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 ........... June 30, 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 AUGUST 3, 2000
Common stock, $0.10 stated value 20,000,291
<PAGE>
RUSS BERRIE AND COMPANY, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 2000
and December 31, 1999 3
Consolidated Statement of Income for the three months
and the six months ended June 30, 2000 and 1999 4
Consolidated Statement of Cash Flows for the six
months ended June 30, 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 8-11
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
------ ----------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents............................. $ 73,553 $ 64,908
Marketable securities................................. 131,033 137,143
Accounts receivable, trade, less allowances of
$4,030 in 2000 and $3,731 in 1999.................. 46,026 61,385
Inventories - net..................................... 51,545 44,307
Prepaid expenses and other current assets............. 9,418 9,503
Deferred income taxes................................. 6,887 6,805
------- -------
TOTAL CURRENT ASSETS 318,462 324,051
Property, plant and equipment - net..................... 27,616 28,297
Other assets............................................ 3,292 3,072
------- -------
TOTAL ASSETS $349,370 $355,420
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable...................................... $ 4,360 $ 6,228
Accrued expenses...................................... 21,331 23,488
Accrued income taxes.................................. 5,472 6,106
------ -------
TOTAL CURRENT LIABILITIES 31,163 35,822
------ -------
Commitments and contingencies
Shareholders' equity
Common stock: $.10 stated value; authorized
50,000,000 shares; issued 2000, 25,380,397
shares; 1999, 25,325,849 shares..................... 2,538 2,532
Additional paid in capital............................ 62,035 60,957
Retained earnings..................................... 359,089 351,302
Accumulated other comprehensive (loss)................ (4,315) (2,547)
Unearned compensation................................. (186) -
Treasury stock, at cost (5,190,814 shares at
June 30,2000 and 4,752,414 shares at
December 31, 1999).................................. (100,954) (92,646)
------- -------
TOTAL SHAREHOLDERS' EQUITY 318,207 319,598
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $349,370 $355,420
======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS.
</TABLE>
3
<PAGE>
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales............................................ $55,598 $47,475 $131,706 $122,878
Cost of Sales........................................ 24,621 20,624 55,092 50,901
------ ------ ------- -------
GROSS PROFIT....................................... 30,977 26,851 76,614 71,977
Selling, general and administrative expense.......... 25,520 23,067 55,112 51,835
Investment and other income-net...................... 1,803 2,725 3,528 4,747
------- ------- ------- -------
INCOME BEFORE TAXES............................... 7,260 6,509 25,030 24,889
Provision for income taxes........................... 2,297 2,400 8,228 8,946
------ ------ ------ ------
NET INCOME........................................... $4,963 $4,109 $16,802 $15,943
===== ===== ====== ======
NET INCOME PER SHARE:
Basic.......................................... $0.24 $0.19 $ 0.82 $ 0.74
Diluted........................................ $0.24 $0.19 $ 0.82 $ 0.73
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
4
</TABLE>
<PAGE>
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income..................................................... $ 16,802 $ 15,943
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation............................................... 1,997 1,697
Amortization of intangible assets.......................... 57 59
Amortization of premium and discount on marketable
debt securities, net..................................... 253 -
Amortization of unearned compensation...................... 6 -
Provision for accounts receivable reserves................. 1,011 969
Deferred income taxes...................................... (82) (631)
Net (gain)/loss from sale or disposal of fixed assets...... 9 (22)
Changes in assets and liabilities:
Accounts receivable.................................. 14,348 15,562
Inventories - net.................................... (7,238) (200)
Prepaid expenses and other current assets............ 85 266
Other assets......................................... (277) (27)
Accounts payable..................................... (1,868) (1,406)
Accrued expenses..................................... (2,157) (1,078)
Accrued income taxes................................. (634) (3,523)
-------- --------
Total adjustments................................. 5,510 11,666
-------- --------
Net cash provided by operating activities. 22,312 27,609
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities.............................. (19,798) (22,972)
Proceeds from sale of marketable securities.................... 25,491 21,605
Proceeds from sale of fixed assets............................. 33 22
Capital expenditures........................................... (2,598) (5,134)
------- --------
Net cash provided by (used in)
investing activities....................... 3,128 (6,479)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock......................... 1,084 1,531
Dividends paid to shareholders................................. (9,015) (8,642)
Purchase of treasury stock..................................... (8,499) (38,911)
------- --------
Net cash (used in) financing activities..... (16,430) (46,022)
Effect of exchange rates on cash and cash equivalents.......... (365) (956)
------- --------
Net increase (decrease) in cash and cash equivalents........... 8,645 (25,848)
Cash and cash equivalents at beginning of period............... 64,908 73,064
------- --------
Cash and cash equivalents at end of period..................... $73,553 $ 47,216
======= ========
CASH PAID DURING THE PERIOD FOR:
Interest.................................................. $ 25 $ 67
Income taxes.............................................. $ 8,863 $ 12,267
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
5
</TABLE>
<PAGE>
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 accounting principles generally accepted in the United States
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 accounting principles
generally accepted in the United States 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 and six months ended June 30, 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2000 1999 2000 1999
---- ---- ---- -----
<S> <C> <C> <C> <C>
Average common shares outstanding................................. 20,333,000 21,095,000 20,454,000 21,556,000
Dilutive effect of common shares issuable (1)..................... 41,000 168,000 41,000 161,000
---------- ---------- ---------- ----------
Average common shares outstanding assuming dilution............... 20,374,000 21,263,000 20,495,000 21,717,000
========== ========== ========== ==========
</TABLE>
(1) Issuable under stock option plans.
NOTE 3 - DIVIDENDS
Cash dividends of $4,494,000 ($0.22 per share) were paid on June 7, 2000 to
shareholders of record of the Company's Common Stock on May 24, 2000. Cash
dividends of $9,015,000 ($0.22 per share) were paid in the six months ended June
30, 2000.
Cash dividends of $4,239,000 ($0.20 per share) were paid on June 4, 1999 to
shareholders of record of the Company's Common Stock on May 21, 1999. Cash
dividends of $8,642,000 ($0.20 per share per quarter) were paid in the six
months ended June 30, 1999.
6
<PAGE>
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, payment of dividends and
unearned compensation, is reconciled to net income for the three and six months
ended June 30, 2000 and 1999 as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $4,963,000 $4,109,000 $16,802,000 $15,943,000
Other comprehensive (loss), net of taxes:
Foreign currency translation adjustments (1,196,000) (438,000) (1,604,000) (1,071,000)
Net unrealized gain (loss) on securities
available-for-sale 111,000 (1,410,000) (164,000) (1,641,000)
-------- --------- ------- ---------
Other comprehensive (loss) (1,085,000) (1,848,000) (1,768,000) (2,712,000)
--------- --------- --------- ---------
Comprehensive income $3,878,000 $2,261,000 $15,034,000 $13,231,000
========== ========== =========== ===========
</TABLE>
NOTE 5 - PENDING ACCOUNTING CHANGES
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>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000
The Company's net sales for the six months ended June 30, 2000 were $131,706,000
compared to $122,878,000 for the six months ended June 30, 1999. This represents
an increase of $8,828,000, or 7.2%. Net sales for the three months ended June
30, 1999 were negatively impacted by the June 1999 conversion to a new computer
system for the Company's domestic operations. The Company's product line,
including recent product introductions, continues to receive a positive response
from customers worldwide.
Cost of sales were 41.8% of net sales for the six months ended June 30, 2000
compared to 41.4% for the same period in 1999. This percentage increase
primarily reflects lower gross profit margins on sales of certain of the
Company's product line concepts.
Selling, general and administrative expense was $55,112,000 or 41.8% of net
sales for the six months ended June 30, 2000 compared to $51,835,000 or 42.2% of
net sales for the six months ended June 30, 1999. This represents an increase of
$3,277,000 or 6.3% compared to the prior year, however, as a percentage of
sales, is lower than the prior year. This increase can be primarily attributed
to the establishment of the Company's new subsidiary in Australia in January
2000 and higher selling and shipping costs due to increased sales.
Investment and other income of $3,528,000 for the six months ended June 30, 2000
compares to $4,747,000 for the six months ended June 30, 1999. This decrease can
be primarily related to decreased investment income attributable to lower
returns on the Company's investment portfolio.
The provision for income taxes as a percent of income before taxes for the six
months ended June 30, 2000 was 32.9% compared to 35.9% 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 as a result of relatively higher permanent
deductions for tax reporting purposes and lower effective tax rates of the
Company's foreign operations.
Net income for the six months ended June 30, 2000 of $16,802,000 compares to net
income of $15,943,000 for the same period last year. This increase is due to the
increase in gross profit and the decreased effective income tax rate offset by
the increase in selling, general and administrative expense and decreased
investment income.
8
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000
The Company's net sales for the three months ended June 30, 2000 were
$55,598,000 compared to $47,475,000 for the three months ended June 30, 1999.
This represents an increase of $8,123,000, or 17.1%. Net sales for the three
months ended June 30, 1999 were negatively impacted by the June 1999 conversion
to a new computer system for the Company's domestic operations. The Company's
product line, including recent product introductions, continues to receive a
positive response from customers worldwide.
Cost of sales were 44.3% of net sales for the three months ended June 30, 2000
compared to 43.4% for the same period in 1999. The percentage increase primarily
reflects higher provisions required for inventory offset by certain fixed costs
absorbed by higher sales levels.
Selling, general and administrative expense was $25,520,000 or 45.9% of net
sales for the three months ended June 30, 2000 compared to $23,067,000 or 48.6%
of net sales for the three months ended June 30, 1999. This represents an
increase of $2,453,000 or 10.6% compared to the prior year, however, as a
percentage of net sales, is lower than the prior year. This increase can
primarily be attributed to the establishment of the Company's new subsidiary in
Australia in January 2000 and higher selling costs due to increased sales.
Investment and other income of $1,803,000 for the three months ended June 30,
2000 compares to $2,725,000 for the three months ended June 30, 1999. This
decrease can be primarily related to decreased investment income attributable to
lower returns on the Company's investment portfolio.
The provision for income taxes as a percent of income before taxes for the three
months ended June 30, 2000 was 31.6% compared to 36.9% 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 as a result of relatively higher permanent
deductions for tax reporting purposes.
Net income for the three months ended June 30, 2000 of $4,963,000 compares to
net income of $4,109,000 for the same period last year. This increase is due to
the increase in gross profit and the decreased effective income tax rate 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.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had cash and cash equivalents and marketable
securities of $204,586,000 compared to cash and cash equivalents and marketable
securities of $202,051,000 at December 31, 1999.
Working capital requirements during the six months ended June 30, 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 June 30, 2000, the Company had marketable securities of $131,033,000. 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 since the beginning of the Company's stock repurchase program
in March, 1990. During the three months ended June 30, 2000 the Company
repurchased 339,000 shares for $6,400,000. As of June 30, 2000, 5,194,700 shares
have been repurchased since the beginning of the Company's stock repurchase
program in March, 1990.
10
<PAGE>
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.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The date of the Annual Meeting of Shareholders was May 9, 2000.
b) A brief description of each matter voted upon at the meeting other than the
election of directors follows:
1. Amendment to the 1999 Stock Option and Restricted Stock Plan
Amendment to the 1999 Stock Option and Restricted Stock Plan to reprice
only the options issued January 3, 2000 to an exercise price equal to the
market closing price of the Company's stock as of February 29, 2000.
15,510,944 shares were voted in favor of the amendment to the 1999 Stock
Option and Restricted Stock Plan, 4,164,580 shares were voted against and
9,981 shares abstained.
2. Amendment to the 1999 Stock Option Plan for Outside Directors
Amendment to the 1999 Stock Option Plan for Outside Directors to reprice
only the options issued January 3, 2000 to an exercise price equal to $2.00
above the market closing price of the Company's Stock as of February 29,
2000.
15,506,406 shares were voted in favor of the amendment to the 1999 Stock
Option Plan for Outside Directors, 4,168,368 shares were voted against and
10,731 shares abstained.
3. Amendment to the 1999 Stock Option Plan
Amendment to the 1999 Stock Option Plan to reprice only the options issued
January 3, 2000 to an exercise price equal to the market closing price of
the Company's Stock as of February 29, 2000.
15,589,477 shares were voted in favor of the amendment to the 1999 Stock
Option Plan, 4,085,397 shares were voted against and 10,631 shares
abstained.
4. Amendment to 1999 Employee Stock Purchase Plan
Amendment to 1999 Employee Stock Purchase Plan to reprice only the options
issued January 3, 2000 to an excercise price equal to 90% of the market
closing price of the Company's Stock as of February 29, 2000.
15,685,553 shares were voted in favor of the amendment to the 1999 Employee
Stock Purchase Plan, 3,989,888 shares were voted against and 10,064 shares
abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Documents filed as part of this Report
10.124 Executive Employment agreement dated June 1, 2000 between Russ Berrie
and Company, Inc. and Benjamin J. Sottile.
27.1 Financial Data Schedule.
b) During the quarter ended June 30, 2000 no reports on Form 8-K were filed.
12
<PAGE>
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)
08/14/00 By /s/ Nicholas Truyens
----------------------- ---------------------
Date Nicholas Truyens
Vice President,
Chief Financial Officer
13
