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, 1995 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 6, 1995 ----- ------------------------------- Common stock, $.10 stated value 21,554,130 2 RUSS BERRIE AND COMPANY, INC. INDEX PAGE PART I - FINANCIAL INFORMATION NUMBER Item 1. Financial Statements Consolidated Balance Sheet as of September 30, 1995 and December 31, 1994 3 Consolidated Statement of Income for the three-month and nine-month periods ended September 30, 1995 and 1994 4 Consolidated Statement of Cash Flows for the nine-month periods ended September 30, 1995 and 1994 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, 1995 1994 ------------- ------------ Current assets Cash and cash equivalents $ 27,560 $ 42,758 Short-term investments -- 5,203 Accounts receivable, trade, net 77,207 55,474 Merchandise inventories 77,632 67,052 Prepaid expenses and other current assets 4,417 4,229 Deferred income taxes 14,192 14,176 --------- --------- Total current assets 201,008 188,892 Property, plant and equipment - net 25,887 25,298 Goodwill and other intangible assets - net 34,361 35,913 Other assets 5,292 4,723 --------- --------- Total assets $ 266,548 $ 254,826 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 5,676 $ 6,972 Accrued expenses 29,416 24,795 Accrued restructuring costs 3,132 4,527 Accrued income taxes 4,625 144 --------- --------- Total current liabilities 42,849 36,438 Shareholders' equity Common stock; $.10 stated value; authorized 50,000,000 shares; issued 24,007,915 at September 30, 1995 and 23,953,530 at December 31, 1994 2,401 2,395 Additional paid-in capital 38,564 37,875 Retained earnings 221,912 218,103 Foreign currency translation adjustments (1,321) (2,128) Treasury stock, at cost (2,454,813 shares at September 30, 1995 and December 31, 1994) (37,857) (37,857) --------- --------- Total shareholders' equity 223,699 218,388 --------- --------- Total liabilities and shareholders' equity $ 266,548 $ 254,826 ========= ========= 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, 1995 1994 1995 1994 -------- -------- -------- -------- Net sales $103,987 $ 82,850 $258,368 $204,563 Cost of sales 49,450 40,096 127,450 103,890 -------- -------- -------- -------- Gross Profit 54,537 42,754 130,918 100,673 Selling, general and administrative expense 40,299 35,163 112,007 98,361 Investment and other income-net 320 699 1,501 2,045 -------- -------- -------- -------- Income before income taxes 14,558 8,290 20,412 4,357 Provision for for income taxes 5,298 2,548 6,915 920 -------- -------- -------- -------- Net income $ 9,260 $ 5,742 $ 13,497 $ 3,437 ======== ======== ======== ======== Net income per share $ 0.43 $ 0.27 $ 0.63 $ 0.16 ======== ======== ======== ======== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 4 5 RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1995 1994 -------- -------- Cash flows from operating activities: Net income $ 13,497 $ 3,437 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,078 3,463 Amortization of intangible assets 2,267 1,404 Provision for accounts receivable reserves 8,460 6,560 Loss (gain) on sale of assets and other, net (4) 536 Changes in assets and liabilities: Accounts receivable (30,193) (21,891) Inventories (10,581) 5,655 Prepaid expenses (188) 1,579 Goodwill and other intangible assets (715) (2,254) Other assets (570) (3,170) Accounts payable (1,296) (1,235) Accrued expenses 4,622 4,095 Accrued restructuring costs (1,397) (1,268) Accrued and deferred income taxes 4,465 (705) -------- -------- Total adjustments (22,052) (7,231) -------- -------- Net cash provided by (used in) operating activities (8,555) (3,794) Cash flows from investing activities: Decrease (increase) in short-term investments 5,203 20,733 Proceeds from sale of fixed assets 277 276 Capital expenditures (3,938) (1,886) Acquisitions -- (22,713) -------- -------- Net cash provided by (used in) investing activities 1,542 (3,590) Cash flows from financing activities: Common stock transactions 695 644 Dividends (9,688) (9,651) -------- -------- Net cash (used in) financing activities (8,993) (9,007) Effect of exchange rate changes on cash and cash equivalents 808 1,465 -------- -------- Net (decrease) in cash and cash equivalents (15,198) (14,926) Cash and cash equivalents at beginning of period 42,758 51,478 -------- -------- Cash and cash equivalents at end of period $ 27,560 $ 36,552 ======== ======== Cash paid during the period for: Interest $ 157 $ 49 Income taxes $ 2,434 $ 1,625 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, 1995 were 21,537,000 and 21,526,000 shares, respectively, compared to the three and nine-month periods ended September 30, 1994 of 21,469,000 and 21,450,000 shares, respectively. Employee stock option plans did not have a material dilutive effect on the earnings per share calculation. NOTE 3 Cash dividends of $3,230,006 ($.15 per share) were paid on September 5, 1995 to shareholders of record of the Company's Common Stock on August 15, 1995. Cash dividends of $9,687,819 ($.15 per share per quarter) were paid in the nine-month period ended September 30, 1995. 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. 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, 1995 Consolidated net sales for the nine months ended September 30, 1995 were $258,368,000 compared to $204,563,000 for the nine months ended September 30, 1994. This represents an increase of 26.3%. Included in the results for the nine months ended September 30, 1995 are the net sales of $29,707,000 achieved by OddzOn Products, Inc., which was acquired in October 1994. Net Sales of the Company's toy business which includes Cap Toys, Inc. and OddzOn Products, Inc. (since its acquisition in October 1994) was $94,431,000 for the nine months ended September 30, 1995 compared to $60,997,000 for the nine months ended September 30, 1994. Excluding the net sales of the Company's toy business, consolidated net sales for the nine months ended September 30, 1995 were $163,937,000 compared to $143,566,000 for the nine months ended September 30, 1994, an increase of 14.2%. Cost of sales was 49.3% of net sales for the nine months ended September 30, 1995 compared to 50.8% of net sales for the same period in 1994. This decrease can be attributed to the components of cost of sales that are fixed costs which were absorbed by the higher sales volume during the nine months ended September 30, 1995. Selling, general and administrative expense was $112,007,000 or 43.4% of net sales for the nine months ended September 30, 1995 compared to $98,361,000 or 48.1% of net sales for the nine months ended September 30, 1994. The increase in selling, general and administrative expense can be primarily attributed to the inclusion of the selling, general and administrative expense of OddzOn Products, Inc. for the nine months ended September 30, 1995 (approximately $10,900,000) Investment and other income of $1,501,000 for the nine months ended September 30, 1995 compares to $2,045,000 for the nine months ended September 30, 1994. This decrease can be attributed to decreased investment income relative to the Company's short-term investment portfolio resulting from lower investment balances and to foreign currency exchange gains and losses related to intercompany loan transactions. The provision for income taxes of $6,915,000 for the nine months ended September 30, 1995 compares to $920,000 in the same period in the prior year. Net income for the nine months ended September 30, 1995 of $13,497,000 compares to $3,437,000 for the same period last year. The increase in net income can be attributed to the increase in net sales, partially offset by the increase in selling, general and administrative expense. 7 8 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 Consolidated net sales for the three months ended September 30, 1995 were $103,987,000 compared to $82,850,000 for the three months ended September 30, 1994, an increase of $21,137,000 or 25.5%. Included in the results for the three months ended September 30, 1995 are the net sales of $10,898,000 achieved by OddzOn Products, Inc. which was acquired in October 1994. Net sales of the Company's toy business which includes Cap Toys, Inc. and OddzOn Products, Inc. (since its acquisition in October 1994) was $36,982,000 for the three months ended September 30, 1995 compared to $26,299,000 for the three month period ended September 30, 1994. Excluding the net sales of the Company's toy business, consolidated net sales for the three months ended September 30, 1995 were $67,005,000 compared to $56,551,000 for the three months ended September 30,1994, an increase of 18.5%. Cost of sales was 47.6% of net sales for the three months ended September 30, 1995 compared to 48.4% for the same period in 1994. Selling, general and administrative expense was $40,299,000 or 38.8% of net sales for the three months ended September 30, 1995 compared to $35,163,000 or 42.4% of net sales for the three months ended September 30, 1994, an increase of $5,136,000 or 14.6%. The increase in selling, general and administrative expense can be primarily attributed to the inclusion of the selling, general and administrative expense of OddzOn Products, Inc. for the three months ended September 30, 1995 (approximately $3,500,000). Investment and other income of $320,000 for the three months ended September 30, 1995 compares to $699,000 for the three months ended September 30, 1994. Net income for the three months ended September 30, 1995 of $9,260,000 compares to $5,742,000 for the same period last year. The increase in net income can be attributed to the increase in net sales, partially offset by the increase in selling, general and administrative expense. 8 9 LIQUIDITY AND CAPITAL RESOURCES At September 30, 1995, the Company had cash, cash equivalents and short-term investments of $27,560,000 compared to $47,961,000 at December 31, 1994. Cash flows of $8,555,000 were used in operating activities primarily resulting from increases in net accounts receivable of $21,733,000 and inventories of $10,581,000 partially offset by funds provided by net income of $13,497,000 and increases in accrued expenses of $4,622,000 and accrued income taxes of $4,465,000. Funds were also used for the payment of dividends of $9,688,000. Working capital requirements during the nine months ended September 30, 1995 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 b) During the quarter ended September 30, 1995, 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) 11/13/95 By s/ Paul Cargotch - -------- ------------------------------ DATE Paul Cargotch Vice President - Finance and Chief Financial Officer 11 12 EXHIBIT INDEX ------------- Exhibit No. Description Page No. - ---------- ----------- ------- EX-27 Financial Data Schedule