<PAGE> 1
UNITED STATES
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 ........... March 31, 2000
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 ...................................................1-8681
RUSS BERRIE AND COMPANY, INC.
................................................................................
(Exact name of registrant as specified in its charter)
New Jersey 22-1815337
................................................................................
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
111 Bauer Drive, Oakland, New Jersey 07436
................................................................................
(Address of principal executive offices) (Zip Code)
(201) 337-9000
................................................................................
(Registrant's telephone number, including area code)
................................................................................
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 10, 2000
Common stock, $0.10 stated value 20,426,287
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RUSS BERRIE AND COMPANY, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Consolidated Balance Sheet as of March 31, 2000
and December 31, 1999 3
Consolidated Statement of Income for the three months
ended March 31, 2000 and 1999 4
Consolidated Statement of Cash Flows for the three
months ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6 and 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
--------- ---------
Current assets
<S> <C> <C>
Cash and cash equivalents ......................... $ 68,945 $ 64,908
Marketable securities ............................. 135,599 137,143
Accounts receivable, trade, less allowances of
$4,155 in 2000 and $3,731 in 1999 .............. 66,507 61,385
Inventories - net ................................. 40,823 44,307
Prepaid expenses and other current assets ......... 9,393 9,503
Deferred income taxes ............................. 6,866 6,805
--------- ---------
TOTAL CURRENT ASSETS ..................... 328,133 324,051
Property, plant and equipment - net ................. 28,117 28,297
Other assets ........................................ 2,973 3,072
--------- ---------
TOTAL ASSETS ............................. $ 359,223 $ 355,420
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable .................................. $ 4,530 $ 6,228
Accrued expenses .................................. 19,596 23,488
Accrued income taxes .............................. 10,052 6,106
--------- ---------
TOTAL CURRENT LIABILITIES ................ 34,178 35,822
--------- ---------
Commitments and contingencies
Shareholders' equity
Common stock: $.10 stated value; authorized
50,000,000 shares; issued 2000, 25,371,074
shares; 1999, 25,325,849 shares ................. 2,537 2,532
Additional paid in capital ........................ 61,863 60,957
Retained earnings ................................. 358,620 351,302
Accumulated other comprehensive (loss) ............ (3,230) (2,547)
Treasury stock, at cost (4,861,814 shares at
March 31, 2000 and 4,752,414 shares at
December 31, 1999) .............................. (94,745) (92,646)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ............... 325,045 319,598
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 359,223 $ 355,420
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE> 4
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2000 1999
------- -------
<S> <C> <C>
Net sales ................................. $76,108 $75,403
Cost of sales ............................. 30,471 30,277
------- -------
GROSS PROFIT ............................ 45,637 45,126
Selling, general and administrative expense 29,592 28,768
Investment and other income-net ........... 1,725 2,022
------- -------
INCOME BEFORE TAXES .................... 17,770 18,380
Provision for income taxes ................ 5,931 6,546
------- -------
NET INCOME ................................ $11,839 $11,834
======= =======
NET INCOME PER SHARE:
Basic ............................... $ .58 $ .54
======= =======
Diluted ............................. $ .57 $ .53
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE> 5
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income ................................................... $ 11,839 $ 11,834
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ............................................. 985 718
Amortization of intangible assets ........................ 29 30
Amortization of premium and discount on marketable
debt securities, net .................................. 121 --
Provision for accounts receivable reserves ............... 625 597
Deferred income taxes .................................... (61) 106
Net loss from sale or disposal of property, plant
and equipment ......................................... 11 163
Changes in assets and liabilities:
Accounts receivable ................................ (5,747) (10,188)
Inventories - net .................................. 3,484 8,653
Prepaid expenses and other current assets .......... 110 123
Other assets ....................................... 70 (87)
Accounts payable ................................... (1,698) (616)
Accrued expenses ................................... (3,892) (754)
Accrued income taxes ............................... 3,946 3,389
-------- --------
Total adjustments ................................ (2,017) 2,134
-------- --------
Net cash provided by operating activities . 9,822 13,968
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities ............................ (8,768) (11,689)
Proceeds from sale of marketable securities .................. 9,916 14,246
Proceeds from sale of property, plant and equipment .......... 15 18
Capital expenditures ......................................... (1,087) (1,652)
-------- --------
Net cash provided by investing activities . 76 923
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ....................... 911 818
Dividends paid to shareholders ............................... (4,521) (4,403)
Purchase of treasury stock ................................... (2,099) (26,648)
-------- --------
Net cash (used in) financing activities ... (5,709) (30,233)
Effect of exchange rates on cash and cash equivalents ........ (152) (484)
-------- --------
Net increase (decrease) in cash and cash equivalents ......... 4,037 (15,826)
Cash and cash equivalents at beginning of period ............. 64,908 73,064
-------- --------
Cash and cash equivalents at end of period ................... $ 68,945 $ 57,238
======== ========
CASH PAID DURING THE PERIOD FOR:
Interest ................................................ $ 43 $ 35
Income taxes ............................................ $ 1,985 $ 2,671
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have been
prepared by Russ Berrie and Company, Inc. and Subsidiaries (the "Company") in
accordance with generally accepted accounting principles for interim financial
reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared under generally accepted accounting principles
have been condensed or omitted pursuant to such principles and regulations. The
information furnished reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for the interim periods
presented. Results for interim periods are not necessarily an indication of
results to be expected for the year.
This report on Form 10-Q for the three months ended March 31, 2000 should be
read in conjunction with the Company's annual report on Form 10-K for its year
ended December 31, 1999. Certain prior year amounts have been reclassified to
conform with current year's presentation.
NOTE 2 - EARNINGS PER SHARE
A reconciliation of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
---------- ----------
<S> <C> <C>
Average common shares outstanding ................. 20,574,000 22,008,000
Dilutive effect of common shares issuable (1) ..... 46,000 158,000
---------- ----------
Average common shares outstanding assuming dilution 20,620,000 22,166,000
========== ==========
</TABLE>
(1) Issuable under stock option plans.
The Notes to these consolidated financial statements reflect basic earnings per
share unless otherwise stated or indicated.
NOTE 3 - DIVIDENDS
Cash dividends of $4,521,277 ($0.22 per share) were paid on March 24, 2000 to
shareholders of record of the Company's Common Stock on March 10, 2000. Cash
dividends of $4,403,005 ($0.20 per share) were paid in the three months ended
March 31, 1999.
6
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NOTE 4 - COMPREHENSIVE INCOME
In accordance with Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income", comprehensive income, representing all changes
in Shareholders' equity during the period other than changes resulting from the
issuance or repurchase of the Company's common stock and payment of dividends,
is reconciled to net income for the three months ended March 31, 2000 and 1999
as follows:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net income .............................. $ 11,839,000 $ 11,834,000
Other comprehensive (loss), net of taxes:
Foreign currency translation
adjustments ..................... (408,000) (633,000)
Net unrealized loss on securities
available-for-sale .............. (275,000) (231,000)
------------ ------------
Other comprehensive (loss) .............. (683,000) (864,000)
------------ ------------
Comprehensive income .................... $ 11,156,000 $ 10,970,000
============ ============
</TABLE>
NOTE 5 - PENDING ACCOUNTING CHANGE
ACCOUNTING FOR DERIVATIVES AND HEDGING
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivatives and Hedging Activities - Deferral of the Effective
Date of SFAS No. 133" (SFAS No. 137), which deferred the effective date of SFAS
No. 133 for an additional year. SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133) establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
Under the deferral permitted by SFAS No. 137, SFAS No. 133 is now effective for
fiscal years beginning after June 15, 2000, calendar year 2001 for the Company,
and cannot be applied retroactively. The Company has not yet quantified the
impacts of adopting SFAS No. 133 on the consolidated financial statements and
has not determined the timing or method of adoption, however, such adoption
could increase volatility in earnings and other comprehensive income.
7
<PAGE> 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
The Company's net sales for the three months ended March 31, 2000 were
$76,108,000 compared to $75,403,000 for the three months ended March 31, 1999.
This represents an increase of $705,000, or less than 1.0%. The Company's
product line, including recent product introductions, continues to receive a
positive response from customers worldwide.
Cost of sales were 40.0% of net sales for the three months ended March 31, 2000
remaining relatively unchanged from 40.2% for the same period in 1999.
Selling, general and administrative expense was $29,592,000 or 38.9% of net
sales for the three months ended March 31, 2000 compared to $28,768,000 or 38.2%
of net sales for the three months ended March 31, 1999, an increase of $824,000
or 2.9% compared to the prior year. This increase can be attributed to the
establishment of the Company's new subsidiary in Australia during the quarter
ended March 31, 2000.
Investment and other income of $1,725,000 for the three months ended March 31,
2000 compares to $2,022,000 for the three months ended March 31, 1999. This
decrease can be primarily related to decreased investment income attributable to
the Company's investment portfolio.
The provision for income taxes as a percent of income before taxes for the three
months ended March 31, 2000 was 33.4% compared to 35.6% in the same period in
the prior year. This decrease is due primarily to the lower effective tax rate
of the Company's domestic operations.
Net income for the three months ended March 31, 2000 of $11,839,000 compares to
net income of $11,834,000 for the same period last year. The increase in gross
profit, resulting from increased net sales and slightly improved gross profit
margins, and the decreased effective income tax rate was offset by the increase
in selling, general and administrative expense and decreased investment income.
YEAR 2000 ISSUE
The Company has not experienced any significant business disruptions related to
the transition into the Year 2000; however, it will continue to monitor its
computer systems and significant third-party relationships.
8
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had cash and cash equivalents and marketable
securities of $204,544,000 compared to cash and cash equivalents and marketable
securities of $202,051,000 at December 31, 1999.
Working capital requirements during the three months ended March 31, 2000 were
met entirely through internally generated funds. The Company remains in a highly
liquid position and believes that the resources available from investments,
operations and bank lines of credit are sufficient to meet the foreseeable
requirements of its business.
At March 31, 2000, the Company had marketable securities of $135,599,000. These
investments consist of U.S. government obligations, municipal obligations and
preferred stock. The objective of the investment portfolio is to maximize after
tax returns while minimizing risk.
The Company's portfolio of preferred securities investments are subject to
market fluctuations based largely, but not exclusively, on the securities'
sensitivity to changes in interest rates. By maintaining an economic hedge
consisting of government futures contracts and options, the Company seeks to
reduce interest rate related risk. The portfolio of preferred securities and
futures contracts and options position are intended to produce offsetting
capital gains and losses, both realized and unrealized, as interest rates
change.
The Company enters into forward exchange contracts and currency options,
principally to manage the economic currency risks associated with the purchase
of inventory and the repayment of intercompany loans by its European and
Canadian operations. Gains and losses, related to such contracts, were not
material to its results of operations. The Company does not anticipate any
material adverse impact on its results of operations or financial position from
these contracts.
In February 2000, the Board of Directors authorized the Company to repurchase
2,000,000 additional shares of common stock to bring the total authorization to
7,000,000 shares. During the three months ended March 31, 2000, the Company
repurchased 109,400 shares for $2,099,000. As of March 31, 2000, 4,855,700
shares have been repurchased since the beginning of the Company's stock
repurchase program in March, 1990.
9
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FORWARD-LOOKING STATEMENTS
This filing of the Form 10-Q contains forward-looking statements. Additional
written and oral forward-looking statements may be made by the Company from time
to time in Securities and Exchange Commission (SEC) filings and otherwise. The
Private Securities Litigation Reform Act of 1995 provides a safe-harbor for
forward-looking statements. The Company cautions readers that results predicted
by forward-looking statements, including, without limitation, those relating to
the Company's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements. Specific risks and uncertainties
include, but are not limited to, the Company's ability to continue to
manufacture its products in the Far East, the seasonality of revenues, the
actions of competitors, ability to increase production capacity, price
competition, the effects of government regulation, possible delays in the
introduction of new products, customer acceptance of products, issues related to
the Company's computer systems and other factors.
10
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Documents filed as part of this Report.
27.1 Financial Data Schedule.
b) During the quarter ended March 31, 2000, no reports on Form
8-K were filed.
11
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
RUSS BERRIE AND COMPANY, INC.
(Registrant)
5/15/00 By /s/ Eric R. Lohwasser
Date Eric R. Lohwasser
Vice President - Finance,
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 68,945
<SECURITIES> 135,599
<RECEIVABLES> 70,662
<ALLOWANCES> 4,155
<INVENTORY> 40,823
<CURRENT-ASSETS> 328,133
<PP&E> 56,770
<DEPRECIATION> 28,653
<TOTAL-ASSETS> 359,223
<CURRENT-LIABILITIES> 34,178
<BONDS> 0
0
0
<COMMON> 2,537
<OTHER-SE> 322,508
<TOTAL-LIABILITY-AND-EQUITY> 359,223
<SALES> 76,108
<TOTAL-REVENUES> 76,108
<CGS> 0
<TOTAL-COSTS> 30,471
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,770
<INCOME-TAX> 5,931
<INCOME-CONTINUING> 11,839
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,839
<EPS-BASIC> 0.58
<EPS-DILUTED> 0.57
</TABLE>
