ITEM 1. BUSINESS
Russ Berrie and Company, Inc. was incorporated in New Jersey in 1966. Its principal executive offices are located at 111 Bauer Drive, Oakland, New Jersey 07436; its telephone number is (201) 337-9000. The term "Company" refers to Russ Berrie and Company, Inc. and its consolidated subsidiaries, unless the context requires otherwise.
The Company designs, manufactures through third parties and markets to retail stores throughout the United States and most countries throughout the world, a wide variety of impulse gift and toy items. The impulse gift products are designed to appeal to the emotions of consumers, who purchase the products impulsively to reflect their feelings of friendship, fun, love and affection. The suggested retail prices of the Company's products range from $.30 to over $300. Approximately 83% of the Company's dollar sales are accounted for by products with a suggested retail price of $14 or less which, coupled with the products' appeal to consumers' emotions, encourages spontaneous purchases by consumers.
The Company's extensive line of over 10,000 products encompasses both seasonal and everyday gift items, including stuffed animals, Trolls, picture frames, ceramic mugs, porcelain gifts, collectible figurines, gift bags, greeting cards, keyrings, kitchen magnets, stationery products, toys, and National Football League and Major League Baseball merchandise.
The products are produced by independent manufacturers, generally in the Far East, under close supervision by Company personnel and are marketed primarily by the Company's own direct sales force of approximately 700 full-time employees. In some foreign countries, the Company utilizes distributors and the Company's toy product line is marketed through independent representative organizations. The Company believes that its present position as one of the leaders in the impulse gift industry is due primarily to its imaginative product design, broad and effective marketing of its products, efficient distribution, high product quality and commitment to customer service.
PRODUCTS
The Company markets its impulse gift product line under the trade name "RUSS" through two divisions: "Plush N' Stuff" and "Gift/Expression". The Company also markets some of its products through its wholly-owned subsidiary Papel/Freelance, Inc. The Company markets its product line of toys through Cap Toys, Inc., a business acquired in October, 1993. Also, the Company's Bright of America, Inc. subsidiary markets gift products to schools and other organizations for fundraising purposes and directly to mass market customers. In addition, the Company operates a chain of retail stores, Fluf N' Stuf, Inc., which sells the Company's products and products of unaffiliated companies. (3)
Plush N' Stuff products include stuffed animals, soft body Trolls, soft message products, puppets and soft holiday items, generally having suggested retail prices between $1 and $30. Gift/Expression products include hard body Trolls, gift bags, ceramic figurines, ceramic mugs, magnets, hair ornaments, childrens' jewelry and picture frames. Most Gift/Expression products have suggested retail prices between $1 and $30. For example, the suggested retail prices for mugs generally range from $5 to $8 and for greeting cards are generally less than $1.75. Papel/Freelance, Inc.'s products include ceramic mugs, related ceramic giftware, back to school items and fashion accessories. Cap Toys, Inc.'s products generally have suggested retail prices between $3 and $25. The percentages of dollar sales accounted for by the various divisions during the periods indicated are as follows:
* Includes primarily sales by Effanbee Doll Company, the assets of which were sold in January, 1992, Fluf N' Stuf, Inc., Bright of America, Inc. and Cap Toys, Inc. (since its acquisition in October 1993).
In addition to its everyday product lines, the Company produces specially designed products for individual seasons during the year, including Christmas, Valentine's Day, St. Patrick's Day, Easter, Mother's Day, Graduation, Father's Day, Halloween and Thanksgiving. During 1993, items specially designed for individual seasons accounted for approximately 46% of the Company's dollar sales; no individual season accounted for more than 12% of the Company's dollar sales. See "Business-Seasonality".
The Company has experienced success with its product line of Trolls which are marketed through both the Plush N' Stuff and Gift/Expression divisions. Net sales of the various products associated with Trolls accounted for approximately 31% during 1993 and 56% during 1992 of consolidated net sales. However, in the second quarter of 1993 the Company experienced a decline in the net sales of its Troll product line.
The Company's product line currently consists of more than 10,000 items (including distinctive variations on basic product designs). Other than the products associated with Trolls, no single basic product design accounted for more than 1.8% of dollar sales during 1993.
The Company has entered into a number of license agreements under which it markets certain items, including products marketed under the National Football League and Major League Baseball trademarks. Licensed products represented approximately 10% of the Company's dollar sales in 1993 and 5% in 1992. During 1993, no single license accounted for more than 1.8 % of dollar sales. (4)
DESIGN AND PRODUCTION
The Company has a continuing program of new product development. The Company designs its own products and then generally evaluates consumer response through test marketing in selected unaffiliated retail stores and those operated by Fluf N' Stuf, Inc. Items are added to the product line only if they can be obtained and marketed on a basis that meets the Company's profitability standards. Substantially all of the Company's products are produced by independent manufacturers on a purchase order basis.
The Company believes that the breadth of its product line and the continuous development of new products are key elements of its success and that it is capable of designing and producing large numbers of new products quickly.
The Company has approximately 200 employees responsible for product development and design in the United States and in the Far East. Generally, a new design is brought to market in less than nine months after a decision is made to produce a new product.
Sales of the Company's impulse gift products are, in large part, dependent on the Company's ability to identify and react quickly to changing consumer preferences and to utilize its sales and distribution systems to bring new products to market. Generally, marketing direction and concept planning are determined by the marketing committee, which is composed of key executives and marketing and market research personnel. The design committee, consisting of certain members of the product development department, is responsible for the development of new products which are compatible with the marketing and product concepts approved by the marketing committee. The design committee meets frequently to discuss the development of new products and the adaptation, refinement or supplementing of existing products to reflect new trends and preferences. Members of the committees are also in frequent contact with the Company's customers and sales personnel to obtain their ideas relating to expansion of the Company's product line. The design committee seeks new products which, though not necessarily similar to the products now marketed by the Company, can be marketed through its existing marketing and distribution systems to current and potential customers. Members of the design and marketing committees regularly attend trade shows to maintain contact with customers and to observe market trends.
The Company engages in market research and test marketing to evaluate consumer reactions to its products. Research into consumer buying trends often suggest new products. The Company assembles information from retail stores, including those operated by Fluf N' Stuf, Inc., the Company's sales force and the Company's own market research department. The Company continually analyzes its products to determine whether they should be adapted into new or different products using elements of the initial design or whether they should be removed from the product line. (5)
Substantially all of the Company's products are produced by independent manufacturers. During 1993, products accounting for approximately 94% of its dollar purchases were produced in the Far East and 6% in the United States. The Company utilizes approximately 225 manufacturers in the Far East, primarily in the People's Republic of China, Hong Kong, Taiwan, Korea, Thailand and Indonesia. During 1993, approximately 57% of the Company's dollar amount of purchases were attributable to manufacturing in the People's Republic of China. Legislation has been proposed from time to time that would revoke the most-favored nation status (which is a designation determined annually by the President of the United States, subject to possible override by Congress) of the People's Republic of China. Such a revocation would cause import duties to increase or become applicable to products imported by the Company from the People's Republic of China. A majority of the Company's staff of approximately 280 employees in Hong Kong, Taiwan, Korea, Thailand and Indonesia monitors the production process with responsibility for ensuring the quality, safety and prompt delivery of Company products. Members of the Company's Far East staff make frequent visits to the manufacturers for which they are responsible. Most of the Company's manufacturers are small operations, some selling exclusively to the Company. The Company believes that there are many alternate manufacturers for the Company's products and the loss of any manufacturer will not significantly adversely affect the operations of the Company. In 1993, the supplier accounting for the greatest dollar volume of the Company's purchases accounted for approximately 12% of such purchases and the five largest suppliers accounted for approximately 36% in the aggregate.
MARKETING
The Company sells its impulse gift products primarily through its own direct sales force. Products are sold directly to retail stores in the United States and in foreign countries, including gift stores, pharmacies, card shops, book stores, stationery stores, hospitals, college and airport gift shops, resort and hotel shops, florists, chain stores and military post exchanges. During 1993, the Company sold products to approximately 85,000 customers. No single customer accounted for more than 1.3% of dollar sales.
The Company believes that the use of its direct sales force has been a significant factor in its success. Although sales managers have primary responsibility for the management of salespeople that report to them, they also have the responsibility for sales of the Company's products directly to certain accounts generally located in a defined geographic area. The Company's sales personnel visit each of their customers every six to eight weeks.
The Company motivates its salespeople through its compensation package, which consists of salary, commissions and bonuses based on sales. All sales managers are compensated for their own sales and the sales generated by the salespeople that report to them. The Company also establishes performance levels for individual sales personnel. The Company maintains a training program for its salesforce and offers sales personnel the opportunity for advancement to sales management positions. Each of the Company's current sales managers started as a salesperson in the Company. (6)
The Company's salespeople sell impulse gift products from either the Plush 'N Stuff division, the Gift/Expression division or from Papel/Freelance, Inc. further enabling the Company to successfully market the full range of its impulse gift products. The Company reinforces the marketing efforts of its salesforce through an active promotional program, including showrooms, participation in trade shows, trade advertising and seasonal catalogs. In addition, beginning in 1992 the Company engaged in advertising through consumer publications and national television. These advertising programs are designed to increase consumer awareness of, and esteem toward, RUSS products.
The Company maintains a sales and distribution network to serve customers in Great Britain, Holland, Belgium, Ireland and Canada. The remainder of the Company's foreign sales, primarily in Germany, Latin America, Spain, Japan, Italy, Philippines, and France, are made to distributors for resale to their customers. Foreign sales, including export sales from the United States, aggregated $68,295,000, $101,471,000 and $57,867,000 in the years ended December 31, 1993, 1992 and 1991, respectively. For more information regarding operations by geographic area, see Note 12 of the Notes to the Consolidated Financial Statements.
The Company believes that effective packaging and merchandising of its products are very important to its marketing success. Many products are shipped in colorful corrugated cartons which can be used as free-standing displays and can be discarded when all the products have been sold. The Company also prepares semi-permanent free-standing lucite, metal and wood products, thereby providing an efficient promotional vehicle for selling the Company's products. The displays are designed to stimulate consumers' impulse purchase decisions.
The Company believes that customer service is an important component of its marketing strategy and therefore has established a Customer Service Department at each distribution facility that responds to customer requests, investigates and resolves problems and generally assists customers.
The Company's general terms of sale are believed to be competitive in the impulse gift industry. The Company provides limited extended payment terms to customers on sales of seasonal merchandise, e.g., Christmas, Halloween and Easter and other seasons. The Company has a general policy of not accepting returns or selling on consignment.
The Company's Cap Toys, Inc. subsidiary develops products in conjunction with independent toy product inventors. The products selected are produced by independent manufacturers and are sold primarily to mass merchandisers. Certain products are supported by an advertising program consisting primarily of television advertising. (7)
DISTRIBUTION
The Company has customers located throughout the United States and in order to serve them quickly and effectively, the Company has a distribution center in South Brunswick, New Jersey, which receives products from suppliers and then distributes them directly to the Company's customers as well as supplying the distribution center in Columbus, Ohio.
The distribution center in Petaluma, California receives products directly from suppliers and serves the Company's customers in the western part of the United States. The Company generally uses common carriers to distribute to its customers.
The Company maintains two distribution centers in Southampton, England to serve its customers in Europe and two facilities in the Toronto, Canada area for its Canadian customers. The Company's Cap Toy product line is distributed from a facility in Bedford Heights, Ohio.
SEASONALITY
The pattern of the Company's sales is influenced by the shipment of seasonal merchandise. The Company generally ships the majority of orders each year for Christmas in the quarter ended September 30, for Valentine's Day in the quarter ended December 31 and for Easter in the quarter ended March 31.
The following table sets forth the Company's quarterly sales during 1993, 1992 and 1991.
The Company has historically had higher profit margins in the quarter ended September 30 as a result of the economies of scale which accompany the higher sales volume. Commencing late in the second quarter of 1991, net sales of the Company were favorably impacted by the success of products associated with the Troll product line which continued into the first quarter of 1993. However, the Company has experienced a decline in the net sales of its Troll products beginning in the second quarter of 1993.
(8)
BACKLOG
It is characteristic of the Company's business and of the industry in general that orders for seasonal merchandise are taken in advance of shipment. The Company's backlog at December 31, 1993 was $32,546,000 and at December 31, 1992 was $37,197,000. The Company ships substantially all of its backlog within 50 days.
COMPETITION
The impulse gift industry is highly competitive and fragmented. The Company believes that the principal competitive factors are marketing ability, reliable delivery, product design, quality, customer service and price.
The Company's principal competitors in the Plush N' Stuff line are Gund, Inc., Ganz Bros., Ty, Inc., Applause, Inc. and Dakin. Competitors for the Company's other divisions include American Greetings, Hallmark, Recycled Paper Products, Enesco and numerous small suppliers and toy competitors. Certain of the Company's existing or potential competitors may have financial resources that are substantially greater than those of the Company.
COPYRIGHTS, TRADEMARKS, PATENTS AND LICENSES
The Company prints notices of claim of copyright on substantially all of its products and has registered hundreds of its designs with the United States Copyright Office. It also has registered, in the United States and certain foreign countries, the trademark "RUSS" with a distinctive design, which it utilizes on most of its products. The Company believes its copyrights, trademarks and patents are valid, and has pursued a policy of aggressively protecting them from infringement. However, it does not consider its business materially dependent on copyright, trademark or patent protection.
The Company also enters into various license agreements to market products compatible with its product line. Examples of licensed products include designs of National Football League and Major League Baseball.
EMPLOYEES
As of January 31, 1994, The Company employed approximately 1,900 persons on a full-time basis. The Company considers its employee relations to be good; substantially all of the Company's employees are not covered by a collective bargaining agreement. The Company's policy is to require that its management, sales and product development and design personnel enter into contracts in which they agree not to disclose confidential information concerning the Company and, in the case of management and sales personnel, not to compete with the Company (subject to certain territorial limitations in the case of salespersons) for a period of six months after termination of their employment. (9)
GOVERNMENT REGULATION
Certain of the Company's products are subject to the provisions of, among other laws, the Federal Hazardous Substances Act and the Federal Consumer Product Safety Act. Those laws empower the Consumer Product Safety Commission to protect children from certain hazardous articles by excluding them from the market and requiring a manufacturer to repurchase articles which become banned. The Commission's determination is subject to judicial review. Similar laws exist in some states and cities in the United States and in Canada and Europe. The Company maintains a quality control program to ensure compliance with applicable laws.
ITEM 2.
ITEM 2. PROPERTIES
The Company's principal facilities consist of its corporate offices in Oakland, New Jersey, and the distribution centers in South Brunswick, New Jersey; Petaluma, California; and Reynoldsburg, Ohio. Additionally, office and distribution facilities are located in Southampton, England and in the Toronto, Canada area. The Company owns the facility used by Bright of America, Inc. in Summersville, West Virginia, one of its facilities in Southampton, England and most of the office space it uses in Hong Kong. The Company leases its other facilities. The facilities of the Company are maintained in good operating condition, are generally adequate for the Company's purposes and, except for the Dayton, New Jersey; Lakeland, Florida; and Marietta, Georgia facilities, which were closed as part of restructuring of the Company's distribution system, are generally fully utilized.
THE COMPANY'S CURRENT PRINCIPAL FACILITIES ARE AS FOLLOWS:
(10)
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(1) Not including renewal options. (2) Properties owned directly or indirectly by Russell Berrie or members of his immediate family. See ITEM 13 - "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS". (3) Regional distribution center. (4) Corporate headquarters. (5) Property leased from a partnership of which a director of the Company is a general partner. See ITEM 13 - "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS". (6) Subsidiary (or division) headquarters. (7) Subsidiary (or division) distribution center. (8) Facility closed in connection with a restructuring undertaken by the Company. The Company has subleased the Lakeland facility, and continues its efforts to sublease or otherwise terminate the lease with regard to the Dayton facility and has entered into an agreement for sale for the Marietta facility.
In addition, the Company leases an aggregate of approximately 19,700 square feet of showroom facilities in New York City; Los Angeles and San Francisco, California; Atlanta, Georgia; Dallas, Texas; Toronto, Montreal and Vancouver, Canada; Brussels, Belgium; and Utrecht, Holland. The remaining lease terms at these facilities range between one and eight years.
Fluf N' Stuf, Inc., leases retail store space in shopping and outlet malls located primarily on the East Coast. The aggregate square footage of these 26 stores is approximately 47,500 square feet. The remaining lease terms at these facilities range between one and eight years.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is party to various copyright, patent and trademark infringement, unfair competition, breach of contract, customs, employment and other legal actions, as plaintiff or defendant.
As previously reported, on September 27, 1993, the United States Court for the Southern District of New York issued a decision in a previously reported action brought by EFS Marketing, Inc. ("EFS") against the Company and Russell Berrie, its Chairman and Chief Executive Officer, with respect to EFS's and the Company's product lines of troll dolls. The Court dismissed EFS' claims for monetary damages and for certain injunctive relief. The Court also invalidated the copyrights claimed by EFS and the Company in certain of the troll dolls sold by them; however, the Company does not consider its business materially dependent on copyright, trademark, or patent protection.
(11)
EFS is seeking reconsideration by the Court of the invalidity of their troll copyrights. The Company anticipates vigorously pursuing an appeal of this decision.
The Company believes that the outcome of the proceedings to which it is currently a party will not have a material adverse effect on its business or financial condition. (See Note 13 of the Notes to Consolidated Financial Statements).
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information with respect to the executive officers of the Company. All officers are elected by the Board of Directors and may be removed with or without cause by the Board.
(12)
Russell Berrie, the founder of the Company, has been Chairman of the Board and Chief Executive Officer of the Company since its incorporation in 1966. Mr. Berrie was also President and Chief Operating Officer of the Company from its incorporation until October 1988.
Arnold S. Bloom has been employed by the Company as Vice President and General Counsel since January 1988 and as Secretary since March 1990.
Paul Cargotch has been employed by the Company as Chief Financial Officer since March 1990 and Vice President - Finance for more than the past five years.
A. Curts Cooke has been employed as President and Chief Operating Officer of the Company since March 17, 1990; Executive Vice President of the Company, from December 1984 and Chief Financial Officer and Secretary of the Company from 1984 until March 17, 1990. Mr. Cooke has served as a director of the Company since 1982.
Jimmy Hsu has been employed by the Company as Senior Vice President - Product Development and Far East Operations since August 1991; he was also Vice President - Far East Operations from 1977 to August 1991. He has served as a director of the Company since 1988.
Y.B. Lee has been employed by the Company as either Managing Director or President - Korean Operations from 1977 to February 1990, when he was elected Vice President - Far East Plush Division.
Guy M. Lombardo has been employed by the Company as Vice President- Administration and Information Systems since January 1994; and prior to that, was Vice President-Management Information Systems for more than the past five years.
Bernard Tenenbaum has been employed by the Company as Vice President-Corporate Development since January 14, 1993; he also serves as President and Chief Executive Officer of a division of the Company which focuses on the development of sales to mass merchandisers. From September 1988 until joining the Company as an officer, Mr. Tenenbaum was a founding Director of the George Rothman Institute of Entrepreneurial Studies, Fairleigh Dickenson University, and was previously Associate Director of the Snider Entrepreneurial Center of the Wharton School.
Barker T. Torrey, Jr., has been Senior Vice President - Operations for more than the past five years. (13)
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the New York Stock Exchange under the symbol "RUS" since its initial public offering on March 29, 1984. Prior to that time, there was no public market for the Common Stock. At December 31, 1993 the Company's Common Stock was held by approximately 941 shareholders of record.
The following table sets forth the high and low sale prices on the New York Stock Exchange Composite Tape for the calendar periods indicated, as furnished by the National Quotation Bureau Inc.:
The Board of Directors declared its first dividend to holders of the Company's Common Stock in November, 1986. Since then, a cash dividend has been paid quarterly. The current quarterly rate is $.15 per share. This rate has been in effect since February 1993. From February 1992 to February 1993 the quarterly rate was $.117 per share (restated to reflect the 3-for-2 stock split effective April 1, 1993). The quarterly rate from December 1990 to February 1992 was $.10 (restated). The Board of Directors will review its dividend policy from time to time and declaration of dividends will remain within its discretion. (14)
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
(FOR YEARS ENDED DECEMBER 31,) (Dollars in Thousands, Except Per Share Data)
* Includes a restructuring charge of $5.0 million in 1993 and $9.5 million in 1989. (15)
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1993 AND 1992
For the year ended December 31, 1993 the Company's net sales of $279,111,000 represents a decrease of $165,271,000 or 37.2% compared to the year ended December 31, 1992. This decrease can be attributed to the significant reduction of net sales of the Company's Troll product line. During 1993 net sales of the products associated with the Troll product line were approximately $86,700,000 or 31.1% of consolidated net sales compared to approximately $250,000,000 or 56.3% of consolidated net sales during 1992. In addition, the Company believes that its customers have experienced a general softness in their business as a result of the growth of mass merchandisers, factory outlet malls, and warehouse clubs. Included in the results for the year ended December 31, 1993 are the net sales of $12,653,000 achieved by Cap Toys, Inc. since its acquisition in October 1993.
Cost of sales was 45.1% of net sales in 1993 compared to 39.7% of net sales in 1992. This increase can be attributed to the higher gross profit margins on sales of Troll products during 1992. In addition, certain components of cost of sales are fixed costs, primarily costs associated with the sourcing of product in the Far East and provisions for slow moving inventory, which were absorbed by the higher sales volume in 1992. Also contributing to the increase are the effects of the reduction of the selling price of certain of the Company's products in August 1993.
Selling, general and administrative expense was $133,188,000 for the year ended December 31, 1993 compared to $170,948,000 in 1992, a decrease of $37,760,000 or 22.1%. This decrease can be primarily attributed to a decrease in the expenses required to support lower sales levels principally salesforce commissions (approximately $30,750,000) and to lower expenses related to the Company's consumer advertising program (approximately $6,200,000).
Included in the results of operations in 1993 is a restructuring charge of $5,000,000 representing the write-down of certain assets, employee severance costs and other costs related to the closing and consolidating of distribution centers and administrative functions. Also included are additional provisions for future lease obligations relating to a previously closed facility. The restructuring charge resulted in an after tax effect on net income of $3,150,000 or $.15 per share. This restructuring, in addition to a reduction in the salesforce, is expected to result in an annualized savings in selling, general and administrative expense of approximately $10,000,000. (16)
The provision for income taxes as a percentage of income before taxes decreased to 25.0% in 1993 compared to 35.1% in 1992. The lower effective rate can be attributed to an increased relative benefit associated with investment income resulting from tax- advantaged investments within the Company's short-term investment portfolio, an increased proportion of income before income taxes related to certain foreign subsidiaries with lower tax provisions and to an increased relative benefit for deductions permitted on contribution to charitable organizations.
Net income of $13,182,000 for 1993 decreased by $47,166,000 when compared to 1992. The decrease in net income can be attributed to the decrease in net sales, partially offset by the decrease in selling, general and administrative expense.
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1992 AND 1991
For the year ended December 31, 1992 the Company's net sales of $444,382,000 represents an increase of 65.9% from the year ended December 31, 1991. This increase can be attributed to the success of the Company's Troll product line. During 1992 net sales of the various products associated with the Troll product line were approximately $250,000,000 or 56.3% of consolidated net sales. This compares to sales of these products of approximately $44,400,000 or 16.6% of consolidated net sales during 1991. The Company continues to introduce new products associated with the Troll product line, however the Company is unable to forecast the future sales levels of this product line.
Cost of sales was 39.7% of net sales in 1992 compared to 41.0% of net sales in 1991. This decrease can be primarily attributed to higher gross profit margins on sales of Troll products as compared to the average gross profit margin generated by the Company's other product lines. In addition, some components of the cost of sales are fixed costs, which were absorbed by the higher sales volume during 1992.
Selling, general and administrative expense was $170,948,000 for the year ended December 31, 1992 compared to $130,216,000 in 1991, an increase of $40,732,000 or 31.3%. However, as a result of the increase in net sales, selling, general and administrative expense as a percentage of net sales decreased to 38.5% for the year ended December 31, 1992 compared to 48.6% in 1991. The increase of $40,732,000 can be primarily attributed to increased expenses (approximately $26,900,000) necessary to support the higher level of sales, consisting primarily of increased salesforce compensation (principally commissions based on sales), expenses related to the consumer advertising program implemented in 1992 (approximately $11,000,000) and to an additional provision required for future lease payments related to facilities previously closed pursuant to a restructuring implemented in 1989 (approximately $2,800,000). (17)
The year ended December 31, 1992 includes a charge of $6,300,000 which represents a provision for damages awarded to a former employee by a jury, in February 1993, based on allegations that she was slandered and other pending claims by the plaintiff. The Company believes that the verdict is not supported by the evidence and the claims are without merit. The Company will vigorously pursue its position before the trial court and appeals process.
Investment and other income-net was $2,130,000 for the year ended December 31, 1992 compared to $3,960,000 in the prior year. The year ended December 31, 1991 includes a gain of approximately $2,000,000 related to the sale of an office facility in Hong Kong.
The provision for income taxes, as a percentage of income before taxes, increased to 35.1% in 1992 compared to 30.6% in 1991. The higher effective rate in 1992 can be attributed in part to provisions for U.S. Federal income tax on unremitted earnings of foreign subsidiaries, which are not considered to be permanently reinvested. Additionally, the effective rate in 1991 was affected by the gain on the sale of an office facility in Hong Kong which was not subject to taxation. (See Note 1 of the Notes to Consolidated Financial Statements for Accounting for Income Taxes).
Net income for 1992 increased by $38,306,000 to $60,348,000 when compared to 1991. The increase in net income can be attributed to the increase in net sales offset by the increase in selling, general and administrative expense.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1993 the Company had cash and cash equivalents and short-term investments of $82,899,000 compared to $92,727,000 at December 31, 1992.
The Company generated net cash flows from operating activities of $50,477,000 resulting from net income of $13,182,000, a decrease in accounts receivable of $34,509,000, and a decrease in inventories of $17,207,000. This was offset by a decrease in accrued expenses of $10,495,000 and a decrease in accrued income tax of $10,886,000. The decrease in accounts receivable is attributable to the lower level of sales in the fourth quarter of 1993 compared to the fourth quarter of 1992. The decrease in inventories can be primarily attributed to the Company's efforts to control inventory levels given the lower level of sales.
During the year ended December 31, 1993 funds of $24,175,000 were used for the acquisition of Cap Toys, Inc. Funds were also used for the purchase of treasury stock (under a stock repurchase program) of $22,214,000 and the payment of dividends of $12,797,000. (18)
The Company has available $87,811,000 in bank lines of credit that provide for direct borrowings and letters of credit used for the purchase of inventory. At December 31, 1993 letters of credit of $17,511,000 were outstanding. There were no direct borrowings under the bank lines of credit. Working capital requirements during 1993 were met entirely through internally generated funds. The Company remains in a highly liquid position and believes that the resources available from operations and bank lines of credit are sufficient to meet the foreseeable requirements of its business.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors Russ Berrie and Company, Inc.:
We have audited the accompanying consolidated balance sheet of Russ Berrie and Company, Inc. as of December 31, 1993 and 1992, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Russ Berrie and Company, Inc. as of December 31, 1993 and 1992, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective January 1, 1992, the Company changed its method of accounting for income taxes.
COOPERS & LYBRAND
Parsippany, New Jersey February 7, 1994 (19)
CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The accompanying notes are an integral part of the consolidated financial statements. (20)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of the consolidated financial statements. (21)
CONSOLIDATED BALANCE SHEET AT DECEMBER 31 (Dollars in Thousands)
The accompanying notes are an integral part of the consolidated financial statements. (22)
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 (Dollars in Thousands)
The accompanying notes are an integral part of the consolidated financial statements. (23)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES:
PRINCIPALS OF CONSOLIDATION
The consolidated financial statements include the accounts of Russ Berrie and Company, Inc. and its wholly-owned subsidiaries (collectively, the "Company") after elimination of intercompany accounts and transactions.
ADVERTISING COSTS
Production costs for advertising are charged to operations in the year the related advertising campaign begins. All other advertising costs are charged to results of operations during the year in which they are incurred.
CASH EQUIVALENTS
Cash equivalents consist of investments in interest bearing accounts and highly liquid securities having a maturity of three months or less.
SHORT-TERM INVESTMENTS
Short-term investments consist of highly liquid obligations with a maturity of more than three months when purchased. The Company uses these short-term investments as part of its cash management program. Short-term investments are stated at cost plus accrued interest, which approximates market.
INVENTORIES
Inventories, which mainly consist of finished goods, are stated at the lower of cost (first-in, first-out) or market value.
PROPERTY
Property, plant and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives which range from three to eighteen years. Leasehold improvements are amortized using the straight-line method over the term of the respective lease or asset life, whichever is shorter. Expenditures for maintenance and repairs are charged to operations as incurred. Gain or loss on retirement or disposal of individual assets is recorded as income or expense. (24)
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, which represents the excess of purchase price of acquired assets over the fair market value of net assets acquired, is being amortized using the straight-line method, over fifteen years or less. Other intangible assets acquired are being amortized over the period for which benefit is derived which ranges from two to six years. Accumulated amortization was $3,876,000 and $2,683,000 at December 31, 1993 and 1992, respectively.
FOREIGN CURRENCY TRANSLATION
Aggregate foreign exchange gains or losses resulting from the translation of those foreign currency financial statements which are denominated in the local currency of each foreign subsidiary are recorded as a separate component of shareholders' equity. Gains and losses from foreign currency transactions are included in investment and other income-net.
ACCOUNTING FOR INCOME TAXES
For the year ended December 31, 1992 the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
NET INCOME PER SHARE
Net income per share is based on the weighted average number of shares outstanding during the year. The number of shares used in the computation at December 31, 1993, 1992 and 1991 were 21,470,672, 22,391,739 and 22,452,033, respectively.
LEASES
Capital leases are recorded at amounts equal to the lesser of the present value of the minimum lease payments or the fair value of the leased properties at the beginning of the respective lease terms. Such assets are being amortized on the straight-line basis over the related lease terms or life of asset, whichever is shorter. Interest expense relating to the lease liabilities is recorded to reflect constant rates of interest over the terms of the leases. Operating lease rentals are charged to operating expense as incurred.
POST-EMPLOYMENT BENEFITS
In November 1992, Statement of Financial Accounting Standards No. 112 was issued which establishes the method of accounting for post-employment benefits which must be implemented by the year ended December 31, 1994. The impact of such adoption on the consolidated financial statements is not expected to be material. (25)
FOREIGN CURRENCY CONTRACTS
The Company enters into forward exchange contracts and currency options, principally to hedge the purchase of inventory by its foreign subsidiaries. Gains and losses are reported as a component of the related transactions. The Company does not speculate in foreign currencies. At December 31, 1993 the aggregate amount of foreign exchange contracts was $1,000,000.
ACQUISITION
In October 1993, the Company completed the acquisition of substantially all of the assets, including inventory and accounts receivable of Cap Toys, Inc., a toy company based in Cleveland, Ohio. The acquisition, accounted for as a purchase, was funded entirely by the Company's cash and $13,606,000 of goodwill was recorded. Additional payments may be required based upon the attainment of certain future operating profit levels of Cap Toys, Inc. Amounts related to additional payments will be accrued and charged to goodwill when they become earned.
RECLASSIFICATION
Certain 1992 and 1991 amounts have been reclassified to conform with the 1993 presentation.
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
NOTE 3 - LINES OF CREDIT
Under its existing domestic bank lines of credit, the Company has available $75,000,000 of direct borrowings and letters of credit at any one time.
The maximum amount available to the Company's foreign operations at December 31, 1993 under local lines of credit is $12,811,000. These lines, which are guaranteed by the Company, provide for direct borrowings, letters of credit, and overdraft facilities. (26)
In connection with the purchase of imported merchandise, the Company, at December 31, 1993, had letters of credit outstanding of $17,511,000.
NOTE 4 - ACCRUED EXPENSES
Accrued expenses at December 31, 1993 and 1992 include accrued sales commissions of $2,110,000 and $9,243,000, respectively. Accrued expenses at December 31, 1993 and 1992 also include accrued litigation of $6,300,000 (see Note 13).
NOTE 5 - RESTRUCTURING COSTS
A restructuring charge of $5,000,000 was recorded in the year ended December 31, 1993. This charge includes the write-down of certain assets, employee severance costs and other incremental costs related to the closing, moving and consolidating of distribution and administrative functions. Also, additional provisions for future lease obligations related to a previously closed facility leased from a partnership in which a director of the Company is a general partner (see Note 8), are included in such restructuring charge.
NOTE 6 - INVESTMENT AND OTHER INCOME - NET
The significant components of investment and other income - net for the years ended December 31, 1993, 1992, and 1991 are shown as follows:
(27)
NOTE 7 - INCOME TAXES
The Company and its domestic subsidiaries file a consolidated Federal income tax return.
Income before income taxes was:
The provision for income taxes consists of the following:
A reconciliation between the U.S. statutory rate and the effective rate is shown below:
(28)
The components of the net deferred tax asset, net of a valuation allowance of $750,000, resulting from differences between accounting for financial reporting purposes and accounting for tax purposes were as follows:
Provisions are made for estimated United States and foreign income taxes, less available tax credits and deductions, which may be incurred on the remittance of foreign subsidiaries' undistributed earnings less those earnings deemed to be permanently reinvested.
NOTE 8 - RELATED PARTY TRANSACTIONS
Certain buildings, referred to in Note 9, are leased from Russell Berrie, the Company's majority shareholder, or entities owned or controlled by him. Rentals under these leases for the years ended December 31, 1993, 1992 and 1991 were $4,406,000, $4,133,000 and $4,065,000, respectively. The Company is also a guarantor under two mortgages for property so leased with a principal amount aggregating approximately $8,455,000 as of December 31, 1993, $2,000,000 of which is collateralized by assets of the Company.
The Company also leases a facility from a partnership in which a director of the Company is a general partner. Annual rentals under this lease agreement for the years ended December 31, 1993, 1992, and 1991 were $996,000, $831,000 and $797,000, respectively. This facility is included in the estimate for future lease obligations with respect to the accrued restructuring costs (see Note 5).
(29)
NOTE 9 - LEASES
At December 31, 1993, the Company and its subsidiaries are obligated under operating lease agreements (principally for buildings and other leased facilities) for remaining lease terms ranging from one to twenty-one years.
Rent expense for the years ended December 31, 1993, 1992 and 1991, amounted to $8,456,000, $8,167,000 and $8,318,000, respectively.
The approximate aggregate future rental payments as of December 31, 1993 under operating leases are as follows:
NOTE 10 - STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
The Company has three stock option plans and an employee stock purchase plan. At December 31, 1993, the existing plans terminated and, on January 1, 1994, the 1994 Stock Option Plans and the 1994 Employee Stock Purchase Plan become effective. As of December 31, 1992, there were 2,126,276 shares of common stock reserved for issuance of options under all plans. There are 3,800,000 shares of common stock reserved for issuance of options under all the 1994 stock plans. There are outstanding options under prior plans; however, these plans have been terminated and no additional options can be granted. The option price for all stock option plans is equal to the closing price of the stock as of the date the option is granted and no options may be exercised within one year from the date of grant. (30)
Options are exercisable at prices ranging from $9.34 to $21.17 per share under the various plans. The exercise price of options exercised during 1993 ranged from $11.09 to $16.17. Summarized stock option data follows:
* These plans allowed for the granting of Stock Appreciation Rights (SARs). The SARs, which relate to specific options under the plans, permit the participant to exercise the SAR and be entitled to an amount equal to the excess of the closing market price of Russ Berrie and Company, Inc. Common Stock on the date of exercise over the exercise price of the related option.
Under the Employee Stock Purchase Plan, the option price is 90% of the closing market price of the stock on the first business day of the plan year. During 1993, 1,292 shares were acquired under this plan. The 1994 Employee Stock Purchase Plan has 150,000 shares reserved for future issuance.
NOTE 11 - RETIREMENT PLAN
The Company has a non-contributory retirement plan for substantially all employees which provides for contributions by the Company, on a calendar year basis, in such amounts (subject to certain maximum limitations) as the Board of Directors may determine. (31)
The provisions for contributions charged to operations for the years ended December 31, 1993, 1992 and 1991 were $1,991,000, $2,384,000 and $1,868,000, respectively.
NOTE 12 - GEOGRAPHIC AREAS
The Company is in one line of business and generates revenue from operating entities worldwide. Financial data by geographic area are presented below:
NOTE 13 - LITIGATION
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the results of operations or the financial position of the Company.
For the year ended December 31, 1992, the Company reserved $6,300,000 relating to an award by a jury in February 1993 for slander and other pending claims made by the plaintiff. It is the opinion of the Company that the verdict is not supported by the evidence and the claims are without merit. The Company will vigorously defend its position before the trial court and, if necessary, on appeal. (32)
NOTE 14 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following selected financial data for the eight quarters ended December 31, 1993 are derived from unaudited financial statements and include, in the opinion of management, all adjustments necessary for fair presentation of the results for the interim periods presented and are of a normal recurring nature. However, the quarter ended December 31, 1993 includes a restructuring charge of $5,000,000 ($3,150,000 or $.15 per share after taxes) and a provision for slow moving inventory of $4,380,000 ($2,760,000 or $.13 per share after taxes):
NOTE 15 - STOCK SPLIT:
On February 11, 1993 the Company's Board of Directors approved a three-for-two common stock split effective April 1, 1993 for shareholders of record as of March 15, 1993. All numbers of common shares and per share data, except shares authorized, throughout the consolidated financial statements, have been restated to reflect the stock split.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable. (33)
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to this item appears under the caption "ELECTION OF DIRECTORS" on pages 1 and 2 of the 1994 Proxy Statement, which is incorporated herein by reference and under the caption "EXECUTIVE OFFICERS OF THE REGISTRANT" on pages 11 and 12 of this Annual Report on Form 10-K.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to this item appears under the caption "THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD" on pages 3 through 5, "EXECUTIVE COMPENSATION" on pages 9 through 11 and "COMPENSATION COMMITTEE REPORT" on pages 5 and 6 in the 1994 Proxy Statement, which are incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to this item appears under the captions "SECURITY OWNERSHIP OF MANAGEMENT" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" on page 8 and 9 of the 1994 Proxy Statement, which are incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to this item appears under the captions "EXECUTIVE COMPENSATION" on pages 9 through 11, "CERTAIN TRANSACTIONS" on pages 11 through 13 and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" on page 6 of the 1994 Proxy Statement, which are incorporated herein by reference. (34)
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT.
1. FINANCIAL STATEMENTS:
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Other schedules are omitted because they are either not applicable or not required or the information is presented in the Consolidated Financial Statements or Notes thereto. (35)
3. EXHIBITS:
Exhibit No. - ----------- 3.1(a) Restated Certificate of Incorporation of the Registrant and amendment thereto. (9) (b) Certificate of Amendment to Restated Certificate of Incorporation of the Company filed April 30, 1987. (23) 3.2(a) By-Laws of the Registrant. (9) (b) Amendment to Revised By-Laws of the Company adopted April 30, 1987. (23) (c) Amendment to Revised By-Laws of the Company adopted February 18, 1988. (23) 4.1 Form of Common Stock Certificate. (1) 10.1(a) Russ Berrie and Company, Inc. Stock Option and Restricted Stock Plan. (2) (b) Amendment to the Russ Berrie and Company, Inc. Stock Option and Restricted Stock Plan. (11) 10.2(a) Russ Berrie and Company, Inc. Stock Option Plan for Outside Directors. (3) (b) Amendment to the Russ Berrie and Company, Inc. Stock Option Plan for Outside Directors. (11) 10.3 Russ Berrie and Company, Inc. Profit Sharing Plan. (3) 10.4 Agreement dated January 26, 1982 between the Registrant and A. Curts Cooke and amendment thereto dated March 10, 1984. (3) - -------------------
(1) Incorporated by reference to Amendment No. 2 to Registration Statement No. 2-88797 on Form S-1, as filed on March 29, 1984. (2) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1984. (3) Incorporated by reference to Amendment No. 1 to Registration Statement No. 2-88797 on Form S-1, as filed on March 13, 1984. (9) Incorporated by reference to Amendment No. 1 to Registration Statement No. 33-10077 on Form S-1, as filed on December 16, 1986. (11) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1987.
(23) Incorporated by reference to Registration No. 33-51823 on Form S-8, as filed on January 6, 1994. (36)
Exhibit No. - ----------- 10.26 Lease Agreement, dated April 1, 1981, between Tri-State Realty and Investment Company and Russ Berrie and Company, Inc. (4) 10.27 Guaranty, dated March 20, 1981, from Russ Berrie and Company, Inc. and Russell Berrie to the New Jersey Economic Development Authority and Midlantic National Bank as Trustee. (4) 10.28 Mortgage, dated April 6, 1981, between Tri-State Realty and Investment Company and the New Jersey Economic Development Authority. (4) 10.29 Credit and Security Agreement, dated as of March 1, 1981, between the New Jersey Economic Development Authority and Tri-State Realty and Investment Company. (4) 10.30 Assignment of Leases, Rents & Profits, dated April 6, 1981, by Tri-State Realty and Investment Company to the New Jersey Economic Development Authority. (4) 10.31 Note, dated April 6, 1981, made by Tri-State Realty and Investment Company to the order of the New Jersey Economic Development Authority in the principal amount of $2,000,000. (4) 10.32 Specimen of State of New Jersey Economic Development Authority $2,000,000 Economic Development Bond (Tri-State Realty and Investment Company -- 1980 Project), dated April 6, 1981. (4) 10.33 Lease, dated December 28, 1983, between Russell Berrie and Russ Berrie and Company, Inc. (4) - -----------------
(4) Incorporated by reference to Registration Statement No. 2-88797 on Form S-1 as filed on February 2, 1984. (37)
Exhibit No. - ----------- 10.35 Guarantee dated as of December 1, 1983, from Russ Berrie and Company, Inc. to the New Jersey Economic Development Authority, Bankers Trust Company as Trustee and each Holder of a Bond. (4) 10.36 Letter of Credit and Reimbursement Agreement, dated as of December 1, 1983, between Russ Berrie and Company, Inc. and Citibank, N.A. (4) 10.37 Loan Agreement, dated as of December 1, 1983, between the New Jersey Economic Development Authority and Russell Berrie. (4) 10.38 Mortgage, dated December 28, 1983, between Russell Berrie and Citibank, N.A. (4) 10.39 Form of New Jersey Economic Development Authority Variable/Fixed Rate Economic Development Bond (Russell Berrie -- 1983 Project). (4) 10.51 Grant Deed, dated June 28, 1982, from Russ Berrie and Company, Inc. to Russell Berrie. (1) 10.52 Russ Berrie and Company, Inc. 1989 Employee Stock Purchase Plan. (13)
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(1) Incorporated by reference to Amendment No. 2 to Registration Statement No. 2-88797 on Form S-1, as filed on March 29, 1984. (4) Incorporated by reference to Registration Statement No. 2-88797 on Form S-1, as filed on February 2, 1984. (13) Incorporated by reference to Form S-8 Registration Statement No. 33-26161, as filed on December 16, 1988. (38)
Exhibit No. - ----------- 10.53(a) Russ Berrie and Company, Inc. Stock Option Plan. (6) (b) Amendments to the Russ Berrie and Company, Inc. Stock Option Plan. (11) 10.55 Executive Employment Agreement, dated May 21, 1982, between Russ Berrie and Company, Inc. and James Madonna and Amendment thereto, dated September 23, 1986. (9) 10.68(a) Lease Agreement, dated as of May 1, 1977, between Fred T. Reisman and Associates Limited, Amram's Distributing, LTD, and Alfa Romeo (Canada) Limited (8) (b) Lease Agreement, dated April 8, 1986, between Pensionfund Realty Limited and Amram's Distributing LTD. (9) 10.70 Amendment, dated October 29, 1985 to the restated Russ Berrie and Company, Inc. Profit Sharing Plan. (8)
- ----------------
(6) Incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement No. 2-96238 on Form S-8, as filed on November 6, 1985. (8) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1985. (9) Incorporated by reference to Amendment No. 1 to Registration Statement No. 33-10077 of Form S-1, as filed on December 16, 1986. (11) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1987. (39)
Exhibit No. - ----------- 10.73 Russ Berrie and Company, Inc. Deferred Compensation Plan. (9) 10.74 License Agreement, dated April 23, 1986, between Lever Brothers Company and Russ Berrie and Company, Inc. (9) 10.76(a) Lease agreement, dated September 17, 1987, between Forsgate Industrial Complex and Russ Berrie and Company, Inc. (11) (b) Amendment, dated March 18, 1988, between Forsgate Industrial Complex and Russ Berrie and Company, Inc. (11) 10.77 Lease agreement, dated July 1, 1987, between Hunter Street, Inc. and Russ Berrie and Co. (West), Inc. (11) 10.78 Lease agreement, dated October 1, 1987, between David Benjamin and Nicole Berrie Lakeland Trust and Russ Berrie and Company, Inc. (11)
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(9) Incorporated by reference to Amendment No. 1 to Registration Statement No. 33-10077 of Form S-1, as filed on December 16, 1986. (11) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1987. (40)
10.80 Russ Berrie and Company, Inc. 1989 Stock Option Plan. (14) 10.81 Russ Berrie and Company, Inc. 1989 Stock Option Plan for Outside Directors. (15) 10.82 Russ Berrie and Company, Inc. 1989 Stock Option and Restricted Stock Plan. (16) 10.83 Lease Agreement dated November 7, 1988 between A. Mantella & Sons Limited and Amram's Distributing, Ltd. (17) 10.84 Lease Agreement dated November 7, 1988 between Russell Berrie and Russ Berrie and Company, Inc. (17) 10.86 Lease Agreement dated June 8, 1989 between Americana Development, Inc. and Russ Berrie and Company, Inc. (18) 10.87 Lease dated December 25, 1989 between Kestrel Properties, Ltd. and Russ Berrie (U.K.) Ltd. (18) 10.89 Amendment dated January 9, 1989 to Letter of Credit and Reimbursement Agreement dated as of December 1, 1983 between Russ Berrie and Company, Inc. and Citibank, N.A. (18) 10.91(a) Assignment of Underlease of Unit 10 Nursling Industrial Estate, Marks and Spencer plc to Russ Berrie (U.K.) Limited. (19) (b) Underlease of Unit 10 Nursling Estate County of Hants. (19) 10.92 Agreement for sale and purchase of parts or shares of Sea View Estate between Sino Rank Company Limited and Tri Russ International (Hong Kong) Limited dated March 10, 1990. (19) --------
(14) Incorporated by reference to Form S-8 Registration Statement No. 33-27406, as filed on March 16, 1989.
(15) Incorporated by reference to Form S-8 Registration Statement No. 33-27897, as filed on April 5, 1989.
(16) Incorporated by reference to Form S-8 Registration Statement No. 33-27898, as filed on April 5, 1989.
(17) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1988.
(18) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1989.
(19) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1990. (41)
10.95(a) Asset Purchase Agreement dated September 18, 1990 by and among Bright, Inc., Bright of America, Inc., Bright Crest, LTD. and William T. Bright. (19) (b) Non-Compete Agreement dated September 18, 1990 by and between William T. Bright and Bright, Inc. (19) (c) Deed of Trust dated September 18, 1990 by and among Bright, Inc. F.T. Graff Jr. and Louis S. Southworth, III Trustees, and Bright of America, Inc. (19) (d) Guaranty Agreement dated September 18, 1990 executed by Russ Berrie and Company, Inc. delivered to Bright of America, Inc. and Bright Crest, LTD. (19) (e) Guaranty Agreement dated September 18, 1990 executed by Russ Berrie and Company, Inc. delivered to William T. Bright. (19) 10.97 Russ Berrie and Company, Inc. Retirement Plan Amended and Restated Effective January 1, 1989. (19)
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(19) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1990. (42)
10.100 Letter dated February 4, 1991 to call Development Authority of Cobb County Industrial Development Revenue Bond (Russ Berrie and Company, Inc. Project), Series 1980, dated August 8, 1980. (20) 10.101(a) Sale and Purchase Agreement dated October 16, 1991 by and among Weaver Corp. and Papel/Freelance, Inc. (20) (b) Non-competition Agreement made October 16, 1991 by and among Weaver Corp., an Indiana corporation, Steven Weaver and Papel/Freelance, Inc. a Pennsylvania corporation. (20) 10.102 Transfer of Freehold land between British Telecommunications plc and BT Property Limited and Russ Berrie (UK) Ltd. (21) 10.103 Executive Employment Agreement dated December, 1992 between Russ Berrie and Company, Inc. and Bernard Tenenbaum. (21) 10.104 Russ Berrie and Company, Inc. 1994 Stock Option Plan. (21) 10.105 Russ Berrie and Company, Inc. 1994 Stock Option Plan for Outside Directors. (21) 10.106 Russ Berrie and Company, Inc. 1994 Stock Option and Restricted Stock Plan. (21) 10.107 Russ Berrie and Company, Inc. 1994 Employee Stock Purchase Plan. (21) 10.108 Asset Purchase Agreement dated October 1, 1993 by and between RBTACQ, Inc. and Cap Toys, Inc. (22) 21.1 List of Subsidiaries 23.1 Report of Independent Accountants 23.2 Consent of Independent Accountants - --------------------- (20) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1991. (21) Incorporated by reference to Annual Report on Form 10-K for the year ended December 31, 1992. (22) Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended September 30, 1993.
(B) REPORTS ON FORM 8-K No reports on From 8-K were filed by the Company during the quarter ended December 31, 1993. (43)
Undertaking
In order to comply with amendments to the rules governing the use of Form S-8 under the Securities Act of 1933, as amended, as set forth in Securities Act Release No. 33-6867, the undersigned Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into Registrant's Registration Statements on Forms S-8 (File Nos. 2-96238, 2-96239, 2-96240, 33-10779, 33-26161, 33-27406, 33-27897 and 33-27898):
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (44)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Russ Berrie and Company, Inc. (Registrant)
By s/Paul Cargotch ------------------------------- Paul Cargotch Vice President - Finance and Chief Financial Officer
March 23, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures Date ---------- ----
s/Russell Berrie March 28, 1994 - -------------------------------------------- Russell Berrie, Chairman of the Board, Chief Executive Officer, and Director (Principal Executive Officer)
s/A. Curts Cooke March 23, 1994 - -------------------------------------------- A. Curts Cooke, President, Chief Operating Officer and Director (Principal Operating Officer)
s/Paul Cargotch March 23, 1994 - -------------------------------------------- Paul Cargotch, Vice President - Finance and Chief Financial Officer (Principal Financial and Accounting Officer) (45)
s/Raphael Benaroya March 24, 1994 - ------------------------------------------ Raphael Benaroya, Director
s/Arthur D. Charpentier March 24, 1994 - ------------------------------------------ Arthur D. Charpentier, Director
s/Jimmy Hsu March 23, 1994 - ------------------------------------------- Jimmy Hsu, Director
s/Charles Klatskin March 24, 1994 - ------------------------------------------ Charles Klatskin, Director
March , 1994 - ------------------------------------------ Joseph Kling, Director
s/Sidney Slauson March 26, 1994 - ------------------------------------------ Sidney Slauson, Director
s/Bernard Tenenbaum March 23, 1994 - ------------------------------------------ Bernard Tenenbaum, Director S-1
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES SCHEDULE I - MARKETABLE SECURITIES - OTHER INVESTMENTS DECEMBER 31, 1993
S-2
RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
*Principally account write-offs and disposal of merchandise, respectively. Exhibit Index
Exhibit Numbers - ---------------
21.1 List of Subsidiaries
23.1 Report of Independent Accountants
23.2 Consent of Independent Accountants