allocated to indefinite-lived trademarks. During the second quarter of
2007, the Company finalized the purchase accounting for Willitts and recorded an additional
$0.3 million of indefinite life trademarks.

In the second quarter of 2007, in anticipation of the
Company’s July 19, 2007 sale of certain of the Gorham sterling silver assets, the
Company evaluated the Gorham trademark. Based on the results of this evaluation, the
Company determined that $0.6 million of indefinite-life trademarks were to be included as
part of the sale transaction. Accordingly, the Company reclassified this amount to
non-current assets held for sale (see Note 14 of the Condensed Consolidated Financial
Statements).

Intangible asset amortization expense for the second
quarter and 26 weeks ended June 30, 2007 was $545 and $1,118 respectively, compared to $725
and $1,741 for the second quarter and 26 weeks ended July 1, 2006, respectively.

Expected future amortization expense for finite-lived
intangible assets is as follows:

|                 |  |   |        | 
|---------------- |  | - | ------ | 
|2007 (full year) |  | $ | 2,149  | 
|2008             |  |   | 1,938  | 
|2009             |  |   | 1,846  | 
|2010             |  |   | 1,560  | 
|2011             |  |   | 1,242  | 
|Thereafter       |  |   | 5,400  | 
|                 |  |   |        | 
|                 |  | $ | 14,135 | 

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 and other events.

|    |     
|--- | ----
|10. | Debt

Debt and the average interest rate on debt outstanding is
summarized as follows:

|                                                                          |  |                                     |      |              |   |                   |  |              |        |  |   |         | 
|------------------------------------------------------------------------- |  | ----------------------------------- | ---- | ------------ | - | ----------------- |  | ------------ | ------ |  | - | ------- | 
|                                                                          |  | Average
Interest rate
June 30, 2007 |      | June 30,2007 |   | December
30, 2006 |  | July 1,
2006 |       
|                                                                          |  |                                     |      |              |   |                   |  |              |       
|Revolving credit facility                                                 |  |                                     | 7.44 | %            | $ | 68,249            |  | $            | 47,510 |  | $ | 79,947  | 
|Note payable to Maryland Department of Business and Economic
Development1 |  |                                     | 3    | %            |   | 150               |  |              | 150    |  |   | 150     | 
|Note payable to the County Commissioners of Washington
County, Maryland1  |  |                                     | 0    | %            |   | 100               |  |              | 100    |  |   | 100     | 
|Term loan facility2                                                       |  |                                     | 9.86 | %            |   | 99,750            |  |              | 48,806 |  |   | 85,355  | 
|                                                                          |  |                                     |      |              |   |                   |  |              |        |  |   |         | 
|Total debt                                                                |  |                                     |      |              | $ | 168,249           |  | $            | 96,566 |  | $ | 165,552 | 
|                                                                          |  |                                     |      |              |   |                   |  |              |        |  |   |         | 

1$0.1 million of total
notes payable included in non-current long-term debt at July 1,
2006.

2$98.8 million and
$76.4 million included in non-current long-term debt at June 30, 2007 and July
1, 2006, respectively.

11

---

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 were deferred until December
31, 2006 and thereafter are subject to multiple maturity dates determined by the Company’s employment levels at the
Hagerstown, MD distribution facility. As of December 30, 2006 and June 30, 2007, the Company had not achieved the employment
levels required to qualify for full or partial debt forgiveness and therefore has classified the entire note payable as a current
liability.

The note payable to the County Commissioners of Washington County, Maryland is a conditional
grant agreement that bears no interest charges. The principal payments were deferred until December 31, 2006 and thereafter are
subject to multiple maturity dates determined by the Company’s employment levels at the Hagerstown, MD distribution
facility. As of December 30, 2006 and June 30, 2007, the Company had not achieved the employment levels required to qualify for
full or partial debt forgiveness and therefore has classified the entire note payable as a current liability.

On February 9, 2007, the Company entered into waivers and amendments to its revolving credit
facility and term loan credit facility (the credit facilities) in connection with the Company’s noncompliance with certain
financial covenants under the credit facilities for the period ended December 30, 2006. Pursuant to the waivers and amendments,
the lenders granted the Company a limited waiver of noncompliance through and including April 30, 2007, and temporarily amended
the agreements to adjust the leverage ratio and interest coverage ratio levels for the first quarter of 2007. In addition, the
amendment to the term loan facility increased the applicable margin for loans by 0.25% per annum. As consideration for the
amendments, the Company paid amendment fees of $0.2 million.

On April 20, 2007, the Company completed the refinancing of its credit facilities by entering
into amended and restated revolving and term loan facilities. The amended and restated revolving credit facility, which expires on
April 20, 2012, provides for borrowings up to $175 million, which may be in the form of letters of credit and revolving credit
loans to be used for working capital and general corporate purposes. The amended and restated term loan facility, which expires on
April 20, 2013, provides for term loans in the aggregate principal amount of up to $100 million. The Company used the proceeds of
the amended and restated term loan facility to refinance the $47.4 million of term debt outstanding and $42.2 million of the
revolver debt outstanding at April 20, 2007, to pay $1.2 million of accrued interest and fees payable under the existing credit
facilities and to pay $9.2 million of fees and expenses in connection with the refinancing.

Total fees and expenses incurred by the Company in connection with the refinancing were $9.7
million (inclusive of the $9.2 million paid out of the proceeds of the amended and restated term loan facility), of which $7.0
million was capitalized and $2.7 million was included as loss on refinancing of debt during the second quarter of 2007 in
accordance with EITF 98-14, Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements, and
EITF 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments. Based on these same criteria, the
Company recognized an additional $3.2 million of loss on early extinguishment of debt during the second quarter of 2007 to
write-off portions of the previously capitalized loan costs.

Borrowings under the amended and restated revolving credit facility are subject to certain
borrowing base limitations, and the Company’s borrowing capacity fluctuates during the year based upon accounts receivable
and inventory levels. As of June 30, 2007, the Company’s borrowing capacity under the amended and restated revolving credit
facility was $96.8 million, of which $20.8 million was available for additional borrowings or letters of credit at such
date.

The amended and restated 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 amended and restated credit facilities, and the Company and its material
subsidiaries, direct and indirect, have guaranteed repayment of amounts borrowed under the amended and restated credit
facilities.

The amended and restated 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 0.5% for Alternate Base Rate
loans and from 1.75% to 2.25% for Adjusted LIBOR Rate loans. The amended and restated revolving credit facility also provides for
commitment fees of 0.375% per annum on the daily average of the unused commitment.

The amended and restated term loan facility allows the Company to choose between two interest
rate options in connection with its loans under the facility. 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 3.5% for Alternate Base Rate loans and
4.5% for Adjusted LIBOR Rate loans.

12

---

Under the amended and restated 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. Such prepayments will be applied to the term loan until it is paid in full,
except for prepayments occurring upon the sale of designated revolving loan collateral, which will be applied to the revolving
loan.

The amended and restated credit facilities contain customary financial conditions and covenants,
including restrictions on additional indebtedness, liens, investments, capital expenditures, issuances of capital stock and
dividends. The amended and restated credit facilities also require maintenance of minimum levels of fixed charge coverage and
maximum levels of leverage, in each case at the end of each fiscal quarter. The minimum fixed charge coverage ratio (as defined
within the credit facility agreements) requires the Company to maintain a minimum ratio of Consolidated EBITDA (as defined within
the credit facility agreements) to Consolidated Fixed Charges (as defined within the credit facility agreements) over a 12-month
period ending on each fiscal quarter. The maximum leverage ratio (as defined within the term credit facility agreement) requires
the Company to maintain a maximum ratio of debt (as measured at the end of each fiscal quarter) to Consolidated EBITDA over a
12-month period ending on each fiscal quarter.

|    |              
|--- | -------------
|11. | Benefit Plans

Components of net periodic benefit cost for the 13 and 26 weeks ended
June 30, 2007 and July 1 2006 were as follows:

|                                   |  |                  |        |                                     |   |        |   |      |      |   |   |     | 
|---------------------------------- |  | ---------------- | ------ | ----------------------------------- | - | ------ | - | ---- | ---- | - | - | --- | 
|                                   |  | 13 weeks ended   |       
|                                   |  |                  |       
|                                   |  | Pension Benefits |        | Medical and Life
Insurance Benefits |  
|                                   |  | 2007             |        | 2006                                |   | 2007   |   | 2006 |     
|                                   |  |                  |        |                                     |   |        |   |      |     
|Service cost                       |  | $                | —      |                                     | $ | 1,196  |   | $    | —    |   | $ | 213 | 
|Interest cost                      |  |                  | 2,263  |                                     |   | 2,379  |   |      | 237  |   |   | 354 | 
|Expected return on assets          |  |                  | (2,667 | )                                   |   | (2,363 | ) |      | —    |   |   | —   | 
|Amortization of prior service cost |  |                  |        |                                     |   |        |   |      | (175 | ) |   |     | 
|Amortization of gain               |  |                  | (298   | )                                   |   | (66    | ) |      | (41  | ) |   | —   | 
|                                   |  |                  |        |                                     |   |        |   |      |      |   |   |     | 
|Net periodic pension expense       |  | $                | (702   | )                                   | $ | 1,146  |   | $    | 21   |   | $ | 567 | 
|                                   |  |                  |        |                                     |   |        |   |      |      |   |   |     | 

|                                   |  |                  |        |                                     |   |        |   |      |      |   |   |       | 
|---------------------------------- |  | ---------------- | ------ | ----------------------------------- | - | ------ | - | ---- | ---- | - | - | ----- | 
|                                   |  | 26 weeks ended   |       
|                                   |  |                  |       
|                                   |  | Pension Benefits |        | Medical and Life
Insurance Benefits |  
|                                   |  | 2007             |        | 2006                                |   | 2007   |   | 2006 |     
|                                   |  |                  |        |                                     |   |        |   |      |     
|Service cost                       |  | $                | —      |                                     | $ | 2,392  |   | $    | —    |   | $ | 426   | 
|Interest cost                      |  |                  | 4,526  |                                     |   | 4,758  |   |      | 474  |   |   | 708   | 
|Expected return on assets          |  |                  | (5,334 | )                                   |   | (4,726 | ) |      | —    |   |   |       | 
|Amortization of prior service cost |  |                  |        |                                     |   |        |   |      | (350 | ) |   |       | 
|Amortization of gain               |  |                  | (596   | )                                   |   | (132   | ) |      | (82  | ) |   |       | 
|                                   |  |                  |        |                                     |   |        |   |      |      |   |   |       | 
|Net periodic pension expense       |  | $                | (1,404 | )                                   | $ | 2,292  |   | $    | 42   |   | $ | 1,134 | 
|                                   |  |                  |        |                                     |   |        |   |      |      |   |   |       | 

|    |                              
|--- | -----------------------------
|12. | Commitments and Contingencies

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 (Lenox) 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 (hereinafter the Action). 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.

13

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On February 22, 2007, without admitting any violation of any statute or law or any liability or
wrongdoing whatsoever, Lenox entered into a settlement agreement with the plaintiff class representatives. Pursuant to the terms
of the settlement agreement, Lenox has agreed to pay $0.5 million, in return for which Lenox and its affiliates will be completely
released from any and all claims, demands and actions concerning the Action and any claims that could have been alleged in the
Action. This settlement agreement is subject to final approval of the court and a final judgment dismissing the Action with
prejudice as to Lenox. Plaintiffs and Lenox have agreed to use their best efforts promptly to seek court approval of the
settlement agreement and dismissal of the Action with prejudice. A hearing to seek final court approval of said settlement has
been set for August 9, 2007.

On April 12, 2007, Amanda Curiale filed a complaint in the United States District Court for the
Eastern District of Pennsylvania, which is a purported class action alleging that the Company willfully violated the Federal Fair
and Accurate Credit Transactions Act (FACTA) by continuing to print more than the last five digits of the credit card number
and/or the expiration date on receipts provided to debit card and credit cardholders transacting business with the Company. The
Company understands that similar complaints have recently been filed against a large number of retailers. The plaintiff seeks, on
behalf of herself and the class, statutory damages of not less than one hundred dollars and not more than one thousand dollars for
each violation, as well as unspecified punitive damages, costs and attorneys’ fees and a permanent injunction from further
engaging in violations of FACTA. The Company intends to vigorously defend against these alleged claims. However, the results of
litigation are uncertain, and, at this stage of the litigation, the Company is unable to assess the extent of damages and/or other
relief, if any, that may be awarded if the plaintiff class were to prevail.

In addition to the above actions, 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.

|    |                                                
|--- | -----------------------------------------------
|13. | Segments of the Company and Related Information

The Company has 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) 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 loss, 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.

|                                                |  |                             |         |                |     |                            |   |                |   |                            |   |                |         |                           |     |                |   |         |   |     |  
|----------------------------------------------- |  | --------------------------- | ------- | -------------- | --- | -------------------------- | - | -------------- | - | -------------------------- | - | -------------- | ------- | ------------------------- | --- | -------------- | - | ------- | - | --- | -
|(In thousands)                                  |  | 13 weeks endedJune 30, 2007 |         | % of
Net
sales |     | 13 weeks endedJuly 1, 2006 |   | % of Net sales |   | 26 weeks endedJune 30,2007 |   | % of Net sales |         | 26 weeks endedJuly 1,2006 |     | % of Net sales |  
|                                                |  |                             |         |                |     |                            |   |                |   |                            |   |                |         |                           |     |                |   |        
|                                               
|WHOLESALE                                       |  |                             |         |                |     |                            |   |                |   |                            |   |                |         |                           |     |                |   |         |   |     |  
|Net sales                                       |  | $                           | 67,692  |                | 100 |                            | $ | 70,655         |   | 100                        |   | $              | 117,987 |                           | 100 |                | $ | 122,476 |   | 100 |  
|Gross profit                                    |  |                             | 28,300  |                | 42  |                            |   | 29,737         |   | 42                         |   |                | 46,929  |                           | 40  |                |   | 52,832  |   | 43  |  
|Selling expenses                                |  |                             | 8,684   |                | 13  |                            |   | 9,791          |   | 14                         |   |                | 16,916  |                           | 14  |                |   | 19,697  |   | 16  |  
|Restructuring charges                           |  |                             | 86      |                | —   |                            |   | —              |   | —                          |   |                | 687     |                           | 1   |                |   | —       |   | —   |  
|Goodwill impairment                             |  |                             | 0       |                | —   |                            |   | 37,074         |   | 52                         |   |                | 0       |                           | —   |                |   | 37,074  |   | 30  |  
|Operating income (loss)                         |  |                             | 19,530  |                | 29  |                            |   | (17,128        | ) | (24                        | ) |                | 29,326  |                           | 25  |                |   | (3,939  | ) | (3  | )
|                                               
|RETAIL                                          |  |                             |         |                |     |                            |   |                |   |                            |   |                |         |                           |     |                |   |         |   |     |  
|Net sales                                       |  | $                           | 9,197   |                | 100 |                            | $ | 10,510         |   | 100                        |   | $              | 25,550  |                           | 100 |                | $ | 26,706  |   | 100 |  
|Gross profit                                    |  |                             | 3,875   |                | 42  |                            |   | 6,301          |   | 60                         |   |                | 8,601   |                           | 34  |                |   | 17,527  |   | 66  |  
|Selling expenses                                |  |                             | 7,125   |                | 77  |                            |   | 6,804          |   | 65                         |   |                | 15,218  |                           | 60  |                |   | 15,790  |   | 59  |  
|Restructuring charges                           |  |                             | 598     |                | 7   |                            |   | —              |   | —                          |   |                | 951     |                           | 4   |                |   | —       |   | —   |  
|Operating (loss) income                         |  |                             | (3,848  | )              | (42 | )                          |   | (503           | ) | (5                         | ) |                | (7,568  | )                         | (30 | )              |   | 1,737   |   | 7   |  
|                                               
|DIRECT                                          |  |                             |         |                |     |                            |   |                |   |                            |   |                |         |                           |     |                |   |         |   |     |  
|Net sales                                       |  | $                           | 15,818  |                | 100 |                            | $ | 16,663         |   | 100                        |   | $              | 34,942  |                           | 100 |                | $ | 39,032  |   | 100 |  
|Gross profit                                    |  |                             | 10,874  |                | 69  |                            |   | 11,183         |   | 67                         |   |                | 23,511  |                           | 67  |                |   | 25,774  |   | 66  |  
|Selling expenses                                |  |                             | 10,010  |                | 63  |                            |   | 9,428          |   | 57                         |   |                | 21,203  |                           | 61  |                |   | 19,561  |   | 50  |  
|Restructuring charges                           |  |                             | 165     |                | 1   |                            |   | —              |   | —                          |   |                | 165     |                           | —   |                |   | —       |   | —   |  
|Operating income                                |  |                             | 699     |                | 4   |                            |   | 1,755          |   | 11                         |   |                | 2,143   |                           | 6   |                |   | 6,213   |   | 16  |  
|                                               
|CORPORATE                                       |  |                             |         |                |     |                            |   |                |   |                            |   |                |         |                           |     |                |   |         |   |     |  
|Unallocated net sales                           |  | $                           | 264     |                |     |                            | $ | 549            |   |                            |   | $              | 886     |                           |     |                | $ | 960     |   |     |  
|Unallocated general and administrative expenses |  |                             | 24,041  |                |     |                            |   | 26,950         |   |                            |   |                | 49,770  |                           |     |                |   | 55,586  |   |     |  
|Restructuring charges                           |  |                             | 1,228   |                |     |                            |   | —              |   |                            |   |                | 5,065   |                           |     |                |   | —       |   |     |  
|Operating loss                                  |  |                             | (25,005 | )              |     |                            |   | (26,401        | ) |                            |   |                | (53,949 | )                         |     |                |   | (54,626 | ) |     |  
|                                               
|CONSOLIDATED                                    |  |                             |         |                |     |                            |   |                |   |                            |   |                |         |                           |     |                |   |         |   |     |  
|Net sales                                       |  | $                           | 92,971  |                | 100 |                            | $ | 98,377         |   | 100                        |   | $              | 179,365 |                           | 100 |                | $ | 189,174 |   | 100 |  
|Operating loss                                  |  |                             | (8,624  | )              | (9  | )                          |   | (42,277        | ) | (43                        | ) |                | (30,048 | )                         | (17 | )              |   | (50,615 | ) | (27 | )

14

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|    |                     
|--- | --------------------
|14. | Assets held for sale

During the second quarter of 2007, the Company began soliciting buyers to purchase the assets of the Gorham
sterling silver flatware and sterling silver giftware product line, including inventory, machinery and equipment, books and
records and pattern trademarks and copyrights associated with sterling silver products. As a result, the Company has classified
these assets as assets held for sale on the Condensed Consolidated Balance Sheet as shown in the table below. No loss has been
recognized on these assets as the Company expects that the fair market value less cost to sell will be greater than its carrying
amount (see Note 15 to the Condensed Consolidated Financial Statements)

|                                       |  |               |       | 
|-------------------------------------- |  | ------------- | ----- | 
|                                       |  | June 30, 2007 |      
|                                       |  |               |      
|                                      
|Inventories                            |  | $             | 6,604 | 
|                                       |  |               |       | 
|Total current assets held for sale     |  | $             | 6,604 | 
|                                       |  |               |       | 
|                                      
|Trademarks, net                        |  | $             | 647   | 
|Property and equipment, net            |  |               | 847   | 
|                                       |  |               |       | 
|Total non-current assets held for sale |  | $             | 1,494 | 
|                                       |  |               |       | 

|    |                 
|--- | ----------------
|15. | Subsequent event

On July 19, 2007, the Company entered into an Asset Purchase Agreement (the Sale Agreement) with Lifetime
Brands, Inc. (Lifetime) for the sale of certain assets of the Company’s sterling silver flatware and sterling silver
giftware business conducted primarily under the Gorham and Kirk Stieff brand names. Simultaneously with the execution of the Sale
Agreement by the parties, the Company closed on this transaction.

The purchase price paid by Lifetime was $8,775, subject to a post closing adjustment based on the price and
quantity of silver transferred at closing. At closing, the Company received an initial payment of $8,525 and $250 was transferred
to an escrow account for a six-month period. On August 2, 2007, the parties agreed to a price adjustment reduction of $255 based
on the quantity of silver actually transferred at closing and the price of silver. Accordingly, the net purchase price is $8,520.
The Company transferred title to sterling silver finished goods inventory, work in process, raw materials, samples, selective
pieces of machinery and equipment, books and records and pattern trademarks and copyrights associated with sterling silver
products.

In addition, the Company granted a long term exclusive license to Lifetime to utilize the Gorham, Kirk Stieff,
Whiting and Durgin brands on and in connection with sterling silver products. The Company has retained all rights to utilize these
brands on non-sterling silver products.

The parties also entered into a short term transition agreement, which expires on November 30, 2007. Under the
terms of this agreement, the Company will provide manufacturing and distribution services to Lifetime for a fee. After the
termination of this transition agreement, the Company will cease its sterling silver operations at its leased space in Pomona, New
Jersey and intends to surrender said space to its landlord by the end of December, 2007.

15

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|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

This Item should be read in conjunction with the segment financial table presented in Note 13 to
the Condensed Consolidated Financial Statements. Other components of the Condensed Consolidated 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.

Comparison of Results of Operations for the Quarter Ended June 30, 2007 to the Quarter
Ended July 1, 2006.

Wholesale

Net sales decreased $3.0 million, or 4%, in the second quarter of 2007 compared with the same
period in 2006. The decrease was due to lower sales of Dansk and Gorham branded products, partially offset by an increase in
Department 56 branded products. Sales of Lenox branded product during the second quarter of 2007 was largely flat with
2006.

Gross profit as a percentage of net sales was 42% in both the second quarter of 2007 and 2006,
respectively. Improvements in product mix were offset by a higher provision for excess inventory.

Selling expenses were $1.1 million or 11% lower in the second quarter of 2007 as compared to the
second quarter of 2006. This decrease in selling expenses was principally due to lower advertising expense and workforce
reductions.

In the second quarter of 2006, a goodwill impairment charge of $37.1 million was recorded to
write-down the goodwill related to the Department 56 wholesale reporting unit. (See Note 9 to the Condensed Consolidated Financial
Statements)

Restructuring charges of $0.1 million in the second quarter of 2007 were primarily severance
related charges as a result of the continued execution of the Company’s new business plan.

Operating income increased in the second quarter of 2007 by $36.6 million primarily due to fact
that the second quarter of 2006 was negatively affected by the $37.1 million goodwill impairment charge.

Retail

Net sales decreased $1.3 million, or 12%, in the second quarter of 2007 compared with the same
period in 2006. This decrease was primarily due to a 13% reduction in same-store sales, caused in significant part by the delay in
transitioning to an appropriate go forward merchandising assortment.

Gross profit as a percentage of net sales was 42% and 60% in the second quarter of 2007 and
2006, respectively. The 18 percentage point decrease was principally due to 2007 having a larger mix of second quality and excess
inventory sales than in 2006. The Retail segment continues to transition to a merchandising strategy that includes a historical
level of 1st quality product sales which, if successfully executed, should increase gross margins back to historic
levels.

Selling expenses increased $0.3 million or 5% in the second quarter of 2007 compared to the
second quarter of 2006. The increase in selling expenses were principally due to asset disposal charges related to a change in
store merchandising strategy.

Restructuring charges of $0.6 million in the second quarter of 2007 were principally due to
lease termination costs related to the termination of an All the Hoopla store lease and severance related charges as a result of
the continued execution of the Company’s new business plan.

Operating loss was $3.3 million higher in the second quarter of 2007 as compared to the second
quarter of 2006 due to lower sales volumes on reduced store traffic, lower gross margins due to the higher mix of second quality
and excess merchandise and increased selling expenses.

Direct

Net sales decreased $0.8 million or 5% in the second quarter of 2007 as compared to the same
period in 2006. The decrease was primarily due to the residual effect of delays in developing and sourcing new product experienced
during the first quarter, as well as continued lower customer response rates.

Gross profit as a percentage of sales was 69% and 67% in the second quarter of 2007 and 2006,
respectively. This two percentage point improvement in gross profit as a percentage of sales is primarily the result of improved
product mix and lower freight costs.

16

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Selling expenses increased by $0.6 million or 6% in the second quarter of 2007 compared to the
second quarter of 2006 due primarily to increased media spending to acquire new customers and higher bad debt charges.

Restructuring charges of $0.2 million in the second quarter of 2007 were severance related
charges as a result of the continued execution of the Company’s new business plan.

Operating income decreased by $1.1 million or 60% in the second quarter of 2007 compared to the
same period in 2006 due primarily to the decrease in net sales combined with higher selling expenses and restructuring
charges.

Corporate

Net sales of $0.3 million represents revenue from the licensing of the Lenox brand and were $0.3
million lower in the second quarter of 2007 compared to the same period in 2006.

General and administrative expenses decreased by $2.9 million or 11% in the second quarter of
2007 as compared to the same period in 2006. This decrease was primarily a result of a $ 1.8 million reduction in post-retirement
expenses related to the decision in the fourth quarter of 2006 to freeze the Company’s defined benefit pension plans and to
discontinue offering post-retirement health benefits to current employees, $1.8 million in headcount and other cost
reductions and $0.5 million in savings in integration expenses associated with the Willitts acquisition incurred in the
second quarter of 2006. Partially offsetting these cost reductions was $1.2 million in executive management consulting fees
incurred in 2007.

Restructuring charges of $1.2 million in the second quarter of 2007 were severance related
charges as a result of the continued execution of the Company’s new business plan.

Loss on the debt refinancing

The Company incurred a $5.9 million loss on the refinancing of its term and revolver loans in
the second quarter of 2007. This loss consisted of $2.7 million of costs incurred in the quarter related to the re-financing as
well as the write-off of $3.2 million of previously capitalized loan costs (see Note 10 to the Condensed Consolidated Financial
Statements)

Provision for Income Taxes

The effective income tax rate was a 39% benefit in the second quarter of 2007 compared to an 11%
benefit in the second quarter of 2006. The low 2006 effective income tax rate was principally due to the goodwill impairment
(which was primarily non-tax deductible),

Comparison of Results of Operations for the 26 Weeks Ended June 30, 2007 to the 26 Weeks
Ended July 1, 2006.

Wholesale

Net sales decreased $4.5 million, or 4%, in the first half of 2007 compared with the same period
in 2006 due to sales decreases in Dansk, Gorham and Department 56 branded products, partially offset by a small increase in Lenox branded products.

Gross profit as a percentage of net sales was 40% and 43% in the first half of 2007 and 2006
respectively. The three percentage point decline in gross profit percentage was primarily due to higher levels of unfavorable
manufacturing variances related to lower production volumes at the Company’s silver manufacturing facility and a higher
level of product liquidations through the wholesale channel during the first six months of 2007 as compared to the same period in
2006, which had an impact of two and one percentage points respectively.

Selling expenses were $2.8 million or 14% lower in the first half of 2007 compared to the same
period in 2006. This decrease in selling expenses was principally due a reduction in base and incentive compensation costs
resulting from workforce reductions and reduction in variable costs as a result of lower sales.

In the first half of 2006, a goodwill impairment charge of $37.1 million was recorded to
write-down the goodwill related to the Department 56 wholesale reporting unit. (See Note 9 to the Condensed Consolidated Financial
Statements)

Restructuring charges of $0.7 million in the first half of 2007 are primarily severance related
charges as a result of the continued execution of the Company’s new business plan.

Operating income increased $33.3 million in the first six months of 2007 as compared to the same
period in 2006 primarily due to fact that 2006 was negatively impacted by the $37.1 million goodwill impairment charge. Partially
offsetting the absence of the goodwill impairment charge were lower sales and gross margin rate during 2007.

17

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Retail

Net sales decreased $1.2 million, or 4%, in the first half of 2007 compared with the first half
of 2006. This decrease was primarily by the closure of 28 Lenox retail stores throughout the first quarter of 2006, partially
offset by an increase of 3% in same store sales in 2007. Same store sales in 2007 increased 16% during the first quarter driven by
inventory liquidation sales and decreased 13% in the second quarter caused in significant part by the delay in transitioning to an
appropriate go forward merchandising assortment.

Gross profit as a percentage of net sales was 34% and 66% in the first half of 2007 and 2006,
respectively. This thirty two percentage point decrease was partially due to a purchase accounting adjustment to value Lenox
inventory at its estimated selling price less cost of disposal under the purchase method of accounting on the opening balance
sheet date. The impact of this purchase accounting adjustment during the first half of 2006 was approximately $4.2 million, which
increased gross profit as a percentage of sales by 17 percentage points from 49% to 66%. In addition, gross profit as a percentage
of sales was lower in 2007 due to promotion aimed at liquidating excess and 2nd quality inventory during the first
quarter, as well as the impact of selling a higher percentage of excess and 2nd quality products during the second
quarter of 2007 than in 2006.

Selling expenses decreased $0.6 million or million or 4% in the first half of 2007 compared to
the same period in 2006. The decrease in selling expenses was principally due to a reduction in variable selling
expenses.

Restructuring charges of $1.0 million in the first half of 2007 were related to lease
termination and other store closure costs relating to two store locations as well as severance related charges as a result of the
continued execution of the Company’s new business plan.

Operating loss was $9.3 million higher in the first half of 2007 as compared to the first half
of 2006 due primarily to the purchase accounting adjustment which benefited the first half of 2006, the decline in gross profit
due to the aggressive promotions used to liquidate inventory and the restructuring charges.

Direct

Net sales decreased $4.1 million or 10% in the first half of 2007 as compared to the same period
in 2006. The decrease was primarily due to fewer new product promotions during the first quarter and in the beginning of the
second quarter of 2007 compared to the same period in 2006 caused by delays in developing and sourcing new product, which the
Company believes it has now significantly addressed. In addition, the Segment experienced lower customer response rates on product
that was promoted in 2007.

Gross profit as a percentage of sales was 67% and 66% in the first half of 2007 and 2006
respectively. The gross profit percentage of 66% in the first quarter of 2006 was negatively impacted by a 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. The impact of this purchase accounting adjustment was $1.2
million, which decreased gross profit as a percentage of sales by three percentage points for the first quarter of 2006 from 69%
to 66%. The decrease in the gross profit percentage in 2007, when compared to the 69% in 2006, was primarily due to higher
provisions for excess inventory.

Selling expenses increased by $1.6 million or 8% in the first half of 2007 compared to the first
half of 2006 due primarily to increased media spending to acquire new customers and higher bad debt charges related to a change in
sales mix.

Restructuring charges of $0.2 million in the first half of 2007 were severance related charges
as a result of the continued execution of the Company’s new business plan.

Operating income decreased by $4.1 million or 66% in the first half of 2007 compared to the same
period in 2006 due primarily to the decrease in net sales and higher selling expenses as noted above.

Corporate

Net sales of $0.9 million in the first half of 2007 represents revenue from the licensing of the
Lenox brand and was flat compared with the first half of 2006.

General and administrative expenses decreased by $5.8 million or 10% in the first six
months of 2007 as compared to the same period in 2006. This decrease was primarily a result of a $ 3.6 million reduction in
postretirement expenses related to the decision in the fourth quarter of 2006 to freeze the Company’s defined benefit
pension plans and to discontinue offering postretirement health benefits to current employees, $4.9 million in headcount and
other cost reductions associated with the Willitts acquisition incurred in the second quarter of 2006. Partially offsetting these
cost reductions was $2.7 million in executive management consulting fees incurred in 2007.

18

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Restructuring charges of $5.1 million in the first half of 2007 were principally severance
expense related to the Company’s previous chief executive officer, lease buyout expense related to the shutdown of the
Company’s Rogers distribution facility and general severance and other costs associated with organizational changes
implemented as part of the Company’s new business plan

Loss on the debt refinancing

The Company incurred a $5.9 million loss on the refinancing of its term and revolver loans in
the second quarter of 2007. This loss consisted of $2.7 million of costs incurred in the quarter related to the re-financing
as well as the write-off of $3.2 million of previously capitalized loan costs (see Note 10 to the Condensed Consolidated
Financial Statements)

Provision for Income Taxes

The effective income tax rate was a 43% benefit in the first half of 2007 compared to 16%
benefit in the first half of 2006. The low 2006 effective income tax rate was principally due to the goodwill impairment (which is
primarily non-tax deductible). Additionally, the 2007 tax benefit was increased due to the recognition of previously unrecognized
tax benefits, net of adjustments to deferred tax assets, due to the expiration of the statute of limitations on certain tax
positions in the first half of 2007

SEASONALITY

The Company’s business 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. Due to the seasonality of segment sales as indicated
above, the Company has historically operated at a loss during the first half of the fiscal year. 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.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary sources of cash are the funds generated from operations and its
revolving credit facility, which is available for working capital and investment needs.

Consistent with customary practice in the giftware industry, the Company offers extended payment
terms to some of its wholesale customers. This practice has created significant working capital requirements as the Company uses
cash to source inventory, but does not receive cash from its customers until the fourth quarter and early first quarter of the
subsequent year when the extended payment terms come due. Similarly, the Company’s Retail and Direct segments create working
capital requirements during the first nine months of the year with revenue and cash collections peaking during the holiday season
in the fourth quarter and early first quarter of the subsequent year. The Company finances these working capital requirements with
seasonal borrowings under its revolving credit facility. Cash collected in the fourth quarter and first quarter of the subsequent
year is used to repay the seasonal borrowings.

The timing of cash payments to suppliers of
inventory, the ability to ship inventory to its customers, and the timing of cash receipts from its customers will impact the
Companys borrowing base capacity. The Company monitors accounts receivable, inventory levels and shipment of product on a
routine basis to ensure adequate borrowing base capacity exists to fund its current working capital needs and expects its capacity
to increase in the upcoming months, which will provide adequate availability through the holiday season. Based on this and current
forecasted levels of operations, the Company believes its current cash and liquidity available under its amended and restated
revolving credit facility (as described below) will be sufficient to finance working capital needs, capital expenditures and
contractual obligations for the remainder of fiscal 2007.

Based on current forecasted levels of operations, the Company believes its current cash and
liquidity available under its amended and restated revolving credit facility (as described below) will be sufficient to finance
working capital needs, capital expenditures and contractual obligations for the remainder of fiscal 2007.

19

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Cash Flows from Operations

In the first half of 2007, operations consumed $61.2 million in cash compared to $58.0 million
in the first half of 2006. The operating cash flow in the first half of both years reflects the seasonal working capital
requirements of the business as noted above. The $3.2 million change in cash flow from operating activities was principally due to
a higher net loss, excluding the effects of non-cash items, in the first half of 2007 compared to the first half of 2006. The
focus throughout the first half of 2007 on liquidating excess inventory, primarily through the Retail segment, was a partial
offset.

Cash Flows from Investing Activities

In the first half of 2007, the Company used $1.4 million for investing activities, primarily
capital spending on facilities and technology infrastructure. In the first half of 2006, investing activities provided $2.4
million in cash as a result of the proceeds received from the sale of the Langhorne, PA facility. The acquisition of Willitts and
capital spending on new corporate office space in Bristol, PA were partial offsets.

Cash Flows from Financing Activities

The Company borrowed $71.6 million under its revolving credit and term loan facilities to fund
operations in the first half of 2007 compared to net borrowings of $54.9 million in the first half of 2006. The $16.7 million
increase in borrowings were the result of proceeds received on the sale of assets (see investing activities above) in the first
half of 2006 which were not repeated in the first half of 2007 and additional borrowings in the first half of 2007 to pay
financing fees to refinance the Company’s debt as described below.

On February 9, 2007, the Company entered into waivers and amendments to its revolving credit
facility and term loan credit facility (the credit facilities) in connection with the Company’s noncompliance with the
financial covenants under the credit facilities for the period ended December 30, 2006. Pursuant to the waivers and amendments,
the lenders granted the Company a limited waiver of noncompliance through and including April 30, 2007, and temporarily amended
the agreements to adjust the leverage ratio and interest coverage ratio levels for the first quarter of 2007. In addition, the
amendment to the term loan facility increased the applicable margin for loans by 0.25% per annum. As consideration for the
amendments, the Company paid amendment fees of $0.2 million.

On April 20, 2007, the Company completed the refinancing of its credit facilities by entering
into amended and restated revolving and term loan facilities. The amended and restated revolving credit facility, which expires on
April 20, 2012, provides for borrowings up to $175 million, which may be in the form of letters of credit and revolving credit
loans to be used for working capital and general corporate purposes. The amended and restated term loan facility, which expires on
April 20, 2013, provides for term loans in the aggregate principal amount of up to $100 million. The Company used the proceeds of
the amended and restated term loan facility to refinance the $47.4 million of term debt outstanding and $42.2 million of the
revolver debt outstanding at April 20, 2007, to pay $1.2 million of accrued interest and fees payable under the existing credit
facilities and to pay $9.2 million of fees and expenses in connection with the refinancing.

Total fees and expenses incurred by the Company in connection with the refinancing were $9.7
million (inclusive of the $9.2 million paid out of the proceeds of the amended and restated term loan facility), of which $7.0
million was capitalized and $2.7 million was included as loss on refinancing of debt during the second quarter of 2007 in
accordance with EITF 98-14, Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements, and
EITF 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments. Based on these same criteria, the
Company recognized an additional $3.2 million of loss on early extinguishment of debt during the second quarter of 2007 to write
off portions of the previously capitalized loan costs

Borrowings under the amended and restated revolving credit facility are subject to certain
borrowing base limitations, and the Company’s borrowing capacity fluctuates during the year based upon accounts receivable
and inventory levels. As of June 30, 2007, the Company’s borrowing capacity under the amended and restated revolving credit
facility was $96.8 million, of which $20.8 million was available for additional borrowings or letters of credit at such
date.

The amended and restated 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 amended and restated credit facilities, and the Company and its material
subsidiaries, direct and indirect, have guaranteed repayment of amounts borrowed under the amended and restated credit
facilities.

The amended and restated revolving credit facility allows the Company to choose between two
interest rate options in

20

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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 0.5%
for Alternate Base Rate loans and from 1.75% to 2.25% for Adjusted LIBOR Rate loans. The amended and restated revolving credit
facility also provides for commitment fees of 0.375% per annum on the daily average of the unused commitment.

The amended and restated term loan facility allows the Company to choose between two interest
rate options in connection with its loans under the facility. 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 3.5% for Alternate Base Rate loans and
4.5% for Adjusted LIBOR Rate loans.

Under the amended and restated 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. Such prepayments will be applied to the term loan until it is paid in full,
except for prepayments occurring upon the sale of designated revolving loan collateral, which will be applied to the revolving
loan.

The amended and restated credit facilities contain customary financial conditions and covenants,
including restrictions on additional indebtedness, liens, investments, capital expenditures, issuances of capital stock and
dividends. The amended and restated credit facilities also require maintenance of minimum levels of fixed charge coverage and
maximum levels of leverage, in each case at the end of each fiscal quarter. The minimum fixed charge coverage ratio (as defined
within the credit facility agreements) requires the Company to maintain a minimum ratio of Consolidated EBITDA (as defined within
the credit facility agreements) to Consolidated Fixed Charges (as defined within the credit facility agreements) over a 12-month
period ending on each fiscal quarter. The maximum leverage ratio (as defined within the term credit facility agreement) requires
the Company to maintain a maximum ratio of debt (as measured at the end of each fiscal quarter) to Consolidated EBITDA over a
12-month period ending on each fiscal quarter.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have off-balance sheet arrangements.

CONTRACTUAL OBLIGATIONS

As of June 30, 2007, the Company is obligated to make cash payments in connection with its debt
obligations, operating leases, purchase commitments, capital leases, environmental remediation costs and royalty guarantees in the
amounts listed below. The Company has no unrecorded obligations other than the items noted in the following table:

|                             |  |              |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |         | 
|---------------------------- |  | ------------ | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ---------- |  | ----- | ------ |  | - | ------- |  | - | ------- | 
|Payments due (in thousands) 
|                            
|                             |  | 2007 (Q3-Q4) |        | 2008 |   | 2009   |  | 2010 |        | 2011 |   | Thereafter |  | Total |       
|                             |  |              |        |      |   |        |  |      |        |      |   |            |  |       |       
|Revolving Credit Facility1,2 |  | $            | —      |      | $ | —      |  | $    | —      |      | $ | —          |  | $     | —      |  | $ | 68,249  |  | $ | 68,249  | 
|Long-term Debt2,3            |  |              | 500    |      |   | 1,250  |  |      | 1,000  |      |   | 1,000      |  |       | 1,000  |  |   | 95,250  |  |   | 100,000 | 
|Operating Leases             |  |              | 8,047  |      |   | 13,163 |  |      | 11,307 |      |   | 10,234     |  |       | 8,936  |  |   | 52,464  |  |   | 104,151 | 
|Purchase Commitments4        |  |              | 54,967 |      |   | —      |  |      | —      |      |   | —          |  |       | —      |  |   | —       |  |   | 54,967  | 
|Capital leases               |  |              | 11     |      |   | 10     |  |      | —      |      |   | —          |  |       | —      |  |   | —       |  |   | 21      | 
|Environmental Costs5         |  |              | 257    |      |   | 214    |  |      | 209    |      |   | 205        |  |       | 200    |  |   | 1,402   |  |   | 2,487   | 
|Royalty Guarantees6          |  |              | 259    |      |   | 194    |  |      | 40     |      |   | 30         |  |       | 25     |  |   | —       |  |   | 548     | 
|                             |  |              |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |         | 
|Total                        |  | $            | 64,041 |      | $ | 14,831 |  | $    | 12,556 |      | $ | 11,469     |  | $     | 10,161 |  | $ | 217,365 |  | $ | 330,423 | 
|                             |  |              |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |         | 

|  |                                                                                                                                                                                                                                                                                                                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 June 30, 2007 of 7.44 % and 9.86 %, respectively.        
|3 | Long-term debt also
includes the $150 in principal amount of the conditional notes payable to the
Maryland Department of Business and Economic Development and the $100 in
principal amount of conditional notes payable to the County Commissioners of
Washington County, Maryland. In addition to these principal amounts, the
Company will incur interest expense at rates of 3% and 0%,
respectively.

|4 | The Company is
committed to pay suppliers of product under the terms of open purchase orders
issued in the normal course of business.
|- | -------------------------------------------------------------------------------------------------------------------------------------

|5 | The Company is
responsible for the cleanup and/or monitoring of two environmental sites located in New Jersey.
|- | --------------------------------------------------------------------------------------------------------------

|6 | The Company is
committed to pay licensors under the terms of license agreements entered into in the normal course of business.
|- | ------------------------------------------------------------------------------------------------------------------------------

Other than noted in the above table, there were no other
material changes in contractual obligations from those disclosed in the Company’s
2006 Form 10-K.

21

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CRITICAL ACCOUNTING POLICIES

There were no material changes in the Company’s
critical accounting policies from those described in the Company’s 2006 Annual report
of Form 10-K.

FORWARD-LOOKING STATEMENTS

Any conclusions or expectations expressed in, or drawn
from, the statements in this filing concerning matters that are not historical corporate
financial results are “forward-looking statements”, within the meaning of the
Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties.
These statements are based on management’s estimates, assumptions and projections as
of today and are not guarantees of future performance. Such risks and uncertainties that
could affect performance include, but are not limited to, the ability of the Company to:
(1) integrate certain Lenox and Department 56 operations, including the consolidation and
transfer of all financial responsibilities and controls into one company-wide finance
department to be located in the Company’s Bristol, Pennsylvania offices; (2) achieve
revenue or cost synergies; (3) generate cash flow to pay off outstanding debt and remain in
compliance with the terms of its new credit facilities; (4) successfully complete its
operational improvements, including improving inventory management and making the supply
chain more efficient; (5) retain key employees; (6) maintain and develop cost effective
relationships with foreign manufacturing sources; (7) maintain the confidence of and
service effectively key wholesale customers; (8) manage currency exchange risk and interest
rate changes on the Company’s variable debt; (9) identify, hire and retain quality
designers, sculptors and artistic talent to design and develop products which appeal to
changing consumer preferences; and (10) manage litigation risk in a cost effective manner.
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. Also, please read the bases, assumptions and factors
set out in Item 1A in the Company’s 2006 Form 10-K filed under the Securities
Exchange Act of 1934, all of which is incorporated herein by reference and applicable to
the forward-looking statements set forth herein.

|        |                                                           
|------- | ----------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures about Market
Risk

There has been no significant change in the
Company’s exposure to market risk since the end of fiscal 2006. The Company’s
market risks relate primarily to changes in interest rates and currency exchange rates. See
Item 7A in the Company’s 2006 Form 10-K for a discussion of these market
risks

|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Disclosure Controls and Procedures

Lenox Group Inc. management is responsible for
establishing and maintaining effective disclosure controls and procedures, as defined under
Rule 13a-15(e) of the Securities Exchange Act of 1934. As of the end of the period covered
by this report, the Company performed an evaluation, 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 Company’s disclosure controls
and procedures. Based upon, and as of the date of that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the Company’s disclosure
controls and procedures were effective to ensure that information required to be disclosed
by the Company in the reports that it files or submits to the Securities and Exchange
Commission under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is accumulated and
communicated to the Company’s management, including its Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.

Internal Controls Over Financial Reporting

No changes were made to the Company’s internal
control over financial reporting (as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934) during the last fiscal quarter that materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial
reporting.

22

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PART II - OTHER INFORMATION

|        |                  
|------- | -----------------
|Item 1. | 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 (Lenox) 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 (hereinafter the
Action). 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.

On February 22, 2007, without admitting any violation of
any statute or law or any liability or wrongdoing whatsoever, Lenox entered into a
settlement agreement with the plaintiff class representatives. Pursuant to the terms of the
settlement agreement, Lenox has agreed to pay $0.5 million, in return for which Lenox and
its affiliates will be completely released from any and all claims, demands and actions
concerning the Action and any claims that could have been alleged in the Action. This
settlement agreement is subject to final approval of the court and a final judgment
dismissing the Action with prejudice as to Lenox. Plaintiffs and Lenox have agreed to use
their best efforts promptly to seek court approval of the settlement agreement and
dismissal of the Action with prejudice. A hearing to seek final court approval of said
settlement has been set for August 9, 2007.

On April 12, 2007, Amanda Curiale filed a complaint in
the United States District Court for the Eastern District of Pennsylvania, which is a
purported class action alleging that the Company willfully violated the federal Fair and
Accurate Credit Transactions Act (FACTA) by continuing to print more than the last five
digits of the credit card number and/or the expiration date on receipts provided to debit
card and credit cardholders transacting business with the Company. The Company understands
that similar complaints have recently been filed against a large number of retailers. The
plaintiff seeks, on behalf of herself and the class, statutory damages of not less than one
hundred dollars and not more than one thousand dollars for each violation, as well as
unspecified punitive damages, costs and attorneys’ fees and a permanent injunction
from further engaging in violations of FACTA. The Company intends to vigorously defend
against these alleged claims. However, the results of litigation are uncertain, and, at
this stage of the litigation, the Company is unable to assess the extent of damages and/or
other relief, if any, that may be awarded if the plaintiff class were to
prevail.

In addition to the above actions, 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.

23

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|         |             
|-------- | ------------
|Item 1A. | Risk Factors

In addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, Item 1A of the Company’s 2006
Annual Report on Form 10-K, which could have a material impact on the Company’s
business, financial condition or results of operations. The risks described in the
Company’s 2006 Annual Report on Form 10-K are not the only risks facing the Company.
Additional risks and uncertainties not presently known to the Company or that the Company
currently believes to be immaterial may also adversely affect the Company’s business,
financial condition or results of operations.

|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
Holders

The following matters were submitted to a vote of security holders during
the Company’s Annual Meeting of Stockholders held on May 16, 2007

Description of Matter:

|   |                      
|-- | ---------------------
|1. | Election of Directors

|                     |  |                |  |                   
|-------------------- |  | -------------- |  | ------------------
|Director             |  | Votes Cast
For |  | Authority
Withheld
|                     |  |                |  |                   
|                    
|James E. Bloom       |  | 10,894,663     |  | 424,914           
|Charles N. Hayssen   |  | 10,856,610     |  | 462,967           
|Stewart M. Kasen     |  | 10,605,433     |  | 714,144           
|Reatha Clark King    |  | 10,626,953     |  | 692,624           
|John Vincent Weber   |  | 10,598,916     |  | 720,661           
|Conrad L. Bringsjord |  | 11,030,260     |  | 289,317           
|Glenda B. Glover     |  | 10,815,046     |  | 504,531           
|Dolores A. Kunda     |  | 10,856,514     |  | 463,063           

|   |                                                                                        
|-- | ---------------------------------------------------------------------------------------
|2. | Ratification of Deloitte & Touche LLP as independent
registered public accounting firm.

|           |  |         |  |         |  |                   | 
|---------- |  | ------- |  | ------- |  | ----------------- | 
|For        |  | Against |  | Abstain |  | Broker Non-
Votes | 
|           |  |         |  |         |  |                   | 
|11,222,506 |  | 91,456  |  | 5,615   |  | 0                 | 

24

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|        |         
|------- | --------
|Item 6. | Exhibits

|     |  |                                                                                                                                                                                                                                                                                                           
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Restated Certificate of Incorporation of the
Company. (Incorporated herein by reference to Exhibit 3.1 of Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2005. SEC
File No. 1-11908.)                                                                                        
|     |  |                                                                                                                                                                                                                                                                                                           
|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 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 Stock
Certificate. (Incorporated herein by reference to Exhibit 4.1 of
Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 1994. SEC File No. 1-11908.)                                                                                                
|     |  |                                                                                                                                                                                                                                                                                                           
|10.1 |  | Asset Purchase Agreement, dated July 19,
2007, by and among Lenox Group Inc., Lenox, Incorporated and Lifetime Brands,
Inc. (Incorporated herein by reference to Exhibit 10.1of Company’s
Current Report on Form 8-K dated July 24, 2007. SEC File No.
1-11908.)                                          
|     |  |                                                                                                                                                                                                                                                                                                           
|11.1 |  | Computation of net loss per share*                                                                                                                                                                                                                                                                        
|     |  |                                                                                                                                                                                                                                                                                                           
|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*                                                                                                                                                                                                                          

* Filed herewith

† Management contract or compensatory plan

25

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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.

|                     |                        |                        
|-------------------- | ---------------------- | -----------------------
|                     |                        | LENOX GROUP INC        
|                     |                        |                        
|Date: August 9, 2007 | /s/ Marc L. Pfefferle 
|                     |                        |                        
|                     |                        | Marc L. Pfefferle      
|                     |                        | Chief Executive Officer
|                     |                        |                        
|Date: August 9, 2007 | /s/ Timothy J. Schugel
|                     |                        |                        
|                     |                        | Timothy J. Schugel     
|                     |                        | Chief Financial Officer

26

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EXHIBIT INDEX

|               |  |                                                                                                   
|-------------- |  | --------------------------------------------------------------------------------------------------
|Exhibit
Number |  | Description                                                                                       
|               |  |                                                                                                   
|               |  |                                                                                                   
|3.3            |  | Restated By-Laws of the Company                                                                   
|               |  |                                                                                                   
|11.1           |  | Computation of net loss per share                                                                 
|               |  |                                                                                                   
|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                   
|               |  |                                                                                                   

27

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