Yesþ Noo

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This report and other written reports and oral statements made from time to time by Enesco Group, Inc., its subsidiaries (“Enesco,” the “Company,” “we” or “our”) and its management may contain cautionary or “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995.

These statements can be identified by the use of such words as “anticipate,” “estimate,” “could,” “expect,” “project,” “intend,” “plan,” “believe” and other words of similar meaning, but these words are not the exclusive means of identifying such statements. In particular, these include statements relating to intentions, beliefs or current expectations concerning, among other things, future performance, results of operations and the outcome of contingencies, such as legal proceedings and financial condition. Forward-looking statements give current expectations or forecasts of future events. They do not relate strictly to historical or current facts.

Any or all of the forward-looking statements made in this report and in any other public statements may turn out to be incorrect. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that actual future results of operations may vary materially from forward-looking statements. Accordingly, you should not rely on forward-looking statements as a prediction of actual future results. Any forward-looking statement made in this report speaks only as of the date of such statement. We operate in a continually changing business environment and undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. However, you should consult any further disclosures we make on related subjects in Forms 10-K, 10-Q, 8-K or other reports filed with the Securities and Exchange Commission (SEC).

It is not possible to predict or identify all factors that potentially could cause actual results to differ materially and adversely from expected and historical results. Such factors include, but are not limited to:

Enesco is a world leader in the design, manufacturing and marketing of licensed and proprietary branded giftware, and home and garden décor products to a variety of specialty gift, home décor, mass market and direct mail retailers. Enesco was organized in 1937 and is incorporated in Illinois. Our principal executive offices are located at 225 Windsor Drive, Itasca, Illinois 60143.

Enesco conducts business through its subsidiaries and affiliated corporations. Our subsidiaries are wholly ownedwholly-owned and include (including their jurisdiction of incorporation): Enesco Limited (England), Enesco France S.A. (France), Enesco International Ltd. (Delaware), Enesco International (H.K.) Limited (Hong Kong), N.C. Cameron & Sons Limited (Canada), Enesco Holdings Limited (England), Stanley Home Produtos De Limpeza Ltda. (Brazil), and Gregg Manufacturing, Inc. (California). All subsidiaries currently are active, except for Stanley Home Produtos De Limpeza Ltda.

Our product lines are giftable items within four merchandise categories: decorative, inspirational, brand enthusiast and occasion-based. Enesco’s product lines include some of the world’s most recognizable brands, includingBratzHeartwood Creek^® by Jim Shore, Foundations^®, Pooh & Friends^®, Walt Disney Classics Collections^®, Disney Traditions^™, Disney^®, Border Fine Arts^™,Cherished Teddies^®, Halcyon Days^®, Heartwood Creek^™by Jim Shore,and Lilliput Lane^™, Pooh & Friends^®, Walt Disney Classics Collections^® andDisney^®,among others. We believe that these merchandise categories elicit strong and sustainable market demand and profitability, and leverage our core distribution base. Some of our specific products are wall décor, garden accessories, frames, desk accessories, figurines, cottages, musicals, music boxes, ornaments, waterballs, candles, tableware, general home accessories and resin figures.

While we believe that the giftware industry is a mature market, demographic and economic trends support growth in giftware, home and garden décor lines. Enesco has a presence and competes in three major geographical markets that include the U.S., Europe (primarily the U.K., France and Germany) and Canada. The U.S. market accounted for approximately 40%43% of our consolidated net revenues in the sixnine months ended JuneSeptember 30, 2006, while Europe accounted for 42%39%, Canada for 17% and various other countries for 1%.

Enesco sells its products through its own employee-based sales organizations in the U.S., U.K., Canada and France, as well as independent sales agents and distributors in approximately 25 countries around the world. Enesco Limited sells various Enesco proprietary design product lines in the U.K. and several other European countries. Enesco Limited also oversees the operations of our subsidiary located in France and independent distributorssales agents in Germany, Holland and Belgium. Enesco Limited also administers the European collector clubs. N.C. Cameron & Sons Limited (N.C. Cameron) sells its various product lines in Canada and administers the Canadian collector clubs.

Both our U.K. and Canadian subsidiaries, in addition to distributing Enesco brand products, sell and distribute products for other
U.S.-based giftware companies, including Demdaco, Mudpie, About Face Designs, and Franz Porcelain, among others. Moving into 2007, Enesco U.S. has started to focus on adding new lines already carried in our U.K. and Canadian subsidiaries such as:Cera Trend(Canada),Fanciful Felines^™ (Canada) andEwe & Me(U.K.). These lines were well received at our Corporate fall show held in Itasca in October 2006.

We market our product lines primarily through retail promotions, trade shows and private shows held in major U.S. and foreign cities, as well as through catalogs, collector clubs, trade advertisingsadvertisements and the Enesco website. Our 2006 marketing focus is brand building, particularly for Enesco proprietary design product lines, such asFoundations^®,Growing Up Girls^®,Gregg Giftand licensed brands, such asHeartwood Creek^™®by Jim Shore. Enesco leverages the talents of independent artists across a range of product categories and price positions.

The accompanying financial data as of JuneSeptember 30, 2006 and for the three and sixnine months ended JuneSeptember 30, 2006 and JuneSeptember 30, 2005 has been prepared by Enesco, without audit, pursuant to the rules and regulations of the SEC. The Consolidated Financial Statements include the accounts of the parent company and its subsidiaries, all of which are wholly-owned. Certain information and disclosures

reserve balance. The second part is a general reserve, calculated by applying historical percentages of sales returns and allowances to the current and prior month’s sales. We believe two months to be a reasonable amount of time for customers to receive and evaluate their orderorders and request a creditcredits if necessary. At JuneSeptember 30, 2006, this component of the reserve was $0.9$1.0 million, compared to December 31, 2005 when this component of the reserve was also $0.9 million. The sales returns and allowance balance at JuneSeptember 30, 2006 was $3.2

The individual annual membership fees related to collector club sales are recorded as revenue as the membership entitles the member to receive a collector club kit, which includes a collectible figurine, a carrying case and related documentation, and a quarterly newsletter. The newsletters are essentially marketing materials that contain information regarding products, artists and member stories, as well as special offers and new product offerings. Collector club membership fees are not refundable. Because the membership fee is paid in exchange for products delivered and represents the culmination of the earnings process, revenue is recognized at the time the collector club kit is shipped to the member. Collector club membership also entitles the participant to

previously granted awards that remain outstanding at the date of adoption. Additionally, the financial statements for the prior interim periods and fiscal year do not reflect any adjusted amounts.

Total net revenues recorded in the U.K. for the three and sixnine months ended JuneSeptember 30, 2006 were $13.4$16.1 million and $27.2$43.3 million, respectively, compared to $13.4$16.1 million and $28.2$44.3 million in the three and sixnine months ended JuneSeptember 30, 2005, respectively. Total long-lived assets in the U.K. at JuneSeptember 30, 2006 and 2005 were $4.7 million and $9.2$9.1 million, respectively. On April 28, 2006, Enesco

At JuneSeptember 30, 2006, we had four stock-based compensation (fixed options) plans, not including plans with options that have fully expired. Effective January 1, 2006, we adopted Financial Accounting Standards Board (FASB) Statement No. 123 (FAS 123R),Share-Based Payments. FAS 123R, which requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments, such as stock options granted to employees. We elected to adopt FAS 123R using the modified prospective method. Under this method, we are required to record compensation expense for newly granted options and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Additionally, the financial statements for the prior interim periods and fiscal year do not reflect any adjusted amounts.

Prior to the adoption of FAS 123R, we accounted for those plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25 (APB No. 25),Accounting for Stock Issued to Employees, and related interpretations. Under APB No. 25, no stock-based compensation plan cost was reflected in net loss, as all options granted under those plans had exercise prices equal to the market value of the underlying common stock on the date of grant. On December 6, 2005, Enesco’s Board of Directors accelerated the vesting of 608,658 options that would have otherwise vested over the next four years. The total compensation costs that would have been recognized in the financial statements in future periods, had we not accelerated the vesting of these options are approximately $1.9 million.

The following table illustrates the effect on net loss and loss per share as if Enesco had applied the fair value recognition provisions of FAS 123R to stock-based compensation plans for the three and sixnine months ended JuneSeptember 30, 2005:

The following table summarizes stock option activity during the three and sixnine months ended JuneSeptember 30, 2006:

At JuneSeptember 30, 2006, Enesco had total linesactual borrowings of $59.4 million and letters of credit providing for maximum borrowings of $73.3$0.5 million $70.0 million of which is availableoutstanding under our existing U.S. creditCredit facility. Actual borrowings of $42.6 million andAdditional letters of credit and a customs bond totaling $4.0$1.1 million were outstanding at June 30, 2006. The net available borrowing capacity under our existing U.S. credit facility based on eligible collateral as of June 30, 2006 was $1.7 million.and secured by cash deposits with two foreign banks.

In June 2003, Enesco entered into a three-year domestic $50.0 million unsecured revolving credit facility that includes Enesco International (H.K.) Limited as a borrowing subsidiary. The credit agreement contains financial and operating covenants including restrictions on incurring indebtedness and liens, acquisitions, selling property, repurchasing shares and paying dividends. In addition, Enesco was required to satisfy fixed charge coverage ratio and leverage ratio tests quarterly and a minimum annual operating profit covenant.

On July 7, 2005, we entered into an eighth amendment to our existing U.S. credit facility. The eighth amendment added accounts receivable and inventory of N.C. Cameron to the borrowing base under the credit facility and reduced the advance rate on inventories from 50% to 33% effective July 31, 2005.

As of August 31, 2005, we entered into a ninth amendment to our existing U.S. credit facility. The ninth amendment reset our minimum EBITDA and capital expenditure covenants through the then facility termination date, based on our reforecast and long-term partnershiprelationship with Bank of America, as successor to Fleet National Bank and LaSalle Bank. The ninth amendment also added the accounts receivable and inventories of Enesco Limited, Enesco Holdings Limited and Bilston & Battersea Enamels Limited, and the accounts receivable of Enesco International (H.K.) Limited as eligible collateral to the borrowing base under the existing credit facility. The ninth amendment also increased the existing credit facility size to $75.0 million.

On December 21, 2005, Enesco entered into a tenth amendment to our existing U.S. credit facility extending the facility termination date from December 31, 2005 to January 1, 2007. The tenth amendment provided that certain fee amounts would become payable at the beginning of each of the months January through June 2006, unless the outstanding loans and letters of credit under the existing U.S. credit facility were paid in full. Fees totaling $475,000 and $1,775,000 were due during the three months ended March 31, 2006 and the three months ended June 30, 2006, respectively. The amendment also provided for a monthly fee beginning January 1, 2006 through May 1, 2006 in the amount of 0.10% of the highest loan amount outstanding during the preceding month. This fee increased to 0.20% beginning June 1, 2006.

On March 31, 2006, we entered into an eleventh amendment to our existing U.S. credit facility. This amendment reset Enesco’s 2006 cumulative minimum monthly EBITDA covenants effective January 30,31, 2006, based on our reforecast and reduced the credit facility commitments from $75.0 million to $70.0 million. The monthly fee of 0.10% of the highest loan amount outstanding during the preceding month increased to 0.20% on May 1, 2006, rather than June 1, 2006 as per the tenth amendment.

On June 14, 2006, we announced that we were in technical default of our existing U.S. credit facility as we had exceeded the maximum allowable borrowing capacity under the credit facility without immediate repayment of the excess amount. On July 20,19, 2006, we entered into a twelfth amendment to our existing U.S. credit facility, which increased our borrowing availability, provided a waiver to our defaults under the credit agreement and set a new facility termination date of September 15, 2006.

The twelfth amendment provides for various forms of credit availability up to a maximum borrowing amount of $70 million, with the opportunity for us to borrow beyond the amounts available under the borrowing base formulae. The maximum aggregate amount we may borrow beyond the amounts available under the borrowing base formulae ranges from $9.2 million for the week ended July 15, 2006 to $15.0 million from and after the week ending August 19, 2006 until the credit facility termination date. The twelfth amendment provides that interest on loans and advances other than permitted borrowings in excess of the borrowing base formulae from and after the twelfth amendment date will accrue at the alternate base rate provided under the facility, plus 2% per annum. Interest on permitted borrowings in excess of the borrowing base formulae will accrue at the alternate base rate provided under the facility, plus 3% per annum. The twelfth amendment deleted certain of the prior financial covenants, including the minimum monthly EBITDA covenants established by the eleventh amendment. In their place, the twelfth amendment establishes additional covenants governing our projected cash receipts, cash disbursements and borrowings in excess of borrowing base formulae, and requires pledging substantially all of the remaining unpledged assets of Enesco.

The material changes to the usage and extension fees as stated in the twelfth amendment provide that, on the earlier of an event of default and the date the amounts due under the credit agreement are paid in full or are otherwise satisfied, a fee of $2.1 million will be

2006, in which case the fee payable by us will be reduced to $1.4 million. The monthly fee of 0.10% on the highest outstanding loan amount on any day during the preceding month increased to 0.20% on June 1, 2006 and will continue until the credit facility termination date.

On JuneAugust 8, 2006, we received a notice from the agent under the credit agreement stating that our failure to obtain a commitment for new financing constituted a default under the credit agreement, giving the agent and the lenders the right to accelerate and demand payment in full at any time of the obligations owing under the credit agreement. On September 15, 2006, the credit facility expired without full repayment of our obligations under the credit agreement. Subsequent to the September 15, 2006 credit facility expiration date, the agent and the lenders continued to make loans, with certain limitations, to Enesco.

The Company must continue to meet certain projected cash receipt and disbursement covenants as previously established, as updated by the Amendment for the period beginning the week ending October 28, 2006 we signed an engagement letter with Jefferies &through December 29, 2006. The Company Inc. (Jefferies)also agreed to make additional mandatory prepayments to the lenders from time to time to the extent deposits in certain accounts held by the Company exceed amounts established by the Amendment.

The Amendment provides for covenants in which the Company undertakes to retain a financial advisor to assist usthe Company in securing long-term debt financing for Enesco. Enesco and Jefferies currently contemplatepursuing a transaction that will result in the repayment of all Company obligations under the Credit Agreement (the “Transaction”). The Company additionally agreed to enter into a replacement financing would be a combination of an asset-based lendingdefinitive agreement combined with a senior subordinated term loan for a total loan value of approximately $100 million.Transaction by November 30, 2006. Although the Company has retained a financial adviser to assist the Company, there can be no assuranceassurances that wethe Company will be successful in putting in place suchentering into a facility on favorable terms, or at all, we hope to bedefinitive agreement for a Transaction in a positiontimely manner or, if entered into, consummating the Transaction. Any failure to execute suchmeet the November 30th deadline as required by the Amendment would have a facility inmaterial adverse effect on the third quarter 2006.Company’s financial condition and results of operations.

During the sixnine months ended JuneSeptember 30, 2006, Enesco determined the need for a valuation allowance for deferred tax assets arising primarily from the domestic net operating losses (NOLs) incurred during that period. The ultimate realization of net deferred tax assets, including those arising from NOLs, is dependent upon the generation of taxable income in future years. In determining the amount of valuation allowance, future taxable income relating to existing deferred tax liabilities and available tax planning strategies are considered. Based upon these factors, we believe that it is more likely than not that Enesco will realize the benefits of net deferred tax assets of approximately $4.0 million as of JuneSeptember 30, 2006. The total of all other deferred tax assets, which principally relate to domestic NOLs, have been offset by a valuation allowance. This valuation allowance may require adjustment in future periods as the result of taxable income generated from operations or changes in estimates of future taxable income.

For the three months ended JuneSeptember 30, 2006, the income tax expense was $0.6$1.6 million, comprised of a tax benefit from a domestic NOL of $6.9$2.0 million, offset by a deferred tax asset valuation allowance expense of $6.9$2.0 million, and a foreign tax expense related to operations of $0.6$1.6 million. For the three months ended JuneSeptember 30, 2005, income tax expense was $0.5$2.4 million, comprised of an additional provision of $0.2 million for the potential impact of a foreign tax examination, a

benefit from a domestic NOL of $8.2$0.4 million, offset by a deferred tax asset valuation allowance expense of $8.2$1.4 million and a foreign tax expense related to operations of $0.3$1.4 million.

For the sixnine months ended JuneSeptember 30, 2006, income tax expense was $1.5$2.8 million, comprised of a benefit from a domestic NOL of $11.0$13.0 million, offset by a deferred tax asset valuation allowance expense of $11.0$13.0 million, and a foreign tax expense related to operations of $1.5$2.8 million. For the sixnine months ended JuneSeptember 30, 2005, income tax expense was $2.7$5.1 million, comprised of a provisiondomestic tax benefit of $2.6$0.1 million to establish a reserve for the potential impact ofand a foreign tax examination, aexpense of $5.2 million. The domestic tax benefit was comprised of $1.1 million related to reserves that were determined to be unnecessary, a benefit from a domestic NOL of $13.7$14.1 million offset by a deferred tax asset valuation allowance expense of $13.7$15.1 million, and a benefit from the reversal of $1.1 million of a previously recorded tax reserve no longer required. The foreign tax expense was comprised of $2.4 million related to operations and a reserve established in relation to a potential audit assessment of $1.2$2.8 million.

Enesco Limited acquired Dartington, a designer and manufacturer of uncut crystal products, in 2004 for approximately $7.0 million in cash. Total goodwill recorded on this acquisition was $1.2 million. In the fourth quarter of 2005, Enesco performed an analysis on the Dartington goodwill and concluded that it was impaired as of December 31, 2005. The total Dartington goodwill balance as of November 2005 of $1.1 million was written-off in the fourth quarter of 2005.

On April 28, 2006, Enesco entered into and closed on an agreement to sell its Dartington operation, which was owned by Enesco Limited. The previous management of Dartington purchased certain of Dartington’s assets, including the computer system and software, customer and supplier contracts, machinery and equipment, goodwill, leasehold properties, licenses, intellectual property rights and inventory. Enesco Limited retained the cash, factory building, receivables and payables of Dartington. The Dartington employees, including their accumulated rights and benefits, have transferred with the business to the new owners. The Dartington factory in Torrington, England, owned by Enesco Limited, is being leased to the purchasers.

The total consideration payable in cash for the sale is $2.4 million, of which approximately $0.5 million was received at closing, and theclosing. The balance is due in installments between May and December 2006. Through JuneSeptember 30, 2006, we have received approximately $1.1$1.8 million from the purchasers of Dartington. As of September 30, 2006, the remaining installments amount to approximately $0.6 million.

All significant intercompany transactions have been eliminated in the Consolidated Financial Statements. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires the use of our management’s estimates. Actual results could differ from these estimates. Certain prior year amounts have been reclassified to conform to the current year presentation.

Enesco operates in a single industry segment which designs, manufactures and markets licensed and proprietary branded giftware, and home and garden décor products to a variety of specialty gift, home décor, mass market and direct mail retailers. We primarily serve markets in the U.S., Europe and Canada.

On June 7, 2006, the Board of Directors appointed Basil Elliott as a Director and as President and Chief Executive Officer, and Marie Meisenbach Graul as Executive Vice President and Chief Financial Officer. Mr. Elliott and Ms. Graul had been in these positions on an interim basis since May 15, 2006. Prior to the date, the Board of Directors and Cynthia Passmore mutually agreed that Ms. Passmore would no longer serve as a Director and as President and Chief Executive Officer of Enesco, effective May 15, 2006. Additionally, Anne-Lee Verville retired as a Director and as Chairman of the Board on June 30, 2006, and the Board elected Leonard Campanaro as Chairman. Additionally, on August 14, 2006, Roger Odell, formerly of JPMorgan Chase Bank, was appointed as a Director and to the Board’s Audit Committee.

Under the new management team, key issues being addressed as part of our goals for the remainder of 2006 are:

There can be no assurances that we will achieve any or all of the objectives set forth above, including obtaining new financing on reasonable terms, or at all; resolving our distribution system issues; and, improving our customer service. Any failureFailure to achieve any or all of these objectives may materially and adversely affect our business, financial condition and results of operation.

Throughout 2006, we have and will remain focused on stabilizing the business and building a platform for sustainable growth through the continued implementation of our Operating Improvement Plan, which was announced in September 2005. The Plan is based on creating a more efficient operating structure, improved distribution and customer service and a focused product portfolio. Our main objective has been to drive toward industry norms of performance — addressing our cost structure, shipping product to our customers on a timely basis and improving profitability. We are concentrating on improving gross margins and reducing operating expenses at all levels to establish a platform from which we can maximize revenue potential. Competition in the giftware market is highly fragmented. As such, we are focused on market share expansion in our core channels of distribution around the world.

The Operating Improvement Plan clearly defines what is required to increase profitability, solidly entrench our core business and grow sales. Our strategy focuses on four key initiatives: (1) continue the process improvement on rationalizing the U.S. product portfolio; (2) reducing U.S. corporate overhead, general and administrative and marketing costs; (3) improving our customer satisfaction levels; and (4) creating a more efficient and cost-effective distribution and warehousing model. We believe these initiatives will positively impact Enesco and allow us to ultimately achieve our goals for SG&A savings and gross margin and EBITDA improvements. Our target goals as previously communicated to shareholders are as follows:

Based on the gross profit margin of 35.7%38.3% achieved in the sixnine months ended JuneSeptember 30, 2006, the annual revenue breakeven level has been reduced 28%17% from approximately $490$360 million in the 12 months ended JuneSeptember 30, 2005 to approximately $350$300 million in the 12 months ended JuneSeptember 30, 2006. We do not expect to achieve this annual revenue breakeven level in 2006, but do expect to continue to improve gross margins and reduce the annual breakeven level. As we continue implementing the Operating Improvement Plan, we expect to lower our breakeven revenue point further. We expect continuing product line revenues for the sixthree months ending December

minimum criteria levels. Currently active products are also subject to discontinuation if they do not meet margin criteria and turnover at or above the average industry rate of three times per year.

We have continued to aggressively market these discontinued products, which are sold primarily to liquidators and other below-market wholesalers. We expect to substantially complete the sale of the discontinued products from our product rationalization by the end of 2006 as our Elk Grove Village, Illinois distribution center will most likely need to be vacated on December 31, 2006. During the three months ended June 30, 2006, we increased our lower of cost or market reserves $4.2 million primarily due to our initiative to sell excess and slow-moving inventory more quickly in order to help expedite resolving distribution issues at the NDC facility, as well clear out our distribution center in Elk Grove Village, Illinois. During the three months ended September 30, 2006, we sold over $2.2 million of discontinued products, at cost, at recovery rates consistent with reserves established at June 30, 2006. Discontinued products being sold through liquidators as of JuneSeptember 30, 2006 totaled $10.7$5.9 million at cost, before lower of cost or market reserves.

One of the negative outcomes from this product rationalization was the loss of Chinese production capacity during the first and second quarters of 2006. We are very reliant on our professional relationships to maintain positive standing with our Chinese vendors and many of these relationships had deteriorated; hence, we lost production capacity during the six months ended June 30, 2006. This has negatively impacted sales and as of JuneSeptember 30, 2006, we were still out-of-stock on inventory representing approximately $6.3$8.5 million of potential sales. During a trip to China in early May by key management personnel and one of our independent artists, many new manufacturers were identified and existing manufacturers recommitted to offering Enesco production capacity. We are now believe we will be in a position to manufacture all of our existing 2006 orders and feel confident thatbelieve we have more than adequate production capacity for 2007.2007, as we are already ordering 2007 product.

The gross profit margin in the three months ended JuneSeptember 30, 2006 increased to 29.0%42.1%, from 21.1%41.3%, in the comparable period in 2005. This increaseGross profit margin in the third quarter 2005 was due in part tonegatively impacted by the U.S.lower margins on thePrecious Moments^® loss on license termination and guaranteed minimum royalty fees recorded in 2005,product line under the increased inventory reserve recorded in 2006 and a more favorable product mix in the U.S. and Canada. We expect the favorable impact from the elimination of the U.S.Precious Moments^® royalty fees and our favorable product mix to continue, and we anticipate higher gross margin levels for the remainder of 2006 as the negative impact of close-out sales on our discontinued products decreases.transition agreement.

We have completed the first phase of our planned global reductions of corporate overhead, general and administrative and marketing costs. We continue to review SG&A expenses in an effort to right size the business. While we have implemented the steps necessarythat we believe will enable us to achieve our 2007 goal of generating $26.7 million in pre-tax annualized cost savings, we continue to look for additional cost savings in personnel, consulting and overhead expenses.

In the three months ended JuneSeptember 30, 2006, SG&A expenses include consulting expenses of $1.2 million, executive severances of $0.6 million, the write-off of previously capitalized loan costs of $1.6$0.8 million, and $3.8$0.7 million of bank fees.

In mid-January 2006, we transitioned most of our U.S. distribution and warehousing operations to NDC, our third-party logistics provider. NDC operates a 150,000 square foot leased facility in the Indianapolis metropolitan area as a pick and pack outsourced distribution center for Enesco. Due to transition issues, we began shipping products from the new facility at the end of January 2006, one week later than was originally anticipated. This delay and other inefficiencies at the new facility resulted in certain missed product replenishment orders during the sixnine months ended JuneSeptember 30, 2006. The ramp-up at the new facility took longer than expected due to floor design issues, IT compatibility issues, inventory control issues, deficiencies in the Request for Proposal (RFP) and contract provided by and agreed to by Enesco and its former consulting group. Although our shipment levels have increased significantly since late January 2006, we did not reach line shipping levels required by the RFP until the last week of June 2006. Unfortunately, the line metrics used to scope the RFP and resulting contract do not support the shipment volumes necessary to run our business successfully. We are currently working with NDC to revise the agreement and add automation equipment to better achieve the functional productivity and benchmarks necessary to run the distribution center successfully and provide assurances to our customers that they will receive their product in a timely manner at the least shipping cost possible. We have also elected to ramp-up our Elk Grove Village, Illinois facility during the third quarter of 2006 to handle the distribution of our Christmas orders. In addition to ramping up this facility, the Company also has moved considerable pick and pack and case volume through CITIC, our third-party distribution center in China, during the third quarter. We are incurring airfreight charges for product that was ordered late due to the lack of ordering during the first and second quarter. The Company is absorbing airfreight charges for product in order to make timely deliveries to our customers. The majority of the airfreight charges will be incurred in the fourth quarter and will have a negative impact on gross margins. This ramp-up, excess air freight charges, along with lower shipping volumes out of our NDC distribution center, will resultresulted in additional expense during the first nine months of 2006 of approximately $4.2 million versus our original Operating Improvement Plan.

Revenues in the sixthree months ended JuneSeptember 30, 2006 were $73.3$50.8 million, down 28.7%32.7% from $102.9$75.5 million reported in the sixthree months ended June 30, 2005. Approximately half of this decline in revenues resulted from the absence of U.S.Precious Moments^® sales due to the termination of the U.S. license agreement, in June, 2005. There were no revenues fromPrecious Moments^®in the U.S. in the six months ended June 30, 2006, compared to $18.8 million of revenues fromPrecious Moments^® in the U.S. in the six months ended JuneSeptember 30, 2005. Excluding U.S. revenues fromPrecious Moments^®, which totaled $10.9 million in the three months ended September 30, 2005, revenues for the sixthree months ended JuneSeptember 30, 2006 declined 12.8%,were down 21.2% from $84.1the $64.6 million for the sixthree months ended JuneSeptember 30, 2005. This sales decline was the result of a slower ramp-up of product shipments out of our third-party warehouse and distribution facility in Indiana,China due to lower than planned production in China, lost sales of replenishment product due to U.S. shipping delays lower planned productionfrom our third-party warehouse and distribution facility in China,Indiana, and lower sales of collectible products, and theproducts. The impact of foreign exchange in translation.currency translation was $1.4 million favorable for the three months ended September 30, 2006.

Revenues in the threenine months ended JuneSeptember 30, 2006 were $37.8$124.1 million, down 17.5%30.4% from $45.7$178.4 million reported in the threenine months ended JuneSeptember 30, 2005. Nearly one-half of this decline in revenues resulted from the absence of U.S.Precious Moments^® sales due to the termination of the U.S. license agreement, in 2005. There were no revenues fromPrecious Moments^® in the U.S. in the nine months ended September 30, 2006, compared to $29.7 million of revenues fromPrecious Moments^® in the U.S. in the nine months ended September 30, 2005. Excluding U.S. revenues fromPrecious Moments^®, which totaled $8.0 million in 2005, revenues for the threenine months ended JuneSeptember 30, 2005, revenues2006 declined 16.4%, from $148.7 million for the nine months ended September 30, 2005. This sales decline was the result of a slower ramp-up of product shipments out of CITIC, our third-party warehouse and distribution facility in China due to lower than planned production in China, lost sales of replenishment product due to U.S. shipping delays from our third-party warehouse and distribution facility in Indiana, and lower sales of collectible products. The impact of currency translation was $1.0 million favorable for the 9 months ended September 30, 2006.