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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
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 of or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
111 Bauer Drive, Oakland, New Jersey 07436
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (201) 337-9000
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $0.10 stated value New York Stock Exchange
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Approximate aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 9, 2000 was $171,804,041.
The number of shares outstanding of each of the Registrant's classes of
common stock, as of March 9, 2000, was as follows:
CLASS NUMBER OF SHARES
Common Stock, $0.10 stated value 20,551,260
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's 2000 Proxy Statement, relating to
registrant's Annual Meeting of Shareholders to be held on May 9, 2000 (the "2000
Proxy Statement"), are incorporated by reference into Part III of this report.
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PART I
ITEM 1. BUSINESS
Russ Berrie and Company, Inc. was incorporated in New Jersey in 1966. The term
"Company" refers to Russ Berrie and Company, Inc. and its consolidated
subsidiaries, unless the context requires otherwise. Its principal executive
offices are located at 111 Bauer Drive, Oakland, New Jersey 07436, and its
telephone number is (201) 337-9000.
The Company designs, manufactures through third parties and markets a wide
variety of gift products to retail stores throughout the United States and
countries throughout the world. The Company's products are designed to appeal to
the emotions of consumers to reflect their feelings of happiness, friendship,
fun, love and affection. The Company believes that its present position as one
of the leaders in the gift industry is due primarily to its imaginative product
design, broad and effective marketing of its products, efficient distribution,
high product quality and commitment to customer service.
The Company maintains a direct salesforce and distribution network to serve its
customers in the United States, Europe, Canada and Australia. In countries where
the Company does not maintain a direct salesforce and distribution network, the
Company's products are sold through distributors. See Note 16 of the Notes to
Consolidated Financial Statements for more information regarding segment and
geographic information.
PRODUCTS
The Company's product line of approximately 6,000 items (including distinctive
variations on basic product designs) is marketed under the trade name and
trademark RUSS(R). This extensive line encompasses both seasonal and everyday
products that focus on theme or concept groupings such as collectible heirloom
bears, stuffed animals, wedding, anniversary and baby gifts, tabletop
accessories and home decor, including candles and accessories, collectible
glass, porcelain and ceramic gifts and contemporary lifestyle gifts and
accessories. Extensive seasonal lines include products for all major holidays.
In addition, the Company's subsidiary, Bright of America, Inc., principally
markets placemats and candles as well as aromatic products such as potpourri and
incense, through its division, Scentex(R), directly to mass merchandisers.
Most of the Company's products have suggested retail prices between $3 and $50.
Product sales are highly diverse and, as such, no single item represented more
than 2% of the Company's sales in 1999.
DESIGN AND PRODUCTION
The Company has a continuing program of new product development. The Company
designs most of its own products and then generally evaluates consumer response
through test marketing in selected unaffiliated retail stores. Items are added
to the product line only if they can be obtained and marketed on a basis that
meets the Company's profitability standards.
The Company believes that the breadth of its product line and the continuous
development of new products are key elements to its success and that it is
capable of designing and producing large numbers of new products annually.
The Company has approximately 170 employees responsible for product development
and design located in the United States and in the Far East. Generally, a new
design is brought to market in less than nine months after a decision is made to
produce the product. Sales of the Company's products are, in large part,
dependent on the Company's ability to identify and react quickly to changing
consumer preferences and to effectively utilize its sales and distribution
systems to bring new products to market.
The Company engages in market research and test marketing to evaluate consumer
reactions to its products. Research into consumer buying trends often suggests
new products. The Company assembles information from retail stores, the
Company's salesforce and the Company's own Product Development department. The
Company continually analyzes its products to determine whether they should be
adapted into new or different products using elements of the initial design or
whether they should be removed from the product line.
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Substantially all of the Company's products are produced by independent
manufacturers, generally in the Far East, under the supervision of Company
personnel. During 1999, approximately 93% of the Company's products were
produced in the Far East, and approximately 7% in the United States. Purchases
in the United States predominantly represent domestically produced displays,
candles, placemats and printed materials such as cards.
The Company utilizes approximately 100 manufacturers in the Far East, with
facilities primarily in the People's Republic of China and Taiwan. During 1999,
approximately 87% of the Company's dollar volume of purchases was attributable
to manufacturing in the People's Republic of China. Legislation has been
proposed from time to time that would revoke the most-favored nation status
(which is a designation determined annually by the President of the United
States, subject to possible override by Congress) of the People's Republic of
China. Such a revocation would most likely cause import duties to increase or
become applicable to products imported by the Company from the People's Republic
of China.
A significant portion of the Company's staff of approximately 290 employees in
Hong Kong, Taiwan, Korea, Philippines and the cities of Shenzhen and Qingdao in
the People's Republic of China monitor the production process with
responsibility for the quality, safety and prompt delivery of Company products
as well as product development and design as described earlier. Members of the
Company's Far East staff make frequent visits to the manufacturers for which
they are responsible. Certain of the Company's manufacturers sell exclusively to
the Company. The Company believes that there are many alternate manufacturers
for the Company's products. In 1999, the supplier accounting for the greatest
dollar volume of the Company's purchases accounted for approximately 7% of such
purchases and the five largest suppliers accounted for approximately 32% in the
aggregate.
MARKETING
The Company's products are marketed primarily through its own direct salesforce
of approximately 500 full-time employees as of December 31, 1999. The Company
maintains a telemarketing department which is responsible for servicing the
Company's smaller customers. Products are sold directly to retail customers in
the United States and in certain foreign countries, including but not limited to
gift stores, pharmacies, card shops, home decor shops, apparel stores, craft
stores, garden stores, book stores, stationery stores, hospitals, college and
airport gift shops, resort and hotel shops, florists, chain stores, military
post exchanges and internet companies. During 1999, the Company sold gift
products to more than 48,000 customers worldwide. No single customer accounted
for more than 3% of sales.
The Company reinforces the marketing efforts of its salesforce through an active
promotional program, including showrooms, participation in trade shows, trade
and consumer advertising and a program of seasonal and theme based catalogs. The
Company maintains a marketing plan which recognizes its most valued customers as
"Preferred Partners", based upon attainment of certain sales levels, and offers
them special benefits and privileges including, but not limited to, access to
exclusive product offerings and dedicated customer service representatives.
The Company believes that effective packaging and merchandising of its products
are also very important to its marketing success. Many products are shipped in
colorful, corrugated cartons which can be used as freestanding displays and then
recycled or discarded when all the products have been sold. The Company also
offers semi-permanent freestanding lucite, metal and wooden displays, thereby
providing an efficient promotional vehicle for selling the Company's products.
The Company believes that customer service is another essential component of its
marketing strategy and therefore has established a Customer Service Department
that responds to customer requests, investigates and resolves problems and
generally assists customers.
The Company's general terms of sale are believed to be competitive in the gift
industry. The Company provides extended payment terms to customers, which do not
exceed five months, on sales of seasonal merchandise, e.g., Christmas,
Halloween, Easter and other seasons. The Company has a general policy that all
sales are final and does not sell on consignment.
The Company maintains a direct salesforce and distribution network to serve its
customers in England, Holland, Belgium, Ireland, Spain, Germany, Austria,
Canada, France and Australia. The Company's products are sold worldwide, through
distributors, where the Company does not maintain a direct salesforce and
distribution network. The Company's foreign sales, including export sales from
the United States, aggregated $91,913,000, $78,516,000 and $73,366,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
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DISTRIBUTION
The Company has customers located in the United States and throughout the world.
In order to serve them effectively, the Company maintains U.S. distribution
centers in South Brunswick, New Jersey and Petaluma, California, each of which
receives products directly from suppliers and then distributes such products to
the Company's customers. The Company also maintains distribution facilities in
the Toronto, Canada area, in Southampton, England and Sydney, Australia to serve
its customers in Canada, Europe and Australia, respectively. The Company
generally uses common carriers to distribute its products to its customers.
SEASONALITY
In addition to its everyday products, the Company produces specially designed
products for holiday seasons which include: Christmas/Chanukah, Easter,
Valentine's Day, Father's Day, Halloween/Thanksgiving, Mother's Day, St.
Patrick's Day and Graduation/Secretary's Day.
The pattern of the Company's sales is influenced by the shipment of seasonal
merchandise. The Company generally ships the majority of orders each year for
Christmas in the quarter ended September 30, for Valentine's Day in the quarter
ended December 31 and for Easter in the quarter ended March 31. Certain orders
scheduled for shipment in the quarters ended June 30, 1999 and September 30,
1999 were delayed or cancelled due to the operational issues which were caused
by the domestic implementation of a new computer system (See section entitled,
"Management's Discussion and Analysis of Results of Operations and Financial
Condition").
During 1999, gift items specially designed for individual seasons accounted for
approximately 51% of the Company's sales; no individual season accounted for
more than 20% of the Company's sales.
The following table sets forth the Company's quarterly sales during 1999, 1998
and 1997.
QUARTERLY SALES
(IN MILLIONS)
1999 1998 1997
QUARTER ENDED SALES % SALES % SALES %
MARCH 31 .................................. $75.4 27.2 $74.6 27.6 $62.1 22.9
JUNE 30 ................................... $47.5 17.1 $50.9 18.8 $58.5 21.6
SEPTEMBER 30 .............................. $89.8 32.4 $83.0 30.7 $87.5 32.2
DECEMBER 31 ............................... $64.8 23.3 $62.0 22.9 $63.2 23.3
The Company has historically had higher profit margins in the quarter ended
September 30 as a result of the economies of scale which accompany the higher
sales volume.
BACKLOG
It is characteristic of the Company's business that orders for seasonal
merchandise are taken in advance of shipment. The Company's backlog at December
31, 1999 and December 31, 1998 was $29,775,000 and $31,962,000, respectively.
COMPETITION
The gift industry is highly competitive. The Company believes that the principal
competitive factors in the gift business are marketing ability, reliable
delivery, product design, quality, customer service and price. The Company's
principal competitors are Gund, Inc., Midwest Imports, Department 56, Inc.,
Boyds Collections LTD. (Inc.), Ganz Bros., Ty, Inc., Enesco Group, Inc. and
numerous small suppliers. Certain of the Company's existing or potential
competitors may have financial resources that are greater than those of the
Company.
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COPYRIGHTS, TRADEMARKS, PATENTS AND LICENSES
The Company prints notices of claim of copyright on substantially all of its
products and has registered hundreds of its designs with the United States
Copyright Office. The Company has registered, in the United States and certain
foreign countries, the trademark RUSS(R) with a distinctive design, which is
utilized on most of its gift products. The Company believes its copyrights,
trademarks and patents are valid, and has pursued a policy of aggressively
protecting them from infringement. However, it does not consider its business
materially dependent on copyright, trademark or patent protection.
The Company enters into various license agreements relating to trademarks,
copyrights, designs and products which enable the Company to market items
compatible with its product line. The Company's licenses are generally exclusive
for specific products in specified territories. Royalties are paid on licensed
items and, in many cases, advance royalties and minimum guarantees are required
by these license agreements.
EMPLOYEES
As of December 31, 1999, the Company employed approximately 1,550 persons. The
Company considers its employee relations to be good; substantially all of the
Company's employees are not covered by a collective bargaining agreement. The
Company's policy is to require that its management, sales and product
development and design personnel enter into confidentiality agreements and, in
the case of sales management and sales personnel, non-competition agreements
(subject to certain territorial limitations) which restrict their ability to
compete with the Company for a period of six months after termination of their
employment.
GOVERNMENT REGULATION
Certain of the Company's products are subject to the provisions of, among other
laws, the Federal Hazardous Substances Act and the Federal Consumer Product
Safety Act. Those laws empower the Consumer Product Safety Commission
("Commission") to protect children from certain hazardous articles by regulating
their use or excluding them from the market and requiring a manufacturer to
repurchase articles which become banned. The Commission's determination is
subject to judicial review. Similar laws exist in some states and cities in the
United States and in certain foreign jurisdictions. The Company maintains a
quality control program in order to comply with applicable laws.
In cooperation with the Commission, the Company is voluntarily recalling one
item in both the United States and Canada which the Commission has indicated
violates the Federal Hazardous Substances Act for the design and construction of
baby rattles. Neither the Commission nor the Company are aware of any incidents
or injuries involving these rattles.
DISCONTINUED OPERATIONS
On May 2, 1997, the Company completed the sale of substantially all of the
assets of Cap Toys, Inc. and OddzOn Products, Inc., its toy business segment, to
a wholly-owned subsidiary of Hasbro, Inc. Accordingly, the toy business segment
was reported as discontinued operations in 1997.
The sale transaction resulted in a gain on the sale of discontinued operations
in the year ended December 31, 1997 of $75,300,000 before tax or $46,700,000
($2.12 per share) after tax. Net sales of the Company's discontinued operations
for the year ended December 31, 1997 amounted to $38,614,000.
ITEM 2. PROPERTIES
The principal facilities of the Company's operations consist of its corporate
offices in Oakland, New Jersey, and distribution centers in South Brunswick, New
Jersey, and Petaluma, California, all of which the Company leases. Additionally,
office and distribution facilities are located in Southampton, England, in the
Toronto, Canada area and in Sydney, Australia. The Company owns the facility
used by its subsidiary, Bright of America, Inc., in Summersville, West Virginia,
one of its facilities in Southampton, England and most of the office space it
uses in Hong Kong. The Company's subsidiary, Amram's Distributing, Limited, owns
a facility in Brampton, Canada that serves as its office and distribution
facility. The Company leases its other facilities. The facilities of the Company
which are maintained in good operating condition, are in the aggregate, adequate
for the Company's purposes and are generally fully utilized. Due to the purchase
of a new office and distribution facility in Brampton, Canada, the Company
vacated the facility being leased and is currently subleasing such facility to a
third party. In January 2000, the Company's subsidiary leased an office and
distribution facility in Sydney, Australia.
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THE COMPANY'S CURRENT PRINCIPAL FACILITIES ARE AS FOLLOWS:
LEASE EXPIRATION
LOCATION - DOMESTIC SQ. FT. AREA (IF APPLICABLE)(1)
Petaluma, California(2)(3)............... 234,200 June 30, 2004
Oakland, New Jersey (2)(4)............... 120,000 April 1, 2004
South Brunswick, New Jersey (2)(3)....... 513,680 May 31, 2004
Summersville, West Virginia (5)(6)....... 156,000 Not Applicable-
Owned by the Company
LEASE EXPIRATION
LOCATION - FOREIGN SQ. FT. AREA (IF APPLICABLE)(1)
Southampton, England (6)................. 61,000 March 25, 2003
Southampton, England (5)(6).............. 75,500 Not applicable -
Owned by the Company
Brampton, Ontario, Canada (5)(6)......... 120,000 Not applicable -
Owned by the Company
North Point, Hong Kong (5)............... 25,630 Not applicable -
Owned by the Company
Kowloon, Hong Kong (5)................... 6,443 August 31, 2000
Sydney, Australia (5)(6)................. 42,000 October 31, 2002
(1) Not including renewal options, if any.
(2) Properties owned directly or indirectly by Russell Berrie, Chairman and
Chief Executive Officer, or members of his immediate family. See ITEM 13 -
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".
(3) Regional distribution center.
(4) Corporate headquarters.
(5) Subsidiary offices.
(6) Subsidiary distribution center.
The Company operates showroom facilities in Oakland, New Jersey; Los Angeles and
San Francisco, California; Denver, Colorado; Atlanta, Georgia; Chicago,
Illinois; Dallas, Texas; Seattle, Washington; Miami, Florida; Montreal,
Vancouver and Toronto, Canada; Brussels, Belgium; Utrecht, Holland; and Kowloon,
Hong Kong. Certain showrooms are located within the facilities listed above,
others are leased with remaining lease terms ranging between one and six years.
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ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is party to various
copyright, patent and trademark infringement, unfair competition, breach of
contract, customs, employment and other legal actions, as plaintiff or
defendant.
The Company is also a defendant in five class action complaints filed in the
Superior Court of New Jersey since November 1999 which were consolidated by
Consent Order in January 2000 (the "Consolidated Action"). The Consolidated
Action purports to be a class action on behalf of all common stockholders of the
Company (with certain exceptions). The Consolidated Action seeks, among other
things, to enjoin the closing of a then proposed transaction pursuant to which
Evercore Partners, L.L.C. would have acquired all of the outstanding common
stock of the Company, other than certain shares owned by Russell Berrie, in a
merger transaction, alleging, among other things, that the price proposed in
that transaction of $27 per share was unfair to the minority shareholders of the
Company. The discussions concerning the proposed transaction were terminated in
February 2000. The plaintiffs have not timely filed a consolidated amended
complaint, as required by the Consent Order, and management expects that
plaintiffs will voluntarily terminate the Consolidated Action. Otherwise, the
Company intends to vigorously defend the Consolidated Action.
The Company believes that the outcome of the proceedings to which it is
currently a party will not have a material adverse effect on its business or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information with respect to the executive officers
of the Company. All officers are elected by the Board of Directors and may be
removed with or without cause by the Board.
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Russell Berrie 67 Chairman, Chief Executive Officer and Director
Arnold S. Bloom 57 Vice President, General Counsel and Secretary
Ricky Chan 47 Senior Vice President - Product Development and Executive
Vice President of Far East Operations
Teresa Chan 45 Vice President - International Sales
Chris Collins 37 Vice President - Sales
Thomas K. Higgerson 51 Vice President - Global Logistics
J. Michael Hope 54 Vice President - National Accounts
Daniel J. Kochenash 41 Vice President - Corporate Operations
Y.B. Lee 54 Senior Vice President - Far East and President of Far East
Operations
Eric R. Lohwasser 44 Vice President - Finance and Chief Financial Officer
James J. O'Reardon, Jr. 56 Vice President - Administration
Jeffery D. Schaum 39 Chief Operating Officer
Russell Berrie, the founder of the Company, has been Chairman and Chief
Executive Officer of the Company since its incorporation in 1966.
Arnold S. Bloom has been employed by the Company as Vice President, General
Counsel and Secretary for more than the past five years.
Ricky Chan has been employed by the Company as Senior Vice President - Product
Development since July 1995. Prior to that, Mr. Chan was Vice President -
Creative Division since January 1991.
Teresa Chan was elected as an officer of the Company in October 1999 and has
been employed by the Company as Vice President - International Sales since
February 1997. Ms. Chan was Managing Director of International Operations for
more than five years prior thereto.
Chris Collins has been employed by the Company as Vice President - Sales since
January 1997. Mr. Collins held various sales managerial positions within the
Company for more than five years prior thereto.
Thomas K. Higgerson has been employed by the Company as Vice President - Global
Logistics since January 2000. Prior to joining the Company, Mr. Higgerson was
employed with Hygrade Integrated Logistics Systems, Inc. as Executive Vice
President since March 1997 and as Senior Vice President for more than five years
prior thereto.
J. Michael Hope has been employed by the Company as Vice President - National
Accounts since February 2000. Prior to that, Mr. Hope was Vice President - Sales
Administration since November 1998 and was Vice President and General Manager of
the Company's Petaluma Distribution Center for more than five years prior
thereto.
Daniel J. Kochenash has been employed by the Company as Vice President -
Corporate Operations since January 1998. Prior to that, Mr. Kochenash was
Director of Operations since June 1994.
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Y.B. Lee has been employed by the Company as President of Far East Operations
since October 1996. Mr. Lee has been Senior Vice President-Far East since August
1996 and was Senior Vice President - Far East Plush Division for more than five
years prior thereto.
Eric R. Lohwasser has been employed by the Company as Chief Financial Officer
since April 1998 and as Vice President - Finance since July 1996. Mr. Lohwasser
was Vice President - Controller from December 1995 to July 1996 and was
Corporate Controller for more than five years prior thereto.
James J. O'Reardon, Jr. has been employed by the Company as Vice President -
Administration since September 1997. Mr. O'Reardon was Director of
Administration/Internal Audit for more than five years prior thereto.
Jeffery D. Schaum has been employed by the Company as Chief Operating Officer
since April 1999. Prior to joining the Company, Mr. Schaum was employed with the
Pfalzgraff Company as Executive Vice President of Operations, since August 1997,
and Controller of its Consumer Products division for more than five years prior
thereto.
***********************************
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At December 31, 1999, the Company's Common Stock was held by 533 shareholders of
record. The Company's Common Stock has been traded on the New York Stock
Exchange since its initial public offering on March 29, 1984. The following
table sets forth the high and low sale prices on the New York Stock Exchange
Composite Tape for the calendar periods indicated, as furnished by the New York
Stock Exchange:
HIGH LOW
1999
First Quarter ..................... $ 26 5/8 $ 20 1/16
Second Quarter .................... 27 1/2 23 5/8
Third Quarter ..................... 24 7/8 20
Fourth Quarter .................... 26 1/4 18 15/16
1998
First Quarter .................... $ 30 3/8 $ 23 5/8
Second Quarter ................... 30 1/2 24 3/8
Third Quarter .................... 27 5/8 17 1/4
Fourth Quarter ................... 23 1/2 15 3/4
The Board of Directors declared its first dividend to holders of the Company's
Common Stock in November, 1986. Since then, a cash dividend has been paid
quarterly. The current quarterly dividend rate was increased from $0.20 to $0.22
per common share, effective February 2000, which represents the fourth
consecutive year of increased dividends.
The Board of Directors will review its dividend policy from time to time and
declaration of dividends will remain within its sole discretion.
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ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998 1997 1996 1995
SUMMARY OF OPERATIONS
Net Sales .................................. $277,516 $270,511 $271,336 $226,243 $213,918
Cost of Sales .............................. 114,168 115,499 119,769 105,018 101,059
Income from Continuing
Operations Before Income Taxes* ....... 53,967 59,584 53,664 42,555 11,407
Provision for Income Taxes ................. 17,531 18,988 16,399 15,856 3,933
Income from Continuing Operations * ........ 36,436 40,596 37,265 26,699 7,474
Income (Loss) from Discontinued Operations,
Net of Taxes .......................... -- -- (1,324) 4,978 9,066
Gain on Sale of Discontinued Operations,
Net of Taxes** ........................ -- -- 46,700 -- --
Net Income ................................. 36,436 40,596 82,641 31,677 16,540
Net Income (Loss) Per Share:
Continuing Operations
Basic .............................. 1.73 1.83 1.69 1.23 .35
Diluted ............................ 1.72 1.81 1.67 1.22 .35
Discontinued Operations
Basic .............................. -- -- (.06) .23 .42
Diluted ............................ -- -- (.06) .23 .42
Gain on Sale of Discontinued Operations
Basic .............................. -- -- 2.12 -- --
Diluted ............................ -- -- 2.08 -- --
------ ------ ------ ----- -----
Total
Basic .............................. 1.73 1.83 3.75 1.46 .77
====== ====== ====== ====== ======
Diluted ............................ 1.72 1.81 3.69 1.45 .77
====== ====== ====== ====== ======
Dividends Per Share ........................ .80 .76 .68 .60 .60
BALANCE SHEET
Working Capital $288,229 $299,695 $286,358 $187,373 $158,462
Property, Plant and Equipment 28,297 35,340 21,287 21,765 23,464
Total Assets 355,420 378,456 353,445 276,966 251,397
Shareholders' Equity 319,598 343,935 316,786 248,726 222,996
STATISTICAL
Current Ratio 9.0 9.7 8.8 7.6 6.6
Return on Average Shareholders' Equity 11.0% 12.3% 29.2% 13.4% 7.5%
Net Profit Margin from Continuing Operations 13.1% 15.0% 13.7% 11.8% 3.5%
Number of Employees 1,551 1,471 1,554 1,580 1,752
* 1999 includes an information system write-off of capitalized costs of
$10,392,000 before tax or $6,557,000 ($0.31 per share) after tax. 1998
includes income of $1,828,000 before tax or $1,152,000 ($0.05 per share)
after tax for the completion of a transitional agreement related to the
sale of Papel/Freelance, Inc. 1996 includes the gain on sale of
Papel/Freelance, Inc. of approximately $4,800,000 before tax or $3,000,000
($0.14 per share) after tax and a reversal of a litigation provision of
$4,450,000 before tax or $2,800,000 ($0.13 per share) after tax.
** Represents the gain on sale of Cap Toys, Inc. and OddzOn Products, Inc. in
1997 of $75,300,000 before tax or $46,700,000 ($2.12 per share) after tax.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF CONTINUING OPERATIONS - YEARS ENDED
DECEMBER 31, 1999 AND 1998
The Company's net sales for the year ended December 31, 1999 were $277,516,000
compared to $270,511,000 for the year ended December 31, 1998. This represents
an increase of $7,005,000 or 2.6% due primarily to the increase in net sales of
the Company's international operations. The Company's product line, focusing on
coordinated themes of product offerings, continues to receive a positive
response from customers worldwide. During the year ended December 31, 1999, the
Company experienced operational issues which were caused by the domestic
implementation of a new computer system. These operational issues had negatively
impacted net sales since implementation in June 1999 and ultimately resulted in
the termination of the Company's use of this new system and reverting back to
its legacy systems.
Cost of sales were 41.1% of net sales in 1999 compared to 42.7% of net sales in
1998. The percentage decrease in cost of sales reflects the higher gross profit
margins on sales of certain of the Company's product line concepts during the
year ended December 31, 1999. The decrease also reflects the Company's
successful efforts to manage inventory levels, resulting in a reduced need to
distribute product through other than normal channels.
Selling, general and administrative expense was $107,576,000 or 38.8% of net
sales for the year ended December 31, 1999 compared to $105,624,000 or 39.0% of
net sales in 1998, an increase of $1,952,000 or 1.8%. This increase is due
primarily to higher distribution and delivery costs attributed to operational
difficulties and depreciation of computer systems offset by lower costs of a
reduced salesforce and realization of costs savings from the closing of its
Petaluma, California administrative operations in 1998.
During the quarter ended December 31, 1999, the Company recognized a charge to
income of $10,392,000, before tax, for the write-off of the net book value of
certain capitalized costs relating to terminating the use of the new computer
system. See the section entitled "Year 2000 Compliance" for additional
information regarding termination of the new computer system.
Investment and other income of $8,587,000 for the year ended December 31, 1999
compares to $10,196,000 in 1998. Included in investment and other income for the
year ended December 31, 1998 was income of $1,828,000 for the completion of a
transitional agreement related to the sale of the Company's subsidiary,
Papel/Freelance, Inc.
The provision for income taxes as a percent of income before taxes for the year
ended December 31, 1999 was 32.5% compared to 31.9% in the prior year.
Net income for the year ended December 31, 1999 was $36,436,000 compared to net
income of $40,596,000 for the year ended December 31, 1998. Included in the
results for the year ended December 31, 1999 is a charge of $6,557,000, after
tax, for the write-off of the Company's new computer system. Included in the
results for the year ended December 31, 1998 is income of $1,152,000, after tax,
for the completion of a transitional agreement related to the sale of the
Company's subsidiary, Papel/Freelance, Inc. Excluding the information system
write-off in 1999 and the income from this transitional agreement in 1998, net
income increased $3,549,000 or 9.0%. This increase can be primarily attributed
to increased net sales and gross profit offset by the increase in selling,
general and administrative expense.
The Company maintains a direct salesforce and distribution network to serve its
customers in Europe, Canada and Australia. Product, sales and marketing
strategies in these foreign operations are similar to those in the Company's
domestic operations. Where the Company does not maintain a direct salesforce and
distribution network, the Company's products are sold worldwide through
distributors. See Note 16 of the Notes to Consolidated Financial Statements for
more information regarding geographic information.
11
12
RESULTS OF CONTINUING OPERATIONS - YEARS ENDED
DECEMBER 31, 1998 AND 1997
The Company's net sales for the year ended December 31, 1998 were $270,511,000
compared to $271,336,000 for the year ended December 31, 1997. Net sales for the
year ended December 31, 1998 reflects the positive customer response to the
Company's redesign of its gift product line focusing on coordinated themes of
product offerings; however, this was offset by lower sales levels during the
implementation of the Company's new sales strategy which involved transitioning
responsibility for smaller accounts from our reduced direct salesforce to the
Company's newly created telemarketing department. Net sales for the year ended
December 31, 1997 included shipments of certain beanbag products at levels that
did not continue during the year ended December 31, 1998.
Cost of sales were 42.7% of net sales in 1998 compared to 44.1% of net sales in
1997. The percentage decrease in cost of sales reflects the higher gross profit
margins on sales of certain of the Company's product line concepts during the
year ended December 31, 1998. The decrease also reflects the Company's
successful efforts to manage inventory levels, resulting in a reduced need to
effect sales through other than normal distribution channels and lower
provisions required for inventory.
Selling, general and administrative expense was $105,624,000 or 39.0% of net
sales for the year ended December 31, 1998 compared to $104,152,000 or 38.4% of
net sales in 1997, an increase of $1,472,000 or 1.4%. Included in the selling,
general and administrative expense for the year ended December 31, 1998 was
$3,700,000 for costs associated with the design and implementation of a new
computer software system. Included in selling, general and administrative
expense for the year ended December 31, 1997 was a provision of $1,500,000 for
costs associated with closing all remaining retail operations. Excluding these
new computer system costs in 1998 and the provision in 1997, selling, general
and administrative expense decreased $728,000 or 0.7% when compared to the prior
year.
Investment and other income of $10,196,000 for the year ended December 31, 1998
compares to $6,249,000 in 1997. The increase of $3,947,000 is primarily
attributed to increased investment income relative to the Company's investment
portfolio resulting from higher investment balances as a result of the proceeds
from the sale of the toy business segment in the second quarter of 1997 and
income of $1,828,000 for the completion of a transitional agreement related to
the sale of the Company's Papel/Freelance, Inc. subsidiary.
The provision for income taxes as a percent of income before taxes for the year
ended December 31, 1998 was 31.9% compared to 30.6% in the prior year. This
increase can be primarily attributed to lower tax provisions related to certain
foreign subsidiaries during the year ended December 31, 1997.
Income from continuing operations for the year ended December 31, 1998 of
$40,596,000 compares to income from continuing operations of $37,265,000 in
1997. The increase of $3,331,000 or 8.9% is primarily attributed to the improved
gross profit margins and the increased investment income partially offset by the
increase in selling, general and administrative expense and income of $1,152,000
after tax for the completion of a transitional agreement related to the sale of
the Company's Papel/Freelance, Inc. subsidiary.
DISCONTINUED OPERATIONS
Net sales of the Company's discontinued operations for the year ended December
31, 1997 amounted to $38,614,000. Net loss from discontinued operations for the
year ended December 31, 1997 was $1,324,000.
YEAR 2000 COMPLIANCE
The Company is dependent upon Information Technology (IT) systems in many
aspects of its business and relies upon third parties who are also dependent on
IT systems. The Company implemented a program (Year 2000 Program) that
identified, mitigated and/or prevented any significant adverse effects of the
Year 2000 issue.
The Company had undertaken a project to implement a new packaged computer
software system for the global organization. During the second quarter of 1999,
the Company completed replacement of the Company's custom software that had been
utilized to operate and manage its domestic business. The Company experienced
post-implementation difficulties with this new packaged computer software system
that significantly affected the service levels provided to customers and other
operational efficiencies. After attempts to resolve these difficulties, the
Company decided to terminate the use of this recently implemented packaged
computer software system. This decision coincided with the completion of the
remediation of the Company's domestic, Canadian and European legacy computer
systems to address the Year 2000 issue.
12
13
During the fourth quarter of 1999, the Company recognized a charge to income of
$10,392,000 before tax ($6,557,000 after tax) for the write-off of certain
property, plant and equipment relating to terminating the use of the new
computer system. The total cost of the project related to the abandoned system,
since inception, including hardware, packaged software, third-party project
implementation and post-implementation support was approximately $19,200,000.
Certain hardware, software and project costs had been capitalized as fixed
assets and were being amortized over their useful lives prior to the information
systems write-off. The remainder of such costs and other costs, including
post-implementation and Year 2000 remediation costs, were expensed as incurred.
The Company has not experienced any significant business disruptions related to
the transition into the Year 2000; however, we will continue to monitor our
computer systems and significant third-party relationships.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had cash and cash equivalents and marketable
securities of $202,051,000 compared to $225,823,000 at December 31, 1998.
As of December 31, 1999 and 1998, the Company had marketable securities of
$137,143,000 and $152,759,000, respectively, 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. See Note 3 of the Notes to Consolidated
Financial Statements for more information regarding financial instruments.
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 as interest rates change.
The Company has available $80,238,000 in bank lines of credit that provide for
direct borrowings and letters of credit used for the purchase of inventory. At
December 31, 1999, letters of credit of $13,076,000 were outstanding. There were
no direct borrowings under the bank lines of credit. Working capital
requirements during 1999 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.
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.
As of December 31, 1999, the Board of Directors had authorized the Company to
repurchase 5,000,000 shares of common stock of which 4,746,300 shares have been
repurchased since the beginning of the Company's stock repurchase program in
March, 1990. During 1999, the Company repurchased 1,795,200 shares which
amounted to $44,292,000. In February 2000, the Board of Directors authorized the
Company to repurchase 2,000,000 additional shares to bring the total
authorization to 7,000,000 shares.
13
14
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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. 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, the possible effects of Year 2000 issues and
other factors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1999 and December 31, 1998, a sensitivity analysis to measure
potential changes in market value of the Company's investments from a change in
interest rates indicates that a one percentage point increase in interest rates
would decrease the net aggregate market value of these investments by
approximately $2,197,000 and $3,100,000, respectively, and a one percentage
point decrease in interest rates would increase the net aggregate market value
of these investments by approximately $2,380,000 and $2,600,000, respectively.
At December 31, 1999 and December 31, 1998, a sensitivity analysis to changes in
the value of the U.S. dollar on foreign currency denominated derivatives and
monetary assets and liabilities indicates that if the U.S. dollar uniformly
weakened by 10% against all currency exposures of the Company, income from
operations would decrease by approximately $780,000 and $530,000, respectively.
Additional information required for this item is incorporated in the section
above entitled, "Liquidity and Capital Resources" of Management's Discussion and
Analysis of Results of Operations and Financial Condition and Note 3 of the
Notes to Consolidated Financial Statements.
14
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Russ Berrie and Company, Inc.:
We have audited the accompanying consolidated balance sheet of Russ Berrie and
Company, Inc. (a New Jersey Corporation) and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above, appearing on pages
16 to 31 of this Form 10-K, present fairly, in all material respects, the
financial position of Russ Berrie and Company, Inc. and subsidiaries as of
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule appearing on page 42 of this
Form 10-K is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Roseland, New Jersey
February 8, 2000 (except with respect to the matters discussed in
Note 20, as to which the date is February 15, 2000)
15
16
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998 1997
Net sales ........................................................ $277,516 $270,511 $271,336
Cost of sales .................................................... 114,168 115,499 119,769
-------- -------- --------
Gross profit .................................................. 163,348 155,012 151,567
Selling, general and administrative expense ...................... 107,576 105,624 104,152
Information system write-off ..................................... 10,392 -- --
Investment and other income-net .................................. (8,587) (10,196) (6,249)
-------- -------- --------
Income from continuing operations
before income taxes ...................................... 53,967 59,584 53,664
Provision for income taxes ....................................... 17,531 18,988 16,399
-------- -------- --------
Income from continuing operations ............................. 36,436 40,596 37,265
Loss from discontinued operations,
net of taxes ................................................ -- -- (1,324)
Gain on sale of discontinued operations,
net of taxes ................................................ -- -- 46,700
-------- -------- --------
Net income ................................................... $36,436 $40,596 $82,641
======== ======== ========
Net income (loss) per share:
Continuing operations
Basic ............................................ $1.73 $1.83 $1.69
Diluted .......................................... 1.72 1.81 1.67
Discontinued operations
Basic ............................................ -- -- (.06)
Diluted .......................................... -- -- (.06)
Gain on sale of discontinued operations
Basic ............................................ -- -- 2.12
Diluted .......................................... -- -- 2.08
-------- -------- --------
Total
Basic ............................................ $1.73 $1.83 $3.75
======== ======== ========
Diluted .......................................... $1.72 $1.81 $3.69
======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
16
17
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS):
NET UNREALIZED
FOREIGN GAIN/(LOSS)
ADDITIONAL CURRENCY ON
COMMON PAID RETAINED TRANSLATION MARKETABLE TREASURY
TOTAL STOCK IN CAPITAL EARNINGS ADJUSTMENT SECURITIES STOCK
BALANCE AT DECEMBER 31, 1996 ...... $248,726 $2,433 $43,280 $240,373 $497 $ -- $(37,857)
Comprehensive income:
Net income ........................ 82,641 -- -- 82,641 -- -- --
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Foreign currency translation
adjustment (net of tax benefit of $700) (1,595) -- -- -- (1,595) -- --
Net unrealized gain on securities
available-for-sale (net of tax of $43) 99 -- -- -- -- 99 --
--------
Comprehensive income .............. 81,145
--------
Share transactions under stock
plans (592,517 shares) .......... 9,964 60 9,904 -- -- -- --
Cash dividends ($0.68 per share) .. (14,986) -- -- (14,986) -- -- --
Transactions in treasury shares
(398,900 shares) ................ (8,063) -- -- -- -- -- (8,063)
-------- ------- -------- --------- -------- ------- --------
BALANCE AT DECEMBER 31, 1997 ...... 316,786 2,493 53,184 308,028 (1,098) 99 (45,920)
Comprehensive income:
Net income ........................ 40,596 -- -- 40,596 -- -- --
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Foreign currency translation
adjustment (net of tax of $72) .. 154 -- -- -- 154 -- --
Net unrealized gain on securities
available-for-sale (net of tax of $159) 334 -- -- -- -- 334 --
--------
Comprehensive income .............. 41,084
--------
Share transactions under stock plans
(275,792 shares) ................ 5,396 27 5,369 -- -- -- --
Cash dividends ($0.76 per share) .. (16,897) -- -- (16,897) -- -- --
Transactions in treasury shares
(103,500 shares) ................ (2,434) -- -- -- -- -- (2,434)
-------- ------- -------- --------- -------- ------- --------
BALANCE AT DECEMBER 31, 1998 ...... 343,935 2,520 58,553 331,727 (944) 433 (48,354)
Comprehensive income:
Net income ........................ 36,436 -- -- 36,436 -- -- --
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Foreign currency translation
adjustment (net of tax benefit of $35) (72) -- -- -- (72) -- --
Net unrealized loss on securities
available-for-sale (net of tax
benefit of $991) ............ (1,964) -- -- -- -- (1,964) --
--------
Comprehensive income .............. 34,400
--------
Share transactions under stock
plans (123,588 shares) .......... 2,416 12 2,404 -- -- -- --
Cash dividends ($0.80 per share) .. (16,861) -- -- (16,861) -- -- --
Transactions in treasury shares
(1,795,200 shares) .............. (44,292) -- -- -- -- -- (44,292)
-------- ------- -------- --------- -------- ------- --------
BALANCE AT DECEMBER 31, 1999 ...... $319,598 $2,532 $60,957 $351,302 $(1,016) $(1,531) $(92,646)
======== ======= ======== ========= ======== ======= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
17
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CONSOLIDATED BALANCE SHEET AT DECEMBER 31
(DOLLARS IN THOUSANDS)
ASSETS 1999 1998
Current assets
Cash and cash equivalents ............................................... $64,908 $73,064
Marketable securities ................................................... 137,143 152,759
Accounts receivable, trade, less allowances of
$3,731 in 1999 and $2,622 in 1998 ...................................... 61,385 54,861
Inventories - net ....................................................... 44,307 45,201
Prepaid expenses and other current assets ............................... 9,503 3,006
Deferred income taxes ................................................... 6,805 5,325
--------- ---------
TOTAL CURRENT ASSETS .............................................. 324,051 334,216
Property, plant and equipment - net ........................................ 28,297 35,340
Other assets ............................................................... 3,072 8,900
--------- ---------
TOTAL ASSETS ...................................................... $355,420 $378,456
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable ......................................................... $6,228 $4,249
Accrued expenses ......................................................... 23,488 23,067
Accrued income taxes ..................................................... 6,106 7,205
--------- ---------
TOTAL CURRENT LIABILITIES ......................................... 35,822 34,521
--------- ---------
Commitments and contingencies
Shareholders' equity
Common stock: $0.10 stated value; authorized
50,000,000 shares; issued 1999, 25,325,849
shares; 1998, 25,202,261 shares ...................................... 2,532 2,520
Additional paid in capital ................................................. 60,957 58,553
Retained earnings .......................................................... 351,302 331,727
Accumulated other comprehensive loss ....................................... (2,547) (511)
Treasury stock, at cost (4,752,414 shares at
December 31, 1999 and 2,957,214 shares at
December 31, 1998) ...................................................... (92,646) (48,354)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ........................................ 319,598 343,935
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................ $355,420 $378,456
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
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CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES: 1999 1998 1997
Net income ................................................................... $36,436 $40,596 $82,641
Adjustments to reconcile net income to net cash
provided by continuing operating activities:
Loss from discontinued operations, net of taxes ......................... -- -- 1,324
Gain on sale of discontinued operations, net of taxes ................... -- -- (46,700)
Gain on sale of subsidiary .............................................. -- (1,828) --
Depreciation ............................................................ 4,890 2,512 2,846
Information system write-off ............................................ 10,392 -- --
Amortization of intangible assets ....................................... 118 119 149
Provision for accounts receivable reserves .............................. 2,534 1,872 2,272
Deferred income taxes ................................................... (1,480) 3,764 618
Net loss from sale or disposal of property, plant and equipment ......... 154 129 410
CHANGES IN ASSETS AND LIABILITIES, NET OF EFFECT OF DISPOSITIONS:
Accounts receivable ................................................ (9,058) (3,990) (5,660)
Inventories - net .................................................. 894 5,003 4,146
Prepaid expenses and other current assets .......................... (197) (339) (109)
Other assets ....................................................... (590) 122 (42)
Accounts payable ................................................... 1,979 (222) 762
Accrued expenses ................................................... 421 1,515 3,647
Accrued income taxes ............................................... (1,099) (2,560) 4,010
--------- -------- --------
Total adjustments .................................................. 8,958 6,097 (32,327)
--------- -------- --------
Net cash provided by continuing operating activities .......... 45,394 46,693 50,314
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities ............................................ (46,365) (158,342) (226,379)
Proceeds from sale of marketable securities .................................. 60,017 114,475 117,920
Proceeds from sale of property, plant and equipment .......................... 116 202 1,116
Capital expenditures ......................................................... (8,435) (16,838) (4,293)
Net proceeds from sale of subsidiary ......................................... -- 1,828 --
Net proceeds from sale of discontinued operations ............................ -- 5,442 134,484
--------- -------- --------
Net cash provided by (used in) investing activities ........... 5,333 (53,233) 22,848
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ....................................... 2,416 5,396 9,964
Dividends paid to shareholders ............................................... (16,861) (16,897) (14,986)
Purchase of treasury stock ................................................... (44,292) (2,434) (8,063)
--------- -------- --------
Net cash (used in) financing activities ...................... (58,737) (13,935) (13,085)
--------- -------- --------
Effect of exchange rates on cash and cash equivalents ........................ (146) 96 (1,196)
Cash (used in) discontinued operations ....................................... -- -- (17,695)
--------- -------- --------
Net (decrease) increase in cash and cash equivalents ......................... (8,156) (20,379) 41,186
Cash and cash equivalents at beginning of year ............................... 73,064 93,443 52,257
--------- -------- --------
Cash and cash equivalents at end of year ..................................... $64,908 $73,064 $93,443
========= ======== ========
CASH PAID DURING THE YEAR FOR:
Interest .............................................................. $118 $141 $197
Income taxes .......................................................... $18,630 $17,784 $33,882
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
19
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
Russ Berrie and Company, Inc. and its subsidiaries design, manufacture through
third parties and market a wide variety of gift products to retail stores
throughout the United States and countries throughout the world.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Russ Berrie and
Company, Inc. and its wholly owned subsidiaries (collectively, the "Company")
after elimination of intercompany accounts and transactions.
DISCONTINUED OPERATIONS
The Notes to these consolidated financial statements reflect the continuing
operations of the Company unless otherwise stated or indicated.
REVENUE RECOGNITION
The Company recognizes revenue from product sales, net of provisions for sales
discounts, returns and allowances, upon shipment of product to the customer.
ADVERTISING COSTS
Production costs for advertising are charged to operations in the year the
related advertising campaign begins. All other advertising costs are charged to
operations during the year in which they are incurred. Advertising costs for the
years ended December 31, 1999, 1998 and 1997 amounted to $2,014,000, $2,109,000
and $2,112,000, respectively.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of investments in interest bearing accounts and highly
liquid securities having a maturity of three months or less and approximate fair
market value.
INVENTORIES
Inventories, which mainly consist of finished goods, are stated at the lower of
cost (first-in, first-out) or market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives, which range from three
to twenty-five years. Leasehold improvements are amortized using the
straight-line method over the term of the respective lease or asset life,
whichever is shorter. Major improvements are capitalized, while expenditures for
maintenance and repairs are charged to operations as incurred. Gain or loss on
retirement or disposal of individual assets is recorded as income or expense in
the period incurred.
During 1998, the Company adopted Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1),
which requires the capitalization of internal use software and other related
costs under certain circumstances. External direct costs of materials and
services and payroll costs of employees working solely on the application
development stage of the project were capitalized in accordance with SOP 98-1.
Capitalized costs of the project, remaining after the information system
write-off (See Note 5), are being amortized over a period of one to five years
commencing with when the system was placed in service. Training and travel costs
related to the system implementation were expensed as incurred.
20
21
GOODWILL AND OTHER INTANGIBLE ASSETS
Included in other assets is goodwill, which represents the excess of purchase
price of acquired assets over the fair market value of net assets acquired.
Goodwill is amortized using the straight-line method over fifteen years or less.
The Company evaluates the recoverability of goodwill based upon estimated future
income and cash flows of operating entities. Impairments would be recognized in
operating results to the extent that carrying value exceeds fair value. Other
intangible assets acquired are amortized over the period for which benefit is
derived, which ranges from three to five years. Goodwill and other intangible
assets, net of accumulated amortization, was $383,000 and $501,000 at December
31, 1999 and 1998, respectively. Accumulated amortization amounted to $1,394,000
and $1,456,000 at December 31, 1999 and 1998, respectively.
FOREIGN CURRENCY TRANSLATION
Aggregate foreign exchange gains or losses resulting from the translation of
foreign subsidiaries' financial statements, for which the local currency is the
functional currency, are recorded as a separate component of other comprehensive
income (loss) within shareholders' equity. Gains and losses from foreign
currency transactions are included in investment and other income - net (See
Note 8).
ACCOUNTING FOR INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" as disclosed
in Note 9.
EARNINGS PER SHARE
The Company presents both basic and diluted earnings per share in the
Consolidated Statement of Income in accordance with SFAS No. 128, "Earnings per
Share".
The Notes to the consolidated financial statements reflect basic earnings per
share unless otherwise stated or indicated (See Note 10).
USE OF ESTIMATES
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income" (SFAS No. 130), establishes
standards for reporting and display of comprehensive income and its components
in a full set of financial statements. The Company elects to include all
information required by SFAS No. 130 in the Consolidated Statement of Changes in
Shareholders' Equity.
SEGMENT AND RELATED INFORMATION
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," (SFAS No. 131) establishes standards for the disclosure of
operating segment and related information and also requires disclosures about
products and services, geographic areas and major customers. SFAS No. 131 does
not affect the Company's consolidated results of operations or financial
position and the required disclosure of segment and related information is
included in Note 16.
ACCOUNTING FOR DERIVATIVES AND HEDGING
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivatives and Hedging Accounting - 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.
21
22
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.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1999
presentation.
NOTE 3 - FINANCIAL INSTRUMENTS
MARKETABLE SECURITIES
In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," the Company's marketable securities are considered
available-for-sale investments. Accordingly, these investments are carried in
the accompanying balance sheet at market value, with the difference between cost
and market value recorded as a component of shareholders' equity, net of tax.
Marketable securities are comprised primarily of U.S. and municipal government
fixed income securities. Additionally, included in marketable securities is a
diversified portfolio of investment grade preferred securities.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS
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's position of preferred
securities and futures contracts and options are intended to produce offsetting
capital gains and losses, both realized and unrealized, as interest rates
change. The market value of these instruments is reported in marketable
securities with unrealized gains and losses recorded as part of shareholders'
equity.
As of December 31, 1999, marketable securities consist of the following:
UNREALIZED
COST GAINS (LOSSES) MARKET VALUE
U.S. Government obligations $32,320,000 $(941,000) $31,379,000
Municipal obligations 95,666,000 (716,000) 94,950,000
Preferred stock 10,985,000 (856,000) 10,129,000
Futures contracts, options and other 492,000 193,000 685,000
------------ ------------ ------------
Total marketable securities $139,463,000 $(2,320,000) $137,143,000
============ ============ ============
As of December 31, 1998, marketable securities consist of the following:
UNREALIZED
COST GAINS (LOSSES) MARKET VALUE
U.S. Government obligations $43,116,000 $(6,000) $43,110,000
Municipal obligations 99,147,000 316,000 99,463,000
Preferred stock 9,381,000 476,000 9,857,000
Futures contracts, options and other 480,000 (151,000) 329,000
------------ ---------- ------------
Total marketable securities $152,124,000 $635,000 $152,759,000
============ ========== ============
Unrealized gains and losses with respect to available-for-sale investments are
recorded, net of tax, in shareholders' equity. Realized gains and losses on
sales of investments, as determined on a specific identification basis, are
included in the Consolidated Statement of Income.
22
23
FOREIGN CURRENCY CONTRACTS
The Company enters into forward exchange contracts, principally to manage the
economic currency risks associated with the purchase of inventory and repayment
of intercompany loans by its United Kingdom and Canadian subsidiaries. These
contracts enable the Company to buy and sell foreign currencies in the future at
fixed exchange rates. Gains and losses related to contracts accounted for as
hedges are reported as a component of the related transactions. The Company does
not trade in foreign currency contracts to achieve short-term gains. At December
31, 1999 and 1998, the aggregate notional amount of foreign exchange contracts
was $18,000,000 and $19,700,000, respectively. At December 31, 1999 and 1998,
there were no carrying amounts related to foreign currency contracts in the
Consolidated Balance Sheet.
At December 31, 1999, the Company's forward exchange contracts have expiration
dates which range from one to twelve months. The estimated fair value of the
notional amount of the Company's forward exchange contracts based on quoted
rates as of December 31, 1999 and 1998 were $18,012,000 and $19,722,000,
respectively. The Company does not anticipate any material adverse impact on its
results of operations or financial position from these contracts.
CONCENTRATIONS OF CREDIT RISK
As part of its ongoing control procedures, the Company monitors concentrations
of credit risk associated with financial institutions with which it conducts
business. The Company avoids concentration with any single financial
institution. As of December 31, 1999, marketable securities of the Company were
actively managed by five investment managers. These investment managers operate
under guidelines which restrict the investment grade and type of investment and
furthermore limit the dollar amount that can be invested in any one instrument.
The Company also monitors the creditworthiness of its customers to which it
grants credit terms in the normal course of business. Concentrations of credit
risk associated with these trade receivables are considered minimal due to the
Company's diverse customer base. The Company does not normally require
collateral or other security to support credit sales.
NOTE 4 - INVENTORY RESERVES
As of December 31, 1999 and 1998, the Company has recorded reserves to reflect
inventories at their estimated net realizable value. Management believes that
such inventories are fairly stated. The reserve balance as of December 31, 1999
and 1998 was $14,182,000 and $14,048,000, respectively.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
DECEMBER 31,
1999 1998
Land $7,280,000 $7,282,000
Buildings 13,205,000 12,977,000
Machinery and equipment 21,133,000 18,613,000
Furniture and fixtures 5,290,000 4,290,000
Leasehold improvement 9,096,000 7,997,000
----------- -----------
56,004,000 51,159,000
Less accumulated depreciation
and amortization 28,024,000 25,542,000
----------- -----------
27,980,000 25,617,000
Construction and system
development in progress 317,000 9,723,000
----------- -----------
$28,297,000 $35,340,000
=========== ===========
In 1998, construction and system development in progress represented primarily
the costs capitalized on the Company's implementation of a new computer system.
During the quarter ended December 31, 1999, the Company recognized a charge to
income of $10,392,000 for the write-off of the net book value of certain
property, plant and equipment relating to terminating the use of the new
computer system.
23
24
NOTE 6 - LINES OF CREDIT
Under its existing domestic bank lines of credit, which are renewed annually,
the Company has available $70,000,000 for direct borrowings and letters of
credit at any one time.
The maximum amount available to the Company's foreign operations at December 31,
1999, under local lines of credit, is $10,238,000. These lines provide for
direct borrowings, letters of credit and overdraft facilities.
In connection with the purchase of imported merchandise, the Company, at
December 31, 1999, had letters of credit outstanding under all lines of
$13,076,000.
NOTE 7 - ACCRUED EXPENSES
Accrued expenses consist of the following:
DECEMBER 31,
1999 1998
Accrued sales commission ................... $2,205,000 $2,483,000
Accrued litigation ......................... 955,000 1,212,000
Accrued payroll and incentive compensation . 3,956,000 3,354,000
Accruals relating to discontinued operations 4,632,000 4,898,000
Others ..................................... 11,740,000 11,120,000
----------- -----------
$23,488,000 $23,067,000
=========== ===========
NOTE 8 - INVESTMENT AND OTHER INCOME - NET
The significant components of investment and other income - net consist of the
following:
YEARS ENDED DECEMBER 31,
1999 1998 1997
Investment income .............................. $9,171,000 $9,009,000 $6,866,000
Interest expense ............................... (114,000) (141,000) (175,000)
Foreign currency transactions, net ............. (886,000) (593,000) (722,000)
Gain on sale of subsidiary ..................... -- 1,828,000 --
Other .......................................... 416,000 93,000 280,000
---------- ----------- ----------
$8,587,000 $10,196,000 $6,249,000
========== =========== ==========
On January 17, 1996, the Company completed the sale of its subsidiary,
Papel/Freelance, Inc. During the year ended December 31, 1998, $1,828,000 before
tax or $1,152,000 ($0.05 per share) after tax, for a transitional agreement
related to such sale, was received and recognized as income upon satisfaction of
the terms of the agreement.
NOTE 9 - INCOME TAXES
The Company and its domestic subsidiaries file a consolidated Federal income tax
return.
Income from continuing operations before income taxes was:
YEARS ENDED DECEMBER 31,
1999 1998 1997
United States .............................. $33,556,000 $45,296,000 $38,330,000
Foreign .................................... 20,411,000 14,288,000 15,334,000
----------- ----------- -----------
$53,967,000 $59,584,000 $53,664,000
=========== =========== ===========
24
25
The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31,
CURRENT PROVISION: 1999 1998 1997
Federal .................................. $10,524,000 $9,386,000 $10,870,000
Foreign .................................. 6,381,000 4,610,000 4,353,000
State .................................... 1,115,000 1,430,000 558,000
----------- ----------- -----------
$18,020,000 $15,426,000 $15,781,000
----------- ----------- -----------
DEFERRED PROVISION:
Federal .................................. $(610,000) $3,597,000 $618,000
Foreign .................................. 121,000 (35,000) --
State .................................... -- -- --
----------- ----------- -----------
(489,000) 3,562,000 618,000
----------- ----------- -----------
$17,531,000 $18,988,000 $16,399,000
=========== =========== ===========
A reconciliation of the provision for income taxes with amounts computed at the
statutory Federal rate is shown below:
YEARS ENDED DECEMBER 31,
1999 1998 1997
Tax at U.S. Federal statutory rate ................. $18,888,000 $20,854,000 $18,782,000
State income tax net of Federal tax benefit ........ 725,000 930,000 363,000
Foreign rate difference ............................ (642,000) (426,000) (1,014,000)
Charitable contributions ........................... (48,000) (592,000) (1,331,000)
Tax advantaged investment income ................... (1,998,000) (2,423,000) (1,344,000)
U.K. advance corporation tax refund ................ -- -- (1,660,000)
Change in valuation allowance ...................... 87,000 (451,000) (765,000)
Adjustment of estimated liabilities ................ -- -- 1,950,000
Other, net ......................................... 519,000 1,096,000 1,418,000
----------- ----------- -----------
$17,531,000 $18,988,000 $16,399,000
=========== =========== ===========
The Company had a valuation allowance at December 31, 1999 and 1998 of $855,000
and $768,000, respectively (primarily relating to deferred state income taxes)
to reflect the estimated amount of deferred tax assets which may not be
realized.
The components of the net deferred tax asset, net of the valuation allowance,
resulting from temporary differences between accounting for financial and tax
reporting purposes were as follows:
DECEMBER 31,
1999 1998
ASSETS (LIABILITIES):
Inventory capitalization ........................... $1,672,000 $1,800,000
Reserves not deducted for tax purposes ............. 2,838,000 2,740,000
Write-off of computer equipment .................... 1,065,000 --
Accrued future lease obligations ................... -- 145,000
Litigation ......................................... 354,000 466,000
Depreciation ....................................... (295,000) (121,000)
Unrealized loss/(gain) on marketable
securities ....................................... 789,000 (202,000)
Other .............................................. 382,000 497,000
---------- ----------
Net deferred tax asset ............................. $6,805,000 $5,325,000
========== ==========
25
26
Provisions are made for estimated United States and foreign income taxes, less
available tax credits and deductions, which may be incurred on the remittance of
foreign subsidiaries' undistributed earnings less those earnings deemed to be
permanently reinvested. The amount of such earnings deemed permanently
reinvested was approximately $73,281,000 as of December 31, 1999. Determination
of the net amount of unrecognized deferred tax liability with respect to these
earnings is not practicable.
NOTE 10 - EARNINGS PER SHARE
A reconciliation of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution follows:
YEARS ENDED DECEMBER 31,
1999 1998 1997
Average common shares outstanding ............................. 21,069,000 22,225,000 22,026,000
Dilutive effect of common shares issuable (1) ................. 133,000 162,000 351,000
---------- ---------- ----------
Average common shares outstanding
assuming dilution ........................................... 21,202,000 22,387,000 22,377,000
========== ========== ==========
(1) Issuable under stock option plans.
Stock options outstanding at December 31, 1999 and 1998 to purchase 189,400 and
213,550 shares, respectively, 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
during the respective years.
NOTE 11 - RELATED PARTY TRANSACTIONS
Certain buildings, referred to in Note 12, are leased from Russell Berrie, the
Company's majority shareholder, or entities owned or controlled by him. Rentals
under these leases for the years ended December 31, 1999, 1998 and 1997 were
$3,867,000, $3,931,000 and $4,122,000, respectively. The Company is also a
guarantor under two mortgages for property so leased with a principal amount
aggregating approximately $7,804,000 as of December 31, 1999, $2,000,000 of
which is collateralized by assets of the Company.
The Company also leased a facility through October 1997 from a partnership in
which a director of the Company is a general partner. Rentals under this lease
agreement for the year ended December 31, 1997 were $830,000.
The Company paid to an investment banking firm, of which a Director of the
Company is a Vice Chairman, fees with regard to the sale of the toy business
segment (See Note 18). The total amount of transaction fees paid during the year
ended December 31, 1997 amounted to $1,632,000.
NOTE 12 - LEASES
At December 31, 1999, the Company and its subsidiaries are obligated under
operating lease agreements (principally for buildings and other leased
facilities) for remaining lease terms ranging from one to six years.
Rent expense for the years ended December 31, 1999, 1998 and 1997 amounted to
$5,809,000, $6,052,000 and $6,415,000, respectively.
The approximate aggregate minimum future rental payments as of December 31, 1999
under operating leases are as follows:
2000 . . . . . . . . . . . . . . $5,864,000
2001 . . . . . . . . . . . . . . 5,513,000
2002 . . . . . . . . . . . . . . 5,107,000
2003 . . . . . . . . . . . . . . 4,384,000
2004 . . . . . . . . . . . . . . 1,897,000
Thereafter . . . . . . . . . . . 123,000
26
27
NOTE 13 - STOCK REPURCHASE PROGRAM
As of December 31, 1999, the Board of Directors had authorized the Company to
purchase 5,000,000 shares of common stock of which 4,746,300 shares have been
repurchased since the beginning of the Company's stock repurchase program in
March, 1990. During 1999, the Company repurchased 1,795,200 shares. See Note 20.
NOTE 14 - STOCK PLANS
The Company has a Stock Option and Restricted Stock Plan, two Stock Option Plans
and an Employee Stock Purchase Plan (collectively, the "Stock Plans"). As of
December 31, 1999, there were 2,440,725 shares of common stock reserved for
issuance under all stock plans. Under the Stock Option and Restricted Stock
Plan, stock awards of 2,917 shares, 2,626 shares and 11,661 shares were issued
for the years ended December 31, 1999, 1998 and 1997, respectively. The Company
has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been recognized
for the options granted for these Stock Plans. Had compensation cost for the
Company's Stock Plans been determined based on the fair value at the grant date
in 1999, 1998 and 1997, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
YEARS ENDED DECEMBER 31,
1999 1998 1997
Net income - as reported ............... $36,436,000 $40,596,000 $82,641,000
Net income - pro forma ................. $35,769,100 $39,686,000 $82,091,000
Earnings per share (basic) - as reported $1.73 $1.83 $3.75
Earnings per share (basic) - pro forma . $1.70 $1.79 $3.73
The fair value of each option granted under the Stock Option Plans is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following assumptions used for all grants:
YEARS ENDED DECEMBER 31,
1999 1998 1997
Dividend yield ......................... 3.39% 2.90% 3.68%
Risk-free interest rate ................ 4.60% 5.70% 6.05%
Volatility ............................. 32.37% 40.37% 37.32%
Expected life (years) .................. 3.1 3.0 3.1
The fair value of each option granted under the Employee Stock Purchase Plan is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions used for all grants:
YEARS ENDED DECEMBER 31,
1999 1998 1997
Dividend yield ......................... 3.39% 2.90% 3.68%
Risk-free interest rate ................ 4.59% 5.52% 5.63%
Volatility ............................. 32.37% 40.37% 37.32%
Expected life (years) .................. 1.0 1.0 1.0
27
28
The option price for all stock option plans is equal to the closing price of the
Company's common stock as of the date the option is granted. All stock options
vest one year from the grant date. Options expire 10 years from the date of
grant. Information regarding these option plans for 1999, 1998 and 1997 is as
follows:
ALL STOCK OPTION PLANS
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
Outstanding as of December 31, 1996 ......................................... 1,168,776 15.291
Options Granted ............................................................. 323,852 18.500
Options Exercised ........................................................... (565,016) 14.406
Options Cancelled ........................................................... (165,319) 19.212
---------
Outstanding as of December 31, 1997 ......................................... 762,293 16.577
Options Granted ............................................................. 223,569 26.250
Options Exercised ........................................................... (250,386) 16.221
Options Cancelled ........................................................... (41,548) 19.377
---------
Outstanding as of December 31, 1998 ......................................... 693,928 19.654
Options Granted ............................................................. 231,047 23.625
Options Exercised ........................................................... (121,235) 16.365
Options Cancelled ........................................................... (42,453) 26.766
---------
Outstanding as of December 31, 1999 ......................................... 761,287 21.091
Option price range at December 31, 1999 ..................................... $9.59 to $26.25
Option price range for exercised shares ..................................... $10.09 to $18.50
Options available for grant and reserved for
future issuance at December 31, 1999 ..................................... 2,308,489
The weighted-average fair value of options granted, on a per share basis, during
the years 1999, 1998 and 1997 was $5.05, $7.31 and $4.70, respectively.
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/99 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/99 EXERCISE PRICE
$9.590 3,005 1 year $9.590 3,005 $9.590
12.500 9,738 2 years 12.500 9,738 12.500
17.670 101,342 3 years 17.670 101,342 17.670
14.875 36,231 4 years 14.875 36,231 14.875
13.750 22,995 5 years 13.750 22,995 13.750
13.625 37,668 6 years 13.625 37,668 13.625
18.500 146,664 7 years 18.500 146,664 18.500
26.250 189,363 8 years 26.250 189,363 26.250
23.625 214,281 9 years 23.625 0 23.625
------- -------
761,287 547,006
28
29
Under the Employee Stock Purchase Plan, the purchase price is 90% of the closing
market price of the stock on the first business day of the Plan year.
Information regarding the Employee Stock Purchase Plan for 1999, 1998 and 1997
is as follows:
EMPLOYEE STOCK PURCHASE PLAN
1999 1998 1997
Exercise Price $21.263 $23.625 $16.65
Shares Issued 17,764 1,295 22,780
As of December 31, 1999, the Employee Stock Purchase Plan has 132,236 shares
reserved for future issuance.
NOTE 15 - 401(k) PLAN
The Company maintains a 401(k) Plan to which employees may, up to certain
prescribed limits, contribute a portion of their compensation and a portion of
these contributions is matched by the Company. The provision for contributions
charged to operations for the years ended December 31, 1999, 1998 and 1997 was
$796,000, $733,000 and $737,000, respectively.
NOTE 16 - SEGMENT, GEOGRAPHIC AND RELATED INFORMATION
The Company's continuing operations comprise one operating segment, offering an
extensive line of products including stuffed animals, picture frames, candles,
figurines and home decor gifts based on current fashions and trends. The
following table represents financial data of the Company, under the basis by
which the Company has chosen to organize itself, by geographic area:
1999 1998 1997
REVENUES:
United States ........................................ $187,571,000 $194,270,000 $200,664,000
Europe ............................................... 43,995,000 37,776,000 34,611,000
Other ................................................ 45,950,000 38,465,000 36,061,000
------------ ------------ ------------
Total ............................................. $277,516,000 $270,511,000 $271,336,000
============ ============ ============
INCOME FROM CONTINUING OPERATIONS:
United States ........................................ $22,527,000 $30,883,000 $26,284,000
Europe ............................................... 4,994,000 2,967,000 2,890,000
Other ................................................ 8,915,000 6,746,000 8,091,000
----------- ----------- -----------
Total ............................................. $36,436,000 $40,596,000 $37,265,000
=========== =========== ===========
IDENTIFIABLE ASSETS:
United States ........................................ $263,433,000 $304,700,000 $290,413,000
Europe ............................................... 43,186,000 36,837,000 30,438,000
Other ................................................ 48,801,000 36,919,000 32,594,000
------------ ------------ ------------
Total ............................................. $355,420,000 $378,456,000 $353,445,000
============ ============ ============
There were no material sales or transfers among geographic areas and no material
amount of export sales to customers from the United States. Outside of the
United States, no single country is deemed material for separate disclosure. The
Company has no single customer representing greater than 10% of consolidated
revenues.
NOTE 17 - LITIGATION
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business.
In the opinion of management, the amount of ultimate liability with respect to
these actions will not materially affect the results of operations, financial
position or cash flows of the Company. See Note 20.
29
30
NOTE 18 - DISCONTINUED OPERATIONS
On May 2, 1997, the Company completed the sale of substantially all of the
assets of its wholly owned subsidiaries, Cap Toys, Inc. and OddzOn Products,
Inc., to a wholly owned subsidiary of Hasbro, Inc. These two subsidiaries
represented the Company's toy business segment which is reported as discontinued
operations for the year ended December 31, 1997. The sale transaction resulted
in a gain on the sale of discontinued operations in the year ended December 31,
1997 of $75,300,000 before tax or $46,700,000 ($2.12 per share) after tax. The
Company believes it has adequately provided for any contingencies related to
discontinued operations.
Amounts included in net loss from discontinued operations for the toy business
segment for the year ended December 31, 1997 were as follows:
1997
Net sales $38,614,000
============
Loss before taxes (2,483,000)
Benefit for income taxes (1,159,000)
------------
Net Loss $(1,324,000)
============
Advertising costs and amortization costs related to intangible assets for
discontinued operations amounted to $4,336,000 and $851,000, respectively for
the year ended December 31, 1997.
NOTE 19 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following selected financial data for the four quarters ended December 31,
1999 and 1998 are derived from unaudited financial statements and include, in
the opinion of management, all adjustments of a normal recurring nature
necessary for fair presentation of the results for the interim periods
presented. The quarter ended December 31, 1999 includes a charge of $10,392,000
before tax or $6,557,000 after tax ($0.31 per share) for the information system
write-off. The quarter ended March 31, 1998 includes income of $1,828,000 before
tax or $1,152,000 ($0.05 per share) after tax for the completion of a
transitional agreement related to the sale of Papel/Freelance, Inc.
FOR QUARTERS ENDED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
Net sales $75,403 $47,475 $89,836 $64,802
Gross profit 45,126 26,851 54,427 36,944
Net income $11,834 $4,109 $18,237 $2,256
Net income per share
Basic $.54 $.19 $.88 $.11
Diluted .53 .19 .88 .11
1998
Net sales $74,636 $50,949 $82,969 $61,957
Gross profit 41,899 28,687 49,322 35,104
Net income $9,933 $4,120 $16,227 $10,316
Net income per share
Basic $.45 $.18 $.73 $.46
Diluted .44 .18 .73 .46
30
31
NOTE 20 - SUBSEQUENT EVENTS
As of December 31, 1999, 4,746,300 shares have been repurchased since the
beginning of the Company's stock repurchase program in March, 1990. On February
15, 2000, the Board authorized the Company to repurchase 2,000,000 additional
shares to bring the total authorization to 7,000,000 shares.
On November 18, 1999, the Company announced that it had received from Evercore
Partners, L.L.C. ("Evercore") a non-binding proposal ("Proposal") to acquire all
of the outstanding common stock of the Company, other than certain shares owned
by Russell Berrie, the Company's majority shareholder, at a price of $27 per
share in cash in a merger transaction. The Company's Board of Directors
appointed a special committee of independent directors to consider and act upon
the Proposal. On February 14, 2000, the Company announced that discussions with
Evercore concerning the Proposal had terminated without agreement on a
transaction.
In connection with the Proposal, the Company is a defendant in five class action
complaints filed in the Superior Court of New Jersey since November 1999 which
were consolidated by Consent Order in January 2000 (the "Consolidated Action").
The Consolidated Action purports to be a class action on behalf of all common
stockholders of the Company (with certain exceptions). The Consolidated Action
seeks, among other things, to enjoin the closing of a then proposed transaction
pursuant to which Evercore would have acquired all of the outstanding common
stock of the Company, other than certain shares owned by Russell Berrie, in a
merger transaction, alleging, among other things, that the price proposed in
that transaction of $27 per share was unfair to the minority shareholders of the
Company. The discussions concerning the proposed transaction were terminated in
February 2000. The plaintiffs have not timely filed a consolidated amended
complaint, as required by the Consent Order, and management expects that
plaintiffs will voluntarily terminate the Consolidated Action. Otherwise, the
Company intends to vigorously defend the Consolidated Action.
In the opinion of management, the amount of ultimate liability with respect to
these actions will not materially affect the results of operations, financial
position or cash flows of the Company.
31
32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to this item appears under the captions "ELECTION OF
DIRECTORS" and "SECTION 16 COMPLIANCE" of the 2000 Proxy Statement, which is
incorporated herein by reference and under the caption "EXECUTIVE OFFICERS OF
THE REGISTRANT" on pages 8 and 9 of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to this item appears under the captions "THE BOARD OF
DIRECTORS AND COMMITTEES OF THE BOARD", "DIRECTOR COMPENSATION", "EXECUTIVE
COMPENSATION" and "COMPENSATION COMMITTEE REPORT" of the 2000 Proxy Statement,
which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to this item appears under the captions "SECURITY OWNERSHIP
OF MANAGEMENT" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" of the 2000
Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to this item appears under the captions "EXECUTIVE
COMPENSATION", "CERTAIN TRANSACTIONS" and "COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION" of the 2000 Proxy Statement, which is incorporated herein
by reference.
32
33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT.
1. FINANCIAL STATEMENTS:
PAGE NUMBER IN THIS
REPORT
-------------------
Report of Independent Public Accountants ....... 15
Consolidated Statement of Income for the
years ended December 31, 1999, 1998 and 1997 ... 16
Consolidated Statement of Changes in
Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997 ............... 17
Consolidated Balance Sheet at December 31,
1999 and 1998 .................................. 18
Consolidated Statement of Cash Flows for the
years ended December 31, 1999, 1998 and 1997 ... 19
Notes to Consolidated Financial Statements ..... 20 - 31
2. FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts 42
Other schedules are omitted because they are either not applicable or not
required or the information is presented in the Consolidated Financial
Statements or Notes thereto.
33
34
EXHIBITS:
EXHIBIT NO.
3.1(a) Restated Certificate of Incorporation of the Registrant and amendment
thereto. (9)
(b) Certificate of Amendment to Restated Certificate of Incorporation of
the Company filed April 30, 1987. (23)
3.2(a) By-Laws of the Registrant. (9)
(b) Amendment to Revised By-Laws of the Company adopted April 30, 1987.
(23)
(c) Amendment to Revised By-Laws of the Company adopted February 18, 1988.
(23)
(d) Amendment to Revised By-Laws of the Company adopted July 25, 1995. (28)
4.1 Form of Common Stock Certificate. (1)
10.1(a) Russ Berrie and Company, Inc. Stock Option and Restricted Stock Plan.
(2)
(b) Amendment to the Russ Berrie and Company, Inc. Stock Option and
Restricted Stock Plan. (11)
10.2(a) Russ Berrie and Company, Inc. Stock Option Plan for Outside Directors.
(3)
(b) Amendment to the Russ Berrie and Company, Inc. Stock Option Plan for
Outside Directors. (11)
10.3 Russ Berrie and Company, Inc. Profit Sharing Plan. (3)
10.4 Agreement dated January 26, 1982 between the Registrant and A. Curts
Cooke and amendment thereto dated March 10, 1984. (3)
- ----
(1) Incorporated by reference to Amendment No. 2 to Registration Statement
No. 2-88797 on Form S-1, as filed on March 29, 1984.
(2) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1984.
(3) Incorporated by reference to Amendment No. 1 to Registration Statement
No. 2-88797 on Form S-1, as filed on March 13, 1984.
(9) Incorporated by reference to Amendment No. 1 to Registration Statement
No. 33-10077 on Form S-1, as filed on December 16, 1986.
(11) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1987.
(23) Incorporated by reference to Registration No. 33-51823 on Form S-8, as
filed on January 6, 1994.
(28) Incorporated by reference to Form S-8 Registration Statement No. 33 -
37008 as filed on January 4, 1999.
34
35
EXHIBIT NO.
10.26 Lease Agreement, dated April 1, 1981, between Tri-State Realty and
Investment Company and Russ Berrie and Company, Inc. (4)
10.27 Guaranty, dated March 20, 1981, from Russ Berrie and Company, Inc. and
Russell Berrie to the New Jersey Economic Development Authority and
Midlantic National Bank as Trustee. (4)
10.28 Mortgage, dated April 6, 1981, between Tri-State Realty and Investment
Company and the New Jersey Economic Development Authority. (4)
10.29 Credit and Security Agreement, dated as of March 1, 1981, between the
New Jersey Economic Development Authority and Tri-State Realty and
Investment Company. (4)
10.30 Assignment of Leases, Rents & Profits, dated April 6, 1981, by
Tri-State Realty and Investment Company to the New Jersey Economic
Development Authority. (4)
10.31 Note, dated April 6, 1981, made by Tri-State Realty and Investment
Company to the order of the New Jersey Economic Development Authority
in the principal amount of $2,000,000. (4)
10.32 Specimen of State of New Jersey Economic Development Authority
$2,000,000 Economic Development Bond (Tri-State Realty and Investment
Company -- 1980 Project), dated April 6, 1981. (4)
10.33 Lease, dated December 28, 1983, between Russell Berrie and Russ Berrie
and Company, Inc. (4)
10.35 Guarantee dated as of December 1, 1983, from Russ Berrie and Company,
Inc. to the New Jersey Economic Development Authority, Bankers Trust
Company as Trustee and each Holder of a Bond. (4)
10.36 Letter of Credit and Reimbursement Agreement, dated as of December 1,
1983, between Russ Berrie and Company, Inc. and Citibank, N.A. (4)
10.37 Loan Agreement, dated as of December 1, 1983, between the New Jersey
Economic Development Authority and Russell Berrie. (4)
- ----
(4) Incorporated by reference to Registration Statement No. 2-88797 on Form
S-1 as filed on February 2, 1984.
35
36
EXHIBIT NO.
10.38 Mortgage, dated December 28, 1983, between Russell Berrie and Citibank,
N.A. (4)
10.39 Form of New Jersey Economic Development Authority Variable/Fixed Rate
Economic Development Bond (Russell Berrie -- 1983 Project). (4)
10.51 Grant Deed, dated June 28, 1982, from Russ Berrie and Company, Inc. to
Russell Berrie. (1)
10.52 Russ Berrie and Company, Inc. 1989 Employee Stock Purchase Plan. (13)
10.53(a) Russ Berrie and Company, Inc. Stock Option Plan. (6)
(b) Amendments to the Russ Berrie and Company, Inc. Stock Option Plan. (11)
10.68(a) Lease Agreement, dated as of May 1, 1977, between Fred T. Reisman and
Associates Limited, Amram's Distributing, LTD, and Alfa Romeo (Canada)
Limited (8)
(b) Lease Agreement, dated April 8, 1986, between Pensionfund Realty
Limited and Amram's Distributing LTD. (9)
10.70 Amendment, dated October 29, 1985 to the restated Russ Berrie and
Company, Inc. Profit Sharing Plan. (8)
- ----
(1) Incorporated by reference to Amendment No. 2 to Registration Statement
No. 2-88797 on Form S-1, as filed on March 29, 1984.
(4) Incorporated by reference to Registration Statement No. 2-88797 on Form
S-1, as filed on February 2, 1984.
(6) Incorporated by reference to Post-Effective Amendment No. 1 to
Registration Statement No. 2-96238 on Form S-8, as filed on November 6,
1985.
(8) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1985.
(9) Incorporated by reference to Amendment No. 1 to Registration Statement
No. 33-10077 of Form S-1, as filed on December 16, 1986.
(11) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1987.
(13) Incorporated by reference to Form S-8 Registration Statement No.
33-26161, as filed on December 16, 1988.
36
37
EXHIBIT NO.
10.73 Russ Berrie and Company, Inc. Deferred Compensation Plan. (9)
10.76(a) Lease agreement, dated September 17, 1987, between Forsgate Industrial
Complex and Russ Berrie and Company, Inc. (11)
(b) Amendment, dated March 18, 1988, between Forsgate Industrial Complex
and Russ Berrie and Company, Inc. (11)
10.77 Lease agreement, dated July 1, 1987, between Hunter Street, Inc. and
Russ Berrie and Co. (West), Inc. (11)
10.78 Lease agreement, dated October 1, 1987, between David Benjamin and
Nicole Berrie, Lakeland Trust and Russ Berrie and Company, Inc. (11)
10.80 Russ Berrie and Company, Inc. 1989 Stock Option Plan. (14)
10.81 Russ Berrie and Company, Inc. 1989 Stock Option Plan for Outside
Directors. (15)
10.82 Russ Berrie and Company, Inc. 1989 Stock Option and Restricted Stock
Plan. (16)
10.83 Lease Agreement dated November 7, 1988 between A. Mantella & Sons
Limited and Amram's Distributing, Ltd. (17)
10.84 Lease Agreement dated November 7, 1988 between Russell Berrie and Russ
Berrie and Company, Inc. (17)
10.86 Lease Agreement dated June 8, 1989 between Americana Development, Inc.
and Russ Berrie and Company, Inc. (18)
10.87 Lease dated December 25, 1989 between Kestrel Properties, Ltd. and Russ
Berrie (U.K.) Ltd. (18)
10.89 Amendment dated January 9, 1989 to Letter of Credit and Reimbursement
Agreement dated as of December 1, 1983 between Russ Berrie and Company,
Inc. and Citibank, N.A. (18)
- ----
(9) Incorporated by reference to Amendment No. 1 to Registration Statement
No. 33-10077 of Form S-1, as filed on December 16, 1986.
(11) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1987.
(14) Incorporated by reference to Form S-8 Registration Statement No.
33-27406, as filed on March 16, 1989.
(15) Incorporated by reference to Form S-8 Registration Statement No.
33-27897, as filed on April 5, 1989.
(16) Incorporated by reference to Form S-8 Registration Statement No.
33-27898, as filed on April 5, 1989.
(17) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1988.
(18) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1989.
37
38
EXHIBIT NO.
10.91(a) Assignment of Underlease of Unit 10 Nursling Industrial Estate,
Marks and Spencer plc to Russ Berrie (U.K.) Limited. (19)
(b) Underlease of Unit 10 Nursling Estate County of Hants. (19)
10.92 Agreement for sale and purchase of parts or shares of Sea View
Estate between Sino Rank Company Limited and Tri Russ International
(Hong Kong) Limited dated March 10, 1990. (19)
10.95(a) Asset Purchase Agreement dated September 18, 1990 by and among
Bright, Inc., Bright of America, Inc., Bright Crest, LTD. and
William T. Bright. (19)
(b) Non-Compete Agreement dated September 18, 1990 by and between
William T. Bright and Bright, Inc. (19)
(c) Deed of Trust dated September 18, 1990 by and among Bright, Inc.,
F.T. Graff Jr. and Louis S. Southworth, III, Trustees, and Bright of
America, Inc. (19)
(d) Guaranty Agreement dated September 18, 1990 executed by Russ Berrie
and Company, Inc. delivered to Bright of America, Inc. and Bright
Crest, LTD. (19)
(e) Guaranty Agreement dated September 18, 1990 executed by Russ Berrie
and Company, Inc. delivered to William T. Bright. (19)
10.97 Russ Berrie and Company, Inc. Retirement Plan Amended and Restated
Effective January 1, 1989. (19)
10.101(a) Sale and Purchase Agreement dated October 16, 1991 by and among
Weaver Corp. and Papel/Freelance, Inc. (20)
(b) Non-competition Agreement made October 16, 1991 by and among Weaver
Corp., an Indiana corporation, Steven Weaver and Papel/Freelance,
Inc. a Pennsylvania corporation. (20)
10.102 Transfer of Freehold land between British Telecommunications plc and
BT Property Limited and Russ Berrie (UK) Ltd. (21)
10.103 Executive Employment Agreement dated December, 1992 between Russ
Berrie and Company, Inc. and Bernard Tenenbaum. (21)
10.104 Russ Berrie and Company, Inc. 1994 Stock Option Plan. (21)
10.105 Russ Berrie and Company, Inc. 1994 Stock Option Plan for Outside
Directors. (21)
10.106 Russ Berrie and Company, Inc. 1994 Stock Option and Restricted Stock
Plan. (21)
10.107 Russ Berrie and Company, Inc. 1994 Employee Stock Purchase Plan.
(21)
10.108 Asset Purchase Agreement dated October 1, 1993 by and between
RBTACQ, Inc. and Cap Toys, Inc. (22)
10.109 Asset Purchase Agreement I.C. September 30, 1994 by and among
RBCACQ, Inc. and OddzOn Products, Inc., Scott Stillinger and Mark
Button. (23)
- ----
(19) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1990.
(20) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1991.
(21) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1992.
(22) Incorporated by reference to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993.
(23) Incorporated by reference to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994.
38
39
EXHIBIT NO.
10.110 Asset Purchase Agreement By and Among PF ACQUISITION CORP., ZEBRA
CAPITAL CORPORATION, PAPEL/FREELANCE, INC. and RUSS BERRIE AND
COMPANY, INC. dated December 15, 1995. (24)
10.111 Agreement dated December 17, 1996, by and between Russ Berrie and
Company, Inc. and A. Curts Cooke. (25)
10.112 Agreement dated March 24, 1997, by and between Russ Berrie and
Company, Inc. and Ricky Chan. (25)
10.113 Asset Purchase Agreement dated as of May 2, 1997 among Russ Berrie
and Company, Inc., OddzOn Products, Inc., Cap Toys, Inc., OddzOn/Cap
Toys, Inc. and Hasbro, Inc., together with exhibits thereto. (26)
10.114 First Amendment of Agreement dated June 5, 1997, by and between Russ
Berrie and Company, Inc. and A. Curts Cooke. (27)
10.115 Agreement of Purchase and Sale between Amram's Distributing Ltd. and
Metrus Properties Ltd. dated November 25, 1997. (27)
10.116 Russ Berrie and Company, Inc. 1999 Stock Option Plan. (28)
10.117 Russ Berrie and Company, Inc. 1999 Stock Option Plan for Outside
Directors. (28)
10.118 Russ Berrie and Company, Inc. 1999 Stock Option and Restricted Stock
Plan. (28)
10.119 Russ Berrie and Company, Inc. 1999 Employee Stock Purchase Plan.
(28)
10.120 Second Amendment of Agreement dated January 13, 1999, by and between
Russ Berrie and Company, Inc. and A. Curts Cooke. (29)
10.121 Executive Employment Agreement dated April 2, 1998 between Russ
Berrie and Company, Inc. and Paul Cargotch. (29)
10.122 Exercise of option to extend terms of leases dated December 28, 1983
and March 7, 1988 between Russell Berrie and Russ Berrie and
Company, Inc. (29)
10.123 Executive Employment Agreement dated March 31, 1999 between Russ
Berrie and Company, Inc. and Jeffery D. Schaum.
- ----
(24) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1995.
(25) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1996.
(26) Incorporated by reference to Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997.
(27) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1997.
(28) Incorporated by reference to Form S-8 Registration Statement No.
333-70081 as filed on January 4, 1999.
(29) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1998.
39
40
21.1 List of Subsidiaries
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1999.
UNDERTAKING
In order to comply with amendments to the rules governing the use of Form S-8
under the Securities Act of 1933, as amended, as set forth in Securities Act
Release No. 33-6867, the undersigned Registrant hereby undertakes as follows,
which undertaking shall be incorporated by reference into Registrant's
Registration Statements on Forms S-8 (File Nos. 2-96238, 2-96239, 2-96240,
33-10779, 33-26161, 33-27406, 33-27897, 33-27898, 33-51823 and 333-70081):
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
40
41
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)
3/22/00 By /s/ Eric R. Lohwasser
- -------------- --------------------------------------
Date Eric R. Lohwasser
Vice President - Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Russell Berrie 3/28/00
- --------------------------------------
Russell Berrie, Chairman,
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Raphael Benaroya 3/28/00
- --------------------------------------
Raphael Benaroya, Director
/s/ Angelica Berrie 3/28/00
- --------------------------------------
Angelica Berrie, Director
/s/ Ilan Kaufthal 3/21/00
- --------------------------------------
Ilan Kaufthal, Director
/s/ Charles Klatskin 3/17/00
- --------------------------------------
Charles Klatskin, Director
/s/ Joseph Kling 3/28/00
- --------------------------------------
Joseph Kling, Director
/s/ William A. Landman 3/28/00
- --------------------------------------
William A. Landman, Director
/s/ Sidney Slauson 3/17/00
- --------------------------------------
Sidney Slauson, Director
/s/ Josh Weston 3/17/00
- --------------------------------------
Josh Weston, Director
41
42
S-2
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- ---------
BALANCE AT
BEGINNING CHARGED TO BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS* END OF PERIOD
----------- --------- -------- ----------- -------------
Allowance for accounts receivable:
Year ended December 31, 1997 $ 2,258 $ 2,272 $ 2,297 $ 2,233
Year ended December 31, 1998 2,233 1,872 1,483 2,622
Year ended December 31, 1999 2,622 2,534 1,425 3,731
Allowance for slow moving inventory items:
Year ended December 31, 1997 17,132 2,245 4,085 15,292
Year ended December 31, 1998 15,292 2,754 3,998 14,048
Year ended December 31, 1999 14,048 2,991 2,857 14,182
* Principally account write-offs, allowances and disposal of merchandise,
respectively.
42
43
EXHIBIT INDEX
EXHIBIT NUMBERS
10.123 Executive Employment Agreement dated March 31, 1999 between Russ
Berrie and Company, Inc. and Jeffery D. Schaum.
21.1 List of Subsidiaries
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule
43