-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DwxXF6gofbbXdjKHG1lweU6qf1K+kPBd4zM+5WtNc/dMJ0hbsza5IBOdwkJosQNZ or3+x45BQqheSav2JB2bDw== 0000950137-03-005918.txt : 20031113 0000950137-03-005918.hdr.sgml : 20031113 20031113164605 ACCESSION NUMBER: 0000950137-03-005918 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENESCO GROUP INC CENTRAL INDEX KEY: 0000093542 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISCELLANEOUS NONDURABLE GOODS [5190] IRS NUMBER: 041864170 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09267 FILM NUMBER: 03998709 BUSINESS ADDRESS: STREET 1: 225 WINDSOR DRIVE CITY: ITASCA STATE: IL ZIP: 60143 BUSINESS PHONE: 6308755300 FORMER COMPANY: FORMER CONFORMED NAME: STANHOME INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: STANLEY HOME PRODUCTS INC DATE OF NAME CHANGE: 19820513 10-Q 1 c80954e10vq.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 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 September 30, 2003 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. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Illinois 04-1864170 - ------------------------------------ ---------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 225 Windsor Drive, Itasca, Illinois 60143 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 630-875-5300 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) 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 [ ]
September 30, 2003 2002 ---- ---- Shares Outstanding: Common Stock with 14,074,126 13,888,905 Associated Rights
PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ENESCO GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS SEPTEMBER 30, 2003 AND DECEMBER 31, 2002 (IN THOUSANDS)
(UNAUDITED) SEPTEMBER 30, DECEMBER 31, 2003 2002 ------------------ ------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,277 $ 17,418 Accounts receivable, net 78,296 54,347 Inventories 55,993 48,334 Prepaid expenses 2,996 2,491 Deferred income taxes and taxes receivable 6,004 7,586 ------------------ ------------------- Total current assets 148,566 130,176 ------------------ ------------------- PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment 82,571 72,920 Less - accumulated depreciation (55,081) (46,691) ------------------ ------------------- Property, plant and equipment, net 27,490 26,229 ------------------ ------------------- OTHER ASSETS: Goodwill 2,890 - Other 1,355 1,171 Deferred income taxes 22,509 22,209 ------------------ ------------------- Total other assets 26,754 23,380 ------------------ ------------------- TOTAL ASSETS $ 202,810 $ 179,785 ================== ===================
The accompanying notes are an integral part of these condensed financial statements. 2 ENESCO GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS SEPTEMBER 30, 2003 AND DECEMBER 31, 2002 (IN THOUSANDS)
(UNAUDITED) SEPTEMBER 30, DECEMBER 31, 2003 2002 ------------------ ------------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes and loans payable $ 13,471 $ - Accounts payable 22,800 18,395 Federal, state and foreign income taxes 13,384 15,416 Accrued expenses: Payroll and commissions 3,646 4,412 Royalties 7,146 7,911 Post-retirement benefits 1,754 2,320 Other 6,524 5,623 ------------------ ------------------ Total current liabilities 68,725 54,077 ------------------ ------------------ LONG-TERM LIABILITIES: Notes payable 61 - Deferred income taxes 678 703 Post-retirement benefits 2,867 3,092 ------------------ ------------------ Total long-term liabilities 3,606 3,795 ------------------ ------------------ Minority interest 114 - SHAREHOLDERS' EQUITY: Common stock 3,154 3,154 Capital in excess of par value 46,409 47,148 Retained earnings 334,348 330,368 Accumulated other comprehensive income (loss) 641 (2,712) ------------------ ------------------ 384,552 377,958 Less - shares held in treasury, at cost (254,187) (256,045) ------------------ ------------------ Total shareholders' equity 130,365 121,913 ------------------ ------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 202,810 $ 179,785 ================== ==================
The accompanying notes are an integral part of these condensed financial statements. 3 ENESCO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2003 2002 -------------- ------------- Net revenues $ 71,766 $ 69,043 Cost of sales 40,628 40,412 -------------- ------------- Gross profit 31,138 28,631 Selling, distribution, general and administrative expenses 24,009 21,896 -------------- ------------- Operating profit 7,129 6,735 Interest expense (97) (203) Interest income 66 65 Other income (expense), net (339) (362) -------------- ------------- Income before income taxes 6,759 6,235 Income tax expense 2,162 1,834 -------------- ------------- Net income 4,597 4,401 Retained earnings, beginning of period $ 329,751 $ 310,085 -------------- ------------- Retained earnings, end of period $ 334,348 $ 314,486 -------------- ------------- Earnings per common share: Basic $ 0.33 $ 0.32 -------------- ------------- Diluted $ 0.32 $ 0.31 -------------- -------------
The accompanying notes are an integral part of these condensed financial statements. 4 ENESCO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2003 2002 -------------- ------------- Net revenues $ 178,789 $ 190,409 Cost of sales 101,532 111,109 -------------- ------------- Gross profit 77,257 79,300 Selling, distribution, general and administrative expenses 70,620 71,102 -------------- ------------- Operating profit 6,637 8,198 Interest expense (641) (505) Interest income 472 214 Other income (expense), net (974) (1,110) -------------- ------------- Income before income taxes 5,494 6,797 Income tax expense 1,514 2,006 -------------- ------------- Income before cumulative effect of a change in accounting principle 3,980 4,791 Cumulative effect of a change in accounting principle, net of income taxes - (29,031) -------------- ------------- Net income (loss) 3,980 (24,240) Retained earnings, beginning of period 330,368 338,726 -------------- ------------- Retained earnings, end of period $ 334,348 $ 314,486 ============== ============= Earnings (loss) per common share: Income before cumulative effect of a change in accounting principle Basic $ 0.28 $ 0.35 ============== ============= Diluted $ 0.28 $ 0.34 ============== ============= Cumulative effect of a change in accounting principle, net of income taxes $ - $ (2.10) ============== ============= Net income (loss) - basic and diluted $ 0.28 $ (1.75) ============== =============
The accompanying notes are an integral part of these condensed financial statements. 5 ENESCO GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (Unaudited) (In thousands)
2003 2002 ---------------- ---------------- OPERATING ACTIVITIES: Net income (loss) $ 3,980 $ (24,240) Cumulative effect of a change in accounting principle, net of income taxes - 29,031 Adjustments to reconcile net loss to net cash used by operating activities (23,436) (15,263) ---------------- ---------------- Net cash used by operating activities (19,456) (10,472) ---------------- ---------------- INVESTING ACTIVITIES: Purchases of property, plant and equipment (3,843) (2,349) Acquisition of Bilston & Battersea (3,732) - Proceeds from sales of property, plant and equipment 38 109 ---------------- ---------------- Net cash used by investing activities (7,537) (2,240) ---------------- ---------------- FINANCING ACTIVITIES: Net isssuance of notes and loans payable 13,287 6,882 Proceeds from the issuance of common stock 1,119 727 ---------------- ---------------- Net cash provided by financing activities 14,406 7,609 ---------------- ---------------- Effect of exchange rate changes on cash and cash equivalents 446 344 ---------------- ---------------- Decrease in cash and cash equivalents (12,141) (4,759) Cash and cash equivalents, beginning of period 17,418 7,932 ---------------- ---------------- Cash and cash equivalents, end of period $ 5,277 $ 3,173 ================ ================
The accompanying notes are an integral part of these condensed financial statements. 6 ENESCO GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS A global leader in the gift, collectibles and home decor industry for 45 years, Enesco Group, Inc. (the "Company" or "Enesco") offers such notable product lines as Cherished Teddies, Disney, Mary Engelbreit, Border Fine Arts, Lilliput Lane, Heartwood Creek by Jim Shore and NICI, among others. The Company's award winning Precious Moments figurine collection is one of the top collectible lines throughout the world. Enesco distributes product worldwide and has wholly owned subsidiaries located in Hong Kong, Canada, France and the U.K. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying financial data as of September 30, 2003 and for the three and nine months ended September 30, 2003 and September 30, 2002 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, 2002. 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 September 30, 2003, results of operations for the three and nine months ended September 30, 2003 and September 30, 2002, and cash flows for the nine months ended September 30, 2003 and September 30, 2002. 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 opinion, necessary to fairly present the results of operations and financial condition for the interim periods. 7 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 recorded. 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 dilutive potential 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):
Nine Months Ended September 30, ----------------- 2003 2002 --------- ------ Interest $ 294 $ 515 Income taxes $ 1,989 $ 896
ACCOUNTING FOR STOCK BASED COMPENSATION At September 30, 2003, the Company has six stock-based employee compensation plans. 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 8 related interpretations. No stock-based employee compensation cost is reflected in net income, 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 and earnings per 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 employee compensation.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------------- ------------------------------- 2003 2002 2003 2002 --------------- ------------- ------------- ---------- Net income (loss) as reported $ 4,597 $ 4,401 $ 3,980 $ (24,240) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (342) (301) (1,028) (905) --------------- ------------ ------------- --------- Pro forma net income (loss) $ 4,255 $ 4,100 $ 2,952 $ (25,145) --------------- ------------ ------------- --------- Earnings (loss) per share: Basic - as reported $ 0.33 $ 0.32 $ 0.28 $ (1.75) --------------- ------------ ------------- --------- Diluted - as reported $ 0.32 $ 0.31 $ 0.28 $ (1.75) --------------- ------------ ------------- --------- Basic - pro forma $ 0.30 $ 0.30 $ 0.21 $ (1.82) --------------- ------------ ------------- --------- Diluted - pro forma $ 0.29 $ 0.29 $ 0.21 $ (1.82) --------------- ------------ ------------- ---------
MINORITY INTEREST Bilston & Battersea Enamels plc (Bilston & Battersea), our newly acquired subsidiary as of April 8, 2003, owns 75% of two different companies, Fine Ceramics Transfers Limited and Carolyn Sheffield Designs Limited. The minority interest reflected on Enesco's Condensed Consolidated Balance Sheet represents the remaining 25% that Enesco does not own of the above companies. 3. COMPREHENSIVE INCOME (LOSS): Other comprehensive income (loss) consists only of cumulative foreign currency translation adjustments. Comprehensive income (loss) for the three and nine months ended September 30, 2003 and 2002 was as follows (in thousands): 9
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ------------------------- 2003 2002 2003 2002 --------- -------- --------- --------- Net income (loss) $ 4,597 $ 4,401 $ 3,980 $(24,240) Other comprehensive income: Cumulative translation adjustments (no tax effects) 135 (76) 3,353 2,099 --------- ------- --------- -------- Comprehensive income (loss) $ 4,732 $ 4,325 $ 7,333 $(22,141) ========= ======= ========= ========
4. GEOGRAPHIC OPERATING SEGMENTS: Enesco operates in the giftware and collectible wholesale industry, predominantly in two major geographic classifications (United States and International). Prior year segment data has been reclassified based on current year segment information. The following table summarizes operations by geographic classification for the three and nine months ended September 30, 2003 and 2002 (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- -------------------------------- 2003 2002 2003 2002 ------------- ---------- --------------- ------------ NET SALES United States $ 48,220 $ 49,356 $ 118,387 $ 135,376 United States inter-company (145) (251) (606) (879) International 23,868 20,127 61,640 56,505 International inter-company (177) (189) (632) (593) ------------- ---------- --------------- ------------ Total consolidated $ 71,766 $ 69,043 $ 178,789 $ 190,409 ============= ========== =============== ============ OPERATING PROFIT United States $ 4,316 $ 4,481 $ 806 $ 2,877 International 2,813 2,254 5,831 5,321 ------------- ---------- --------------- ------------ Total consolidated $ 7,129 $ 6,735 $ 6,637 $ 8,198 ------------- ---------- --------------- ------------
Transfers between geographic operating segments are made at the market value of the merchandise transferred. No single customer accounted for 10% or more of consolidated net sales. Export sales to foreign unaffiliated customers represent less than 10% of consolidated net sales. 10 There were no material changes in assets from the amounts disclosed in Enesco's December 31, 2002 Annual Report. 5. OTHER INCOME (EXPENSE), NET: Other income (expense), net for the three and nine months ended September 30, 2003 and 2002 consisted of the following (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 2003 2002 2003 2002 --------- --------- --------- --------- Foreign currency gain (loss) $ (1) $ - $ (1) $ 11 Loss on sale of fixed assets (3) (4) (8) (7) Bank charges and other (335) (358) (965) (1,114) --------- --------- --------- --------- $ (339) $ (362) $ (974) $ (1,110) ========= ========= ========= =========
6. INCOME (LOSS) PER COMMON SHARE (BASIS OF CALCULATIONS): The number of shares used in the income (loss) per common share computation for the three and nine months ended September 30, 2003 and 2002 were as follows (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, --------------------- --------------------- 2003 2002 2003 2002 --------- --------- --------- --------- Basic Average common shares outstanding 14,065 13,879 14,000 13,839 Diluted Stock options and warrants 396 367 344 - --------- --------- --------- --------- Average shares diluted 14,461 14,246 14,344 13,839 ========= ========= ========= =========
The average number of diluted shares outstanding for the nine months ended September 30, 2002 excludes common stock equivalents relating to options and warrants because the impact on the reported net loss was antidilutive. Had Enesco reported a profit for the nine months ended September 30, 2002, the number of average shares diluted would have increased by 256 thousand. Additionally, options to purchase 1.0 million and 1.5 million shares were outstanding during 2003 and 2002, respectively, but were not included in the computation of diluted income (loss) per share 11 because the options' exercise price was greater than the average market price of the common shares. 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 Condensed Consolidated 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 three and nine months ended September 30, 2003. To manage foreign currency risk, as of September 30, 2003, Enesco had entered into forward exchange agreements with a notional value of $6.3 million that will mature within 48 days. These contracts include sales of British pounds sterling and purchases of U.S. dollars at an average exchange rate of 1.66, a sale of U.S. dollars and the purchase of British pounds sterling at an average exchange rate of 1.66 and sales of Euros and purchases of U.S. dollars at an average exchange rate of 1.13. The fair value of these contracts is not significant. As of September 30, 2003, Enesco had $13.5 million of interest bearing debt outstanding, of which $12.1 million was revolving credit facility debt with an interest rate of 2.13%. $1.3 million was international subsidiary debt at an interest rate of 2.72%, and the remaining $110 thousand was notes payable, related to the purchase of machinery and vehicles by Bilston & Battersea, with interest rates ranging 12 from 8.3% to 10.6% and maturities ranging from October 2003 through May 2005. The fair value approximates the carrying value of these debt instruments. Enesco currently has not hedged the interest rate risk on any of its outstanding borrowings. 8. ACQUISITION On April 8, 2003, the Company acquired Bilston & Battersea, which is based in Bilston, West Midlands, England, through its European subsidiary, Enesco Holdings Limited. Bilston & Battersea manufactures and distributes giftware, home accessories and related products, including the high quality, hand-decorated enamels and sculptured boxes sold under the Halcyon Days Enamels and Halcyon Days Bonbonnieres brands. Bilston & Battersea generated sales of approximately $10 million worldwide in 2002 and expects similar sales for 2003. Enesco paid approximately $4.4 million in cash ($3.7 million net of acquired cash) to acquire the company, which resulted in Enesco recording $2.9 million of goodwill related to the purchase. As of September 30, 2003, Enesco has purchased 100% of the outstanding shares of Bilston & Battersea and has included Bilston & Battersea's results of operations in its condensed consolidated financial statements as of April 8, 2003. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ENESCO GROUP, INC. NINE MONTHS ENDED SEPTEMBER 30, 2003 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. If applicable, 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 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 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 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, or when the open tax years are closed, 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. ACQUISITION OF BILSTON & BATTERSEA On April 8, 2003, the Company acquired Bilston & Battersea Enamels plc (Bilston & Battersea), which is based in Bilston, West Midlands, England, through its European subsidiary, Enesco Holdings Limited. Bilston & Battersea manufactures and distributes giftware, home accessories and related products, including the high quality, hand-decorated enamels and sculptured boxes sold under the Halcyon Days Enamels and Halcyon Days Bonbonnieres brands. Bilston & Battersea generated sales of approximately $10 million worldwide in 2002 and expects similar sales for 2003. Enesco paid approximately $4.4 million in cash ($3.7 million net of acquired cash) to acquire the company, which resulted in Enesco recording $2.9 million of goodwill related to the purchase. NET REVENUE AND GROSS PROFIT Net sales of $71.8 million in the third quarter of 2003 increased by 4.1%, or $2.8 million, from $69.0 million in the third quarter of 2002. Net sales of $178.8 million in the first nine months of 15 2003 decreased by 6.1%, or $11.6 million, from $190.4 million in the first nine months of 2002. The increase in net sales for the third quarter of 2003 compared to 2002 was due to the addition of Bilston & Battersea in 2003, favorable impact of foreign currency translation rates and the success of new product lines such as Heartwood Creek and Foundations, partially offset by lower mass market promotional sales. The decrease in net sales for the first nine months of 2003 compared to the same period last year was primarily the result of decreased U.S. sales of the Precious Moments and Cherished Teddies product lines, as well as lower mass market promotional sales offset partially by the acquisition of Bilston & Battersea, favorable foreign currency translation rates and the success of new product lines such as Heartwood Creek and Foundations. Enesco's Precious Moments lines represented approximately 32% of year-to-date sales through September 30, 2003 compared to 37% for the same period of 2002. The Cherished Teddies lines represented approximately 8% of year-to-date sales through September 30, 2003 compared to 11% for the same period of 2002. Net new orders of $190.0 million through September 30, 2003 were down 4.2% compared to the same period in 2002. Net open orders (backlog) of $29.5 million at September 30, 2003 were down approximately $6 million, or 16.8%, from the same point in time last year. Backlog consists of orders received and approved by Enesco, subject to cancellation for various reasons, including credit considerations, product availability and customer requests. We believe the decrease in backlog is mainly due to lower sales in the United States due to general economic conditions and continued consolidation in the card and gift channel. Gross profit for the third quarter of 2003 of $31.1 million was 43.3% of net sales as compared to the third quarter of 2002 gross profit of $28.6 million, which was 41.4% of net sales. Gross profit for the first nine months of 2003 was $77.3 million or 43.2% of net sales, as compared to gross profit for the first nine months of 2002 of $79.3 million, or 41.6% of net sales. The increase in gross profit for the third quarter of 2003 as compared to 2002 was due to the acquisition of Bilston & Battersea, favorable foreign currency translation rates and favorable changes in product and sales channel mix, which also resulted in higher gross profit margins. The decrease in gross profit for the first nine months of 2003 as compared to 2002 was primarily due to the lower U.S. sales volume offset partially by the addition of Bilston & Battersea and higher gross profit margins in 2003 due to the factors noted above. Gross profit can be affected in the future by changes in vendor pricing, obsolescence charges, changes in shipment volume, price competition and changes in distribution channel, geographic or product mix. 16 SELLING, DISTRIBUTION, AND GENERAL AND ADMINISTRATIVE EXPENSES Selling, distribution and general and administrative expenses (operating expenses) for the third quarter of 2003 were $24.0 million, or 33.4% of sales, as compared to third quarter of 2002 operating expenses of $21.9 million, or 31.7% of sales. Operating expenses year to date through September 30, 2003 were $70.6 million, or 39.5% of sales as compared to 2002 operating expenses of $71.1 million, or 37.3% of sales. The increase in operating expenses in the third quarter of 2003 as compared to 2002 is largely due to the inclusion of Bilston & Battersea expenses in 2003 and the impact of foreign currency translation rate changes. Operating expenses for the first nine months of 2003 decreased $0.5 million as compared to 2002 due to the continuing impact of numerous cost control measures offset partially by the addition of Bilston & Battersea. OPERATING PROFIT (LOSS) In the third quarter of 2003, Enesco generated operating profit of $7.1 million compared to $6.7 million in 2002. The $400 thousand increase was the result of gross margin improvements in 2003 offset partially by an increase in operating expenses. Enesco generated an operating profit of $6.6 million for the first nine months of 2003, compared with a profit of $8.2 million in the first nine months of 2002. This year-to-date decrease of $1.6 million is the result of lower gross profit due to lower sales volumes, partially offset by a decrease in operating expenses of $0.5 million. INTEREST AND OTHER INCOME (EXPENSE), NET Interest expense of $97 thousand for the third quarter of 2003 was $106 thousand less than the third quarter of 2002 primarily due to lower interest rates and lower borrowings. Interest income in the third quarter of 2003 remained virtually unchanged as compared to the third quarter of 2002. Other expense, net, for the third quarter of 2003 is $339 thousand compared to $362 thousand in 2002. The decrease is due to lower bank and credit card processing costs. Interest expense of $641 thousand for the first nine months of 2003 was $136 thousand more than the first nine months of 2002 primarily due to interest related to an Illinois income tax audit settlement offset partially by lower bank related interest expenses. Interest income of $472 thousand for the first nine months of 2003 was $258 thousand more than the first nine months of 2002. The increase in interest income in 2003 is due to interest income on an Illinois tax refund as well as increased interest income due to higher invested cash balances. Other expense, net, of $974 thousand for the first nine months of 2003 is lower than other expense, net in the first nine months of 2002 by $136 thousand due to lower bank and credit card processing fees. 17 PROVISION FOR INCOME TAXES The effective tax rate was 32.0% for the third quarter of 2003 and 27.5% for the first nine months of 2003. The comparable tax rates were 29.4% and 29.5% for third quarter and the first nine months of 2002, 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/translation 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/translation 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-dollar-denominated transactions in Canada and Europe, as well as 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 18 discussion, see the Risk Factors section below. Cash and cash equivalents were $5.3 million on September 30, 2003. 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 nine months of 2003 was $19.5 million. The major uses of funds from operating activities include increased accounts receivables, increased inventory, and decreased accrued expenses. These uses of cash were partially offset by operating cash provided by reductions in current tax assets, increased accounts payable and depreciation expense. 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 or when the open tax years are closed, the accruals will be adjusted through the provision for income taxes. The majority of the open tax years become closed at the end of December for the particular open year. Cash used by investing activities in the first nine months of 2003 was $7.5 million, primarily due to: the acquisition of Bilston & Battersea in April 2003 and purchases of computer hardware and software related to implementation of a new domestic computer system planned to be completed by the end of 2003. Cash provided by financing activities in the first nine months of 2003 was $14.4 million, attributable to borrowings of $13.3 million and issuance of additional treasury stock shares. In June 2003, Enesco entered into a new three year domestic $50.0 million unsecured revolving credit facility. 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 the second, third and fourth quarters and a minimum annual operating profit covenant. As of September 30, 2003, Enesco was in compliance 19 with all covenants under the revolving credit agreement. Enesco is not aware of any trends, events, demands, commitments or uncertainties that reasonably can be expected to have a material adverse effect on liquidity and the ability to meet anticipated requirements for working capital and capital expenditures. We believe that our current cash and cash equivalents, cash generated from operations, and available financing will satisfy our expected working capital needs, capital expenditures and other liquidity requirements associated with our existing operations. In addition, there are no transactions, arrangements or other relationships with unconsolidated entities or other persons 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 September 30, 2003, Enesco had formal and informal unused lines of credit of approximately $44.2 million. The informal lines are bank lines that have no commitment fees. As of September 30, 2003, Enesco had $13.5 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 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 - - The ability to secure, maintain and renew popular licenses, particularly our licenses for Precious Moments, Cherished Teddies and Heartwood Creek - - Fluctuations in demand for our products - - Manufacturing lead times 20 - - 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 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 - - 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 cost reductions particularly in the United States' operations - - Actual events, circumstances, outcomes and amounts differing from judgments, assumptions and estimates 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 the 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; 21 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 outbreak of 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 2002, approximately 74% of our products were manufactured in, and imported from China. We anticipate that this percentage will remain the same or increase in the foreseeable future. China has joined the World Trade Organization and has been accorded permanent "Normal Trade Relations" status by the U.S. government. Various commercial and legal practices widespread in China, including the handling of intellectual properties and certain labor practices, as well as certain political and military actions taken or suggested by China, are under review by the U.S. government. China has been designated a Country of Particular Concern ("CPC") pursuant to the International Religious Freedom Act of 1998 ("IRFA"). The IRFA provides several specific retaliatory actions that could be taken by the U.S. government, none of which we believe would have a material impact on our business. The IRFA, however, also accords the President of the United States of America broad discretion in fashioning other or additional actions and, due to the breadth of the presidential powers under the IRFA, we are unable to predict what, if any, action the President might take in the future. Accordingly, conducting business with vendors located in China is subject to political uncertainties, the financial impact of which we are unable to estimate. To the extent China may have its exports or transaction of business with U.S. entities subject to political retaliation, the cost of Chinese imports could increase significantly and/or the ability to import goods from China may be materially impaired. In such an event, there could be an adverse effect on our operations until alternative arrangements for the manufacture of our products were made on economic, production and operational terms at least as favorable as those currently in effect. 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 22 - - Market presence - - New product introductions - - Product costs - - Differentiation of new products from those of our competitors - - Time to market on new products LEGAL PROCEEDINGS We are a party to certain lawsuits in the normal course of our business. Litigation can be expensive, lengthy and disruptive to normal business operations. While we can not predict the eventual outcome of the proceedings, we do not believe that any of the current legal proceedings will have a material adverse effect on the consolidated financial statements of Enesco. 23 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 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 September 30, 2003, Enesco had entered into forward exchange agreements with a notional value of $6.3 million that will mature within 48 days. These contracts include sales of British pounds sterling and the purchase of U.S. dollars at an average exchange rate of 1.66, a sale of U.S. dollars and the purchase of British pounds sterling at an average exchange rate of 1.66 and sales of Euros and purchases of U.S. dollars at an average exchange rate of 1.13. The fair value of these contracts is not significant. As of September 30, 2003, Enesco had $13.5 million of interest bearing debt outstanding. 24 ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this report, Enesco carried out an evaluation, under the supervision and with the participation of Enesco's management, including Enesco's (i) Chief Executive Officer ("CEO") and (ii) Chief Financial Officer and Treasurer ("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 CEO and CFO, concluded that Enesco's disclosure controls and procedures are operating effectively as designed. There have been no significant changes in Enesco's internal controls or in other factors that could significantly affect internal controls over financial reporting. 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 CEO and CFO, 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. 25 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 31.1 Certification of President and CEO 31.2 Certification of CFO and Treasurer 32.1 Statement of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Statement of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K Form 8-K filed October 23, 2003 reporting Enesco's Third Quarter 2003 financial results. All other items hereunder are omitted because either such item is inapplicable or the response to it is negative. 26 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: November 13, 2003 /s/ Daniel DalleMolle ---------------------------------------- Daniel DalleMolle President and Chief Executive Officer Date: November 13, 2003 /s/ Thomas F. Bradley ---------------------------------------- Thomas F. Bradley Chief Financial Officer and Treasurer 27 EX-31.1 3 c80954exv31w1.txt CERTIFICATION OF PRESIDENT AND CEO EXHIBIT 31.1 CERTIFICATION UNDER EXCHANGE ACT RULES 13a-15e AND 15d-15e PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Daniel DalleMolle, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Enesco Group, Inc. (the "Registrant"). 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15f and 15d-15f) for the Registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's Board of Directors: a.) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b.) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: November 13, 2003 /s/ Daniel DalleMolle ------------------------------- President and Chief Executive Officer 28 EX-31.2 4 c80954exv31w2.txt CERTIFICATION OF CFO AND TREASURER EXHIBIT 31.2 CERTIFICATION UNDER EXCHANGE ACT RULES 13a-15e AND 15d-15e PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Thomas F. Bradley, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Enesco Group, Inc. (the "Registrant"). 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15f and 15d-15f) for the Registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,, to the Registrant's auditors and the audit committee of Registrant's Board of Directors: a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: November 13, 2003 /s/ Thomas F. Bradley ---------------------------------------- Chief Financial Officer and Treasurer 29 EX-32.1 5 c80954exv32w1.txt STATEMENT OF CHIEF EXECUTIVE OFFICER EXHIBIT 32.1 STATEMENT OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Enesco Group, Inc. (the "Company") for the quarterly period ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel DalleMolle, the President and Chief Executive Officer of the Company, certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the Company. November 13, 2003 By: /s/ Daniel DalleMolle --------------------------------------- President and Chief Executive Officer 30 EX-32.2 6 c80954exv32w2.txt STATEMENT OF CHIEF FINANCIAL OFFICER EXHIBIT 32.2 STATEMENT OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Enesco Group, Inc. (the "Company") for the quarterly period ended November 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas F. Bradley, the Chief Financial Officer and Treasurer of the Company, certify, pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the Company. November 13, 2003 By: /s/ Thomas F. Bradley -------------------------------------- Chief Financial Officer and Treasurer 31 -----END PRIVACY-ENHANCED MESSAGE-----