##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2005
 OR
 o
    
    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 001-09267
 Enesco Group, Inc.
 (Exact name of registrant as specified in its charter)
 Illinois
    
    04-1864170(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 225 Windsor Drive, Itasca, Illinois
    
    60143(Address of principal executive offices)
    
    (Zip Code)
  
  
 
 þ o
 þ o
    1




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ENESCO GROUP, INC.
 TABLE OF CONTENTS
 PART I.   FINANCIAL INFORMATION
    
    
    5Item 1. Financial Statements
    
    
    5Consolidated Balance Sheets As of June 30, 2005 (Unaudited) and December 31, 2004
    
    
    5Consolidated Statements of Operations For the Three Months Ended June 30, 2005 and 2004 (Unaudited)
    
    
    7Consolidated Statements of Operations For the Six Months Ended June 30, 2005 and 2004 (Unaudited)
    
    
    8Consolidated Statements of Shareholders Equity and Comprehensive Income (Loss) For the Six Months Ended June 30, 2005 and 2004 (Unaudited)
    
    
    9Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2005 and 2004 (Unaudited)
    
    
    10Notes to Consolidated Financial Statements (Unaudited)
    
    
    11Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    33PART II.   OTHER INFORMATION
    
    
    34Item 1. Legal Proceedings
    
    
    34Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3. Defaults upon Senior Securities
    
    
    34Item 4. Submission of Matters to a Vote of Security Holders
    
    
    35Item 5. Other Information
    
    
    35Item 6. Exhibits
    
    
    35EXHIBIT INDEX
    
    
    36SIGNATURES
    
    
    37EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
 2




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Cautionary Factors That May Affect Future Results
   
  Business Environment
 
    
    Day-to-day effects of current economic conditions and market fluctuations. This
includes contributing factors such as interest and foreign currency rate changes, which may
create a positive or negative impact on operations.
    
    Consumer interest in products is seasonal and may vary based on current market demand
fluctuations and time of year.
    
    Effects of terrorist activity, armed conflict and epidemics, possibly causing a business
disruption in global economic activity, changes in logistics, and security arrangements.
This is particularly significant with respect to our heavy reliance on external
manufacturing facilities located in China.
    
    Competitive activities, particularly those of our main competitors, can significantly
influence giftware prices and product demand.
    
    The level of success of our new product introductions and those of our competitors will
impact our competitive position.
 3




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##### 




    
    Ability to realize projected cost savings considering the evolving business and
regulatory environment, and the degree of success in implementing planned organizational
restructurings and process improvements, particularly among the operations in the U.S.
    
    Ability to comply with the covenants in the existing U.S. credit facility and to enter
into new credit facilities to finance operational requirements at competitive cost and
interest rates.
 Sales Environment
 
    
    Ability to secure, maintain and renew licenses, particularly Jim Shore and Jim Shore
Designs, Inc., Priscilla Hillman (Cherished Teddies) and Disney,which have been top
performers and make up approximately 20% of associated product line revenues.
    
    Changes in the geographical mix of revenue for the U.S. and International will impact gross margin.
    
    Ability to grow revenues in mass and niche market channels.
    
    Mass retailers attempts at direct sourcing and determining the right product designs.
    
    Sales and profitability can be affected by changes over time in consumer preferences
from one type of product to another. This may create a shift in demand from products with
higher margins to those with lower margins, or to products we do not sell at all.
    
    Success in collection of accounts receivable.
 Production, Procurement and Distribution
 
    
    Timing of customer orders, shipments to the U.S. from suppliers in China and emerging
countries, and the ability to forecast and meet customer demands for products in a timely
and cost-effective manner.
    
    Ability to understand metrics to track and effectively manage manufacturing and supply
chain lead times, which cause fluctuations in inventory levels and order fulfillment
timeliness, can influence demand.
    
    Fluctuations in customs regulations, tariffs, freight and political changes can
adversely affect results of operations.
    
    Availability to source products due to changes in conditions that impact suppliers
including environmental conditions, laws and regulations, litigation involving suppliers,
transportation disruptions, force majeure events and/or business decisions made by
suppliers could have an adverse impact on operating results.
    
    Variations in sales channels, product costs or mix of products sold.
 Legal and Other
 
    
    The actual events, circumstances, outcomes and amounts differing from judgments,
assumptions and estimates used in determining the value of certain assets (including the
amounts of related allowances), liabilities, claims and tax assessments of undetermined
merit and amount asserted against us for various legal matters and other items reflected in
our Consolidated Financial Statements. Risk of trademarks and license infringements, and
our ability to effectively enforce our rights.
 4




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##### 



PART I. FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS
 ENESCO GROUP, INC.
 CONSOLIDATED BALANCE SHEETS
JUNE 30, 2005 AND DECEMBER 31, 2004
(In thousands)
 (Unaudited)June 30,
    
    December 31,2005
    
    2004ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    4,571
    
    
    $
    14,646Accounts receivable, net
    
    
    56,424
    
    
    
    70,526Inventories
    
    
    57,612
    
    
    
    65,371Prepaid expenses
    
    
    4,129
    
    
    
    3,310Property held for sale
    
    
    761
    
    
    
    Deferred income taxes
    
    
    686
    
    
    
    920Total current assets
    
    
    124,183
    
    
    
    154,773Property, Plant and Equipment, at cost:Land and improvements
    
    
    1,200
    
    
    
    1,200Buildings and improvements
    
    
    20,028
    
    
    
    22,131Machinery and equipment
    
    
    10,093
    
    
    
    10,273Office furniture and equipment
    
    
    37,237
    
    
    
    37,454Transportation equipment
    
    
    689
    
    
    
    79669,247
    
    
    
    71,854Less  accumulated depreciation and amortization
    
    
    (52,535
    )
    
    
    (49,345
    )Property, plant and equipment, net
    
    
    16,712
    
    
    
    22,509Other Assets:Goodwill
    
    
    9,403
    
    
    
    9,403Other
    
    
    3,330
    
    
    
    4,116Deferred income taxes
    
    
    3,072
    
    
    
    3,082Total other assets
    
    
    15,805
    
    
    
    16,601$
    156,700
    
    
    $
    193,883
  5




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##### 



ENESCO GROUP, INC.
 CONSOLIDATED BALANCE SHEETS
JUNE 30, 2005 AND DECEMBER 31, 2004
(In thousands)
 (Unaudited)June 30,
    
    December 31,2005
    
    2004LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Notes and loans payable
    
    $
    35,062
    
    
    $
    26,354Accounts payable
    
    
    15,471
    
    
    
    18,680Income taxes payable
    
    
    7,488
    
    
    
    6,405Deferred gain on sale of fixed assets
    
    
    1,711
    
    
    
    1,711Accrued expenses Payroll and commissions
    
    
    1,746
    
    
    
    2,599Royalties
    
    
    10,920
    
    
    
    12,267Post-retirement benefits
    
    
    850
    
    
    
    821Other
    
    
    5,932
    
    
    
    5,941Total current liabilities
    
    
    79,180
    
    
    
    74,778Long-Term Liabilities:Post-retirement benefits
    
    
    1,630
    
    
    
    3,008Deferred gain on sale of fixed assets
    
    
    5,889
    
    
    
    6,830Total long-term liabilities
    
    
    7,519
    
    
    
    9,838Shareholders Equity:Common stock, par value $.125:Authorized 80,000 shares;
Issued 25,228 shares
    
    
    3,154
    
    
    
    3,154Capital in excess of par value
    
    
    43,159
    
    
    
    44,229Retained earnings
    
    
    265,210
    
    
    
    302,462Accumulated other comprehensive income
    
    
    5,085
    
    
    
    8,152316,608
    
    
    
    357,997Less  shares held in treasury, at cost:Common stock, 10,483 shares at June 30, 2005 and
10,671 shares at December 31, 2004
    
    
    (246,607
    )
    
    
    (248,730
    )Total shareholders equity
    
    
    70,001
    
    
    
    109,267Total liabilities and shareholders equity
    
    $
    156,700
    
    
    $
    193,883
  6




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##### 



ENESCO GROUP, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2005 AND 2004
(Unaudited)
(In thousands, except per share amounts)
 2005
    
    2004Net revenues
    
    $
    49,159
    
    
    $
    61,695Cost of sales
    
    
    30,180
    
    
    
    34,466Cost of sales  loss on license termination
    
    
    7,713
    
    
    
    Gross profit
    
    
    11,266
    
    
    
    27,229Selling, general and administrative expenses
    
    
    32,511
    
    
    
    29,100Operating loss
    
    
    (21,245
    )
    
    
    (1,871
    )Interest expense
    
    
    (456
    )
    
    
    (189
    )Interest income
    
    
    38
    
    
    
    143Other expense, net
    
    
    (20
    )
    
    
    (53
    )Loss before income taxes
    
    
    (21,683
    )
    
    
    (1,970
    )Income tax (expense) benefit
    
    
    (353
    )
    
    
    818Net loss
    
    $
    (22,036
    )
    
    $
    (1,152
    )Net loss per common share  basic and diluted
    
    $
    (1.50
    )
    
    $
    (0.08
    )
  7




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##### 



ENESCO GROUP, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(Unaudited)
(In thousands, except per share amounts)
 2005
    
    2004Net revenues
    
    $
    109,243
    
    
    $
    114,018Costs of sales
    
    
    67,661
    
    
    
    64,480Cost of sales  loss on license termination
    
    
    7,713
    
    
    
    Gross profit
    
    
    33,869
    
    
    
    49,538Selling, general and administrative expenses
    
    
    67,793
    
    
    
    58,956Operating loss
    
    
    (33,924
    )
    
    
    (9,418
    )Interest expense
    
    
    (855
    )
    
    
    (274
    )Interest income
    
    
    158
    
    
    
    255Other expense, net
    
    
    (199
    )
    
    

    (43
    )Loss before income taxes
    
    
    (34,820
    )
    
    
    (9,480
    )Income tax (expense) benefit
    
    
    (2,432
    )
    
    
    3,926Net loss
    
    $
    (37,252
    )
    
    $
    (5,554
    )Net loss per common share  basic and diluted
    
    $
    (2.54
    )
    
    $
    (0.39
    )
  8




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Enesco Group, Inc.
 Consolidated Statements of Shareholders Equity and Comprehensive Income (Loss)
Six Months Ended June 30, 2005 and June 30, 2004
(Unaudited)
(In thousands)
 AccumulatedCapital in
    
    
    Other
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Treasury Stock
    
    
    Excess of
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Par Value
    
    
    Income
    
    
    Earnings
    
    
    EquityBalance December
31, 2003
    
    
    25,228
    
    
    $
    3,154
    
    
    
    11,064
    
    
    $
    (253,168
    )
    
    $
    45,863
    
    
    $
    3,740
    
    
    $
    347,650
    
    
    $
    147,239Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,554
    )
    
    
    (5,554
    )Currency
translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    96Total comprehensive
income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,458
    )Exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    (50
    )
    
    
    560
    
    
    
    (294
    )
    
    
    
    
    
    
    
    
    
    
    266Other common stock
issuance
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    455
    
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    431Balance June 30,
2004
    
    
    25,228
    
    
    
    3,154
    
    
    
    10,974
    
    
    
    (252,153
    )
    
    
    45,545
    
    
    
    3,836
    
    
    
    342,096
    
    
    
    142,478Balance December
31, 2004
    
    
    25,228
    
    
    
    3,154
    
    
    
    10,671
    
    
    
    (248,730
    )
    
    
    44,229
    
    
    
    8,152
    
    
    
    302,462
    
    
    
    109,267Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,252
    )
    
    
    (37,252
    )Currency
translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,067
    )
    
    
    
    
    
    
    (3,067
    )Total comprehensive
loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,319
    )Exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    (50
    )
    
    
    562
    
    
    
    (240
    )
    
    
    
    
    
    
    
    
    
    
    322Other common stock
issuance
    
    
    
    
    
    
    
    
    
    
    (138
    )
    
    
    1,561
    
    
    
    (830
    )
    
    
    
    
    
    
    
    
    
    
    731Balance June 30,
2005
    
    
    25,228
    
    
    $
    3,154
    
    
    
    10,483
    
    
    $
    (246,607
    )
    
    $
    43,159
    
    
    $
    5,085
    
    
    $
    265,210
    
    
    $
    70,001
  9




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ENESCO GROUP, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2005 and 2004
(Unaudited)
(In thousands)
 2005
    
    
    2004Operating Activities:Net loss
    
    $
    (37,252
    )
    
    $
    (5,554
    )Adjustments to reconcile net loss
to net cash used by operating activitiesDepreciation and amortization of property, plant and equipment
    
    
    5,788
    
    
    
    2,767Deferred income taxes
    
    
    204
    
    
    
    165Gains on sale of capital assets
    
    
    (945
    )
    
    
    (10
    )Stock based compensation
    
    
    731
    
    
    
    431Loss on license termination
    
    
    7,713
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    12,951
    
    
    
    (2,698
    )Inventories
    
    
    (1,325
    )
    
    
    (3,837
    )Prepaid expenses
    
    
    (992
    )
    
    
    11Other assets
    
    
    485
    
    
    
    142Accounts payable and accrued expenses
    
    
    (4,659
    )
    
    
    (7,804
    )Income taxes
payable
    
    
    1,110
    
    
    
    (5,598
    )Long-term post retirement benefits
    
    
    (1,378
    )
    
    
    53Net cash used by operating activities
    
    
    (17,569
    )
    
    
    (21,932
    )Investing Activities:Purchases of property, plant and equipment
    
    
    (1,204
    )
    
    
    (2,524
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    (7,413
    )Proceeds from sales of property, plant and equipment
    
    
    6
    
    
    
    56Net cash used by investing activities
    
    
    (1,198
    )
    
    
    (9,881
    )Financing Activities:Net issuance of notes and loans payable
    
    
    8,797
    
    
    
    29,950Exercise of stock options
    
    
    322
    
    
    
    266Net cash provided by financing activities
    
    
    9,119
    
    
    
    30,216Effect of exchange rate changes on cash and cash equivalents
    
    
    (427
    )
    
    
    97Decrease in cash and cash equivalents
    
    
    (10,075
    )
    
    
    (1,500
    )Cash and cash equivalents, beginning of period
    
    
    14,646
    
    
    
    10,645Cash and cash equivalents, end of period
    
    $
    4,571
    
    
    $
    9,145Supplemental disclosure of cash paid for:Interest
    
    $
    770
    
    
    $
    244Income taxes
    
    $
    1,090
    
    
    $
    1,451
  10




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ENESCO GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2005
 1. Description of Business
 Heartwood Creek by Jim Shore, Walt Disney Company, Walt Disney
Classics Collection, Pooh & Friends, Nickelodeon, Bratz Halcyon Days, Lilliput Lane, Border Fine
Arts, Dartington Crystal Cherished Teddies s
   Foundations Dartington Crystal Heartwood Creek
 11




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##### 



2.
    
    Summary of Significant Accounting Policies
 Basis of Presentation
      Accounts Receivable Allowances
 12




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Inventory Reserves
  13




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Revenue Recognition
   Impairments of Tangible and Intangible Assets
 Goodwill and Other Intangible Assets Accounting for the
Impairment or Disposal of Long-Lived Assets
 14




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Tax Accruals
   15




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Accounting for Stock-Based Compensation
 Accounting for Stock
Issued to Employees Accounting for Stock-Based Compensation
  Three Months Ended
    
    Six Months EndedJune 30
    
    June 302005
    
    2004
    
    2005
    
    2004Net loss as reported
    
    $
    (22,036
    )
    
    $
    (1,152
    )
    
    $
    (37,252
    )
    
    $
    (5,554
    )Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards
    
    
    (530
    )
    
    
    (582
    )
    
    
    (1,061
    )
    
    
    (1,165
    )Pro forma net loss
    
    $
    (22,566
    )
    
    $
    (1,734
    )
    
    $
    (38,313
    )
    
    $
    (6,719
    )Loss per share:Basic and diluted  as reported
    
    $
    (1.50
    )
    
    $
    (0.08
    )
    
    $
    (2.54
    )
    
    $
    (0.39
    )Basic and diluted   pro forma
    
    $
    (1.54
    )
    
    $
    (0.12
    )
    
    $
    (2.61
    )
    
    $
    (0.47
    )
 3. Brand Revenues and Geographic Operations
  16




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Three Months Ended
    
    Six Months EndedJune 30
    
    June 302005
    
    2004
    
    2005
    
    2004Design Partners
    
    $
    8,227
    
    
    $
    9,177
    
    
    $
    18,376
    
    
    $
    15,237Enesco Developed
    
    
    12,000
    
    
    
    16,735
    
    
    
    27,996
    
    
    
    30,790Major Licenses
    
    
    15,020
    
    
    
    10,202
    
    
    
    29,934
    
    
    
    22,382Strategic Partners
    
    
    3,639
    
    
    
    4,453
    
    
    
    7,098
    
    
    
    8,167Precious Moments
    
    
    9,147
    
    
    
    16,074
    
    
    
    21,743
    
    
    
    28,859Other
    
    
    1,497
    
    
    
    5,579
    
    
    
    5,057
    
    
    
    9,691Intercompany
    
    
    (371
    )
    
    
    (525
    )
    
    
    (961
    )
    
    
    (1,108
    )Consolidated
    
    $
    49,159
    
    
    
    61,695
    
    
    $
    109,243
    
    
    $
    114,018
  Three Months Ended
    
    Six Months EndedJune 30
    
    June 302005
    
    2004
    
    2005
    
    2004Net RevenuesUnited States
    
    $
    24,641
    
    
    $
    39,451
    
    
    $
    57,222
    
    
    $
    67,622United States intercompany
    
    
    (219
    )
    
    
    (289
    )
    
    
    (445
    )
    
    
    (475
    )International
    
    
    24,889
    
    
    
    22,769
    
    
    
    52,982
    
    
    
    47,504International intercompany
    
    
    (152
    )
    
    
    (236
    )
    
    
    (516
    )
    
    
    (633
    )Total consolidated
    
    $
    49,159
    
    
    $
    61,695
    
    
    $
    109,243
    
    
    $
    114,018Operating Profit (Loss)United States
    
    $
    (20,867
    )
    
    $
    (3,602
    )
    
    $
    (34,576
    )
    
    $
    (12,640
    )International
    
    
    (378
    )
    
    
    1,731
    
    
    
    652
    
    
    
    3,222Total consolidated
    
    $
    (21,245
    )
    
    $
    (1,871
    )
    
    $
    (33,924
    )
    
    $
    (9,418
    )
 4. Other Income (Expense), Net
  17




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##### 



5. Loss Per Common Share (Basis of Calculations)
  Three Months Ended
    
    Six Months EndedJune 30
    
    June 302005
    
    2004
    
    2005
    
    2004Average
common shares outstandingbasic
    
    
    14,700
    
    
    
    14,238
    
    
    
    14,653
    
    
    
    14,204Dilutive effects of stock options and
warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average diluted shares outstanding
    
    
    14,700
    
    
    
    14,238
    
    
    
    14,653
    
    
    
    14,204
  6. Financial Instruments
  Accounting for Derivative Instruments
and Hedging Activities
 18




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##### 



Notional AmountForward Contracts
    
    (in thousands)
    
    Exchange RateEuros
    
    $
    500
    
    
    
    1.1963Euros
    
    $
    1,000
    
    
    
    1.2350
 7. Acquisitions and Goodwill
   8. Precious Moments Licensing Termination
   19




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##### 



9. Property Held for Sale
 Lilliput Lane
 10. Notes and Loans Payable
    11. Subsequent Events
  20




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##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  21




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##### 



Overview
    Initiatives to Stabilize Enescos Operating Model
  22




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##### 




    
    Enesco reduced its annual minimum royalty payment from $15.0 million to $4.0 million for
2005, and eliminated further royalty liability after June 30, 2005; and, also in the second
quarter of 2005, Enesco recorded PMI royalty expense of $0.3 million compared to $2.0
million in the prior years second quarter;
    
    Enesco recorded a $7.7 million loss for the transfer of inventory to PMI; and
    
    previously accrued PMI royalty fees from 2004 of $7.2 million were rescheduled for
payment into four quarterly installments of $1.8 million, commencing April 2005, with a final
payment due January 2006.
 Initiatives to Improve Enescos Cash Flow
     23




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##### 



Banking Fees
  Current Restructuring Initiatives  A Quarter in Transition
 Reduction in Salary Expenditures
  Plant Closure
 Lilliput Lane
 Engaged Keystone
  24




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##### 



RESULTS OF OPERATIONS
 Net Revenue and Gross Profit
 Cherished Teddies
   25




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##### 



Changes in Gross Profit from 2004 forThree months
    
    Six monthsended June
    
    ended June$ million
    
    30, 2005
    
    30, 2005Loss on PMI Agreement termination
    
    $
    (7.7
    )
    
    $
    (7.7
    )Lower U.S. sales volume
    
    
    (7.6
    )
    
    
    (5.9
    )Product mix and price discounts
    
    
    (0.4
    )
    
    
    (2.0
    )Increased closeout sales
    
    
    (1.6
    )
    
    
    (2.1
    )Increased inventory reserve
    
    
    (0.9
    )
    
    
    (0.1
    )Lower freight recovery
    
    
    (0.6
    )
    
    
    (0.5
    )Lower royalty expense on lower U.S. volume
    
    
    2.3
    
    
    
    0.8Foreign currency translation rates
    
    
    0.4
    
    
    
    0.9Dartington gross margin, July 2004 acquisition
    
    
    1.2
    
    
    
    2.4International volume decrease
    
    
    (1.1
    )
    
    
    (1.5
    )$
    (16.0
    )
    
    $
    (15.7
    )
 Selling, General and Administrative Expenses (SG&A)
   26




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##### 



Loss on License Termination
  Operating Loss
   Interest and Other Income (Expense), Net
  Provision for Income Tax Expense (Benefit)
    27




---



##### 



LIQUIDITY AND CAPITAL RESOURCES
  Liquid Assets
  Cash Flows
  28




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##### 



Credit Facilities
    29




---



##### 



30




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##### 



Contractual Obligations
  ($ in millions)Obligations
    
    Total
    
    < 1 Yr
    
    1-3 Yrs
    
    4-5 Yrs
    
    > 5 Yrs(in millions)Short-term borrowings (1)
    
    $
    26.4
    
    
    $
    26.4
    
    
    $
    
    
    
    $
    
    
    
    $
    Letters of credit
    
    
    4.1
    
    
    
    4.1
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    25.0
    
    
    
    6.4
    
    
    
    13.4
    
    
    
    3.7
    
    
    
    1.5License guarantees (2)
    
    
    45.7
    
    
    
    15.5
    
    
    
    30.2
    
    
    
    
    
    
    
    Post-retirement benefits
    
    
    3.8
    
    
    
    0.8
    
    
    
    0.4
    
    
    
    0.4
    
    
    
    2.2Total contractual
cash obligations (3)
    
    $
    104.3
    
    
    $
    53.2
    
    
    $
    44.0
    
    
    $
    4.1
    
    
    $
    3.7
 
 (1)
    
    We have excluded future variable rate interest payments under our short-term debt
agreements.(2)
    
    On May 17, 2005, pursuant to the PM Termination Agreement, we terminated our license
agreement with PMI to sell Precious Moments licensed products. The PM Termination Agreement is
expected to have a positive impact on cash in 2006 and 2007 due to the elimination of the $15.0
million annual minimum royalty payment. The net savings in 2005 on royalty costs will be $11.0
million due to the reduction in the $15.0 million annual minimum royalty to $4.0 million. The
total $45.7 million in License guarantees, stated above, is reduced to $4.3 million, as of July
1, 2005, based on the PM Termination Agreement.(3)
    
    Excludes purchase order obligations made for products in the ordinary course of business.  31




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##### 



NEW ACCOUNTING PRONOUNCEMENTS
 Accounting for Stock-Based Compensation. Accounting for Stock Issued to Employees Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services Employers
Accounting for Employee Stock Ownership Plans. .
 Accounting for Conditional Asset Retirement
Obligations Accounting for Asset Retirement Obligations
  
    
    The cumulative effect of the change to the new accounting principle on periods prior to
those presented shall be reflected in the carrying amounts of assets and liabilities as of
the beginning of the first period presented.
    
    An offsetting adjustment, if any, shall be made to the opening balance of retained
earnings (or other appropriate components of equity or net assets in the statement of
financial position) for that period.
    
    Financial statements for each individual prior period presented shall be adjusted to
reflect the period-specific effects of applying the new accounting principle.
  32




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##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Accounting for Derivative Instruments and Hedging Activities
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  33




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##### 



PART II. OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
    ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  34




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##### 



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Judith R. Haberkorn
    
    For:
    
    
    12,166,505Withheld:
    
    
    947,451Thane A. Pressman
    
    For:
    
    
    12,242,239Withheld:
    
    
    871,717
   Ratification of KPMG LLP
    
    For:
    
    
    13,020,100Against:
    
    
    43,748Abstain:
    
    
    50,108
 ITEM 5. OTHER INFORMATION
  ITEM 6. EXHIBITS
  35




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##### 



Exhibit Number
    
    Exhibit Index  Description of Exhibit10.1
    
    Fifth Amendment to Second Amended and Restated Revolving
Credit Agreement between Enesco Group, Inc. and Fleet
National Bank filed (on January 31, 2005) as Exhibit 10.1
to registrants Current Report on Form 8-K, dated January
28, 2005, and hereby incorporated by reference.10.2
    
    Letter Amendment to Fifth Amendment to Second Amended and
Restated Revolving Credit Agreement among Enesco Group,
Inc., Fleet National Bank and LaSalle Bank N.A. filed (on
February 17, 2005) as Exhibit 10 to registrants Current
Report on Form 8-K, dated February 16, 2005, and hereby
incorporated by reference.10.3
    
    Sixth Amendment dated March 29, 2005 between Enesco Group,
Inc., Fleet National Bank and LaSalle Bank, N.A. filed (on
March 29, 2005) as Exhibit 10.1 to registrants Current
Report on Form 8-K, dated March 28, 2005, and hereby
incorporated by reference.10.4
    
    Seventh Amendment and Termination Agreement, dated May 17,
2005, between Precious Moments, Incorporated and Enesco
Group, Inc. filed (on May 18, 2005) as Exhibit 99.1 to
registrants Current Report on Form 8-K, dated May 18,
2005, and hereby incorporated by reference.10.5
    
    Seventh Amendment to Second Amended and Restated Senior
Revolving Credit Agreement dated May 16, 2005 by and among
Enesco Group, Inc., Fleet National Bank and LaSalle Bank,
N.A., filed (on May 26, 2005) as Exhibit 99.1 to
registrants Current Report on Form 8-K, dated May 26,
2005, and hereby incorporated by reference.10.6
    
    Eighth Amendment to Second Amended and Restated Senior
Revolving Credit Agreement dated May 16, 2005 by and among
Enesco Group, Inc., Fleet National Bank and LaSalle Bank,
N.A., filed (on July 7, 2005) as Exhibit 99.1 to
registrants Current Report on Form 8-K, dated July 7,
2005, and hereby incorporated by reference.10.7
    
    Letter Amendment to Eighth Amendment to Second Amended and
Restated Revolving Credit Agreement among Enesco Group,
Inc., Fleet National Bank and LaSalle Bank N.A. filed (on
July 28, 2005) as Exhibit 99.1 to registrants Current
Report on Form 8-K dated July 28, 2005, and hereby
incorporated by reference.31.1
    
    Certification of Chief Executive Officer under Exchange Act
Rules 13a-15e and 15d-15e pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Principal Financial Officer under Exchange
Act Rules 13a-15e and 15d-15e pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    Statement of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Statement of Principal Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 36




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##### 



Signatures
  ENESCO GROUP, INC.
(Registrant)Date: August 9, 2005
    
    By: /s/ Cynthia Passmore-McLaughlinCynthia Passmore-McLaughlinPresident and Chief Executive OfficerDate: August 9, 2005
    
    By: /s/ Anthony G. TestolinAnthony G. TestolinChief Accounting Officer(principal financial officer)
 37