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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 2000 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
Securities registered pursuant to Section 12(g) of the Act: None
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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant computed by reference to the price of such stock at the close of
business on March 8, 2001 was $243,550,536.
The number of shares outstanding of each of the Registrant's classes of common
stock, as of March 8, 2001, was as follows:
CLASS NUMBER OF SHARES
----- ----------------
Common Stock, $0.10 stated value 19,968,394
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's 2001 definitive Proxy Statement, relating
to Registrant's Annual Meeting of Shareholders to be held on April 26, 2001 (the
"2001 Proxy Statement"), are incorporated by reference into Part III of this
report.
PART I
ITEM 1. BUSINESS
Russ Berrie and Company, Inc. was incorporated in New Jersey in 1966. The term
"Company" refers to Russ Berrie and Company, Inc. and its consolidated
subsidiaries, unless the context requires otherwise. Its principal executive
offices are located at 111 Bauer Drive, Oakland, New Jersey 07436, and its
telephone number is (201) 337-9000.
The Company designs, manufactures through third parties and markets a wide
variety of gift products to retail stores throughout the United States and
countries throughout the world. The Company's products are designed to appeal to
the emotions of consumers to reflect their feelings of happiness, friendship,
fun, love and affection. The Company believes that its present position as one
of the leaders in the gift industry is due primarily to its imaginative product
design, broad and effective marketing of its products, efficient distribution,
high product quality and commitment to customer service.
The Company maintains a direct salesforce and distribution network to serve its
customers in the United States, Europe, Canada and Australia. In countries where
the Company does not maintain a direct salesforce and distribution network, the
Company's products are sold through distributors. See Note 16 of the Notes to
Consolidated Financial Statements for information regarding segment and
geographic information.
PRODUCTS
The Company's product line of approximately 6,000 items (including distinctive
variations on basic product designs) is marketed under the trade name and
trademark RUSS(R). This extensive line encompasses both seasonal and everyday
products that focus on theme or concept groupings such as collectible heirloom
bears, stuffed animals, wedding, anniversary and baby gifts, tabletop
accessories and home decor, including candles and accessories, collectible
glass, porcelain and ceramic gifts and contemporary lifestyle gifts and
accessories. Extensive seasonal lines include products for all major holidays.
In addition, one of the Company's wholly-owned subsidiaries, Bright of America,
Inc., principally markets placemats and candles as well as aromatic products
such as potpourri and incense, through its division, Scentex(R), directly to
mass merchandisers.
Most of the Company's products have suggested retail prices between $3 and $35.
Product sales are highly diverse and, as such, no single item represented more
than 2% of the Company's sales in 2000.
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
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 160 employees responsible for product development
and design located in the United States and in the Far East. Generally, a new
design is brought to market in less than nine months after a decision is made to
produce the product. Sales of the Company's products are, in large part,
dependent on the Company's ability to identify and react quickly to changing
consumer preferences and to effectively utilize its sales and distribution
systems to bring new products to market.
The Company engages in market research and test marketing to evaluate consumer
reactions to its products. Research into consumer buying trends often suggests
new products. The Company assembles information from retail stores, the
Company's salesforce and the Company's own Product Development department. The
Company continually analyzes its products to determine whether they should be
adapted into new or different products using elements of the initial design or
whether they should be removed from the product line. Substantially all of the
Company's products are produced by independent manufacturers, generally in the
Far East, under the supervision of Company personnel. During 2000, approximately
94% of the Company's products were produced in the Far East, and approximately
6% in the United States. Purchases in the United States predominantly represent
domestically produced displays, candles, placemats and printed materials such as
cards.
2
The Company utilizes approximately 100 manufacturers in the Far East, with
facilities primarily in the People's Republic of China ("PRC"). During 2000,
approximately 93% of the Company's dollar volume of purchases was attributable
to manufacturing in the PRC. The PRC currently enjoys "normal trade relations"
("NTR") status under US tariff laws, which provides a favorable category of US
import duties. Due to various factors, there has been, and may be in the future,
opposition to the annual extension of NTR status for the PRC. Subject to the
accession of the PRC to the World Trade Organization, the NTR status may be made
permanent if certain determinations are made by the President of the United
States under Public Law 106-286. There can be no assurance that either the
accession or the permanent designation of the NTR status will occur. The loss of
such NTR status would result in a substantial increase in the import duty for
products manufactured for the Company in the PRC and imported into the United
States and would result in increased costs for the Company.
A significant portion of the Company's staff of approximately 290 employees in
Hong Kong, Taiwan, Korea, Philippines and the cities of Shenzhen and Qingdao in
the PRC monitor the production process with responsibility for the quality,
safety and prompt delivery of Company products as well as design and product
development as described earlier. Members of the Company's Far East staff make
frequent visits to the manufacturers for which they are responsible. Certain of
the Company's manufacturers sell exclusively to the Company. The Company
believes that there are many alternate manufacturers for the Company's products
and sources of raw materials. In 2000, the supplier accounting for the greatest
dollar volume of the Company's purchases accounted for approximately 9% of such
purchases and the five largest suppliers accounted for approximately 34% in the
aggregate.
MARKETING
The Company's products are marketed primarily through its own direct salesforce
of approximately 450 full-time employees as of December 31, 2000. The Company
maintains a telemarketing department which is responsible for servicing the
Company's smaller customers. Products are sold directly to retail customers in
the United States and in certain foreign countries, including but not limited to
gift stores, pharmacies, card shops, home decor shops, apparel stores, craft
stores, garden stores, book stores, stationery stores, hospitals, college and
airport gift shops, resort and hotel shops, florists, chain stores, military
post exchanges and internet companies. During 2000, the Company sold gift
products to more than 50,000 customers worldwide. No single customer accounted
for more than 3% of sales.
The Company reinforces the marketing efforts of its salesforce through an active
promotional program, including showrooms, participation in trade shows, trade
and consumer advertising and a program of seasonal and theme based catalogs. The
Company maintains a marketing plan which recognizes its most valued customers as
"Preferred Partners", based upon attainment of certain sales levels, and offers
them special benefits and privileges including, but not limited to, access to
exclusive product offerings and dedicated customer service representatives.
The Company believes that effective packaging and merchandising of its products
are also very important to its marketing success. Many products are shipped in
colorful, corrugated cartons which can be used as freestanding displays and then
recycled or discarded when all the products have been sold. The Company also
offers to its customers semi-permanent freestanding lucite, metal and wooden
displays, thereby providing an efficient promotional vehicle for selling the
Company's products at retail locations.
The Company believes that customer service is another essential component of its
marketing strategy and therefore has established a Customer Service Department
that responds to customer requests, investigates and resolves problems and
generally assists customers.
The Company believes its general terms of sale are competitive in the gift
industry. The Company provides extended payment terms to customers, which do not
exceed five months, on sales of seasonal merchandise, e.g., Christmas,
Halloween, Easter and other seasons. The Company has a general policy that all
sales are final and does not sell on consignment.
3
The Company also maintains a direct salesforce and distribution network to serve
its customers in England, Holland, Belgium, Ireland, Spain, Germany, Austria,
Canada, France and Australia. The Company's products are sold worldwide, through
distributors, where the Company does not maintain a direct salesforce and
distribution network. The Company's foreign sales, including export sales from
the United States, aggregated $104,085,000, $91,913,000 and $78,516,000 for the
years ended December 31, 2000, 1999 and 1998, respectively. See Note 16 of the
Notes to Consolidated Financial Statements for additional geographic
information.
DISTRIBUTION
The Company has customers located in the United States and throughout the world.
In order to serve them effectively, the Company maintains U.S. distribution
centers in South Brunswick, New Jersey and Petaluma, California, each of which
receives products directly from suppliers and then distributes such products to
the Company's customers. The Company also maintains distribution facilities in
the Toronto, Canada area, in Southampton, England and the Sydney, Australia area
to serve its customers in Canada, Europe and Australia, respectively. The
Company is presently contemplating a transaction in which one of its
wholly-owned subsidiaries, Russ Berrie (U.K.) Limited, will lease a new
distribution center in England from a corporation owned, directly or indirectly,
by Mr. Berrie. The new facility is intended to replace the two current
facilities maintained by the Company in Southampton, England. Lease terms with
respect to the new facility have not yet been finalized. However, construction
of the building is expected to commence in April 2001 and be completed in June
or July 2002, at which time it is anticipated that Russ Berrie (U.K.) Limited
will occupy the building. The Company generally uses common carriers to
distribute its products to its customers.
SEASONALITY
In addition to its everyday products, the Company produces specially designed
products for holiday seasons which include: Christmas/Chanukah, Easter,
Valentine's Day, Father's Day, Halloween/Thanksgiving, Mother's Day, St.
Patrick's Day and Graduation/Secretary's Day.
The pattern of the Company's sales is influenced by the shipment of seasonal
merchandise. The Company generally ships the majority of orders each year for
Christmas in the quarter ended September 30, for Valentine's Day in the quarter
ended December 31 and for Easter in the quarter ended March 31.
During 2000, items specially designed for individual seasons accounted for
approximately 46% of the Company's sales; no individual season accounted for
more than 18% of the Company's sales.
The following table sets forth the Company's quarterly sales during 2000, 1999
and 1998.
QUARTERLY SALES
(IN MILLIONS)
2000 1999 1998
---- ---- ----
QUARTER ENDED SALES % SALES % Sales %
----- ---- ----- ---- ----- ----
MARCH 31 ................ $78.3 26.0 $77.8 27.1 $77.2 27.7
JUNE 30 ................. $57.6 19.2 $49.0 17.1 $52.8 18.9
SEPTEMBER 30 ............ $97.2 32.3 $93.3 32.5 $85.4 30.6
DECEMBER 31 ............. $67.7 22.5 $66.9 23.3 $63.6 22.8
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, 2000 and December 31, 1999 was $22,271,261 and $29,775,000, respectively. It
is expected that significantly all of the Company's backlog at December 31,
2000 will be shipped during 2001.
4
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. 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, 2000, the Company employed approximately 1,500 persons. The
Company considers its employee relations to be good; substantially all of the
Company's employees are not covered by a collective bargaining agreement. The
Company's policy is to require that its management, sales and product
development and design personnel enter into confidentiality agreements and, in
the case of sales management and sales personnel, non-competition agreements
(subject to certain territorial limitations) which restrict their ability to
compete with the Company for a period of six months after termination of their
employment.
GOVERNMENT REGULATION
Certain of the Company's products are subject to the provisions of, among other
laws, the Federal Hazardous Substances Act and the Federal Consumer Product
Safety Act. Those laws empower the Consumer Product Safety Commission
("Commission") to protect children from certain hazardous articles by regulating
their use or excluding them from the market and requiring a manufacturer to
repurchase articles which become banned. The Commission's determination is
subject to judicial review. Similar laws exist in some states and cities in the
United States and in certain foreign jurisdictions. The Company maintains a
quality control program in order to comply with applicable laws.
ITEM 2. PROPERTIES
The principal facilities of the Company's operations consist of its corporate
offices in Oakland, New Jersey, and distribution centers in South Brunswick, New
Jersey, and Petaluma, California, all of which the Company leases. Additionally,
office and distribution facilities are located in Southampton, England, in the
Toronto, Canada area and in the Sydney, Australia area. The Company owns the
facility used by one of its wholly-owned subsidiaries, 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. One of the Company's
subsidiaries, Amram's Distributing, Limited, owns a facility in Toronto, Canada
that serves as its office and distribution facility. The facilities of the
Company are maintained in good operating condition and are, in the aggregate,
adequate for the Company's purposes and are generally fully utilized. Due to the
purchase of a new office and distribution facility in Toronto, Canada, the
Company vacated the facility being leased and is currently subleasing such
facility to a third party.
5
THE COMPANY'S CURRENT PRINCIPAL FACILITIES ARE AS FOLLOWS:
LEASE EXPIRATION
LOCATION - DOMESTIC SQ. FT. AREA (IF APPLICABLE)(1)
------------------- ------------ ------------------
Petaluma, California (2)(3)................. 234,200 June 30, 2004
Oakland, New Jersey (2)(4).................. 120,000 April 1, 2004
South Brunswick, New Jersey (2)(3).......... 513,680 May 31, 2004
Summersville, West Virginia (5)(6).......... 156,000 Not Applicable -
Owned by the Company
LEASE EXPIRATION
LOCATION - FOREIGN SQ. FT. AREA (IF APPLICABLE)(1)
------------------- ------------ ------------------
Southampton, England (6).................... 61,000 March 25, 2003
Southampton, England (5)(6)................. 75,500 Not Applicable -
Owned by the Company
Toronto, Ontario, Canada (5)(6)............. 120,000 Not Applicable -
Owned by the Company
North Point, Hong Kong (5).................. 25,630 Not Applicable -
Owned by the Company
Kowloon, Hong Kong (5)...................... 6,443 July 2, 2003
Sydney, Australia (5)(6).................... 42,000 October 31, 2002
(1) Not including renewal options, if any.
(2) Properties owned directly or indirectly by Russell Berrie, Chairman and
Chief Executive Officer, or members of his immediate family. See ITEM 13 -
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".
(3) Regional distribution center.
(4) Corporate headquarters.
(5) Subsidiary offices.
(6) Subsidiary distribution center.
The Company also operates showroom facilities in Oakland, New Jersey; Los
Angeles and San Francisco, California; Denver, Colorado; Atlanta, Georgia;
Chicago, Illinois; High Point, North Carolina; Dallas, Texas; Seattle,
Washington; Miami, Florida; Sydney, Australia; Montreal, Vancouver and Toronto,
Canada; Southampton, England; Utrecht, Holland; and Kowloon, Hong Kong. Certain
showrooms are located within the facilities listed above, others are leased with
remaining lease terms ranging between one and 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 incidental to its
business, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
6
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 68 Chairman, Chief Executive Officer and Director
Arnold S. Bloom 58 Vice President, General Counsel and Secretary
Ricky Chan 48 Senior Vice President - Product Development and Executive
Vice President of Far East Operations
Teresa Chan 46 Vice President - International Sales
Dona Fisher 47 Vice President and Chief Operating Officer
Eva J. Goldenberg 39 Vice President - Human Resources
Thomas K. Higgerson 52 Vice President - Global Logistics
J. Michael Hope 55 Vice President - National Accounts
Y.B. Lee 55 Senior Vice President - Far East and President of Far East
Operations
James J. O'Reardon, Jr. 57 Vice President - Corporate Audits
Michael M. Saunders 29 Vice President - Chief Information Officer
Benjamin J. Sottile 63 Vice Chairman and Director
Susan Strunck 39 Vice President - Corporate Affairs
John T. Toolan 42 Executive Vice President - Marketing and Sales
John D. Wille 45 Vice President and Chief Financial Officer
Russell Berrie, the founder of the Company, has been Chairman and Chief
Executive Officer of the Company since its incorporation in 1966.
Arnold S. Bloom has been employed by the Company as Vice President, General
Counsel and Secretary for more than the past five years.
Ricky Chan has been employed by the Company as Senior Vice President - Product
Development for more than the past five years.
Teresa Chan was elected as an officer of the Company in October 1999 and has
been employed by the Company as Vice President - International Sales since
February 1997. Ms. Chan was Managing Director of International Operations for
more than five years prior thereto.
Dona Fisher has been employed by the Company as Vice President and Chief
Operating Officer since September 2000. Prior to joining the Company, Ms. Fisher
was employed with Helen of Troy as Senior Vice President and Chief Financial
Officer since March 1999, with Sun Apparel Company as Senior Executive Vice
President since September 1996 and with The Franklin Mint as Senior Vice
President for more than five years prior thereto.
Eva J. Goldenberg, was elected an officer of the Company in January 2001 and has
been employed by the Company as Vice President - Human Resouces since April
2000. Ms. Goldenberg was Director of Human Resources since September 1999,
Associate General Counsel since January 1999 and Assistant General Counsel since
August 1994.
7
Thomas K. Higgerson has been employed by the Company as Vice President - Global
Logistics since January 2000. Prior to joining the Company, Mr. Higgerson was
employed with Hygrade Integrated Logistics Systems, Inc. as Executive Vice
President since March 1997 and as Senior Vice President for more than five years
prior thereto.
J. Michael Hope has been employed by the Company as Vice President - National
Accounts since February 2000. Prior to that, Mr. Hope was Vice President - Sales
Administration since November 1998 and was Vice President and General Manager of
the Company's Petaluma Distribution Center for more than five years prior
thereto.
Y.B. Lee has been employed by the Company as President of Far East Operations
since October 1996. Mr. Lee has been Senior Vice President-Far East since August
1996 and was Senior Vice President - Far East Plush Division for more than five
years prior thereto.
James J. O'Reardon, Jr. has been employed by the Company as Vice President -
Corporate Audits since April 2000 and was Vice President - Administration since
September 1997. Mr. O'Reardon was Director of Administration/Internal Audit for
more than five years prior thereto.
Michael M. Saunders has been employed with the Company as Vice President - Chief
Information Officer since March 2001. Prior to joining the Company, Mr. Saunders
was employed with Danskin, Inc. as Chief Information Officer since April 2000,
the Jenna Lane Group as Vice President & Chief Information Officer since
December 1998 and Kurt Salmon Associates as Senior Manager - IT Group since June
1995.
Benjamin J. Sottile was elected to the Board of Directors in July 2000 and has
been employed with the Company as Vice Chairman since June 2000. Prior to
joining the Company, Mr. Sottile was a consultant to the Company since July 1999
and prior thereto was a consultant to various consumer product companies,
unaffiliated with the Company, and non-profit organizations since February 1996.
Mr. Sottile was employed with Gibson Greetings, Inc. as Chairman, President and
Chief Executive Officer for more than five years prior thereto.
Susan Strunck was elected as an officer of the Company in January 2001 and has
been employed by the Company as Vice President - Corporate Affairs since April
2000. Ms. Strunck was Director of Corporate Affairs since January 1998 and was
assistant to the Chairman for more than five years thereto.
John T. Toolan has been employed with the Company as Executive Vice President -
Marketing and Sales since February 2001. Prior to joining the Company, Mr.
Toolan was employed with Westpoint Stevens Inc. as Executive Vice President and
President of Sales and Marketing since November 1999, as Executive Vice
President and President of the Domestic Marketing Division since January 1999,
as Senior Vice President of the Company since January 1997 and as President of
the Fashion Brands Division since January 1998. Prior to that, Mr. Toolan was
Senior Vice President / Home Fashions Division since January 1996.
John D. Wille has been employed with the Company as Vice President and Chief
Financial Officer since February 2001. Prior to joining the Company, Mr. Wille
was employed with the Betesh Group as Vice President Finance and Chief Financial
Officer since November 2000. Prior to that, Mr. Wille was employed with Time
Life Inc. as Vice President and Corporate Controller since May 1997 and with The
Franklin Mint as Vice President, Strategic Buying, Inventory and Logistics since
November 1995.
***********************************
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At December 31, 2000, the Company's Common Stock was held by 546 shareholders of
record. The Company's Common Stock has been traded on the New York Stock
Exchange since its initial public offering on March 29, 1984. The following
table sets forth the high and low sale prices on the New York Stock Exchange
Composite Tape for the calendar periods indicated, as furnished by the New York
Stock Exchange:
2000 HIGH LOW
---- ---- ---
First Quarter............. $ 25 15/ 16 $ 15 7/8
Second Quarter............ 22 17
Third Quarter............. 21 1/4 18 15/16
Fourth Quarter............ 22 11/16 18 3/4
1999 HIGH LOW
---- ---- ---
First Quarter............. $ 26 5/8 $ 20 1/16
Second Quarter............ 27 1/2 23 5/8
Third Quarter............. 24 7/8 20
Fourth Quarter............ 26 1/4 18 15/16
The Board of Directors declared its first dividend to holders of the Company's
Common Stock in November 1986. Since then, a cash dividend has been paid
quarterly. The current quarterly dividend rate was increased from $0.20 in 1999
to $0.22 in 2000 and to $0.24 per common share, effective February 2001, which
represents the fifth consecutive year of increased dividends.
The Board of Directors will review its dividend policy from time to time and
declaration of dividends will remain within its sole discretion.
9
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31 2000 1999 1998 1997 1996
------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net Sales* $ 300,801 $ 287,011 $ 279,002 $ 279,167 $ 232,719
Cost of Sales* 132,908 123,216 123,760 127,672 111,444
Income from Continuing
Operations Before Income Taxes** 71,104 53,967 59,584 53,664 42,555
Provision for Income Taxes 23,163 17,531 18,988 16,399 15,856
Income from Continuing Operations** 47,941 36,436 40,596 37,265 26,699
Income (Loss) from Discontinued Operations,
Net of Taxes - - - (1,324) 4,978
Gain on Sale of Discontinued Operations,
Net of Taxes*** - - - 46,700 -
Net Income 47,941 36,436 40,596 82,641 31,677
Net Income (Loss) Per Share:
Continuing Operations
Basic 2.37 1.73 1.83 1.69 1.23
Diluted 2.37 1.72 1.81 1.67 1.22
Discontinued Operations
Basic - - - (.06) .23
Diluted - - - (.06) .23
Gain on Sale of Discontinued Operations
Basic - - - 2.12 -
Diluted - - - 2.08 -
------------------------------------------------------------------------
Total
Basic 2.37 1.73 1.83 3.75 1.46
Diluted 2.37 1.72 1.81 3.69 1.45
Dividends Per Share .88 .80 .76 .68 .60
BALANCE SHEET
Working Capital $ 304,647 $ 288,229 $ 299,695 $ 286,358 $ 187,373
Property, Plant and Equipment 26,745 28,297 35,340 21,287 21,765
Total Assets 367,009 355,420 378,456 353,445 276,966
Shareholders' Equity 334,591 319,598 343,935 316,786 248,726
STATISTICAL
Current Ratio 10.4 9.0 9.7 8.8 7.6
Return on Average Shareholders' Equity 14.7% 11.0% 12.3% 29.2% 13.4%
Net Profit Margin from Continuing Operations 15.9% 12.7% 14.6% 13.3% 11.5%
Number of Employees 1,498 1,551 1,471 1,554 1,580
* Net sales and cost of sales for the years ended December 31, 1999, December
31, 1998, December 31, 1997 and December 31, 1996 have been restated to conform
to the presentation for the year ended December 31, 2000, representing the
Company's application of the Emerging Issues Task Force Issue 00-10, "Accounting
for Shipping and Handling Fees and Costs".
** The year ended December 31, 2000 includes income of $2,544,000 before tax or
$1,603,000 ($0.08 per diluted share) after tax for the reversal of certain
contingency reserves related to the Company's sale of its toy business segment
in May 1997. The year ended December 31, 1999 includes an information system
write-off of capitalized costs of $10,392,000 before tax or $6,557,000 ($0.31
per diluted share) after tax. The year ended December 31, 1998 includes income
of $1,828,000 before tax or $1,152,000 ($0.05 per diluted share) after tax for
the completion of a transitional agreement related to the sale of
Papel/Freelance, Inc. The year ended December 31, 1996 includes the gain on sale
of Papel/Freelance, Inc. of approximately $4,800,000 before tax or $3,000,000
($0.14 per diluted share) after tax and a reversal of a litigation provision of
$4,450,000 before tax or $2,800,000 ($0.13 per diluted share) after tax.
*** Represents the gain on sale of Cap Toys, Inc. and OddzOn Products, Inc. in
1997 of $75,300,000 before tax or $46,700,000 ($2.08 per diluted share) after
tax.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 2000 AND 1999
The Company's net sales for the year ended December 31, 2000 were $300,801,000
compared to $287,011,000 for the year ended December 31, 1999 reflecting the
impact of a new accounting standard for shipping and handling fees and costs, as
well as the resultant restatement of the previous year. This represents a net
sales increase of $13,790,000 or 4.8% due primarily to the increase in net sales
of the Company's international operations, including the Company's new
subsidiary in Australia, established in January 2000. Net sales for the year
ended December 31, 1999 were negatively impacted by operational issues resulting
from the June 1999 conversion to a new computer system for the Company's
domestic operations and ultimately resulted in the Company successfully
reverting back to its legacy systems. The Company's product line, focusing on
coordinated themes of product offerings, continues to receive a positive
response from customers worldwide. In September 2000, the Company launched a new
division, Russ Trading, along with a dedicated Hong Kong showroom. Orders and
shipments from this initiative are expected to commence in 2001. The Company
believes that the new division will give the Company the ability to market new
and different lines and private label merchandise to non-traditional customers
of the Company, such as mass merchandisers.
Cost of sales were 44.2% of net sales in 2000 compared to 42.9% of net sales in
1999 reflecting the impact of a new accounting standard for shipping and
handling fees and costs, as well as the resultant restatement of the previous
year. The cost of sales percentage increase primarily reflects lower gross
profit margins on sales of certain of the Company's product line concepts and
greater utilization of other than normal distribution channels during the year
ended December 31, 2000.
Selling, general and administrative expense was $106,991,000 or 35.6% of net
sales for the year ended December 31, 2000 compared to $108,023,000 or 37.6% of
net sales in 1999, a decrease of $1,032,000 or 1.0% and a decrease of 2.0%, as a
percent of net sales. This decrease is due primarily to lower distribution and
administrative costs resulting from nonrecurring costs incurred in 1999 due to
operational difficulties and the depreciation and other costs of the new
computer systems. This decrease was partially offset by increased selling costs
as a result of increased sales. Selling, general and administrative expense for
the year ended December 31, 1999 was restated to conform to the presentation for
the year ended December 31, 2000, reflecting the Company's application of a new
accounting standard for shipping and handling fees and costs which had been
historically recorded net in selling, general and administrative expense.
During the year ended December 31, 1999, the Company recognized a charge to
income of $10,392,000, before tax, for the write-off of the net book value of
certain capitalized costs relating to terminating the use of the new computer
system.
Investment and other income of $10,202,000 for the year ended December 31, 2000
compares to $8,587,000 in 1999. Included in investment and other income for the
year ended December 31, 2000 was income of $2,544,000 before tax for the
reversal of certain contingency reserves related to the Company's sale of its
toy business segment in May of 1997. Excluding the income from this reversal,
investment and other income decreased $929,000. This decrease is primarily
related to decreased investment income from the Company's fixed income portfolio
attributable to lower total returns on the Company's investment portfolio.
The provision for income taxes as a percent of income before taxes for the year
ended December 31, 2000 remained relatively unchanged at 32.6% compared to 32.5%
for the year ended December 31, 1999.
Net income for the year ended December 31, 2000 increased 31.6% to $47,941,000
compared to net income of $36,436,000 for the year ended December 31, 1999 and
earnings per diluted share increased 37.8% to $2.37 from $1.72 in 1999. Included
in the results for the year ended December 31, 2000 was income of $1,603,000,
after tax, or $0.08 per diluted share, for the reversal of certain contingency
reserves related to the Company's sale of its toy business segment in May of
1997. Included in the results for the year ended December 31, 1999 was a
write-off of $6,557,000, after tax, or $0.31 per diluted share, for the
Company's new packaged software system. Excluding the reversal for the year
ended December 31, 2000 and the information system write-off in 1999, net income
for the year ended December 31, 2000 would have increased 7.8% to $46,338,000
compared to $42,993,000 in 1999 and earnings per diluted share would have
increased 12.8% to $2.29 from $2.03 in 1999. This increase is primarily
attributed to increased net sales and gross profit, along with decreases in
selling, general and administrative expense as discussed above.
11
The Company maintains a direct salesforce and distribution network to serve its
customers in Europe, Canada and Australia. Product, sales and marketing
strategies in these foreign operations are similar to those in the Company's
domestic operations. Where the Company does not maintain a direct salesforce and
distribution network, the Company's products are sold worldwide through
distributors. See Note 16 of the Notes to Consolidated Financial Statements for
more information regarding geographic information.
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1999 AND 1998
The Company's net sales for the year ended December 31, 1999 were $287,011,000
compared to $279,002,000 for the year ended December 31, 1998. Net sales for the
years ended December 31, 1999 and December 31, 1998 have been restated to
conform with the presentation of the year ended December 31, 2000 reflecting the
impact of the new accounting standard for shipping and handling fees and costs.
This represents a net sales increase of $8,009,000 or 2.9% due primarily to the
increase in net sales of the Company's international operations. The Company's
product line, focusing on coordinated themes of product offerings, continues to
receive a positive response from customers worldwide. During the year ended
December 31, 1999, the Company experienced operational issues, which were caused
by the domestic implementation of a new computer system. These operational
issues had negatively impacted net sales since implementation in June 1999 and
ultimately resulted in the termination of the Company's use of this new system
and reverting back to its legacy systems.
Cost of sales were 42.9% of net sales in 1999 compared to 44.4% of net sales in
1998 reflecting the impact of a new accounting standard for shipping and
handling fees and costs, as well as the resultant restatement of both years. The
cost of sales percentage decrease reflects the higher gross profit margins on
sales of certain of the Company's product line concepts during the year ended
December 31, 1999. The decrease also reflects the Company's successful efforts
to manage inventory levels, resulting in a reduced need to distribute product
through other than normal channels.
Selling, general and administrative expense was $108,023,000 or 37.6% of net
sales for the year ended December 31, 1999 compared to $105,854,000 or 37.9% of
net sales in 1998, an increase of $2,169,000 or 2.0%. This increase is due
primarily to higher distribution costs attributed to operational difficulties
and depreciation of computer systems offset by lower costs of a reduced
salesforce and realization of costs savings from the closing of its Petaluma,
California administrative operations in 1998.
Selling, general and administrative expense for the years ended December 31,
1999 and December 31, 1998 were restated to conform to the presentation for the
year ended December 31, 2000, reflecting the Company's application of a new
accounting standard for shipping and handling fees and costs which had been
historically recorded net in selling, general and administrative expense.
During the quarter ended December 31, 1999, the Company recognized a charge to
income of $10,392,000, before tax, for the write-off of the net book value of
certain capitalized costs relating to terminating the use of the new computer
system.
Investment and other income of $8,587,000 for the year ended December 31, 1999
compares to $10,196,000 in 1998. Included in investment and other income for the
year ended December 31, 1998 was income of $1,828,000 for the completion of a
transitional agreement related to the sale of the Company's subsidiary,
Papel/Freelance, Inc.
The provision for income taxes as a percent of income before taxes for the year
ended December 31, 1999 was 32.5% compared to 31.9% in the prior year.
Net income for the year ended December 31, 1999 was $36,436,000 compared to net
income of $40,596,000 for the year ended December 31, 1998. Included in the
results for the year ended December 31, 1999 is a charge of $6,557,000, after
tax, for the write-off of the Company's new computer system.
12
Included in the results for the year ended December 31, 1998 is income
of $1,152,000, after tax, for the completion of a transitional agreement related
to the sale of the Company's subsidiary, Papel/Freelance, Inc. Excluding the
information system write-off in 1999 and the income from this transitional
agreement in 1998, net income increased $3,549,000 or 9.0%. This increase can be
primarily attributed to increased net sales and gross profit offset by the
increase in selling, general and administrative expense.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Company had cash and cash equivalents and marketable
securities of $218,826,000 compared to $202,051,000 at December 31, 1999.
As of December 31, 2000 and 1999, the Company had marketable securities of
$141,032,000 and $137,143,000 respectively, included in the amounts above. These
investments consist of U.S. government obligations, municipal obligations and
preferred stock. The objective of the investment portfolio is to maximize after
tax returns while minimizing risk. See Note 3 of the Notes to Consolidated
Financial Statements for more information regarding financial instruments.
The Company's portfolio of preferred securities investments are subject to
market fluctuations based largely, but not exclusively, on the securities'
sensitivity to changes in interest rates. By maintaining an economic hedge
consisting of government futures contracts and options, the Company seeks to
reduce interest rate related risk. The portfolio of preferred securities and
futures contracts and options are intended to produce offsetting capital gains
and losses, realized and unrealized, as interest rates change.
The Company has available $80,423,000 in bank lines of credit that provide for
direct borrowings and letters of credit used for the purchase of inventory. At
December 31, 2000, letters of credit of $14,182,000 were outstanding. There were
no direct borrowings under the bank lines of credit. Working capital
requirements during 2000 were met entirely through internally generated funds.
The Company remains in a highly liquid position and believes that the resources
available from investments, operations and bank lines of credit are sufficient
to meet the foreseeable requirements of its business.
The Company enters into forward exchange contracts and currency options,
principally to manage the economic currency risks associated with the purchase
of inventory and the payment of interest on intercompany loans by its European
and Canadian operations. Gains and losses, related to such contracts, were not
material to its results of operations. The Company does not anticipate any
material adverse impact on its results of operations or financial position from
these contracts.
As of December 31, 2000, the Board of Directors had authorized the Company to
repurchase 7,000,000 shares of common stock of which 5,561,400 shares have been
repurchased since the beginning of the Company's stock repurchase program in
March 1990. During 2000, the Company repurchased 815,100 shares, which amounted
to $15,619,000.
Consistent with its past practices and as a normal course of business, the
Company regularly reviews acquisition opportunities of varying sizes. There can
be no assurance, however, that any discussions arising in connection therewith
will result in definitive purchase agreements and, if they do, what the terms
or timing of any such agreements would be.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended by
SFAS No. 138, "Accounting for Certain Derivatives and Certain Hedging
Activities, an amendment of SFAS No. 133", establishing the accounting and
reporting for derivatives and hedging activities. The Company has determined
that the impact of adopting SFAS No. 133, as amended by SFAS No. 138, on the
consolidated financial statements will not be significant. See Note 2,
"Accounting for Derivatives and Hedging" of the Notes to Consolidated Financial
Statements for additional information.
13
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain forward-looking statements.
Additional written and oral forward-looking statements may be made by the
Company from time to time in Securities and Exchange Commission (SEC) filings
and otherwise. The Private Securities Litigation Reform Act of 1995 provides a
safe-harbor for forward-looking statements. These statements may be identified
by the use of forward-looking words or phrases including, but not limited to,
"anticipate", "believe", "expect", "intend", "may", "planned", "potential",
"should", "will" or "would". The Company cautions readers that results predicted
by forward-looking statements, including, without limitation, those relating to
the Company's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs and income are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements. Specific risks and uncertainties
include, but are not limited to, the Company's ability to continue to
manufacture its products in the Far East, the seasonality of revenues, the
actions of competitors, ability to increase production capacity, price
competition, the effects of government regulation, possible delays in the
introduction of new products, customer acceptance of products, issues related to
the start up of the Company's recently announced Russ Trading division, changes
in foreign currency exchange rates, issues related to the Company's computer
systems and other factors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 2000 and December 31, 1999, a sensitivity analysis to measure
potential changes in market value of the Company's investments from a change in
interest rates indicates that a one percentage point increase in interest rates
would decrease the net aggregate market value of these investments by
approximately $1,715,000 and $2,197,000, respectively, and a one percentage
point decrease in interest rates would increase the net aggregate market value
of these investments by approximately $1,711,000 and $2,380,000, respectively.
At December 31, 2000 and December 31, 1999, a sensitivity analysis to changes in
the value of the U.S. dollar on foreign currency denominated derivatives and
monetary assets and liabilities indicates that if the U.S. dollar uniformly
weakened by 10% against all currency exposures of the Company, income from
operations would decrease by approximately $1,110,000 and $780,000,
respectively.
Additional information required for this item is incorporated in the section
above entitled, "Liquidity and Capital Resources" of Management's Discussion and
Analysis of Results of Operations and Financial Condition and Note 3 of the
Notes to Consolidated Financial Statements.
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Russ Berrie and Company, Inc.:
We have audited the accompanying consolidated balance sheet of Russ Berrie and
Company, Inc. (a New Jersey Corporation) and subsidiaries as of December 31,
2000 and 1999, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above, appearing on pages
16 to 30 of this Form 10-K, present fairly, in all material respects, the
financial position of Russ Berrie and Company, Inc. and subsidiaries as of
December 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule appearing on page 42 of this
Form 10-K is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Roseland, New Jersey
February 15, 2001
15
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999 1998
---------------------------------------
Net sales $ 300,801 $ 287,011 $ 279,002
Cost of sales 132,908 123,216 123,760
---------------------------------------
Gross profit 167,893 163,795 155,242
Selling, general and administrative expense 106,991 108,023 105,854
Information system write-off - 10,392 -
Investment and other income-net (10,202) (8,587) (10,196)
---------------------------------------
Income before taxes 71,104 53,967 59,584
Provision for income taxes 23,163 17,531 18,988
---------------------------------------
Net income $ 47,941 $ 36,436 $ 40,596
=======================================
Net income per share:
Basic $ 2.37 $ 1.73 $ 1.83
=======================================
Diluted $ 2.37 $ 1.72 $ 1.81
=======================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
16
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
ADDITIONAL
COMMON PAID IN RETAINED
TOTAL STOCK CAPITAL EARNINGS
---------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $ 316,786 $2,493 $53,184 $ 308,028
Comprehensive income:
Net income 40,596 - - 40,596
Other comprehensive income, net of tax:
Foreign currency translation
adjustment (net of tax of $72) 154 - - -
Net unrealized gain on securities
available-for-sale (net of tax of $159) 334 - - -
---------
Comprehensive income 41,084
---------
Share transactions under stock plans
(275,792 shares) 5,396 27 5,369 -
Cash dividends ($0.76 per share) (16,897) - - (16,897)
Transactions in treasury shares
(103,500 shares) (2,434) - - -
------------------------------------------------
BALANCE AT DECEMBER 31, 1998 343,935 2,520 58,553 331,727
Comprehensive income:
Net income 36,436 - - 36,436
Other comprehensive income (loss), net of tax:
Foreign currency translation
adjustment (net of tax benefit of $35) (72) - - -
Net unrealized loss on securities
available-for-sale (net of tax benefit of $991) (1,964) - - -
---------
Comprehensive income 34,400
---------
Share transactions under stock plans
(123,588 shares) 2,416 12 2,404 -
Cash dividends ($0.80 per share) (16,861) - - (16,861)
Transactions in treasury shares
(1,795,200 shares) (44,292) - - -
------------------------------------------------
BALANCE AT DECEMBER 31, 1999 319,598 2,532 60,957 351,302
Comprehensive income:
Net income 47,941 - - 47,941
Other comprehensive income (loss), net of tax:
Foreign currency translation
adjustment (net of tax benefit of $1,330) (2,749) - - -
Net unrealized gain on securities
available-for-sale (net of tax of $481) 986 - - -
---------
Comprehensive income 46,178
---------
Share transactions under stock plans
(87,777 shares) 2,155 9 2,146 -
Cash dividends ($0.88 per share) (17,764) - - (17,764)
Transactions in treasury shares
(815,100 shares) (15,619) - - -
Unearned compensation, net (10,000 shares) 43 - - -
------------------------------------------------
BALANCE AT DECEMBER 31, 2000 $ 334,591 $2,541 $63,103 $ 381,479
================================================
ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS), NET
--------------------------------
FOREIGN NET UNREALIZED
CURRENCY GAIN (LOSS) ON
TRANSLATION MARKETABLE UNEARNED TREASURY
ADJUSTMENT SECURITIES COMPENSATION STOCK
-------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $(1,098) $ 99 - $ (45,920)
Comprehensive income:
Net income - - - -
Other comprehensive income, net of tax:
Foreign currency translation
adjustment (net of tax of $72) 154 - - -
Net unrealized gain on securities
available-for-sale (net of tax of $159) - 334 - -
Comprehensive income
Share transactions under stock plans
(275,792 shares) - - - -
Cash dividends ($0.76 per share) - - - -
Transactions in treasury shares
(103,500 shares) - - - (2,434)
-----------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 (944) 433 - (48,354)
Comprehensive income:
Net income - - - -
Other comprehensive income (loss), net of tax:
Foreign currency translation
adjustment (net of tax benefit of $35) (72) - - -
Net unrealized loss on securities
available-for-sale (net of tax benefit of $991) - (1,964) - -
Comprehensive income
Share transactions under stock plans
(123,588 shares) - - - -
Cash dividends ($0.80 per share) - - - -
Transactions in treasury shares
(1,795,200 shares) - - - (44,292)
-----------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 (1,016) (1,531) - (92,646)
Comprehensive income:
Net income - - - -
Other comprehensive income (loss), net of tax:
Foreign currency translation
adjustment (net of tax benefit of $1,330) (2,749) - - -
Net unrealized gain on securities
available-for-sale (net of tax of $481) - 986 - -
Comprehensive income
Share transactions under stock plans
(87,777 shares) - - - -
Cash dividends ($0.88 per share) - - - -
Transactions in treasury shares
(815,100 shares) - - - (15,619)
Unearned compensation, net (10,000 shares) - - (149) 192
-----------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 $(3,765) $ (545) $(149) $(108,073)
===========================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
17
CONSOLIDATED BALANCE SHEET AT DECEMBER 31
(DOLLARS IN THOUSANDS)
ASSETS 2000 1999
------------------------
Current assets
Cash and cash equivalents $ 77,794 $ 64,908
Marketable securities 141,032 137,143
Accounts receivable, trade, less allowances of
$3,460 in 2000 and $3,731 in 1999 58,673 61,385
Inventories - net 47,430 44,307
Prepaid expenses and other current assets 5,508 9,503
Deferred income taxes 6,628 6,805
------------------------
TOTAL CURRENT ASSETS 337,065 324,051
Property, plant and equipment - net 26,745 28,297
Other assets 3,199 3,072
------------------------
TOTAL ASSETS $ 367,009 $ 355,420
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 4,913 $ 6,228
Accrued expenses 20,313 23,488
Accrued income taxes 7,192 6,106
------------------------
TOTAL CURRENT LIABILITIES 32,418 35,822
Commitments and contingencies
Shareholders' equity
Common stock: $0.10 stated value; authorized
50,000,000 shares; issued 2000, 25,413,626
shares; 1999, 25,325,849 shares 2,541 2,532
Additional paid in capital 63,103 60,957
Retained earnings 381,479 351,302
Accumulated other comprehensive loss (4,310) (2,547)
Unearned compensation (149) -
Treasury stock, at cost (5,557,514 shares at
December 31, 2000 and 4,752,414 shares at
December 31, 1999) (108,073) (92,646)
------------------------
TOTAL SHAREHOLDERS' EQUITY 334,591 319,598
------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 367,009 $ 355,420
========================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
18
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999 1998
---------------------------------------
Net income $ 47,941 $ 36,436 $ 40,596
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of subsidiary - - (1,828)
Depreciation and amortization 3,998 5,008 2,631
Information system write-off - 10,392 -
Provision for accounts receivable reserves 2,298 2,534 1,872
Income from contingency reserve reversal (2,544) - -
Other 710 (1,326) 3,893
Changes in assets and liabilities:
Accounts receivable 414 (9,058) (3,990)
Inventories - net (3,123) 894 5,003
Prepaid expenses and other current assets 3,995 (197) (339)
Other assets (242) (590) 122
Accounts payable (1,315) 1,979 (222)
Accrued expenses (631) 421 1,515
Accrued income taxes 1,086 (1,099) (2,560)
---------------------------------------
Total adjustments 4,646 8,958 6,097
---------------------------------------
Net cash provided by operating activities 52,587 45,394 46,693
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (48,959) (46,365) (158,342)
Proceeds from sale of marketable securities 45,567 60,017 114,475
Proceeds from sale of property, plant and equipment 79 116 202
Capital expenditures (4,087) (8,435) (16,838)
Net proceeds from sale of subsidiary - - 1,828
Net proceeds from sale of discontinued operations - - 5,442
---------------------------------------
Net cash provided by (used in) investing activities (7,400) 5,333 (53,233)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 2,155 2,416 5,396
Dividends paid to shareholders (17,764) (16,861) (16,897)
Purchase of treasury stock (15,619) (44,292) (2,434)
---------------------------------------
Net cash (used in) financing activities (31,228) (58,737) (13,935)
Effect of exchange rate changes on cash and cash equivalents (1,073) (146) 96
---------------------------------------
Net increase (decrease) in cash and cash equivalents 12,886 (8,156) (20,379)
Cash and cash equivalents at beginning of year 64,908 73,064 93,443
---------------------------------------
Cash and cash equivalents at end of year $ 77,794 $ 64,908 $ 73,064
=======================================
CASH PAID DURING THE YEAR FOR:
Interest $ 127 $ 118 $ 141
Income taxes $ 22,077 $ 18,630 $ 17,784
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
Russ Berrie and Company, Inc. and its subsidiaries design, manufacture through
third parties and market a wide variety of gift products to retail stores
throughout the United States and countries throughout the world.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Russ Berrie and
Company, Inc. and its wholly-owned subsidiaries (collectively, the "Company")
after elimination of intercompany accounts and transactions.
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. In
addition, during 2000, the Company applied the provisions of the Emerging Issues
Task Force Issue 00-10, "Shipping and Handling Fees and Costs", (EITF 00-10),
which required that all amounts billed to customers for shipping and handling,
be classified as revenue and the costs incurred for such shipping and handling,
be classified as costs of goods sold, as well as the restatement of previous
years. Prior to the application of EITF 00-10 the Company recorded these amounts
net in selling, general and administrative expense.
ADVERTISING COSTS
Production costs for advertising are charged to operations in the year the
related advertising campaign begins. All other advertising costs are charged to
operations during the year in which they are incurred. Advertising costs for the
years ended December 31, 2000, 1999 and 1998 amounted to $2,286,000, $2,014,000
and $2,109,000, respectively.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of investments in interest bearing accounts and highly
liquid securities having a maturity of three months or less, at the date of
purchase, and approximate fair market value.
INVENTORIES
Inventories, which mainly consist of finished goods, are stated at the lower of
cost (first-in, first-out) or market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives, which primarily range
from three to twenty-five years. Leasehold improvements are amortized using the
straight-line method over the term of the respective lease or asset life,
whichever is shorter. Major improvements are capitalized, while expenditures for
maintenance and repairs are charged to operations as incurred. Gain or loss on
retirement or disposal of individual assets is recorded as income or expense in
the period incurred.
In accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1), costs of
internal use software and other related costs under certain circumstances are
capitalized. External direct costs of materials and services and payroll costs
of employees working solely on the application development stage of the project
are also capitalized in accordance with SOP 98-1. Such capitalized costs are
amortized over a period of one to five years commencing with when the system is
placed in service. Training and travel costs related to systems implementations
are expensed as incurred.
20
GOODWILL AND OTHER INTANGIBLE ASSETS
Included in other assets is goodwill, which represents the excess of purchase
price of acquired assets over the fair market value of net assets acquired.
Goodwill is amortized using the straight-line method over fifteen years or less.
The Company evaluates the recoverability of all long-lived assets, including
goodwill, based upon estimated future income and cash flows of operating
entities. Impairments would be recognized in operating results to the extent
that carrying value exceeds fair value. Other intangible assets acquired are
amortized over the period for which benefit is derived, which ranges from three
to five years. Goodwill and other intangible assets, net of accumulated
amortization, were $269,000 and $383,000 at December 31, 2000 and 1999,
respectively. Accumulated amortization amounted to $1,508,000 and $1,394,000 at
December 31, 2000 and 1999, 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 accumulated other
comprehensive income (loss) within shareholders' equity. Gains and losses from
foreign currency transactions are included in investment and other income - net
(See Note 8).
ACCOUNTING FOR INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" as disclosed
in Note 9.
EARNINGS PER SHARE
The Company presents both basic and diluted earnings per share in the
Consolidated Statement of Income in accordance with SFAS No. 128, "Earnings per
Share".
The Notes to the consolidated financial statements reflect basic earnings per
share unless otherwise stated or indicated (See Note 10).
USE OF ESTIMATES
The preparation of these financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from these estimates.
COMPREHENSIVE INCOME
The Company elects to include all information required by SFAS No. 130,
"Reporting Comprehensive Income", in the Consolidated Statement of Changes in
Shareholders' Equity.
ACCOUNTING FOR DERIVATIVES AND HEDGING
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivatives and Hedging Activities - Deferral of the Effective
Date of SFAS No. 133" (SFAS No. 137), which deferred the effective date of SFAS
No. 133 for an additional year. SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133), as amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,
an amendment of SFAS No. 133," establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS No. 133, as
amended by SFAS No. 138, requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement or
other comprehensive income and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting.
21
Under the deferral permitted by SFAS No. 137, SFAS No. 133 as amended by SFAS
No. 138, was adopted by the Company effective January 1, 2001. The Company has
determined that the impact of adopting SFAS No. 133, as amended by SFAS No. 138,
on the consolidated financial statements will not be significant; however, the
adoption could increase volatility in earnings and other comprehensive income.
ACCOUNTING FOR STOCK OPTIONS
Effective July 1, 2000 the Company adopted the provisions of Financial
Accounting Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation", (FIN No. 44), requiring, among other things, a charge to
the Consolidated Statement of Income for changes in the Company's stock price
for options repriced subsequent to being granted. Due to the transitional
provisions of FIN No. 44 the charge to the Consolidated Statement of Income for
changes in the Company's stock price was only effective commencing July 1, 2000
for the repricing of options effective February 29, 2000 (See Note 14).
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
NOTE 3 - FINANCIAL INSTRUMENTS
MARKETABLE SECURITIES
In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," the Company's marketable securities are considered
available-for-sale investments. Accordingly, these investments are carried in
the accompanying balance sheet at market value, with the difference between cost
and market value recorded as a component of shareholders' equity, net of tax.
Marketable securities are comprised primarily of U.S. and municipal government
fixed income securities. Additionally, included in marketable securities is a
diversified portfolio of investment grade preferred securities.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS
The Company's portfolio of preferred securities investments are subject to
market fluctuations based largely, but not exclusively, on the securities'
sensitivity to changes in interest rates. By maintaining an economic hedge
consisting of government futures contracts and options, the Company seeks to
reduce interest rate related risk. The portfolio's position of preferred
securities and futures contracts and options are intended to produce offsetting
capital gains and losses, both realized and unrealized, as interest rates
change. The market value of these instruments is reported in marketable
securities.
As of December 31, 2000, marketable securities consist of the following:
UNREALIZED
COST GAINS (LOSSES) MARKET VALUE
------------- ------------- -------------
U.S. Government obligations................. $ 26,147,000 $ (84,000) $ 26,063,000
Municipal obligations....................... 104,594,000 275,000 104,869,000
Preferred stock............................. 10,761,000 (809,000) 9,952,000
Other....................................... 341,000 (193,000) 148,000
------------- ---------- -------------
Total marketable securities................. $ 141,843,000 $ (811,000) $ 141,032,000
============= ========== =============
As of December 31, 1999, marketable securities consist of the following:
UNREALIZED
COST GAINS (LOSSES) MARKET VALUE
------------- ------------- -------------
U.S. Government obligations................. $ 32,320,000 $ (941,000) $ 31,379,000
Municipal obligations....................... 95,666,000 (716,000) 94,950,000
Preferred stock............................. 10,985,000 (856,000) 10,129,000
Other....................................... 492,000 193,000 685,000
------------- ------------ -------------
Total marketable securities................. $ 139,463,000 $ (2,320,000) $ 137,143,000
============= ============ =============
22
Unrealized gains and losses with respect to available-for-sale investments are
recorded, net of tax, in shareholders' equity. Realized gains and losses on
sales of investments, as determined on a specific identification basis, are
included in the Consolidated Statement of Income.
FOREIGN CURRENCY CONTRACTS
The Company enters into forward exchange contracts, principally to manage the
economic currency risks associated with the purchase of inventory and payment
of interest on intercompany loans by its United Kingdom and Canadian
subsidiaries. These contracts enable the Company to buy and sell foreign
currencies in the future at fixed exchange rates. Gains and losses related to
contracts accounted for as hedges are reported as a component of the related
transactions. The Company does not trade in foreign currency contracts to
achieve short-term gains. At December 31, 2000 and 1999, the aggregate notional
amount of foreign exchange contracts was $9,250,000 and $18,000,000,
respectively. At December 31, 2000 and 1999, there were no carrying amounts
related to foreign currency contracts in the Consolidated Balance Sheet.
At December 31, 2000, the Company's forward exchange contracts have expiration
dates which range from two to nine months. The estimated fair value of the
notional amount of the Company's forward exchange contracts based on quoted
rates as of December 31, 2000 and 1999 were $9,034,000 and $18,012,000,
respectively. The Company does not anticipate any material adverse impact on its
results of operations or financial position from these contracts.
CONCENTRATIONS OF CREDIT RISK
As part of its ongoing control procedures, the Company monitors concentrations
of credit risk associated with financial institutions with which it conducts
business. The Company avoids concentration with any single financial
institution. As of December 31, 2000, marketable securities of the Company were
actively managed by five investment managers. These investment managers operate
under guidelines which restrict the investment grade and type of investment and
furthermore limit the dollar amount that can be invested in any one instrument.
The Company also monitors the creditworthiness of its customers to which it
grants credit terms in the normal course of business. Concentrations of credit
risk associated with these trade receivables are considered minimal due to the
Company's diverse customer base. The Company does not normally require
collateral or other security to support credit sales.
NOTE 4 - INVENTORY RESERVES
As of December 31, 2000 and 1999, the Company has recorded reserves to reflect
inventories at their estimated net realizable value. The reserve balance as of
December 31, 2000 and 1999 was $14,043,000 and $14,182,000, respectively.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
DECEMBER 31,
2000 1999
---- ----
Land........................................ $ 7,055,000 $ 7,280,000
Buildings................................... 12,777,000 13,205,000
Machinery and equipment..................... 21,279,000 21,133,000
Furniture and fixtures...................... 5,384,000 5,290,000
Leasehold improvements...................... 9,869,000 9,096,000
------------ ------------
56,364,000 56,004,000
Less accumulated depreciation
and amortization........................... 29,619,000 28,024,000
------------ ------------
26,745,000 27,980,000
Construction in progress.................... - 317,000
------------ ------------
$ 26,745,000 $ 28,297,000
============ ============
23
During the quarter ended December 31, 1999, the Company recognized a charge to
income of $10,392,000, before tax, for the write-off of the net book value of
certain property, plant and equipment relating to terminating the use of the new
computer system.
NOTE 6 - LINES OF CREDIT
Under its existing domestic bank lines of credit, which are renewed annually,
the Company has available $70,000,000 for direct borrowings and letters of
credit at any one time.
The maximum amount available to the Company's foreign operations at December 31,
2000, under local lines of credit, is $10,423,000. These lines provide for
direct borrowings, letters of credit and overdraft facilities.
In connection with the purchase of imported merchandise, the Company, at
December 31, 2000, had letters of credit outstanding under all lines of
$14,182,000.
NOTE 7 - ACCRUED EXPENSES
Accrued expenses consist of the following:
DECEMBER 31,
2000 1999
---- ----
Accrued sales commission............................. $ 2,748,000 $ 2,205,000
Accrued litigation................................... 941,000 955,000
Accrued payroll and incentive compensation........... 3,861,000 3,956,000
Accruals relating to discontinued operations......... 1,785,000 4,632,000
Other................................................ 10,978,000 11,740,000
------------ ------------
$ 20,313,000 $ 23,488,000
============ ============
NOTE 8 - INVESTMENT AND OTHER INCOME - NET
The significant components of investment and other income - net consist of the
following:
YEARS ENDED DECEMBER 31,
2000 1999 1998
---- ---- ----
Investment income.................................... $ 8,352,000 $ 9,171,000 $ 9,009,000
Interest expense..................................... (127,000) (114,000) (141,000)
Foreign currency transactions, net................... (738,000) (886,000) (593,000)
Gain on sale of subsidiary........................... - - 1,828,000
Reversal of reserves................................. 2,544,000 - -
Other................................................ 171,000 416,000 93,000
------------ ------------ ------------
$ 10,202,000 $ 8,587,000 $ 10,196,000
============ ============ ============
The year ended December 31, 2000 includes income of $2,544,000 before tax or
$1,603,000 ($0.08 per diluted share) after tax for the reversal of certain
contingency reserves related to the Company's sale of its toy business segment
in May 1997. The year ended December 31, 1998, includes $1,828,000 before tax or
$1,152,000 ($0.05 per diluted share) after tax, for a transitional agreement
related to the sale of Papel/Freelance, Inc.
24
NOTE 9 - INCOME TAXES
The Company and its domestic subsidiaries file a consolidated Federal income tax
return.
Income before income taxes was:
YEARS ENDED DECEMBER 31,
2000 1999 1998
---- ---- ----
United States........................................ $ 46,351,000 $ 33,556,000 $ 45,296,000
Foreign.............................................. 24,753,000 20,411,000 14,288,000
------------ ------------- ------------
$ 71,104,000 $ 53,967,000 $ 59,584,000
============ ============= ============
The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31,
CURRENT PROVISION 2000 1999 1998
---- ---- ----
Federal.............................................. $ 14,167,000 $ 10,524,000 $ 9,386,000
Foreign.............................................. 7,916,000 6,381,000 4,610,000
State................................................ 1,426,000 1,115,000 1,430,000
------------- ------------- -------------
$ 23,509,000 $ 18,020,000 $ 15,426,000
------------- ------------- -------------
DEFERRED PROVISION (BENEFIT)
Federal.............................................. $ (387,000) $ (610,000) $ 3,597,000
Foreign.............................................. 41,000 121,000 (35,000)
State................................................ - - -
------------- ------------- -------------
(346,000) (489,000) 3,562,000
------------- ------------- -------------
$ 23,163,000 $ 17,531,000 $ 18,988,000
============= ============= =============
A reconciliation of the provision for income taxes with amounts computed at the
statutory Federal rate is shown below:
YEARS ENDED DECEMBER 31,
2000 1999 1998
------------ ------------ ------------
Tax at U.S. Federal statutory rate.......... $ 24,886,000 $ 18,888,000 $ 20,854,000
State income tax net of Federal tax benefit. 927,000 725,000 930,000
Foreign rate difference..................... (707,000) (642,000) (426,000)
Charitable contributions.................... (446,000) (48,000) (592,000)
Tax advantaged investment income............ (2,151,000) (1,998,000) (2,423,000)
Change in valuation allowance............... 55,000 87,000 (451,000)
Other, net.................................. 599,000 519,000 1,096,000
------------ ------------ ------------
$ 23,163,000 $ 17,531,000 $ 18,988,000
============ ============ ============
The Company had a valuation allowance at December 31, 2000 and 1999 of $910,000
and $855,000, respectively (primarily relating to deferred state income taxes)
to reflect the estimated amount of deferred tax assets which may not be
realized.
25
The components of the deferred tax asset and the valuation allowance, resulting
from temporary differences between accounting for financial and tax reporting
purposes were as follows:
DECEMBER 31,
2000 1999
---- ----
ASSETS (LIABILITIES):
Inventory capitalization.................... $ 1,727,000 $ 1,911,000
Reserves not deducted for tax purposes...... 4,120,000 3,243,000
Write-off of computer equipment............. 690,000 1,217,000
Litigation.................................. 411,000 404,000
Depreciation................................ (197,000) (337,000)
Unrealized loss on marketable
securities............................... 266,000 789,000
Other....................................... 521,000 433,000
----------- -----------
Gross deferred tax asset.................... 7,538,000 7,660,000
Less: valuation allowance.................. (910,000) (855,000)
----------- -----------
Net deferred tax asset...................... $ 6,628,000 $ 6,805,000
=========== ===========
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 $90,077,000 as of December 31, 2000. Determination
of the net amount of unrecognized deferred tax liability with respect to these
earnings is not practicable.
NOTE 10 - EARNINGS PER SHARE
A reconciliation of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution follows:
YEARS ENDED DECEMBER 31,
2000 1999 1998
---------- ---------- ----------
Average common shares outstanding.................... 20,195,000 21,069,000 22,225,000
Dilutive effect of common shares issuable(1)......... 61,000 133,000 162,000
---------- ---------- ----------
Average common shares outstanding
assuming dilution.................................. 20,256,000 21,202,000 22,387,000
========== ========== ==========
(1) Issuable under stock option plans.
Stock options outstanding at December 31, 2000, 1999 and 1998 to purchase
341,600 shares, 189,400 shares and 213,550 shares, respectively, of common stock
were not included in the computation of earnings per common share assuming
dilution because the options' exercise prices were greater than the average
market price of the common shares during the respective years.
NOTE 11 - RELATED PARTY TRANSACTIONS
Certain buildings, referred to in Note 12, are leased from Russell Berrie, the
Company's majority shareholder, or entities owned or controlled by him. Rentals
under these leases for the years ended December 31, 2000, 1999 and 1998 were
$3,841,000, $3,867,000 and $3,931,000, respectively. The Company is also a
guarantor under two mortgages for property so leased with a principal amount
aggregating approximately $7,651,000 as of December 31, 2000, $2,000,000 of
which is collateralized by assets of the Company.
26
NOTE 12 - LEASES
At December 31, 2000, 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 five years.
Rent expense for the years ended December 31, 2000, 1999 and 1998 amounted to
$6,158,000, $5,809,000 and $6,052,000, respectively.
The approximate aggregate minimum future rental payments as of December 31, 2000
under operating leases are as follows:
2001............. 6,154,000
2002............. 5,713,000
2003............. 4,719,000
2004............. 1,930,000
2005............. 150,000
NOTE 13 - STOCK REPURCHASE PROGRAM
As of December 31, 2000, the Board of Directors had authorized the Company to
purchase 7,000,000 shares of common stock of which 5,561,400 shares have been
repurchased since the beginning of the Company's stock repurchase program in
March 1990. During 2000, the Company repurchased 815,100 shares.
NOTE 14 - STOCK PLANS
The Company has a Stock Option and Restricted Stock Plan, two Stock Option Plans
and an Employee Stock Purchase Plan (collectively, the "Stock Plans"). As of
December 31, 2000, there were 2,240,123 shares of common stock reserved for
issuance under all stock plans. Under the Stock Option and Restricted Stock
Plan, stock awards of 6,176 shares, 2,917 shares and 2,626 shares were issued
for the years ended December 31, 2000, 1999 and 1998, respectively. The Company
has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been recognized
for the options granted for these Stock Plans except for the adoption of FIN No.
44 which resulted in a charge to the Consolidated Statement of Income of
$444,000 during the year ended December 31, 2000 relating only to the options
granted during 2000 as those options were repriced as of February 29, 2000 upon
approval of the Board of Directors and Shareholders. Had compensation cost for
the Company's Stock Plans been determined based on the fair value at the grant
date in 2000, 1999 and 1998, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
YEARS ENDED DECEMBER 31,
2000 1999 1998
---- ---- ----
Net income - as reported............................. $ 47,941,000 $ 36,436,000 $ 40,596,000
Net income - pro forma............................... $ 47,382,000 $ 35,769,000 $ 39,686,000
Earnings per share (basic) - as reported............. $ 2.37 $ 1.73 $ 1.83
Earnings per share (basic) - pro forma............... $ 2.35 $ 1.70 $ 1.79
The fair value of each option granted under the Stock Option Plans is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following assumptions used for all grants:
27
YEARS ENDED DECEMBER 31,
2000 1999 1998
------ ------ ------
Dividend yield.............................. 4.75% 3.39% 2.90%
Risk-free interest rate..................... 6.39% 4.60% 5.70%
Volatility.................................. 37.20% 32.37% 40.37%
Expected life (years)....................... 3.2 3.1 3.0
The fair value of each option granted under the Employee Stock Purchase Plan is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions used for all grants:
YEARS ENDED DECEMBER 31,
2000 1999 1998
------ ------ ------
Dividend yield....................................... 4.75% 3.39% 2.90%
Risk-free interest rate.............................. 6.03% 4.59% 5.52%
Volatility........................................... 37.20% 32.37% 40.37%
Expected life (years)................................ 1.0 1.0 1.0
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 except for the 2000
grant of options which were repriced to the closing price of the Company's stock
effective February 29, 2000. 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 2000, 1999 and 1998 is as follows:
ALL STOCK OPTION PLANS
--------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------ --------------
Outstanding as of December 31, 1997........................... 762,293 16.577
Options Granted............................................... 223,569 26.250
Options Exercised............................................. (250,386) 16.221
Options Cancelled............................................. (41,548) 19.377
--------
Outstanding as of December 31, 1998........................... 693,928 19.654
Options Granted............................................... 231,047 23.625
Options Exercised............................................. (121,235) 16.365
Options Cancelled............................................. (42,453) 26.766
--------
Outstanding as of December 31, 1999........................... 761,287 21.091
Options Granted............................................... 280,799 18.525
Options Exercised............................................. (63,837) 16.450
Options Cancelled............................................. (103,831) 21.943
--------
Outstanding as of December 31, 2000........................... 874,418 20.455
========
Option price range at December 31, 2000....................... $ 9.59 to $ 26.25
Option price range for exercised shares....................... $ 9.59 to $23.625
Options available for grant and reserved for
future issuance at December 31, 2000....................... 2,125,345
The weighted-average fair value of options granted, on a per share basis, during
the years 2000, 1999 and 1998 was $4.45, $5.05 and $7.31, respectively.
28
The following table summarizes information about fixed-price stock options
outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------- ---------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/00 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/00 EXERCISE PRICE
- --------------- ----------- ---------------- -------------- ----------- --------------
$ 9.590 5 Exp 1/01/01 $ 9.590 5 $ 9.590
12.500 7,419 1 year 12.500 7,419 12.500
17.670 83,996 2 years 17.670 83,996 17.670
14.875 29,237 3 years 14.875 29,237 14.875
13.750 20,075 4 years 13.750 20,075 13.750
13.625 33,549 5 years 13.625 33,549 13.625
18.500 121,468 6 years 18.500 121,468 18.500
26.250 162,094 7 years 26.250 162,094 26.250
23.625 179,522 8 years 23.625 179,522 23.625
20.375 21,000 9 years 20.375 0 20.375
18.375 216,053 9 years 18.375 0 18.375
------- -------
874,418 637,365
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 except for
the 2000 grant which was repriced to 90% of the closing market price of the
stock as of February 29, 2000. Information regarding the Employee Stock Purchase
Plan for 2000, 1999 and 1998 is as follows:
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
2000 1999 1998
-------- -------- --------
Exercise Price $ 16.540 $ 21.263 $ 23.625
Shares Issued 17,458 17,764 1,295
As of December 31, 2000, the Employee Stock Purchase Plan has 114,778 shares
reserved for future issuance.
NOTE 15 - 401(K) PLAN
The Company maintains a 401(k) Plan to which employees may, up to certain
prescribed limits, contribute a portion of their compensation and a portion of
these contributions is matched by the Company. The provision for contributions
charged to operations for the years ended December 31, 2000, 1999 and 1998 was
$703,000, $796,000 and $733,000, respectively.
NOTE 16 - SEGMENT, GEOGRAPHIC AND RELATED INFORMATION
The Company's operations comprise one operating segment, offering an extensive
line of products including stuffed animals, picture frames, candles, figurines
and home decor gifts based on current fashions and trends. The following table
represents financial data of the Company, under the basis by which the Company
has chosen to organize itself, by geographic area (See Note 2 "Revenue
Recognition").
29
2000 1999 1998
------------- ------------- -------------
REVENUES:
United States............................... $ 196,935,000 $ 196,276,000 $ 202,060,000
Europe...................................... 47,083,000 44,072,000 37,809,000
Other....................................... 56,783,000 46,663,000 39,133,000
------------- ------------- -------------
Total....................................... $ 300,801,000 $ 287,011,000 $ 279,002,000
============= ============= =============
INCOME FROM OPERATIONS:
United States............................... $ 31,145,000 $ 22,527,000 $ 30,883,000
Europe...................................... 6,565,000 4,994,000 2,967,000
Other....................................... 10,231,000 8,915,000 6,746,000
------------- ------------- -------------
Total....................................... $ 47,941,000 $ 36,436,000 $ 40,596,000
============= ============= =============
IDENTIFIABLE ASSETS:
United States............................... $ 260,198,000 $ 263,433,000 $ 304,700,000
Europe...................................... 46,854,000 43,186,000 36,837,000
Other....................................... 59,957,000 48,801,000 36,919,000
------------- ------------- -------------
Total....................................... $ 367,009,000 $ 355,420,000 $ 378,456,000
============= ============= =============
There were no material sales or transfers among geographic areas and no material
amount of export sales to customers from the United States. Outside of the
United States, no single country is deemed material for separate disclosure. The
Company has no single customer representing greater than 10% of consolidated
revenues.
NOTE 17 - LITIGATION
The Company is subject to legal proceedings and claims arising in the ordinary
course of its business. In the opinion of management, the amount of ultimate
liability with respect to these actions will not materially affect the results
of operations, financial position or cash flows of the Company.
NOTE 18 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following selected financial data for the four quarters ended December 31,
2000 and 1999 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 September 30, 2000 includes income of $1,607,000
before tax, or $1,012,000 ($0.05 per diluted share) after tax, and the quarter
ended December 31, 2000 includes income of $937,000 before tax or $591,000
($0.03 per diluted share) after tax for the reversal of certain contingency
reserves related to the Company's sale of its toy business segment in May 1997.
The quarter ended December 31, 1999 includes a charge of $10,392,000 before tax
or $6,557,000 after tax ($0.32 per diluted share) for the information system
write-off (See Note 2 "Revenue Recognition").
FOR QUARTERS ENDED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ---- --------- -------- ------------- ------------
Net sales........................... $ 78,279 $ 57,574 $ 97,251 $ 67,697
Gross profit........................ 45,563 30,792 55,533 36,005
Net income.......................... $ 11,839 $ 4,963 $ 20,546 $ 10,593
Net income per share
Basic...................... $ .58 $ .24 $ 1.03 $ .53
Diluted.................... .57 .24 1.02 .53
1999
- ----
Net sales........................... $ 77,845 $ 49,030 $ 93,285 $ 66,851
Gross profit........................ 45,220 26,626 54,913 37,036
Net income.......................... $ 11,834 $ 4,109 $ 18,237 $ 2,256
Net income per share
Basic...................... $ .54 $ .19 $ .88 $ .11
Diluted.................... .53 .19 .88 .11
30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to this item appears under the captions "ELECTION OF
DIRECTORS" and "SECTION 16a BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" of the
2001 Proxy Statement, which is incorporated herein by reference and under the
caption "EXECUTIVE OFFICERS OF THE REGISTRANT" in Part I of this Annual Report
on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to this item appears under the captions "THE BOARD OF
DIRECTORS AND COMMITTEES OF THE BOARD", "DIRECTOR COMPENSATION", "EXECUTIVE
COMPENSATION", "COMPENSATION COMMITTEE REPORT", "COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION" and "RUSS BERRIE AND COMPANY, INC.
Comparison of Five Year Cumulative Total Return Among Russ Berrie and Company,
Inc., the S&P 500 Index and Peer Group Companies," of the 2001 Proxy
Statement, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to this item appears under the captions "SECURITY OWNERSHIP
OF MANAGEMENT" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" of the 2001
Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to this item appears under the captions "CERTAIN
TRANSACTIONS", "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION"
and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" of the 2001 Proxy
Statement, which is incorporated herein by reference.
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT.
1. FINANCIAL STATEMENTS:
PAGE NUMBER IN
THIS REPORT
--------------
Report of Independent Public Accountants........................................ 15
Consolidated Statement of Income for the
years ended December 31, 2000, 1999 and 1998.................................... 16
Consolidated Statement of Changes in
Shareholders' Equity for the years ended
December 31, 2000, 1999 and 1998................................................ 17
Consolidated Balance Sheet at December 31,
2000 and 1999................................................................... 18
Consolidated Statement of Cash Flows for the
years ended December 31, 2000, 1999 and 1998.................................... 19
Notes to Consolidated Financial Statements...................................... 20-30
2. FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts................................ 42
Other schedules are omitted because they are either not applicable or not
required or the information is presented in the Consolidated Financial
Statements or Notes thereto.
32
EXHIBITS: (Listed by numbers corresponding to item 601 of Regulation S-K)
EXHIBIT NO.
- -----------
3.1 (a) Restated Certificate of Incorporation of the Registrant and amendment thereto. (9)
(b) Certificate of Amendment to Restated Certificate of Incorporation of the Company filed April
30, 1987. (23)
3.2 (a) By-Laws of the Registrant. (9)
(b) Amendment to Revised By-Laws of the Company adopted April 30, 1987. (23)
(c) Amendment to Revised By-Laws of the Company adopted February 18, 1988. (23)
(d) Amendment to Revised By-Laws of the Company adopted July 25, 1995. (28)
(e) Amendment to Revised By-Laws of the Company adopted April 21, 1999.
4.1 Form of Common Stock Certificate. (1)
10.1 Russ Berrie and Company, Inc. Profit Sharing Plan. (3)
10.2 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.
(3) Incorporated by reference to Amendment No. 1 to Registration Statement No.
2-88797 on Form S-1, as filed on March 13, 1984.
(9) Incorporated by reference to Amendment No. 1 to Registration Statement No.
33-10077 on Form S-1, as filed on December 16, 1986.
(23) Incorporated by reference to Registration No. 33-51823 on Form S-8, as
filed on January 6, 1994.
(28) Incorporated by reference to Form S-8 Registration Statement No. 33 - 37008
as filed on January 4, 1999.
33
EXHIBIT NO.
- -----------
10.3 Lease Agreement, dated April 1, 1981, between Tri-State Realty and Investment Company and Russ
Berrie and Company, Inc. (4)
10.4 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)
10.5 Mortgage, dated April 6, 1981, between Tri-State Realty and Investment Company and the New
Jersey Economic Development Authority. (4)
10.6 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)
10.7 Assignment of Leases, Rents & Profits, dated April 6, 1981, by Tri-State Realty and Investment
Company to the New Jersey Economic Development Authority. (4)
10.8 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)
10.9 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)
10.10 Lease, dated December 28, 1983, between Russell Berrie and Russ Berrie and Company, Inc. (4)
10.11 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)
10.12 Letter of Credit and Reimbursement Agreement, dated as of December 1, 1983, between Russ Berrie
and Company, Inc. and Citibank, N.A. (4)
10.13 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.
34
EXHIBIT NO.
- -----------
10.14 Mortgage, dated December 28, 1983, between Russell Berrie and Citibank, N.A. (4)
10.15 Form of New Jersey Economic Development Authority Variable/Fixed Rate Economic Development Bond
(Russell Berrie -- 1983 Project). (4)
10.16 Grant Deed, dated June 28, 1982, from Russ Berrie and Company, Inc. to Russell Berrie. (1)
10.17 Russ Berrie and Company, Inc. 1989 Employee Stock Purchase Plan. (13)
10.18 (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)
10.19 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.
(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.
(13) Incorporated by reference to Form S-8 Registration Statement No. 33-26161,
as filed on December 16, 1988.
35
EXHIBIT NO.
- -----------
10.20 Russ Berrie and Company, Inc. Deferred Compensation Plan. (9)
10.21 (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)
10.22 Lease agreement, dated July 1, 1987, between Hunter Street, Inc. and Russ Berrie and Co. (West),
Inc. (11)
10.23 Lease agreement, dated October 1, 1987, between David Benjamin and Nicole Berrie, Lakeland Trust
and Russ Berrie and Company, Inc. (11)
10.24 Russ Berrie and Company, Inc. 1989 Stock Option Plan. (14)
10.25 Russ Berrie and Company, Inc. 1989 Stock Option Plan for Outside Directors. (15)
10.26 Russ Berrie and Company, Inc. 1989 Stock Option and Restricted Stock Plan. (16)
10.27 Lease Agreement dated November 7, 1988 between A. Mantella & Sons Limited and Amram's
Distributing, Ltd. (17)
10.28 Lease Agreement dated November 7, 1988 between Russell Berrie and Russ Berrie and Company, Inc. (17)
10.29 Lease Agreement dated June 8, 1989 between Americana Development, Inc. and Russ Berrie and
Company, Inc. (18)
10.30 Lease dated December 25, 1989 between Kestrel Properties, Ltd. and Russ Berrie (U.K.) Ltd.
(18)
10.31 Amendment dated January 9, 1989 to Letter of Credit and Reimbursement Agreement dated as of
December 1, 1983 between Russ Berrie and Company, Inc. and Citibank, N.A. (18)
- ----------
(9) Incorporated by reference to Amendment No. 1 to Registration Statement No.
33-10077 of Form S-1, as filed on December 16, 1986.
(11) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1987.
(14) Incorporated by reference to Form S-8 Registration Statement No. 33-27406,
as filed on March 16, 1989.
(15) Incorporated by reference to Form S-8 Registration Statement No. 33-27897,
as filed on April 5, 1989.
(16) Incorporated by reference to Form S-8 Registration Statement No. 33-27898,
as filed on April 5, 1989.
(17) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1988.
(18) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1989.
36
EXHIBIT NO.
- -----------
10.32 (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)
10.33 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)
10.34 (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)
10.35 Russ Berrie and Company, Inc. Retirement Plan Amended and Restated Effective January 1, 1989. (19)
10.36 (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)
- ----------
(19) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1990.
(20) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1991.
37
EXHIBIT NO.
- -----------
10.37 Transfer of Freehold land between British Telecommunications plc and BT Property Limited and Russ
Berrie (UK) Ltd. (21)
10.38 Russ Berrie and Company, Inc. 1994 Stock Option Plan. (21)
10.39 Russ Berrie and Company, Inc. 1994 Stock Option Plan for Outside Directors. (21)
10.40 Russ Berrie and Company, Inc. 1994 Stock Option and Restricted Stock Plan. (21)
10.41 Russ Berrie and Company, Inc. 1994 Employee Stock Purchase Plan. (21)
10.42 Asset Purchase Agreement dated October 1, 1993 by and between RBTACQ, Inc. and Cap Toys, Inc. (22)
10.43 Asset Purchase Agreement I.C. September 30, 1994 by and among RBCACQ, Inc. and OddzOn Products,
Inc., Scott Stillinger and Mark Button. (23)
10.44 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)
10.45 Agreement dated December 17, 1996, by and between Russ Berrie and Company, Inc. and A. Curts
Cooke. (25)
10.46 Agreement dated March 24, 1997, by and between Russ Berrie and Company, Inc. and Ricky Chan. (25)
10.47 Asset Purchase Agreement dated as of May 2, 1997 among Russ Berrie and Company, Inc., OddzOn
Products, Inc., Cap Toys, Inc., OddzOn/Cap Toys, Inc. and Hasbro, Inc., together with exhibits
thereto. (26)
10.48 First Amendment of Agreement dated June 5, 1997, by and between Russ Berrie and Company, Inc. and
A. Curts Cooke. (27)
10.49 Agreement of Purchase and Sale between Amram's Distributing Ltd. and Metrus Properties Ltd. dated
November 25, 1997. (27)
- ----------
(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.
(26) Incorporated by reference to Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997.
(27) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1997.
38
EXHIBIT NO.
- -----------
10.50 Russ Berrie and Company, Inc. 1999 Stock Option Plan. (28)
10.51 Russ Berrie and Company, Inc. 1999 Stock Option Plan for Outside Directors. (28)
10.52 Russ Berrie and Company, Inc. 1999 Stock Option and Restricted Stock Plan. (28)
10.53 Russ Berrie and Company, Inc. 1999 Employee Stock Purchase Plan. (28)
10.54 Second Amendment of Agreement dated January 13, 1999, by and between Russ Berrie and Company,
Inc. and A. Curts Cooke. (29)
10.55 Exercise of option to extend terms of leases dated December 28, 1983 and March 7, 1988 between
Russell Berrie and Russ Berrie and Company, Inc. (29)
10.56 Executive Employment Agreement dated March 31, 1999 between Russ Berrie and Company, Inc. and
Jeffery D. Schaum. (30)
10.57 Executive Employment Agreement dated June 1, 2000 between Russ Berrie and Company, Inc. and Benjamin J. Sottile. (31)
10.58 Executive Employment Agreement dated August 14, 2000 between Russ Berrie and Company, Inc. and Dona Fisher.
10.59 Executive Severance Agreement dated December 18, 2000 between Russ Berrie and Company, Inc. and Dona Fisher.
10.60 Russ Berrie and Company, Inc. Executive Deferred Compensation Plan
10.61 Executive Employment Agreement dated January 29, 2001 between Russ Berrie and Company, Inc. and John T. Toolan.
10.62 Executive Employment Agreement dated March 1, 2001 between Russ Berrie and Company, Inc. and Michael. M. Saunders.
- ----------
(28) Incorporated by reference to Form S-8 Registration Statement No. 333-70081
as filed on January 4, 1999.
(29) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1998.
(30) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1999.
(31) Incorporated by reference to Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000.
21.1 List of Subsidiaries
23.1 Consent of Independent Public Accountants
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 2000.
39
UNDERTAKING
In order to comply with amendments to the rules governing the use of Form S-8
under the Securities Act of 1933, as amended, as set forth in Securities Act
Release No. 33-6867, the undersigned Registrant hereby undertakes as follows,
which undertaking shall be incorporated by reference into Registrant's
Registration Statements on Forms S-8 (File Nos. 2-96238, 2-96239, 2-96240,
33-10779, 33-26161, 33-27406, 33-27897, 33-27898, 33-51823 and 333-70081):
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Russ Berrie and Company, Inc.
(Registrant)
3/30/01 By /s/ John D. Wille
- ----------- -------------------------------
Date
Vice President and Chief Financial Officer
(Principal Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Russell Berrie 3/30/01
- ------------------------------------- ----------------
Russell Berrie, Chairman, DATE
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Raphael Benaroya 3/30/01
- ------------------------------------- ----------------
Raphael Benaroya, Director DATE
/s/ Angelica Berrie 3/30/01
- ------------------------------------- ----------------
Angelica Berrie, Director DATE
/s/ Carl Epstein 3/29/01
- ------------------------------------- ----------------
Carl Epstein, Director DATE
/s/ Ilan Kaufthal 3/28/01
- ------------------------------------- ----------------
Ilan Kaufthal, Director DATE
/s/ Charles Klatskin 3/30/01
- ------------------------------------- ----------------
Charles Klatskin, Director DATE
/s/ Joseph Kling 3/30/01
- ------------------------------------- ----------------
Joseph Kling, Director DATE
/s/ William A. Landman 3/28/01
- ------------------------------------- ----------------
William A. Landman, Director DATE
/s/ Sidney Slauson 3/29/01
- ------------------------------------- ----------------
Sidney Slauson, Director DATE
/s/ Benjamin J. Sottile 3/30/01
- ------------------------------------- ----------------
Benjamin J. Sottile, Vice Chairman and Director DATE
/s/ Josh Weston 3/28/01
- ------------------------------------- ----------------
Josh Weston, Director DATE
S-2
41
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
BALANCE AT
BEGINNING CHARGED TO BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS* END OF PERIOD
----------- --------- -------- ----------- -------------
Allowance for accounts receivable:
Year ended December 31, 1998 2,233 1,872 1,483 2,622
Year ended December 31, 1999 2,622 2,534 1,425 3,731
Year ended December 31, 2000 3,731 2,298 2,569 3,460
Allowance for slow moving inventory items:
Year ended December 31, 1998 15,292 2,754 3,998 14,048
Year ended December 31, 1999 14,048 2,991 2,857 14,182
Year ended December 31, 2000 14,182 2,803 2,942 14,043
* Principally account write-offs, allowances and disposal of merchandise,
respectively.
42
EXHIBIT INDEX
EXHIBIT NUMBERS
- ---------------
3.2(e) Amendment to Revised By-Laws of the Company adopted April 21,
1999.
10.58 Executive Employment Agreement dated August 14, 2000 between Russ
Berrie and Company, Inc. and Dona Fisher.
10.59 Executive Severance Agreement dated December 18, 2000 between Russ
Berrie and Company, Inc. and Dona Fisher.
10.60 Russ Berrie and Company, Inc. Executive Deferred Compensation
Plan.
10.61 Executive Employment Agreement dated January 29, 2001 between Russ
Berrie and Company, Inc. and John T. Toolan.
10.62 Executive Employment Agreement dated March 1, 2001 between Russ
Berries and Company, Inc. and Michael M. Saunders.
21.1 List of Subsidiaries
23.1 Consent of Independent Public Accountants