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Kid Brands, Inc – ‘10-Q’ for 9/30/04

On:  Tuesday, 11/9/04, at 5:10pm ET   ·   For:  9/30/04   ·   Accession #:  1104659-4-34790   ·   File #:  1-08681

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

11/09/04  Kid Brands, Inc                   10-Q        9/30/04   19:2.1M                                   Merrill Corp-MD/FA

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    445K 
10: EX-10.100   Material Contract                                   HTML     77K 
11: EX-10.101   Material Contract                                   HTML     77K 
12: EX-10.102   Material Contract                                   HTML     73K 
13: EX-10.103   Material Contract                                   HTML     73K 
14: EX-10.104   Material Contract                                   HTML    162K 
15: EX-10.105   Material Contract                                   HTML    108K 
 2: EX-10.92    Material Contract                                   HTML     28K 
 3: EX-10.93    Material Contract                                   HTML     74K 
 4: EX-10.94    Material Contract                                   HTML     78K 
 5: EX-10.95    Material Contract                                   HTML     76K 
 6: EX-10.96    Material Contract                                   HTML     76K 
 7: EX-10.97    Material Contract                                   HTML     76K 
 8: EX-10.98    Material Contract                                   HTML     81K 
 9: EX-10.99    Material Contract                                   HTML     77K 
16: EX-31.1     Certification per Sarbanes-Oxley Act (Section 302)  HTML     17K 
17: EX-31.2     Certification per Sarbanes-Oxley Act (Section 302)  HTML     16K 
18: EX-32.1     Certification per Sarbanes-Oxley Act (Section 906)  HTML     11K 
19: EX-32.2     Certification per Sarbanes-Oxley Act (Section 906)  HTML     11K 


10-Q   —   Quarterly Report
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Part I -- Financial Information
"Item 1
"Financial Statements
"Consolidated Balance Sheet as of September 30, 2004 and December 31, 2003
"Consolidated Statement of Operations for the three and nine months ended September 30, 2004 and 2003
"Consolidated Statement of Cash Flows for the nine months ended September 30, 2004 and 2003
"Notes to Consolidated Financial Statements
"Item 2
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Item 3
"Quantitative and Qualitative Disclosures About Market Risk
"Item 4
"Controls and Procedures
"Part Ii -- Other Information
"Item 6
"Exhibits
"Signatures

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2004

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                to

 

Commission file number  1-8681

 

RUSS BERRIE AND COMPANY, INC.

(Exact name of registrant as specified in its charter)

 

New Jersey

 

22-1815337

(State or other jurisdiction of incorporation or
organization)

 

(IRS Employer Identification No.)

 

 

 

111 Bauer Drive, Oakland, New Jersey

 

07436

(Address of principal executive offices)

 

(Zip Code)

 

 

 

(201) 337-9000

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý   No  o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  ý   No  o

 

The number of shares outstanding of each of the registrant’s classes of common stock, as of November 2, 2004 was as follows:

 

CLASS

 

OUTSTANDING AT
November 2
, 2004

Common Stock, $0.10 stated value

 

20,823,717

 

 



 

RUSS BERRIE AND COMPANY, INC.

 

INDEX

 

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1.

 

Financial Statements

 

 

 

 

 

a)

 

Consolidated Balance Sheet as of September 30, 2004 and December 31, 2003

 

 

 

 

 

b)

 

Consolidated Statement of Operations for the three and nine months ended September 30, 2004 and 2003

 

 

 

 

 

c)

 

Consolidated Statement of Cash Flows for the nine months ended September 30, 2004 and 2003

 

 

 

 

 

d)

 

Notes to Consolidated Financial Statements

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 6.

 

Exhibits

 

 

 

 

 

Signatures

 

 

 

2



 

PART 1 - FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEET

 

(Dollars in Thousands)

(UNAUDITED)

 

 

 

September 30,
2004

 

December 31,
2003

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

64,581

 

$

81,535

 

Marketable securities

 

7,914

 

150,515

 

Accounts receivable, trade, less allowances of $ 3,085 in 2004 and $ 3,841 in 2003

 

68,741

 

82,795

 

Inventories — net

 

41,600

 

51,921

 

Prepaid expenses and other current assets

 

3,980

 

4,517

 

Deferred income taxes

 

15,128

 

9,671

 

Total current assets

 

201,944

 

380,954

 

 

 

 

 

 

 

Property, plant and equipment — net

 

40,848

 

46,108

 

Goodwill

 

10,141

 

10,353

 

Intangible assets

 

17,551

 

17,564

 

Other assets

 

6,589

 

7,769

 

Total assets

 

$

277,073

 

$

462,748

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

4,314

 

$

10,318

 

Accrued expenses

 

29,349

 

28,684

 

Accrued income taxes

 

 

8,000

 

Total current liabilities

 

33,663

 

47,002

 

Deferred income taxes

 

328

 

328

 

Total liabilities

 

$

33,991

 

$

47,330

 

Commitments and contingencies

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common stock: $.10 stated value per share; authorized 50,000,000 shares; issued 2004, 26,460,001 shares; 2003, 26,296,995 shares

 

2,646

 

2,631

 

Additional paid in capital

 

88,452

 

85,197

 

Retained earnings

 

251,317

 

428,704

 

Accumulated other comprehensive income

 

10,817

 

9,036

 

Treasury stock, at cost (5,636,284 shares at September 30, 2004 and at December 31, 2003)

 

(110,150

)

(110,150

)

 

 

 

 

 

 

Total shareholders’ equity

 

243,082

 

415,418

 

Total liabilities and shareholders’ equity

 

$

277,073

 

$

462,748

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

3



 

RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF OPERATIONS

 

(Dollars in Thousands, Except Per Share Data)

 

(UNAUDITED)

 

 

 

THREE MONTHS ENDED
SEPTEMBER 30,

 

NINE MONTHS ENDED
SEPTEMBER 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

79,272

 

$

87,848

 

$

198,405

 

$

242,566

 

 

 

 

 

 

 

 

 

 

 

Cost of Sales

 

41,893

 

41,228

 

117,094

 

112,618

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

37,379

 

46,620

 

81,311

 

129,948

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expense

 

35,349

 

32,217

 

103,819

 

98,032

 

 

 

 

 

 

 

 

 

 

 

Investment and other income-net

 

310

 

1,131

 

2,501

 

4,403

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before provision(benefit) for income taxes

 

2,340

 

15,534

 

(20,007

)

36,319

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

92

 

3,939

 

(7,141

)

10,567

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

2,248

 

$

11,595

 

$

(12,866

)

$

25,752

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.11

 

$

0.56

 

$

(0.62

)

$

1.25

 

Diluted

 

$

0.11

 

$

0.56

 

$

(0.62

)

$

1.25

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares:

 

 

 

 

 

 

 

 

 

Basic

 

20,829,000

 

20,628,000

 

20,767,000

 

20,581,000

 

Diluted

 

20,829,000

 

20,732,000

 

20,767,000

 

20,681,000

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

4



 

RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

(Dollars in Thousands)

(UNAUDITED)

 

 

 

NINE MONTHS ENDED
SEPTEMBER 30,

 

 

 

2004

 

2003

 

Cash flows from operating activities:

 

 

 

 

 

Net (loss) income

 

$

(12,866

)

$

25,752

 

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

4,949

 

4,885

 

Provision for accounts receivable reserves

 

1,095

 

1,448

 

Provision for inventory reserves

 

14,426

 

840

 

Deferred income taxes – net

 

(5,457

)

 

Realized loss on other investments

 

 

1,537

 

Loss on sale of Bright of America, Inc.

 

235

 

 

 

Other

 

1,764

 

1,147

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

11,733

 

(12,288

)

Inventories

 

(6,379

)

(5,407

)

Prepaid expenses and other current assets

 

425

 

154

 

Other assets

 

1,178

 

(841

)

Accounts payable

 

(5,690

)

(882

)

Accrued expenses

 

1,237

 

(1,268

)

Accrued income taxes

 

(8,000

)

1,712

 

Total adjustments

 

11,516

 

(8,963

)

Net cash (used in) provided by operating activities

 

(1,350

)

16,789

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of marketable securities and other investments

 

(322,794

)

(354,196

)

Proceeds from sale of marketable securities and other investments

 

464,618

 

328,259

 

Proceeds from sale of property, plant and equipment

 

4,715

 

17

 

Capital expenditures

 

(1,527

)

(6,437

)

Net cash provided by (used in) investing activities

 

145,012

 

(32,357

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of common stock

 

3,270

 

2,836

 

Dividends paid to shareholders

 

(164,520

)

(17,289

)

Net cash (used in) financing activities

 

(161,250

)

(14,453

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

634

 

4,748

 

Net (decrease) in cash and cash equivalents

 

(16,954

)

(25,273

)

Cash and cash equivalents at beginning of period

 

81,535

 

93,513

 

Cash and cash equivalents at end of period

 

$

64,581

 

$

68,240

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

77

 

$

17

 

Income taxes

 

$

859

 

$

8,855

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

5



 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 - INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

The accompanying unaudited interim consolidated financial statements have been prepared by Russ Berrie and Company, Inc. and its subsidiaries (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, certain information and footnote disclosures normally included in financial statements prepared under generally accepted accounting principles have been condensed or omitted pursuant to such principles and regulations.  The information furnished reflects all adjustments, which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the interim periods presented.  Results for interim periods are not necessarily an indication of results to be expected for the year.

 

The Company operates in two segments which consists of the Company’s core gift business and the Company’s non-core business.  The Company’s core business designs, manufactures through third parties and markets a wide variety of gift products to retail stores throughout the United States and throughout the world via the Company’s international wholly-owned subsidiaries and distributors.  Until August 2, 2004 the Company’s non-core businesses designed and marketed functional consumer products sold at comparable price points with comparable gross margins to each other and consisted of the Company’s wholly-owned subsidiaries Sassy, Inc. and Bright of America, Inc.  Effective August 2, 2004, the Company sold Bright of America, Inc. (See Note 13 of the Notes to Consolidated Financial Statements).  Sassy’s product line consists of approximately 400 infant and juvenile products that focus on children of the age group between newborn to two years, under the trade name Sassy™, with concept groupings such as bath toys and accessories, development toys, feeding utensils and bowls, pacifiers, bottles, bibs, soft toys, mobiles and feeders.  Sassy also benefits from United States distribution rights to certain baby soothing and comforting products from MAM Babyartikel GmbH, of Vienna, Austria, a developer and manufacturer of children’s products.  Sassy’s products are sold to consumers, primarily in the United States, through mass marketers.

 

Certain prior year amounts have been reclassified to conform to the 2004 presentation.

 

This Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2004 should be read in conjunction with the Company’s Quarterly Reports on Form 10-Q for the three months ended March 31, 2004 and June 30, 2004 and the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 (the “2003 10-K”).

 

NOTE 2 – FINANCIAL INSTRUMENTS

 

MARKETABLE SECURITIES AND OTHER INVESTMENTS

 

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 consolidated balance sheet at fair value, with the difference between cost and fair value (unrealized gains and losses) recorded as a component of shareholders’ equity, net of tax, in Accumulated Other Comprehensive Income.  These investments consist primarily of U.S. government obligations, municipal obligations, preferred stock, mutual funds and equity securities.  The Company liquidated, in July 2003, its equity investment in a limited partnership which managed a portfolio of mortgage-backed securities to achieve returns through yield income and price appreciation.  This investment, which had been included in Other Investments in the Consolidated Balance Sheet until its liquidation, was accounted for using the equity method.  Accordingly the Company’s proportionate share of the limited partnership’s income or loss amounting to non-cash loss of $49,000 and $1,537,000 for the three and nine months ended September 30, 2003, respectively, is included in investment and other income-net in the Consolidated Statement of Operations.  Additionally, realized losses on sales of the Company’s available-for-sale marketable securities of $34,000 for the three months ended September 30, 2004 and realized gains of $1,005,000 for the nine months ended September 30, 2004, as determined on a specific identification basis, are included in investment and other income, net in the Consolidated Statement of Operations.  Realized losses on sale of available-for-sale marketable securities of $112,000 and realized gains of $945,000 for the three and nine months ended September 30, 2003, respectively, are included in investment and other income, net in the Consolidated Statement of Operations.

 

6



 

Marketable securities consist of the following:

 

 

 

As of September 30, 2004

 

 

 

Cost

 

Gross
Unrealized
Gain

 

Gross
Unrealized
(Loss)

 

Fair Value

 

U.S. Government obligations

 

$

920,000

 

$

0

 

$

(4,000

)

$

916,000

 

Municipal obligations

 

4,645,000

 

3,000

 

(44,000

)

4,604,000

 

Preferred stock & other

 

954,000

 

0

 

(69,000

)

885,000

 

Equity securities

 

616,000

 

0

 

(23,000

)

593,000

 

Asset backed securities

 

921,000

 

2,000

 

(7,000

)

916,000

 

 

 

 

 

 

 

 

 

 

 

Total marketable securities

 

$

8,056,000

 

$

5,000

 

$

(147,000

)

$

7,914,000

 

 

 

 

As of December 31, 2003

 

U.S. Government obligations

 

$

23,874,000

 

$

23,000

 

$

(148,000

)

$

23,749,000

 

Municipal obligations

 

98,440,000

 

131,000

 

(140,000

)

98,431,000

 

Preferred stock & other

 

7,946,000

 

225,000

 

(68,000

)

8,103,000

 

Equity securities

 

12,955,000

 

332,000

 

(140,000

)

13,147,000

 

Asset backed securities

 

7,082,000

 

12,000

 

(9,000

)

7,085,000

 

 

 

 

 

 

 

 

 

 

 

Total marketable securities

 

$

150,297,000

 

$

723,000

 

$

(505,000

)

$

150,515,000

 

 

NOTE 3 - EARNINGS PER SHARE

 

A reconciliation of weighted average common shares outstanding to weighted average common shares outstanding assuming dilution is as follows:

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

20,829,000

 

20,628,000

 

20,767,000

 

20,581,000

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of common shares issuable under outstanding stock options

 

 

104,000

 

 

100,000

 

Weighted average common shares outstanding assuming dilution

 

20,829,000

 

20,732,000

 

20,767,000

 

20,681,000

 

 

Stock options outstanding at September 30, 2004 to purchase 460,482 shares of common stock were excluded from the computation of earnings per share assuming dilution for such periods as the exercise prices for such options were greater than the average market price of the Company’s Common Stock.  There were no stock options outstanding at September 30, 2003 which were excluded from the computation of earnings per common share assuming dilution because none of the options’ exercise prices were greater than the average market price of the Company’s Common Stock.

 

NOTE 4 - DIVIDENDS

 

Cash dividends of $6,249,000 ($0.30 per share quarterly dividend) were paid in the quarter ended September 30, 2004.  Cash dividends of $164,520,000 ($0.30 per share quarterly dividend plus $7.00 per share special dividend) were paid in the nine months ended September 30, 2004.  On April 12, 2004, the Company declared a one-time special cash dividend in the amount of $7.00 per common share payable on May 28, 2004, to shareholders of record of the Company’s Common Stock on May 14, 2004.  This one-time special dividend of $145,808,000 is included in the dividend payment, stated above, for the nine months ended September 30, 2004.  A quarterly dividend of $0.30 per share for the third quarter was paid on September 3, 2004, to shareholders of record of the Company’s Common Stock on August 20, 2004.

 

Cash dividends of $5,777,000 ($0.28 per share) were paid on August 29, 2003, to shareholders of record of the Company’s Common Stock on August 15, 2003.  Cash dividends of $17,289,000 ($0.28 per share per quarter) were paid in the nine months ended September 30, 2003.

 

7



 

NOTE 5 - COMPREHENSIVE INCOME

 

Comprehensive Income, representing all changes in Shareholders’ equity during the period other than changes resulting from the issuance or repurchase of the Company’s Common Stock and payment of dividends, is reconciled to net income for the three and nine months ended September 30, 2004 and 2003 as follows:

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Net income (loss)

 

$

2,248,000

 

$

11,595,000

 

$

(12,866,000

)

$

25,752,000

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

1,282,000

 

669,000

 

907,000

 

5,630,000

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain (loss) on securities available-for-sale

 

154,000

 

372,000

 

(255,000

)

94,000

 

Net unrealized gain (loss) on foreign currency forward exchange contracts and other

 

586,000

 

(22,000

)

1,129,000

 

38,000

 

Other comprehensive income

 

2,022,000

 

1,019,000

 

1,781,000

 

5,762,000

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

4,270,000

 

$

12,614,000

 

$

(11,085,000

)

$

31,514,000

 

 

NOTE 6 – LITIGATION

 

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.  In the opinion of management, the amount of ultimate liability with respect to these actions will not materially adversely affect the consolidated results of operations, financial condition or cash flows of the Company.

 

NOTE 7 – SEGMENTS OF THE COMPANY AND RELATED INFORMATION

 

The Company operates in two segments which consist of the Company’s core gift business and the Company’s non-core business.  This segmentation of the Company’s operations reflects how the Company’s Chief Executive Officer currently views the results of operations.  There are no intersegment revenues to eliminate.

 

The Company’s core gift business designs, manufactures through third parties and markets a wide variety of gift and home décor products to retail stores throughout the United States and throughout the world via the Company’s international wholly-owned subsidiaries and distributors.  Until August 2, 2004 the Company’s non-core businesses designed and marketed functional consumer products sold at comparable price points with comparable gross margins to each other and consisted of the Company’s wholly-owned subsidiaries Sassy, Inc. and Bright of America, Inc.  Effective August 2, 2004, the Company sold Bright of America, Inc. (See Note 13 of the Notes to Consolidated Financial Statements).  Sassy’s product line consists of approximately 400 infant and juvenile products that focus on children of the age between newborn to two years, under the trade name Sassy™, with concept groupings such as bath toys and accessories, development toys, feeding utensils and bowls, pacifiers, bottles, bibs, soft toys, mobiles and feeders.  Sassy also benefits from United States distribution rights to certain baby soothing and comforting products from MAM Babyartikel GmbH, of Vienna, Austria, a developer and manufacturer of children’s products.  Sassy’s products are sold to consumers, primarily in the United States, through mass marketers.

 

 

 

Three Months Ended
September 30,

 

Nine months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Core:

 

 

 

 

 

 

 

 

 

Net sales

 

$

63,678,000

 

$

73,681,000

 

$

153,412,000

 

$

199,285,000

 

Income (loss) before income taxes

 

141,000

 

13,007,000

 

(25,593,000

)

30,244,000

 

 

 

 

 

 

 

 

 

 

 

Non-core:

 

 

 

 

 

 

 

 

 

Net Sales

 

15,594,000

 

14,167,000

 

44,993,000

 

43,281,000

 

Income before income taxes

 

2,199,000

 

2,527,000

 

5,586,000

 

6,075,000

 

 

 

 

 

 

 

 

 

 

 

Consolidated:

 

 

 

 

 

 

 

 

 

Net Sales

 

79,272,000

 

87,848,000

 

198,405,000

 

242,566,000

 

Income (loss) before income taxes

 

2,340,000

 

15,534,000

 

(20,007,000

)

36,319,000

 

 

8



 

Additionally, total assets of each segment were as follows:

 

 

 

September 30,
2004

 

December 31,
2003

 

 

 

 

 

 

 

Core

 

$

204,163,000

 

$

388,207,000

 

Non-core

 

72,910,000

 

74,541,000

 

 

 

 

 

 

 

Total

 

$

277,073,000

 

$

462,748,000

 

 

As disclosed in the Company’s 2003 10-K , while 86% of purchases are attributable to manufacturers in the People’s Republic of China, the supplier accounting for the greatest dollar volume of purchases accounted for approximately 9% and the five largest suppliers accounted for approximately 34% in aggregate.  The Company utilizes approximately 100 manufacturers in the Far East.  The Company believes that there are many alternative manufacturers for the Company’s products and sources of raw materials.  Based on the above conditions, the Company does not believe there is a concentration risk associated with any significant relationship.

 

NOTE 8—INVESTMENT AND OTHER INCOME – NET

 

The significant components of investment and other income—net consist of the following:

 

 

 

Three Months Ended
September 30,

 

Nine months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Investment income

 

$

353,000

 

$

926,000

 

$

3,164,000

 

$

4,201,000

 

Interest (expense)

 

(13,000

)

(4,000

)

(77,000

)

(17,000

)

Foreign currency transactions, net

 

67,000

 

69,000

 

(571,000

)

13,000

 

Other, net

 

(97,000

)

140,000

 

(15,000

)

206,000

 

Total

 

$

310,000

 

$

1,131,000

 

$

2,501,000

 

$

4,403,000

 

 

NOTE 9 - ACCOUNTING FOR STOCK OPTIONS

 

The Company follows the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123” and, therefore, accounts for its stock option grants in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations using the intrinsic value method of accounting.  Accordingly, no compensation cost has been recognized for the options granted by the Company except for the application of Financial Accounting Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation”, which resulted in non-cash expense of $1,000 and non-cash income of $75,000 during the three months ended September 30, 2004, and September 30, 2003, respectively, which is included in selling, general and administrative expenses in the Consolidated Statement of Operations and non cash income of $222,000 and non-cash expense $7,000 for the nine months ended September 30, 2004 and September 30, 2003, respectively.  These charges relate only to the options granted during 2000 that were repriced as of February 29, 2000 upon approval of the Board of Directors and Shareholders.  Had compensation cost for the Company’s stock grants been determined based on the fair value recognition provisions of SFAS No. 123 at the grant date, in the three months and nine months ended September 30, 2004 and 2003, the Company’s net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:

 

 

 

Three Months Ended
September 30,

 

Nine months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Net income (loss) -as reported

 

$

2,248,000

 

$

11,595,000

 

$

(12,866,000

)

$

25,752,000

 

Deduction for stock-based compensation expense determined under fair value method net of tax-pro forma

 

91,000

 

393,000

 

403,000

 

620,000

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income-pro forma

 

2,157,000

 

11,202,000

 

(13,269,000

)

25,132,000

 

Earnings (loss) per share (basic) – as reported

 

0.11

 

0.56

 

(0.62

)

1.25

 

Earnings (loss) per share (basic) – pro forma

 

0.10

 

0.54

 

(0.64

)

1.22

 

Earnings (loss) per share (diluted) – as reported

 

0.11

 

0.56

 

(0.62

)

1.25

 

Earnings (loss) per share (diluted) – pro forma

 

0.10

 

0.54

 

(0.64

)

1.22

 

 

9



 

The fair value of each option granted by the Company is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for all grants:

 

 

 

Three Months Ended
September 30,

 

Nine months Ended
September 30,

 

 

 

2004

 

2003

 

2004

 

2003

 

Dividend yield

 

3.52

%

3.22

%

3.52

%

3.22

%

Risk-free interest rate

 

2.40

%

2.09

%

2.40

%

2.09

%

Volatility

 

30.71

%

32.64

%

30.71

%

18.72

%

Expected life (years)

 

3.7

 

2.9

 

3.7

 

2.9

 

Weighted average fair value of options granted during the year

 

$

4.43

 

$

6.37

 

$

4.43

 

$

3.49

 

 

NOTE 10 - FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS

 

Certain of the Company’s foreign subsidiaries periodically enter into foreign currency forward exchange contracts (“Forward Contracts) to hedge inventory purchases, both anticipated and firm commitments, denominated in the United States dollar.  One of the Company’s domestic subsidiaries periodically enters into Forward Contracts to hedge inventory purchases, both anticipated and firm commitments, denominated in the Euro.  These contracts reduce foreign currency risk caused by changes in exchange rates and are used to hedge these inventory purchases, generally for periods up to 13 months.  At September 30, 2004, the Company’s Forward Contracts have expiration dates which range from one to nine months.

 

Since there is a direct relationship between the Forward Contracts and the currency denomination of the underlying transaction, such Forward Contracts are highly effective in hedging the cash flows of certain of the Company’s foreign subsidiaries related to transactions denominated in the United States dollar and certain of the Company’s domestic subsidiaries related to transactions denominated in the Euro.  These Forward Contracts meet the criteria for cash flow hedge accounting treatment and accordingly, gains or losses are included in other comprehensive income (loss) and are recognized in cost of sales based on the turnover of inventory.

 

NOTE 11 - RECENTLY ISSUED ACCOUNTING STANDARDS

 

On March 31, 2004, the Financial Accounting Standards Board (FASB) issued a proposed Statement, “Share-Based Payment” that addresses the accounting for share-based awards to employees, including employee-stock-purchase-plans (ESPPs).  The FASB formally proposed to require companies to recognize the fair value of stock options and other stock-based compensation to employees.  The proposed Statement would eliminate the ability to account for share-based compensation transactions using the intrinsic value method under APB Opinion No. 25, Accounting for Stock Issued to Employees, and generally would require instead that such transactions be accounted for using a fair-value-based method.  The proposed requirements in the exposure draft would be effective for public companies for period beginning after June 15, 2005The Company currently accounts for its stock-based compensation plans in accordance with APB Opinion No. 25.  Therefore, if the FASB adopts this proposed statement, as currently drafted, the Company will have to recognize the fair value of the stock based compensation in the Consolidated Statement of Operations rather than disclosing the pro forma impact of the stock based compensation as the Company currently does in Note 9.

 

On March 31, 2004, the Financial Accounting Standards Board ratified the consensus of its Emerging Issues Task Force (“EITF”) regarding the recognition and measurement of other-than-temporary impairments of certain investments effective on June 30, 2004The Company’s adoption of the provisions of EITF No. 03-01 did not have a material impact on the Company’s financial statements.

 

NOTE 12 – TENDER OFFER

 

On May 7, 2004, the Company announced that the Board of Directors authorized a cash tender offer to purchase outstanding options issued under the Company’s various equity compensation plans, as is more fully described in the Statement on Schedule TO and related amendments filed by the Company with the Securities and Exchange Commission on May 7, 2004, May 28, 2004, June 15, 2004, June 22, 2004 and June 30, 2004, respectively. 

 

10



 

 

The tender offer closed in June 2004 with an aggregate purchase price of approximately $844,000 paid by the Company, which was treated as a compensation expense in the second quarter of 2004.

 

NOTE 13 – SALE OF BRIGHT OF AMERICA

 

Effective August 2, 2004, the Company sold substantially all of the net assets from one of its non-core subsidiaries, Bright of America, Inc. (“Bright”).  Assets of approximately $5.8 million less assumed liabilities of $0.8 million were sold for $4.0 million in cash and a $1 million promissory note bearing interest at 9% per annum, payable in 39 months.  The Company recorded a loss of approximately $153,000 net of tax, in the third quarter 2004 as a result of the sale, due primarily to transaction related costs.  During the nine months ended September 30, 2004, Bright generated net sales of approximately $4,900,000 and net income of approximately $300,000.

 

NOTE 14 – COST ASSOCIATED WITH DISPOSAL ACTIVITY

 

In 2003, the Company restructured its operations through headcount reductions and the closure of certain facilities.  The restructuring provision of $2.3 million recorded in the third and fourth quarter of 2004, included estimates for separation cost of approximately 115 employees, facilities exit cost and the write-off of certain leasehold improvements.  Although these employees are no longer employees of the Company, payments will continue through the fourth quarter of 2004.  The lease obligations on the closed facilities will be complete in May 2005. These costs are shown in selling, general and administrative expenses in the Consolidated Statement of Operations and are all related to the Company’s core business segment.

 

On September 28, 2004, Russ Berrie and Company, Inc. announced a corporate restructuring designed to align the Company’s management and sales organization with its strategic plans and to right-size its expense structure.  The restructuring included the immediate elimination of approximately 75 domestic positions, and resulted in a pretax charge of $4.1 million in the third quarter of 2004, primarily related to severance costs.  Although these employees are no longer employees of the Company, payments will continue through the third quarter of 2005.  These costs are shown in selling general and administrative expenses in the Consolidated Statement of Operations and are all related to the Company’s core business segment.

 

The Company reassesses the reserve requirement under the restructuring plan at the end of each reporting period.  Below is the rollforward of the restructuring accrual:

 

 

 

Balance
12/31/03

 

2004
Provision

 

Payments/
Write-offs

 

Additional Cost
Incurred

 

Balance at
9/30/04

 

Employee separation

 

$

488,000

 

$

4,050,000

 

$

550,000

 

$

90,000

 

$

4,078,000

 

Facility exit cost

 

87,000

 

 

69,000

 

 

18,000

 

Total

 

$

575,000

 

$

4,050,000

 

$

619,000

 

$

90,000

 

$

4,096,000

 

 

See “Overview” of Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the facts and circumstance leading up to the restructuring charges discussed herein.

 

The Company does expect to incur further restructuring costs as it continues to investigate other areas for cost reduction and efficiency improvements in its efforts to “right-size” its infrastructure.  As these cost reduction opportunities have not yet been specifically identified and/or quantified, no estimates as to future restructuring charges can be made at this time.

 

NOTE 15 – INTANGIBLE ASSETS

 

The significant components of intangible assets consist of the following:

 

 

 

September 30,
2004

 

December 31,
2003

 

 

 

 

 

 

 

MAM distribution agreement and relationship

 

$

10,400,000

 

$

10,400,000

 

Sassy trade name

 

7,100,000

 

7,100,000

 

Other intangible assets

 

51,000

 

64,000

 

 

 

 

 

 

 

Total intangible assets

 

$

17,551,000

 

$

17,564,000

 

 

11



 

NOTE 16 - INVENTORY

 

The Company values inventory at the lower of the actual cost or its current estimated market value.  The Company regularly reviews inventory quantities on hand, by item, and records a write-down of inventory to fair market value based primarily on the Company’s historical experience and estimated forecast of product demand using historical and recent ordering data relative to the quantity on hand for each item.  In response to strategic changes in product direction made in June 2004 under its recently appointed CEO, the Company undertook a comprehensive review of its worldwide inventory during the second quarter.  As a result of this review, an additional inventory write-down of $13 million (pre tax) was recorded in the second quarter of 2004 to reflect inventory in the core segment at its lower of cost or market value.  The Company expects to sell substantially all of this inventory through other than its normal sales channels.  See “Overview” above.  A significant change in demand for the Company’s products could result in a change in the amount of excess inventories on hand, however the Company manages inventory and monitors product purchasing to minimize this risk.  “See “Overview” of Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, above.  Although the Company does not anticipate further material inventory write-downs at this time, a significant change in demand for the Company’s products could result in a change in the amount of excess inventories on hand.  The Company manages inventory and monitors product purchasing to minimize this risk.”

 

NOTE 17 – SUBSEQUENT EVENTS

 

Applause Trademark

 

Russ Berrie and Company, Inc. (“RUSS”) and Applause, LLC (“Seller”) entered into a Trademark Purchase Agreement on or about August 11, 2004 (the “Original Agreement”), relating to the sale to RUSS of the “APPLAUSE” and certain related trademarks, together with certain inventory.  Prior to the closing under the Original Agreement, an involuntary bankruptcy petition was filed against the Seller on or about August 31, 2004.  As of September 21, 2004, RUSS and Seller entered into an Amended and Restated Trademark Purchase Agreement, which was substantially similar to the Original Agreement (the “Agreement of Sale”).  As a result of the bankruptcy petition filed against Seller, however, all sales of assets of the Seller were subject to the consent and order of the United States Bankruptcy Court, Central District of California, San Fernando Valley Division.  Pursuant to an order of the Bankruptcy Court, a public auction was held on October 14, 2004 to determine the highest bidder for the assets of the Seller which were being sought to be purchased by RUSS.  As a result of the public auction, the Bankruptcy Court entered an Order on October 15, 2004 authorizing and approving the sale by the Seller to RUSS of the “APPLAUSE” and certain related trademarks, together with certain inventory, pursuant to the Agreement of Sale. As a result of the public auction, the Agreement of Sale provides for a cash purchase price for the trademarks of $7,550,000, and a cash purchase price of the inventory to be purchased being $41,000, unless RUSS and the Seller agree to the sale and purchase of inventory in excess of such amount.  The purchase price was paid at the closing on October 26, 2004.

 

Potential acquisition

 

On October 25, 2004, the Company signed a non-binding letter of intent with respect to the potential acquisition by the Company of an entity in a related business, at a purchase price equal to approximately $128,000,000 plus a deferred payment based on performance and transaction costs.  The Company anticipates that the purchase price will be funded substantially with third-party financing, in an amount approximating $125,000,000.  The Company cannot assure that it will enter into a definitive agreement or that a transaction will be consummated.

 

Sale of Hong Kong office space

 

Russ Berrie has entered into a provisional sales agreement to sell one of its two office locations in Hong Kong as a result of the Company transitioning a number of functions that had previously been performed in Hong Kong into our offices in mainland China.  A formal sales agreement is expected to be signed before the end of November 2004, with a closing expected in the first quarter of 2005.  As a result of this transaction, the Company expects to receive $2.8 million which will result in a loss of approximately $2.0 million pre-tax.

 

12



 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The financial and business analysis below provides information which the Company believes is relevant to an assessment and understanding of the Company’s consolidated financial condition, changes in financial condition and results of operations.  This financial and business analysis should be read in conjunction with the Company’s consolidated financial statements and accompanying notes to the Consolidated Financial Statements set forth in Part I, Financial Information, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q, the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004 and June 30, 2004 and the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

 

OVERVIEW

 

 The Company’s revenues are primarily derived from sales of its products, a significant portion of which is attributable to sales of products in its core segment.  Sales and operating profits in the Company’s core business segment began to decline during 2003 as a result of several factors discussed in Russ Berrie’s Annual Report on Form 10-K for the year ended December 31, 2003 (“2003 10-K”) and subsequent 10-Q filings, including (i) retailer consolidation and a declining number of independent retail outlets, which in turn had a negative impact on sales from such outlets, (ii) increased competition from other entities which offered lower pricing and achieved greater customer acceptance of their products and (iii) changing buying habits of consumers, marked by a shift from independent retailers to mass market retailers.  During the first half of 2003, management realized that the factors discussed above were unlikely to abate, and as a result, began an evaluation of how best to respond.  The result was a multi-pronged approach begun in the third quarter of 2003, of which a restructuring was one part.  Such response, as described in the 2003 10-K, consisted of (i) focusing on categorizing and rationalizing its product range, (ii) segmenting its selling efforts to address management’s perception of new customer requirements, (iii) focusing on growing its international business and non-core segment and (iv) restructuring its operations in order to reduce overhead expenses through headcount reductions and the closure of certain domestic showrooms.  Specifically, in the third and fourth quarters of 2003, restructuring charges of $1.3 million and $1.0 million were recorded, respectively, in accordance with the provisions of SFAS No. 146, “Accounting for Costs Associated With Exit or Disposal Activities”.  The restructurings for both quarters reduced the Company’s future operating expenses, predominantly through lower compensation expense and reduced facilities lease costs, by approximately $4.3 million on an annualized basis commencing in the fourth quarter of 2003.  Liquidity will be improved by a similar amount.  Although these employees are no longer employees of the Company, payments will continue through the fourth quarter of 2004.  The lease obligations on the closed facilities will be complete in May 2005.  All costs associated with this restructuring were recorded in selling, general and administrative expenses.  “See Note 14 to Notes to Consolidated Financial Statements.”

 

During the first half of 2004, the Company continued to be negatively impacted by the factors discussed above.  As a result, its core business segment’s sales continued to decline, as described in its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004 and June 30, 2004 (the “2004 10-Qs).  In response to this continued decline, in addition to the initiatives described above, the Company discontinued pursuit of strategic alternatives and hired a new Chief Executive Officer (“CEO”), effective June 1, 2004, all as disclosed in the 2004 10-Qs.  In June 2004, the new CEO implemented a comprehensive strategic review of Russ Berrie’s worldwide inventory, with a view towards his perception of the Company’s future direction in light of the current factors affecting its core business segment.  As a result of this review, an additional inventory write-down of $13 million (pre tax) was recorded in the second quarter to reflect inventory in the core segment at the lower of its cost or market value.  The Company expects to sell substantially all of this inventory through other than its normal sales channels. Therefore, no future impact on results of operations or liquidity is anticipated related to this additional inventory reserve.  All costs associated with the inventory write-down were recorded in cost of goods sold in the second quarter of 2004.  “Although the Company does not anticipate further material inventory write-downs at this time, a significant change in demand for the Company’s products could result in a change in the amount of excess inventories on hand.  The Company manages inventory and monitors product purchasing to minimize this risk.”

 

Concurrently with the inventory review discussed above, the Company continued to evaluate “right sizing” its infrastructure in response to the changing business environment.  As a result of such evaluation, and as disclosed in the Company’s 8-K filed on September 28, 2004, Russ Berrie reduced headcount by approximately 75 positions and recorded a restructuring charge of $4.1 million in the third quarter 2004.  Future operating expenses, predominantly through reduced employee cost, will be reduced by approximately $7.5 million.  The effects of these reduced costs will begin in the fourth quarter of 2004.  Although these employees are no longer employees of the Company, payments will continue through the third quarter of 2005.  All cost associated with this restructuring have been recorded in selling, general and administrative expenses.  “See Note 14 to Notes to Consolidated Financial Statements.”

 

The Company does expect to incur further restructuring costs as it continues to investigate other areas for cost reduction and efficiency improvements in its efforts to right-size its infrastructure.  As these cost-reduction opportunities have not yet been specifically identified and/or quantified, no estimates as to future restructuring charges can be made at this time.

 

In addition to the “right-sizing” efforts discussed above, the Company is continuing to respond to these developments affecting its core gift business by (i) hiring a new, experienced executive vice president of sales, who commenced employment on September 27, 2004, (ii) focusing on realigning its product line and distribution channels to better meet the changing demands of its customers and improve its competitive position in the industry, (iii) segmenting its selling efforts with an increased focus on national accounts, (iv) continuing to focus on realigning growth opportunities in its international markets and its non-core business segment, (v) selectively increasing its use of licensing to differentiate its products from its competitors,  including a license of certain intellectual property from Marvel Enterprises executed in June of 2004, execution of an agreement with Tom Wilson in August of 2004 to create a new “Ziggy” line, with Sanrio (creators of “Hello Kitty”) in October, 2004 to market the “KEROPPI” brand, and with Dreamworks SKG in October 2004 to design and market products related to an anticipated 2005 Dreamworks movie release, (vi) pursuing strategic acquisition opportunities; and (vii) implementing a three tiered “good”, “better”, “best” branding strategy within its core segment to differentiate products sold into the mass market, Russ Berrie’s traditional specialty retail market and upscale department store market.  The recent acquisition of the Applause Trademark will serve as the brand platform upon which the Company’s growth in the mass market will be positioned.  See also “Liquidity and Capital Resources” below.

 

13



 

SEGMENTS

 

The Company operates in two segments which consist of the Company’s core gift business and the Company’s non-core business.  The Company’s core gift business designs, manufactures through third parties and markets a wide variety of gift products to retail stores throughout the United States and throughout the world via the Company’s international wholly-owned subsidiaries and distributors.  Until August 2, 2004 the Company’s non-core businesses designed and marketed functional consumer products sold at comparable price points with comparable gross margins to each other and consisted of the Company’s wholly-owned subsidiaries Sassy, Inc. and Bright of America, Inc.  Effective August 2, 2004, the Company sold Bright of America, Inc. (See Note 13 of the Notes to Consolidated Financial Statements).  Sassy’s product line consists of approximately 400 infant and juvenile products that focus on children of the age between newborn to two years, under the trade name Sassy™, with concept groupings such as bath toys and accessories, development toys, feeding utensils and bowls, pacifiers, bottles, bibs, soft toys, mobiles and feeders.  Sassy also benefits from United States distribution rights to certain baby soothing and comforting products from MAM Babyartikel GmbH, of Vienna, Austria, a developer and manufacturer of children’s products.  Sassy’s products are sold to consumers, primarily in the United States, through mass marketers.

 

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

 

The Company’s consolidated net sales for the quarter ended September 30, 2004 decreased 9.8% to $79,272,000 compared to consolidated net sales of $87,848,000 for the quarter ended September 30, 2003The Company’s core segment’s net sales for the quarter ended September 30, 2004 decreased 13.6% to $63,678,000 compared to core net sales of $73,681,000 for the quarter ended September 30, 2003 primarily as a result of the factors described in the “Overview” above.  Net sales in the Company’s core segment benefited from foreign exchange rates by approximately $2,024,000 in the quarter.  The Company’s non-core segment’s net sales for the quarter ended September 30, 2004 increased 10.1% to $15,594,000 compared to non-core net sales of $14,167,000 for the quarter ended September 30, 2003 primarily as a result of increased sales generated by Sassy.  Non-core sales for the third quarter were negatively impacted in the amount of $2,600,000 by the sale of Bright of America, Inc. effective August 2 2004.

 

Consolidated gross profit was 47.2% of consolidated net sales for the quarter ended September 30, 2004, as compared to 53.1% of consolidated net sales for the quarter ended September 30, 2003.  Gross profit for the Company’s core segment was 50.5% of net sales for such segment for the quarter ended September 30, 2004 as compared to 56.7% of net sales for the quarter ended September 30, 2003, due primarily to lower selling prices in its core segment.  Gross profit for the Company’s non-core segment was 33.3% of net sales for such segment for the quarter ended September 30, 2004 as compared to 35.0% of net sales for the quarter ended September 30, 2003.

 

Consolidated selling, general and administrative expense was $35,349,000 or 44.6% of consolidated net sales for the quarter ended September 30, 2004 compared to $32,217,000 or 36.7% of consolidated net sales for the quarter ended September 30, 2003.  This increase in consolidated selling, general and administrative expense is due primarily to the restructuring expenses described in Note 14 of the Notes to Consolidated Financial Statements and the “Overview” above, unfavorable exchange rates variances and costs associated with the Company’s Sarbanes-Oxley Section 404 compliance efforts, partially offset by lower selling costs.

 

Consolidated investment and other income of $310,000 for the quarter ended September 30, 2004 compares to $1,131,000 for the quarter ended September 30, 2003, a decrease of $821,000, or 72.6%.  This decrease was primarily the result of lower investment income due to lower investment balances (See Notes 2 and 8 of the Notes to Consolidated Financial Statements).

 

The consolidated provision for income taxes as a percent of income before taxes for the quarter ended September 30, 2004 was 3.9% compared to 25.4% for the quarter ended September 30, 2003The third quarter tax expenses, when combined with the tax benefits for the first six months of 2004, reflects the Company’s estimated annual effective tax rate expected for the full year.

 

14



 

Consolidated net income for the quarter ended September 30, 2004 was $2,248,000 compared to consolidated net income of $11,595,000 for the quarter ended September 30, 2003, representing a decrease of $9,347,000 and a decrease of $0.45 per diluted share (See Note 3 of the Notes to Consolidated Financial Statements).  The decrease was primarily the result of lower sales and resultant decreased gross profit in the Company’s core segment, lower selling prices in its core segment, higher selling, general and administrative expenses and lower investment and other income-net, offset, in part, by a lower provision for income taxes, all as described above.

 

RESULTS OF OPERATIONS—NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

 

The Company’s consolidated net sales for the nine months ended September 30, 2004 decreased 18.2% to $198,405,000 compared to consolidated net sales of $242,566,000 for the nine months ended September 30, 2003.  The net sales decline for the nine months ended September 30, 2004 was primarily attributable to the Company’s core segment, as described below.  The Company’s non-core segment’s net sales increased 4.0% for the nine months ended September 30, 2004 as compared to the nine months ended September 30, 2003.

 

The Company’s core segment’s net sales for the nine months ended September 30, 2004 decreased 23.0% to $153,412,000 compared to core net sales of $199,285,000 for the nine months ended September 30, 2003 primarily as a result of the factors discussed in the “Overview” above.  Customer bookings were down approximately 24% for the nine months ended September 30, 2004 compared to September 30, 2003.  Net sales in the Company’s core segment benefited from foreign exchange rates by approximately $5,872,000 for the nine months ended September 30, 2004The Company’s non-core segment’s net sales for the nine months ended September 30, 2004 increased 4.0% to $44,993,000 compared to non-core net sales of $43,281,000 for the nine months ended September 30, 2003.  Non-core sales year-to-date were also negatively impacted by the sale of Bright of America, Inc.

 

Consolidated gross profit was 41.0% of consolidated net sales for the nine months ended September 30, 2004 as compared to 53.6% of consolidated net sales for the nine months ended September 30, 2003.  The erosion in the consolidated gross profit percentage is primarily due to a significant increase to our inventory reserve requirement (as discussed below) and lower selling prices in the core segment.  In response to strategic changes in product direction made in June 2004 under its recently appointed CEO, the Company undertook a comprehensive review of its worldwide inventory during the second quarter.  As a result of this review, an additional inventory write-down of $13 million (pre tax) was recorded in the second quarter to reflect excess inventory in the core segment at the lower of its cost or market value.  The Company expects to sell substantially all of this inventory through other than its normal sales channels.  See “Overview” above and Note 16 of the Notes to Consolidated Financial Statements for a discussion of the additional inventory write-down.  Gross profit for the Company’s core segment was 43.2% of net sales for such segment for the nine months ended September 30, 2004 as compared to 57.6% of net sales for the nine months ended September 30, 2003.  Gross Profit for the Company’s non-core segment was 33.4% of net sales for such segment for the nine months ended September 30, 2004 as compared to 34.9% of net sales for the nine months ended September 30, 2003.

 

Consolidated selling, general and administrative expense was $103,819,000 or 52.3% of consolidated net sales for the nine months ended September 30, 2004 compared to $98,032,000 or 40.4% of consolidated net sales for the nine months ended September 30, 2003.  This increase in consolidated selling, general and administrative expense is due primarily to the restructuring expenses described in Note 14 to the Notes to Consolidated Financial Statements and the “Overview” above, unfavorable exchange rates variances, costs associated with the Company’s tender offer for outstanding plan options (See Note 12 of the Notes to Consolidated Financial Statements and “Liquidity and Capital Resources” below) and costs associated with the Company’s Sarbanes-Oxley Section 404 compliance efforts, partially offset by lower selling costs.

 

Consolidated investment and other income of $2,501,000 for the nine months ended September 30, 2004 compares to $4,403,000 for the nine months ended September 30, 2003, a decrease of $1,902,000 or 43.2%.  This decrease was primarily the result of lower investment income due to lower investment balances and higher foreign exchange losses for the nine months ended September 30, 2004 as compared nine months ended September 30, 2003 in the Company’s core segment (See Notes 2 and 8 of the Notes to Consolidated Financial Statements).

 

The consolidated benefit/provision for income taxes as a percent of income before taxes for the nine months ended September 30, 2004 was a benefit of 35.7% compared to a provision of 29.1% for the nine months ended September 30, 2003.  The increase in the rate reflects the Company’s estimated a benefit of annual effective tax rate primarily due to lower relative tax-exempt interest income and charitable contributions.

 

Consolidated net loss for the nine months ended September 30, 2004 was $12,866,000 compared to consolidated net income of $25,752,000 for the nine months ended September 30, 2003, representing a decrease of $38,618,000 and a decrease of $1.87 per diluted share (See Note 3 of the Notes to Consolidated Financial Statements).  The decrease was primarily the result of lower sales and resultant decreased gross profit in the Company’s core segment due to lower selling prices in its core segment, in addition to the impact of previously discussed inventory write-down, higher selling, general and administrative expenses and lower investment and other income-net, offset, in part, by a benefit for income taxes, all as described above.

 

15



 

Liquidity and Capital Resources

 

As of September 30, 2004, the Company had cash, cash equivalents and marketable securities of $72,495,000 compared to $232,050,000 at December 31, 2003.  As of September 30, 2004 and December 31, 2003, working capital was $168,281,000 and $333,952,000, respectively.  These decreases are predominantly the result of the payment of the special $7.00 per share dividend discussed in Note 4 of the Notes to Consolidated Financial Statements and below.

 

As of September 30, 2004 and December 31, 2003, the Company had marketable securities of $7,914,000 and $150,515,000 respectively, included in the amounts above.  This decrease is primarily a result of the Company’s sale of a significant portion of the Company’s available-for-sale marketable securities during the nine months ended September 30, 2004 to fund the aforementioned special dividend.  As of September 30, 2004, marketable securities investments consisted primarily of U.S. government obligations, municipal obligations, preferred stock, mutual funds and equity securities.  For more information regarding financial instruments, see Note 2 of the Notes to Consolidated Financial Statements.

 

Cash and cash equivalents decreased by $16,954,000 during the nine months ended September 30, 2004 compared to a decrease of $25,273,000 for the same period in the prior year.  Net cash used by operating activities was approximately $1,350,000 during the nine months ended September 30, 2004 as compared to cash provided by operating activities of approximately $16,789,000 during the nine months ended September 30, 2003.  This decrease of $18,139,000 was due primarily to the net loss in 2004 compared to net income in 2003, payments to reduce tax liabilities and accounts payable, offset in part by cash provided by the collection of accounts receivable and the provision for inventory reserve.  Net cash provided by investing activities was approximately $145,012,000 for the nine months ended September 30, 2004 as compared to net cash used in investing activities of approximately $32,357,000 for the nine months ended September 30, 2003.  This increase of approximately $177,369,000 was due primarily to the receipt of proceeds from sales of marketable securities in the nine months ended September 30, 2004 as compared to the purchase of marketable securities in the nine months ended September 30, 2003.  Net cash used in financing activities of $161,250,000 and $14,453,000 for the nine months ended September 30, 2004 and 2003, respectively, consisted primarily of dividends paid to shareholders, described below.

 

During the nine months ended September 30, 2004, the Company paid approximately $859,000 for income taxes.  The Company currently expects that its cash flows will exceed any income tax payments during 2004.

 

Working capital requirements during the nine months ended September 30, 2004 were met entirely through internally generated funds.  The Company anticipates capital expenditure requirements for 2004 to be approximately $2,000,000 primarily for continued system implementation and development costs.  After payment of such expenditures in addition to the other expenditures described in the remainder of this “Liquidity and Capital Resources” section, the Company remains in a liquid position, and management believes that the resources available from cash and cash equivalents, marketable securities, operations and bank lines of credit are sufficient to meet the foreseeable requirements of its business.  Notwithstanding the foregoing, the Company may consider the use of debt financing to fund the prospective acquisitions (discussed below).

 

Cash dividends of $6,249,000 ($0.30 per share quarterly dividend) were paid in the quarter ended September 30, 2004.  Cash dividends of 164,520,000 ($0.30 per share per quarter plus $7.00 per share special dividend) were paid in the nine months ended September 30, 2004.  On April 12, 2004, the Company declared a one-time special cash dividend in the amount of $7.00 per common share payable on May 28, 2004, to shareholders of record of the Company’s Common Stock on May 14, 2004.  This one-time special dividend of $145,808,000 is included in the dividend payment, stated above, for the nine months ended September 30, 2004.  The quarterly dividend of $0.30 per share for the third quarter was paid on September 3, 2004, to shareholders of record of the Company’s Common Stock on August 20, 2004.  Management does not believe that the payment of such dividends had a material impact on the Company’s results of operations.

 

On September 28, 2004, the Company announced a corporate restructuring, discussed in detail in the “Overview” above, which resulted in a pre-tax charge of approximately $4.1 million in the third quarter of 2004, primarily related to severance costs.  Management does not believe that payment of such costs will have a material impact on the Company’s financial condition or cash flows.

 

16



 

Russ Berrie and Company, Inc. (“RUSS”) and Applause, LLC (“Seller”) entered into a Trademark Purchase Agreement on or about August 11, 2004 (the “Original Agreement”), relating to the sale to RUSS of the “APPLAUSE” and certain related trademarks, together with certain inventory.  Prior to the closing under the Original Agreement, an involuntary bankruptcy petition had been filed against the Seller on or about August 31, 2004.  As of September 21, 2004, RUSS and Seller entered into an Amended and Restated Trademark Purchase Agreement, which was substantially similar to the Original Agreement (the “Agreement of Sale”).  As a result of the bankruptcy petition filed against Seller, however, all sales of assets of the Seller were subject to the consent and order of the United States Bankruptcy Court, Central District of California, San Fernando Valley Division.  Pursuant to an order of the Bankruptcy Court, a public auction was held on October 14, 2004 to determine the highest bidder for the assets of the Seller which were being sought to be purchased by RUSS.  As a result of the public auction, the Bankruptcy Court entered an Order on October 15, 2004 authorizing and approving the sale by the Seller to RUSS of the “APPLAUSE” and certain related trademarks, together with certain inventory, pursuant to the Agreement of Sale. As a result of the public auction, the Agreement of Sale provides for a cash purchase price for the trademarks of $7,550,000, and a cash purchase price of the inventory to be purchased being $41,000, unless RUSS and the Seller agree to the sale and purchase of inventory in excess of such amount.  The purchase price was paid at the closing on October 26, 2004.  Management does not believe that payment of the foregoing amount had a material impact on the Company’s results of operations or financial condition.

 

Russ Berrie has entered into a provisional sales agreement to sell one of its two office locations in Hong Kong as a result of the Company transitioning a number of functions that had previously been performed in Hong Kong into our offices in mainland China.  A formal sales agreement is expected to be signed before the end of November 2004, with a closing expected in the first quarter of 2005.  As a result of this transaction, the Company expects to receive $2.8 million which will result in a loss of approximately $2.0 million pre-tax.  The Company does not expect that the sale will have a material impact on the Company’s financial condition or cash flow.

 

The Company enters into forward exchange contracts, principally to manage the economic currency risks associated with the purchase of inventory by its European, Canadian and Australian subsidiaries in the core segment and the remaining subsidiary in the non-core segment.  Gains and losses related to such contracts were not material to its results of operations or cash flows.  The Company does not anticipate any material adverse impact on its results of operations or financial position from these contracts.

 

The Board of Directors had previously authorized the Company to repurchase 7,000,000 shares of common stock.  As of September 30, 2004, 5,643,200 shares have been repurchased since the beginning of the Company’s stock repurchase program in March 1990.  During the nine months ended September 30, 2004, the Company did not repurchase any shares.

 

As reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, on May 7, 2004, the Company announced that the Board of Directors has authorized a cash tender offer to purchase outstanding options issued under the Company’s various equity compensation plans, as is more fully described in the Statement on Schedule TO and related amendments filed by the Company with the Securities and Exchange Commission on May 7, 2004, May 28, 2004, June 15, 2004, June 22, 2004 and June 30, 2004, respectively.  The tender offer closed in June 2004, with an aggregate purchase price of approximately $844,000 paid by the Company, which was recorded as a compensation expense in the second quarter of 2004.  Management does not believe that payment of the foregoing amount had a material impact on the Company’s results of operations or financial condition.

 

As reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, effective August 2, 2004, the Company sold its wholly-owned subsidiary, Bright of America, Inc. for an aggregate purchase price of $5,095,000 net of disposal cost of $380,000.  (See Note 13 to the Notes to Consolidated Financial Statements.)  The sale did not have a material impact on the Company’s results of operations and financial condition.

 

The Company has entered into certain transactions with related parties which are disclosed in Note 13 of the Notes to Consolidated Financial Statements and ITEM 13 “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.  With respect to such transactions, the Company’s lease of its South Brunswick New Jersey facility expired in May 2004, and the Company is now occupying the facility on a month-to-month basis.  The parties are currently in discussions related to entering into a new lease.  In addition, in connection with the Company’s lease of its Petaluma California facility which is scheduled to expire in June 2005, the Company’s option to extend the term of the current lease by one year has expired and the parties are currently in discussions related to entering into a new lease. Finally, with respect to Hounsdown Inc., the lessor of the Hounsdown UK facility, Angelica Berrie is now its sole shareholder.

 

17



 

The Company is dependent upon information technology systems in many aspects of its business.  The Company is continuing implementation of an Enterprise Resource Planning (“ERP”) system for the Company’s core businesses, which began in 2002.  In 2002 and 2003, the Company successfully completed the replacement of its warehouse management system in its South Brunswick, New Jersey and Petaluma, California, Canadian and European distribution facilities in addition to the implementation of the purchasing module of its new ERP system worldwide.  The Company’s prior custom software that had been utilized to operate and manage its business and other third party software systems are being replaced using a strategic and phased approach.  The Company’s worldwide headquarters in the United States completed the implementation of the finance module of the new ERP system in the first quarter of 2003 and transitioned to the order management and inventory modules during the second quarter of 2003.  During 2003 and continuing in 2004, the Company’s international subsidiaries began and continue to phase-in certain aspects of the Company’s new ERP system and the transition to order management, inventory and finance modules is now anticipated by the end of the third quarter of 2005.  This extended timetable is meant to continue to enable the Company to enhance its proficiency in utilizing the new system, to help ensure the efficiency of the international implementations and allow the Company to meet its obligations regarding internal controls as required by Section 404 of the Sarbanes-Oxley Act of 2002.  The Company has experienced certain startup issues but has not experienced any significant business disruptions related to the replacement of these systems.

 

The Company is subject to legal proceedings and claims arising in the ordinary course of its business that the Company believes will not have a material adverse impact on the Company’s consolidated financial condition, results of operations and cash flows.

 

In connection with the Company’s continuing expansion of its operations in the People’s Republic of China (“PRC”), the Company completed a voluntary review in 2003 of the activities of its offices in the PRC to assess their compliance with applicable laws and regulations.  As a result of this review, management became aware of some potential operational and tax compliance issues under applicable PRC laws and regulations and continues to take appropriate corrective actions.  As a result, although the relevant PRC authorities have broad discretion with respect to the imposition of sanctions on noncompliant companies, the Company does not expect the consequences, if any, of these matters to have a material impact on its results of operations, financial condition or cash flows.

 

The Board of Directors has discontinued the exploration of various strategic alternatives that had previously been reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

 

Consistent with its past practices and in the normal course of its business, the Company regularly reviews and is pursuing acquisition opportunities of varying sizes.  As discussed above, the Company may consider the use of debt financing to fund such prospective acquisitions.  In connection therewith, on October 25, 2004, the Company signed a non-binding letter of intent with respect to the potential acquisition by the Company of an entity in a related business, at a purchase price equal to approximately $128,000,000 plus a deferred payment based on performance.  The Company anticipates that the purchase price will be funded substantially with third-party financing, in an amount approximating $125,000,000.  There can be no assurance, however, that the Company will enter into a definitive agreement with respect to such potential acquisition or that a transaction will be consummated.

 

Contractual Obligations

 

As of September 30, 2004, there have been no material changes outside the ordinary course of business in the Company’s contractual obligations as described under the caption “Contractual Obligations” of Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

 

Off Balance Sheet Arrangements

 

As of September 30, 2004, there have been no material changes in the information provided under the caption “Off Balance Sheet Arrangements” of Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

 

CRITICAL ACCOUNTING POLICIES

 

The SEC has issued disclosure advice regarding “critical accounting policies”, defined as accounting policies that management believes are both most important to the portrayal of the Company’s financial condition and results and require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

 

18



 

Management is required to make certain estimates and assumptions during the preparation of its consolidated financial statements that effect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.  Estimates and assumptions are reviewed periodically, and revisions made as determined to be necessary by management.  There have been no material changes to the Company’s significant accounting estimates and assumptions or the judgments affecting the application of such estimates and assumptions during the period covered by this report but for the change in inventory write-down described in “Results of Operations – Nine Months Ended September 30, 2004 and 2003 above.  The Company’s significant accounting estimates described below have historically been and are expected to remain reasonably accurate, but actual results could differ from those estimates under different assumptions or conditions.

 

Note 2 of the Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 contains a summary of the significant accounting policies used in the preparation of the Company’s Consolidated Financial Statements.  The following, however, is a discussion of those accounting policies which management considers to be “critical” within the SEC definition discussed above.

 

Accounts Receivable, Trade and Revenue Recognition

 

In the normal course of business, the Company extends credit to customers which satisfy established credit criteria.  The Company believes that it does not have a significant concentration of credit risk due to the significant diversity of its customer base.  Accounts receivable, trade, as shown on the Consolidated Balance Sheet, is net of allowances, discounts and estimated bad debts.  An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the financial statements, assessments of collectibility based on historical trends and an evaluation of the impact of current and projected economic conditions.  If such historical trends or economic conditions deteriorate the results could differ from the Company’s estimates.

 

The Company principally recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements (SAB 104), SAB 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of a sales arrangement exists; (2) delivery has occurred or services rendered; (3) the amount of revenue is fixed and determinable, net of provisions for estimates of sales discounts, returns and allowances; and (4) collectibility is reasonably assured.

 

Determination of criteria (4) is based on management’s judgments regarding the collectibility of those revenues.

 

Inventory

 

The Company values inventory at the lower of the actual cost or its current estimated market value.  The Company regularly reviews inventory quantities on hand, by item, and records a write-down of inventory to fair market value based primarily on the Company’s historical experience and estimated forecast of product demand using historical and recent ordering data relative to the quantity on hand for each item.  In response to strategic changes in product direction made in June 2004 under its recently appointed CEO, the Company undertook a comprehensive review of its worldwide inventory during the second quarter.  As a result of this review, an additional inventory write-down of $13 million (pre tax) was recorded in the second quarter of 2004 to reflect inventory in the core segment at its lower of cost or market value.  The Company expects to sell substantially all of this inventory through other than its normal sales channels.  See “Overview” above and Note 16 to Notes to Consolidated Financial Statements.  Although the Company does not anticipate further material inventory write-downs at this time, a significant change in demand for the Company’s products could result in a change in the amount of excess inventories on hand.  The Company manages inventory and monitors product purchasing to minimize this risk.  A significant change in demand for the Company’s products could result in a change in the amount of excess inventories on hand, however the Company manages inventory and monitors product purchasing to minimize this risk.

 

Impairment of Long-Lived Assets

 

In accordance with SFAS No. 144, long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.  If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset, which is generally based on discounted cash flows.  If such actual future cash flows are less than the estimated future cash flows, certain of the Company’s long-lived assets could be impaired.

 

Goodwill and intangible assets not subject to amortization are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired.  An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. 

19



 

Based on the Company’s annual test performed in 2003 there was no impairment, however, if actual future cash flows are less than the estimated future cash flows, the Company’s goodwill and intangible assets could be impaired.

 

Accrued Liabilities

 

The preparation of the Company’s Consolidated 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 liabilities and disclosure of contingent liabilities at the date of the financial statements.  Such liabilities include, but are not limited to, accruals for various legal matters, tax accruals and valuation allowances for deferred tax assets.  The settlement of the actual liabilities could differ from the estimates included in the Company’s consolidated financial statements.

 

RECENTLY ISSUED ACCOUNTING STANDARDS

 

See Note 11 of the Notes to Consolidated Financial Statements for a description of recently issued accounting standards including the respective dates of adoption and effects on results of operations and financial condition.

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q 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”, 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, results of any enforcement action by the People’s Republic of China (“PRC”) authorities with respect to the Company’s PRC operations, the resolution of various legal matters, possible delays in the introduction of new products, customer acceptance of products, changes in foreign currency exchange rates, issues related to the Company’s computer systems, the ability to obtain debt financing to fund acquisitions, the current and future outlook of the global retail market, and other factors.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As of September 30, 2004, there has been a reduction in the market risk of the Company due the significant reduction in marketable securities discussed in “Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” above.  There are no other material changes in the Company’s market risks as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

Based on the evaluation required by paragraph (b) of Rule 13a-15 or 15d-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act), are effective.

 

There has been no change in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

20



 

PART II - OTHER INFORMATION

 

ITEM 6.  EXHIBITS

 

Exhibits to this Quarterly Report on Form 10-Q.

 

 

10.92

Executive Employment Agreement dated August 24, 2004 between Russ Berrie and Company, Inc. and Lynn Moran

 

 

10.93

Option Purchase and Sale Agreement dated as of August 4, 2004, by and between Russ Berrie and Company, Inc. and John T. Toolan

 

 

10.94

Option Purchase and Sale Agreement dated as of September 10, 2004, by and between Russ Berrie and Company, Inc. and Christopher Robinson

 

 

10.95

Option Purchase and Sale Agreement dated as of August 6, 2004, by and between Russ Berrie and Company, Inc. and William Landman

 

 

10.96

Option Purchase and Sale Agreement dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. and Joseph Kling

 

 

10.97

Option Purchase and Sale Agreement dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. and Raphael Benaroya

 

 

10.98

Option Purchase and Sale Agreement dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. and Josh Weston

 

 

10.99

Option Purchase and Sale Agreement dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. and Carl Epstein

 

 

10.100

Option Purchase and Sale Agreement dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. and Ilan Kaufthal

 

 

10.101

Option Purchase and Sale Agreement dated as of August 4, 2004, by and between Russ Berrie and Company, Inc. and Charles Klatskin

 

 

10.102

Option Purchase and Sale Agreement dated as of August 6, 2004, by and between Russ Berrie and Company, Inc. and Sidney Slauson

 

 

10.103

Option Purchase and Sale Agreement dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. and Jeff Bialosky

 

 

10.104

Order of US Bankruptcy Court Central District of California San Fernando Division, dated October 15, 2004, authorizing and approving sale of “Applause” trademark and certain related assets free and clear of all encumbrances and other interests pursuant to Section 363 of the Bankruptcy Code

 

 

10.105

Amended and Restated Trademark Purchase Agreement, dated as of September 21, 2004, by and between Applause, LLC and the Company, as amended by the First Amendment thereto;

 

 

31.1

Certification of CEO required by Section 302 of the Sarbanes Oxley Act of 2002.

 

 

31.2

Certification of CFO required by Section 302 of the Sarbanes Oxley Act of 2002.

 

 

32.1

Certification of CEO required by Section 906 of the Sarbanes Oxley Act of 2002.

 

 

32.2

Certification of CFO required by Section 906 of the Sarbanes Oxley Act of 2002.

 

Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.

 

21



 

SIGNATURES

 

Pursuant to the requirements 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)

 

 

 

 

 

 

 

By

/s/ John D. Wille

 

 

Date:  November 9, 2004

 

 

John D. Wille

 

 

 

 

Vice President and Chief Financial Officer

 

 

22



 

Exhibit Index

 

10.92

 

Executive Employment Agreement dated August 24, 2004 between Russ Berrie and Company, Inc. and Lynn Moran

10.93

 

Option Purchase and Sale Agreement dated as of August 4, 2004, by and between Russ Berrie and Company, Inc. and John T. Toolan

10.94

 

Option Purchase and Sale Agreement dated as of September 10, 2004, by and between Russ Berrie and Company, Inc. and Christopher Robinson

10.95

 

Option Purchase and Sale Agreement dated as of August 6, 2004, by and between Russ Berrie and Company, Inc. and William Landman

10.96

 

Option Purchase and Sale Agreement dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. and Joseph Kling

10.97

 

Option Purchase and Sale Agreement dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. and Raphael Benaroya

10.98

 

Option Purchase and Sale Agreement dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. and Josh Weston

10.99

 

Option Purchase and Sale Agreement dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. and Carl Epstein

10.100

 

Option Purchase and Sale Agreement dated as of August 2, 2004, by and between Russ Berrie and Company, Inc. and Ilan Kaufthal

10.101

 

Option Purchase and Sale Agreement dated as of August 4, 2004, by and between Russ Berrie and Company, Inc. and Charles Klatskin

10.102

 

Option Purchase and Sale Agreement dated as of August 6, 2004, by and between Russ Berrie and Company, Inc. and Sidney Slauson

10.103

 

Option Purchase and Sale Agreement dated as of August 3, 2004, by and between Russ Berrie and Company, Inc. and JeffBialosky

10.104

 

Order of US Bankruptcy Court Central District of California San Fernando Division, dated October 15, 2004, authorizing and approving sale of “Applause” trademark and certain related assets free and clear of all encumbrances and other interests pursuant to Section 363 of the Bankruptcy Code

10.105

 

Amended and Restated Trademark Purchase Agreement, dated as of September 21, 2004, by and between Applause, LLC and the Company, as amended by the First Amendment thereto;

31.1

 

Certification of CEO required by Section 302 of the Sarbanes Oxley Act of 2002

31.2

 

Certification of CFO required by Section 302 of the Sarbanes Oxley Act of 2002

32.1

 

Certification of CEO required by Section 906 of the Sarbanes Oxley Act of 2002

32.2

 

Certification of CFO required by Section 906 of the Sarbanes Oxley Act of 2002

 

23



Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
6/15/05
Filed on:11/9/04
11/2/04
10/26/04
10/25/04
10/15/048-K
10/14/04
For Period End:9/30/044,  8-K
9/28/044,  8-K
9/27/043
9/21/04
9/10/044
9/3/04
8/31/04
8/24/04
8/20/04
8/11/04
8/6/044
8/4/044
8/3/044,  4/A
8/2/044
6/30/0410-Q,  4,  4/A,  SC TO-I/A
6/22/04SC TO-I/A
6/15/04SC TO-I/A
6/1/044
5/28/04SC TO-I
5/14/04
5/7/044,  SC TO-C
4/12/048-K,  DEF 14A
3/31/0410-Q
12/31/0310-K,  5
9/30/0310-Q
8/29/03
8/15/03
2/29/00
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Filing Submission 0001104659-04-034790   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

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