##### 



SECURITIES AND EXCHANGE COMMISSION  Form 10-Q (Mark One) (X)
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2004 OR (   )
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to  . Commission File Number 0-1349 Enesco Group, Inc. 
  Illinois
    
    04-1864170(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 225 Windsor Drive, Itasca, Illinois
    
    
    60143(Address of principal executive offices)
    
    (Zip Code)
 630-875-5300 
  N/A
(Former name, address and fiscal year, if changed since last report) 
 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x ]    No [   ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12B-2 of the Exchange Act) Yes [x ]    No [   ] June 30,2004
    
    2003Shares Outstanding:Common Stock with
Associated Rights
    
    
    14,270,823
    
    
    
    14,046,256




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##### 



PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ENESCO GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 2004 AND DECEMBER 31, 2003
(In thousands) (Unaudited)June 30,
    
    December 31,2004
    
    2003ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    9,145
    
    
    $
    10,645Accounts receivable, net
    
    
    69,407
    
    
    
    65,190Inventories
    
    
    65,488
    
    
    
    60,820Prepaid expenses
    
    
    4,154
    
    
    
    4,114Deferred income taxes and taxes receivable
    
    
    5,185
    
    
    
    5,146Total current assets
    
    
    153,379
    
    
    
    145,915Property, Plant and Equipment:Property, plant and equipment
    
    
    88,247
    
    
    
    85,606Less  accumulated depreciation
    
    
    (60,082
    )
    
    
    (57,265
    )Property, plant and equipment, net
    
    
    28,165
    
    
    
    28,341Other Assets:Goodwill and other intangibles, net
    
    
    9,375
    
    
    
    2,890Other
    
    
    1,352
    
    
    
    1,458Deferred income taxes
    
    
    23,660
    
    
    
    23,864Total other assets
    
    
    34,387
    
    
    
    28,212Total Assets
    
    $
    215,931
    
    
    $
    202,468
 The accompanying notes are an integral part of these consolidated condensed financial statements. 2




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##### 



ENESCO GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 2004 AND DECEMBER 31, 2003
(In thousands) (Unaudited)June 30,
    
    December 31,2004
    
    2003LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Notes and loans payable
    
    $
    27,427
    
    
    $
    2,858Accounts payable
    
    
    19,710
    
    
    
    21,723Federal, state and foreign income taxes
    
    
    1,777
    
    
    
    7,375Accrued expenses:Payroll and commissions
    
    
    2,492
    
    
    
    4,812Royalties
    
    
    5,808
    
    
    
    7,735Post-retirement benefits
    
    
    998
    
    
    
    1,375Other
    
    
    5,450
    
    
    
    5,686Total current liabilities
    
    
    63,662
    
    
    
    51,564Long-Term Liabilities:Notes payable
    
    
    6,096
    
    
    
    9Post-retirement benefits
    
    
    3,301
    
    
    
    3,248Deferred income taxes
    
    
    294
    
    
    
    294Total long-term liabilities
    
    
    9,691
    
    
    
    3,551Minority interest
    
    
    100
    
    
    
    114Shareholders Equity:Common stock
    
    
    3,154
    
    
    
    3,154Capital in excess of par value
    
    
    45,545
    
    
    
    45,863Retained earnings
    
    
    342,096
    
    
    
    347,650Accumulated other comprehensive income
    
    
    3,836
    
    
    
    3,740394,631
    
    
    
    400,407Less  shares held in treasury, at cost
    
    
    (252,153
    )
    
    
    (253,168
    )Total shareholders equity
    
    
    142,478
    
    
    
    147,239Total Liabilities and Shareholders Equity
    
    $
    215,931
    
    
    $
    202,468
 The accompanying notes are an integral part of these consolidated condensed financial statements. 3




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##### 



ENESCO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
THREE MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
(In thousands, except per share amounts) 2004
    
    2003Net revenues
    
    $
    59,113
    
    
    $
    60,886Cost of sales
    
    
    32,342
    
    
    
    33,277Gross profit
    
    
    26,771
    
    
    
    27,609Selling, distribution, general and
administrative expenses
    
    
    28,410
    
    
    
    23,590Operating profit (loss)
    
    
    (1,639
    )
    
    
    4,019Interest expense
    
    
    (189
    )
    
    
    (495
    )Interest income
    
    
    143
    
    
    
    236Other income (expense), net
    
    
    (285
    )
    
    
    (229
    )Income (loss) before income taxes
    
    
    (1,970
    )
    
    
    3,531Income tax expense (benefit)
    
    
    (818
    )
    
    
    1,357Net income (loss)
    
    
    (1,152
    )
    
    
    2,174Retained earnings, beginning of period
    
    $
    343,248
    
    
    $
    327,577Retained earnings, end of period
    
    $
    342,096
    
    
    $
    329,751Earnings (loss) per common share:Basic and diluted
    
    $
    (0.08
    )
    
    $
    0.15
 The accompanying notes are an integral part of these consolidated condensed financial statements. 4




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##### 



ENESCO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
(In thousands, except per share amounts) 2004
    
    2003Net revenues
    
    $
    109,565
    
    
    $
    107,023Cost of sales
    
    
    62,138
    
    
    
    60,904Gross profit
    
    
    47,427
    
    
    
    46,119Selling, distribution, general and administrative expenses
    
    
    56,288
    
    
    
    46,611Operating loss
    
    
    (8,861
    )
    
    
    (492
    )Interest expense
    
    
    (274
    )
    
    
    (544
    )Interest income
    
    
    255
    
    
    
    406Other income (expense), net
    
    
    (600
    )
    
    
    (635
    )Loss before income taxes
    
    
    (9,480
    )
    
    
    (1,265
    )Income tax benefit
    
    
    (3,926
    )
    
    
    (648
    )Net loss
    
    
    (5,554
    )
    
    
    (617
    )Retained earnings, beginning of period
    
    
    347,650
    
    
    
    330,368Retained earnings, end of period
    
    $
    342,096
    
    
    $
    329,751
 The accompanying notes are an integral part of these consolidated condensed financial statements. 5




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ENESCO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
(In thousands) 2004
    
    2003Operating Activities:Net loss
    
    $
    (5,554
    )
    
    $
    (617
    )Adjustments to reconcile net loss to net
cash used by operating activities
    
    
    (16,809
    )
    
    
    (4,939
    )Net cash used by operating activities
    
    
    (22,363
    )
    
    
    (5,556
    )Investing Activities:Purchases of property, plant and equipment
    
    
    (2,524
    )
    
    
    (2,608
    )Acquisitions, net of cash acquired
    
    
    (7,413
    )
    
    
    (3,718
    )Proceeds from sales of property, plant and equipment
    
    
    56
    
    
    
    9Net cash used by investing activities
    
    
    (9,881
    )
    
    
    (6,317
    )Financing Activities:Net isssuance of notes and loans payable
    
    
    29,950
    
    
    
    867Common stock issuance and exercise of stock options
    
    
    697
    
    
    
    909Net cash provided by financing activities
    
    
    30,647
    
    
    
    1,776Effect of exchange rate changes on cash and cash equivalents
    
    
    97
    
    
    
    250Decrease in cash and cash equivalents
    
    
    (1,500
    )
    
    
    (9,847
    )Cash and cash equivalents, beginning of period
    
    
    10,645
    
    
    
    17,418Cash and cash equivalents, end of period
    
    $
    9,145
    
    
    $
    7,571
 The accompanying notes are an integral part of these consolidated condensed financial statements. 6




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##### 



ENESCO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. Description of Business A global leader in the gift, collectibles and home décor industry for over 45
years, Enesco Group, Inc. (the Company or Enesco) offers such notable
product lines as Heartwood Creek, Cherished Teddies, Mary Engelbreit, Border
Fine Arts, Lilliput Lane, Walt Disney Classics Collection, Nickelodeonand
Halcyon Days, among others. The Companys award winning Precious Moments
figurine collection is one of the top gift and collectible lines throughout the
world. Enesco distributes product worldwide and has wholly owned subsidiaries
located in the U.S., Hong Kong, Canada, France and the U.K. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying financial data as of June 30, 2004 and for the three and six
months ended June 30, 2004 and June 30, 2003 has been prepared by Enesco,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. These
Consolidated Condensed Financial Statements should be read in conjunction with
the Consolidated Financial Statements and the notes thereto included in
Enescos Annual Report on Form 10-K for the year ended December 31, 2003. In the opinion of management, these Consolidated Condensed Financial Statements
have been prepared in conformity with accounting principles generally accepted
in the United States of America applicable to interim period financial
statements and reflect all adjustments necessary for a fair presentation of
Enescos financial position as of June 30, 2004, results of operations for the
three and six months ended June 30, 2004 and June 30, 2003, and cash flows for
the six months ended June 30, 2004 and June 30, 2003. The results of
operations for interim periods are not necessarily indicative of the operating
results for full fiscal years or any future period. The information in this
report reflects all normal recurring adjustments and disclosures that are, in
our 7




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##### 



opinion, necessary to fairly present the results of operations and financial
condition for the interim periods. Revenue Recognition Enesco recognizes revenue when title passes to its customers, which generally
occurs when merchandise is turned over to the shipper. A provision for
anticipated merchandise returns and allowances is recorded based upon
historical experience when a sale is recognized. Amounts billed to customers
for shipping and handling are included in revenue. License and royalty fees
received by Enesco are recognized as revenue when earned. Computation of Earnings (Loss) per Common Share Basic earnings (loss) per common share is computed using the weighted-average
number of common shares outstanding during the period. Diluted earnings per
share is computed using the weighted-average number of common shares and
potential dilutive common shares outstanding during the period. Diluted loss
per share is computed using the weighted-average number of common shares and
excludes potential dilutive common shares outstanding, as their effect is
antidilutive. Potential dilutive common share equivalents consist of stock
options and warrants calculated using the treasury stock method. Payments for Interest and Income Taxes Enesco made cash payments for interest and income taxes as follows (in
thousands): Six Months EndedJune 302004
    
    2003Interest
    
    $
    244
    
    
    $
    220Income taxes
    
    $
    1,451
    
    
    $
    991
 8




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##### 



Accounting for Stock  Based Compensation As of June 30, 2004, the Company maintains three stock-based employee
compensation plans and one Non-Employee Director Compensation Plan. The
Company accounts for those plans under the recognition and measurement
provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. No stock option-based
compensation cost is reflected in net income (loss), as all options granted
under those plans had exercise prices equal to the market value of the
underlying common stock on the date of grant. The following table illustrates
the effect on net income (loss) and earnings (loss) per common share as if the
Company had applied the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, to stock-based compensation. Three months ended June 30
    
    Six months ended June 302004
    
    2003
    
    2004
    
    2003Net income (loss) as reported
    
    $
    (1,152
    )
    
    $
    2,174
    
    
    $
    (5,554
    )
    
    $
    (617
    )Deduct: Total stock option-based
compensation expense determined under
fair value based method for all awards,
net of related tax effects
    
    
    (349
    )
    
    
    (346
    )
    
    
    (697
    )
    
    
    (691
    )Pro forma net income (loss)
    
    $
    (1,501
    )
    
    $
    1,828
    
    
    $
    (6,251
    )
    
    $
    (1,308
    )Earnings (loss) per common share:Basic and diluted  as reported
    
    $
    (0.08
    )
    
    $
    0.15
    
    
    $
    (0.39
    )
    
    $
    (0.04
    )Basic and diluted   pro forma
    
    $
    (0.11
    )
    
    $
    0.13
    
    
    $
    (0.44
    )
    
    $
    (0.09
    )
 3. Comprehensive Income (Loss): Other comprehensive income (loss) consists only of cumulative foreign currency
translation adjustments. Comprehensive income (loss) for the three and six
months ended June 30, 2004 and 2003 was as follows (in thousands): 9




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Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    2004
    
    2003Net income (loss)
    
    $
    (1,152
    )
    
    $
    2,174
    
    
    $
    (5,554
    )
    
    $
    (617
    )Other comprehensive income (loss):Cumulative translation adjustments, excluding tax effects
    
    
    (654
    )
    
    
    2,906
    
    
    
    96
    
    
    
    3,218Comprehensive income (loss)
    
    $
    (1,806
    )
    
    $
    5,080
    
    
    $
    (5,458
    )
    
    $
    2,601
 4. Geographic Operating Segments: Enesco operates in the giftware and collectible wholesale industry,
predominantly in two major geographic areas (United States and International).
The following table summarizes
operations by geographic classification for the three and six months ended June
30, 2004 and 2003 (in thousands): Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    2004
    
    2003Net SalesUnited States
    
    $
    37,510
    
    
    $
    41,605
    
    
    $
    64,477
    
    
    $
    70,179United States inter-company
    
    
    (289
    )
    
    
    (245
    )
    
    
    (475
    )
    
    
    (461
    )International
    
    
    22,128
    
    
    
    19,707
    
    
    
    46,196
    
    
    
    37,760International inter-company
    
    
    (236
    )
    
    
    (181
    )
    
    
    (633
    )
    
    
    (455
    )Total consolidated
    
    $
    59,113
    
    
    $
    60,886
    
    
    $
    109,565
    
    
    $
    107,023Operating Profit (Loss)United States
    
    $
    (3,454
    )
    
    $
    2,470
    
    
    $
    (12,287
    )
    
    $
    (3,505
    )International
    
    
    1,815
    
    
    
    1,549
    
    
    
    3,426
    
    
    
    3,013Total consolidated
    
    $
    (1,639
    )
    
    $
    4,019
    
    
    $
    (8,861
    )
    
    $
    (492
    )
 Transfers between geographic operating segments are made at the estimated fair
value of the merchandise transferred. No single customer accounted for 10% or
more of consolidated net sales. Export sales to foreign unaffiliated customers
represented less than 10% of consolidated net sales. There were no material changes in assets from the amounts disclosed in Enescos
December 31, 2003 Annual Report and the basis of geographic classification of
sales and operating profit has not changed in 2004. 10




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5. Other Income (Expense), net: Other income (expense), net for the three and six months ended June 30, 2004
and 2003 consisted of the following (in thousands): Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    2004
    
    2003Foreign currency gain (loss)
    
    $
    
    
    
    $
    1
    
    
    $
    (6
    )
    
    $
    (1
    )Gain (loss) on sale of fixed assets
    
    
    7
    
    
    
    (4
    )
    
    
    10
    
    
    
    (4
    )Bank charges and other
    
    
    (292
    )
    
    
    (226
    )
    
    
    (604
    )
    
    
    (630
    )$
    (285
    )
    
    $
    (229
    )
    
    $
    (600
    )
    
    $
    (635
    )
 6. Earnings (Loss) per Common Share (Basis of Calculations): The number of shares used in the earnings (loss) per common share computation
for the three and six months ended June 30, 2004 and 2003 were as follows (in
thousands): Three Months Ended
    
    Six Months EndedJune 30
    
    June 302004
    
    2003
    
    2004
    
    2003BasicAverage common shares outstanding
    
    
    14,238
    
    
    
    14,026
    
    
    
    14,204
    
    
    
    13,972DilutedStock options and warrants
    
    
    
    
    
    
    394
    
    
    
    
    
    
    
    Average shares diluted
    
    
    14,238
    
    
    
    14,420
    
    
    
    14,204
    
    
    
    13,972
 The average number of diluted shares outstanding for the six months ended June
30, 2004 and 2003 excludes common stock equivalents relating to options and
warrants because they would have been antidilutive in calculating the loss per
share. Had Enesco reported a profit for the six months ended June 30, 2004 and
June 30, 2003, the number of average shares diluted would have increased by
726 thousand and 321 thousand, respectively. Additionally, options to
purchase 0.7 million and 1.5 million shares were outstanding during 2004 and
2003, respectively, but were not included in the computation of diluted
earnings (loss) per share because the options exercise price was greater than
the average market price of the common shares. 11




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##### 



7. Financial Instruments: Enesco operates globally with various manufacturing and distribution
facilities and product sourcing locations around the world. Enesco may reduce
its exposure to fluctuations in interest rates and foreign exchange rates by
creating offsetting positions through derivative financial instruments.
Enesco currently does not use derivative financial instruments for trading or
speculative purposes. Enesco regularly monitors foreign currency exposures
and ensures hedge contract amounts do not exceed the amounts of the underlying
exposures. Enescos current hedging activity is limited to foreign currency purchases and
intercompany foreign currency transactions. The purpose of Enescos foreign
currency hedging activities is to protect Enesco from the risk that eventual
settlement of foreign currency transactions will be affected adversely by
changes in exchange rates. Enesco hedges these exposures by entering into
various short-term foreign exchange forward contracts. Derivative instruments
are carried at fair value in the Consolidated Condensed Balance Sheets as a
component of current assets or current liabilities. Changes in the fair value
of foreign exchange forward contracts that meet the applicable hedging criteria
are recorded as a component of other comprehensive income and reclassified into
earnings in the same period during which the hedged transaction affects
earnings. Changes in the fair value of foreign exchange forward contracts that
do not meet the applicable hedging criteria are recorded currently in income as
cost of sales or foreign exchange gain or loss, as applicable. Hedging
activities did not have a material impact on results of operations or financial
condition during the six months ended June 30, 2004. To manage foreign currency risk, as of June 30, 2004, Enesco had entered into
forward exchange agreements with a notional value of $11.2 million that will
mature within 65 days. These contracts include sales of British pounds
sterling and purchases of U.S. dollars at an average exchange rate of 1.83, a
sale of U.S. dollars and the purchase of British pounds sterling at an average
exchange rate of 1.83 and sales of Euros and purchases of U.S. dollars at an
average exchange rate of 1.16. The fair value of these contracts is not
significant. As of June 30, 2004, Enesco had $33.5 million of interest bearing
debt outstanding, of which $24.8 million was revolving credit facility debt
with an interest rate of 2.50% and $7.4 million was a term loan with an
interest rate of 2.38%. The remaining $1.3 million was primarily revolving
credit facility debt with an interest rate of 2.69%. 12




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##### 



8. Acquisition On February 29, 2004, the Company acquired Gregg Manufacturing, Inc. d/b/a
Gregg Giftware Company (Gregg Gift), a California-based manufacturer, for
approximately $7.4 million in cash ($7.3 million net of acquired cash). Gregg
Gift manufactures and distributes branded and specialty giftware that includes
book covers, organizers, tote bags and home décor accents targeting the growing
inspirational marketplace. Gregg Gift generated revenues of approximately $11.0
million in 2003. In March 2004, Enescos domestic $50.0 million credit facility was amended to
add term notes totaling $7.7 million for the purpose of funding the acquisition
of Gregg Gift. The total unsecured credit facility is currently $57.7 million.
At the same time, Gregg Gift was added as a borrowing subsidiary. Certain
financial covenants relating to the credit facility were modified, including
measurements at the end of each quarter. 9. Subsequent Event On July 21, 2004, the Company acquired substantially all of the assets of
Dartington Crystal Limited (Dartington) through its U.K subsidiary, Enesco
Limited, for approximately $7.0 million in cash. The purchase price was funded
by internally generated cash from Enesco Limited. Dartington designs and
manufactures a full range of uncut crystal products, such as glassware,
bowls, vases, candleholders and giftware. Dartington generated revenues of
approximately $16.8 million in 2003. 13




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ENESCO GROUP, INC.
SIX MONTHS ENDED JUNE 30, 2004 Certain statements contained in this Quarterly Report on Form 10-Q, including,
without limitation, statements containing the words believes, anticipates,
estimates, expects, projections, projects, and words of similar
meaning, constitute forward-looking statements within the meaning of Federal
securities laws. These forward-looking statements are based in part on Enescos
reasonable expectations and are subject to a number of factors and risks, many
of which are beyond Enescos control. Our actual results could differ
materially from those anticipated in these forward-looking statements for many
reasons, including the risks faced by us described below under the heading
Risk Factors and elsewhere in this Quarterly Report, and in other documents
we file with the Securities and Exchange Commission. In light of these
uncertainties and risks, there can be no assurance that the forward-looking
statements in this Form 10-Q will occur or continue in the future. Except for
required filings under the Securities Exchange Act of 1934, Enesco undertakes
no obligation to release publicly any revisions to these forward-looking
statements that may reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Results of Operations Critical Accounting Policies The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make judgments, assumptions and estimates that affect
the amounts reported in the Consolidated Condensed Financial Statements and
accompanying notes. Estimates are used for, but not limited to, the accounting
for allowances for doubtful accounts and sales returns, inventory valuation,
goodwill impairment, contingencies, restructuring costs and other special
charges and income taxes. Actual results could differ from these estimates.
The following critical accounting policies are impacted significantly by
judgments, assumptions and estimates used in the preparation of the
Consolidated Condensed Financial Statements. 14




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##### 



The allowance for doubtful accounts is based on our assessments of the
collectibility of specific customer accounts and the aging of accounts
receivable. If there is a deterioration of a major customers credit
worthiness or actual defaults are significantly different than our historical
experience, estimates of the recoverability of amounts due could be affected.
An allowance for sales returns is established based on historical trends in
product returns. If future returns do not reflect historical trends, net
revenues could be affected. Inventory purchases and commitments are based on future demand forecasts. If
there is a sudden or significant decrease in demand for our products or there
is a higher incidence of inventory obsolescence because of rapidly changing
customer requirements, we may be required to decrease the carrying value of
inventory and gross profit could be affected. Enesco has established accruals for income taxes payable and tax assessments.
The accruals are included in current income taxes payable since it is uncertain
as to when assessments may be made and paid. Enesco has filed and continues to
file tax returns with a number of taxing authorities worldwide. While Enesco
believes such filings have been and are in compliance with applicable laws,
regulations and interpretations, positions taken are subject to challenge by
the taxing authorities often for an extended number of years after the filing
dates. To the extent accruals differ from assessments, when the open tax years
are closed or the accruals are otherwise deemed unnecessary at a point in time,
the accruals are adjusted through the provision for income taxes. The majority
of open tax years become closed for assessments at the end of December for the
particular open year. 15




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##### 



Second Quarter 2004 Overview Results for the three months ended June 30, 2004 are summarized as follows: Quarter Ended
    
    Percent of Net SalesJune 30, 2004
    
    June 30, 2003
    
    June 30, 2004
    
    June 30, 2003Net revenues
    
    
    59,113
    
    
    
    60,886
    
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    32,342
    
    
    
    33,277
    
    
    
    54.7
    %
    
    
    54.7
    %Gross profit
    
    
    26,771
    
    
    
    27,609
    
    
    
    45.3
    %
    
    
    45.3
    %Selling, distribution, G&A
    
    
    28,410
    
    
    
    23,590
    
    
    
    48.1
    %
    
    
    38.7
    %Operating profit (loss)
    
    
    (1,639
    )
    
    
    4,019
    
    
    
    -2.8
    %
    
    
    6.6
    %Other expense:Interest expense
    
    
    (189
    )
    
    
    (495
    )
    
    
    -0.3
    %
    
    
    -0.8
    %Interest income
    
    
    143
    
    
    
    236
    
    
    
    0.2
    %
    
    
    0.4
    %Other items
    
    
    (285
    )
    
    
    (229
    )
    
    
    -0.5
    %
    
    
    -0.4
    %Total other expense
    
    
    (331
    )
    
    
    (488
    )
    
    
    -0.6
    %
    
    
    -0.8
    %Income (loss) before taxes
    
    
    (1,970
    )
    
    
    3,531
    
    
    
    -3.3
    %
    
    
    5.8
    %Income tax provision (benefit)
    
    
    (818
    )
    
    
    1,357
    
    
    
    -1.4
    %
    
    
    2.2
    %Net income (loss)
    
    
    (1,152
    )
    
    
    2,174
    
    
    
    -1.9
    %
    
    
    3.6
    %
 In the U.S., we continued to experience a higher than expected level of
challenges related to our Enterprise Resource Planning (ERP) system
implementation. Implementation has been slower than expected and further
progress is needed to fully utilize the system. The most notable challenges are
a reduced and less efficient order processing and shipping capacity and an
increase in costs related to the inefficiencies as well as continuing
consulting efforts to resolve the issues. As of June 30, 2004, we believe
there were approximately $8 million of open orders that could have been shipped
in the second quarter had we been able to operate at normal efficiency and
capacity levels. Costs of $0.6 million and $1.1 million have been incurred for the three and six
months ended June 30, 2004 periods, respectively, related to operating
inefficiencies, continued ERP implementation and problem solving. These costs
primarily consist of higher than normal distribution center and customer
service labor and overtime as well as systems related consulting. 16




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##### 



We continued to experience an strong in net new orders versus the prior year.
Year to date through June 30, 2004, net new orders of approximately $147
million are up 20% from 2003. The increased new order levels are being
generated in both the U.S. and International markets and are the result of
several factors, including but not limited to, successful new product lines
like Heartwood Creekand Willow Treeas well as our expanded relationship with
Disneyand the acquisitions of Bilston & Battersea and Gregg Gift. Backlog at
June 30, 2004 of approximately $48 million is $14 million or 42% higher than a
year ago. International results continue to be solid with net revenues and operating
income increasing 12% and 17% respectively, compared to second quarter of 2003. Financially, Enescos second quarter 2004 sales were down 3% versus second
quarter 2003 sales. The $1.8 million decrease was due primarily to shipping
delays caused by the ERP system implementation and continued decline of the
sales of Precious Momentsand Cherished Teddiesproducts. Acquisitions and
other successful new product lines have offset most, but not all of these
shortfalls. Second quarter 2004 gross profit declined by 3%, or $800 thousand
versus second quarter 2003, which was in line with the sales decline. Gross
margin held steady at 45.3% of net sales. Operating expenses increased $4.8
million or 20% this quarter over the same quarter last year. The increased
expenses are due primarily to normal operating costs from the acquired
businesses as well as costs related to our ERP system implementation. We also
continued to incur significant costs related to Precious Momentsmarketing
efforts which we expect will provide benefit in future periods. Operating and
net income results were unfavorable for this quarter and the year to date
periods as compared to 2003 primarily due to the delayed shipments and higher
expenses related to our ERP system implementation. Net Revenue and Gross Profit Net sales of $59.1 million in the second quarter of 2004 decreased by 2.9%, or
$1.8 million, from $60.9 million in the second quarter of 2003. The decrease in
net sales for the second quarter of 2004 compared to 2003 was due to lower
sales of the Precious Momentsand Cherished Teddiesproduct lines and ERP
system implementation related shipment delays, which were largely offset by
continued success from our newer product lines, acquisitions and favorable
foreign currency exchange rate impacts. The second quarter of 2004 includes a
full quarter of Gregg Gift sales whereas the second quarter of 2003 had no
sales from Gregg Gift (acquired in February 2004). 17




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##### 



Newer product lines
favorably impacting second quarter 2004 results include Heartwood Creekby Jim
Shore (which comprised approximately 11% of total second quarter sales), Willow
Treeand the Walt Disney Classics Collection. Net sales of $109.6 million in
the first six months of 2004 increased by 2.4%, or $2.6 million, from $107.0
million in the first six months of 2003. The
increase in net sales for the first six months of 2004 compared to the same
period last year was primarily the result of the acquisitions, newer product
line successes and favorable foreign currency exchange rate impacts, which more
than offset the continued decline in Precious Momentsand Cherished Teddies
sales. While the Gregg Gift acquisition adds four months of sales to the first
half of 2004, the Bilston & Battersea acquisition delivered six months of sales
this year as compared to only second quarter sales in 2003. The Walt Disney
Classic Collectionalso produced six months of revenue in 2004, which is
incremental versus 2003. Heartwood Creekby Jim Shore (which comprises 8.4% of
year to date 2004 sales), Willow Treeand other strong product lines like My
Little Kitchen Fairies, Foundations, Circle of Loveand Growing Up Girlsall
continue to perform well. Enescos Precious Momentslines represented
approximately 24.6% of 2004 year to date sales compared to 35.0% for 2003. The
Cherished Teddieslines represented approximately 6.1% of 2004 year to date
sales compared to 9.5% for 2003. Net new orders of approximately $147 million year to date for 2004 were an
increase of 20% versus the comparable period of 2003. Net open orders
(backlog) of approximately $48 million at June 30, 2004 were up $14 million, or
42%, from the same point in time last year. Backlog represents orders received
and approved by Enesco, subject to cancellation for various reasons, including
credit considerations, product availability and customer requests. We believe
the increase in backlog is mainly due to higher demand in the United States
primarily for Heartwood Creekproduct and the effect of acquisitions as well as
unshipped orders due to ERP system implementation issues. Gross profit for the second quarter of 2004 of $26.8 million was 45.3% of net
sales as compared to the second quarter of 2003 gross profit of $27.6 million,
which was also 45.3% of net sales. Gross profit for the first six months of
2004 was $47.4 million or 43.3% of net sales, as compared to gross profit for
the first six months of 2003 of $46.1 million, which was 43.1% of net sales.
The changes in gross profit for second quarter 2004 and the first six months of
2004 as compared to the same periods last year are due to and consistent with
the corresponding sales volume changes. Gross profit may be affected in the
future by changes in vendor pricing, obsolescence charges, changes in 18




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##### 



shipment
volume, price competition and changes in distribution channel, geographic or
product mix. Selling, Distribution, and General and Administrative Expenses Selling, distribution and general and administrative expenses (operating
expenses) for the second quarter of 2004 of $28.4 million, reflected a $4.8
million or 20% increase over the second quarter of 2003. Operating expenses
year to date of $56.3 million, represents a $9.7 million or 20.8% increase
over 2003. The increase in operating expenses in the second quarter and first
six months of 2004 as compared to 2003 is primarily due to the inclusion of
normal operating expenses from the acquisitions and the impact of foreign
currency exchange rate changes, as well as costs related to the continued ERP
system implementation efforts and Precious Moments marketing efforts. Operating Profit (Loss) In the second quarter of 2004, Enesco generated an operating loss of $1.6
million compared to a $4.0 million operating profit in 2003. Enesco incurred
an operating loss of $8.9 million for the first six months of 2004, compared
with a $0.5 million loss the first six months of 2003. The 2004 quarterly and
six months year to date operating income (loss) variances versus 2003 are
primarily the result of lower U.S. based sales and gross profit augmented by
the higher ERP system implementation costs and continued (operating expense)
investment in Precious Moments marketing efforts. Interest and Other Income (Expense), Net Interest expense of $189 thousand for the second quarter of 2004 was $306
thousand less than the second quarter of 2003 primarily due to interest expense
related to an Illinois income tax audit settlement that occurred in the second
quarter of 2003. Interest income for the second quarter of 2004 is $143
thousand compared to $236 thousand in 2003. The reduction is due to interest
income related to a refund from Illinois income taxes in the second quarter of
2003. Other expense, net, for the second quarter of 2004 is $285 thousand
compared to $229 thousand in 2003. The increase is due to higher bank and
credit card processing costs. Interest expense of $274 thousand for the first six months of 2004 was $270
thousand less than the first six months of 2003 due to the Illinois income tax
audit settlement in 2003 noted above. The decrease in interest income in 2004
is due to interest income on the Illinois tax refund noted above. Other
expense, net, for the first six months of 2004 is lower by $35 thousand. 19




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##### 



Provision for Income Taxes The effective tax rate was 41.5% for the second quarter of 2004 and 41.4% for
the first six months of 2004. The comparable tax rates were 38.4% and 51.2%
for second quarter and year to date 2003,
respectively, reflecting the geographical mix of earnings. The effective tax
rate differs from the U.S. statutory rate primarily due to the varying tax
rates of foreign jurisdictions. Our future effective tax rates could be
affected if the mix of earnings varies in countries that have higher or lower
statutory rates or if tax laws and regulations change. International Economies and Currencies We conduct business globally. Accordingly, our future results could be
materially affected by a variety of uncontrollable and changing factors
including, among others, foreign currency exchange rates; regulatory,
political, or economic conditions in a specific country or region; trade
protection measures and other regulatory requirements; and the effects of
terrorist activity, armed conflict, epidemics and natural disasters. Any or
all of these factors could have a material impact on our future results. As a global concern, we face exposure to movements in foreign currency exchange
rates. These exposures may change over time and could have a material impact
on our financial results and cash flows. Historically, our primary exposures
have related to non U.S. dollar-denominated transactions in Canada and Europe,
as well as U.S. dollar-denominated inventory purchases by our international
operating units. At the present time, we hedge only those currency exposures associated with
certain assets and liabilities denominated in foreign currencies and
periodically will hedge anticipated foreign currency cash flows. The hedging
activity undertaken by Enesco is intended to offset the impact of currency
fluctuations on certain foreign currency transactions. See Note 7, Financial
Instruments, to the Consolidated Condensed Financial Statements for additional
information. Liquidity and Capital Resources Enesco has historically satisfied working capital requirements with internally
generated funds and short-term loans. Cash balances and working capital
requirements fluctuate due to operating results, shipping cycles, accounts
receivable collections, inventory management and timing of payments, among
other factors. Working capital requirements fluctuate during the year and are
generally greatest early in the fourth quarter and lowest early in the first
quarter. For additional 20




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##### 



discussion, see the Risk Factors section below. Cash
and cash equivalents were $9.1 million on June 30, 2004. Operating cash flows are a function of net income (loss) plus non-cash expenses
such as depreciation, and our ability to manage working capital. Cash used by
operating activities in the first six months of 2004 was $22.4 million. The
major uses of funds for operating activities were the net loss and the related
change in taxes payable, increased accounts receivables, increased inventory
and decreased accrued expenses. Increased accounts receivables since December
31, 2003 is primarily due to the addition of account receivables from the
acquisitions and the impact of changes in foreign currency
translation rates. The inventory increase is primarily due to the
acquisitions and ERP system implementation related delays in processing
shipments. Decreased accrued expenses are a result of normal first quarter
payments of bonus and royalty obligations. Enesco has filed and continues to file tax returns with a number of taxing
authorities worldwide. While we believe such filings have been and are in
compliance with applicable laws, regulations and interpretations, positions
taken are subject to challenge by the taxing authorities often for an extended
number of years after the filing dates. Enesco has established accruals for
tax assessments. These accruals are included in current income taxes payable
since it is uncertain as to when assessments may be made and paid. Based upon
Enescos current liquid asset position and credit facilities, Enesco believes
it has adequate resources to fund any such assessments. To the extent accruals
differ from actual assessments, when the open tax years are closed or the
accruals are otherwise deemed unnecessary at a point in time, the accruals are
adjusted through the provision for income taxes. The majority of the open tax
years close at the end of December for the particular open year. Cash used by investing activities in the first six months of 2004 was $9.9
million, primarily due to the acquisition of Gregg Gift on February 29, 2004
and computer hardware and software purchases related to the new ERP system
implementation. Cash provided by financing activities in the first six months of 2004 was $30.6
million, due to increased borrowings related to the acquisition of Gregg Gift
and working capital requirements. 21




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##### 



In June 2003, Enesco entered into a new three year domestic $50.0 million
unsecured revolving credit facility that includes Enesco International (H.K.)
Limited as a borrowing subsidiary. The credit agreement contains financial and
operating covenants including restrictions on incurring indebtedness and liens,
acquisitions, selling property, repurchasing the Companys shares and
paying dividends. In addition, Enesco is required to satisfy fixed charge
coverage ratio and leverage ratio tests at the end of each quarter and a
minimum annual operating profit covenant. In March 2004, Enescos domestic $50.0 million credit facility was amended to
add term notes totaling $7.7 million for the purpose of funding the acquisition
of Gregg Gift. The total unsecured credit facility is currently $57.7 million.
At the same time, Gregg Gift was added as a borrowing subsidiary and certain
financial covenants were modified. As of June 30, 2004, all covenants under the
revolving credit agreement were complied with or waived. Enesco is in the process of negotiating an increase of its $57.7 million credit
facility to meet anticipated seasonal requirements for working capital.
Management expects the increase in the amount of its credit facility to be
finalized during the third quarter of 2004. The modification is not expected
to have a material effect on Enescos liquidity or the ability of Enesco to
meet working capital requirements. We believe that our current cash and cash
equivalents, cash generated from operations, and available financing including
an increased credit facility amount, will satisfy our expected working capital
needs, capital expenditures and other liquidity requirements associated with
our existing operations. However, in the course of pursuing growth
opportunities, including but not limited to acquisitions and alliances, Enesco
may need to negotiate additional or amend existing credit facilities. In
addition, there are no transactions, arrangements or other relationships with
unconsolidated entities or other persons, as of June 30, 2004, that are
reasonably likely to materially affect liquidity or requirements for capital
resources. The principal sources of Enescos liquidity are its available cash balances,
cash from operations and available financing. At June 30, 2004, Enesco had
formal and informal unused lines of credit of approximately $25.2 million. As
of June 30, 2004, Enesco had $33.5 million of interest bearing debt
outstanding. Fluctuations in the value of the U.S. dollar versus international currencies
affect the U.S. dollar translation value of international currency denominated
balance sheet items. The changes in the 22




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##### 



balance sheet dollar values due to
international currency translation fluctuations are recorded as a component of
shareholders equity. Risk Factors Set forth below and elsewhere in this Report and in other documents we file
with the SEC are risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking
statements contained in this Report. The results of operations for any quarter or fiscal year are not necessarily
indicative of results to be expected in future periods. Our operating results
have been in the past, and will continue to be, subject to quarterly and annual
fluctuations as a result of a number of factors. These factors include:  
    
    Changes in economic conditions and specific market conditions, including interest rate changes
    
    The ability to secure, maintain and renew popular licenses, particularly our licenses for Precious Moments, Heartwood
Creek, Cherished Teddiesand Disney
    
    Fluctuations in demand for our products
    
    Manufacturing lead times
    
    The effects of terrorist activity and armed conflict, that could cause a disruption in global economic activity, changes
in logistics and security arrangements, particularly with respect to our reliance on manufacturing facilities in China
    
    The timing of orders, timing of shipments and our ability to forecast and meet customer demands
    
    Inventory levels and purchase commitments below or exceeding requirements based upon future demand forecasts
    
    Price and product competition in the giftware industry
    
    The trend toward retail store consolidation in the card and gift channel in the United States and our ability to collect
accounts receivable
    
    Variations in sales channels, product costs or mix of products sold
    
    The geographical mix of our revenue and the associated impact on gross margin
    
    Our ability to achieve targeted expense reductions particularly in the United States operations
    
    Our ability to effectively complete the implementation of the U.S. ERP system
    
    Our ability to identify and complete acquisitions and the results of those acquired operations 23




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
    
    Actual events, circumstances, outcomes and amounts differing from judgments, assumptions and estimates (including items
potentially impacted by the implementation of the U.S. ERP
system) used in determining the amounts of certain assets (including the
amounts of related allowances), liabilities and other items reflected in our
financial statements. As a consequence, operating results for a particular future period are
difficult to predict. Any of the foregoing factors, or any other factors
discussed elsewhere herein, could have a material adverse effect on our
business, results of operations and financial condition. Gross margin may be adversely affected in the future by increases in vendor
costs, excess inventory, obsolescence charges, changes in shipment volume,
price competition and changes in channels of distribution or in the mix of
products sold. Gross margin may also be impacted by geographic mix of product
sold. Our ability to import products and satisfy customer orders on a timely basis is
affected by the availability of, and demand for, quality production capacity
abroad. We compete with other importers of giftware products for the foreign
manufacturing sources that can produce high-quality products at affordable
prices. While we believe that there are other manufacturing sources available
for our product lines, any loss, disruption or substantial reduction of
sourcing capability or shipping from one or more of our key manufacturing
facilities could have a significant short-term adverse effect on our
operations. We are subject to the following risks inherent in foreign
manufacturing: fluctuations in currency exchange rates; labor, economic and
political instability; the effects of terrorist activity, armed conflict and
epidemics, causing disruption in global economic activity and changes in
logistics and security arrangements; cost and capacity fluctuation and delays
in transportation, dockage and materials handling; restrictive actions by
foreign governments; nationalizations; the laws and policies of the United
States affecting importation of goods, including duties, quotas and taxes.
Since the terrorist attacks on September 11, 2001 and the SARS epidemic, the
U.S. Customs Service has enacted various security procedures affecting the
importation of goods. Such procedures could adversely affect the cost and
timing of our receipt of goods from our foreign manufacturers. In December
2003, the office of U.S. Customs and Border Protection certified Enesco as a
member of the Customs Trade Partnership Against Terrorism (CTPAT). The
Department of Homeland Security instituted CTPAT as a means to identify low
risk importers and allow the free flow of goods even under heightened security
conditions. Enescos certification is 24




---



##### 



strategically important since it may
help reduce the risk of significant delays in the importation of our product. The principal competitive risks in the markets in which we presently compete
and may compete in the future are: performance; price; collectibility of our
products; market presence; new product introductions; product costs;
differentiation of new products from those of our competitors; and time to
market on new products. 25




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##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Enesco operates globally with various manufacturing and distribution facilities
and product sourcing locations around the world. As such, Enesco is exposed to
foreign exchange risk since purchases and sales are made in foreign currencies.
In addition, Enesco is subject to interest rate risk on outstanding
borrowings. Enesco may reduce its exposure to fluctuations in interest rates
and changes in foreign exchange rates by creating offsetting positions through
the use of derivative financial instruments. Enesco currently does not use
derivative financial instruments for trading or speculative purposes. Enesco
regularly monitors its foreign currency exposures and ensures that the hedge
contract amounts do not exceed the amounts of the underlying exposures. To
manage foreign currency risk, as of June 30, 2004, Enesco had entered into
forward exchange agreements with a notional value of $11.0 million that will
mature within 65 days. These contracts include sales of British pounds
sterling and the purchase of U.S. dollars at an average exchange rate of 1.83,
a sale of U.S. dollars and the purchase of British pounds sterling at an
average exchange rate of 1.83 and sales of Euros and purchases of U.S. dollars
at an average exchange rate of 1.16. The fair value of these contracts is not
significant. As of June 30, 2004, Enesco had $33.5 million of interest bearing
debt outstanding. 26




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##### 



ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this Form 10-Q, Enesco carried out an
evaluation, under the supervision and with the participation of Enescos
management, including Enescos (i) Interim Chief Executive Officer (CEO) and
(ii) Chief Financial Officer (CFO), of the effectiveness of the design and
operation of Enescos disclosure controls and procedures. Based on that
evaluation, Enescos management, including the CFO and Interim CEO, concluded
that Enescos disclosure controls and procedures are operating effectively as
designed. We are committed to a continuing process of identifying, evaluating and
implementing improvements to the effectiveness of our disclosure and internal
controls and procedures. Our management, including our CFO and interim CEO,
does not expect that our controls and procedures will prevent all errors. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
within Enesco have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of a simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or
more people, or by management override of the control. The design of any
system of controls is also based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in any control system, misstatements due to
error or violations of law may occur and not be detected. 27




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##### 



PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On February 13, 2004, the staff of the Securities and Exchange Commission
(SEC) informed Enesco that the SEC staff is considering recommending that
the SEC bring a civil action against Enesco for possible violations of the
U.S. securities laws, related to trading in Enescos securities in the
April-June 2000 time period. If the SEC were to file suit against Enesco,
the staff has indicated that they would expect to seek disgorgement of
approximately $1.2 million of alleged profits, penalties in an unspecified
amount and an injunction against further violation of U.S. securities laws.
As permitted under SEC procedures, Enesco responded in writing to the SEC in
March 2004 and has continued to discuss this matter with the SEC staff, prior
to the SEC staff formally deciding what action, if any, to recommend. Enesco
is unable to determine what amount, if any, could ultimately be paid with
respect to this matter. Until this notification by the SEC on February 13,
2004, there had not been any contact with the SEC on this matter since late
2001. On February 19, 2004, the SEC further informed Enesco that the SEC staff is
considering recommending that the SEC bring a civil action against a former
Senior Vice President and General Counsel of Enesco, for possible violations
of the U.S. securities laws related to trading in Enescos securities in the
April-June 2000 time period. As permitted under SEC procedures, the former
officer responded in writing to the SEC in March and May 2004 and has
continued to discuss this matter with the SEC staff prior to the SEC staff
formally deciding what action, if any to recommend. Enesco is obligated to
indemnify the former officer, subject to the terms of Enescos By-laws, with
respect to his expenses incurred in connection with this matter. In the ordinary course of Enescos business, there have arisen various other
legal proceedings pending against Enesco and its subsidiaries. While we cannot
predict the eventual outcome of these proceedings, we believe that none of
these proceedings will have a material adverse impact upon the consolidated
financial statements of Enesco. 28




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##### 



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  (a)
    
    The Annual Meeting of Stockholders was held on May 19, 2004.(b)
    
    The matters voted upon at the meeting were (i) the election of Directors;
(ii) the amendment and restatement of the 1999 Non-Employee Director Stock
Plan; (iii) the amendment and restatement of the 1996 Stock Option Plan;
and (iv) the ratification of KPMG LLP as Enescos independent accountants
for 2004. (i)
    
    The members of Class III were standing for election to a three-year
term expiring at the Annual Meeting in 2007. Upon motion duly made and
seconded, it was voted to elect George R. Ditomassi, Hector J. Orci and
Anne-Lee Verville as Class III Directors for a three-year term expiring at
the Annual Meeting in 2007 and until their successors are elected and
qualified. The votes for each of the candidates were reported as follows: George R. Ditomassi
    
    For:
    
    
    10,618,962Withheld:
    
    
    2,240,163Hector J. Orci
    
    For:
    
    
    11,582,599Withheld:
    
    
    1,276,526Anne-Lee Verville
    
    For:
    
    
    11,573,917Withheld:
    
    
    1,285,208
 In addition, the following directors continue to serve on the Board:

Donna Brooks Lucas, Eugene Freedman, Judith R. Haberkorn, Thane A.
Pressman and Donald L. Krause. 29




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##### 



(ii) The amendment and restatement of the 1999 Non-Employee Director Stock
Plan (the 1999 Plan) was proposed for stockholder approval. Upon motion
duly made and seconded, it was voted to approve the amendment and
restatement of the 1999 Plan. The vote was reported as follows: Amendment and Restatement
of 1999 Non-Employee Director
Stock Plan
    
    For:
    
    
    6,516,274Against:
    
    
    2,571,952Abstain:
    
    
    741,787
 (iii) The amendment and restatement of the 1996 Stock Option Plan (the
1996 Plan) was proposed for stockholder approval. Upon motion duly made
and seconded, it was voted to approve the amendment and restatement of the
1996 Plan. The vote was reported as follows: Amendment and Restatement
of 1996 Stock Option Plan
    
    For:
    
    
    6,402,273Against:
    
    
    2,696,251Abstain:
    
    
    731,489
 (iv) The ratification of KPMG LLP as Enescos independent
accountants for 2004 was proposed for stockholder approval. Upon
motion duly made and seconded, it was voted to ratify KPMG LLP as
Enescos independent accountants for 2004. The vote was reported
as follows: Ratification of
KPMG LLP
    
    For:
    
    
    12,766,318Against:
    
    
    53,529Abstain
    
    
    39,274
 30




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##### 



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a)
    
    Exhibits31.1
    
    
    Certification of Interim Chief Executive Officer
under Exchange Act Rules 13a-15e and 15d-15e pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Chief Financial Officer under
Exchange Act Rules 13a-15e and 15d-15e pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Statement of Interim Chief Executive Officer
Pursuant to Section 906 of the Sabanes-Oxley Act of 200232.2
    
    
    Statement of Chief Financial Officer Pursuant to
Section 906 of the Sabanes-Oxley Act of 2002(b)
    
    Reports on Form 8-K(i) Form 8-K filed July 6, 2004, reporting the status of the
implementation of an ERP system and its impact on second quarter
results.(ii) Form 8-K filed July 24, 2003 reporting the acquisition of
Dartington Crystal Limited by Enescos UK subsidiary, Enesco
Limited.
 All other items hereunder are omitted because either such item is inapplicable
or the response to it is negative. 31




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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. ENESCO GROUP, INC.(Registrant)Date: August 9, 2004
    
    /s/ Thomas F. BradleyThomas F. BradleyInterim Chief Executive OfficerDate: August 9, 2004
    
    /s/ Thomas F. BradleyThomas F. BradleyChief Financial Officer
 32