-----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, A2zfbzOz4/4TSuxk2S/vvU2AwJLBBiLCYneXZCMbiW3MGkAVWfA05SBEunUPSVla 5qu7DorE5rHC8sWP+RN6Cw== 0000950123-98-004726.txt : 19980511 0000950123-98-004726.hdr.sgml : 19980511 ACCESSION NUMBER: 0000950123-98-004726 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980508 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: 98613308 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 March 31, 1998 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 APRIL 20, 1998 ----- ----------------------------- Common stock, $.10 stated value 22,271,018
2 RUSS BERRIE AND COMPANY, INC. INDEX
PAGE PART I - FINANCIAL INFORMATION NUMBER Item 1. Financial Statements Consolidated Balance Sheet as of March 31, 1998 and December 31, 1997 3 Consolidated Statement of Income for the three month periods ended March 31, 1998 and 1997 4 Consolidated Statement of Cash Flows for the three month periods ended March 31, 1998 and 1997 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 I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS)
(UNAUDITED) MARCH 31, DECEMBER 31, ASSETS 1998 1997 ------ --------- --------- Current assets Cash and cash equivalents ......................... $ 72,019 $ 93,443 Marketable securities ............................. 131,283 108,558 Accounts receivable, trade, less allowances of $2,722 in 1998 and $2,233 in 1997 .............. 63,882 52,743 Inventories - net ................................. 41,753 50,204 Prepaid expenses and other current assets ......... 8,353 8,980 Deferred income taxes ............................. 8,980 9,089 --------- --------- TOTAL CURRENT ASSETS ..................... 326,270 323,017 Property, plant and equipment - net ................. 22,971 21,287 Other assets ........................................ 9,080 9,141 --------- --------- TOTAL ASSETS ............................. $ 358,321 $ 353,445 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable .................................. $ 4,232 $ 4,471 Accrued expenses .................................. 21,212 22,423 Accrued income taxes .............................. 7,057 9,765 --------- --------- TOTAL CURRENT LIABILITIES ................ 32,501 36,659 Commitments and contingencies Shareholders' equity Common stock: $.10 stated value; authorized 50,000,000 shares; issued 1998, 25,148,851 shares; 1997, 24,926,469 shares ................. 2,515 2,493 Additional paid in capital ........................ 56,774 53,184 Retained earnings ................................. 313,749 308,028 Accumulated other comprehensive (loss) ............ (350) (999) Treasury stock, at cost (2,889,714 shares at March 31, 1998 and 2,853,714 shares at December 31, 1997) .............................. (46,868) (45,920) --------- --------- TOTAL SHAREHOLDERS' EQUITY ............... 325,820 316,786 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 358,321 $ 353,445 ========= =========
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) THREE MONTHS ENDED MARCH 31, 1998 1997 -------- -------- Net sales .......................................... $ 74,636 $ 62,071 Cost of sales ...................................... 32,737 27,464 -------- -------- GROSS PROFIT .................................... 41,899 34,607 Selling, general and administrative expense ........ 29,859 25,400 Investment and other income-net .................... 3,176 652 -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE TAXES... 15,216 9,859 Provision for income taxes on continuing operations. 5,283 3,388 -------- -------- INCOME FROM CONTINUING OPERATIONS, NET OF TAXES . 9,933 6,471 (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES -- (259) -------- -------- NET INCOME ...................................... $ 9,933 $ 6,212 ======== ======== NET INCOME (LOSS) PER SHARE: Continuing operations Basic ........................................ $ .45 $ .29 Diluted ...................................... .44 .29 Discontinued operations Basic ........................................ -- (.01) Diluted ...................................... -- (.01) -------- -------- Total Basic ............................ $ .45 $ .28 ======== ======== Diluted .......................... $ .44 $ .28 ======== ========
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) THREE MONTHS ENDED MARCH 31, CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES: 1998 1997 ---- ---- Net income ............................................... $ 9,933 $ 6,212 Adjustments to reconcile net income to net cash provided by continuing operating activities: Loss - discontinued operations, net of taxes ......... -- 259 Depreciation ......................................... 602 731 Amortization of intangible assets .................... 30 38 Provision for accounts receivable reserves ........... 595 641 Deferred income taxes ................................ 109 2 Net (gain) loss from sale or disposal of fixed assets (26) 75 Changes in assets and liabilities, net of effect of acquisitions and dispositions: Accounts receivable ............................ (11,734) (5,715) Inventories - net .............................. 8,451 4,325 Prepaid expenses and other current assets ...... (686) (265) Other assets ................................... 31 42 Accounts payable ............................... (239) 868 Accrued expenses ............................... (1,211) (5,216) Accrued income taxes ........................... (2,708) 901 -------- -------- Total adjustments ............................ (6,786) (3,314) -------- -------- Net cash provided by continuing operating activities ................ 3,147 2,898 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities ........................ (71,763) -- Proceeds from sale of marketable securities .............. 49,125 -- Proceeds from sale of fixed assets ....................... 139 78 Capital expenditures ..................................... (2,305) (496) Net proceeds from sale of discontinued operations ........ 1,313 -- -------- -------- Net cash (used in) investing activities (23,491) (418) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock ................... 3,612 4,730 Dividends paid to shareholders ........................... (4,212) (3,772) Purchase of treasury stock ............................... (948) -- -------- -------- Net cash (used in) provided by financing activities ................ (1,548) 958 Effect of exchange rates ................................. 468 (1,048) Cash provided by discontinued operations ................. -- 6,091 -------- -------- Net (decrease) increase in cash and cash equivalents ..... (21,424) 8,481 Cash and cash equivalents at beginning of period ......... 93,443 52,257 -------- -------- Cash and cash equivalents at end of period ............... $ 72,019 $ 60,738 ======== ======== CASH PAID DURING THE PERIOD FOR: Interest ............................................ $ 46 $ 59 Income taxes ........................................ $ 7,992 $ 2,067
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 5 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - GENERAL 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 reflect this presentation. See Note 5 regarding discontinued operations. Investment and other income-net for the three months ended March 31, 1998 includes income of $1,828,000 before tax or $1,152,000 ($0.05 per share) after tax for the completion of a transitional agreement related to the sale, in January 1996, of the Company's subsidiary Papel/Freelance, Inc. NOTE 2 - EARNINGS PER SHARE In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share," which requires presentation in the Consolidated Statement of Income of both basic and diluted earnings per share. Earnings per common share (basic) as calculated in accordance with this Statement does not differ from earnings per share reported in prior periods. A reconciliation of weighted average common shares outstanding to weighted average common shares outstanding assuming dilution is as follows:
THREE MONTHS ENDED MARCH 31, 1998 1997 ---------- ---------- Average common shares outstanding ................. 22,134,851 22,084,009 Dilutive effect of common shares issuable (1) ..... 273,686 311,569 ---------- ---------- Average common shares outstanding assuming dilution 22,408,537 22,395,578 ========== ==========
(1) Issuable under stock option plans. The Notes to these consolidated financial statements reflect basic earnings per share unless otherwise stated or indicated. 6 7 NOTE 3 - DIVIDENDS Cash dividends of $4,211,952 ($0.19 per share) were paid on March 16, 1998 to shareholders of record of the Company's Common Stock on March 2, 1998. Cash dividends of $3,771,846 ($0.17 per share) were paid in the three month period ended March 31, 1997. NOTE 4 - COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted the provisions of Statement No. 130, Reporting Comprehensive Income, which modifies the financial statement presentation of comprehensive income and its components. Comprehensive income, representing all changes in Shareholders' equity during the period other than changes resulting from the Company's common stock and payment of dividends, as of March 31, 1998 and 1997 is as follows:
1998 1997 ----------- ----------- Net income ............................................... $ 9,933,000 $ 6,212,000 Other comprehensive income (loss), net of taxes Foreign currency translation adjustments ........... (536,000) (898,000) Net unrealized gain on securities available-for-sale 186,000 -- ----------- ----------- Other comprehensive (loss) ............................... (350,000) (898,000) ----------- ----------- Comprehensive income ..................................... $ 9,583,000 $ 5,314,000 =========== ===========
NOTE 5 - 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. The sale transaction resulted in a gain on the sale of discontinued operations in the three months ended June 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 (Loss) from discontinued operations, net of taxes, for the Toy business segment for the three months ended March 31, 1997 are as follows:
1997 ---------- Net sales $26,452,000 (Loss) before taxes (677,000) Benefit for income taxes (418,000) ---------- (Loss), net of taxes $ (259,000) ==========
7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF CONTINUING OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 The Company's net sales for the three months ended March 31, 1998 were $74,636,000 compared to $62,071,000 for the three months ended March 31, 1997. This represents an increase of $12,565,000 or 20.2%. Net sales in the quarter ended March 31, 1998 reflects the positive customer response to the Company's redesign of its gift product line focusing on coordinated themes of product offerings. The Company's second quarter ended June 30, 1997 was very strong due to significant shipments of certain bean bag products. The Company does not expect the quarter ended June 30, 1998 to be as strong. Cost of sales were 43.9% of net sales for the three months ended March 31, 1998 compared to 44.2% for the same period in 1997. The decrease primarily reflects higher gross profit margins on sales of certain of the Company's product line concepts. Selling, general and administrative expense was $29,859,000 or 40.0% of net sales for the three months ended March 31, 1998 compared to $25,400,000 or 40.9% of net sales for the three months ended March 31, 1997. Selling, general and administrative expense for the three months ended March 31, 1998 increased $4,459,000 or $17.6% compared to the prior year. This increase can be attributed to costs associated with the design and implementation of a new packaged computer software system amounting to approximately $1,828,000. Also contributing to the increase in selling, general and administrative expense are costs of approximately $2,100,000 attributable 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 $3,176,000 for the three months ended March 31, 1998 compares to $652,000 for the three months ended March 31, 1997. Included in the results for the three months ended March 31, 1998 is income of $1,828,000 for the completion of a transitional agreement related to the sale, in January 1996, of the Company's subsidiary, Papel/Freelance, Inc. Excluding the income from this transitional agreement, investment and other income increased $696,000. This increase 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 in second quarter of 1997. The provision for income taxes as a percent of income before taxes for the three months ended March 31, 1998 was 34.7% compared to 34.4% in the same period in the prior year. Net income from continuing operations for the three months ended March 31, 1998 of $9,933,000 compares to net income from continuing operations of $6,471,000 for the same period last year. Included in the results for the three months ended March 31, 1998 is income of $1,152,000 after tax for the completion of a transitional agreement related to the sale, in January 1996, of the Company's subsidiary Papel/Freelance, Inc. Excluding the income from this transitional agreement, net income from continuing operations increased $2,310,000 or 35.7%. This increase can be attributed to the increase in net sales and increased investment income partially offset by the increase in selling,general and administrative expense. 8 9 DISCONTINUED OPERATIONS On May 2, 1997, the Company completed the sale of substantially all of the assets of its wholly-owned subsidiaries, Cap Toys, Inc. and OddzOn Products, Inc., to a wholly-owned subsidiary of Hasbro, Inc. These two subsidiaries represented the Company's Toy business segment. The operating results of the Toy business segment have been classified as discontinued operations and the financial statements reflect this presentation. The sale transaction resulted in a gain on the sale of discontinued operations in the three months ended June 30, 1997 of $75,300,000 before tax or $46,700,000 ($2.12 per share) after tax. Net sales of the Company's discontinued operations for the three month period ended March 31, 1997 were $26,452,000. Loss from discontinued operations, net of taxes, for the three month period ended March 31, 1997 was $259,000. YEAR 2000 COMPLIANCE The Company has undertaken a project to implement a new packaged computer software system for the global organization. The new enterprise-wide system will replace the current custom software that the Company utilizes to operate its business. The new enterprise software system is Year 2000 compliant. The total cost of the project including hardware, packaged software and project implementation is expected to be in excess of $10,000,000. Hardware, software and certain project costs will be capitalized and amortized over their useful lives. The remainder of the costs will be expensed as incurred. The implementation is expected to be completed by the first quarter of 1999 for the Company's domestic operations. The implementation for the remainder of the Company's worldwide operation is expected to be completed by the fourth quarter of 1999. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1998, the Company had cash and cash equivalents and marketable securities of $203,302,000 compared to cash and cash equivalents and marketable securities of $202,001,000 at December 31, 1997. 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 proceeds of $135,797,000 as of March 31, 1998, which represents the purchase price less escrow balances and costs associated with the transaction. 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. Working capital requirements during the three months ended March 31, 1998 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. At March 31, 1998, the Company had marketable securities of $131,283,000. 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. 9 10 The Company's portfolio of preferred securities investments are subject to market fluctuations based largely, but not exclusively, on the securities' sensitivity to changes in interest rates. By maintaining an economic hedge consisting of government futures contracts and options, the Company seeks to reduce interest rate related risk. The portfolio of preferred securities and futures contracts and options position are intended to produce offsetting capital gains and losses as interest rates change. The Company enters into forward exchange contracts and currency options, principally to serve as economic hedges of the currency risk associated with the purchase of inventory by its European and Canadian operations. Gains and losses, related to contracts accounted for as hedges, are reported as a component of the related transactions. The Company does not anticipate any material adverse impact on its results of operations or financial position from these contracts. During the year ended December 31, 1997, the Board of Directors authorized the Company to repurchase an additional 1,000,000 shares of common stock for a total authorization of 4,000,000 shares. As of March 31, 1998, 2,883,600 shares have been repurchased since the beginning of the Company's stock repurchase program in March, 1990. Starting in 1997, the Company, as part of its repurchase program, utilizes put and call option instruments to establish a strategy to purchase the Company's stock with no upfront cash investment while fixing the price required to be paid for the shares. These instruments took the form of a costless equity collar and were constructed as a series of purchased calls and sold puts, with the cost of the purchased calls exactly offset by the premium earned on the sold puts. FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION This filing of the Form 10-Q contains 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 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. 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) During the quarter ended March 31, 1998, no reports on Form 8-K were filed. 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) 5/8/98 By: /s/ Eric R. Lohwasser ------------- ------------------------- Date Eric R. Lohwasser Vice President - Finance, Chief Financial Officer 12 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 72,019 131,283 66,604 2,722 41,753 326,270 48,139 25,168 358,321 32,501 0 0 0 2,515 323,305 358,321 74,636 74,636 0 32,737 0 0 0 15,216 5,283 9,933 0 0 0 9,933 0.45 0.44 The amount is reported as EPS BASIC, NOT PRIMARY.
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