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 ........... September 30, 1994
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
incorporation or organization) Identification No.)
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 NOVEMBER 5, 1994
----- -------------------------------
Common stock, $.10 stated value 21,473,591
2
RUSS BERRIE AND COMPANY, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Consolidated Balance Sheet as of
September 30, 1994 and December 31, 1993 3
Consolidated Statement of Income
for the three-month and nine-month periods
ended September 30, 1994 and 1993 4
Consolidated Statement of Cash Flows
for the nine-month periods ended
September 30, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7-9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
(2)
3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS SEPTEMBER 30, DECEMBER 31,
------ 1994 1993
------------- ------------
Current assets
Cash and cash equivalents $ 36,552 $ 51,478
Short-term investments 10,688 31,421
Accounts receivable, trade, net 62,230 46,899
Merchandise inventories 63,848 66,110
Prepaid expenses and other current assets 3,592 5,005
Deferred income taxes 12,482 12,169
-------- --------
Total current assets 189,392 213,082
Property, plant and equipment - net 26,063 28,133
Goodwill and other intangible assets - net 36,451 16,420
Other assets 4,754 1,480
-------- --------
Total assets $256,660 $259,115
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable $ 4,000 $ 5,235
Accrued expenses 27,716 23,171
Accrued restructuring costs 5,015 6,283
Accrued income taxes - 392
-------- --------
Total current liabilities 36,731 35,081
Shareholders' equity
Common stock; $.10 stated value;
authorized 50,000,000 shares;
issued 23,928,404 at September 30, 1994
and 23,876,274 at December 31, 1993 2,393 2,388
Additional paid-in capital 37,479 36,840
Retained earnings 219,436 225,650
Foreign currency translation adjustments (1,522) (2,987)
Treasury stock, at cost (2,454,813 shares
at September 30, 1994 and December 31,
1993) (37,857) (37,857)
-------- --------
Total shareholders' equity 219,929 224,034
Total liabilities and shareholders'
equity $256,660 $259,115
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
(3)
4
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
Net sales $ 82,850 $ 70,738 $ 204,563 $216,935
Cost of sales 40,096 30,279 103,890 90,802
Selling, general
and administrative expense 35,163 32,448 98,361 104,075
Investment and other
income-net 699 669 2,045 2,176
-------- -------- --------- --------
Income before income taxes 8,290 8,680 4,357 24,234
Provision for income taxes 2,548 2,358 920 7,279
-------- -------- --------- --------
Net income $ 5,742 $ 6,322 $ 3,437 $ 16,955
======== ======== ========= ========
Net income per share $ 0.27 $ 0.30 $ 0.16 $ 0.79
======== ======== ========= ========
The accompanying notes are an integral part of
the consolidated financial statements.
(4)
5
RUSS BERRIE AND COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------
1994 1993
---- ----
Cash flows from operating activities:
Net income $ 3,437 $ 16,955
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 3,463 3,936
Amortization of intangible assets 1,404 725
Provision for bad debts, returns and other
allowances 6,560 2,494
Loss on sale of assets and other, net 536 197
Changes in assets and liabilities
Accounts receivable (21,891) 12,833
Inventories 5,655 14,421
Prepaid expenses 1,579 (1,112)
Goodwill and other intangible assets (2,254) -
Other assets (3,170) 157
Accounts payable (1,235) (3,851)
Accrued expenses 4,095 (7,876)
Accrued restructuring costs (1,268) (760)
Accrued and deferred income taxes (705) (3,667)
-------- --------
Total adjustments (7,231) 17,497
-------- --------
Net cash provided by operating activities (3,794) 34,452
Cash flows from investing activities:
Decrease (increase) in short-term investments 20,733 (1,082)
Proceeds from sale of fixed assets 276 532
Capital expenditures (1,886) (4,196)
Acquisitions (22,713) -
-------- --------
Net cash (used in) investing activities (3,590) (4,746)
Cash flows from financing activities:
Payment of long-term debt - (3,000)
Common stock transactions 644 3,533
Transactions in treasury shares - (22,214)
Dividends (9,651) (9,597)
-------- --------
Net cash (used in) financing activities (9,007) (31,278)
Effect of exchange rate changes on cash
and cash equivalents 1,465 (230)
-------- --------
Net (decrease) in cash and cash equivalents (14,926) (1,802)
Cash and cash equivalents at beginning of period 51,478 62,285
-------- --------
Cash and cash equivalents at end of period $ 36,552 $ 60,483
======== ========
Cash paid during the period for:
Interest $ 49 $ 486
Income taxes $ 1,625 $ 10,915
The accompanying notes are an integral part of
the consolidated financial statements.
(5)
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The information furnished reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of the
results for the interim periods presented and are of a normal
recurring nature. Results for interim periods are not necessarily
an indication of results to be expected for the year.
NOTE 2
The weighted average number of shares outstanding during the three
and nine-month periods ended September 30, 1994 were 21,469,000 and
21,450,000 shares, respectively compared to the three and nine-
month periods ended September 30, 1993 of 21,296,000 and 21,512,000
shares, respectively. Employee stock option plans did not have a
material dilutive effect on the earnings per share calculation.
NOTE 3
Cash dividends of $3,220,377 ($.15 per share) were paid on
September 7, 1994 to shareholders of record of the Company's Common
Stock on August 18, 1994. Cash dividends of $9,651,261 ($.15 per
share per quarter) were paid in the nine-month period ended
September 30, 1994.
Cash dividends of $3,194,570 ($.15 per share) were paid on
September 8, 1993 to shareholders of record of the Company's Common
Stock on August 19, 1993. Cash dividends of $9,596,763 ($.15 per
share per quarter) were paid in the nine-month period ended
September 30, 1993.
(6)
7
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Nine Months Ended September 30, 1994
Consolidated net sales for the nine months ended September 30, 1994 were
$204,563,000 compared to $216,935,000 for the nine months ended September
30, 1993. Included in the results for the nine months ended September 30,
1994 are the net sales of $60,997,000 achieved by Cap Toys, Inc. which was
acquired in October 1993. Excluding the net sales of Cap Toys, Inc.,
consolidated net sales for the nine months ended September 30, 1994
decreased $73,369,000 compared to the same period in the prior year. This
decrease can be attributed to the lower level of sales of Troll products
compared to the prior year. During the nine-month period ended September
30, 1994, net sales of Troll products were approximately $6,272,000
compared to $79,592,000 for the nine-month period ended September 30, 1993.
Cost of sales was 50.8% of net sales for the nine months ended September
30, 1994 compared to 41.9% for the same period in 1993. This increase can
be attributed primarily to the higher gross profit margins on sales of
Troll products, which represented a larger portion of net sales during the
nine-month period ended September 30, 1993, and the effects of the reduction of
the selling price of certain of the Company's products in August 1993. Also
contributing to the increase in cost of sales are the lower gross margins
achieved by Cap Toys, Inc. compared to certain of the Company's other sales and
distribution channels.
Selling, general and administrative expense was $98,361,000 or 48.1% of net
sales for the nine months ended September 30, 1994 compared to $104,075,000
or 48.0% of net sales for the nine months ended September 30, 1993, a
decrease of $5,714,000 or 5.5%. This decrease can be primarily attributed
to a decrease in expenses required to support lower sales levels
(approximately $12,800,000), cost reductions associated with the
restructuring program implemented during 1993 of closing and consolidating
distribution centers and administrative functions (approximately
$7,300,000) and to lower expenses related to the Company's "RUSS" consumer
advertising program (approximately $2,000,000). Partially offsetting these
decreases is the inclusion of the selling, general and administrative
expenses of Cap Toys, Inc. (approximately $16,400,000) for the nine months
ended September 30, 1994.
Investment and other income of $2,045,000 for the nine months ended
September 30, 1994 compares to $2,176,000 for the nine months ended
September 30, 1993.
(7)
8
The provision for income taxes as a percent of income before taxes for the
nine months ended September 30, 1994 was 21.1% compared to 30.0% in the
same period in the prior year. The decrease in the effective tax rate can
be attributed to lower tax provisions on income of foreign operations.
Net income for the nine months ended September 30, 1994 of $3,437,000
compares to net income of $16,955,000 for the same period last year. This
decrease in net income can be attributed to the decrease in net sales and
the increase in cost of sales as a percent of net sales described above,
partially offset by the decrease in selling, general and administrative
expense.
Results of Operations for the Three Months Ended September 30, 1994
Consolidated net sales for the three months ended September 30, 1994 were
$82,850,000 compared to $70,738,000 for the three months ended September
30, 1993, an increase of $12,112,000 or 17.1%. The increase can be
attributed to the inclusion of the net sales of Cap Toys, Inc. of
$26,299,000 during the three months ended September 30, 1994. Excluding
Cap Toys, Inc., net sales decreased $14,187,000 resulting from the lower
level of sales of Troll products compared to the prior year. During the
three-month period ended September 30, 1994 net sales of Troll products
were $1,325,000 compared to $17,584,000 during the three months ended
September 30, 1993.
Cost of sales was 48.4% of net sales for the three months ended September
30, 1994 compared to 42.8% for the same period in 1993. This increase can
be attributed to the higher gross profit margins on sales of Troll products,
which represented a larger portion of net sales during the three-month period
ended September 30, 1993, and the effects of the reduction of the selling price
of certain of the Company's products in August 1993. Also contributing to the
increase are the lower gross margins achieved by Cap Toys, Inc. compared to
certain of the Company's other sales and distribution channels.
Selling, general and administrative expense was $35,163,000 or 42.4% of
sales for the three months ended September 30, 1994 compared to $32,448,000
or 45.9% of net sales for the three months ended September 30, 1993, an
increase of $2,715,000 or 8.4%. This increase can be attributed to the
inclusion of the selling, general and administrative expense of Cap Toys,
Inc. (approximately $7,900,000). Excluding these expenses, selling,
general and administrative expense decreased $5,185,000. This decrease can
be primarily attributed to a decrease in expenses required to support lower
sales levels (approximately $3,000,000) and cost reductions associated with
the restructuring program implemented during 1993 of closing and
consolidating distribution centers and administrative functions
(approximately $2,500,000).
Investment and other income of $699,000 for the three months ended
September 30, 1994 compares to $669,000 for the three months ended
September 30, 1993.
The provision for income taxes as a percent of income before taxes for the
three months ended September 30, 1994 was 30.7% compared to 27.2% in the
same period in the prior year.
(8)
9
Liquidity and Capital Resources
At September 30, 1994, the Company had cash, cash equivalents and short-
term investments of $47,240,000 compared to $82,899,000 at December 31,
1993.
In September 1994, the Company completed the acquisition of OddzOn
Products, Inc, a toy company based in Campbell, California. This acquisition
was accounted for as a purchase and as of September 30, 1994 approximately
$22,713,000 of cash and cash equivalents were utilized to acquire the
company. The results of operations will be included from the date of
acquisition. Cash was also used for the payment of dividends of $9,651,000
during the nine months ended September 30, 1994.
Working capital requirements during the nine months ended September 30,
1994 were met entirely through internally generated funds. The Company
remains in a highly liquid position and believes that the resources
available from operations and bank lines of credit are sufficient to meet
the foreseeable requirements of its business.
(9)
10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.109 Asset Purchase Agreement - dated
September 30, 1994 by and among
RBCACQ, Inc. and ODDZON PRODUCTS,
INC., SCOTT STILLINGER AND MARK BUTTON.
27.1 Financial Data Schedule
b) During the quarter ended September 30, 1994,
no reports on Form 8-K were filed.
(10)
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RUSS BERRIE AND COMPANY, INC.
-----------------------------
(Registrant)
11-11-94 By s/Paul Cargotch
-------- ---------------------------
Date Paul Cargotch
Vice President - Finance and
Chief Financial Officer
(11)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ---------- ----------- -------
10.109 Asset Purchase Agreement dated
September 30, 1994 by and among
RBCACQ, Inc. and ODDZON PRODUCTS,
INC., SCOTT STILLINGER AND MARK BUTTON.
27.1 Financial Data Schedule