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 ....................... June 30, 1996 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 JULY 25, 1996 ----- ---------------------------- Common stock, $.10 stated value 21,737,627 2 RUSS BERRIE AND COMPANY, INC. INDEX PAGE PART I - FINANCIAL INFORMATION NUMBER ------ Item 1. Financial Statements Consolidated Balance Sheet as of June 30, 1996 and December 31, 1995 3 Consolidated Statement of Income for three-month and the six-month periods ended June 30, 1996 and 1995 4 Consolidated Statement of Cash Flows for the six-month periods ended June 30, 1996 and 1995 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 JUNE 30, DECEMBER 31, 1996 1995 -------- ------------- Current assets Cash and cash equivalents $ 57,139 $ 36,836 Accounts receivable, trade-net 45,465 62,675 Merchandise inventories 69,870 79,090 Prepaid expenses and other current assets 6,503 5,253 Deferred income taxes 16,775 16,775 -------- -------- TOTAL CURRENT ASSETS 195,752 200,629 Property, plant and equipment - net 23,944 24,797 Goodwill and other intangible assets - net 32,564 34,050 Other assets 5,708 5,687 -------- -------- TOTAL ASSETS $257,968 $265,163 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 4,583 $ 7,369 Accrued expenses 19,746 30,044 Accrued restructuring costs 2,593 3,359 Accrued income taxes 3,498 1,395 -------- -------- TOTAL CURRENT LIABILITIES 30,420 42,167 Commitments and contingencies Shareholders' equity Common stock; $.10 stated value; authorized 50,000,000 shares; issued 24,164,951 at June 30, 1996 and 24,011,198 at December 31, 1995 2,416 2,401 Additional paid-in capital 40,711 38,646 Retained earnings 224,297 221,722 Foreign currency translation adjustments (2,019) (1,916) Treasury stock, at cost (2,454,813 shares) (37,857) (37,857) -------- -------- TOTAL SHAREHOLDERS' EQUITY 227,548 222,996 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $257,968 $265,163 ======== ======== 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 SIX MONTHS ENDED JUNE 30, JUNE 30, 1996 1995 1996 1995 -------- -------- --------- --------- Net sales $ 65,683 $ 74,263 $ 148,564 $ 154,381 Cost of sales 33,061 38,676 74,207 78,000 -------- -------- --------- --------- Gross profit 32,622 35,587 74,357 76,381 Selling, general and administrative expense 31,096 35,865 65,973 71,708 Investment and other income-net 765 453 5,996 1,181 -------- -------- --------- --------- Income before income taxes 2,291 175 14,380 5,854 Provision for income taxes 821 21 5,314 1,617 -------- -------- --------- --------- Net income $ 1,470 $ 154 $ 9,066 $ 4,237 ======== ======== ========= ========= Net income per share $ 0.07 $ 0.01 $ 0.42 $ 0.20 ======== ======== ========= ========= 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) SIX MONTHS ENDED JUNE 30, 1996 1995 --------- ---------- Cash flows from operating activities: Net income $ 9,066 $ 4,237 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,852 2,067 Amortization of intangible assets 1,330 1,499 Provision for accounts receivable reserves 4,079 3,759 Sale of subsidiary (3,000) -- Loss (gain) on sale of assets and other, net 15 (37) Changes in assets and liabilities Accounts receivable 7,844 1,475 Inventories 1,152 (11,833) Prepaid expenses (1,341) (297) Goodwill and other intangible assets (92) (300) Other assets (21) (519) Accounts payable (2,581) (1,570) Accrued expenses (10,134) (2,405) Accrued restructuring costs (218) (1,159) Accrued and deferred income taxes 304 (160) --------- ---------- Total adjustments (811) (9,480) --------- ---------- Net cash (used in) operating activities 8,255 (5,243) Cash flows from investing activities: Decrease in short-term investments -- 5,203 Proceeds from sale of fixed assets 114 199 Capital expenditures (1,877) (2,408) Sale of subsidiary 18,325 -- --------- ---------- Net cash provided by investing activities 16,562 2,994 Cash flows from financing activities: Common stock transactions 2,081 440 Dividends (6,491) (6,458) --------- ---------- Net cash (used in) financing activities (4,410) (6,018) Effect of exchange rate changes on cash and cash equivalents (104) 775 --------- ---------- Net increase (decrease) in cash and cash equivalents 20,303 (7,492) Cash and cash equivalents at beginning of period 36,836 42,758 --------- ---------- Cash and cash equivalents at end of period $ 57,139 $ 35,266 ========= ========== Cash paid during the period for: Interest $ 69 $ 130 Income taxes $ 2,390 $ 1,768 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. Investments and other income-net for the six months ended June 30, 1996 includes the gain on the sale of the Company's subsidiary Papel/Freelance, Inc. of approximately $4,800,000 and included in the selling, general and administrative expense for the six months ended June 30, 1996 is a provision of $900,000 for costs associated with closing certain of the Company's retail stores. NOTE 2 The weighted average number of shares outstanding during the three and six-month periods ended June 30, 1996 were 21,670,935 and 21,628,476 shares, respectively, compared to the three and six-month periods ended June 30, 1995 of 21,530,000 and 21,520,000 shares, respectively. Employee stock option plans did not have a material dilutive effect on the earnings per share calculation. NOTE 3 Cash dividends of $3,250,299 ($.15 per share) were paid on June 5, 1996 to shareholders of record of the Company's Common Stock on May 20, 1996. Cash dividends of $6,490,964 ($.15 per share per quarter) were paid in the six-month period ended June 30, 1996. Cash dividends of $3,229,850 ($.15 per share) were paid on June 7, 1995 to shareholders of record of the Company's Common Stock on May 22, 1995. Cash dividends of $6,457,813 ($.15 per share per quarter) were paid in the six-month period ended June 30, 1995. 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 Consolidated net sales for the six months ended June 30, 1996 were $148,564,000 compared to $154,381,000 for the six months ended June 30, 1995. This represents a decrease of $5,817,000 or 3.8%. The net sales of the Company's business segments can be summarized as follows: PERCENTAGE SIX MONTHS ENDED SIX MONTHS ENDED INCREASE INCREASE JUNE 30, 1996 JUNE 30, 1995 (DECREASE) (DECREASE) ---------------- ---------------- ------------ ---------- GIFT $ 97,139,000 $ 80,486,000 $ 16,653,000 20.7% TOY 50,222,000 57,449,000 (7,227,000) (12.6%) DISCONTINUED OPERATIONS 1,203,000 16,446,000 (15,243,000) -- ------------ ------------ ------------- ------- $148,564,000 $154,381,000 $ (5,817,000) (3.8%) ============ ============ ============= ======= The Company's discontinued operations primarily represents Papel/Freelance, Inc., a subsidiary which was sold on January 17, 1996. The increase in sales for the Company's gift business of 20.7% reflects the strong retail acceptance of the gift product line. The decrease in sales for the Company's toy business of 12.6% represents a decrease in Cap Toys, Inc.'s sales resulting from the declining sales of the Stretch Armstrong and Vac Man product lines and the later introduction of new product when compared to the same period in 1995. Cost of sales were 49.9% of net sales for the six months ended June 30, 1996 compared to 50.5% for the same period in 1995. This decrease can be attributed primarily to the higher gross profit margins achieved by the Company's gift business which represented a larger portion of net sales during the six months ended June 30, 1996 compared to the same period in 1995. Selling, general and administrative expense was $65,973,000 or 44.4% of net sales for the six months ended June 30, 1996 compared to $71,708,000 or 46.4% of net sales for the six months ended June 30, 1995. Included in the selling, general and administrative expense for the six months ended June 30, 1996 is a provision of $900,000 related to costs associated with closing certain of the Company's remaining retail stores. Excluding this provision, selling, general and administrative expense decreased $6,635,000 when compared to the prior year. This decrease can be attributed to the discontinuance of the selling, general and administrative expense of the Company's Papel/Freelance, Inc. subsidiary which was sold in January 1996. The decrease in selling, general and administrative expense as a percent of net sales can be attributed to fixed costs as they relate to the increase in net sales excluding discontinued operations. Investment and other income of $5,996,000 for six months ended June 30, 1996 compares to $1,181,000 for the six months ended June 30, 1995. Included in the results for the six months ended June 30, 1996 is a gain of approximately $4,800,000 before tax related to the sale of the Company's Papel/Freelance, Inc. subsidiary. The provision for income taxes as a percentage of income before taxes for the six months ended June 30, 1996 was 37.0% compared to 27.6% in the same period in the prior year. This increase can be primarily attributed to lower tax provisions related to certain foreign subsidiaries during the six months ended June 30, 1995. 7 8 Net income for the six months ended June 30, 1996 of $9,066,000 compares to net income of $4,237,000 for the same period last year. The increase in net income can be attributed to the gain on the sale of the Company's subsidiary Papel/Freelance, Inc., and the decrease in selling, general and administrative expense. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996 Consolidated net sales for the three months ended June 30, 1996 were $65,683,000 compared to $74,263,000 for the three months ended June 30, 1995. This represents a decrease of $8,580,000 or 11.6%. The net sales of the Company's business segments can be summarized as follows: PERCENTAGE THREE MONTHS ENDED THREE MONTHS ENDED INCREASE INCREASE JUNE 30, 1996 JUNE 30, 1995 (DECREASE) (DECREASE) ------------------ ----------------- ------------ ---------- GIFT $ 41,776,000 $ 33,536,000 $ 8,240,000 24.6% TOY 23,907,000 33,571,000 (9,664,000) (28.8%) DISCONTINUED OPERATIONS 0 7,156,000 (7,116,000) -- ------------ ------------ ------------ ------- $ 65,683,000 $ 74,263,000 $(8,580,000) (11.6%) ============ ============ ============ ======= The Company's discontinued operations primarily represents Papel/Freelance, Inc., a subsidiary which was sold on January 17, 1996. The increase in sales for the Company's gift business of 24.6% reflects the strong retail acceptance of the gift product line. The decrease in sales for the Company's toy business of 28.8% represents a decrease in Cap Toys, Inc.'s sales resulting from the declining sales of the Stretch Armstrong and Vac Man product lines and the later introduction of new product when compared to the same period in 1995. Cost of sales were 50.3% of net sales for the three months ended June 30, 1996 compared to 52.1% for the same period in 1995. This decrease can be attributed primarily to the higher gross profit margins achieved by the Company's gift business which represented a larger portion of net sales during the three months ended June 30, 1996 compared to the same period in 1995. Selling, general and administrative expense was $31,096,000 or 47.3% of net sales for the three months ended June 30, 1996 compared to $35,865,000 or 48.3% of net sales for the three months ended June 30, 1995. Selling, general and administrative expense decreased $4,769,000 when compared to the prior year. This decrease can be attributed to the discontinuance of the selling, general and administrative expense of the Company's Papel/Freelance, Inc. subsidiary which was sold in January 1996. The decrease in selling, general and administrative expense as a percent of net sales can be attributed to fixed costs as they relate to the increase in net sales excluding discontinued operations. Investment and other income of $765,000 for three months ended June 30, 1996 compares to $453,000 for the three months ended June 30, 1995. The provision for income taxes as a percentage of income before taxes for the three months ended June 30, 1996 was 35.8% compared to 12.0% in the same period in the prior year. Net income for the three months ended June 30, 1996 of $1,470,000 compares to net income of $154,000 for the same period last year. The increase in net income can be attributed to the decrease in selling, general and administrative expense. 8 9 LIQUIDITY AND CAPITAL RESOURCES At June 30, 1996, the Company had cash and cash equivalents of $57,139,000 compared to cash and cash equivalents of $36,836,000 at December 31, 1995. On January 17, 1996 the Company sold the assets of its subsidiary Papel/Freelance, Inc. The sale resulted in an increase in cash and cash equivalents of approximately $18,300,000. Working capital requirements during the six months ended June 30, 1996 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 June 30, 1996, 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) August 13, 1996 By s/Paul Cargotch Date ----------------------------- Paul Cargotch Executive Vice President and Chief Financial Officer 11 12 EXHIBIT INDEX ------------- Exhibit 27 Financial Data Schedule