-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G8LCqoXSg3SEZhtu1VSZqp/96rT5wFhppAbJPfubnhgq4kTXDRMCq2XCUFNXnq4I arkU8UJmBfxn7I5XkbcZrA== 0000950123-97-009405.txt : 19971114 0000950123-97-009405.hdr.sgml : 19971114 ACCESSION NUMBER: 0000950123-97-009405 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RUSS BERRIE & CO INC CENTRAL INDEX KEY: 0000739878 STANDARD INDUSTRIAL CLASSIFICATION: DOLLS & STUFFED TOYS [3942] IRS NUMBER: 221815337 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08681 FILM NUMBER: 97713787 BUSINESS ADDRESS: STREET 1: 111 BAUER DR CITY: OAKLAND STATE: NJ ZIP: 07436 BUSINESS PHONE: 2013379000 MAIL ADDRESS: STREET 2: 111 BAUER DRIVE CITY: OAKLAND STATE: NJ ZIP: 07436 FORMER COMPANY: FORMER CONFORMED NAME: BERRIE RUSS & CO INC DATE OF NAME CHANGE: 19920703 10-Q 1 RUSS BERRIE AND COMPANY, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8681 RUSS BERRIE AND COMPANY, INC. (Exact name of registrant as specified in its charter) New Jersey 22-1815337 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 111 Bauer Drive, Oakland, New Jersey 07436 (Address of principal executive offices) (Zip Code) (201) 337-9000 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT OCTOBER 14, 1997 ----- ------------------------------- Common stock, $.10 stated value 22,039,280
2 RUSS BERRIE AND COMPANY, INC. INDEX
PAGE PART I - FINANCIAL INFORMATION NUMBER ------ Item 1. Financial Statements Consolidated Balance Sheet as of September 30, 1997 and December 31, 1996 3 Consolidated Statement of Income for the three month and the nine month periods ended September 30, 1997 and 1996 4 Consolidated Statement of Cash Flows for the nine month periods ended September 30, 1997 and 1996 5 Notes to Consolidated Financial Statements 6 and 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 10 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12
2 3 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS)
(UNAUDITED) SEPTEMBER 30, DECEMBER 31, ASSETS 1997 1996 - ------ ------------- ------------ Current assets Cash and cash equivalents ............................. $ 94,217 $ 52,257 Marketable securities ................................. 91,098 -- Accounts receivable, trade, less allowances; $2,245 in 1997 and $2,258 in 1996 .................. 76,917 49,355 Inventories - net ..................................... 49,030 54,350 Prepaid expenses and other current assets ............. 8,534 2,558 Deferred income taxes ................................. 11,456 9,707 Net current assets of discontinued operations ......... -- 47,386 --------- --------- TOTAL CURRENT ASSETS ....................... 331,252 215,613 Property, plant and equipment - net ..................... 21,435 21,765 Other assets ............................................ 9,435 2,948 Net assets of discontinued operations ................... -- 36,640 --------- --------- TOTAL ASSETS ............................... $ 362,122 $ 276,966 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable ...................................... $ 6,613 $ 3,709 Accrued expenses ...................................... 25,240 18,776 Accrued income taxes .................................. 21,841 5,755 --------- --------- TOTAL CURRENT LIABILITIES .................. 53,694 28,240 Commitments and contingencies Shareholders' equity Common stock: $.10 stated value; authorized 50,000,000 shares; issued 1997, 24,888,909 shares; 1996, 24,333,952 shares ..................... 2,489 2,433 Additional paid in capital ............................ 51,098 43,280 Retained earnings ..................................... 301,814 240,373 Foreign currency translation adjustments .............. (1,053) 497 Treasury stock, at cost (2,853,714 shares at September 30, 1997 and 2,454,814 shares at December 31, 1996) .................................. (45,920) (37,857) --------- --------- TOTAL SHAREHOLDERS' EQUITY ................. 308,428 248,726 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....................... $ 362,122 $ 276,966 ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 3 4 RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1997 1996 ---- ---- ---- ---- Net sales ............................................. $87,530 $67,906 $208,080 $166,248 Cost of sales ......................................... 37,475 30,327 91,347 76,176 ------- ------- -------- -------- GROSS PROFIT ....................................... 50,055 37,579 116,733 90,072 Selling, general and administrative expense ........... 28,233 22,000 80,249 67,515 Investment and other income-net ....................... 2,208 5,106 4,336 10,929 ------- ------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE TAXES ..................................... 24,030 20,685 40,820 33,486 Provision for income taxes on continuing operations ............................... 7,989 7,170 13,520 11,912 ------- ------- -------- -------- NET INCOME FROM CONTINUING OPERATIONS .............. 16,041 13,515 27,300 21,574 NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS ..... -- 2,723 (1,324) 3,730 GAIN FROM SALE OF DISCONTINUED OPERATIONS .......... -- -- 46,700 -- ------- ------- -------- -------- NET INCOME ......................................... $16,041 $16,238 $ 72,676 $ 25,304 ======= ======= ======== ======== NET INCOME (LOSS) PER SHARE: Continuing operations .............................. $ 0.73 $ 0.62 $ 1.24 $ 0.99 Discontinued operations ............................ -- 0.13 (0.06) 0.18 Gain from sale of discontinued operations .......... -- -- 2.12 -- ------- ------- -------- -------- Total ......................................... $ 0.73 $ 0.75 $ 3.30 $ 1.17 ======= ======= ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 4 5 RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
(UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES: 1997 1996 ---- ---- Net income ............................................... $ 72,676 $ 25,304 Adjustments to reconcile net income to net cash provided by continuing operating activities: Net loss (income) - discontinued operations ............. 1,324 (3,730) Depreciation ............................................ 2,154 2,369 Amortization of intangible assets ....................... 112 116 Provision for accounts receivable reserves .............. 1,787 999 Gain from sale of subsidiary ............................ -- (4,800) Gain from sale of discontinued operations ............... (75,300) -- Gain or loss from sale or disposal of fixed assets ...... 346 (101) Changes in assets and liabilities, net of effect of acquisitions and dispositions: Accounts receivable .............................. (29,349) (21,524) Inventories ...................................... 5,320 4,605 Deferred income taxes ............................ (1,749) -- Prepaid expenses and other current assets ........ (5,976) 356 Other assets ..................................... (6,599) 229 Accounts payable ................................. 2,904 1,138 Accrued expenses ................................. 6,464 (5,206) Accrued income taxes ............................. 16,086 10,013 --------- -------- Total adjustments .............................. (82,476) (15,536) --------- -------- Net cash (used in) provided by continuing operating activities ...................... (9,800) 9,768 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities ........................ (91,098) -- Proceeds from sale of fixed assets ....................... 162 176 Capital expenditures ..................................... (2,795) (1,422) Sale of subsidiary ....................................... -- 18,325 Sale of discontinued operations .......................... 147,097 -- --------- -------- Net cash provided by investing activities ...................... 53,366 17,079 CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock ................................. 7,874 2,363 Dividends ................................................ (11,235) (9,750) Treasury stock ........................................... (8,063) -- --------- -------- Net cash (used in) financing activities ...................... (11,424) (7,387) Effect of exchange rates ................................. (1,087) 114 Cash provided by discontinued operations ................................ 10,905 (10,119) --------- -------- Net increase in cash and cash equivalents ................ 41,960 9,455 Cash and cash equivalents at beginning of year ........... 52,257 35,802 --------- -------- Cash and cash equivalents at end of year ................. $ 94,217 $ 45,257 ========= ======== CASH PAID DURING THE PERIOD FOR: Interest ............................................ $ 105 $ 98 Income taxes ........................................ $ 21,294 $ 4,017
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 5 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 The information furnished reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Results for interim periods are not necessarily an indication of results to be expected for the year. On May 2, 1997, the Company completed the sale of substantially all of the assets of its wholly-owned subsidiaries, Cap Toys, Inc. and OddzOn Products, Inc., to a wholly-owned subsidiary of Hasbro, Inc. These two subsidiaries represented the Company's Toy business segment. The operating results of the Toy business segment have been classified as discontinued operations and the financial statements have been restated to reflect this presentation. See Note 4 regarding discontinued operations. The sale transaction resulted in a gain on sale of discontinued operations for the nine months ended September 30, 1997 of $75,300,000 before tax or $46,700,000 ($2.12 per share) after tax. Investment and other income-net for the nine months ended September 30, 1996 includes the gain on the sale of the Company's subsidiary Papel/Freelance, Inc. of approximately $4,800,000 before tax or $3,000,000 ($0.14 per share) after tax. An additional $2,000,000 before tax gain will be recognized contingent upon satisfaction of the terms of a transitional agreement. Also included in investments and other income - net for the three and nine month periods ended September 30, 1996 is the reversal of a litigation provision of $4,450,000 pretax or $2,800,000 ($0.13 per share) after tax. This reversal was due to a settlement of certain litigation for less than what was provided in 1992. Selling, general and administrative expense for the nine months ended September 30, 1997 includes a provision of $1,500,000 before tax or $945,000 ($0.04 per share) after tax for costs associated with closing all remaining retail operations. Included in the results for the nine months ended September 30, 1996 is a provision of $900,000 before tax or $575,000 ($0.03 per share) after tax for costs associated with closing certain of the Company's retail stores. NOTE 2 The weighted average number of shares outstanding during the three and nine month periods ended September 30, 1997 were 21,958,751 and 22,015,662, shares, respectively, compared to the three and nine month periods ended September 30, 1996 of 21,730,688 and 21,662,795 shares, respectively. Employee stock option plans did not have a material dilutive effect on the earnings per share calculation. NOTE 3 Cash dividends of $3,740,433 ($0.17 per share) were paid on September 5, 1997 to shareholders of record of the Company's Common Stock on August 22, 1997. Cash dividends of $11,235,106 ($0.17 per share per quarter) were paid in the nine month period ended September 30, 1997. Cash dividends of $3,259,356 ($0.15 per share) were paid on September 11, 1996 to shareholders of record of the Company's Common Stock on August 21, 1996. Cash dividends of $9,750,320 ($0.15 per share per quarter) were paid in the nine month period ended September 30, 1996. 6 7 NOTE 4 - DISCONTINUED OPERATIONS On May 2, 1997, the Company completed the sale of substantially all of the assets of its wholly-owned subsidiaries, Cap Toys, Inc. and OddzOn Products, Inc., to a wholly-owned subsidiary of Hasbro, Inc. for a purchase price of $166,650,000, subject to adjustment based on the net tangible value of the assets sold on the day of closing. The sale transaction resulted in a gain on sale of discontinued operations for the nine months ended September 30, 1997 of $75,300,000 before tax or $46,700,000 ($2.12 per share) after tax. The Company intends to use the proceeds of the sale to pursue acquisitions of companies within the gift industry and for general corporate purposes. Amounts included in net (loss) income from discontinued operations for the Toy business segment for the three and nine months ended September 30 are as follows:
THREE MONTHS ENDED SEPTEMBER 30, 1997 1996 - -------------------------------- ---- ---- Net sales $ -- $49,471,000 Income before taxes -- 4,268,000 Provision for income taxes -- 1,545,000 ------------ ----------- Net income $ -- $ 2,723,000 ============ ===========
NINE MONTHS ENDED SEPTEMBER 30, 1997 1996 - -------------------------------- ---- ---- Net sales $ 38,614,000 $99,693,000 (Loss) income before taxes (2,483,000) 5,845,000 (Benefit) provision for income taxes (1,159,000) 2,115,000 ------------ ----------- Net (loss) income $ (1,324,000) $ 3,730,000 ============ ===========
7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF CONTINUING OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 The Company's net sales for the nine months ended September 30, 1997 were $208,080,000 compared to $166,248,000 for the nine months ended September 30, 1996. This represents an increase of $41,832,000 or 25.2%. This increase in net sales reflects the positive customer response to the Company's redesign of its gift product line focusing on coordinated themes of product offerings. Cost of sales were 43.9% of net sales for the nine months ended September 30, 1997 compared to 45.8% for the same period in 1996. The decrease primarily reflects higher gross profit margins on sales of certain of the Company's product lines. Selling, general and administrative expense was $80,249,000 or 38.6% of net sales for the nine months ended September 30, 1997 compared to $67,515,000 or 40.6% of net sales for the nine months ended September 30, 1996. As a percent of net sales, the decrease in selling, general and administrative expense can be attributed to fixed costs which were absorbed by the increase in net sales. Included in the selling, general and administrative expense for the nine months ended September 30, 1997 is a provision of $1,500,000 for costs associated with closing all remaining retail operations. The nine month period ended September 30, 1996 includes a provision of $900,000 related to costs associated with closing certain of the Company's retail stores. Excluding these provisions, selling, general and administrative expense increased $12,134,000 or 18.2% when compared to the prior year. This increase can be primarily attributed to the increase in expenses required to support the higher sales levels, in particular compensation and travel costs associated with the salesforce. Investment and other income of $4,336,000 for the nine months ended September 30, 1997 compares to $10,929,000 for the nine months ended September 30, 1996. Included in the results for the nine months ended September 30, 1996 is a gain of approximately $4,800,000 before tax related to the sale of the Company's Papel/Freelance, Inc. subsidiary and a reversal of a litigation provision of $4,450,000 before tax. Excluding the gain and the litigation reversal, investment and other income increased $2,657,000 which can be primarily attributed to increased investment income relative to the Company's investment portfolio resulting from higher investment balances as a result of the proceeds from the sale of the Toy business segment. The provision for income taxes as a percent of income before taxes for the nine months ended September 30, 1997 was 33.1% compared to 35.6% in the same period in the prior year. This decrease can be primarily attributed to lower tax provisions related to certain foreign subsidiaries during the nine months ended September 30, 1997. 8 9 Net income from continuing operations for the nine months ended September 30, 1997 of $27,300,000 compares to net income from continuing operations of $21,574,000 for the same period last year. Included in the results for the nine months ended September 30, 1996 is the gain on the sale of the Company's subsidiary Papel/Freelance, Inc., of $3,000,000 after tax and the reversal of a litigation provision of $2,800,000 after tax. Excluding the gain and the litigation reversal, net income from continuing operations increased $11,526,000 or 73.1%. This increase can be attributed to the increase in net sales, improved gross profit margins and increased investment income partially offset by the increase in selling, general and administrative expense. RESULTS OF CONTINUING OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 The Company's net sales for the three months ended September 30, 1997 were $87,530,000 compared to $67,906,000 for the three months ended September 30, 1996. This represents an increase of $19,624,000 or 28.9%. This increase in net sales reflects the positive customer response to the Company's redesign of its gift product line focusing on coordinated themes of product offerings. Cost of sales were 42.8% of net sales for the three months ended September 30, 1997 compared to 44.7% for the same period in 1996. The decrease primarily reflects higher gross profit margins on sales of certain of the Company's product lines. Selling, general and administrative expense was $28,233,000 or 32.3% of net sales for the three months ended September 30, 1997 compared to $22,000,000 or 32.4% of net sales for the three months ended September 30, 1996. The increase in selling, general and administrative expense can be primarily attributed to the increase in expenses required to support the higher sales levels, in particular compensation and travel costs associated with the salesforce. Investment and other income of $2,208,000 for the three months ended September 30, 1997 compares to $5,106,000 for the three months ended September 30, 1996. Included in the results for the three months ended September 30, 1996 is a reversal of a litigation provision of $4,450,000 before tax. Excluding the litigation reversal, investment and other income increased $1,552,000 which can be attributed to increased investment income relative to the Company's investment portfolio resulting from higher investment balances. The provision for income taxes as a percent of income before taxes for the three months ended September 30, 1997 was 33.2% compared to 34.7% in the same period in the prior year. This decrease can be primarily attributed to lower tax provisions related to certain foreign subsidiaries during the three months ended September 30, 1997. Net income from continuing operations for the three months ended September 30, 1997 of $16,041,000 compares to net income from continuing operations of $13,515,000 for the same period last year. Included in net income from continuing operations for the three months ended September 30, 1996 is the reversal of a litigation provision of $2,800,000 or $0.13 per share after tax. Excluding the litigation reversal, net income from continuing operations increased $5,326,000 or 49.7%. This increase can be attributed to the increase in net sales, improved gross profit margins and increased investment income partially offset by the increase in selling, general and administrative expense. 9 10 DISCONTINUED OPERATIONS On May 2, 1997, the Company completed the sale of substantially all of the assets of its wholly-owned subsidiaries, Cap Toys, Inc. and OddzOn Products, Inc., to a wholly-owned subsidiary of Hasbro, Inc. for a purchase price of $166,650,000, subject to adjustment based on the net tangible value of the assets sold on the day of closing. These two subsidiaries represented the Company's Toy business segment. The operating results of the Toy business segment have been classified as discontinued operations and the financial statements have been restated to reflect this presentation. The sale transaction resulted in a gain of $75,300,000 before tax or $46,700,000 ($2.12 per share) after tax based on the net tangible value of the assets sold on the day of closing less costs associated with the transaction. Net sales of the Company's discontinued operations for the nine month period ended September 30, 1997 were $38,614,000, compared to the $99,693,000 for the nine month period ended September 30, 1996. Net loss from discontinued operations for the nine month period ended September 30, 1997 of $1,324,000, compares to net income of $3,730,000, for the same period last year. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1997, the Company had cash and cash equivalents and marketable securities of $185,315,000 compared to cash and cash equivalents of $52,257,000 at December 31, 1996. On May 2, 1997, the Company sold substantially all of the assets of its wholly-owned subsidiaries, Cap Toys, Inc. and OddzOn Products, Inc. The sale resulted in an increase in cash and cash equivalents and marketable securities of $147,097,000, which represents the purchase price less costs associated with the transaction. Working capital requirements during the nine months ended September 30, 1997 were met entirely through internally generated funds. The Company remains in a highly liquid position and believes that the resources available from operations and bank lines of credit are sufficient to meet the foreseeable requirements of its business. The Company enters into forward exchange contracts and currency options, principally to hedge the currency risk associated with the purchase of inventory by certain foreign subsidiaries. Gains and losses are reported as a component of the related transaction. The Company does not anticipate any material adverse impact on its results of operations or financial position from these contracts. The Company intends to use the proceeds of the sale of the toy companies to pursue acquisitions of companies within the gift industry and for general corporate purposes. 10 11 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Documents filed as part of this Report. 27.1 Financial Data Schedule. b) On August 21, 1997 the Company filed a report on Form 8-K to report a change in registrant's certifying accountant. 11 12 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) November 12, 1997 By /s/ Paul Cargotch - ------------------ -------------------------------------- Date Paul Cargotch Executive Vice President, Chief Financial Officer, Assistant Secretary and Director 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 94,217 91,098 79,162 2,245 49,030 331,252 48,071 26,636 362,122 53,694 0 0 0 2,489 305,939 362,122 208,080 208,080 0 91,347 0 0 0 40,820 13,520 27,300 45,376 0 0 72,676 3.30 3.30
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