-----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, QYWIN3eVXPJQpikhOBuK5cVGRXIPzuqi/zABfzpxKFYpfaItJchQcNKmm26Qfm5w Wfx+PQCe5WIzS+FfOuEf/Q== /in/edgar/work/20000814/0001104659-00-000472/0001104659-00-000472.txt : 20000921 0001104659-00-000472.hdr.sgml : 20000921 ACCESSION NUMBER: 0001104659-00-000472 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RUSS BERRIE & CO INC CENTRAL INDEX KEY: 0000739878 STANDARD INDUSTRIAL CLASSIFICATION: [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: 699824 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 0001.txt QUARTERLY REPORT 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 ........... June 30, 2000 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 AUGUST 3, 2000 Common stock, $0.10 stated value 20,000,291 RUSS BERRIE AND COMPANY, INC. INDEX PAGE PART I - FINANCIAL INFORMATION NUMBER Item 1. Financial Statements Consolidated Balance Sheet as of June 30, 2000 and December 31, 1999 3 Consolidated Statement of Income for the three months and the six months ended June 30, 2000 and 1999 4 Consolidated Statement of Cash Flows for the six months ended June 30, 2000 and 1999 5 Notes to Consolidated Financial Statements 6 and 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 2 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS)
(UNAUDITED) JUNE 30, DECEMBER 31, ASSETS 2000 1999 ------ ----------- ------------- Current assets Cash and cash equivalents............................. $ 73,553 $ 64,908 Marketable securities................................. 131,033 137,143 Accounts receivable, trade, less allowances of $4,030 in 2000 and $3,731 in 1999.................. 46,026 61,385 Inventories - net..................................... 51,545 44,307 Prepaid expenses and other current assets............. 9,418 9,503 Deferred income taxes................................. 6,887 6,805 ------- ------- TOTAL CURRENT ASSETS 318,462 324,051 Property, plant and equipment - net..................... 27,616 28,297 Other assets............................................ 3,292 3,072 ------- ------- TOTAL ASSETS $349,370 $355,420 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities Accounts payable...................................... $ 4,360 $ 6,228 Accrued expenses...................................... 21,331 23,488 Accrued income taxes.................................. 5,472 6,106 ------ ------- TOTAL CURRENT LIABILITIES 31,163 35,822 ------ ------- Commitments and contingencies Shareholders' equity Common stock: $.10 stated value; authorized 50,000,000 shares; issued 2000, 25,380,397 shares; 1999, 25,325,849 shares..................... 2,538 2,532 Additional paid in capital............................ 62,035 60,957 Retained earnings..................................... 359,089 351,302 Accumulated other comprehensive (loss)................ (4,315) (2,547) Unearned compensation................................. (186) - Treasury stock, at cost (5,190,814 shares at June 30,2000 and 4,752,414 shares at December 31, 1999).................................. (100,954) (92,646) ------- ------- TOTAL SHAREHOLDERS' EQUITY 318,207 319,598 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $349,370 $355,420 ======= ======= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
3 RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales............................................ $55,598 $47,475 $131,706 $122,878 Cost of Sales........................................ 24,621 20,624 55,092 50,901 ------ ------ ------- ------- GROSS PROFIT....................................... 30,977 26,851 76,614 71,977 Selling, general and administrative expense.......... 25,520 23,067 55,112 51,835 Investment and other income-net...................... 1,803 2,725 3,528 4,747 ------- ------- ------- ------- INCOME BEFORE TAXES............................... 7,260 6,509 25,030 24,889 Provision for income taxes........................... 2,297 2,400 8,228 8,946 ------ ------ ------ ------ NET INCOME........................................... $4,963 $4,109 $16,802 $15,943 ===== ===== ====== ====== NET INCOME PER SHARE: Basic.......................................... $0.24 $0.19 $ 0.82 $ 0.74 Diluted........................................ $0.24 $0.19 $ 0.82 $ 0.73 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 4
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
(UNAUDITED) SIX MONTHS ENDED JUNE 30, 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income..................................................... $ 16,802 $ 15,943 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation............................................... 1,997 1,697 Amortization of intangible assets.......................... 57 59 Amortization of premium and discount on marketable debt securities, net..................................... 253 - Amortization of unearned compensation...................... 6 - Provision for accounts receivable reserves................. 1,011 969 Deferred income taxes...................................... (82) (631) Net (gain)/loss from sale or disposal of fixed assets...... 9 (22) Changes in assets and liabilities: Accounts receivable.................................. 14,348 15,562 Inventories - net.................................... (7,238) (200) Prepaid expenses and other current assets............ 85 266 Other assets......................................... (277) (27) Accounts payable..................................... (1,868) (1,406) Accrued expenses..................................... (2,157) (1,078) Accrued income taxes................................. (634) (3,523) -------- -------- Total adjustments................................. 5,510 11,666 -------- -------- Net cash provided by operating activities. 22,312 27,609 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities.............................. (19,798) (22,972) Proceeds from sale of marketable securities.................... 25,491 21,605 Proceeds from sale of fixed assets............................. 33 22 Capital expenditures........................................... (2,598) (5,134) ------- -------- Net cash provided by (used in) investing activities....................... 3,128 (6,479) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock......................... 1,084 1,531 Dividends paid to shareholders................................. (9,015) (8,642) Purchase of treasury stock..................................... (8,499) (38,911) ------- -------- Net cash (used in) financing activities..... (16,430) (46,022) Effect of exchange rates on cash and cash equivalents.......... (365) (956) ------- -------- Net increase (decrease) in cash and cash equivalents........... 8,645 (25,848) Cash and cash equivalents at beginning of period............... 64,908 73,064 ------- -------- Cash and cash equivalents at end of period..................... $73,553 $ 47,216 ======= ======== CASH PAID DURING THE PERIOD FOR: Interest.................................................. $ 25 $ 67 Income taxes.............................................. $ 8,863 $ 12,267 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - INTERIM CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited interim consolidated financial statements have been prepared by Russ Berrie and Company, Inc. and Subsidiaries (the "Company") in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under accounting principles generally accepted in the United States have been condensed or omitted pursuant to such principles and regulations. The information furnished reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the Company's financial position, results of operations and cash flows for the interim periods presented. Results for interim periods are not necessarily an indication of results to be expected for the year. This report on Form 10-Q for the three and six months ended June 30, 2000 should be read in conjunction with the Company's annual report on Form 10-K for its year ended December 31, 1999. Certain prior year amounts have been reclassified to conform with current year's presentation. NOTE 2 - EARNINGS PER SHARE A reconciliation of weighted average common shares outstanding to weighted average common shares outstanding assuming dilution is as follows:
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 2000 1999 2000 1999 ---- ---- ---- ----- Average common shares outstanding................................. 20,333,000 21,095,000 20,454,000 21,556,000 Dilutive effect of common shares issuable (1)..................... 41,000 168,000 41,000 161,000 ---------- ---------- ---------- ---------- Average common shares outstanding assuming dilution............... 20,374,000 21,263,000 20,495,000 21,717,000 ========== ========== ========== ==========
(1) Issuable under stock option plans. NOTE 3 - DIVIDENDS Cash dividends of $4,494,000 ($0.22 per share) were paid on June 7, 2000 to shareholders of record of the Company's Common Stock on May 24, 2000. Cash dividends of $9,015,000 ($0.22 per share) were paid in the six months ended June 30, 2000. Cash dividends of $4,239,000 ($0.20 per share) were paid on June 4, 1999 to shareholders of record of the Company's Common Stock on May 21, 1999. Cash dividends of $8,642,000 ($0.20 per share per quarter) were paid in the six months ended June 30, 1999. 6 NOTE 4 - COMPREHENSIVE INCOME In accordance with Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", comprehensive income, representing all changes in Shareholders' equity during the period other than changes resulting from the issuance or repurchase of the Company's common stock, payment of dividends and unearned compensation, is reconciled to net income for the three and six months ended June 30, 2000 and 1999 as follows:
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 2000 1999 2000 1999 ---- ---- ---- ---- Net income $4,963,000 $4,109,000 $16,802,000 $15,943,000 Other comprehensive (loss), net of taxes: Foreign currency translation adjustments (1,196,000) (438,000) (1,604,000) (1,071,000) Net unrealized gain (loss) on securities available-for-sale 111,000 (1,410,000) (164,000) (1,641,000) -------- --------- ------- --------- Other comprehensive (loss) (1,085,000) (1,848,000) (1,768,000) (2,712,000) --------- --------- --------- --------- Comprehensive income $3,878,000 $2,261,000 $15,034,000 $13,231,000 ========== ========== =========== ===========
NOTE 5 - PENDING ACCOUNTING CHANGES 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) establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. Under the deferral permitted by SFAS No. 137, SFAS No. 133 is now effective for fiscal years beginning after June 15, 2000; calendar year 2001 for the Company, and cannot be applied retroactively. The Company has not yet quantified the impacts of adopting SFAS No. 133 on the consolidated financial statements and has not determined the timing or method of adoption, however, such adoption could increase volatility in earnings and other comprehensive income. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 The Company's net sales for the six months ended June 30, 2000 were $131,706,000 compared to $122,878,000 for the six months ended June 30, 1999. This represents an increase of $8,828,000, or 7.2%. Net sales for the three months ended June 30, 1999 were negatively impacted by the June 1999 conversion to a new computer system for the Company's domestic operations. The Company's product line, including recent product introductions, continues to receive a positive response from customers worldwide. Cost of sales were 41.8% of net sales for the six months ended June 30, 2000 compared to 41.4% for the same period in 1999. This percentage increase primarily reflects lower gross profit margins on sales of certain of the Company's product line concepts. Selling, general and administrative expense was $55,112,000 or 41.8% of net sales for the six months ended June 30, 2000 compared to $51,835,000 or 42.2% of net sales for the six months ended June 30, 1999. This represents an increase of $3,277,000 or 6.3% compared to the prior year, however, as a percentage of sales, is lower than the prior year. This increase can be primarily attributed to the establishment of the Company's new subsidiary in Australia in January 2000 and higher selling and shipping costs due to increased sales. Investment and other income of $3,528,000 for the six months ended June 30, 2000 compares to $4,747,000 for the six months ended June 30, 1999. This decrease can be primarily related to decreased investment income attributable to lower returns on the Company's investment portfolio. The provision for income taxes as a percent of income before taxes for the six months ended June 30, 2000 was 32.9% compared to 35.9% in the same period in the prior year. This decrease is due primarily to the lower effective tax rate of the Company's domestic operations as a result of relatively higher permanent deductions for tax reporting purposes and lower effective tax rates of the Company's foreign operations. Net income for the six months ended June 30, 2000 of $16,802,000 compares to net income of $15,943,000 for the same period last year. This increase is due to the increase in gross profit and the decreased effective income tax rate offset by the increase in selling, general and administrative expense and decreased investment income. 8 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 The Company's net sales for the three months ended June 30, 2000 were $55,598,000 compared to $47,475,000 for the three months ended June 30, 1999. This represents an increase of $8,123,000, or 17.1%. Net sales for the three months ended June 30, 1999 were negatively impacted by the June 1999 conversion to a new computer system for the Company's domestic operations. The Company's product line, including recent product introductions, continues to receive a positive response from customers worldwide. Cost of sales were 44.3% of net sales for the three months ended June 30, 2000 compared to 43.4% for the same period in 1999. The percentage increase primarily reflects higher provisions required for inventory offset by certain fixed costs absorbed by higher sales levels. Selling, general and administrative expense was $25,520,000 or 45.9% of net sales for the three months ended June 30, 2000 compared to $23,067,000 or 48.6% of net sales for the three months ended June 30, 1999. This represents an increase of $2,453,000 or 10.6% compared to the prior year, however, as a percentage of net sales, is lower than the prior year. This increase can primarily be attributed to the establishment of the Company's new subsidiary in Australia in January 2000 and higher selling costs due to increased sales. Investment and other income of $1,803,000 for the three months ended June 30, 2000 compares to $2,725,000 for the three months ended June 30, 1999. This decrease can be primarily related to decreased investment income attributable to lower returns on the Company's investment portfolio. The provision for income taxes as a percent of income before taxes for the three months ended June 30, 2000 was 31.6% compared to 36.9% in the same period in the prior year. This decrease is due primarily to the lower effective tax rate of the Company's domestic operations as a result of relatively higher permanent deductions for tax reporting purposes. Net income for the three months ended June 30, 2000 of $4,963,000 compares to net income of $4,109,000 for the same period last year. This increase is due to the increase in gross profit and the decreased effective income tax rate offset by the increase in selling, general and administrative expense and decreased investment income. YEAR 2000 ISSUE The Company has not experienced any significant business disruptions related to the transition into the Year 2000; however, it will continue to monitor its computer systems and significant third-party relationships. 9 LIQUIDITY AND CAPITAL RESOURCES At June 30, 2000, the Company had cash and cash equivalents and marketable securities of $204,586,000 compared to cash and cash equivalents and marketable securities of $202,051,000 at December 31, 1999. Working capital requirements during the six months ended June 30, 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. At June 30, 2000, the Company had marketable securities of $131,033,000. 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. 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, both realized and unrealized, as interest rates change. The Company enters into forward exchange contracts and currency options, principally to manage the economic currency risks associated with the purchase of inventory and the repayment of intercompany loans by its European and Canadian operations. Gains and losses, related to such contracts, were not material to its results of operations. The Company does not anticipate any material adverse impact on its results of operations or financial position from these contracts. In February 2000, the Board of Directors authorized the Company to repurchase 2,000,000 additional shares of common stock to bring the total authorization to 7,000,000 shares since the beginning of the Company's stock repurchase program in March, 1990. During the three months ended June 30, 2000 the Company repurchased 339,000 shares for $6,400,000. As of June 30, 2000, 5,194,700 shares have been repurchased since the beginning of the Company's stock repurchase program in March, 1990. 10 FORWARD-LOOKING STATEMENTS 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 Private Securities Litigation Reform Act of 1995 provides a safe-harbor for forward-looking statements. The Company cautions readers that results predicted by forward-looking statements, including, without limitation, those relating to the Company's future business prospects, revenues, working capital, liquidity, capital needs, interest costs, and income are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. Specific risks and uncertainties include, but are not limited to, the Company's ability to continue to manufacture its products in the Far East, the seasonality of revenues, the actions of competitors, ability to increase production capacity, price competition, the effects of government regulation, possible delays in the introduction of new products, customer acceptance of products, issues related to the Company's computer systems and other factors. 11 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a) The date of the Annual Meeting of Shareholders was May 9, 2000. b) A brief description of each matter voted upon at the meeting other than the election of directors follows: 1. Amendment to the 1999 Stock Option and Restricted Stock Plan Amendment to the 1999 Stock Option and Restricted Stock Plan to reprice only the options issued January 3, 2000 to an exercise price equal to the market closing price of the Company's stock as of February 29, 2000. 15,510,944 shares were voted in favor of the amendment to the 1999 Stock Option and Restricted Stock Plan, 4,164,580 shares were voted against and 9,981 shares abstained. 2. Amendment to the 1999 Stock Option Plan for Outside Directors Amendment to the 1999 Stock Option Plan for Outside Directors to reprice only the options issued January 3, 2000 to an exercise price equal to $2.00 above the market closing price of the Company's Stock as of February 29, 2000. 15,506,406 shares were voted in favor of the amendment to the 1999 Stock Option Plan for Outside Directors, 4,168,368 shares were voted against and 10,731 shares abstained. 3. Amendment to the 1999 Stock Option Plan Amendment to the 1999 Stock Option Plan to reprice only the options issued January 3, 2000 to an exercise price equal to the market closing price of the Company's Stock as of February 29, 2000. 15,589,477 shares were voted in favor of the amendment to the 1999 Stock Option Plan, 4,085,397 shares were voted against and 10,631 shares abstained. 4. Amendment to 1999 Employee Stock Purchase Plan Amendment to 1999 Employee Stock Purchase Plan to reprice only the options issued January 3, 2000 to an excercise price equal to 90% of the market closing price of the Company's Stock as of February 29, 2000. 15,685,553 shares were voted in favor of the amendment to the 1999 Employee Stock Purchase Plan, 3,989,888 shares were voted against and 10,064 shares abstained. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Documents filed as part of this Report 10.124 Executive Employment agreement dated June 1, 2000 between Russ Berrie and Company, Inc. and Benjamin J. Sottile. 27.1 Financial Data Schedule. b) During the quarter ended June 30, 2000 no reports on Form 8-K were filed. 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) 08/14/00 By /s/ Nicholas Truyens - ----------------------- --------------------- Date Nicholas Truyens Vice President, Chief Financial Officer 13 EX-10.124 2 0002.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT Employment agreement dated as of June 1, 2000 between Russ Berrie and Company, Inc., a New Jersey corporation (the "Company"), and Benjamin J. Sottile (the "Executive"). The Company and the Executive wish to provide for the terms of the Executive's employment as Vice Chairman of the Company. It is therefore agreed as follows: 1. Term. The employment of the Executive under this agreement shall commence as of June 1, 2000 and shall continue through January 2, 2003, subject to termination as provided in Section 5. 2. Duties. The Executive shall be employed as Vice Chairman of the Company, reporting only to the Board of Directors (the "Board") and the Chairman of the Board of the Company. He shall have such authority and responsibility, and shall serve in such capacities with the Company's subsidiaries and affiliates, consistent with that status as may from time to time be assigned to him by the Board or the Chairman of the Board. He shall serve as a member of the Board if elected. The Executive shall devote substantially all of his business time, effort and energies to the business of the Company, subject, however, that the Executive may continue as per our past practices, observance of the Sabbath, Holy Days and enjoy personal time consistent with past practices and his and the Chairman's understanding of those issues. 3. Compensation and Benefits. (a) Base Salary. During his employment under this agreement (or his deemed employment pursuant to section 6(b)), the Company shall pay the Executive a base salary at the annual rate of $300,000, payable in substantially equal semi-monthly installments. (b) Expense Reimbursement. The Company shall reimburse the Executive for the ordinary and necessary business expenses incurred by him in the performance of his duties as an employee of the Company in accordance with the Company's usual policies. (c) Executive Bonus Plan (EIP). The Executive shall be eligible to receive a bonus of up to $150,000 with respect to each of 2001 and 2002, as determined by the Board in its discretion, based on achievement of operating income targets to be established by the Board on a basis consistent with the Company's EIP bonus program and payable within 120 days after the end of the applicable calendar year. (d) Other Benefit Plans, Fringe Benefits and Vacations. During his employment under this agreement, the Executive shall be entitled to participate in all employee benefit plans maintained by the Company from time to time subject to eligibility requirements of such plans, and to all fringe benefits and vacations, and as noted in Section 2, for which his status and level of employment qualify him in accordance with the Company's usual policies and arrangements. 4. Stock Option and Restricted Stock. (a) Stock option and Restricted Stock Plan. The Company shall cause to be granted to the Executive under the Russ Berrie and Company, Inc. 1999 Stock Option and Restricted Stock Plan ("SORSP") for each Plan Year, commencing with 2001, that includes at least one day of the Executive's employment under this agreement Options pursuant to section 5 of SORSP in amounts such that the shares of Stock subject to Options so granted have an aggregate fair market value on the Date of Grant equal to $60,000 (in the case of 2001) or $120,000 (in the case of 2002 and 2003). Each Option shall vest as to 50% of the shares subject thereto six months after the date of grant (or January 2, 2003, if earlier) and as to all shares subject thereto on January 2, 2003, subject to the terms of SORSP. Capitalized terms used in this section 4 that are not defined in this agreement have the respective meanings given to them in SORSP. (b) Restricted Stock. Concurrently with the execution and delivery of this agreement, the Company is issuing to the Executive 10,000 Shares. These Shares shall be forfeited to the Company without the payment of consideration if the Executive's employment under this agreement terminates for any reason (other than termination by the Company, in accordance with Sections 5(c) or by the Executive in accordance with Section 5(d)) prior to January 2, 2003 and the Executive may not sell, assign, transfer, pledge, hypothecate or otherwise encumber any of these Shares prior to January 2, 2003. Prior to forfeiture and subject to the restrictions set forth in this paragraph, the Executive shall have all rights of a shareholder with respect to these Shares, including the right to receive all dividends paid thereon. However, these Shares shall cease to be subject to forfeiture or the foregoing restrictions on transfer upon a change of control or termination of the Executive's employment under this agreement by the Company in accordance with Section 5(c). For purposes of this section 4(b), a "change of control" occurs if any person, entity or group (within the meaning of section 13(d)(3) of the Securities Exchange Act of 1934), other than a Continuing Holder, has beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of more than 50% of the outstanding common stock of the Company. "Continuing Holder" means (i) Russell Berrie, (ii) the estate of Russell Berrie or any executor, administrator, trustee or other fiduciary appointed by Russell Berrie inter vivos or under the will of Russell Berrie or with respect to his estate acting in his capacity as such, (iii) any person or entity receiving shares of common stock of the Company (or any interest therein) by inter vivos gift from Russell Berrie or under the will of Russell Berrie or from him in intestacy, (iv) any employee stock ownership plan or other employee benefit plan established by the Company, (v) any person or entity having beneficial ownership of any shares of common stock of the Company owned by a person or entity referred to in clause (i), (ii), (iii) or (iv), but only with respect to those shares, or (vi) a group including any person or entity referred to in clause (i), (ii), (iii), (iv) or (v). (c) Supplemental Options. If the Company's operating profit for 2001 is at least 115% but less than 125% of its operating profit for 2000, the Company shall cause to be granted to the Executive under SORSP Options to purchase 25,000 Shares as of the first business day of 2001. If the Company's operating profit for 2001 is at least 125% but less than 135% of its operating profit for 2000, the Company shall cause to be granted to the Executive under SORSP Options to purchase 50,000 Shares as of the first business day of 2001. If the Company's operating profit for 2001 is at least 135% of its operating profit for 2000, the Company shall cause to be granted to the Executive under SORSP Options to purchase 75,000 Shares as of the first business day of 2001. If the Company's operating profit for 2002 is at least 115% but less than 125% of its operating profit for 2001, the Company shall cause to be granted to the Executive under SORSP Options to purchase 25,000 Shares as of the first business day of 2002. If the Company's operating profit for 2002 is at least 125% but less than 135% of its operating profit for 2001, the Company shall cause to be granted to the Executive under SORSP Options to purchase 50,000 Shares as of the first business day of 2002. If the Company's operating profit for 2002 is at least 135% of its operating profit for 2001, the Company shall cause to be granted to the Executive under SORSP Options to purchase 75,000 Shares as of the first business day of 2002. Options granted pursuant to this paragraph shall vest as to all the Shares subject thereto on the earlier of one year from the date of grant or January 2, 2003. For purposes of this Section 4(c), operating profit shall be determined in a manner consistent with its determination for purposes of the Company's bonus programs. (d) Not a Public Company. No Options shall be issued at a time that the Shares are not listed on a national securities exchange or registered under Section 12 of the Securities Exchange Act of 1934. 5. Termination. (a) Death and Disability. The Executive's employment under this agreement shall terminate upon his death. The Company may terminate the Executive's employment under this agreement if the Board determines in good faith that he is physically or mentally incapacitated and has been unable for (x) a period of 180 consecutive days or (y) for more than 180 days (whether or not consecutive) in any period of 365 consecutive days to perform his duties under this agreement. In order to assist the Board in making that determination, the Executive shall, as reasonably requested by the Board, (i) make himself available for medical examinations by one or more physicians chosen by the Board, and (ii) grant the Board and any such physicians access to all relevant medical information concerning him, arrange to furnish copies of medical records to them and use his best efforts to cause his own physicians to be available to discuss his health with them. (b) Termination by the Company for Cause. The Company may terminate the Executive's employment under this agreement for Cause. "Cause" shall mean (i) the Executive's willful failure to perform his duties under this agreement in any material respect, (ii) the Executive's failure to comply with any lawful written directions from the Board or the Chairman of the Board in connection with the performance of his duties hereunder, (iii) malfeasance or gross negligence in the performance of the Executive's duties under this agreement, (iv) the Executive's commission of a felony under the laws of the United States or any state thereof (whether or not in connection with his employment), or (v) breach of the provisions of section 7(a) or 7(b). The Executive's employment shall be conclusively presumed to be subject to termination for Cause pursuant to clause (iv) of the preceding sentence if he is indicted for or convicted of commission of a felony described therein. (c) Termination by the Company Without Cause. The Company may terminate the Executive's employment under this agreement at any time by notice to the Executive in circumstances other than those contemplated by section 5(a) or (b). (d) Termination by the Executive for Good Reason. The Executive may terminate his employment under this agreement for Good Reason by notice to the Company. "Good Reason" shall mean (i) any substantial reduction of the Executive's authority or status inconsistent with section 2 that is not rescinded within 30 days after the Executive notifies the Company in writing that he objects thereto, (ii) the Company's requiring the Executive to maintain his principal office or conduct his principal activities anywhere other than at the Company's executive offices within 100 miles of the location of those offices in Oakland, New Jersey, on the date of this agreement, or (iii) the Company's failure to pay to the Executive the compensation to which he is entitled under this agreement (other than by reason of (i) a mistake that is cured promptly after the Executive notifies the Company thereof or (ii) a determination with respect to such compensation made by the Company in good faith). 6. Consequences of Termination. (a) Death, Disability, Cause or Absence of Good Reason. If the Executive's employment under this agreement is terminated (i) pursuant to section 5(a) or 5(b), or (ii) by the Executive other than pursuant to section 5(d), the Executive shall not thereafter be entitled to receive any salary or other payments or benefits under this agreement, other than the payment pursuant to section 3(a) of salary earned through the date of termination, the reimbursement pursuant to section 3(b) of expenses incurred through the date of termination, and the payment pursuant to section 3(c) of the bonuses earned with respect to salary earned for the preceding year not already paid. (b) Other Terminations. If the Executive's employment under this agreement is terminated (i) by the company pursuant to section 5(c), or (ii) by the Executive pursuant to section 5(d), the Executive shall be entitled to receive his salary pursuant to section 3(a) as if his employment under this agreement had continued until January 2, 2003. 7. Certain Restrictions. (a) Confidentiality. The Executive acknowledges that he has acquired and will acquire confidential information respecting the business of the Company, its subsidiaries and affiliates. Accordingly, the Executive shall not disclose, at any time (during his employment under this agreement or thereafter), any such confidential information, other than in the performance of his duties under this agreement. (b) Competitive Activity. During his employment under this agreement, any period during which he is entitled to receive payments pursuant to section 6(b) and for one year after the end of such employment or period, whichever is later regardless of the time, manner or reason for such termination, the Executive shall not, without the prior written consent of the Board, (i) directly or indirectly, knowingly engage or be interested in (as owner, partner, shareholder, employee, director, officer, agent, consultant or otherwise), with or without compensation, any business which is in competition with or similar to any line of business conducted by the Company, any successor to the Company's business, or any of their affiliates or subsidiaries, or (ii) employ or retain (or participate in or arrange the employment or retention of) any person who was employed or retained by the Company, any successor to the Company's business or any of their affiliates or subsidiaries within the six-month period preceding such employment or retention. Nothing in this section 7(b) shall prohibit the Executive from acquiring or holding not more than one percent of any class of publicly traded securities of any business. (c) Remedy for Breach and Modification. The Executive acknowledges that the provisions of this section 7 are reasonable and necessary for the protection of the Company and that the Company will be irrevocably damaged if these provisions are not specifically enforced. Accordingly, the Executive agrees that, in addition to any other relief or remedies available to the Company, the Company shall be entitled to seek and obtain an appropriate injunction or other equitable remedy for the purposes of restraining the Executive from any actual or threatened breach of or otherwise enforcing these provisions and no bond or security will be required in connection therewith. If any provision of this section 7 is deemed invalid or unenforceable, such provision shall be deemed modified and limited to the extent necessary to make it valid and enforceable. In addition to and not in lieu of any other remedy that the Company may have under this section 7(c) or otherwise, in the event of any breach of any provision of this section 7 during the period during which the Executive is entitled to receive payments pursuant to section 6(b), such period shall terminate as of the date of such breach, the Executive shall not thereafter be entitled to receive any salary or other payments or benefits under this agreement, any unexercised options and stock appreciation rights granted pursuant to SORSP or section 4(a) or 4(c) shall terminate. 8. Miscellaneous. (a) Notices. Any notice or other communication made or given in connection with this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by registered mail, return receipt requested, to a party at his or its address set forth below or at such other address as a party may specify by notice to the other: To the Executive: Benjamin J. Sottile 24 South Park Drive Tenafly, New Jersey 07670 To the Company: Russ Berrie and Company, Inc. 111 Bauer Drive Oakland, New Jersey 07436 Attention: Chairman of the Board (b) Entire Agreement; Amendment. This agreement supersedes all prior agreements between the parties with respect to its subject matter, is intended (with the documents referred to herein) as a complete and exclusive statement of the terms of the agreement between the parties with respect thereto and cannot be changed, except in a writing signed by the parties. (c) Waiver. The failure of a party to insist upon strict adherence to any term of this agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this agreement. Any waiver must be in writing. (d) Assignment. Except as otherwise provided in this paragraph, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, representatives, successors and assigns. This Agreement shall not be assignable by the Executive, and shall be assignable by the Company only to any corporation or other entity resulting from the reorganization, merger or consolidation of the Company with any other corporation or entity or any corporation or entity to or with which the Company's business or substantially all of its business or assets may be sold, exchanged or transferred, and it must be so assigned by the Company to, and accepted as binding upon it by, such other corporation or entity in connection with any such reorganization, merger, consolidation, sale, exchange or transfer. (e) Counterparts. This agreement may be executed in two or more counterparts, each of which shall be considered an original, but all of which together shall constitute the same instrument. (f) Captions. The captions in this agreement are for convenience of reference only and shall not be given any effect in the interpretation of this agreement. (g) Conflict. The Executive represents that his relationship with the Company and his execution of and compliance with the terms of this Agreement will not conflict with, violate the terms of or constitute a breach of any agreement or understanding to which the Executive is a party or to which he may otherwise be bound. (h) Governing Law. This agreement and (unless otherwise provided) all amendments hereof and waivers and consents hereunder shall be governed by the internal law of the State of New Jersey, without regard to the conflicts of law principles thereof. RUSS BERRIE AND COMPANY, INC. By /s/ Russell Berrie -------------------------------------- /s/ Benjamin J. Sottile --------------------------------------- Benjamin J. Sottile EX-27 3 0003.txt FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 73,553 131,033 50,056 4,030 51,545 318,462 56,429 28,813 349,370 31,163 0 0 0 2,538 315,669 349,370 131,706 131,706 0 55,092 0 0 0 25,030 8,228 16,802 0 0 0 16,802 0.82 0.82
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