UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) | ||
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| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2001 | ||
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _____________ | ||||
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Commission file number | 1-8681 |
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RUSS BERRIE AND COMPANY, INC.
(Exact name of registrant as specified in its charter)
New Jersey |
| 22-1815337 |
(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
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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 ý No o
The number of shares outstanding of each of the registrant’s classes of common stock, as of November 7, 2001 was as follows:
CLASS |
| OUTSTANDING AT NOVEMBER 7, 2001 |
Common Stock, $0.10 stated value | 20,121,727 |
RUSS BERRIE AND COMPANY, INC.
INDEX
PART 1 - FINANCIAL INFORMATION | |
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| ITEM 1. FINANCIAL STATEMENTS |
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| RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES |
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| (Dollars in Thousands) |
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| (UNAUDITED) |
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| September 30, |
| December 31, |
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| 2001 |
| 2000 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
| $ | 108,136 |
| $ | 77,794 |
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Marketable securities |
| 123,675 |
| 141,032 |
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Accounts receivable, trade, less allowances of $3,753 in 2001 and $3,460 in 2000 |
| 80,922 |
| 58,673 |
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Inventories – net |
| 38,832 |
| 47,430 |
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Prepaid expenses and other current assets |
| 4,040 |
| 5,508 |
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Deferred income taxes |
| 5,884 |
| 6,628 |
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Total current assets |
| 361,489 |
| 337,065 |
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Property, plant and equipment – net |
| 25,444 |
| 26,745 |
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Other assets |
| 3,842 |
| 3,199 |
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Total assets |
| $ | 390,775 |
| $ | 367,009 |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities |
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Accounts payable |
| $ | 4,756 |
| $ | 4,913 |
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Accrued expenses |
| 19,989 |
| 20,313 |
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Accrued income taxes |
| 7,594 |
| 7,192 |
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Total current liabilities |
| 32,339 |
| 32,418 |
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Commitments and contingencies |
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Shareholders' equity |
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Common stock: $.10 stated value; authorized 50,000,000 shares; issued 2001, 25,749,309 shares; 2000, 25,413,626 shares |
| 2,575 |
| 2,541 |
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Additional paid in capital |
| 70,388 |
| 63,103 |
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Retained earnings |
| 398,054 |
| 381,479 |
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Accumulated other comprehensive loss |
| (2,507 | ) | (4,310 | ) | ||
Unearned compensation |
| (93 | ) | (149 | ) | ||
Treasury stock, at cost (5,631,514 shares at September 30, 2001 and 5,557,514 shares at December 31, 2000) |
| (109,981 | ) | (108,073 | ) | ||
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Total shareholders' equity |
| 358,436 |
| 334,591 |
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Total liabilities and shareholders' equity |
| $ | 390,775 |
| $ | 367,009 |
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The accompanying notes are an integral part of the consolidated financial statements.
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENT OF INCOME |
(Dollars in Thousands, Except Per Share Data) |
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| (UNAUDITED) |
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| THREE MONTHS ENDED |
| NINE MONTHS ENDED |
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| SEPTEMBER 30, |
| SEPTEMBER 30, |
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| 2001 |
| 2000 |
| 2001 |
| 2000 |
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Net sales |
| $ | 87,441 |
| $ | 97,251 |
| $ | 224,648 |
| $ | 233,104 |
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Cost of Sales |
| 38,808 |
| 41,718 |
| 100,736 |
| 101,216 |
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Gross profit |
| 48,633 |
| 55,533 |
| 123,912 |
| 131,888 |
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Selling, general and administrative expense |
| 27,887 |
| 28,291 |
| 85,864 |
| 83,144 |
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Investment and other income-net |
| 1,677 |
| 3,236 |
| 6,171 |
| 6,764 |
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Income before taxes |
| 22,423 |
| 30,478 |
| 44,219 |
| 55,508 |
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Provision for income taxes |
| 5,981 |
| 9,932 |
| 13,192 |
| 18,160 |
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Net income |
| $ | 16,442 |
| $ | 20,546 |
| $ | 31,027 |
| $ | 37,348 |
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Net income per share: |
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Basic |
| $ | 0.82 |
| $ | 1.03 |
| $ | 1.55 |
| $ | 1.84 |
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Diluted |
| $ | 0.81 |
| $ | 1.02 |
| $ | 1.53 |
| $ | 1.84 |
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The accompanying notes are an integral part of the consolidated financial statements.
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
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| (UNAUDITED) |
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| NINE MONTHS ENDED |
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| SEPTEMBER 30, |
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| 2001 |
| 2000 |
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Cash flows from operating activities: |
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Net income |
| $ | 31,027 |
| $ | 37,348 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
| 2,998 |
| 3,014 |
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Provision for accounts receivable reserves |
| 1,623 |
| 2,018 |
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Income from contingency reserve reversal (Note 1) |
| - |
| (1,607 | ) | ||
Other |
| 1,641 |
| 667 |
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Changes in assets and liabilities: |
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Accounts receivable |
| (23,872 | ) | (23,116 | ) | ||
Inventories – net |
| 8,598 |
| (1,729 | ) | ||
Prepaid expenses and other current assets |
| 1,468 |
| (108 | ) | ||
Other assets |
| 31 |
| (298 | ) | ||
Accounts payable |
| (157 | ) | (2,161 | ) | ||
Accrued expenses |
| (324 | ) | 1,539 |
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Accrued income taxes |
| 402 |
| 3,330 |
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Total adjustments |
| (7,592 | ) | (18,451 | ) | ||
Net cash provided by operating activities |
| 23,435 |
| 18,897 |
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Cash flows from investing activities: |
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Purchase of marketable securities |
| (69,696 | ) | (35,144 | ) | ||
Proceeds from sale of marketable securities |
| 88,310 |
| 38,422 |
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Proceeds from sale of fixed assets |
| 59 |
| 52 |
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Capital expenditures |
| (2,096 | ) | (3,330 | ) | ||
Net cash provided by investing activities |
| 16,577 |
| - |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock |
| 7,319 |
| 1,343 |
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Dividends paid to shareholders |
| (14,452 | ) | (13,391 | ) | ||
Purchase of treasury stock |
| (1,908 | ) | (15,027 | ) | ||
Net cash (used in) financing activities |
| (9,041 | ) | (27,075 | ) | ||
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Effect of exchange rate changes on cash and cash equivalents |
| (629 | ) | (1,435 | ) | ||
Net increase (decrease) in cash and cash equivalents |
| 30,342 |
| (9,613 | ) | ||
Cash and cash equivalents at beginning of period |
| 77,794 |
| 64,908 |
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Cash and cash equivalents at end of period |
| $ | 108,136 |
| $ | 55,295 |
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Cash paid during the period for: |
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Interest |
| $ | 148 |
| $ | 100 |
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Income taxes |
| $ | 12,790 |
| $ | 14,829 |
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The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have been prepared by Russ Berrie and Company, Inc. and its 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, of a normal recurring nature and 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 nine months ended September 30, 2001 should be read in conjunction with the Company’s Quarterly Reports on Form 10-Q for the periods ended March 31, 2001 and June 30, 2001, and its Annual Report on Form 10-K for its year ended December 31, 2000. Certain prior year amounts have been reclassified to conform with current year’s presentation.
Investment and other income-net for the three and nine months ended September 30, 2000 includes income of $1,607,000, before tax, or $1,012,000 ($0.05 per diluted share), after tax, for the reversal of certain contingency reserves related to the Company’s sale of its toy business segment in May 1997.
NOTE 2 - EARNINGS PER SHARE
A reconciliation of weighted average common shares outstanding to weighted average common shares outstanding assuming dilution is as follows:
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| Three Months Ended |
| Nine Months Ended |
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| September 30, |
| September 30, |
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| 2001 |
| 2000 |
| 2001 |
| 2000 |
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Average common shares outstanding |
| 20,162,000 |
| 20,004,000 |
| 20,060,000 |
| 20,303,000 |
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Dilutive effect of common shares issuable (1) |
| 186,000 |
| 70,000 |
| 170,000 |
| 48,000 |
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Average common shares outstanding assuming dilution |
| 20,348,000 |
| 20,074,000 |
| 20,230,000 |
| 20,351,000 |
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(1) Issuable under stock option plans.
Stock options outstanding at September 30, 2000 to purchase 383,929 shares of common stock were not included in the computation of earnings per common share assuming dilution because the options’ exercise prices were greater than the average market price of the common shares. There were no such options outstanding at September 30, 2001.
The Notes to these consolidated financial statements reflect basic earnings per share unless otherwise stated or indicated.
NOTE 3 - DIVIDENDS
Cash dividends of $4,842,000 ($0.24 per share) were paid on August 31, 2001 to shareholders of record of the Company’s Common Stock on August 17, 2001. Cash dividends of $14,452,000 ($0.24 per share per quarter) were paid in the nine months ended September 30, 2001. See also Part I, Financial Information, Item 2, "Liquidity and Capital Resources," of this Report on Form 10-Q regarding a subsequent event for the declaration of a one-time special dividend.
Cash dividends of $4,394,000 ($0.22 per share) were paid on September 1, 2000 to shareholders of record of the Company's Common Stock on August 18, 2000. Cash dividends of $13,391,000 ($0.22 per share per quarter) were paid in the nine months ended September 30, 2000.
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 and unearned compensation, is reconciled to net income for the three and nine months ended September 30, 2001 and 2000 as follows:
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| Three Months Ended |
| Nine Months Ended |
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| September 30, |
| September 30, |
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| 2001 |
| 2000 |
| 2001 |
| 2000 |
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Net income | $ | 16,442,000 | $ | 20,546,000 | $ | 31,027,000 | $ | 37,348,000 | |||||
Other comprehensive income (loss), net of taxes: | |||||||||||||
Foreign currency translation adjustments | 924,000 | (1,530,000 | ) | (1,002,000 | ) | (3,134,000 | ) | ||||||
Net unrealized gain on securities available-for-sale | 1,040,000 | 630,000 | 1,885,000 | 466,000 | |||||||||
Net unrealized gain on foreign currency forward exchange contracts and other |
| 317,000 | - | 920,000 | - | ||||||||
Other comprehensive income (loss) | 2,281,000 | (900,000 | ) | 1,803,000 | (2,668,000 | ) | |||||||
Comprehensive income | $ | 18,723,000 | $ | 19,646,000 | $ | 32,830,000 | $ | 34,680,000 |
NOTE 5 – LITIGATION
This information is incorporated herein by reference to Part II, Other Information, Item 1, "Legal Proceedings" of this Report on Form 10-Q.
NOTE 6 – RECENT ACCOUNTING CHANGES
SFAS No. 133
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, “Accounting for Derivatives Instruments and Hedging Activities”, as amended by SFAS No. 138, “Accounting for Certain Derivatives and Certain Hedging Activities, an amendment of SFAS No. 133”, establishing the accounting and reporting for derivatives and hedging activities.
Under the deferral permitted by SFAS No. 137, “Accounting for Derivatives and Hedging Activities – Deferral of the Effective Date of SFAS No. 133”, SFAS No. 133 as amended by SFAS No. 138, was adopted by the Company effective January 1, 2001 and did not have a material effect on the Company’s consolidated financial statements upon adoption and for the three and the nine months ended September 30, 2001.
Foreign Currency Forward Exchange Contracts
Certain of the Company’s foreign subsidiaries periodically enter into foreign currency forward exchange contracts ("Forward Contracts") to hedge inventory purchases, both anticipated and firm commitments, denominated in the United States dollar. These contracts reduce foreign currency risk caused by changes in exchange rates and are used to hedge these inventory purchases, generally for periods from 3 to 12 months.
Since there is a direct relationship between the Forward Contracts and the currency denomination of the underlying transactions, such Forward Contracts are highly effective in hedging the cash flows of certain of the Company’s foreign subsidiaries related to transactions denominated in the United States dollar. These Forward Contracts meet the criteria for cash flow hedge accounting treatment and accordingly, gains or losses, are included in other comprehensive income (loss) and are recognized in cost of sales based on the turnover of inventory.
The fair value of the Forward Contracts was estimated by obtaining quotes for such contracts with similar terms, adjusted where necessary for maturity differences, and was included in the Consolidated Balance Sheet within other current assets with the corresponding offset included in accumulated other comprehensive loss.
Options and Futures Contracts
The Company periodically enters into options and futures contracts in connection with managing interest rate risk associated with a portion of its preferred securities investment portfolio. The Company does not designate these derivatives as hedges. The derivatives are marked to fair value through the Consolidated Statement of Income and the preferred securities are marked to fair value through other comprehensive income (loss). The fair value of the options and futures contracts are included in the Consolidated Balance Sheet within marketable securities.
SFAS Nos. 141, 142 and 143
In July 2001, the FASB issued SFAS Nos. 141 and 142. SFAS No. 141, “Business Combinations” is effective for all business combinations initiated after June 30, 2001 and requires that the purchase method of accounting be used. Use of the pooling of interests method of accounting is prohibited except for transactions initiated prior to July 1, 2001. This statement also requires that other intangible assets be recognized as assets apart from goodwill if they arise from contractual or other legal rights, or if they are separable or capable of being separated from the acquired entity and sold, transferred, licensed, rented or exchanged. The Company does not currently have any pending acquisitions that will be impacted by this statement.
SFAS No. 142, “Goodwill and Other Intangible Assets” specifies the financial accounting and reporting for goodwill and other intangible assets. Amortization of goodwill, including goodwill recorded in past business combinations, will cease for fiscal years beginning after December 15, 2001. Goodwill recognized on or before June 30, 2001, should be assigned to one or more reporting units and shall be tested, at least annually, for impairment as of the beginning of the fiscal year in which SFAS No. 142 is initially applied in its entirety. The useful lives of other intangible assets acquired on or before June 30, 2001 should be reassessed and the remaining amortization periods adjusted accordingly. Previously recognized other intangible assets deemed to have indefinite lives should be tested for impairment. The reassessment of other intangible assets must be completed during the first quarter of 2002 and the assignment of goodwill to reporting units, along with completion of the first step of the transitional goodwill impairment tests, must be completed during the first six months of 2002. The Company is currently evaluating the effect of the adoption of SFAS No. 142 that becomes effective January 1, 2002.
SFAS No. 143, “Accounting for Asset Retirement Obligations” was adopted by the FASB in July 2001 and requires the recognition of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its present value and the related capitalized charge is depreciated over the useful life of the asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, or calendar year 2003 for the Company. The Company is currently reviewing the impact, if any, of SFAS No. 143.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
The Company's net sales for the nine months ended September 30, 2001 decreased 3.6% to $224,648,000 compared to net sales of $233,104,000 for the nine months ended September 30, 2000. Net sales for the nine months ended September 30, 2001 would have been approximately $4,000,000 higher had exchange rates for the nine months ended September 30, 2000 remained in effect for the nine months ended September 30, 2001 and were also effected by the continued soft retail market and recent tragic events. Net Sales for the nine months ended September 30, 2000 have been restated to conform to the presentation for the nine months ended September 30, 2001, reflecting the impact of the new accounting standard for shipping and handling fees and costs.
Cost of sales were 44.8% of net sales for the nine months ended September 30, 2001 as compared to 43.4% for the same period in 2000. This increase primarily reflects lower gross profit margins on sales of certain of the Company’s product line concepts due to a change in the Company’s product mix offset, in part, by lower relative volumes being distributed through other than normal channels. Cost of sales for the nine months ended September 30, 2000 have been restated to conform to the presentation for the nine months ended September 30, 2001, reflecting the impact of the new accounting standard for shipping and handling fees and costs.
Selling, general and administrative expense was $85,864,000 or 38.2% of net sales for the nine months ended September 30, 2001 compared to $83,144,000 or 35.7% of net sales for the nine months ended September 30, 2000, an increase of $2,720,000 or 3.3% compared to the same period in the prior year. Included in selling, general and administrative expense for the nine months ended September 30, 2001, was a charge of $1,132,000 resulting from the increase of the Company’s stock price during the nine months ended September 30, 2001, subsequent to stock options granted and repriced during 2000. Excluding this charge, selling, general and administrative expense increased $1,588,000, or 1.9% to $84,732,000, representing an increase to 37.7% of net sales for the nine months ended September 30, 2001. This increase in selling, general and administrative expense is due primarily to the Company’s strategic deployment of resources in implementing new systems, developing new business ventures and products and expanding the worldwide salesforce. Selling, general and administrative expense for the nine months ended September 30, 2000 has been restated to conform to the presentation for the nine months ended September 30, 2001, reflecting the impact of the new accounting standard for shipping and handling fees and costs.
Investment and other income of $6,171,000 for the nine months ended September 30, 2001 compares to $6,764,000 for the nine months ended September 30, 2000. Included in investment and other income for the nine months ended September 30, 2000 was income of $1,607,000 for the reversal of certain contingency reserves related to the Company’s sale of its toy business segment in May 1997. Excluding the income from this reserve reversal, investment and other income increased $1,014,000. This increase primarily relates to increased investment income attributable to lower losses recognized on the sale of certain of the Company’s investment securities and lower foreign exchange losses recognized by the Company’s international subsidiaries.
The provision for income taxes as a percent of income before taxes for the nine months ended September 30, 2001 was 29.8% as compared to 32.7% for the nine months ended September 30, 2000. This decrease in the effective tax rate is due primarily to the reversal of certain tax contingency reserves, relatively higher permanent items for tax reporting purposes and the change in the mix of the foreign subsidiaries income before taxes.
Net income for the nine months ended September 30, 2001 of $31,027,000 compares to net income of $37,348,000 for the same period of the prior year, representing a decline of $6,321,000 or 16.9%. Included in net income for the nine months ended September 30, 2001, was a charge of $736,000 ($1,132,000 before tax), resulting from the increase of the Company’s stock price during the nine months ended September 30, 2001, subsequent to stock options granted and repriced during 2000. Included in net income for the nine months ended September 30, 2000 was income of $1,012,000 ($1,607,000 before tax) for the reversal of certain contingency reserves related to the Company’s sale of its toy business segment in May 1997. Excluding the charge for the stock option repricing and the reserve reversal, net income declined $4,573,000, or 12.6%, which was due principally to lower gross profit and increased selling, general and administrative expense offset in part, by a lower provision for income taxes and by higher investment and other income.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
The Company's net sales for the three months ended September 30, 2001 decreased 10.1% to $87,441,000 compared to net sales of $97,251,000 for the three months ended September 30, 2000. Net sales for the quarter excluded approximately $6,000,000 of shipments related to Christmas merchandise that is typically shipped in the third quarter, however was shipped in the second quarter due to early availability. Had these shipments occurred in the third quarter of 2001, net sales for the quarter would have decreased 3.9%, due principally to lower sales volume resulting from the continued soft retail market and recent tragic events. Net sales for the third quarter of 2001 would have been approximately $1,100,000 higher had third quarter 2000 exchange rates remained in effect for the third quarter of 2001. Net Sales for the three months ended September 30, 2000 have been restated to conform to the presentation for the three months ended September 30, 2001, reflecting the impact of the new accounting standard for shipping and handling fees and costs.
Cost of sales were 44.4% of net sales for the three months ended September 30, 2001 as compared to 42.9% for the same period in 2000, primarily reflecting lower gross profit margins on sales of certain of the Company’s product line concepts. Cost of sales for the three months ended September 30, 2000 have been restated to conform to the presentation for the three months ended September 30, 2001, reflecting the impact of the new accounting standard for shipping and handling fees and costs.
Selling, general and administrative expense was $27,887,000 or 31.9% of net sales for the three months ended September 30, 2001 compared to $28,291,000 or 29.1% of net sales for the three months ended September 30, 2000, a decrease of $404,000 or 1.4% compared to the same period in the prior year. The decrease in selling, general and administrative expense is due primarily to the Company’s lower advertising costs as compared to the three months ended September 30, 2000. Selling, general and administrative expense for the three months ended September 30, 2000 has been restated to conform to the presentation for the three months ended September 30, 2001, reflecting the impact of the new accounting standard for shipping and handling fees and costs.
Investment and other income of $1,677,000 for the three months ended September 30, 2001 compares to $3,236,000 for the three months ended September 30, 2000. This decrease is due primarily to the income of $1,607,000, which was included in the three months ended September 30, 2000, for the reversal of certain contingency reserves related to the Company’s sale of its toy business segment in May 1997.
The provision for income taxes as a percent of income before taxes for the three months ended September 30, 2001 was 26.7% compared to 32.6% in the same period of the prior year. This decrease in the effective tax rate is due primarily to the reversal of certain tax contingency reserves, relatively higher permanent items for tax reporting purposes and the change in the mix of the foreign subsidiaries’ income before taxes.
Net income for the three months ended September 30, 2001 of $16,442,000 compares to net income of $20,546,000 for the same period last year. This represents a decrease in net income in the amount of $4,104,000 or 20.0%. Included in net income for the three months ended September 30, 2000 was income of $1,012,000, after tax, for the reversal of certain contingency reserves related to the Company’s sale of its toy business segment in May 1997. Excluding the reserve reversal, net income decreased $3,092,000, or 15.8%, which was due principally to lower gross profit offset, in part, by decreased selling, general and administrative expense and a lower provision for income taxes.
Liquidity and Capital Resources
As of September 30, 2001, the Company had cash and cash equivalents and marketable securities of $231,811,000 compared to cash and cash equivalents and marketable securities of $218,826,000 at December 31, 2000.
As of September 30, 2001, the Company had marketable securities of $123,675,000, included in the amounts above. 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.
The Company enters into forward exchange contracts and currency options, principally to manage the economic currency risks associated with the purchase of inventory 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.
Working capital requirements during the nine months ended September 30, 2001 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.
As of September 30, 2001, the Board of Directors had previously authorized the Company to repurchase 7,000,000 shares of common stock of which 5,635,400 shares have been repurchased since the beginning of the Company’s stock repurchase program in March 1990. During the three months ended September 30, 2001, the Company repurchased 74,000 shares for $1,908,000.
On October 31, 2001, in addition to the quarterly cash dividend of $0.24 per common share, payable on November 30, 2001, to shareholders of record on November 16, 2001, the Company declared a one-time special cash dividend in the amount of $0.50 per common share payable on December 14, 2001, to shareholders of record on November 29, 2001.
Consistent with its past practices and as a normal course of business, the Company regularly reviews acquisition opportunities of varying sizes. There can be no assurance, however, that any discussions arising in connection therewith will result in definitive purchase agreements and, if they do, what the terms or timing of any such agreements would be.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain 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. These statements may be identified by the use of forward-looking words or phrases including, but not limited to, “anticipate”, “believe”, “expect”, “intend”, “may”, “planned”, “potential”, “should”, “will”, or “would”. 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 Russ Trading division, the ability to grow its direct sales force, changes in foreign currency exchange rates, issues related to the Company’s computer systems, the current and future outlook of the Global retail market and other factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 2001, there have been no material changes in the Company’s market risks from December 31, 2000.
An action was commenced against the Company on August 22, 2001, in the United States District Court, District of New Jersey, by Dam Things from Denmark (a/k/a Troll Company ApS.), alleging, among other things, copyright infringement by the Company of the plaintiff's reinstated United States copyrights for its troll designs and unfair competition under common law. The plaintiff is seeking, among other things, injunctive relief prohibiting the Company from continuing to offer for sale its troll products, cancellation of the Company's U.S. copyright registrations with respect to its various troll products, as well as unspecified damages and attorney's fees and expenses. The Company believes it has substantial defenses to the allegations. A Court hearing on plaintiff's motion for a preliminary injunction was held on October 29, 2001, and no determination has been issued to date.
The Company does not believe that the ultimate resolution of this controversy will have a material adverse impact on the financial condition of the Company.
The plaintiff has informally advised that it will assert copyright infringement claims against the Company and/or its subsidiaries in foreign countries relating to the Company's troll products. The Company will evaluate such claims when, and if, they are formally asserted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) |
| There are no exhibits to this Quarterly Report on Form 10-Q. |
b) |
| During the quarter ended September 30, 2001 no reports on Form 8-K were filed. |
Items 2, 3, 4, and 5 are not applicable and have been omitted.
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.
| RUSS BERRIE AND COMPANY, INC. |
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| (Registrant) |
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| By | /s/ John D. Wille |
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Date 11-13-01 | John D. Wille |
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| Vice President and |
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| Chief Financial Officer |
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