-----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, EdQo/6SAgUF8DUGlMQk28dhDXuApAqK/utJRysmZJRpaidj4D9wk3cQWXL+xcIl/ DPmqxqOAZhXro7YC4XHdRA== 0001104659-01-500214.txt : 20010409 0001104659-01-500214.hdr.sgml : 20010409 ACCESSION NUMBER: 0001104659-01-500214 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 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-K SEC ACT: SEC FILE NUMBER: 001-08681 FILM NUMBER: 1589698 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-K 1 j0202_10k.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from _______ to ________ Commission file number 1-8681 RUSS BERRIE AND COMPANY, INC. (Exact name of registrant as specified in its charter) New Jersey 22-1815337 ---------- ---------- (State of or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 111 Bauer Drive, Oakland, New Jersey 07436 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (201) 337-9000 Securities registered pursuant to Section 12 (b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $0.10 stated value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant computed by reference to the price of such stock at the close of business on March 8, 2001 was $243,550,536. The number of shares outstanding of each of the Registrant's classes of common stock, as of March 8, 2001, was as follows: CLASS NUMBER OF SHARES ----- ---------------- Common Stock, $0.10 stated value 19,968,394 DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the Registrant's 2001 definitive Proxy Statement, relating to Registrant's Annual Meeting of Shareholders to be held on April 26, 2001 (the "2001 Proxy Statement"), are incorporated by reference into Part III of this report. PART I ITEM 1. BUSINESS Russ Berrie and Company, Inc. was incorporated in New Jersey in 1966. The term "Company" refers to Russ Berrie and Company, Inc. and its consolidated subsidiaries, unless the context requires otherwise. Its principal executive offices are located at 111 Bauer Drive, Oakland, New Jersey 07436, and its telephone number is (201) 337-9000. The Company designs, manufactures through third parties and markets a wide variety of gift products to retail stores throughout the United States and countries throughout the world. The Company's products are designed to appeal to the emotions of consumers to reflect their feelings of happiness, friendship, fun, love and affection. The Company believes that its present position as one of the leaders in the gift industry is due primarily to its imaginative product design, broad and effective marketing of its products, efficient distribution, high product quality and commitment to customer service. The Company maintains a direct salesforce and distribution network to serve its customers in the United States, Europe, Canada and Australia. In countries where the Company does not maintain a direct salesforce and distribution network, the Company's products are sold through distributors. See Note 16 of the Notes to Consolidated Financial Statements for information regarding segment and geographic information. PRODUCTS The Company's product line of approximately 6,000 items (including distinctive variations on basic product designs) is marketed under the trade name and trademark RUSS(R). This extensive line encompasses both seasonal and everyday products that focus on theme or concept groupings such as collectible heirloom bears, stuffed animals, wedding, anniversary and baby gifts, tabletop accessories and home decor, including candles and accessories, collectible glass, porcelain and ceramic gifts and contemporary lifestyle gifts and accessories. Extensive seasonal lines include products for all major holidays. In addition, one of the Company's wholly-owned subsidiaries, Bright of America, Inc., principally markets placemats and candles as well as aromatic products such as potpourri and incense, through its division, Scentex(R), directly to mass merchandisers. Most of the Company's products have suggested retail prices between $3 and $35. Product sales are highly diverse and, as such, no single item represented more than 2% of the Company's sales in 2000. DESIGN AND PRODUCTION The Company has a continuing program of new product development. The Company designs most of its own products and then generally evaluates consumer response in selected unaffiliated retail stores. Items are added to the product line only if they can be obtained and marketed on a basis that meets the Company's profitability standards. The Company believes that the breadth of its product line and the continuous development of new products are key elements to its success and that it is capable of designing and producing large numbers of new products annually. The Company has approximately 160 employees responsible for product development and design located in the United States and in the Far East. Generally, a new design is brought to market in less than nine months after a decision is made to produce the product. Sales of the Company's products are, in large part, dependent on the Company's ability to identify and react quickly to changing consumer preferences and to effectively utilize its sales and distribution systems to bring new products to market. The Company engages in market research and test marketing to evaluate consumer reactions to its products. Research into consumer buying trends often suggests new products. The Company assembles information from retail stores, the Company's salesforce and the Company's own Product Development department. The Company continually analyzes its products to determine whether they should be adapted into new or different products using elements of the initial design or whether they should be removed from the product line. Substantially all of the Company's products are produced by independent manufacturers, generally in the Far East, under the supervision of Company personnel. During 2000, approximately 94% of the Company's products were produced in the Far East, and approximately 6% in the United States. Purchases in the United States predominantly represent domestically produced displays, candles, placemats and printed materials such as cards. 2 The Company utilizes approximately 100 manufacturers in the Far East, with facilities primarily in the People's Republic of China ("PRC"). During 2000, approximately 93% of the Company's dollar volume of purchases was attributable to manufacturing in the PRC. The PRC currently enjoys "normal trade relations" ("NTR") status under US tariff laws, which provides a favorable category of US import duties. Due to various factors, there has been, and may be in the future, opposition to the annual extension of NTR status for the PRC. Subject to the accession of the PRC to the World Trade Organization, the NTR status may be made permanent if certain determinations are made by the President of the United States under Public Law 106-286. There can be no assurance that either the accession or the permanent designation of the NTR status will occur. The loss of such NTR status would result in a substantial increase in the import duty for products manufactured for the Company in the PRC and imported into the United States and would result in increased costs for the Company. A significant portion of the Company's staff of approximately 290 employees in Hong Kong, Taiwan, Korea, Philippines and the cities of Shenzhen and Qingdao in the PRC monitor the production process with responsibility for the quality, safety and prompt delivery of Company products as well as design and product development as described earlier. Members of the Company's Far East staff make frequent visits to the manufacturers for which they are responsible. Certain of the Company's manufacturers sell exclusively to the Company. The Company believes that there are many alternate manufacturers for the Company's products and sources of raw materials. In 2000, the supplier accounting for the greatest dollar volume of the Company's purchases accounted for approximately 9% of such purchases and the five largest suppliers accounted for approximately 34% in the aggregate. MARKETING The Company's products are marketed primarily through its own direct salesforce of approximately 450 full-time employees as of December 31, 2000. The Company maintains a telemarketing department which is responsible for servicing the Company's smaller customers. Products are sold directly to retail customers in the United States and in certain foreign countries, including but not limited to gift stores, pharmacies, card shops, home decor shops, apparel stores, craft stores, garden stores, book stores, stationery stores, hospitals, college and airport gift shops, resort and hotel shops, florists, chain stores, military post exchanges and internet companies. During 2000, the Company sold gift products to more than 50,000 customers worldwide. No single customer accounted for more than 3% of sales. The Company reinforces the marketing efforts of its salesforce through an active promotional program, including showrooms, participation in trade shows, trade and consumer advertising and a program of seasonal and theme based catalogs. The Company maintains a marketing plan which recognizes its most valued customers as "Preferred Partners", based upon attainment of certain sales levels, and offers them special benefits and privileges including, but not limited to, access to exclusive product offerings and dedicated customer service representatives. The Company believes that effective packaging and merchandising of its products are also very important to its marketing success. Many products are shipped in colorful, corrugated cartons which can be used as freestanding displays and then recycled or discarded when all the products have been sold. The Company also offers to its customers semi-permanent freestanding lucite, metal and wooden displays, thereby providing an efficient promotional vehicle for selling the Company's products at retail locations. The Company believes that customer service is another essential component of its marketing strategy and therefore has established a Customer Service Department that responds to customer requests, investigates and resolves problems and generally assists customers. The Company believes its general terms of sale are competitive in the gift industry. The Company provides extended payment terms to customers, which do not exceed five months, on sales of seasonal merchandise, e.g., Christmas, Halloween, Easter and other seasons. The Company has a general policy that all sales are final and does not sell on consignment. 3 The Company also maintains a direct salesforce and distribution network to serve its customers in England, Holland, Belgium, Ireland, Spain, Germany, Austria, Canada, France and Australia. The Company's products are sold worldwide, through distributors, where the Company does not maintain a direct salesforce and distribution network. The Company's foreign sales, including export sales from the United States, aggregated $104,085,000, $91,913,000 and $78,516,000 for the years ended December 31, 2000, 1999 and 1998, respectively. See Note 16 of the Notes to Consolidated Financial Statements for additional geographic information. DISTRIBUTION The Company has customers located in the United States and throughout the world. In order to serve them effectively, the Company maintains U.S. distribution centers in South Brunswick, New Jersey and Petaluma, California, each of which receives products directly from suppliers and then distributes such products to the Company's customers. The Company also maintains distribution facilities in the Toronto, Canada area, in Southampton, England and the Sydney, Australia area to serve its customers in Canada, Europe and Australia, respectively. The Company is presently contemplating a transaction in which one of its wholly-owned subsidiaries, Russ Berrie (U.K.) Limited, will lease a new distribution center in England from a corporation owned, directly or indirectly, by Mr. Berrie. The new facility is intended to replace the two current facilities maintained by the Company in Southampton, England. Lease terms with respect to the new facility have not yet been finalized. However, construction of the building is expected to commence in April 2001 and be completed in June or July 2002, at which time it is anticipated that Russ Berrie (U.K.) Limited will occupy the building. The Company generally uses common carriers to distribute its products to its customers. SEASONALITY In addition to its everyday products, the Company produces specially designed products for holiday seasons which include: Christmas/Chanukah, Easter, Valentine's Day, Father's Day, Halloween/Thanksgiving, Mother's Day, St. Patrick's Day and Graduation/Secretary's Day. The pattern of the Company's sales is influenced by the shipment of seasonal merchandise. The Company generally ships the majority of orders each year for Christmas in the quarter ended September 30, for Valentine's Day in the quarter ended December 31 and for Easter in the quarter ended March 31. During 2000, items specially designed for individual seasons accounted for approximately 46% of the Company's sales; no individual season accounted for more than 18% of the Company's sales. The following table sets forth the Company's quarterly sales during 2000, 1999 and 1998. QUARTERLY SALES (IN MILLIONS)
2000 1999 1998 ---- ---- ---- QUARTER ENDED SALES % SALES % Sales % ----- ---- ----- ---- ----- ---- MARCH 31 ................ $78.3 26.0 $77.8 27.1 $77.2 27.7 JUNE 30 ................. $57.6 19.2 $49.0 17.1 $52.8 18.9 SEPTEMBER 30 ............ $97.2 32.3 $93.3 32.5 $85.4 30.6 DECEMBER 31 ............. $67.7 22.5 $66.9 23.3 $63.6 22.8
The Company has historically had higher profit margins in the quarter ended September 30 as a result of the economies of scale which accompany the higher sales volume. BACKLOG It is characteristic of the Company's business that orders for seasonal merchandise are taken in advance of shipment. The Company's backlog at December 31, 2000 and December 31, 1999 was $22,271,261 and $29,775,000, respectively. It is expected that significantly all of the Company's backlog at December 31, 2000 will be shipped during 2001. 4 COMPETITION The gift industry is highly competitive. The Company believes that the principal competitive factors in the gift business are marketing ability, reliable delivery, product design, quality, customer service and price. Certain of the Company's existing or potential competitors may have financial resources that are greater than those of the Company. COPYRIGHTS, TRADEMARKS, PATENTS AND LICENSES The Company prints notices of claim of copyright on substantially all of its products and has registered hundreds of its designs with the United States Copyright Office. The Company has registered, in the United States and certain foreign countries, the trademark RUSS(R) with a distinctive design, which is utilized on most of its gift products. The Company believes its copyrights, trademarks and patents are valid, and has pursued a policy of aggressively protecting them from infringement. However, it does not consider its business materially dependent on copyright, trademark or patent protection. The Company enters into various license agreements relating to trademarks, copyrights, designs and products which enable the Company to market items compatible with its product line. The Company's licenses are generally exclusive for specific products in specified territories. Royalties are paid on licensed items and, in many cases, advance royalties and minimum guarantees are required by these license agreements. EMPLOYEES As of December 31, 2000, the Company employed approximately 1,500 persons. The Company considers its employee relations to be good; substantially all of the Company's employees are not covered by a collective bargaining agreement. The Company's policy is to require that its management, sales and product development and design personnel enter into confidentiality agreements and, in the case of sales management and sales personnel, non-competition agreements (subject to certain territorial limitations) which restrict their ability to compete with the Company for a period of six months after termination of their employment. GOVERNMENT REGULATION Certain of the Company's products are subject to the provisions of, among other laws, the Federal Hazardous Substances Act and the Federal Consumer Product Safety Act. Those laws empower the Consumer Product Safety Commission ("Commission") to protect children from certain hazardous articles by regulating their use or excluding them from the market and requiring a manufacturer to repurchase articles which become banned. The Commission's determination is subject to judicial review. Similar laws exist in some states and cities in the United States and in certain foreign jurisdictions. The Company maintains a quality control program in order to comply with applicable laws. ITEM 2. PROPERTIES The principal facilities of the Company's operations consist of its corporate offices in Oakland, New Jersey, and distribution centers in South Brunswick, New Jersey, and Petaluma, California, all of which the Company leases. Additionally, office and distribution facilities are located in Southampton, England, in the Toronto, Canada area and in the Sydney, Australia area. The Company owns the facility used by one of its wholly-owned subsidiaries, Bright of America, Inc., in Summersville, West Virginia, one of its facilities in Southampton, England and most of the office space it uses in Hong Kong. One of the Company's subsidiaries, Amram's Distributing, Limited, owns a facility in Toronto, Canada that serves as its office and distribution facility. The facilities of the Company are maintained in good operating condition and are, in the aggregate, adequate for the Company's purposes and are generally fully utilized. Due to the purchase of a new office and distribution facility in Toronto, Canada, the Company vacated the facility being leased and is currently subleasing such facility to a third party. 5 THE COMPANY'S CURRENT PRINCIPAL FACILITIES ARE AS FOLLOWS:
LEASE EXPIRATION LOCATION - DOMESTIC SQ. FT. AREA (IF APPLICABLE)(1) ------------------- ------------ ------------------ Petaluma, California (2)(3)................. 234,200 June 30, 2004 Oakland, New Jersey (2)(4).................. 120,000 April 1, 2004 South Brunswick, New Jersey (2)(3).......... 513,680 May 31, 2004 Summersville, West Virginia (5)(6).......... 156,000 Not Applicable - Owned by the Company LEASE EXPIRATION LOCATION - FOREIGN SQ. FT. AREA (IF APPLICABLE)(1) ------------------- ------------ ------------------ Southampton, England (6).................... 61,000 March 25, 2003 Southampton, England (5)(6)................. 75,500 Not Applicable - Owned by the Company Toronto, Ontario, Canada (5)(6)............. 120,000 Not Applicable - Owned by the Company North Point, Hong Kong (5).................. 25,630 Not Applicable - Owned by the Company Kowloon, Hong Kong (5)...................... 6,443 July 2, 2003 Sydney, Australia (5)(6).................... 42,000 October 31, 2002
(1) Not including renewal options, if any. (2) Properties owned directly or indirectly by Russell Berrie, Chairman and Chief Executive Officer, or members of his immediate family. See ITEM 13 - "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS". (3) Regional distribution center. (4) Corporate headquarters. (5) Subsidiary offices. (6) Subsidiary distribution center. The Company also operates showroom facilities in Oakland, New Jersey; Los Angeles and San Francisco, California; Denver, Colorado; Atlanta, Georgia; Chicago, Illinois; High Point, North Carolina; Dallas, Texas; Seattle, Washington; Miami, Florida; Sydney, Australia; Montreal, Vancouver and Toronto, Canada; Southampton, England; Utrecht, Holland; and Kowloon, Hong Kong. Certain showrooms are located within the facilities listed above, others are leased with remaining lease terms ranging between one and five years. ITEM 3. LEGAL PROCEEDINGS In the ordinary course of its business, the Company is party to various copyright, patent and trademark infringement, unfair competition, breach of contract, customs, employment and other legal actions incidental to its business, as plaintiff or defendant. The Company believes that the outcome of the proceedings to which it is currently a party will not have a material adverse effect on its business or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 6 EXECUTIVE OFFICERS OF THE REGISTRANT The following table provides information with respect to the executive officers of the Company. All officers are elected by the Board of Directors and may be removed with or without cause by the Board.
NAME AGE POSITION WITH THE COMPANY - ---- --- ------------------------- Russell Berrie 68 Chairman, Chief Executive Officer and Director Arnold S. Bloom 58 Vice President, General Counsel and Secretary Ricky Chan 48 Senior Vice President - Product Development and Executive Vice President of Far East Operations Teresa Chan 46 Vice President - International Sales Dona Fisher 47 Vice President and Chief Operating Officer Eva J. Goldenberg 39 Vice President - Human Resources Thomas K. Higgerson 52 Vice President - Global Logistics J. Michael Hope 55 Vice President - National Accounts Y.B. Lee 55 Senior Vice President - Far East and President of Far East Operations James J. O'Reardon, Jr. 57 Vice President - Corporate Audits Michael M. Saunders 29 Vice President - Chief Information Officer Benjamin J. Sottile 63 Vice Chairman and Director Susan Strunck 39 Vice President - Corporate Affairs John T. Toolan 42 Executive Vice President - Marketing and Sales John D. Wille 45 Vice President and Chief Financial Officer
Russell Berrie, the founder of the Company, has been Chairman and Chief Executive Officer of the Company since its incorporation in 1966. Arnold S. Bloom has been employed by the Company as Vice President, General Counsel and Secretary for more than the past five years. Ricky Chan has been employed by the Company as Senior Vice President - Product Development for more than the past five years. Teresa Chan was elected as an officer of the Company in October 1999 and has been employed by the Company as Vice President - International Sales since February 1997. Ms. Chan was Managing Director of International Operations for more than five years prior thereto. Dona Fisher has been employed by the Company as Vice President and Chief Operating Officer since September 2000. Prior to joining the Company, Ms. Fisher was employed with Helen of Troy as Senior Vice President and Chief Financial Officer since March 1999, with Sun Apparel Company as Senior Executive Vice President since September 1996 and with The Franklin Mint as Senior Vice President for more than five years prior thereto. Eva J. Goldenberg, was elected an officer of the Company in January 2001 and has been employed by the Company as Vice President - Human Resouces since April 2000. Ms. Goldenberg was Director of Human Resources since September 1999, Associate General Counsel since January 1999 and Assistant General Counsel since August 1994. 7 Thomas K. Higgerson has been employed by the Company as Vice President - Global Logistics since January 2000. Prior to joining the Company, Mr. Higgerson was employed with Hygrade Integrated Logistics Systems, Inc. as Executive Vice President since March 1997 and as Senior Vice President for more than five years prior thereto. J. Michael Hope has been employed by the Company as Vice President - National Accounts since February 2000. Prior to that, Mr. Hope was Vice President - Sales Administration since November 1998 and was Vice President and General Manager of the Company's Petaluma Distribution Center for more than five years prior thereto. Y.B. Lee has been employed by the Company as President of Far East Operations since October 1996. Mr. Lee has been Senior Vice President-Far East since August 1996 and was Senior Vice President - Far East Plush Division for more than five years prior thereto. James J. O'Reardon, Jr. has been employed by the Company as Vice President - Corporate Audits since April 2000 and was Vice President - Administration since September 1997. Mr. O'Reardon was Director of Administration/Internal Audit for more than five years prior thereto. Michael M. Saunders has been employed with the Company as Vice President - Chief Information Officer since March 2001. Prior to joining the Company, Mr. Saunders was employed with Danskin, Inc. as Chief Information Officer since April 2000, the Jenna Lane Group as Vice President & Chief Information Officer since December 1998 and Kurt Salmon Associates as Senior Manager - IT Group since June 1995. Benjamin J. Sottile was elected to the Board of Directors in July 2000 and has been employed with the Company as Vice Chairman since June 2000. Prior to joining the Company, Mr. Sottile was a consultant to the Company since July 1999 and prior thereto was a consultant to various consumer product companies, unaffiliated with the Company, and non-profit organizations since February 1996. Mr. Sottile was employed with Gibson Greetings, Inc. as Chairman, President and Chief Executive Officer for more than five years prior thereto. Susan Strunck was elected as an officer of the Company in January 2001 and has been employed by the Company as Vice President - Corporate Affairs since April 2000. Ms. Strunck was Director of Corporate Affairs since January 1998 and was assistant to the Chairman for more than five years thereto. John T. Toolan has been employed with the Company as Executive Vice President - Marketing and Sales since February 2001. Prior to joining the Company, Mr. Toolan was employed with Westpoint Stevens Inc. as Executive Vice President and President of Sales and Marketing since November 1999, as Executive Vice President and President of the Domestic Marketing Division since January 1999, as Senior Vice President of the Company since January 1997 and as President of the Fashion Brands Division since January 1998. Prior to that, Mr. Toolan was Senior Vice President / Home Fashions Division since January 1996. John D. Wille has been employed with the Company as Vice President and Chief Financial Officer since February 2001. Prior to joining the Company, Mr. Wille was employed with the Betesh Group as Vice President Finance and Chief Financial Officer since November 2000. Prior to that, Mr. Wille was employed with Time Life Inc. as Vice President and Corporate Controller since May 1997 and with The Franklin Mint as Vice President, Strategic Buying, Inventory and Logistics since November 1995. *********************************** 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS At December 31, 2000, the Company's Common Stock was held by 546 shareholders of record. The Company's Common Stock has been traded on the New York Stock Exchange since its initial public offering on March 29, 1984. The following table sets forth the high and low sale prices on the New York Stock Exchange Composite Tape for the calendar periods indicated, as furnished by the New York Stock Exchange:
2000 HIGH LOW ---- ---- --- First Quarter............. $ 25 15/ 16 $ 15 7/8 Second Quarter............ 22 17 Third Quarter............. 21 1/4 18 15/16 Fourth Quarter............ 22 11/16 18 3/4 1999 HIGH LOW ---- ---- --- First Quarter............. $ 26 5/8 $ 20 1/16 Second Quarter............ 27 1/2 23 5/8 Third Quarter............. 24 7/8 20 Fourth Quarter............ 26 1/4 18 15/16
The Board of Directors declared its first dividend to holders of the Company's Common Stock in November 1986. Since then, a cash dividend has been paid quarterly. The current quarterly dividend rate was increased from $0.20 in 1999 to $0.22 in 2000 and to $0.24 per common share, effective February 2001, which represents the fifth consecutive year of increased dividends. The Board of Directors will review its dividend policy from time to time and declaration of dividends will remain within its sole discretion. 9 ITEM 6. SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31 2000 1999 1998 1997 1996 ------------------------------------------------------------------------ SUMMARY OF OPERATIONS Net Sales* $ 300,801 $ 287,011 $ 279,002 $ 279,167 $ 232,719 Cost of Sales* 132,908 123,216 123,760 127,672 111,444 Income from Continuing Operations Before Income Taxes** 71,104 53,967 59,584 53,664 42,555 Provision for Income Taxes 23,163 17,531 18,988 16,399 15,856 Income from Continuing Operations** 47,941 36,436 40,596 37,265 26,699 Income (Loss) from Discontinued Operations, Net of Taxes - - - (1,324) 4,978 Gain on Sale of Discontinued Operations, Net of Taxes*** - - - 46,700 - Net Income 47,941 36,436 40,596 82,641 31,677 Net Income (Loss) Per Share: Continuing Operations Basic 2.37 1.73 1.83 1.69 1.23 Diluted 2.37 1.72 1.81 1.67 1.22 Discontinued Operations Basic - - - (.06) .23 Diluted - - - (.06) .23 Gain on Sale of Discontinued Operations Basic - - - 2.12 - Diluted - - - 2.08 - ------------------------------------------------------------------------ Total Basic 2.37 1.73 1.83 3.75 1.46 Diluted 2.37 1.72 1.81 3.69 1.45 Dividends Per Share .88 .80 .76 .68 .60 BALANCE SHEET Working Capital $ 304,647 $ 288,229 $ 299,695 $ 286,358 $ 187,373 Property, Plant and Equipment 26,745 28,297 35,340 21,287 21,765 Total Assets 367,009 355,420 378,456 353,445 276,966 Shareholders' Equity 334,591 319,598 343,935 316,786 248,726 STATISTICAL Current Ratio 10.4 9.0 9.7 8.8 7.6 Return on Average Shareholders' Equity 14.7% 11.0% 12.3% 29.2% 13.4% Net Profit Margin from Continuing Operations 15.9% 12.7% 14.6% 13.3% 11.5% Number of Employees 1,498 1,551 1,471 1,554 1,580
* Net sales and cost of sales for the years ended December 31, 1999, December 31, 1998, December 31, 1997 and December 31, 1996 have been restated to conform to the presentation for the year ended December 31, 2000, representing the Company's application of the Emerging Issues Task Force Issue 00-10, "Accounting for Shipping and Handling Fees and Costs". ** The year ended December 31, 2000 includes income of $2,544,000 before tax or $1,603,000 ($0.08 per diluted share) after tax for the reversal of certain contingency reserves related to the Company's sale of its toy business segment in May 1997. The year ended December 31, 1999 includes an information system write-off of capitalized costs of $10,392,000 before tax or $6,557,000 ($0.31 per diluted share) after tax. The year ended December 31, 1998 includes income of $1,828,000 before tax or $1,152,000 ($0.05 per diluted share) after tax for the completion of a transitional agreement related to the sale of Papel/Freelance, Inc. The year ended December 31, 1996 includes the gain on sale of Papel/Freelance, Inc. of approximately $4,800,000 before tax or $3,000,000 ($0.14 per diluted share) after tax and a reversal of a litigation provision of $4,450,000 before tax or $2,800,000 ($0.13 per diluted share) after tax. *** Represents the gain on sale of Cap Toys, Inc. and OddzOn Products, Inc. in 1997 of $75,300,000 before tax or $46,700,000 ($2.08 per diluted share) after tax. 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 2000 AND 1999 The Company's net sales for the year ended December 31, 2000 were $300,801,000 compared to $287,011,000 for the year ended December 31, 1999 reflecting the impact of a new accounting standard for shipping and handling fees and costs, as well as the resultant restatement of the previous year. This represents a net sales increase of $13,790,000 or 4.8% due primarily to the increase in net sales of the Company's international operations, including the Company's new subsidiary in Australia, established in January 2000. Net sales for the year ended December 31, 1999 were negatively impacted by operational issues resulting from the June 1999 conversion to a new computer system for the Company's domestic operations and ultimately resulted in the Company successfully reverting back to its legacy systems. The Company's product line, focusing on coordinated themes of product offerings, continues to receive a positive response from customers worldwide. In September 2000, the Company launched a new division, Russ Trading, along with a dedicated Hong Kong showroom. Orders and shipments from this initiative are expected to commence in 2001. The Company believes that the new division will give the Company the ability to market new and different lines and private label merchandise to non-traditional customers of the Company, such as mass merchandisers. Cost of sales were 44.2% of net sales in 2000 compared to 42.9% of net sales in 1999 reflecting the impact of a new accounting standard for shipping and handling fees and costs, as well as the resultant restatement of the previous year. The cost of sales percentage increase primarily reflects lower gross profit margins on sales of certain of the Company's product line concepts and greater utilization of other than normal distribution channels during the year ended December 31, 2000. Selling, general and administrative expense was $106,991,000 or 35.6% of net sales for the year ended December 31, 2000 compared to $108,023,000 or 37.6% of net sales in 1999, a decrease of $1,032,000 or 1.0% and a decrease of 2.0%, as a percent of net sales. This decrease is due primarily to lower distribution and administrative costs resulting from nonrecurring costs incurred in 1999 due to operational difficulties and the depreciation and other costs of the new computer systems. This decrease was partially offset by increased selling costs as a result of increased sales. Selling, general and administrative expense for the year ended December 31, 1999 was restated to conform to the presentation for the year ended December 31, 2000, reflecting the Company's application of a new accounting standard for shipping and handling fees and costs which had been historically recorded net in selling, general and administrative expense. During the year ended December 31, 1999, the Company recognized a charge to income of $10,392,000, before tax, for the write-off of the net book value of certain capitalized costs relating to terminating the use of the new computer system. Investment and other income of $10,202,000 for the year ended December 31, 2000 compares to $8,587,000 in 1999. Included in investment and other income for the year ended December 31, 2000 was income of $2,544,000 before tax for the reversal of certain contingency reserves related to the Company's sale of its toy business segment in May of 1997. Excluding the income from this reversal, investment and other income decreased $929,000. This decrease is primarily related to decreased investment income from the Company's fixed income portfolio attributable to lower total returns on the Company's investment portfolio. The provision for income taxes as a percent of income before taxes for the year ended December 31, 2000 remained relatively unchanged at 32.6% compared to 32.5% for the year ended December 31, 1999. Net income for the year ended December 31, 2000 increased 31.6% to $47,941,000 compared to net income of $36,436,000 for the year ended December 31, 1999 and earnings per diluted share increased 37.8% to $2.37 from $1.72 in 1999. Included in the results for the year ended December 31, 2000 was income of $1,603,000, after tax, or $0.08 per diluted share, for the reversal of certain contingency reserves related to the Company's sale of its toy business segment in May of 1997. Included in the results for the year ended December 31, 1999 was a write-off of $6,557,000, after tax, or $0.31 per diluted share, for the Company's new packaged software system. Excluding the reversal for the year ended December 31, 2000 and the information system write-off in 1999, net income for the year ended December 31, 2000 would have increased 7.8% to $46,338,000 compared to $42,993,000 in 1999 and earnings per diluted share would have increased 12.8% to $2.29 from $2.03 in 1999. This increase is primarily attributed to increased net sales and gross profit, along with decreases in selling, general and administrative expense as discussed above. 11 The Company maintains a direct salesforce and distribution network to serve its customers in Europe, Canada and Australia. Product, sales and marketing strategies in these foreign operations are similar to those in the Company's domestic operations. Where the Company does not maintain a direct salesforce and distribution network, the Company's products are sold worldwide through distributors. See Note 16 of the Notes to Consolidated Financial Statements for more information regarding geographic information. RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1999 AND 1998 The Company's net sales for the year ended December 31, 1999 were $287,011,000 compared to $279,002,000 for the year ended December 31, 1998. Net sales for the years ended December 31, 1999 and December 31, 1998 have been restated to conform with the presentation of the year ended December 31, 2000 reflecting the impact of the new accounting standard for shipping and handling fees and costs. This represents a net sales increase of $8,009,000 or 2.9% due primarily to the increase in net sales of the Company's international operations. The Company's product line, focusing on coordinated themes of product offerings, continues to receive a positive response from customers worldwide. During the year ended December 31, 1999, the Company experienced operational issues, which were caused by the domestic implementation of a new computer system. These operational issues had negatively impacted net sales since implementation in June 1999 and ultimately resulted in the termination of the Company's use of this new system and reverting back to its legacy systems. Cost of sales were 42.9% of net sales in 1999 compared to 44.4% of net sales in 1998 reflecting the impact of a new accounting standard for shipping and handling fees and costs, as well as the resultant restatement of both years. The cost of sales percentage decrease reflects the higher gross profit margins on sales of certain of the Company's product line concepts during the year ended December 31, 1999. The decrease also reflects the Company's successful efforts to manage inventory levels, resulting in a reduced need to distribute product through other than normal channels. Selling, general and administrative expense was $108,023,000 or 37.6% of net sales for the year ended December 31, 1999 compared to $105,854,000 or 37.9% of net sales in 1998, an increase of $2,169,000 or 2.0%. This increase is due primarily to higher distribution costs attributed to operational difficulties and depreciation of computer systems offset by lower costs of a reduced salesforce and realization of costs savings from the closing of its Petaluma, California administrative operations in 1998. Selling, general and administrative expense for the years ended December 31, 1999 and December 31, 1998 were restated to conform to the presentation for the year ended December 31, 2000, reflecting the Company's application of a new accounting standard for shipping and handling fees and costs which had been historically recorded net in selling, general and administrative expense. During the quarter ended December 31, 1999, the Company recognized a charge to income of $10,392,000, before tax, for the write-off of the net book value of certain capitalized costs relating to terminating the use of the new computer system. Investment and other income of $8,587,000 for the year ended December 31, 1999 compares to $10,196,000 in 1998. Included in investment and other income for the year ended December 31, 1998 was income of $1,828,000 for the completion of a transitional agreement related to the sale of the Company's subsidiary, Papel/Freelance, Inc. The provision for income taxes as a percent of income before taxes for the year ended December 31, 1999 was 32.5% compared to 31.9% in the prior year. Net income for the year ended December 31, 1999 was $36,436,000 compared to net income of $40,596,000 for the year ended December 31, 1998. Included in the results for the year ended December 31, 1999 is a charge of $6,557,000, after tax, for the write-off of the Company's new computer system. 12 Included in the results for the year ended December 31, 1998 is income of $1,152,000, after tax, for the completion of a transitional agreement related to the sale of the Company's subsidiary, Papel/Freelance, Inc. Excluding the information system write-off in 1999 and the income from this transitional agreement in 1998, net income increased $3,549,000 or 9.0%. This increase can be primarily attributed to increased net sales and gross profit offset by the increase in selling, general and administrative expense. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2000, the Company had cash and cash equivalents and marketable securities of $218,826,000 compared to $202,051,000 at December 31, 1999. As of December 31, 2000 and 1999, the Company had marketable securities of $141,032,000 and $137,143,000 respectively, included in the amounts above. These investments consist of U.S. government obligations, municipal obligations and preferred stock. The objective of the investment portfolio is to maximize after tax returns while minimizing risk. See Note 3 of the Notes to Consolidated Financial Statements for more information regarding financial instruments. The Company's portfolio of preferred securities investments are subject to market fluctuations based largely, but not exclusively, on the securities' sensitivity to changes in interest rates. By maintaining an economic hedge consisting of government futures contracts and options, the Company seeks to reduce interest rate related risk. The portfolio of preferred securities and futures contracts and options are intended to produce offsetting capital gains and losses, realized and unrealized, as interest rates change. The Company has available $80,423,000 in bank lines of credit that provide for direct borrowings and letters of credit used for the purchase of inventory. At December 31, 2000, letters of credit of $14,182,000 were outstanding. There were no direct borrowings under the bank lines of credit. Working capital requirements during 2000 were met entirely through internally generated funds. The Company remains in a highly liquid position and believes that the resources available from investments, operations and bank lines of credit are sufficient to meet the foreseeable requirements of its business. The Company enters into forward exchange contracts and currency options, principally to manage the economic currency risks associated with the purchase of inventory and the payment of interest on intercompany loans by its European and Canadian operations. Gains and losses, related to such contracts, were not material to its results of operations. The Company does not anticipate any material adverse impact on its results of operations or financial position from these contracts. As of December 31, 2000, the Board of Directors had authorized the Company to repurchase 7,000,000 shares of common stock of which 5,561,400 shares have been repurchased since the beginning of the Company's stock repurchase program in March 1990. During 2000, the Company repurchased 815,100 shares, which amounted to $15,619,000. Consistent with its past practices and as a normal course of business, the Company regularly reviews acquisition opportunities of varying sizes. There can be no assurance, however, that any discussions arising in connection therewith will result in definitive purchase agreements and, if they do, what the terms or timing of any such agreements would be. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 138, "Accounting for Certain Derivatives and Certain Hedging Activities, an amendment of SFAS No. 133", establishing the accounting and reporting for derivatives and hedging activities. The Company has determined that the impact of adopting SFAS No. 133, as amended by SFAS No. 138, on the consolidated financial statements will not be significant. See Note 2, "Accounting for Derivatives and Hedging" of the Notes to Consolidated Financial Statements for additional information. 13 FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains certain forward-looking statements. Additional written and oral forward-looking statements may be made by the Company from time to time in Securities and Exchange Commission (SEC) filings and otherwise. The Private Securities Litigation Reform Act of 1995 provides a safe-harbor for forward-looking statements. These statements may be identified by the use of forward-looking words or phrases including, but not limited to, "anticipate", "believe", "expect", "intend", "may", "planned", "potential", "should", "will" or "would". The Company cautions readers that results predicted by forward-looking statements, including, without limitation, those relating to the Company's future business prospects, revenues, working capital, liquidity, capital needs, interest costs and income are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. Specific risks and uncertainties include, but are not limited to, the Company's ability to continue to manufacture its products in the Far East, the seasonality of revenues, the actions of competitors, ability to increase production capacity, price competition, the effects of government regulation, possible delays in the introduction of new products, customer acceptance of products, issues related to the start up of the Company's recently announced Russ Trading division, changes in foreign currency exchange rates, issues related to the Company's computer systems and other factors. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At December 31, 2000 and December 31, 1999, a sensitivity analysis to measure potential changes in market value of the Company's investments from a change in interest rates indicates that a one percentage point increase in interest rates would decrease the net aggregate market value of these investments by approximately $1,715,000 and $2,197,000, respectively, and a one percentage point decrease in interest rates would increase the net aggregate market value of these investments by approximately $1,711,000 and $2,380,000, respectively. At December 31, 2000 and December 31, 1999, a sensitivity analysis to changes in the value of the U.S. dollar on foreign currency denominated derivatives and monetary assets and liabilities indicates that if the U.S. dollar uniformly weakened by 10% against all currency exposures of the Company, income from operations would decrease by approximately $1,110,000 and $780,000, respectively. Additional information required for this item is incorporated in the section above entitled, "Liquidity and Capital Resources" of Management's Discussion and Analysis of Results of Operations and Financial Condition and Note 3 of the Notes to Consolidated Financial Statements. 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Russ Berrie and Company, Inc.: We have audited the accompanying consolidated balance sheet of Russ Berrie and Company, Inc. (a New Jersey Corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above, appearing on pages 16 to 30 of this Form 10-K, present fairly, in all material respects, the financial position of Russ Berrie and Company, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule appearing on page 42 of this Form 10-K is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Roseland, New Jersey February 15, 2001 15 CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999 1998 --------------------------------------- Net sales $ 300,801 $ 287,011 $ 279,002 Cost of sales 132,908 123,216 123,760 --------------------------------------- Gross profit 167,893 163,795 155,242 Selling, general and administrative expense 106,991 108,023 105,854 Information system write-off - 10,392 - Investment and other income-net (10,202) (8,587) (10,196) --------------------------------------- Income before taxes 71,104 53,967 59,584 Provision for income taxes 23,163 17,531 18,988 --------------------------------------- Net income $ 47,941 $ 36,436 $ 40,596 ======================================= Net income per share: Basic $ 2.37 $ 1.73 $ 1.83 ======================================= Diluted $ 2.37 $ 1.72 $ 1.81 =======================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 16 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
ADDITIONAL COMMON PAID IN RETAINED TOTAL STOCK CAPITAL EARNINGS --------------------------------------------------- BALANCE AT DECEMBER 31, 1997 $ 316,786 $2,493 $53,184 $ 308,028 Comprehensive income: Net income 40,596 - - 40,596 Other comprehensive income, net of tax: Foreign currency translation adjustment (net of tax of $72) 154 - - - Net unrealized gain on securities available-for-sale (net of tax of $159) 334 - - - --------- Comprehensive income 41,084 --------- Share transactions under stock plans (275,792 shares) 5,396 27 5,369 - Cash dividends ($0.76 per share) (16,897) - - (16,897) Transactions in treasury shares (103,500 shares) (2,434) - - - ------------------------------------------------ BALANCE AT DECEMBER 31, 1998 343,935 2,520 58,553 331,727 Comprehensive income: Net income 36,436 - - 36,436 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment (net of tax benefit of $35) (72) - - - Net unrealized loss on securities available-for-sale (net of tax benefit of $991) (1,964) - - - --------- Comprehensive income 34,400 --------- Share transactions under stock plans (123,588 shares) 2,416 12 2,404 - Cash dividends ($0.80 per share) (16,861) - - (16,861) Transactions in treasury shares (1,795,200 shares) (44,292) - - - ------------------------------------------------ BALANCE AT DECEMBER 31, 1999 319,598 2,532 60,957 351,302 Comprehensive income: Net income 47,941 - - 47,941 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment (net of tax benefit of $1,330) (2,749) - - - Net unrealized gain on securities available-for-sale (net of tax of $481) 986 - - - --------- Comprehensive income 46,178 --------- Share transactions under stock plans (87,777 shares) 2,155 9 2,146 - Cash dividends ($0.88 per share) (17,764) - - (17,764) Transactions in treasury shares (815,100 shares) (15,619) - - - Unearned compensation, net (10,000 shares) 43 - - - ------------------------------------------------ BALANCE AT DECEMBER 31, 2000 $ 334,591 $2,541 $63,103 $ 381,479 ================================================ ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET -------------------------------- FOREIGN NET UNREALIZED CURRENCY GAIN (LOSS) ON TRANSLATION MARKETABLE UNEARNED TREASURY ADJUSTMENT SECURITIES COMPENSATION STOCK ------------------------------------------------------------- BALANCE AT DECEMBER 31, 1997 $(1,098) $ 99 - $ (45,920) Comprehensive income: Net income - - - - Other comprehensive income, net of tax: Foreign currency translation adjustment (net of tax of $72) 154 - - - Net unrealized gain on securities available-for-sale (net of tax of $159) - 334 - - Comprehensive income Share transactions under stock plans (275,792 shares) - - - - Cash dividends ($0.76 per share) - - - - Transactions in treasury shares (103,500 shares) - - - (2,434) ----------------------------------------------------------- BALANCE AT DECEMBER 31, 1998 (944) 433 - (48,354) Comprehensive income: Net income - - - - Other comprehensive income (loss), net of tax: Foreign currency translation adjustment (net of tax benefit of $35) (72) - - - Net unrealized loss on securities available-for-sale (net of tax benefit of $991) - (1,964) - - Comprehensive income Share transactions under stock plans (123,588 shares) - - - - Cash dividends ($0.80 per share) - - - - Transactions in treasury shares (1,795,200 shares) - - - (44,292) ----------------------------------------------------------- BALANCE AT DECEMBER 31, 1999 (1,016) (1,531) - (92,646) Comprehensive income: Net income - - - - Other comprehensive income (loss), net of tax: Foreign currency translation adjustment (net of tax benefit of $1,330) (2,749) - - - Net unrealized gain on securities available-for-sale (net of tax of $481) - 986 - - Comprehensive income Share transactions under stock plans (87,777 shares) - - - - Cash dividends ($0.88 per share) - - - - Transactions in treasury shares (815,100 shares) - - - (15,619) Unearned compensation, net (10,000 shares) - - (149) 192 ----------------------------------------------------------- BALANCE AT DECEMBER 31, 2000 $(3,765) $ (545) $(149) $(108,073) ===========================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 17 CONSOLIDATED BALANCE SHEET AT DECEMBER 31 (DOLLARS IN THOUSANDS)
ASSETS 2000 1999 ------------------------ Current assets Cash and cash equivalents $ 77,794 $ 64,908 Marketable securities 141,032 137,143 Accounts receivable, trade, less allowances of $3,460 in 2000 and $3,731 in 1999 58,673 61,385 Inventories - net 47,430 44,307 Prepaid expenses and other current assets 5,508 9,503 Deferred income taxes 6,628 6,805 ------------------------ TOTAL CURRENT ASSETS 337,065 324,051 Property, plant and equipment - net 26,745 28,297 Other assets 3,199 3,072 ------------------------ TOTAL ASSETS $ 367,009 $ 355,420 ======================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 4,913 $ 6,228 Accrued expenses 20,313 23,488 Accrued income taxes 7,192 6,106 ------------------------ TOTAL CURRENT LIABILITIES 32,418 35,822 Commitments and contingencies Shareholders' equity Common stock: $0.10 stated value; authorized 50,000,000 shares; issued 2000, 25,413,626 shares; 1999, 25,325,849 shares 2,541 2,532 Additional paid in capital 63,103 60,957 Retained earnings 381,479 351,302 Accumulated other comprehensive loss (4,310) (2,547) Unearned compensation (149) - Treasury stock, at cost (5,557,514 shares at December 31, 2000 and 4,752,414 shares at December 31, 1999) (108,073) (92,646) ------------------------ TOTAL SHAREHOLDERS' EQUITY 334,591 319,598 ------------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 367,009 $ 355,420 ========================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 18 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 (DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999 1998 --------------------------------------- Net income $ 47,941 $ 36,436 $ 40,596 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of subsidiary - - (1,828) Depreciation and amortization 3,998 5,008 2,631 Information system write-off - 10,392 - Provision for accounts receivable reserves 2,298 2,534 1,872 Income from contingency reserve reversal (2,544) - - Other 710 (1,326) 3,893 Changes in assets and liabilities: Accounts receivable 414 (9,058) (3,990) Inventories - net (3,123) 894 5,003 Prepaid expenses and other current assets 3,995 (197) (339) Other assets (242) (590) 122 Accounts payable (1,315) 1,979 (222) Accrued expenses (631) 421 1,515 Accrued income taxes 1,086 (1,099) (2,560) --------------------------------------- Total adjustments 4,646 8,958 6,097 --------------------------------------- Net cash provided by operating activities 52,587 45,394 46,693 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (48,959) (46,365) (158,342) Proceeds from sale of marketable securities 45,567 60,017 114,475 Proceeds from sale of property, plant and equipment 79 116 202 Capital expenditures (4,087) (8,435) (16,838) Net proceeds from sale of subsidiary - - 1,828 Net proceeds from sale of discontinued operations - - 5,442 --------------------------------------- Net cash provided by (used in) investing activities (7,400) 5,333 (53,233) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 2,155 2,416 5,396 Dividends paid to shareholders (17,764) (16,861) (16,897) Purchase of treasury stock (15,619) (44,292) (2,434) --------------------------------------- Net cash (used in) financing activities (31,228) (58,737) (13,935) Effect of exchange rate changes on cash and cash equivalents (1,073) (146) 96 --------------------------------------- Net increase (decrease) in cash and cash equivalents 12,886 (8,156) (20,379) Cash and cash equivalents at beginning of year 64,908 73,064 93,443 --------------------------------------- Cash and cash equivalents at end of year $ 77,794 $ 64,908 $ 73,064 ======================================= CASH PAID DURING THE YEAR FOR: Interest $ 127 $ 118 $ 141 Income taxes $ 22,077 $ 18,630 $ 17,784
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - DESCRIPTION OF BUSINESS Russ Berrie and Company, Inc. and its subsidiaries design, manufacture through third parties and market a wide variety of gift products to retail stores throughout the United States and countries throughout the world. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Russ Berrie and Company, Inc. and its wholly-owned subsidiaries (collectively, the "Company") after elimination of intercompany accounts and transactions. REVENUE RECOGNITION The Company recognizes revenue from product sales, net of provisions for sales discounts, returns and allowances, upon shipment of product to the customer. In addition, during 2000, the Company applied the provisions of the Emerging Issues Task Force Issue 00-10, "Shipping and Handling Fees and Costs", (EITF 00-10), which required that all amounts billed to customers for shipping and handling, be classified as revenue and the costs incurred for such shipping and handling, be classified as costs of goods sold, as well as the restatement of previous years. Prior to the application of EITF 00-10 the Company recorded these amounts net in selling, general and administrative expense. ADVERTISING COSTS Production costs for advertising are charged to operations in the year the related advertising campaign begins. All other advertising costs are charged to operations during the year in which they are incurred. Advertising costs for the years ended December 31, 2000, 1999 and 1998 amounted to $2,286,000, $2,014,000 and $2,109,000, respectively. CASH AND CASH EQUIVALENTS Cash equivalents consist of investments in interest bearing accounts and highly liquid securities having a maturity of three months or less, at the date of purchase, and approximate fair market value. INVENTORIES Inventories, which mainly consist of finished goods, are stated at the lower of cost (first-in, first-out) or market value. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which primarily range from three to twenty-five years. Leasehold improvements are amortized using the straight-line method over the term of the respective lease or asset life, whichever is shorter. Major improvements are capitalized, while expenditures for maintenance and repairs are charged to operations as incurred. Gain or loss on retirement or disposal of individual assets is recorded as income or expense in the period incurred. In accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1), costs of internal use software and other related costs under certain circumstances are capitalized. External direct costs of materials and services and payroll costs of employees working solely on the application development stage of the project are also capitalized in accordance with SOP 98-1. Such capitalized costs are amortized over a period of one to five years commencing with when the system is placed in service. Training and travel costs related to systems implementations are expensed as incurred. 20 GOODWILL AND OTHER INTANGIBLE ASSETS Included in other assets is goodwill, which represents the excess of purchase price of acquired assets over the fair market value of net assets acquired. Goodwill is amortized using the straight-line method over fifteen years or less. The Company evaluates the recoverability of all long-lived assets, including goodwill, based upon estimated future income and cash flows of operating entities. Impairments would be recognized in operating results to the extent that carrying value exceeds fair value. Other intangible assets acquired are amortized over the period for which benefit is derived, which ranges from three to five years. Goodwill and other intangible assets, net of accumulated amortization, were $269,000 and $383,000 at December 31, 2000 and 1999, respectively. Accumulated amortization amounted to $1,508,000 and $1,394,000 at December 31, 2000 and 1999, respectively. FOREIGN CURRENCY TRANSLATION Aggregate foreign exchange gains or losses resulting from the translation of foreign subsidiaries' financial statements, for which the local currency is the functional currency, are recorded as a separate component of accumulated other comprehensive income (loss) within shareholders' equity. Gains and losses from foreign currency transactions are included in investment and other income - net (See Note 8). ACCOUNTING FOR INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" as disclosed in Note 9. EARNINGS PER SHARE The Company presents both basic and diluted earnings per share in the Consolidated Statement of Income in accordance with SFAS No. 128, "Earnings per Share". The Notes to the consolidated financial statements reflect basic earnings per share unless otherwise stated or indicated (See Note 10). USE OF ESTIMATES The preparation of these financial statements in conformity with generally accepted accounting principles in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. COMPREHENSIVE INCOME The Company elects to include all information required by SFAS No. 130, "Reporting Comprehensive Income", in the Consolidated Statement of Changes in Shareholders' Equity. ACCOUNTING FOR DERIVATIVES AND HEDGING In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivatives and Hedging Activities - Deferral of the Effective Date of SFAS No. 133" (SFAS No. 137), which deferred the effective date of SFAS No. 133 for an additional year. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS No. 133," establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133, as amended by SFAS No. 138, requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement or other comprehensive income and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. 21 Under the deferral permitted by SFAS No. 137, SFAS No. 133 as amended by SFAS No. 138, was adopted by the Company effective January 1, 2001. The Company has determined that the impact of adopting SFAS No. 133, as amended by SFAS No. 138, on the consolidated financial statements will not be significant; however, the adoption could increase volatility in earnings and other comprehensive income. ACCOUNTING FOR STOCK OPTIONS Effective July 1, 2000 the Company adopted the provisions of Financial Accounting Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation", (FIN No. 44), requiring, among other things, a charge to the Consolidated Statement of Income for changes in the Company's stock price for options repriced subsequent to being granted. Due to the transitional provisions of FIN No. 44 the charge to the Consolidated Statement of Income for changes in the Company's stock price was only effective commencing July 1, 2000 for the repricing of options effective February 29, 2000 (See Note 14). RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the 2000 presentation. NOTE 3 - FINANCIAL INSTRUMENTS MARKETABLE SECURITIES In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company's marketable securities are considered available-for-sale investments. Accordingly, these investments are carried in the accompanying balance sheet at market value, with the difference between cost and market value recorded as a component of shareholders' equity, net of tax. Marketable securities are comprised primarily of U.S. and municipal government fixed income securities. Additionally, included in marketable securities is a diversified portfolio of investment grade preferred securities. INTEREST RATE FUTURES CONTRACTS AND OPTIONS The Company's portfolio of preferred securities investments are subject to market fluctuations based largely, but not exclusively, on the securities' sensitivity to changes in interest rates. By maintaining an economic hedge consisting of government futures contracts and options, the Company seeks to reduce interest rate related risk. The portfolio's position of preferred securities and futures contracts and options are intended to produce offsetting capital gains and losses, both realized and unrealized, as interest rates change. The market value of these instruments is reported in marketable securities. As of December 31, 2000, marketable securities consist of the following:
UNREALIZED COST GAINS (LOSSES) MARKET VALUE ------------- ------------- ------------- U.S. Government obligations................. $ 26,147,000 $ (84,000) $ 26,063,000 Municipal obligations....................... 104,594,000 275,000 104,869,000 Preferred stock............................. 10,761,000 (809,000) 9,952,000 Other....................................... 341,000 (193,000) 148,000 ------------- ---------- ------------- Total marketable securities................. $ 141,843,000 $ (811,000) $ 141,032,000 ============= ========== =============
As of December 31, 1999, marketable securities consist of the following:
UNREALIZED COST GAINS (LOSSES) MARKET VALUE ------------- ------------- ------------- U.S. Government obligations................. $ 32,320,000 $ (941,000) $ 31,379,000 Municipal obligations....................... 95,666,000 (716,000) 94,950,000 Preferred stock............................. 10,985,000 (856,000) 10,129,000 Other....................................... 492,000 193,000 685,000 ------------- ------------ ------------- Total marketable securities................. $ 139,463,000 $ (2,320,000) $ 137,143,000 ============= ============ =============
22 Unrealized gains and losses with respect to available-for-sale investments are recorded, net of tax, in shareholders' equity. Realized gains and losses on sales of investments, as determined on a specific identification basis, are included in the Consolidated Statement of Income. FOREIGN CURRENCY CONTRACTS The Company enters into forward exchange contracts, principally to manage the economic currency risks associated with the purchase of inventory and payment of interest on intercompany loans by its United Kingdom and Canadian subsidiaries. These contracts enable the Company to buy and sell foreign currencies in the future at fixed exchange rates. Gains and losses related to contracts accounted for as hedges are reported as a component of the related transactions. The Company does not trade in foreign currency contracts to achieve short-term gains. At December 31, 2000 and 1999, the aggregate notional amount of foreign exchange contracts was $9,250,000 and $18,000,000, respectively. At December 31, 2000 and 1999, there were no carrying amounts related to foreign currency contracts in the Consolidated Balance Sheet. At December 31, 2000, the Company's forward exchange contracts have expiration dates which range from two to nine months. The estimated fair value of the notional amount of the Company's forward exchange contracts based on quoted rates as of December 31, 2000 and 1999 were $9,034,000 and $18,012,000, respectively. The Company does not anticipate any material adverse impact on its results of operations or financial position from these contracts. CONCENTRATIONS OF CREDIT RISK As part of its ongoing control procedures, the Company monitors concentrations of credit risk associated with financial institutions with which it conducts business. The Company avoids concentration with any single financial institution. As of December 31, 2000, marketable securities of the Company were actively managed by five investment managers. These investment managers operate under guidelines which restrict the investment grade and type of investment and furthermore limit the dollar amount that can be invested in any one instrument. The Company also monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. Concentrations of credit risk associated with these trade receivables are considered minimal due to the Company's diverse customer base. The Company does not normally require collateral or other security to support credit sales. NOTE 4 - INVENTORY RESERVES As of December 31, 2000 and 1999, the Company has recorded reserves to reflect inventories at their estimated net realizable value. The reserve balance as of December 31, 2000 and 1999 was $14,043,000 and $14,182,000, respectively. NOTE 5 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
DECEMBER 31, 2000 1999 ---- ---- Land........................................ $ 7,055,000 $ 7,280,000 Buildings................................... 12,777,000 13,205,000 Machinery and equipment..................... 21,279,000 21,133,000 Furniture and fixtures...................... 5,384,000 5,290,000 Leasehold improvements...................... 9,869,000 9,096,000 ------------ ------------ 56,364,000 56,004,000 Less accumulated depreciation and amortization........................... 29,619,000 28,024,000 ------------ ------------ 26,745,000 27,980,000 Construction in progress.................... - 317,000 ------------ ------------ $ 26,745,000 $ 28,297,000 ============ ============
23 During the quarter ended December 31, 1999, the Company recognized a charge to income of $10,392,000, before tax, for the write-off of the net book value of certain property, plant and equipment relating to terminating the use of the new computer system. NOTE 6 - LINES OF CREDIT Under its existing domestic bank lines of credit, which are renewed annually, the Company has available $70,000,000 for direct borrowings and letters of credit at any one time. The maximum amount available to the Company's foreign operations at December 31, 2000, under local lines of credit, is $10,423,000. These lines provide for direct borrowings, letters of credit and overdraft facilities. In connection with the purchase of imported merchandise, the Company, at December 31, 2000, had letters of credit outstanding under all lines of $14,182,000. NOTE 7 - ACCRUED EXPENSES Accrued expenses consist of the following:
DECEMBER 31, 2000 1999 ---- ---- Accrued sales commission............................. $ 2,748,000 $ 2,205,000 Accrued litigation................................... 941,000 955,000 Accrued payroll and incentive compensation........... 3,861,000 3,956,000 Accruals relating to discontinued operations......... 1,785,000 4,632,000 Other................................................ 10,978,000 11,740,000 ------------ ------------ $ 20,313,000 $ 23,488,000 ============ ============
NOTE 8 - INVESTMENT AND OTHER INCOME - NET The significant components of investment and other income - net consist of the following:
YEARS ENDED DECEMBER 31, 2000 1999 1998 ---- ---- ---- Investment income.................................... $ 8,352,000 $ 9,171,000 $ 9,009,000 Interest expense..................................... (127,000) (114,000) (141,000) Foreign currency transactions, net................... (738,000) (886,000) (593,000) Gain on sale of subsidiary........................... - - 1,828,000 Reversal of reserves................................. 2,544,000 - - Other................................................ 171,000 416,000 93,000 ------------ ------------ ------------ $ 10,202,000 $ 8,587,000 $ 10,196,000 ============ ============ ============
The year ended December 31, 2000 includes income of $2,544,000 before tax or $1,603,000 ($0.08 per diluted share) after tax for the reversal of certain contingency reserves related to the Company's sale of its toy business segment in May 1997. The year ended December 31, 1998, includes $1,828,000 before tax or $1,152,000 ($0.05 per diluted share) after tax, for a transitional agreement related to the sale of Papel/Freelance, Inc. 24 NOTE 9 - INCOME TAXES The Company and its domestic subsidiaries file a consolidated Federal income tax return. Income before income taxes was:
YEARS ENDED DECEMBER 31, 2000 1999 1998 ---- ---- ---- United States........................................ $ 46,351,000 $ 33,556,000 $ 45,296,000 Foreign.............................................. 24,753,000 20,411,000 14,288,000 ------------ ------------- ------------ $ 71,104,000 $ 53,967,000 $ 59,584,000 ============ ============= ============
The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31, CURRENT PROVISION 2000 1999 1998 ---- ---- ---- Federal.............................................. $ 14,167,000 $ 10,524,000 $ 9,386,000 Foreign.............................................. 7,916,000 6,381,000 4,610,000 State................................................ 1,426,000 1,115,000 1,430,000 ------------- ------------- ------------- $ 23,509,000 $ 18,020,000 $ 15,426,000 ------------- ------------- ------------- DEFERRED PROVISION (BENEFIT) Federal.............................................. $ (387,000) $ (610,000) $ 3,597,000 Foreign.............................................. 41,000 121,000 (35,000) State................................................ - - - ------------- ------------- ------------- (346,000) (489,000) 3,562,000 ------------- ------------- ------------- $ 23,163,000 $ 17,531,000 $ 18,988,000 ============= ============= =============
A reconciliation of the provision for income taxes with amounts computed at the statutory Federal rate is shown below:
YEARS ENDED DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Tax at U.S. Federal statutory rate.......... $ 24,886,000 $ 18,888,000 $ 20,854,000 State income tax net of Federal tax benefit. 927,000 725,000 930,000 Foreign rate difference..................... (707,000) (642,000) (426,000) Charitable contributions.................... (446,000) (48,000) (592,000) Tax advantaged investment income............ (2,151,000) (1,998,000) (2,423,000) Change in valuation allowance............... 55,000 87,000 (451,000) Other, net.................................. 599,000 519,000 1,096,000 ------------ ------------ ------------ $ 23,163,000 $ 17,531,000 $ 18,988,000 ============ ============ ============
The Company had a valuation allowance at December 31, 2000 and 1999 of $910,000 and $855,000, respectively (primarily relating to deferred state income taxes) to reflect the estimated amount of deferred tax assets which may not be realized. 25 The components of the deferred tax asset and the valuation allowance, resulting from temporary differences between accounting for financial and tax reporting purposes were as follows:
DECEMBER 31, 2000 1999 ---- ---- ASSETS (LIABILITIES): Inventory capitalization.................... $ 1,727,000 $ 1,911,000 Reserves not deducted for tax purposes...... 4,120,000 3,243,000 Write-off of computer equipment............. 690,000 1,217,000 Litigation.................................. 411,000 404,000 Depreciation................................ (197,000) (337,000) Unrealized loss on marketable securities............................... 266,000 789,000 Other....................................... 521,000 433,000 ----------- ----------- Gross deferred tax asset.................... 7,538,000 7,660,000 Less: valuation allowance.................. (910,000) (855,000) ----------- ----------- Net deferred tax asset...................... $ 6,628,000 $ 6,805,000 =========== ===========
Provisions are made for estimated United States and foreign income taxes, less available tax credits and deductions, which may be incurred on the remittance of foreign subsidiaries' undistributed earnings less those earnings deemed to be permanently reinvested. The amount of such earnings deemed permanently reinvested was approximately $90,077,000 as of December 31, 2000. Determination of the net amount of unrecognized deferred tax liability with respect to these earnings is not practicable. NOTE 10 - EARNINGS PER SHARE A reconciliation of weighted average common shares outstanding to weighted average common shares outstanding assuming dilution follows:
YEARS ENDED DECEMBER 31, 2000 1999 1998 ---------- ---------- ---------- Average common shares outstanding.................... 20,195,000 21,069,000 22,225,000 Dilutive effect of common shares issuable(1)......... 61,000 133,000 162,000 ---------- ---------- ---------- Average common shares outstanding assuming dilution.................................. 20,256,000 21,202,000 22,387,000 ========== ========== ==========
(1) Issuable under stock option plans. Stock options outstanding at December 31, 2000, 1999 and 1998 to purchase 341,600 shares, 189,400 shares and 213,550 shares, respectively, of common stock were not included in the computation of earnings per common share assuming dilution because the options' exercise prices were greater than the average market price of the common shares during the respective years. NOTE 11 - RELATED PARTY TRANSACTIONS Certain buildings, referred to in Note 12, are leased from Russell Berrie, the Company's majority shareholder, or entities owned or controlled by him. Rentals under these leases for the years ended December 31, 2000, 1999 and 1998 were $3,841,000, $3,867,000 and $3,931,000, respectively. The Company is also a guarantor under two mortgages for property so leased with a principal amount aggregating approximately $7,651,000 as of December 31, 2000, $2,000,000 of which is collateralized by assets of the Company. 26 NOTE 12 - LEASES At December 31, 2000, the Company and its subsidiaries are obligated under operating lease agreements (principally for buildings and other leased facilities) for remaining lease terms ranging from one to five years. Rent expense for the years ended December 31, 2000, 1999 and 1998 amounted to $6,158,000, $5,809,000 and $6,052,000, respectively. The approximate aggregate minimum future rental payments as of December 31, 2000 under operating leases are as follows: 2001............. 6,154,000 2002............. 5,713,000 2003............. 4,719,000 2004............. 1,930,000 2005............. 150,000
NOTE 13 - STOCK REPURCHASE PROGRAM As of December 31, 2000, the Board of Directors had authorized the Company to purchase 7,000,000 shares of common stock of which 5,561,400 shares have been repurchased since the beginning of the Company's stock repurchase program in March 1990. During 2000, the Company repurchased 815,100 shares. NOTE 14 - STOCK PLANS The Company has a Stock Option and Restricted Stock Plan, two Stock Option Plans and an Employee Stock Purchase Plan (collectively, the "Stock Plans"). As of December 31, 2000, there were 2,240,123 shares of common stock reserved for issuance under all stock plans. Under the Stock Option and Restricted Stock Plan, stock awards of 6,176 shares, 2,917 shares and 2,626 shares were issued for the years ended December 31, 2000, 1999 and 1998, respectively. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the options granted for these Stock Plans except for the adoption of FIN No. 44 which resulted in a charge to the Consolidated Statement of Income of $444,000 during the year ended December 31, 2000 relating only to the options granted during 2000 as those options were repriced as of February 29, 2000 upon approval of the Board of Directors and Shareholders. Had compensation cost for the Company's Stock Plans been determined based on the fair value at the grant date in 2000, 1999 and 1998, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
YEARS ENDED DECEMBER 31, 2000 1999 1998 ---- ---- ---- Net income - as reported............................. $ 47,941,000 $ 36,436,000 $ 40,596,000 Net income - pro forma............................... $ 47,382,000 $ 35,769,000 $ 39,686,000 Earnings per share (basic) - as reported............. $ 2.37 $ 1.73 $ 1.83 Earnings per share (basic) - pro forma............... $ 2.35 $ 1.70 $ 1.79
The fair value of each option granted under the Stock Option Plans is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for all grants: 27
YEARS ENDED DECEMBER 31, 2000 1999 1998 ------ ------ ------ Dividend yield.............................. 4.75% 3.39% 2.90% Risk-free interest rate..................... 6.39% 4.60% 5.70% Volatility.................................. 37.20% 32.37% 40.37% Expected life (years)....................... 3.2 3.1 3.0
The fair value of each option granted under the Employee Stock Purchase Plan is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for all grants:
YEARS ENDED DECEMBER 31, 2000 1999 1998 ------ ------ ------ Dividend yield....................................... 4.75% 3.39% 2.90% Risk-free interest rate.............................. 6.03% 4.59% 5.52% Volatility........................................... 37.20% 32.37% 40.37% Expected life (years)................................ 1.0 1.0 1.0
The option price for all stock option plans is equal to the closing price of the Company's common stock as of the date the option is granted except for the 2000 grant of options which were repriced to the closing price of the Company's stock effective February 29, 2000. All stock options vest one year from the grant date. Options expire 10 years from the date of grant. Information regarding these option plans for 2000, 1999 and 1998 is as follows:
ALL STOCK OPTION PLANS -------------------------- WEIGHTED AVERAGE SHARES EXERCISE PRICE ------ -------------- Outstanding as of December 31, 1997........................... 762,293 16.577 Options Granted............................................... 223,569 26.250 Options Exercised............................................. (250,386) 16.221 Options Cancelled............................................. (41,548) 19.377 -------- Outstanding as of December 31, 1998........................... 693,928 19.654 Options Granted............................................... 231,047 23.625 Options Exercised............................................. (121,235) 16.365 Options Cancelled............................................. (42,453) 26.766 -------- Outstanding as of December 31, 1999........................... 761,287 21.091 Options Granted............................................... 280,799 18.525 Options Exercised............................................. (63,837) 16.450 Options Cancelled............................................. (103,831) 21.943 -------- Outstanding as of December 31, 2000........................... 874,418 20.455 ======== Option price range at December 31, 2000....................... $ 9.59 to $ 26.25 Option price range for exercised shares....................... $ 9.59 to $23.625 Options available for grant and reserved for future issuance at December 31, 2000....................... 2,125,345
The weighted-average fair value of options granted, on a per share basis, during the years 2000, 1999 and 1998 was $4.45, $5.05 and $7.31, respectively. 28 The following table summarizes information about fixed-price stock options outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - -------------------------------------------------------------------------- --------------------------------- NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE PRICES AT 12/31/00 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/00 EXERCISE PRICE - --------------- ----------- ---------------- -------------- ----------- -------------- $ 9.590 5 Exp 1/01/01 $ 9.590 5 $ 9.590 12.500 7,419 1 year 12.500 7,419 12.500 17.670 83,996 2 years 17.670 83,996 17.670 14.875 29,237 3 years 14.875 29,237 14.875 13.750 20,075 4 years 13.750 20,075 13.750 13.625 33,549 5 years 13.625 33,549 13.625 18.500 121,468 6 years 18.500 121,468 18.500 26.250 162,094 7 years 26.250 162,094 26.250 23.625 179,522 8 years 23.625 179,522 23.625 20.375 21,000 9 years 20.375 0 20.375 18.375 216,053 9 years 18.375 0 18.375 ------- ------- 874,418 637,365
Under the Employee Stock Purchase Plan, the purchase price is 90% of the closing market price of the stock on the first business day of the Plan year except for the 2000 grant which was repriced to 90% of the closing market price of the stock as of February 29, 2000. Information regarding the Employee Stock Purchase Plan for 2000, 1999 and 1998 is as follows:
EMPLOYEE STOCK PURCHASE PLAN ---------------------------- 2000 1999 1998 -------- -------- -------- Exercise Price $ 16.540 $ 21.263 $ 23.625 Shares Issued 17,458 17,764 1,295
As of December 31, 2000, the Employee Stock Purchase Plan has 114,778 shares reserved for future issuance. NOTE 15 - 401(K) PLAN The Company maintains a 401(k) Plan to which employees may, up to certain prescribed limits, contribute a portion of their compensation and a portion of these contributions is matched by the Company. The provision for contributions charged to operations for the years ended December 31, 2000, 1999 and 1998 was $703,000, $796,000 and $733,000, respectively. NOTE 16 - SEGMENT, GEOGRAPHIC AND RELATED INFORMATION The Company's operations comprise one operating segment, offering an extensive line of products including stuffed animals, picture frames, candles, figurines and home decor gifts based on current fashions and trends. The following table represents financial data of the Company, under the basis by which the Company has chosen to organize itself, by geographic area (See Note 2 "Revenue Recognition"). 29
2000 1999 1998 ------------- ------------- ------------- REVENUES: United States............................... $ 196,935,000 $ 196,276,000 $ 202,060,000 Europe...................................... 47,083,000 44,072,000 37,809,000 Other....................................... 56,783,000 46,663,000 39,133,000 ------------- ------------- ------------- Total....................................... $ 300,801,000 $ 287,011,000 $ 279,002,000 ============= ============= ============= INCOME FROM OPERATIONS: United States............................... $ 31,145,000 $ 22,527,000 $ 30,883,000 Europe...................................... 6,565,000 4,994,000 2,967,000 Other....................................... 10,231,000 8,915,000 6,746,000 ------------- ------------- ------------- Total....................................... $ 47,941,000 $ 36,436,000 $ 40,596,000 ============= ============= ============= IDENTIFIABLE ASSETS: United States............................... $ 260,198,000 $ 263,433,000 $ 304,700,000 Europe...................................... 46,854,000 43,186,000 36,837,000 Other....................................... 59,957,000 48,801,000 36,919,000 ------------- ------------- ------------- Total....................................... $ 367,009,000 $ 355,420,000 $ 378,456,000 ============= ============= =============
There were no material sales or transfers among geographic areas and no material amount of export sales to customers from the United States. Outside of the United States, no single country is deemed material for separate disclosure. The Company has no single customer representing greater than 10% of consolidated revenues. NOTE 17 - LITIGATION The Company is subject to legal proceedings and claims arising in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the results of operations, financial position or cash flows of the Company. NOTE 18 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following selected financial data for the four quarters ended December 31, 2000 and 1999 are derived from unaudited financial statements and include, in the opinion of management, all adjustments of a normal recurring nature necessary for fair presentation of the results for the interim periods presented. The quarter ended September 30, 2000 includes income of $1,607,000 before tax, or $1,012,000 ($0.05 per diluted share) after tax, and the quarter ended December 31, 2000 includes income of $937,000 before tax or $591,000 ($0.03 per diluted share) after tax for the reversal of certain contingency reserves related to the Company's sale of its toy business segment in May 1997. The quarter ended December 31, 1999 includes a charge of $10,392,000 before tax or $6,557,000 after tax ($0.32 per diluted share) for the information system write-off (See Note 2 "Revenue Recognition").
FOR QUARTERS ENDED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 - ---- --------- -------- ------------- ------------ Net sales........................... $ 78,279 $ 57,574 $ 97,251 $ 67,697 Gross profit........................ 45,563 30,792 55,533 36,005 Net income.......................... $ 11,839 $ 4,963 $ 20,546 $ 10,593 Net income per share Basic...................... $ .58 $ .24 $ 1.03 $ .53 Diluted.................... .57 .24 1.02 .53 1999 - ---- Net sales........................... $ 77,845 $ 49,030 $ 93,285 $ 66,851 Gross profit........................ 45,220 26,626 54,913 37,036 Net income.......................... $ 11,834 $ 4,109 $ 18,237 $ 2,256 Net income per share Basic...................... $ .54 $ .19 $ .88 $ .11 Diluted.................... .53 .19 .88 .11
30 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to this item appears under the captions "ELECTION OF DIRECTORS" and "SECTION 16a BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" of the 2001 Proxy Statement, which is incorporated herein by reference and under the caption "EXECUTIVE OFFICERS OF THE REGISTRANT" in Part I of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Information relating to this item appears under the captions "THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD", "DIRECTOR COMPENSATION", "EXECUTIVE COMPENSATION", "COMPENSATION COMMITTEE REPORT", "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" and "RUSS BERRIE AND COMPANY, INC. Comparison of Five Year Cumulative Total Return Among Russ Berrie and Company, Inc., the S&P 500 Index and Peer Group Companies," of the 2001 Proxy Statement, which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information relating to this item appears under the captions "SECURITY OWNERSHIP OF MANAGEMENT" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" of the 2001 Proxy Statement, which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information relating to this item appears under the captions "CERTAIN TRANSACTIONS", "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" of the 2001 Proxy Statement, which is incorporated herein by reference. 31 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) DOCUMENTS FILED AS PART OF THIS REPORT. 1. FINANCIAL STATEMENTS:
PAGE NUMBER IN THIS REPORT -------------- Report of Independent Public Accountants........................................ 15 Consolidated Statement of Income for the years ended December 31, 2000, 1999 and 1998.................................... 16 Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998................................................ 17 Consolidated Balance Sheet at December 31, 2000 and 1999................................................................... 18 Consolidated Statement of Cash Flows for the years ended December 31, 2000, 1999 and 1998.................................... 19 Notes to Consolidated Financial Statements...................................... 20-30 2. FINANCIAL STATEMENT SCHEDULE: Schedule II - Valuation and Qualifying Accounts................................ 42
Other schedules are omitted because they are either not applicable or not required or the information is presented in the Consolidated Financial Statements or Notes thereto. 32 EXHIBITS: (Listed by numbers corresponding to item 601 of Regulation S-K)
EXHIBIT NO. - ----------- 3.1 (a) Restated Certificate of Incorporation of the Registrant and amendment thereto. (9) (b) Certificate of Amendment to Restated Certificate of Incorporation of the Company filed April 30, 1987. (23) 3.2 (a) By-Laws of the Registrant. (9) (b) Amendment to Revised By-Laws of the Company adopted April 30, 1987. (23) (c) Amendment to Revised By-Laws of the Company adopted February 18, 1988. (23) (d) Amendment to Revised By-Laws of the Company adopted July 25, 1995. (28) (e) Amendment to Revised By-Laws of the Company adopted April 21, 1999. 4.1 Form of Common Stock Certificate. (1) 10.1 Russ Berrie and Company, Inc. Profit Sharing Plan. (3) 10.2 Agreement dated January 26, 1982 between the Registrant and A. Curts Cooke and amendment thereto dated March 10, 1984. (3)
- ---------- (1) Incorporated by reference to Amendment No. 2 to Registration Statement No. 2-88797 on Form S-1, as filed on March 29, 1984. (3) Incorporated by reference to Amendment No. 1 to Registration Statement No. 2-88797 on Form S-1, as filed on March 13, 1984. (9) Incorporated by reference to Amendment No. 1 to Registration Statement No. 33-10077 on Form S-1, as filed on December 16, 1986. (23) Incorporated by reference to Registration No. 33-51823 on Form S-8, as filed on January 6, 1994. (28) Incorporated by reference to Form S-8 Registration Statement No. 33 - 37008 as filed on January 4, 1999. 33
EXHIBIT NO. - ----------- 10.3 Lease Agreement, dated April 1, 1981, between Tri-State Realty and Investment Company and Russ Berrie and Company, Inc. (4) 10.4 Guaranty, dated March 20, 1981, from Russ Berrie and Company, Inc. and Russell Berrie to the New Jersey Economic Development Authority and Midlantic National Bank as Trustee. (4) 10.5 Mortgage, dated April 6, 1981, between Tri-State Realty and Investment Company and the New Jersey Economic Development Authority. (4) 10.6 Credit and Security Agreement, dated as of March 1, 1981, between the New Jersey Economic Development Authority and Tri-State Realty and Investment Company. (4) 10.7 Assignment of Leases, Rents & Profits, dated April 6, 1981, by Tri-State Realty and Investment Company to the New Jersey Economic Development Authority. (4) 10.8 Note, dated April 6, 1981, made by Tri-State Realty and Investment Company to the order of the New Jersey Economic Development Authority in the principal amount of $2,000,000. (4) 10.9 Specimen of State of New Jersey Economic Development Authority $2,000,000 Economic Development Bond (Tri-State Realty and Investment Company -- 1980 Project), dated April 6, 1981. (4) 10.10 Lease, dated December 28, 1983, between Russell Berrie and Russ Berrie and Company, Inc. (4) 10.11 Guarantee dated as of December 1, 1983, from Russ Berrie and Company, Inc. to the New Jersey Economic Development Authority, Bankers Trust Company as Trustee and each Holder of a Bond. (4) 10.12 Letter of Credit and Reimbursement Agreement, dated as of December 1, 1983, between Russ Berrie and Company, Inc. and Citibank, N.A. (4) 10.13 Loan Agreement, dated as of December 1, 1983, between the New Jersey Economic Development Authority and Russell Berrie. (4)
- ---------- (4) Incorporated by reference to Registration Statement No. 2-88797 on Form S-1 as filed on February 2, 1984. 34
EXHIBIT NO. - ----------- 10.14 Mortgage, dated December 28, 1983, between Russell Berrie and Citibank, N.A. (4) 10.15 Form of New Jersey Economic Development Authority Variable/Fixed Rate Economic Development Bond (Russell Berrie -- 1983 Project). (4) 10.16 Grant Deed, dated June 28, 1982, from Russ Berrie and Company, Inc. to Russell Berrie. (1) 10.17 Russ Berrie and Company, Inc. 1989 Employee Stock Purchase Plan. (13) 10.18 (a) Lease Agreement, dated as of May 1, 1977, between Fred T. Reisman and Associates Limited, Amram's Distributing, LTD, and Alfa Romeo (Canada) Limited (8) (b) Lease Agreement, dated April 8, 1986, between Pensionfund Realty Limited and Amram's Distributing LTD. (9) 10.19 Amendment, dated October 29, 1985 to the restated Russ Berrie and Company, Inc. Profit Sharing Plan. (8)
- ---------- (1) Incorporated by reference to Amendment No. 2 to Registration Statement No. 2-88797 on Form S-1, as filed on March 29, 1984. (4) Incorporated by reference to Registration Statement No. 2-88797 on Form S-1, as filed on February 2, 1984. (8) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1985. (9) Incorporated by reference to Amendment No. 1 to Registration Statement No. 33-10077 of Form S-1, as filed on December 16, 1986. (13) Incorporated by reference to Form S-8 Registration Statement No. 33-26161, as filed on December 16, 1988. 35
EXHIBIT NO. - ----------- 10.20 Russ Berrie and Company, Inc. Deferred Compensation Plan. (9) 10.21 (a) Lease agreement, dated September 17, 1987, between Forsgate Industrial Complex and Russ Berrie and Company, Inc. (11) (b) Amendment, dated March 18, 1988, between Forsgate Industrial Complex and Russ Berrie and Company, Inc. (11) 10.22 Lease agreement, dated July 1, 1987, between Hunter Street, Inc. and Russ Berrie and Co. (West), Inc. (11) 10.23 Lease agreement, dated October 1, 1987, between David Benjamin and Nicole Berrie, Lakeland Trust and Russ Berrie and Company, Inc. (11) 10.24 Russ Berrie and Company, Inc. 1989 Stock Option Plan. (14) 10.25 Russ Berrie and Company, Inc. 1989 Stock Option Plan for Outside Directors. (15) 10.26 Russ Berrie and Company, Inc. 1989 Stock Option and Restricted Stock Plan. (16) 10.27 Lease Agreement dated November 7, 1988 between A. Mantella & Sons Limited and Amram's Distributing, Ltd. (17) 10.28 Lease Agreement dated November 7, 1988 between Russell Berrie and Russ Berrie and Company, Inc. (17) 10.29 Lease Agreement dated June 8, 1989 between Americana Development, Inc. and Russ Berrie and Company, Inc. (18) 10.30 Lease dated December 25, 1989 between Kestrel Properties, Ltd. and Russ Berrie (U.K.) Ltd. (18) 10.31 Amendment dated January 9, 1989 to Letter of Credit and Reimbursement Agreement dated as of December 1, 1983 between Russ Berrie and Company, Inc. and Citibank, N.A. (18)
- ---------- (9) Incorporated by reference to Amendment No. 1 to Registration Statement No. 33-10077 of Form S-1, as filed on December 16, 1986. (11) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1987. (14) Incorporated by reference to Form S-8 Registration Statement No. 33-27406, as filed on March 16, 1989. (15) Incorporated by reference to Form S-8 Registration Statement No. 33-27897, as filed on April 5, 1989. (16) Incorporated by reference to Form S-8 Registration Statement No. 33-27898, as filed on April 5, 1989. (17) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1988. (18) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1989. 36
EXHIBIT NO. - ----------- 10.32 (a) Assignment of Underlease of Unit 10 Nursling Industrial Estate, Marks and Spencer plc to Russ Berrie (U.K.) Limited. (19) (b) Underlease of Unit 10 Nursling Estate County of Hants. (19) 10.33 Agreement for sale and purchase of parts or shares of Sea View Estate between Sino Rank Company Limited and Tri Russ International (Hong Kong) Limited dated March 10, 1990. (19) 10.34 (a) Asset Purchase Agreement dated September 18, 1990 by and among Bright, Inc., Bright of America, Inc., Bright Crest, LTD. and William T. Bright. (19) (b) Non-Compete Agreement dated September 18, 1990 by and between William T. Bright and Bright, Inc. (19) (c) Deed of Trust dated September 18, 1990 by and among Bright, Inc., F.T. Graff Jr. and Louis S. Southworth, III, Trustees, and Bright of America, Inc. (19) (d) Guaranty Agreement dated September 18, 1990 executed by Russ Berrie and Company, Inc. delivered to Bright of America, Inc. and Bright Crest, LTD. (19) (e) Guaranty Agreement dated September 18, 1990 executed by Russ Berrie and Company, Inc. delivered to William T. Bright. (19) 10.35 Russ Berrie and Company, Inc. Retirement Plan Amended and Restated Effective January 1, 1989. (19) 10.36 (a) Sale and Purchase Agreement dated October 16, 1991 by and among Weaver Corp. and Papel/Freelance, Inc. (20) (b) Non-competition Agreement made October 16, 1991 by and among Weaver Corp., an Indiana corporation, Steven Weaver and Papel/Freelance, Inc. a Pennsylvania corporation. (20)
- ---------- (19) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1990. (20) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1991. 37
EXHIBIT NO. - ----------- 10.37 Transfer of Freehold land between British Telecommunications plc and BT Property Limited and Russ Berrie (UK) Ltd. (21) 10.38 Russ Berrie and Company, Inc. 1994 Stock Option Plan. (21) 10.39 Russ Berrie and Company, Inc. 1994 Stock Option Plan for Outside Directors. (21) 10.40 Russ Berrie and Company, Inc. 1994 Stock Option and Restricted Stock Plan. (21) 10.41 Russ Berrie and Company, Inc. 1994 Employee Stock Purchase Plan. (21) 10.42 Asset Purchase Agreement dated October 1, 1993 by and between RBTACQ, Inc. and Cap Toys, Inc. (22) 10.43 Asset Purchase Agreement I.C. September 30, 1994 by and among RBCACQ, Inc. and OddzOn Products, Inc., Scott Stillinger and Mark Button. (23) 10.44 Asset Purchase Agreement By and Among PF ACQUISITION CORP., ZEBRA CAPITAL CORPORATION, PAPEL/FREELANCE, INC. and RUSS BERRIE AND COMPANY, INC. dated December 15, 1995. (24) 10.45 Agreement dated December 17, 1996, by and between Russ Berrie and Company, Inc. and A. Curts Cooke. (25) 10.46 Agreement dated March 24, 1997, by and between Russ Berrie and Company, Inc. and Ricky Chan. (25) 10.47 Asset Purchase Agreement dated as of May 2, 1997 among Russ Berrie and Company, Inc., OddzOn Products, Inc., Cap Toys, Inc., OddzOn/Cap Toys, Inc. and Hasbro, Inc., together with exhibits thereto. (26) 10.48 First Amendment of Agreement dated June 5, 1997, by and between Russ Berrie and Company, Inc. and A. Curts Cooke. (27) 10.49 Agreement of Purchase and Sale between Amram's Distributing Ltd. and Metrus Properties Ltd. dated November 25, 1997. (27)
- ---------- (21) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1992. (22) Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended September 30, 1993. (23) Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended September 30, 1994. (24) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1995. (25) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1996. (26) Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. (27) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1997. 38
EXHIBIT NO. - ----------- 10.50 Russ Berrie and Company, Inc. 1999 Stock Option Plan. (28) 10.51 Russ Berrie and Company, Inc. 1999 Stock Option Plan for Outside Directors. (28) 10.52 Russ Berrie and Company, Inc. 1999 Stock Option and Restricted Stock Plan. (28) 10.53 Russ Berrie and Company, Inc. 1999 Employee Stock Purchase Plan. (28) 10.54 Second Amendment of Agreement dated January 13, 1999, by and between Russ Berrie and Company, Inc. and A. Curts Cooke. (29) 10.55 Exercise of option to extend terms of leases dated December 28, 1983 and March 7, 1988 between Russell Berrie and Russ Berrie and Company, Inc. (29) 10.56 Executive Employment Agreement dated March 31, 1999 between Russ Berrie and Company, Inc. and Jeffery D. Schaum. (30) 10.57 Executive Employment Agreement dated June 1, 2000 between Russ Berrie and Company, Inc. and Benjamin J. Sottile. (31) 10.58 Executive Employment Agreement dated August 14, 2000 between Russ Berrie and Company, Inc. and Dona Fisher. 10.59 Executive Severance Agreement dated December 18, 2000 between Russ Berrie and Company, Inc. and Dona Fisher. 10.60 Russ Berrie and Company, Inc. Executive Deferred Compensation Plan 10.61 Executive Employment Agreement dated January 29, 2001 between Russ Berrie and Company, Inc. and John T. Toolan. 10.62 Executive Employment Agreement dated March 1, 2001 between Russ Berrie and Company, Inc. and Michael. M. Saunders.
- ---------- (28) Incorporated by reference to Form S-8 Registration Statement No. 333-70081 as filed on January 4, 1999. (29) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1998. (30) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1999. (31) Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. 21.1 List of Subsidiaries 23.1 Consent of Independent Public Accountants (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Company during the quarter ended December 31, 2000. 39 UNDERTAKING In order to comply with amendments to the rules governing the use of Form S-8 under the Securities Act of 1933, as amended, as set forth in Securities Act Release No. 33-6867, the undersigned Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into Registrant's Registration Statements on Forms S-8 (File Nos. 2-96238, 2-96239, 2-96240, 33-10779, 33-26161, 33-27406, 33-27897, 33-27898, 33-51823 and 333-70081): Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Russ Berrie and Company, Inc. (Registrant) 3/30/01 By /s/ John D. Wille - ----------- ------------------------------- Date Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Russell Berrie 3/30/01 - ------------------------------------- ---------------- Russell Berrie, Chairman, DATE Chief Executive Officer and Director (Principal Executive Officer) /s/ Raphael Benaroya 3/30/01 - ------------------------------------- ---------------- Raphael Benaroya, Director DATE /s/ Angelica Berrie 3/30/01 - ------------------------------------- ---------------- Angelica Berrie, Director DATE /s/ Carl Epstein 3/29/01 - ------------------------------------- ---------------- Carl Epstein, Director DATE /s/ Ilan Kaufthal 3/28/01 - ------------------------------------- ---------------- Ilan Kaufthal, Director DATE /s/ Charles Klatskin 3/30/01 - ------------------------------------- ---------------- Charles Klatskin, Director DATE /s/ Joseph Kling 3/30/01 - ------------------------------------- ---------------- Joseph Kling, Director DATE /s/ William A. Landman 3/28/01 - ------------------------------------- ---------------- William A. Landman, Director DATE /s/ Sidney Slauson 3/29/01 - ------------------------------------- ---------------- Sidney Slauson, Director DATE /s/ Benjamin J. Sottile 3/30/01 - ------------------------------------- ---------------- Benjamin J. Sottile, Vice Chairman and Director DATE /s/ Josh Weston 3/28/01 - ------------------------------------- ---------------- Josh Weston, Director DATE S-2 41 RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- -------- -------- -------- -------- BALANCE AT BEGINNING CHARGED TO BALANCE AT DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS* END OF PERIOD ----------- --------- -------- ----------- ------------- Allowance for accounts receivable: Year ended December 31, 1998 2,233 1,872 1,483 2,622 Year ended December 31, 1999 2,622 2,534 1,425 3,731 Year ended December 31, 2000 3,731 2,298 2,569 3,460 Allowance for slow moving inventory items: Year ended December 31, 1998 15,292 2,754 3,998 14,048 Year ended December 31, 1999 14,048 2,991 2,857 14,182 Year ended December 31, 2000 14,182 2,803 2,942 14,043
* Principally account write-offs, allowances and disposal of merchandise, respectively. 42 EXHIBIT INDEX
EXHIBIT NUMBERS - --------------- 3.2(e) Amendment to Revised By-Laws of the Company adopted April 21, 1999. 10.58 Executive Employment Agreement dated August 14, 2000 between Russ Berrie and Company, Inc. and Dona Fisher. 10.59 Executive Severance Agreement dated December 18, 2000 between Russ Berrie and Company, Inc. and Dona Fisher. 10.60 Russ Berrie and Company, Inc. Executive Deferred Compensation Plan. 10.61 Executive Employment Agreement dated January 29, 2001 between Russ Berrie and Company, Inc. and John T. Toolan. 10.62 Executive Employment Agreement dated March 1, 2001 between Russ Berries and Company, Inc. and Michael M. Saunders. 21.1 List of Subsidiaries 23.1 Consent of Independent Public Accountants
EX-3.2(E) 2 j0202_ex3-2e.txt EXHIBIT 3.2(e) RUSS BERRIE AND COMPANY, INC. RESOLUTION 99-11 AMENDMENT TO BY-LAWS WHEREAS, the Corporation has employed Jeffrey Schaum as Chief Operating Officer, an executive officer position of the Corporation; and WHEREAS, the By-Laws of the Corporation must be amended to state that such position is an executive officer position of the Corporation. NOW, THEREFORE, be it: RESOLVED, that the Revised By-Laws of Russ Berrie and Company, Inc. be amended as follows: "4.1 NUMBER; SECURITY. The executive officers of the corporation shall be the chairman, the president, the chief operating officer, one or more vice presidents (including an executive vice president, if the Board so determines), a secretary and a treasurer. Any two or more offices may be held by the same person. The Board may require any officer, agent or employee to give security for the faithful performance of his duties." "4.7 PRESIDENT. Subject to the control of the Board, the president shall have general supervision over the business of the corporation and shall have such powers and duties as presidents of corporations usually have or as the Board or the chairman assigns to him. The president shall, in the absence of the chairman, preside at all meetings of the Board and of the shareholders." AND IT IS FURTHER RESOLVED, that the Revised By-Laws of Russ Berrie and Company, Inc. be amended to include a new paragraph as follows: "4.7A CHIEF OPERATING OFFICER. The chief operating officer of the corporation shall have such powers and duties as chief operating officers of corporations usually have or as the Board or the chairman assigns to him." EX-10.58 3 j0202_ex10-58.txt EXHIBIT 10.58 August 14, 2000 Ms. Dona Fisher 5613 Eagle Point El Paso, TX 79912 Dear Dona: I am pleased to offer you the position of Vice President and Chief Operating Officer of Russ Berrie and Company, Inc. effective September 5, 2000. Your employment with the Company will include the following: 1. COMPENSATION. Your base salary will be at an annual rate of $250,000. You will be eligible for the Executive Incentive Program ("EIP") bonus program beginning with the year 2001 (generally paid in February of the following year). The EIP is equal to 50% of your base salary. Generally, the full 50% bonus vests over a period of three years. This three-year vesting period is waived for you. The bonus program is predicated on meeting the Company's minimum operating profit for the applicable year. 2. GROUP HEALTH AND DISABILITY. After 90 days of continuous employment, you will be eligible to participate in: a. Our contributory Group Health Plan. b. Our non-contributory Life Insurance Plan in the amount one times your base salary. c. Our non-contributory Long Term Disability. 3. DENTAL. After twelve months of employment, you will be eligible to participate in our contributory Dental Insurance Plan. 4. STOCK OPTIONS. Stock options are granted to eligible employees at the beginning of each calendar year. You will be eligible to participate in the Company's Stock Option Plan based on its current provisions. You will receive stock options equal to 40% of your base salary. Under the provisions of the stock option plan, you must have 18 months of service prior to the first grant. However, this can be waived and, in your case, would be. Therefore, you will receive your first grant at the beginning of 2001. 5. 401(k). After six months of employment, you will be eligible to participate in the Company's 401(k) plan based on its current provisions. The Company's 1 contribution to your 401(k) account fully vests over a period of four years of employment. 6. VACATION. Between your date of hire and the end of the year 2000, you will be entitled to take 4 Fridays of vacation days - 1 in September, 1 in October, 1 in November (the Friday after Thanksgiving Day) and 1 in December (after December 18). In the year 2001, you will be eligible for three weeks vacation. 7. HOLIDAY/SICK. You will be eligible for paid holidays and sick time in accordance with Company policy. 8. COMPANY CAR. You will receive an allowance of up to $28,000 to purchase an automobile in the Company's name. This allowance is paid every three years toward an automobile. Certain expenses, such as gasoline, repairs and insurance, will be provided by the Company. 9. RELOCATION. The Company's relocation policy pays up to $27,500 of your documented relocation expenses. To the extent that you incur relocation expenses in excess of the $27,500 limit, the Company will advance to you, interest free, a loan against your EIP bonus to cover such additional expenses. In addition, the Company will pay the cost of moving your household goods (in accordance with policy). 10. REPORTING RELATIONSHIPS. The following departments will report to you: Finance, MIS/IT, Administration, Global Logistics, Internal Audit, Human Resources and Legal. The Company reserves the right to change or modify these programs. In addition, employment with the Company is considered "at-will" and does not represent a specific guarantee. Dona, I want to welcome you to Russ Berrie and Company, Inc. and wish you much success in your new position. Very truly yours, /s/ Russ Berrie ------------------------------ Russ Berrie Chairman cc: B. Sottile E. Goldenberg AGREED TO AND ACCEPTED BY: /s/ Dona Fisher - ----------------------- (Dona Fisher) August 18, 2000 2 EX-10.59 4 j0202_ex10-59.txt EXHIBIT 10.59 SEVERANCE AGREEMENT In the event that Dona Fisher is terminated from Russ Berrie and Company, Inc. (the "Company"), for reason other than cause or other than her own voluntary resignation, she will receive 6 months severance pay at the rate that she is being paid on her termination date. This severance will be paid to her over six months on the Company's normal pay schedule. During this period, she will also be entitled to remain on the Company's health and dental insurance plan (making the same payroll contribution as when she was an active employee). Further, if she obtains gainful employment during this six-month severance period (with employment being defined as full-time salaried work, excluding any low-level employment such as in a health club), her severance payments will be terminated, effective the date she starts her new employment. RUSS BERRIE AND COMPANY, INC. /s/ Russ Berrie ----------------- Russ Berrie Chairman and CEO December 18, 2000 ACCEPTED AND AGREED: /s/ Dona Fisher - ----------------- (Dona Fisher) December 18, 2000 EX-10.60 5 j0202_ex10-60.txt EXHIBIT 10.60 [RUSS LOGO] RUSS BERRIE AND COMPANY, INC. EXECUTIVE DEFERRED COMPENSATION PLAN 2001 Overview prepared by [MCG NORTHWEST LOGO] TABLE OF CONTENTS PAGE ---- INTRODUCTION THE EXECUTIVE DEFERRED COMPENSATION PLAN Eligibility .......................................................... 1 Deferrals ............................................................ 1 Benefits ............................................................. 1 Security ............................................................. 1 DEFERRAL ADVANTAGES UNDER THIS PLAN Reduced Taxable Income ............................................... 2 More Investment Dollars .............................................. 2 Pretax Investment Growth ............................................. 2 Assumptions .......................................................... 2 Example .............................................................. 3 HOW THE PLAN WORKS ELECTION TO DEFER Deferrals ............................................................ 4 Deferral Period ...................................................... 4 Minimums and Maximums ................................................ 4 Enrollment ........................................................... 4 Hardship Waiver ...................................................... 4 Account Selection .................................................... 4 Your Account ......................................................... 5 Crediting Deferrals .................................................. 5 Earnings Indexes ..................................................... 5 Investment Risk ...................................................... 6 Earnings Indexes Investment Objectives ............................... 6 Changing Indexes ..................................................... 8 401(k) Makeup Match .................................................. 8 Other Risk/Unsecured Creditor ........................................ 8 FICA Tax ............................................................. 8 ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 i TABLE OF CONTENTS PAGE ---- DISTRIBUTIONS PAYABLE EVENTS ....................................................... 9 ELECTING DISTRIBUTION TIME AND FORM Distribution Election Requirement .................................... 10 RETIREMENT Payout Options ....................................................... 10 Commencement Option .................................................. 10 TERMINATION .......................................................... 11 SCHEDULED IN-SERVICE WITHDRAWAL Preselected Date ..................................................... 11 Example .............................................................. 11 Payout ............................................................... 11 No Penalty ........................................................... 11 Additional Contributions ............................................. 11 HARDSHIP WITHDRAWAL .................................................. 12 ACCELERATED DISTRIBUTION Insolvency/Bankruptcy ................................................ 12 Request for Distribution ............................................. 12 Withdrawal Penalty ................................................... 12 Suspension From Plan ................................................. 13 Preference Period .................................................... 13 Example .............................................................. 13 ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 ii TABLE OF CONTENTS PAGE ---- DEATH Preretirement ........................................................ 14 Postretirement ....................................................... 14 Your Beneficiary ..................................................... 14 Beneficiary Changes .................................................. 14 DISABILITY ........................................................... 14 PARTICIPANT SECURITY RABBI TRUST Unsecured General Creditor ........................................... 15 Protects From: Change of Heart, Change in Control ................................................. 15 Trust Assets ......................................................... 15 Independent Trustee .................................................. 15 CHANGE IN CONTROL .................................................... 16 OTHER INFORMATION Plan Document Governs ................................................ 17 Not an Employment Contract ........................................... 17 Right to Amend ....................................................... 17 Nonqualified Unfunded Plan Under ERISA ............................... 17 Consult Your Tax Advisor ............................................. 17 QUESTIONS AND ANSWERS Taxation ............................................................. 18 Distribution ......................................................... 19 Security ............................................................. 20 Impact on Other Plans ................................................ 21 Administration ....................................................... 21 ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 iii INTRODUCTION The Executive Deferred Compensation Plan is designed to provide an opportunity for selected employees and directors to defer income and have it accumulate on a tax-deferred basis. THE EXECUTIVE DEFERRED COMPENSATION PLAN ELIGIBILITY o Employees with total compensation in excess of $100,000, excluding stock incentive plans, travel and entertainment allowances, and relocation reimbursements. Sales people earning commissions (whose base salary is less than $100,000) may qualify under a look-back rule. o Members of the Board of Directors. DEFERRALS Provides an opportunity to defer directors' fees and employees' salaries, commissions and bonuses. BENEFITS Enables tax planning and financial independence. With a pretax yield and tax deferral, the funds you defer will accumulate more quickly, supplementing your retirement and survivor income. In addition, the Plan provides a preretirement death benefit enhancement equal to 10 times your average deferral over the last four years with a maximum of $250,000. SECURITY Enhanced security through a funded rabbi trust and a call provision. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 1 DEFERRAL ADVANTAGES UNDER THIS PLAN REDUCED TAXABLE INCOME Your current taxable income is reduced by the amount you elect to defer. MORE INVESTMENT DOLLARS You can invest more than you can in most outside investments because the deferral is made from pretax income. PRETAX INVESTMENT GROWTH Pretax investment, tax-deferred accumulation, and market-based investment results provide potentially greater effective returns than if you invested taxable compensation in an outside plan. [GRAPH] ASSUMPTIONS One-Time Deferral $10,000 Pretax Investment $10,000 Plan Tax Bracket 40% Outside Investment Tax Bracket 40% Outside Investments 9% Russ Berrie and Company, Inc. Plan 9%
------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 2 DEFERRAL ADVANTAGES UNDER THIS PLAN (CONTINUED) EXAMPLE For each $1 of compensation: [BAR GRAPH] ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 3 HOW THE PLAN WORKS ELECTION TO DEFER DEFERRALS You may elect each year to defer receipt of a portion of your compensation. All deferrals are pretax; therefore your current income tax is reduced. DEFERRAL PERIOD A new deferral period begins each calendar year. Before the end of each year, you will have the opportunity to make a new deferral election for the following year. MINIMUMS AND MAXIMUMS The MINIMUM deferral amount is $2,000 annually. The MAXIMUM deferrals are:
MAXIMUM COMPENSATION DEFERRAL --------------------------------------- Base Salary 90%* Commission 100%* Bonuses 100%* Directors' Fees 100% =======================================
ENROLLMENT Your election must be made by December 22, 2000. HARDSHIP WAIVER The Administrative Committee may waive or modify the remainder of any deferral commitment upon evidence of severe financial hardship. ACCOUNT SELECTION When you make your deferral election you will also need to elect what percentage of your deferral you want to allocate to your Retirement Account and what percentage to your In-Service Withdrawal Account. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 4 HOW THE PLAN WORKS ELECTION TO DEFER (CONTINUED) YOUR ACCOUNT The Company credits an "Account" in your name, with your deferral. CREDITING DEFERRALS Your Account is credited each pay date with your defer- rals. Deferrals will be credited with rates of return which can be positive or negative based on the investment index allocation you elected. EARNINGS INDEXES Your Account will be credited with earnings which mirror the investment results of the indexes you select. The indexes are: o Prudential Money Market Portfolio o SP PIMCO Total Return Portfolio o MFS Emerging Growth Series Portfolio o Janus Aspen Series Aggressive Growth Portfolio o AIM V.I. Value Fund o Franklin Small Cap Fund o Janus Aspen Series Balanced Portfolio o Janus Aspen Series International Growth Portfolio You may choose any combination of portfolios. Your allocation must be stated in whole percentages. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 5 HOW THE PLAN WORKS ELECTION TO DEFER (CONTINUED) INVESTMENT RISK Your Account is subject to investment risk. As in any investment, if there is a positive return, the account balance will grow; if there is a negative return, the account balance will be reduced. The specific funds are described in the prospectus, which you need to review prior to making your election. YOU SHOULD CAREFULLY REVIEW THE FUND DESCRIPTIONS. EARNINGS INDEXES INVESTMENT OBJECTIVES PRUDENTIAL MONEY MARKET PORTFOLIO: Maximum current income, stability of capital and maintenance of liquidity through investment in high quality short-term debt instruments. SP PIMCO TOTAL RETURN PORTFOLIO: This portfolio seeks to maximize current income and price appreciation, consistent with preservation of capital and prudent risk-taking, by investing primarily in investment-grade debt securities, including those of non-U.S. issuers. MFS EMERGING GROWTH SERIES PORTFOLIO: Seeks long-term growth of capital. Dividend and interest income from portfolio securities, if any, is incidental to the Series' investment objective of long-term growth of capital. JANUS ASPEN SERIES AGGRESSIVE GROWTH PORTFOLIO: Seeks long-term growth of capital. AIM V.I. VALUE FUND: A diversified portfolio that seeks to achieve long-term growth of capital by investing primarily in equity securities judged by AIM to be undervalued relative to the current or projected earnings of the companies issuing the securities, or relative to current market values of assets owned by the companies issuing the securities, or relative to the equity markets generally. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 6 HOW THE PLAN WORKS ELECTION TO DEFER (CONTINUED) EARNINGS INDEXES INVESTMENT OBJECTIVES (CONT.) FRANKLIN SMALL CAP FUND: Seeks long-term capital growth. JANUS ASPEN SERIES BALANCED PORTFOLIO: Seeks long-term capital growth, consistent with preservation of capital and balanced by current income. JANUS ASPEN SERIES INTERNATIONAL GROWTH PORTFOLIO: Seeks long-term growth of capital. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 7 HOW THE PLAN WORKS CHANGING INDEXES Your investment allocation may be changed monthly, effective on the first day of the month. This includes the opportunity to change the investment of existing account balances. In order for new elections to become effective, a written notice must be filed at least 10 days before the first day of the month. If no new election is filed, your investment allocation will remain as last elected. 401(k) MAKEUP MATCH If as a result of participating in this Plan your Company's 401(k) match is reduced, the Company will credit to this Plan any lost match. OTHER RISK/UNSECURED You will be at all times an unsecured general creditor of CREDITOR Russ Berrie and Company, Inc. You will have no ownership interest in the life insurance indexing your investment. FICA TAX For employees, FICA tax will be applied to your gross income prior to the deduction of your deferrals. For directors, self-employment taxes will be payable upon distribution of benefits. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 8 DISTRIBUTIONS PAYABLE EVENTS Your benefits are payable under the following circumstances: o Retirement o Termination o In-Service Withdrawal o Hardship Withdrawal o Accelerated Distribution o Death Special rules apply to each. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 9 DISTRIBUTIONS ELECTING DISTRIBUTION TIME AND FORM DISTRIBUTION ELECTION REQUIREMENT ELECTING DISTRIBUTION TIME AND FORM You select the time and form of distribution when you complete your Participation Agreement each year. This election may be changed prior to 13 months before you terminate employment. RETIREMENT Retirement for purposes of the Executive Deferred Com- pensation Plan is defined as termination after change in control or age 50. PAYOUT OPTIONS o Lump sum o 2-15 annual installments, or o A combination of the above COMMENCEMENT OPTION You may elect to commence your benefit within 90 days of your retirement or January following your retirement. If your Account is less than $10,000, your benefit will be paid in a lump sum. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 10 DISTRIBUTIONS TERMINATION If you terminate prior to being eligible for retirement, your Account will be paid in a lump sum. SCHEDULED IN-SERVICE WITHDRAWAL PRESELECTED DATE Payment commences on the date you selected when you made your deferral election. That date cannot be earlier than five years after your deferral election. EXAMPLE [Graph] PAYOUT You may elect to have your Account paid in one to five annual installments. NO PENALTY In-Service Withdrawals are not subject to any penalty. ADDITIONAL CONTRIBUTIONS Each year you may add to your In-Service Withdrawal Account. The Account, along with all annual additions, will be distributed on the date you select. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 11 DISTRIBUTIONS HARDSHIP WITHDRAWAL The deferral commitment is irrevocable. However, the Committee may waive or modify the remainder of any deferral commitment if you have a Hardship Withdrawal. If payment is made due to a Hardship Withdrawal, deferrals shall cease for the remainder of the calendar year and for the entire year after that. ACCELERATED DISTRIBUTION INSOLVENCY/BANKRUPTCY The Accelerated Distribution provision option provides a method to get 90% of your Account balance if you become concerned about the Company's solvency. In the case of either insolvency or bankruptcy, the assets in the trust will be subject to disposition by the Federal Bankruptcy Court. This limitation on your security is necessary to avoid taxation of your benefits before receipt. REQUEST FOR DISTRIBUTION You may request an Accelerated Distribution of your Account balance at any time. WITHDRAWAL PENALTY If you request a distribution, the Account balance distributed to you will be reduced by 10%. By including this forfeiture in the Accelerated Distribution provision, there should be no constructive receipt, i.e., the value of your account should not be taxed to you before you receive it. Your Account will be valued as of the last day of the month immediately preceding the date on which the request is received by the Committee and paid to you in a lump sum within 30 days. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 12 DISTRIBUTIONS ACCELERATED DISTRIBUTION (CONTINUED) SUSPENSION FROM PLAN You will not be allowed to participate in the Plan for 12 calendar months once this provision has been exercised. PREFERENCE PERIOD The Accelerated Distribution provision will not be effective if exercised within the preference period before bankruptcy. This preference period is 90 days in most cases, but is one year for participants deemed "insiders." EXAMPLE Amount of Lump-Sum Deferral.................................. $ 50,000 Account Balance 10 Years Later at Time of Request for Distribution............................ 118,368 * 10% Penalty.................................................. - 11,837 -------- NET LUMP-SUM DISTRIBUTION ................................... $106,531 Effective Crediting Rate for Period ......................... 7.86%
*ASSUMING 9% EARNINGS RATE. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 13 DISTRIBUTIONS DEATH PRERETIREMENT If you die while employed or a Director of Russ Berrie and Company, Inc., this Plan provides an Enhanced Death Benefit* equal to your Account balance PLUS 10 times your average Deferral Commitment for the last four years, up to a maximum of $250,000. This Enhanced Death benefit and your Account balance will be paid as you elect. POSTRETIREMENT If you die after you retire, your benefit will be your remaining Account balance which will continue to be paid as you originally elected. YOUR BENEFICIARY The benefit is payable to the beneficiary you named on the Beneficiary Designation form. BENEFICIARY CHANGES You may change your beneficiary designation at any time by contacting the Committee and completing a new Beneficiary Designation form. DISABILITY If you terminate as a result of a Total Disability, your benefit will be distributed as you elected. *PLEASE NOTE, THE ENHANCED DEATH BENEFIT IS NOT PAYABLE IF YOU DIE WITHIN 24 MONTHS AFTER YOUR DEFERRALS COMMENCE AS A RESULT OF SUICIDE OR YOU PROVIDE FALSE INFORMATION ON YOUR CONSENT TO INSURE. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 14 PARTICIPANT SECURITY RABBI TRUST UNSECURED GENERAL CREDITOR Your deferral account is subject to the claims of general creditors of Russ Berrie and Company, Inc. in the event of bankruptcy or insolvency. PROTECTS FROM: CHANGE OF HEART CHANGE IN CONTROL To increase the security of your benefits, Russ Berrie and Company, Inc. has established a specially designed irrevocable trust, commonly called a rabbi trust. The Trust protects you from a change in Russ Berrie and Company, Inc.'s intentions to pay your benefits and from a change in control. TRUST ASSETS Assets held by the Trust are variable life insurance contracts. Since the cash value of life insurance is not taxable, this enables Russ Berrie and Company, Inc. to give you a better crediting rate on your account. These assets are available to pay benefits to participants if Russ Berrie and Company, Inc. refuses or is unable to pay benefits for any reason other than bankruptcy or insolvency (i.e., change of heart or change of control). The insurance proceeds are payable to the Trust. Except in the case of insolvency, the assets can only be used to pay benefits. The participants have no right to either the policies or policy proceeds. INDEPENDENT TRUSTEE The trustee is an independent third party. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 15 PARTICIPANT SECURITY CHANGE IN CONTROL If you terminate after a change in control your benefit will be paid as if you had retired. The Company may not change the way they calculate the rates of return on your Account. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 16 OTHER INFORMATION PLAN DOCUMENT GOVERNS This booklet has been prepared to give you a better understanding of the benefits and features of this Plan. Each participant's benefits and rights under this Plan are at all times governed by the text of the Executive Deferred Compensation Plan document and are in no way altered or modified by the contents of this booklet. NOT AN EMPLOYMENT CONTRACT This Plan does not constitute a contract of employment between you and Russ Berrie and Company, Inc. RIGHT TO AMEND Russ Berrie and Company, Inc. reserves the right to amend or terminate this Plan, in whole or in part, at any time. Such amendment or termination may not alter the amounts already credited to your Account balance. Distributions will occur according to the Plan document. NONQUALIFIED UNFUNDED PLAN UNDER ERISA The Plan is a nonqualified, unfunded deferred compensation plan as defined under the Internal Revenue Code and the Employee Retirement Income Security Act of 1974. CONSULT YOUR TAX ADVISOR You should consult a personal tax advisor for detailed information and guidance. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 17 QUESTIONS AND ANSWERS TAXATION NOTE: THE FOLLOWING IS NOT INTENDED TO BE TAX ADVICE. IF ANY SPECIFIC TAX QUESTION ARISES, YOU SHOULD SEEK THE ADVICE OF YOUR TAX ADVISOR. AM I TAXED ON DEFERRED COMPENSATION OR EARNINGS BEFORE I RECEIVE THEM? No. As long as your deferral election is filed before you earn compensation that you defer, you will not be deemed to be in constructive receipt of the amount deferred or the earnings on the amount deferred. You will not be taxed until you actually receive this money. HOW DO MY DEFERRALS AFFECT THE WITHHOLDING ON MY PAYCHECKS? For employees, your federal W-2 earnings exclude deferred compensation. Most state and local laws also exclude deferred compensation from earnings. Thus, taxes withheld will be reduced. For directors, your deferrals will be excluded from your 1099. IS MY DEFERRAL INCLUDED IN THE SOCIAL SECURITY WAGE BASE? For employees, yes. Deferrals are subject to withholding for FICA and Medicare taxes in the year of deferral until the annual FICA taxable wage base under the Social Security provision is reached; however, there is no limitation on the Medicare tax. WILL I PAY SOCIAL SECURITY TAXES WHEN I TAKE MY DISTRIBUTION? For employees, no. Because the deferrals were included in the wage base at the time of deferral, the amounts are not subject to Social Security taxes when paid. HOW WILL DEFERRALS AFFECT DIRECTOR'S SELF-EMPLOYMENT TAXES? Directors are not subject to self-employment taxes until they actually receive their benefits. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 18 QUESTIONS AND ANSWERS TAXATION (CONTINUED) WILL THE PAYOUT AFFECT MY SOCIAL SECURITY BENEFITS AFTER I RETIRE? For both directors and employees, no. Payments made from the deferral plan will not affect your Social Security benefit. For purposes of Social Security, these payments are considered "earned" when they are credited to your account. They do not constitute earned income under the earnings test when they are distributed to you. HOW ARE MY DEFERRED AMOUNTS PLUS EARNINGS TAXED WHEN THEY ARE DISTRIBUTED TO ME? They are taxed as ordinary income when distributed to you and are subject to income tax withholding. Special income tax averaging is not available. IS THE DEATH BENEFIT PAYABLE UNDER THE PLAN TAXABLE INCOME TO MY BENEFICIARY? Yes. The death benefit (account balance plus enhanced death benefit, if applicable) payable to your beneficiary is taxable as income. WILL THE DEATH BENEFITS PAID TO MY BENEFICIARIES BE INCLUDIBLE IN MY GROSS ESTATE FOR FEDERAL ESTATE TAX PURPOSES? Yes. The account balance (plus enhanced death benefit, if applicable) at the time of your death is includible in your gross estate. If, however, your beneficiary is your spouse and the benefit qualifies for the estate tax marital deduction, there will be no federal estate tax. DISTRIBUTION CAN I WITHDRAW MY ACCOUNT BEFORE I LEAVE THE EMPLOYMENT OF RUSS BERRIE AND COMPANY, INC.? Yes. You may either request a Hardship Withdrawal distribution, elect an In-Service Withdrawal at the time of deferral or exercise the Accelerated Distribution provision. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 19 QUESTIONS AND ANSWERS DISTRIBUTION (CONTINUED) WHAT IS A HARDSHIP WITHDRAWAL? A Hardship Withdrawal is a serious financial setback that is unanticipated and beyond your control. For purposes of this Plan, the education of a child or the purchase of a home will NOT constitute a Hardship Withdrawal. WHY MUST I ELECT A SCHEDULED IN-SERVICE WITHDRAWAL AT LEAST FIVE YEARS BEFORE I RECEIVE IT? To avoid the adverse tax consequences of constructive receipt (i.e. taxation of your benefit before receipt), the Plan must impose a restriction on Scheduled In-Service Withdrawals. WHY IS THERE A PENALTY FOR EXERCISING THE ACCELERATED DISTRIBUTION PROVISION? Ordinarily, the unrestricted right to withdraw your deferral account would create taxable income to you currently, even if you do not elect a withdrawal. This penalty is designed to prevent your being taxed on the value of your account before you actually receive it. SECURITY WHAT HAPPENS TO MY DEFERRALS IF RUSS BERRIE AND COMPANY INC. BECOMES INSOLVENT? In the unlikely event that Russ Berrie and Company, Inc. , becomes insolvent, you will be an unsecured general creditor of Russ Berrie and Company, Inc. Your claim against the assets of Russ Berrie and Company, Inc. will be considered with the claims of other general creditors in the event of bankruptcy. The Accelerated Distribution provision affords you some protection by giving you the opportunity to withdraw your funds net of a 10% penalty if you feel there is a threat to Russ Berrie and Company, Inc.'s solvency, subject to preference period rules. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 20 QUESTIONS AND ANSWERS IMPACT ON OTHER PLANS CAN ANY OF THE PAYMENTS UNDER THIS PLAN BE "ROLLED OVER" INTO A QUALIFIED PLAN OR IRA? No. Amounts deferred are not eligible to be "rolled over" into a qualified plan or IRA. Deferral plan distributions are subject to income tax as soon as the amounts are actually or constructively received. Once you have the right to receive the funds, there is no vehicle available to allow you to further shelter these amounts from taxation. SHOULD I STOP OR REDUCE MY 401(k) DEFERRALS IN ORDER TO DEFER INTO THIS PLAN? Your deferrals into this Plan can be in addition to the 401(K) maximum amount you can defer into the 401(k). Please consult your financial advisor regarding your decision. ADMINISTRATION HOW CAN I FIND OUT THE STATUS OF MY ACCOUNT AND ITS BALANCE? You will receive statements showing the status of your account each quarter within 60 days following the end of the quarter. WHEN WILL I RECEIVE MY ELECTION FORMS? Election forms will be distributed during the annual open enrollment period each year in which you are eligible to participate in this Plan. The forms must be returned by the close of open enrollment for deferrals to be made in the following calendar year. ------------------------------------------------- RUSS BERRIE AND COMPANY, INC. EDCP o 2001 20 EX-10.61 6 j0202_ex10-61.txt EXHIBIT 10.61 January 29, 2001 Mr. John T. Toolan 31 Van Holten Road Basking Ridge, NJ 07920 Dear Jack: I am pleased to offer you the position of Executive Vice President - Marketing and Sales of Russ Berrie and Company, Inc. effective February 5, 2001. Your employment with the Company will include the following: 1. COMPENSATION. Your base salary will be at an annual rate of $275,000. The Company has an annual bonus program. You will be eligible for the Executive Incentive Program ("EIP") bonus program beginning with the year 2001 (generally paid in February of the following year). The EIP is equal to 50% of your base salary. Generally, the full 50% bonus vests over a period of three years. However, this three-year vesting period can be waived and, in your case, will be. The bonus program is predicated on meeting the Company's minimum operating profit for the applicable year. The Company also has an annual performance bonus program. You will also be eligible to participate in that program beginning with the year 2001. Payment of this additional bonus is predicated on the Company exceeding budgeted operating profit by at least 10% during the relevant 12-month period. In order to receive the aforementioned bonus payments, you must be actively employed by the Company at the time of the payment(s). 2. GROUP HEALTH AND DISABILITY. After 90 days of continuous employment, you will be eligible to participate in: a. Our contributory Group Health Plan. b. Our non-contributory Life Insurance Plan in the amount one times your base salary. c. Our non-contributory Long Term Disability. 3. DENTAL. After twelve months of employment, you will be eligible to participate in our contributory Dental Insurance Plan. 1 4. STOCK OPTIONS. Stock options are granted to eligible employees at the beginning of each calendar year. You will be eligible to participate in the Company's Stock Option Plan based on its current provisions. You will receive stock options equal to 40% of your base salary. Under the provisions of the stock option plan, you must have 18 months of service prior to the first grant. However, this can be waived and, in your case, would be. You will receive your first grant as of the beginning of 2001. 5. STOCK OPTIONS BASED ON OPERATING PROFIT. In addition to the stock options set forth above, you will be eligible to receive 10,000 stock options for each year in which the Company's domestic operating profit exceeds the prior year's domestic operating profit by at least 15%. You will be eligible to receive the first such options as of January 1, 2002 if 2001 domestic operating profit exceeds 2000 domestic operating profit by at least 15%. Under the provisions of the Company's stock option plan, options will vest and be exercisable one year after the date of grant and remain exercisable for a period of 10 years from the date of grant. In order to receive stock options, you must be an active employee of the Company on the date of the grant. 6. RESTRICTED STOCK. Beginning with the year 2002 and for a total of 5 consecutive years (i.e., 2002, 2003, 2004, 2005 and 2006), you will also be eligible to receive $100,000 worth of restricted stock of the Company per year for each of these 5 years. During the first year following the date of the grant of such restricted stock, the shares of such restricted stock remain wholly restricted. After the first year and for the following 3 years, such restricted stock shall vest, one-third each year until fully vested. By way of example, the $100,000 worth of restricted stock that is granted on the first business day of January 2002 would remain wholly restricted throughout 2002. On January 1, 2003, one-third of such shares would vest. On January 1, 2004, another one-third of such shares would vest and on January 1, 2005, the remaining on-third of such shares would vest so that on January 1, 2005 all shares that had been granted on January 1, 2002 would be fully vested. In order to receive these restricted stock awards, you must be an active employee of the Company on the date of the award. 2 7. 401(k). After six months of employment, you will be eligible to participate in the Company's 401(k) plan based on its current provisions. The Company's contribution to your 401(k) account fully vests over a period of four years of employment. 8. VACATION. You will be eligible for three weeks vacation per year. 9. HOLIDAY/SICK. You will be eligible for paid holidays and sick time in accordance with Company policy. 10. COMPANY CAR. You will receive an allowance of up to $28,000 to purchase an automobile in the Company's name. This allowance is paid every three years toward an automobile. Certain expenses, such as gasoline, repairs and insurance, will be provided by the Company. 11. SEVERANCE. In the event that you are terminated from the Company for reason other than cause or other than your own voluntary resignation, you will receive 6 months' severance pay at the rate that you are being paid on your termination date. This severance will be paid to you over a 6 month period on the Company's normal pay schedule. During this period, you will also be entitled to remain on the Company's heath and dental insurance plan (making the same payroll contribution as when you were an active employee). If you obtain gainful employment during this 6 month severance period (with employment being defined as full-time salaried work), your severance payments will be terminated, effective the date that you start your new employment. The Company reserves the right to change or modify these programs. In addition, employment with the Company is considered "at-will" and does not represent a specific guarantee. Jack, I want to welcome you to Russ Berrie and Company, Inc. and wish you much success in your new position. Very truly yours, /s/ Russ Berrie ---------------------- Russ Berrie Chairman ACCEPTED AND AGREED: /s/ John T. Toolan - ------------------------ 3 EX-10.62 7 j0202_ex10-62.txt EXHIBIT 10.62 March 1, 2001 Mr. Michael M. Saunders 39 S. Ridge Road Pomona, NY 10970 Dear Michael: I am pleased to offer you the position of Vice President, Chief Information Officer, for Russ Berrie and Company, Inc. effective March 26, 2001. Your employment with the Company will include the following: 1. COMPENSATION. Your base salary will be at an annual rate of $210,000. You will be eligible for the Vice President/Management Incentive Program ("VP/MIP") bonus program for the year 2001 (generally paid in February of the following year). For the year 2001, the VP/MIP bonus is equal to 20% of your base salary. The bonus program is predicated on meeting the Company's minimum operating profit for the year 2001. 2. GROUP HEALTH AND DISABILITY. After 90 days of continuous employment, you will be eligible to participate in: a. Our contributory Group Health Plan. b. Our non-contributory Life Insurance Plan in the amount one times your base salary. c. Our non-contributory Long Term Disability. 3. DENTAL. After twelve months of employment, you will be eligible to participate in our contributory Dental Insurance Plan. 4. STOCK OPTIONS. Stock options are granted to eligible employees at the beginning of each calendar year. You will be eligible to participate in the Company's Stock Option Plan based on its current provisions. You will receive stock options equal to 40% of your base salary. Under the provisions of the stock option plan, you must have 18 months of service prior to the first grant. However, this can be waived and, in your case, would be. Therefore, you will receive your first grant at the beginning of 2002. 5. 401(k) PLAN. After six months of employment, you will be eligible to participate in the Company's 401(k) plan based on its current provisions. The Company's contribution to your 401(k) account fully vests over a period of four years of employment. 1 6. VACATION. In the year 2001 and thereafter, you will be eligible for three weeks vacation. 7. HOLIDAY/SICK. You will be eligible for paid holidays and sick time in accordance with Company policy. 8. COMPANY CAR. You will receive an allowance of up to $28,000 to purchase an automobile in the Company's name. This allowance is paid every three years toward an automobile. Certain expenses, such as gasoline, repairs and insurance, will be provided by the Company. 7. SEVERANCE. In the event that you are terminated from the Company for reason other than cause or other than your own voluntary resignation, you will receive 6 months' severance pay at the rate that you are being paid on your termination date. This severance will be paid to you over a 6 month period on the Company's normal pay schedule. During this period, you will also be entitled to remain on the Company's heath and dental insurance plan (making the same payroll contribution as when you were an active employee). If you obtain gainful employment during this 6 month severance period (with employment being defined as full-time salaried work), your severance payments will be terminated, effective the date that you start your new employment. The Company reserves the right to change or modify these programs. In addition, employment with the Company is considered "at-will" and does not represent a specific guarantee. Michael, I want to welcome you to Russ Berrie and Company, Inc. and wish you much success in your new position. Very truly yours, /s/ Eva J. Goldenberg Eva J. Goldenberg Vice President - Human Resources cc: R. Berrie B. Sottile D. Fisher ACCEPTED AND AGREED: - -------------------- /s/ Michael M. Saunders - ----------------------- (Michael M. Saunders) March 08, 2001 2 EX-21.1 8 j0202_ex21-1.txt EXHIBIT 21.1 LIST OF SUBSIDIARIES OF RUSS BERRIE AND COMPANY, INC.
JURISDICTION OF COMPANY NAME INCORPORATION ------------ ------------- Russ Berrie and Company West, Inc. California Russ Berrie and Company South, Inc. Georgia Russ Berrie and Company Investments, Inc. New Jersey Russ Berrie and Company Properties, Inc. New Jersey Russplus, Inc. New Jersey P/F Done, Inc. Pennsylvania Bright of America, Inc. West Virginia Fluf N' Stuf, Inc. Pennsylvania RBTACQ, Inc. Ohio RBCACQ, Inc. California Tri Russ International (Hong Kong) Limited Hong Kong Russ Berrie (U.K.) Limited England Russ Berrie (Benelux) B.V Holland Amram's Distributing Ltd. Canada Russ Berrie (Ireland) Limited Ireland Russ Berrie Espana, S.L Spain Russ Berrie (Deutschland) GmbH Germany Russ Berrie Australia Pty Limited Australia Russ Berrie (Holdings) Limited England Russ Berrie (Osterreich) GmbH Austria Russ Berrie France S.A.R.L France
EX-23.1 9 j0202_ex23-1.txt EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (File Nos. 2-96238, 2-96239, 2-96240, 33-10779, 33-26161, 33-27406, 33-27897, 33-27898, 33-51823, and 333-70081). /s/ Arthur Andersen LLP Roseland, New Jersey March 28, 2001 -----END PRIVACY-ENHANCED MESSAGE-----