Back to GetFilings.com
1
UNITED STATES
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, 1996 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 18, 1997 was $242,596,331.
The number of shares outstanding of each of the Registrant's classes of common
stock, as of March 18, 1997, was as follows:
Class Number of Shares
--------------- ----------------
Common Stock, $0.10 stated value 22,197,378
Documents Incorporated by Reference
-----------------------------------
Certain portions of the Registrant's Proxy Statement dated March 14, 1997,
relating to registrant's Annual Meeting of Shareholders to be held on April 24,
1997 (the "1997 Proxy Statement"), are incorporated by reference into Part III
of this report.
2
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.
Since 1993, the Company has operated two business segments; gift and toy. The
gift business segment represents the Company's continuing line of operations
which principally markets a line of products under the trade name RUSS(R). The
toy business segment represents the Company's subsidiaries Cap Toys, Inc. and
OddzOn Products, Inc.
On February 7, 1997, the Company signed a letter of intent with Hasbro, Inc.
whereby Hasbro would acquire substantially all of the assets of the Company's
subsidiaries Cap Toys, Inc. and OddzOn Products, Inc. The sale is subject to the
execution of a definitive purchase agreement and the transaction is expected to
be completed in the first half of 1997. However, there can be no assurance that
such transaction will be completed, and if completed there can be no assurance
that such transaction will be completed in the expected time frame. These two
subsidiaries represent the Company's Toy business segment and accordingly the
operating results of the Toy business segment have been classified as
discontinued operations and the financial statements have been restated to
reflect this presentation.
CONTINUING OPERATIONS
The Company designs, manufactures through third parties and markets a wide
variety of gift products to retail stores throughout the United States and most
countries throughout the world.
The Company's products are designed to appeal to the emotions of consumers to
reflect their feelings of 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 and Canada. Where the Company does not
maintain a direct salesforce and distribution network, the Company's products
are sold worldwide through distributors. See note 13 of the Notes to
Consolidated Financial Statements for more information regarding geographic
information.
PRODUCTS
The Company's product line of more than 6,000 items (including distinctive
variations on basic product designs) are 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. Products include stuffed
animals, picture frames, candles, figurines and home decor gifts based on
current fashions and trends. The Company maintains product depth in categories
such as Birthday, Anniversaries, Over-The-Hill, Fun 'N Games, Gifted Moments,
Inspirational Gifts, Lifestyles, Home Styles, Gentlemen's Gifts, Collectibles
and Baby Products. Extensive seasonal lines include products for all the major
holidays.
The Company's Bright of America, Inc. subsidiary principally markets Placemats
and Candles directly to mass merchandisers. In addition, the Company's
subsidiary Fluf N' Stuf, Inc. operates a chain of outlet stores under the name
"RUSS" which sell the Company's products and products of unaffiliated companies.
2
3
Most of the Company's products have suggested retail prices between $1 and $30.
Product sales are highly diverse and as such, no single gift item represented
more than 1% of sales within the gift segment in 1996.
During 1995, the Company decided to concentrate its efforts and resources within
the gift business on building the RUSS business. As a result, the decision was
made to sell the Company's Papel/Freelance, Inc. subsidiary, which also served
the gift industry by principally offering a wide variety of ceramic products. On
January 17, 1996, the Company completed the sale of the business of its
subsidiary, Papel/Freelance, Inc. During the years ended December 31, 1995 and
1994, sales of Papel/Freelance as a percentage of the Company's total sales of
the gift business segment represented 14.3% and 17.0%, respectively.
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 173 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 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 gift 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.
Substantially all of the Company's products are produced by independent
manufacturers, generally in the Far East, under the supervision of Company
personnel. During 1996, approximately 95% of the Company's products were
produced in the Far East, and 5% in the United States. The dollar amount of
purchases in the United States predominantly represent domestically produced
displays and printed materials such as cards and calendars.
3
4
The Company utilizes approximately 172 manufacturers in the Far East, primarily
in the People's Republic of China, Taiwan, Korea, and Indonesia. During 1996,
approximately 84% 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 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 355 employees in
Hong Kong, Taiwan, Korea and Indonesia monitor the production process with
responsibility for the quality, safety and prompt delivery of Company products.
Members of the Company's Far East staff make frequent visits to the
manufacturers for which they are responsible. Many of the Company's
manufacturers are small operations, some selling exclusively to the Company. The
Company believes that there are many alternate manufacturers for the Company's
products and the loss of any one manufacturer would not significantly affect the
operations of the Company. In 1996, 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 26% in the
aggregate.
MARKETING
The Company's products are marketed primarily through its own direct salesforce
of more than 500 full-time employees. Products are sold directly to retail
stores in the United States and in certain foreign countries, including 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 and military post
exchanges. During 1996, the Company sold gift products to more than 54,000
customers. No single gift customer accounted for more than 2.2% of gift dollar
sales.
The Company reinforces the marketing efforts of its gift product 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 believes that effective packaging and merchandising of its products
are very important to its marketing success. Many products are shipped in
colorful corrugated cartons which can be used as free-standing displays and can
be discarded when all the products have been sold. The Company also offers
semi-permanent free-standing lucite, metal and wooden displays, thereby
providing an efficient promotional vehicle for selling the Company's products.
The Company believes that customer service is an important component of its
marketing strategy and therefore has established a Customer Service Department
at each distribution facility 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 would
not exceed five months, on sales of seasonal merchandise, e.g., Christmas,
Halloween, Easter and other seasons. The Company has a general policy of not
accepting returns or selling on consignment.
4
5
The Company maintains a direct salesforce and distribution network to serve its
customers in Great Britain, Holland, Belgium, Ireland, Spain and Canada. 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
$66,840,000, $59,000,000 and $46,092,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
DISTRIBUTION
The Company has customers located in the United States and throughout the world.
In order to serve them quickly and effectively, the Company maintains U.S.
distribution centers in South Brunswick, New Jersey, Columbus, Ohio, and
Petaluma, California which receive products directly from suppliers (in the case
of Columbus, Ohio, receives product from South Brunswick, New Jersey), and then
distribute such products to the Company's customers. The Company also maintains
a facility in the Toronto, Canada area for its Canadian customers and facilities
in Southampton, England to serve its customers in Europe. The Company generally
uses common carriers to distribute to its customers.
SEASONALITY
In addition to its everyday gift products, the Company produces specially
designed products for holiday seasons which include: Christmas, Valentine's Day,
Easter, Halloween, Mother's Day, Thanksgiving, Graduation, Father's Day, and St.
Patrick's Day.
The pattern of the Company's gift sales is influenced by the shipment of
seasonal merchandise. The Company generally ships the majority of gift 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.
In 1996, due to the earlier consumer selling season, the Company shipped orders
for Easter 1997 in the quarter ended December 31, 1996 as well as during the
quarter ending March 31, 1997.
During 1996, gift items specially designed for individual seasons accounted for
approximately 48% of the Company's sales; no individual season accounted for
more than 16% of the Company's sales.
The following table sets forth the Company's quarterly sales during 1996, 1995
and 1994.
QUARTERLY SALES
(In Millions)
1996 1995 1994
------------- ------------ ------------
Quarter Ended Sales % Sales % Sales %
------------- ----- --- ----- ---- ----- ----
March 31...... $ 56.5 25.0 $ 56.2 26.3 $ 50.9 27.1
June 30....... $ 41.8 18.5 $ 40.7 19.0 $ 36.1 19.3
September 30.. $ 67.9 30.0 $ 67.0 31.3 $ 56.6 30.2
December 31... $ 60.0 26.5 $ 50.0 23.4 $ 43.8 23.4
5
6
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, 1996 and December 31, 1995 was $21,616,000 and $20,477,000, respectively
(excludes Papel/Freelance for 1995).
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 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.
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, 1996, the Company employed approximately 1,580 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 management and sales personnel, non-competition agreements (subject
to certain territorial limitations in the case of salespersons) which restrict
their ability to compete with the Company for a period of six months after
termination of their employment.
6
7
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 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.
DISCONTINUED OPERATIONS
PRODUCTS
The Company's discontinued toy business segment product line includes a variety
of innovative toys, interactive candies and sports related products. Cap Toys,
Inc's. products include items such as Melanie's Mall(TM), Sky Racers(TM) and
Shout N' Shoot(TM) as well as Spin Pop(R) candy. OddzOn Products, Inc., whose
products are marketed primarily under the brand name Koosh(R), include products
such as the Koosh(R) Ball, Woosh(R), Vortex(R), Koosh(R) Accessories, Koosh(R)
Soft Sport(TM), Koosh(R) Collectibles (including (C)Disney and Warner Bros.(C)
licensed characters), as well as the Rubik's line of puzzles and games.
DESIGN AND PRODUCTION
The Company's toy subsidiaries develop products in conjunction with independent
toy inventors. The products are evaluated by the Design and Development staff
and undergo a testing process to determine the reaction and acceptability in the
marketplace. Products are then selected based on manufacturing profitability
criteria and reaction from its major customers. The Company's toy products are
manufactured predominantly outside the United States, primarily in the Far East.
MARKETING
The Company's toy business sells its products primarily through independent
representative groups to mass merchandisers, which represent a significant
portion of its sales. During 1996, approximately 27% of the toy business sales
were sold to its largest customer and 57% to its five largest customers.
The Company supports certain of its toy products through an extensive
advertising campaign. Advertising expense related to the Company's toy business
for the years ended December 31, 1996, 1995 and 1994 was $27,683,000,
$15,219,000 and $10,650,000, respectively. The majority of its advertising
budget is allocated to television advertising.
The Company's toy business generally does not sell its products on consignment
and ordinarily accepts returns only for defective merchandise. In certain
instances, the Company may, in accordance with industry practice, assist
retailers in order to enable them to sell excess inventory by offering discounts
and other concessions.
7
8
DISTRIBUTION
The Company's toy product line is distributed through Cap Toys, Inc., which
maintains an office and warehouse distribution facility in Bedford Heights, Ohio
and through OddzOn Products, Inc., which maintains an office in Campbell,
California and distributes its products from the Company's facility in Petaluma,
California.
SEASONALITY
The toy industry is highly seasonal in nature due to the demand for toy products
during the Christmas season. To reduce the impact of this seasonality, the
Company's toy business markets items specially designed for the summer season.
Such items include Shout N' Shoot(TM), Vortex(R), Koosh(R) Paddle Ball, and
other sports related products. The Company's toy business also markets an
imaginative line of interactive candy products which are sold throughout the
year.
BACKLOG
In the toy industry, historically, new toy products have been introduced to the
trade at annual industry trade shows during the quarter ended March 31 and, as
such, the order backlog at the end of any fiscal year may not be a meaningful
predictor of financial results of the succeeding year.
COMPETITION
The toy industry is highly competitive. The Company believes that the principal
competitive factors are as follows: marketing ability, reliable delivery,
product design, quality, customer service and price. The Company's principal toy
competitors are Galoob Toys, Inc., Toy Biz Inc., Tyco Toys, Inc., Mattel, Inc.
and Hasbro, Inc. Certain of the Company's existing or potential competitors may
have financial resources that are substantially greater than those of the
Company.
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 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 has license agreements with
(C)Disney and Warner Bros(C), among others. The majority of the Company's toy
products are developed in conjunction with independent toy designers. Rights to
such products are generally exclusive and require the payment of a royalty.
8
9
ITEM 2. PROPERTIES
The Company's continuing operations principal facilities consist of its
corporate offices in Oakland, New Jersey, and distribution centers in South
Brunswick, New Jersey; Petaluma, California; and Reynoldsburg, Ohio. In March of
1997, the Company decided to close its Reynoldsburg, Ohio distribution center
and move the operations to its South Brunswick, New Jersey facility. The Company
believes greater efficiences can be achieved while maintaining a high level of
service to its customers. Additionally, office and distribution facilities are
located in Southampton, England and in the Toronto, Canada area. The Company
owns the facility used by 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 leases its other facilities. The
facilities of the Company are maintained in good operating condition, are
generally adequate for the Company's purposes and are generally fully utilized,
other than those that were closed as part of a restructuring of the Company's
distribution system.
The Company's toy subsidiary, Cap Toys, Inc., maintains an office and warehouse
distribution facility in Bedford Heights, Ohio and OddzOn Products, Inc.,
maintains an office in Campbell, California and distributes its products from
the Company's Petaluma, California facility. It is anticipated that these
subsidiaries will be sold during the first half of 1997. However, there can be
no assurance that such transaction will be completed, and if completed there
can be no assurance that such transaction will be completed in the expected
time frame.
THE COMPANY'S CURRENT PRINCIPAL FACILITIES ARE AS FOLLOWS:
Lease Expiration
Location - Domestic Sq. Ft. Area (if applicable) (1)
------------------- ------------ -------------------
Petaluma, California (2)(3)(6)............. 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, 1999
Reynoldsburg, Ohio (3)..................... 77,600 July 1, 2000
Collegeville, Pennsylvania (5)............. 5,100 December 31, 1998
Summersville, West Virginia (5)(6)......... 156,000 Not Applicable-
Owned by Company
Lease Expiration
Location - Foreign Sq. Ft. Area (if applicable) (1)
------------------- ------------ -------------------
Chandlers Ford, England (5)................ 10,846 December 24, 2014
Southampton, England (6)................... 61,000 March 24, 2003
Southampton, England (6)................... 75,500 Not applicable -
Owned by Company
Rexdale, Ontario, Canada (5)(6)............ 76,290 May 31, 1997
Hong Kong (5).............................. 25,630 Not applicable -
Owned by Company
(1) Not including renewal options.
(2) Properties owned directly or indirectly by Russell Berrie or members of his
immediate family. See ITEM 13 - "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS".
(3) Regional distribution center.
(4) Corporate headquarters.
(5) Subsidiary (or division) headquarters.
(6) Subsidiary (or division) distribution center.
The Company's Dayton, New Jersey, Lakeland, Florida and one of its Rexdale,
Ontario, Canada facilities were closed as part of restructuring of the Company's
distribution system that took place prior to the year ended December 31, 1994.
These facilities have been partially subleased and have remaining lease terms of
less than two years.
The Company operates showroom facilities in Oakland, New Jersey; Los Angeles and
San Francisco, California; Atlanta, Georgia; Chicago, Illinois; Dallas, Texas;
Montreal, Vancouver and Toronto, Canada; Brussels, Belgium; Utrecht, Holland;
and North Point, Hong Kong. Certain showrooms are located within the facilities
listed above, others are leased with remaining lease terms at these facilities
ranging between one and four years.
9
10
Fluf N' Stuf, Inc. leases retail store space in shopping and outlet malls
located within the United States. The aggregate square footage of these 19
stores is approximately 38,797 square feet. The remaining lease terms, excluding
options to renew, at these facilities range between two and five years.
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 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. Included in income for the year ended December 31, 1996 is
a reversal of a litigation provision of $4,450,000 before tax or $2,800,000
after tax. This reversal was due to the settlement of certain litigation
provided for in 1992.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
Not applicable.
10
11
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 ........ 64 Chairman of the Board, Chief Executive Officer and
Director
Arnold S. Bloom........ 54 Vice President, Secretary and General Counsel
Paul Cargotch.......... 52 Executive Vice President, Chief Financial Officer,
Assistant Secretary and Director
Ricky Chan............. 44 Senior Vice President - Product Development and
Executive Vice President-Far East Operations
Chris Collins.......... 34 Vice President-Sales
A. Curts Cooke......... 60 President, Chief Operating Officer and Director
Budd S. Goldman........ 50 Vice President - Marketing
Y.B. Lee............... 51 Senior Vice President - Far East and President of
Far East Operations
Eric R. Lohwasser...... 41 Vice President - Finance
Guy M. Lombardo........ 52 Vice President - Management Information Systems
Bernard H. Tenenbaum... 42 Vice President - Corporate Development and
Director
Russell Berrie, the founder of the Company, has been Chairman of the Board and
Chief Executive Officer of the Company since its incorporation in 1966.
Arnold S. Bloom has been employed by the Company as Vice President, Secretary
and General Counsel for more than the past five years.
Paul Cargotch has been employed by the Company as Executive Vice President,
Chief Financial Officer and Assistant Secretary since July 1996. Prior to that,
Mr. Cargotch was Vice President-Finance and Chief Financial Officer for more
than the past five years. Mr. Cargotch has served as a Director of the Company
since July 1996.
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.
Chris Collins has been employed as Vice President of Sales since January 1997.
Prior thereto, Mr. Collins held various managerial positions within the
Company's salesforce for more than the past five years. .
A. Curts Cooke has been employed as President and Chief Operating Officer of the
Company for more than the past five years. Mr. Cooke has served as a Director of
the Company since 1982.
Budd S. Goldman will be employed by the Company on March 31, 1997 as Vice
President - Marketing. For the past three years Mr. Goldman has been an active
investor and advisor to a variety of growth companies. Prior to that, Mr.
Goldman was Founder and Chief Executive Officer of Banning Enterprises, Ltd., a
product development and marketing company in the gift industry which he founded
in 1979 and sold in 1989.
11
12
Y.B. Lee has been employed by the Company as President of Far East Operations
since October 1996. Prior to that, Mr. Lee was Senior Vice President-Far East
since August 1996 and Senior Vice President - Far East Plush Division for more
than the past five years.
Eric R. Lohwasser has been employed by the Company as Vice President - Finance
since July 1996. Mr. Lohwasser was Vice President - Controller since December
1995 and prior thereto was Corporate Controller for more than the past five
years.
Guy M. Lombardo has been employed by the Company as Vice President - Management
Information Systems for more than the past five years.
Bernard H. Tenenbaum has been employed by the Company as Vice President -
Corporate Development since January 14, 1993. From September 1988 until joining
the Company as an officer, Mr. Tenenbaum was a founding Director of the George
Rothman Institute of Entrepreneurial Studies, Fairleigh Dickinson University.
Mr. Tenenbaum is also a Director of WPI Group which manufactures component parts
for electronic and computer systems. Mr. Tenenbaum has served as a Director of
the Company since 1989.
12
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At December 31, 1996, the Company's Common Stock was held by approximately 611
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. Prior
to that time, there was no public market for the Common Stock. 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
---- ---
1996
- ----
First Quarter..................... $ 17 5/8 $ 12 3/4
Second Quarter.................... 18 3/8 14 3/4
Third Quarter..................... 18 1/4 14 3/4
Fourth Quarter.................... 19 1/2 15 3/4
1995
- ----
First Quarter..................... $ 14 5/8 $ 12
Second Quarter.................... 15 12 1/8
Third Quarter..................... 15 7/8 13 1/4
Fourth Quarter.................... 14 1/4 12 1/4
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 rate is $.17 per share, effective February
1997. Prior to that the quarterly rate was $.15 per share since February 1993.
The Board of Directors will review its dividend policy from time to time and
declaration of dividends will remain within its discretion.
13
14
ITEM 6. SELECTED FINANCIAL DATA
FOR YEARS ENDED DECEMBER 31
(Dollars in Thousands, Except Per Share Data)
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
SUMMARY OF OPERATIONS
Net Sales $226,243 $213,918 $187,387 $266,458 $444,382 $267,859
Cost of Sales 105,018 101,059 93,127 118,300 176,265 109,857
Income (Loss) from Continuing
Operations Before
Income Taxes * 42,555 11,407 (5,157) 16,596 92,999 31,746
Provision (Benefit) for
Income Taxes on
Continuing Operations 15,856 3,933 (2,254) 4,049 32,651 9,704
Net Income (Loss) from
Continuing Operations 26,699 7,474 (2,903) 12,547 60,348 22,042
Net Income from Discontinued
Operations 4,978 9,066 8,230 635 - -
Net Income 31,677 16,540 5,327 13,182 60,348 22,042
Net Income (Loss) Per Share
Continuing Operations 1.23 .35 (.14) .58 2.70 .98
Discontinued Operations .23 .42 .39 .03 - -
---- --- --- --- ---- ---
Total 1.46 .77 .25 .61 2.70 .98
Dividends Per Share .60 .60 .60 .60 .47 .40
BALANCE SHEET
Working Capital $187,373 $158,462 $152,455 $178,001 $206,510 $166,538
Property, Plant and
Equipment 21,765 23,464 24,319 27,741 29,577 27,035
Total Assets 276,966 251,397 242,151 255,884 298,847 226,319
Long-Term Debt - - - - - 3,000
Shareholders' Equity 248,726 222,996 218,388 224,034 241,259 196,278
STATISTICAL
Current Ratio 7.6 6.6 7.4 6.6 4.6 7.2
Return on Average
Shareholders' Equity 13.4% 7.5% 2.4% 5.7% 27.6% 11.5%
Net Profit Margin 11.8% 3.5% (1.5%) 4.7% 13.6% 8.2%
Number of Employees 1,580 1,752 1,772 2,089 2,608 2,333
Restated to reflect discontinued operations (See Notes to Consolidated
Financial Statements).
* 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. 1993 includes a restructuring charge of $5.0
million.
14
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF CONTINUING OPERATIONS - YEARS ENDED
DECEMBER 31, 1996 AND 1995
For the year ended December 31, 1996 the Company's net sales of $226,243,000
compares to net sales for the year ended December 31, 1995 of $213,918,000. This
represents an increase of 5.8%. The Company's gift products subsidiary
Papel/Freelance, Inc. was sold on January 17, 1996. Net sales excluding
Papel/Freelance, Inc. for the year ended December 31, 1996 was $225,328,000
compared to $183,253,000 for the year ended December 31, 1995, an increase of
$42,075,000 or 23.0%. This increase in net sales reflects the strong acceptance
of the Company's current gift product line. In December 1996 the Company, due to
the earlier consumer selling season for Easter 1997, sold approximately
$4,900,000, which represents a portion of its Easter seasonal merchandise sales.
Historically, sales of this product would not occur until January of the
following year.
Cost of sales were 46.4% of net sales in 1996 compared to 47.2% of net sales in
1995. This decrease can be attributed to the components of cost of sales that
are fixed costs which were absorbed by the higher sales volume in the year ended
December 31, 1996.
Selling, general and administrative expense was $89,827,000 or 39.7% of net
sales for the year ended December 31, 1996 compared to $103,184,000 or 48.2% of
net sales in 1995, a decrease of $13,357,000 or 12.9%. The decrease in selling,
general and administrative expense can be primarily attributable to the
elimination of the selling, general and administrative expense of the Company's
Papel/Freelance, Inc. subsidiary, which was sold in January, 1996. The decrease
in selling, general and administrative expense as a percent of net sales can be
attributed to fixed costs as they relate to the increase in net sales.
During the year ended December 31, 1996 the Company reversed a litigation
provision of $4,450,000 before tax or $2,800,000 after tax. This reversal was
due to a settlement of certain litigation for less than what was provided for in
the year ended December 31, 1992.
Investment and other income of $6,707,000 for the year ended December 31, 1996
compares to $1,732,000 in 1995. Included in the results for the year ended
December 31, 1996 is a gain of approximately $4,800,000 before tax related to
the sale of the Company's Papel/Freelance, Inc. subsidiary.
The provision for income taxes as a percent of income before taxes for the year
ended December 31, 1996 was 37.3% compared to 34.5% in the prior year. This
increase can be attributed to increases in tax liability on certain foreign
subsidiary income during the year ended December 31, 1996.
Net income from continuing operations for the year ended December 31, 1996 of
$26,699,000 compares to net income from continuing operations of $7,474,000 in
1995. This increase in net income can be attributed to the increase in net
sales, the decrease in selling, general and administrative expense, the gain on
the sale of the Company's subsidiary Papel/Freelance, Inc., of $3,000,000 after
tax and the reversal of the litigation provision of $2,800,000 after tax,
partially offset by the increase in the effective tax rate.
15
16
The Company maintains a direct salesforce and distribution network to serve its
customers in Europe and Canada. 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 through distributors worlwide. See Note
13 of the Notes to Consolidated Financial Statements for more information
regarding geographic information.
RESULTS OF CONTINUING OPERATIONS - YEARS ENDED
DECEMBER 31, 1995 AND 1994
For the year ended December 31, 1995 the Company's net sales of $213,918,000
compares to net sales for the year ended December 31, 1994 of $187,387,000. This
represents an increase of $26,531,000 or 14.2%.
Cost of sales were 47.2% of net sales in 1995 compared to 49.7% of net sales in
1994. This decrease can be attributed primarily to the components of cost of
sales that are fixed costs which were absorbed by the higher sales volume in the
year ended December 31, 1995.
Selling, general and administrative expense was $103,184,000 or 48.2% of net
sales for the year ended December 31, 1995 compared to $101,937,000 or 54.4% of
net sales in 1994, an increase of $1,247,000 or 1.2%.
Investment and other income of $1,732,000 for the year ended December 31, 1995
compares to $2,520,000 in 1994.
The provision for income taxes on continuing operations as a percent of income
from continuing operations before taxes for the year ended December 31, 1995 was
34.5% compared to a benefit for taxes of $2,254,000 in the prior year.
Net income from continuing operations for the year ended December 31, 1995 of
$7,474,000 compares to a loss from continuing operations of $2,903,000 in 1994.
The improvement in net income can be attributed to the increase in net sales.
DISCONTINUED OPERATIONS
On February 7, 1997, the Company signed a letter of intent with Hasbro, Inc.
whereby Hasbro would acquire substantially all of the assets of the Company's
subsidiaries Cap Toys, Inc. and OddzOn Products, Inc. The purchase price of
$166,000,000 is subject to adjustment based on the net tangible value of the
assets sold on the day of closing. The sale is subject to the execution of a
definitive purchase agreement and the transaction is expected to be completed in
the first half of 1997. These two subsidiaries represent the Company's Toy
business segment. The operating results of the Toy business segment have been
classified as discontinued operations and the financial statements have been
restated to reflect this presentation.
Net sales of the Company's discontinued operations amounted to $151,380,000 for
the year ended December 31, 1996 compared to $134,556,000 for the year ended
December 31, 1995. Net income from discontinued operations for the year ended
December 31, 1996 of $4,978,000 compares to $9,066,000 in 1995.
16
17
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had cash and cash equivalents of $52,257,000
compared to $35,802,000 at December 31, 1995. During the year ended December 31,
1996, the Company generated net cash flows from continuing operating activities
of $19,008,000 resulting primarily from net income from continuing operations of
$26,699,000 offset by increases in accounts receivable of $14,109,000.
On January 17, 1996, the Company sold the assets of its subsidiary
Papel/Freelance, Inc. The sale resulted in an increase in cash and cash
equivalents of approximately $18,325,000. An additional $2,000,000 before tax
will be received and recognized as income contingent upon satisfaction of the
terms of a transitional agreement.
The Company has available $85,156,000 in bank lines of credit that provide for
direct borrowings and letters of credit used for the purchase of inventory. At
December 31, 1996, letters of credit of $30,173,000 were outstanding. There were
no direct borrowings under the bank lines of credit. Working capital
requirements during 1996 were met entirely through internally generated funds.
The Company remains in a highly liquid position and believes that the resources
available from operations and bank lines of credit are sufficient to meet the
foreseeable requirements of its business.
The Company enters into forward exchange contracts, principally to economically
hedge the currency risk associated with the purchase of inventory by its
European operations. Gains and losses related to contracts accounted for as
hedges are reported as a component of the related transactions. The Company does
not anticipate any material adverse impact on its results of operations or
financial position from these contracts.
17
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Russ Berrie and Company, Inc.:
We have audited the accompanying consolidated balance sheets of Russ Berrie and
Company, Inc. and subsidiaries (the "Company") as of December 31, 1996 and 1995,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 present fairly, in
all material respects, the consolidated financial position of Russ Berrie and
Company, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
Parsippany, New Jersey
Coopers & Lybrand L.L.P.
January 31, 1997
except for the information presented in Note 16,
for which the date is
February 7, 1997
18
19
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31
(Dollars in Thousands, Except Per Share Data)
1996 1995 1994
-------- -------- --------
Net sales ................................... $226,243 $213,918 $187,387
Cost of sales................................ 105,018 101,059 93,127
-------- -------- --------
Gross profit.............................. 121,225 112,859 94,260
Selling, general and administrative expense.. 89,827 103,184 101,937
Litigation .................................. (4,450) - -
Investment and other income-net.............. (6,707) (1,732) (2,520)
-------- -------- --------
Income (loss) from continuing operations
before taxes............................ 42,555 11,407 (5,157)
Provision (benefit) for income taxes on
continuing operations..................... 15,856 3,933 (2,254)
-------- -------- --------
Net income (loss) from continuing operations 26,699 7,474 (2,903)
Net income from discontinued operations... 4,978 9,066 8,230
-------- -------- --------
Net income................................ $ 31,677 $ 16,540 $ 5,327
======== ======== ========
Net income (loss) per share
Continuing operations...................... $ 1.23 $ 0.35 $ (0.14)
Discontinued operations.................... 0.23 0.42 0.39
-------- -------- --------
Total................................. $ 1.46 $ 0.77 $ 0.25
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
19
20
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in Thousands)
Additional Foreign
Common Paid In Retained Currency Treasury
Stock Capital Earnings Translation Stock
----- ------- -------- ----------- -----
Balance at December 31, 1993..... $2,388 $36,840 $225,650 $(2,987) $(37,857)
Net income....................... - - 5,327 - -
Share transactions under
stock option plans............. 7 1,035 - - -
Cash dividends ($.60 per share).. - - (12,874) - -
Foreign currency
translation adjustment......... - - - 859 -
------ ------- ------- ------ ------
Balance at December 31, 1994..... 2,395 37,875 218,103 (2,128) (37,857)
Net income....................... - - 16,540 - -
Share transactions under
stock option plans............. 6 771 - - -
Cash dividends ($.60 per share).. - - (12,921) - -
Foreign currency
translation adjustment......... - - - 212 -
------ ------- ------- ------ ------
Balance at December 31, 1995..... 2,401 38,646 221,722 (1,916) (37,857)
Net income....................... - - 31,677 - -
Share transactions under
stock option plans............. 32 4,634 - - -
Cash dividends ($.60 per share).. - - (13,026) - -
Foreign currency
translation adjustment......... - - - 2,413 -
------ ------- ------- ------ ------
Balance at December 31, 1996..... $2,433 $43,280 $240,373 $ 497 $(37,857)
====== ======= ======= ====== ======
The accompanying notes are an integral part of the consolidated financial
statements.
20
21
CONSOLIDATED BALANCE SHEET AT DECEMBER 31
(Dollars in Thousands)
ASSETS 1996 1995
- ------ ------- -------
Current assets
Cash and cash equivalents..................... $ 52,257 $ 35,802
Accounts receivable, trade, less allowances;
$2,258 in 1996 and $2,704 in 1995 ......... 49,355 41,648
Inventories - net............................. 54,350 63,777
Prepaid expenses and other current assets..... 2,558 3,211
Deferred income taxes......................... 9,707 13,175
Net current assets of discontinued operations. 47,386 29,250
------- -------
Total current assets.............. 215,613 186,863
Property, plant and equipment - net............. 21,765 23,464
Other assets.................................... 2,948 3,654
Net assets of discontinued operations........... 36,640 37,416
------- -------
Total assets...................... $276,966 $251,397
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Accounts payable............................. $ 3,709 $ 3,377
Accrued expenses............................. 18,776 23,629
Accrued income taxes......................... 5,755 1,395
------- -------
Total current liabilities........ 28,240 28,401
Commitments and contingencies
Shareholders' equity
Common stock: $.10 stated value; authorized
50,000,000 shares; issued 1996, 24,333,952
shares; 1995, 24,011,198 shares............ 2,433 2,401
Additional paid in capital................... 43,280 38,646
Retained earnings............................ 240,373 221,722
Foreign currency translation adjustments..... 497 (1,916)
Treasury stock, at cost (2,454,814 shares)... (37,857) (37,857)
------- -------
Total shareholders' equity....... 248,726 222,996
------- -------
Total liabilities and
shareholders' equity............. $276,966 $251,397
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
21
22
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(Dollars in Thousands)
Cash flows from continuing operating activities: 1996 1995 1994
------ ------ ------
Net income $31,677 $16,540 $ 5,327
Adjustments to reconcile net income to net cash
provided by continuing operating activities:
Net income - discontinued operations............ (4,978) (9,066) (8,230)
Depreciation.................................... 3,220 3,775 4,246
Amortization of intangible assets............... 155 534 1,050
Provision for accounts receivable reserves...... 1,115 1,156 1,116
Gain on sale of subsidiary...................... (4,800) - -
Gains or losses from sale or disposal
of fixed assets............................... 828 303 (315)
Changes in assets and liabilities, net of
effect of acquisitions and dispositions:
Accounts receivable......................... (14,109) (6,956) 2,621
Inventories................................. 1,359 (7,266) 7,782
Deferred income taxes....................... 3,469 (202) (855)
Prepaid expenses and other current assets... 563 1,091 396
Other assets................................ 303 436 (1,700)
Accounts payable............................ 536 (18) (562)
Accrued expenses............................ (4,690) 3,404 (7,278)
Accrued income taxes........................ 4,360 1,251 (249)
------ ------ ------
Total adjustments......................... (12,669) (11,558) (1,978)
------ ------ ------
Net cash provided by continuing
operating activities................. 19,008 4,982 3,349
Cash flows from investing activities:
Sales of short-term investments..................... - 5,203 26,218
Proceeds from sale of fixed assets.................. 214 605 1,362
Capital expenditures................................ (1,791) (3,828) (1,870)
Acquisitions........................................ - (3,352) -
Sale of subsidiary.................................. 18,325 - -
------ ------ ------
Net cash provided by (used in)
investing activities................. 16,748 (1,372) 25,710
Cash flows from financing activities:
Issuance of common stock............................ 4,666 777 1,042
Dividends........................................... (13,026) (12,921) (12,874)
------ ------ ------
Net cash (used in) financing
activities........................... (8,360) (12,144) (11,832)
Effect of exchange rates............................ 1,441 213 859
Cash provided by (used by/for)
discontinued operations........................... (12,382) 1,886 (28,224)
------ ------ ------
Net increase (decrease) in cash and
cash equivalents.................................. 16,455 (6,435) (10,138)
Cash and cash equivalents at beginning of year...... 35,802 42,237 52,375
------ ------ ------
Cash and cash equivalents at end of year............ $52,257 $35,802 $42,237
====== ====== ======
Cash paid during the year for:
Interest...................................... $ 130 $ 284 $ 353
Income taxes.................................. $12,584 $10,380 $ 3,953
The accompanying notes are an integral part of the consolidated financial
statements.
22
23
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 most countries throughout the world.
Note 2 - Summary of Significant Accounting Practices
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.
Reclassifications/Discontinued Operations
To conform to the 1996 presentation, certain reclassifications were made to the
prior years' consolidated financial statements. See Note 16 regarding
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
results of operations during the year in which they are incurred. Advertising
cost for the years ended December 31, 1996, 1995 and 1994 amounted to
$1,327,000, $2,072,000 and $2,263,000, respectively.
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
value.
Inventories
Inventories, which mainly consist of finished goods, are stated at the lower of
cost (first-in, first-out) or market value.
23
24
Property
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
eighteen years. Leasehold improvements are amortized using the straight-line
method over the term of the respective lease or asset life, whichever is
shorter. 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.
Goodwill and Other Intangible Assets
Goodwill, which represents the excess of purchase price of acquired assets over
the fair market value of net assets acquired, is being amortized using the
straight-line method over fifteen years or less. The Company evaluates the
recoverability of goodwill based upon estimated future income of operating
entities. Other intangible assets acquired are being amortized over the period
for which benefit is derived which ranges from three to five years. Accumulated
amortization was $3,025,000 and $4,115,000 at December 31, 1996 and 1995,
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 shareholders'
equity. Gains and losses from foreign currency transactions are included in
investment and other income - net (See Note 7).
Accounting for Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
Net Income Per Share
Net income per share is based on the weighted average number of shares
outstanding during the year. The number of shares used in the computation at
December 31, 1996, 1995 and 1994 were 21,697,674, 21,533,402 and 21,458,099,
respectively.
Foreign Currency Contracts
The Company enters into forward exchange contracts, principally to economically
hedge the currency risk associated with the purchase of inventory within one
year by its United Kingdom subsidiary. Gains and losses related to contracts
accounted for as hedges are reported as a component of the related transactions.
The Company does not speculate in foreign currencies. At December 31, 1996 and
1995, the aggregate notional amount of foreign exchange contracts was
$12,000,000 and $6,500,000, respectively.
At December 31, 1996, the Company's forward exchange contracts have expiration
dates which range from one to twelve months. The estimated fair value of the
Company's forward exchange contracts based on quoted rates as of December 31,
1996 was $11,327,000. The Company does not anticipate any material adverse
impact on its results of operations or financial position from these contracts.
24
25
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.
Acquisitions
During 1995, the Company completed the acquisition of Ivory Tower Publishing
Company, Inc. The acquisition, accounted for as a purchase, was funded entirely
by the Company's cash. No goodwill was recorded as the purchase price was
equivalent to the estimated fair value of the assets acquired and liabilities
assumed.
Note 3 - Inventory Reserves
As of December 31, 1996 and 1995, 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, 1996
and 1995 was $17,132,000 and $18,582,000, respectively.
Note 4 - Property, Plant and Equipment
Property, plant and equipment consist of the following:
December 31,
1996 1995
---------- ----------
Land......................... $ 6,292,000 $ 6,053,000
Buildings.................... 10,471,000 10,616,000
Machinery and equipment...... 19,754,000 20,606,000
Furniture and fixtures....... 5,106,000 6,190,000
Leasehold improvements....... 7,025,000 7,861,000
---------- ----------
48,648,000 51,326,000
Less accumulated depreciation
and amortization........... 26,883,000 27,862,000
---------- ----------
$ 21,765,000 $ 23,464,000
========== ==========
Note 5 - 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,
1996, under local lines of credit, is $15,156,000. These lines which are
guaranteed by the Company, provide for direct borrowings, letters of credit and
overdraft facilities.
In connection with the purchase of imported merchandise, the Company, at
December 31, 1996, had letters of credit outstanding under all lines of
$30,173,000.
25
26
Note 6 - Accrued Expenses
Accrued expenses as of December 31, 1996 and 1995 consist of the following:
December 31,
1996 1995
---------- ----------
Accrued sales commissions....... $ 2,923,000 $ 2,064,000
Accrued litigation.............. 1,250,000 6,300,000
Accrued payroll and
incentive compensation...... 3,507,000 3,097,000
Accrued future lease obligations 2,205,000 3,359,000
Other........................... 8,891,000 8,809,000
---------- ----------
$18,776,000 $23,629,000
========== ==========
Note 7 - Investment and Other Income - Net
The significant components of investment and other income - net for the years
ended December 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994
---------- --------- ---------
Investment income.............. $ 2,210,000 $ 1,887,000 $ 2,208,000
Interest expense............... (121,000) (225,000) (150,000)
Foreign currency transactions.. (391,000) (73,000) 87,000
Gain on sale of subsidiary..... 4,800,000 - -
Other.......................... 209,000 143,000 375,000
---------- --------- ---------
$ 6,707,000 $ 1,732,000 $ 2,520,000
========== ========= =========
On January 17, 1996, the Company completed the sale of its subsidiary
Papel/Freelance, Inc. The sale resulted in a gain of approximately $4,800,000
before tax, or $3,000,000 ($0.14 per share) after tax, which was recognized in
the first quarter of 1996. An additional $2,000,000 before tax, relating to a
transitional agreement, will be received and recognized as income contingent
upon satisfaction of the terms of the agreement.
26
27
Note 8 - Income Taxes
The Company and its domestic subsidiaries file a consolidated Federal income tax
return.
Income (loss) from continuing operations before income taxes was:
Years Ended December 31,
1996 1995 1994
---------- --------- ---------
United States $29,376,000 $ 4,069,000 $(6,745,000)
Foreign 13,179,000 7,338,000 1,588,000
---------- --------- ---------
$42,555,000 $11,407,000 $(5,157,000)
========== ========= =========
The provision for income taxes consists of the following:
Years Ended December 31,
Currently payable: 1996 1995 1994
---------- --------- ---------
Federal................. $ 8,640,000 $ 2,607,000 $(2,444,000)
Foreign................. 3,003,000 1,007,000 438,000
State................... 744,000 521,000 607,000
---------- --------- ---------
12,387,000 4,135,000 (1,399,000)
Deferred:
Federal................. 3,406,000 (299,000) (1,871,000)
Foreign................. 63,000 97,000 (342,000)
State................... - - 1,358,000
---------- ---------- ---------
3,469,000 (202,000) (855,000)
---------- ---------- ---------
$15,856,000 $3,933,000 $(2,254,000)
========== ========== =========
A reconciliation of the provision for income taxes with amounts computed at the
statutory Federal rate is shown below:
Years Ended December 31,
1996 1995 1994
---------- --------- ---------
Tax at U.S. Federal statutory rate.. $14,895,000 $3,993,000 $(1,805,000)
State income tax net of Federal
tax benefit....................... 610,000 149,000 154,000
Foreign rate differences............ 1,011,000 49,000 560,000
Charitable contributions............ (686,000) - -
Tax advantaged investment income.... (279,000) (173,000) (301,000)
Provision for foreign dividends..... - - (3,000,000)
Change in enacted rates............. - - 30,000
Change in valuation allowance....... (205,000) 164,000 1,275,000
Adjustment of estimated liabilities. 271,000 - 707,000
Other, net.......................... 239,000 (249,000) 126,000
---------- --------- ---------
$15,856,000 $3,933,000 $(2,254,000)
========== ========= =========
The Company has recorded a valuation allowance of $1,984,000 (primarily relating
to deferred state income taxes) to reflect the estimated amount of deferred tax
assets which may not be realized.
27
28
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,
1996 1995
--------- ----------
Assets:
Inventory capitalization................ $2,470,000 $ 2,809,000
Reserves not deducted for tax purposes.. 5,213,000 5,879,000
Accrued future lease obligations........ 723,000 1,076,000
Litigation.............................. 556,000 2,295,000
Other................................... 762,000 1,143,000
--------- ----------
9,724,000 13,202,000
--------- ----------
Liabilities:
Depreciation............................ 17,000 27,000
--------- ----------
Net deferred tax asset.................. $9,707,000 $13,175,000
========= ==========
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 $60,895,000 as of December 31, 1996. Determination
of the net amount of unrecognized deferred tax liability with respect to these
earnings is not practicable.
Note 9 - Related Party Transactions
Certain buildings, referred to in Note 10, 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, 1996, 1995 and 1994 were
$4,042,000, $4,042,000 and $4,307,000, respectively. The Company is also a
guarantor under two mortgages for property so leased with a principal amount
aggregating approximately $8,180,000 as of December 31, 1996, $2,000,000 of
which is collateralized by assets of the Company.
The Company also leases a facility from a partnership in which a director of the
Company is a general partner. Annual rentals under this lease agreement for the
years ended December 31, 1996, 1995 and 1994 were $996,000. This lease
obligation is included in accrued future lease obligations (See Note 6).
28
29
Note 10 - Leases
At December 31, 1996, 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 twenty-two years.
Rent expense for the years ended December 31, 1996, 1995 and 1994 amounted to
$6,834,000, $7,479,000 and $7,709,000, respectively.
The approximate aggregate minimum future rental payments as of December 31, 1996
under operating leases are as follows:
1997 .................. $7,637,000
1998................... 5,682,000
1999................... 3,873,000
2000................... 2,534,000
2001................... 2,224,000
Later years............ 7,591,000
Note 11 - Stock Option and Employee Stock Purchase Plans
The Company has three stock option plans and an employee stock purchase plan. As
of December 31, 1996, there were 2,951,137 shares of common stock reserved for
issuance under all stock plans. The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"). Accordingly, no compensation
cost has been recognized for the stock plans. Had compensation cost for the
Company's three stock option plans and employee stock purchase plan been
determined based on the fair value at the grant date for the awards in 1996,
1995 and 1994 consistent with the provisions of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
Years Ended December 31,
1996 1995 1994
------- ------- ------
Net Income - as reported $31,677 $16,540 $5,327
Net Income - pro forma $30,951 $16,008 $4,791
Earnings per share - as reported $1.46 $0.77 $0.25
Earnings per share - pro forma $1.43 $0.74 $0.22
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
all grants : dividend yield of 3.75%; expected volatility of 32.1%; risk-free
interest rate of 6.05%; and expected lives of approximately 3.5 years.
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 : dividend yield of 3.75%;
expected volatility of 32.1%; risk-free interest rate of 5.44%; and an expected
life of approximately one year.
29
30
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 1996, 1995 and 1994 is as
follows:
All Stock Option Plans
----------------------
Weighted
Average
Shares Exercise Price
------ --------------
Outstanding as of December 31, 1993..... 1,090,022 $15.929
Options Granted......................... 286,386 14.875
Options Exercised....................... (89,157) 12.452
Options Cancelled....................... (169,825) 16.988
--------
Outstanding as of December 31, 1994..... 1,117,426 15.774
Options Granted......................... 277,186 13.750
Options Exercised....................... (38,566) 12.386
Options Cancelled....................... (105,863) 16.137
--------
Outstanding as of December 31, 1995..... 1,250,183 15.401
Options Granted......................... 360,547 13.625
Options Exercised....................... (314,476) 13.549
Options Cancelled....................... (127,478) 15.965
--------
Outstanding as of December 31, 1996..... 1,168,776 15.291
=========
Option price range at December 31, 1996 $9.59 to $21.17
Option price range for excercised shares $9.59 to $17.67
Options available for grant at
December 31, 1996.................... 2,836,586
The weighted-average fair value of options granted, on a per share basis, during
the years 1996 and 1995 was $3.19 and $3.22, respectively.
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1996:
Options Outstanding Options Exercisable
------------------------ ---------------------------------
Number Weighted Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
$21.170 78,516 Expire 1-1-97 $21.170 78,516 $21.170
14.250 62,089 1 year 14.250 62,089 14.250
12.670 23,363 2 years 12.670 23,363 12.670
10.090 6,079 3 years 10.090 6,079 10.090
9.590 5,193 4 years 9.590 5,193 9.590
12.500 47,467 5 years 12.500 47,467 12.500
17.670 299,089 6 years 17.670 299,089 17.670
14.875 164,927 7 years 14.875 64,927 14.875
13.750 141,758 8 years 13.750 141,758 13.750
13.625 340,295 9 years 13.625 0 13.625
--------- -------
$9.59 to $21.17 1,168,776 828,481
========= =======
30
31
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 1996, 1995 and 1994
is a follows:
Employee Stock Purchase Plan
----------------------------
1996 1995 1994
------- -------- --------
Exercise Price $12.26 $12.38 $13.40
Shares Issued 23,117 7,351 4,981
As of December 31, 1996, the 1994 Employee Stock Purchase Plan has 114,551
shares reserved for future issuance.
Note 12 - Retirement and 401(k) Plan
Effective February 1, 1995, the Company converted its defined contribution
retirement plan to a 401(k) Plan. Employees may, up to certain prescribed
limits, contribute to the 401(k) Plan and a portion of these contributions is
matched by the Company. The provision for contributions charged to operations
for the year ended December 31, 1996 and 1995 was $583,000 and $523,000,
respectively.
There was no provision for contributions to the retirement plan charged to
operations for the year ended December 31, 1994.
Note 13 - Geographic Information
The Company's continuing operations comprise one business segment. Financial
data by geographic area are presented below:
1996 1995 1994
----------- ----------- -----------
Revenues:
United States........... $ 163,906,000 $ 157,351,000 $ 143,729,000
Europe.................. 30,571,000 29,698,000 23,024,000
Other Foreign........... 31,766,000 26,869,000 20,634,000
----------- ----------- -----------
Total................. $ 226,243,000 $ 213,918,000 $ 187,387,000
=========== =========== ===========
Net Income:
United States........... $ 18,588,000 $ 2,753,000 $ (4,395,000)
Europe.................. 2,294,000 652,000 (720,000)
Other Foreign........... 5,817,000 4,069,000 2,212,000
----------- ----------- -----------
Total................. $ 26,699,000 $ 7,474,000 $ (2,903,000)
=========== =========== ===========
Identifiable Assets:
United States........... $ 121,360,000 $ 121,878,000 $ 117,569,000
Europe.................. 33,955,000 29,153,000 29,119,000
Other Foreign........... 37,625,000 33,700,000 35,976,000
----------- ----------- -----------
Total................. $ 192,940,000 $ 184,731,000 $ 182,664,000
=========== =========== ===========
Export sales to customers from the United States are not significant.
31
32
Note 14 - 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, the financial position or the cash flows of the Company.
Included in income for the year ended December 31, 1996 is a reversal of a
litigation provision of $4,450,000. This reversal was due to a settlement of
certain litigation.
Note 15 - Quarterly Financial Information (Unaudited)
The quarterly information has been restated to reflect the discontinued
operations presentation.
The following selected financial data for the eight quarters ended December 31,
1996 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
March 31, 1996 includes the gain on the sale of Papel/Freelance, Inc. of
approximately $4,800,000 before tax or $3,000,000 ($0.14 per share) after tax.
The quarter ended September 30, 1996 includes the reversal of a litigation
provision of $4,450,000 before tax or $2,800,000 ($0.13 per share) after tax.
For Quarters Ended
(Dollars in Thousands, Except Per Share Data)
March 31, June 30, Sept. 30, Dec. 31,
--------- -------- --------- --------
1996
Net sales................. $ 56,566 $ 41,776 $ 67,906 $ 59,995
Gross profit.............. 30,364 22,129 37,579 31,153
Net income from
continuing operations... 6,915 1,144 13,515 5,125
Net income from
discontinued operations. 681 326 2,723 1,248
------- ------- ------- -------
Net income................ $ 7,596 $ 1,470 $ 16,238 $ 6,373
======= ======= ======= =======
Net income per share
Continuing operations... $ 0.32 $ 0.05 $ 0.62 $ 0.24
Discontinued operations. 0.03 0.02 0.13 0.05
------- ------- ------- -------
Total $ 0.35 $ 0.07 $ 0.75 $ 0.29
======= ======= ======= =======
1995
Net sales................. $ 56,240 $ 40,692 $ 67,005 $ 49,981
Gross profit.............. 30,668 20,761 37,129 24,301
Net income (loss) from
continuing operations... 3,197 (2,191) 6,113 355
Net income from
discontinued operations. 886 2,345 3,147 2,688
------- ------- ------- -------
Net income................ $ 4,083 $ 154 $ 9,260 $ 3,043
======= ======= ======= =======
Net income (loss) per share
Continuing operations... $ 0.15 $ (0.10) $ 0.28 $ 0.02
Discontinued operations. 0.04 0.11 0.15 0.12
------- ------- ------- -------
Total $ 0.19 $ 0.01 $ 0.43 $ 0.14
======= ======= ======= =======
32
33
Note 16 - Subsequent Event - Discontinued Operations
On February 7, 1997, the Company signed a letter of intent to sell the assets of
its subsidiaries Cap Toys, Inc. and OddzOn Products, Inc. to Hasbro, Inc. The
purchase price of $166,000,000 is subject to adjustment based on the net
tangible value of the assets sold on the date of closing. The sale is subject to
the execution of a definitive purchase agreement and the transaction is expected
to be completed in the first half of 1997. These two subsidiaries comprise the
Company's Toy business segment. Accordingly, the Toy business segment is
reported as discontinued operations for the year ended December 31, 1996. The
December 31, 1995 and 1994 financial information has been reclassified to
conform with the current year presentation.
Amounts included in net income from discontinued operations for the Toy business
segment for the years ended December 31 were as follows:
1996 1995 1994
------------ ------------ -----------
Net sales $151,380,000 $134,556,000 $90,717,000
Income before taxes 7,804,000 14,166,000 12,181,000
Provision for income
taxes 2,826,000 5,100,000 3,951,000
------------ ------------ -----------
Net income $ 4,978,000 $ 9,066,000 $ 8,230,000
============ ============ ===========
Advertising costs for discontinued operations for the years ended December 31,
1996, 1995 and 1994 amounted to $27,683,000, $15,219,000 and $10,650,000,
respectively.
Amortization costs related to intangible assets for the years ended December 31,
1996, 1995 and 1994 amounted to $2,512,000, $2,497,000 and $1,386,000,
respectively.
Net sales to Toys "R" Us represented 10.6% of the Company's consolidated net
sales, including net sales of discontinued operations, for the year ended
December 31, 1996.
Assets and liabilities of the Toy business segment, reported as net assets of
discontinued operations, as of December 31 were as follows:
1996 1995
----------- -----------
Accounts receivable, net $34,432,000 $21,027,000
Inventory 21,126,000 15,313,000
Other current assets 6,397,000 6,676,000
Current liabilities (14,569,000) (13,766,000)
----------- -----------
Net current assets of
discontinued operations 47,386,000 29,250,000
Property, plant and equipment, net 1,855,000 1,333,000
Goodwill and other intangible
assets-net 30,577,000 32,874,000
Other assets 4,208,000 3,209,000
----------- -----------
Net assets of discontinued operations 36,640,000 37,416,000
----------- -----------
Total net assets of
discontinued operations $84,026,000 $66,666,000
=========== ===========
33
34
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 caption "ELECTION OF
DIRECTORS" on pages 1 through 3 of the 1997 Proxy Statement, which is
incorporated herein by reference and under the caption "EXECUTIVE OFFICERS OF
THE REGISTRANT" on pages 11 and 12 of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to this item appears under the caption "THE BOARD OF
DIRECTORS AND COMMITTEES OF THE BOARD" on page 3, "DIRECTOR COMPENSATION" on
pages 3 through 5, "EXECUTIVE COMPENSATION" on pages 11 through 13 and
"COMPENSATION COMMITTEE REPORT" on pages 6 and 7 in the 1997 Proxy Statement,
which are 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" on pages 9 and 10 and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS" on page 10 of the 1997 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" on pages 11 through 13, "CERTAIN TRANSACTIONS" on pages 14 and 15
and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" on page 7 of
the 1997 Proxy Statement, which is incorporated herein by reference.
34
35
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 Accountants.................... 18
Consolidated Statement of Income for the
years ended December 31, 1996, 1995 and 1994......... 19
Consolidated Statement of Changes in
Shareholders' Equity for the years ended
1996, 1995 and 1994.................................. 20
Consolidated Balance Sheet at December 31,
1996 and 1995........................................ 21
Consolidated Statement of Cash Flows for the
years ended December 31, 1996, 1995 and 1994......... 22
Notes to Consolidated Financial Statements........... 23-33
2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts..... S-2
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.
35
36
3. 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)
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. 2-8797 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.
36
37
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.
37
38
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.
38
39
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)
- ----------
(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.
39
40
Exhibit No.
- -----------
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)
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)
- ----------
(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.
(19) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1990.
40
41
Exhibit No.
- -----------
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)
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)
21.1 List of Subsidiaries
23.1 Report of Independent Accountants
23.2 Consent of Independent Accountants
27.1 Financial Data Schedule
- ----------
(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.
(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.
41
42
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1996.
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, 33-27406, 33-27897 and 33-27898):
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.
42
43
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)
By /s/ Paul Cargotch
---------------------------------
Paul Cargotch
Executive Vice President,
Chief Financial Officer, Assistant
Secretary and Director
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.
Signatures Date
---------- ----
/s/ Russell Berrie 3/24/97
- ---------------------------------------------- ------------
Russell Berrie, Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ A. Curts Cooke 3/24/97
- ---------------------------------------------- ------------
A. Curts Cooke, President, Chief
Operating Officer and Director
(Principal Operating Officer)
/s/ Paul Cargotch 3/24/97
- ---------------------------------------------- ------------
Paul Cargotch, Executive Vice President,
Chief Financial Officer, Assistant Secretary
and Director
(Principal Financial and Accounting Officer)
43
44
Signatures Date
---------- ----
- ---------------------------------------------- ------------
Raphael Benaroya, Director
- ---------------------------------------------- ------------
Ilan Kaufthal, Director
/s/ Charles Klatskin 3/24/97
- ---------------------------------------------- ------------
Charles Klatskin, Director
- ---------------------------------------------- ------------
Joseph Kling, Director
/s/ William A. Landman 3/24/97
- ---------------------------------------------- ------------
William A. Landman, Director
- ---------------------------------------------- ------------
Sidney Slauson, Director
/s/ Bernard H. Tenenbaum 3/25/97
- ---------------------------------------------- ------------
Bernard H. Tenenbaum, Director
44
45
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 end
Description of Period Expenses Deductions* of Period
----------- --------- -------- ----------- ---------
Allowance for accounts receivable:
Year ended December 31, 1994 $ 3,754 $ 1,116 $ 2,110 $ 2,760
Year ended December 31, 1995 2,760 1,156 1,212 2,704
Year ended December 31, 1996 2,704 1,115 1,561 2,258
Allowance for slow moving inventory items:
Year ended December 31, 1994 $15,602 $ 6,664 $ 4,446 $17,820
Year ended December 31, 1995 17,820 4,187 3,425 18,582
Year ended December 31, 1996 18,582 2,369 3,819 17,132
Restated to reflect discontinued operations presentation.
*Principally account write-offs, allowances and disposal of merchandise,
respectively.
45
46
Exhibit Index
Exhibit Numbers
- ---------------
10.111 Agreement dated December 17, 1996, by and between Russ Berrie and
Company, Inc. and A. Curts Cooke
10.112 Agreement dated March 24, 1997, by and between Russ Berrie and
Company, Inc. and Ricky Chan.
21.1 List of Subsidiaries
23.1 Report of Independent Accountants
23.2 Consent of Independent Accountants
27.1 Financial Data Schedule
46