**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

# **WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

**ý**

 

**QUARTERLY REPORT PURSUANT TO SECTION13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Forthe quarterly period ended March 31, 2002**

 

**OR**

 

**o****        TRANSITION REPORTPURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Forthe transition periodfrom                         to                         **

** **

**Commissionfile number                                                                   1-8681**

 

 

**RUSS BERRIEAND COMPANY, INC.**

(Exact name of registrant as specified in itscharter)

 

| **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 sincelast report)

 

Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes ýNo o

 

The number ofshares outstanding of each of the registrant’s classes of common stock, as ofApril 30, 2002 was as follows:

 

| ** **

**CLASS**                 |   | **OUTSTANDING  AT  APRIL 30, 2002** |
|---------------------------------------|--------|-------------------------------------|
| **Common  Stock, $0.10 stated value** |   | **20,404,251**                      |

 

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**RUSS BERRIE AND COMPANY, INC.**

 

**INDEX**

 
| **PART I – FINANCIAL INFORMATION** |
|-----------------------------------------|
|                                    |   |   |
| Item 1.                                 |   | Financial Statements |
|                                    |   |   |
|   a)                               |   | Consolidated Balance Sheet as of March 31, 2002 and December 31, 2001 |
|                                    |   |   |
|   b)                               |   | Consolidated Statement of Income for the  three months ended March 31, 2002 and 2001 |
|                                    |   |   |
|   c)                               |   | Consolidated Statement of Cash Flows for  the three months ended March 31, 2002 and 2001 |
|                                    |   |   |
|   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 |
|                                    |   |   |
| **PART II – OTHER INFORMATION**    |
|                                    |   |   |
| Item 1.                                 |   | Legal Proceedings |
|                                    |   |   |
| Item 6.                                 |   | Exhibits and Reports on Form 8-K |
|                                    |   |
| Signatures                              |
|                                         |  |  |  |

 

2

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**PART 1 – FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS**

 

**RUSSBERRIE AND COMPANY, INC. AND SUBSIDIARIES**

 

**CONSOLIDATED BALANCESHEET**

 

**(Dollarsin Thousands, Except Per Share Data)**

 
|                                                                                                                                      |   | **(UNAUDITED)**     |        |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|-------------|
|                                                                                                                                      |   | **March 31,  2002** |        | **December  31,  2001** |   |
| ***ASSETS***                                                                                                                              |   |                |        |   |   |
| Current  assets                                                                                                                           |   |                |        |   |   |
| Cash and  cash equivalents                                                                                                                |   | $                   | 105,566     |   | $ | 148,872 |   |
| Marketable  securities and other investments                                                                                              |   | 147,683             |        | 94,181 |   |
| Accounts  receivable, trade, less allowances of $3,930 in 2002 and $3,454 in 2001                                                         |   | 65,364              |        | 63,481 |   |
| Inventories  — net                                                                                                                   |   | 29,638              |        | 37,374 |   |
| Prepaid  expenses and other current assets                                                                                                |   | 5,514               |        | 4,550 |   |
| Deferred  income taxes                                                                                                                    |   | 7,180               |        | 6,705 |   |
| **Total current  assets**                                                                                                                 |   | **360,945**         | ** **  | **355,163** | ** ** |
|                                                                                                                                      |   |                |        |   |   |
| Property,  plant and equipment — net                                                                                                 |   | 26,287              |        | 24,623 |   |
| Inventories  — long term, net                                                                                                        |   | 1,959               |        | 2,284 |   |
| Other assets                                                                                                                              |   | 4,489               |        | 4,574 |   |
| **Total assets**                                                                                                                          |   | **$**               | **393,680** | ** ** | **$** | **386,644** | ** ** |
|                                                                                                                                      |   |                |        |   |   |
| ***LIABILITIES AND  SHAREHOLDERS’ EQUITY***                                                                                          |   |                |        |   |   |
| Current  liabilities                                                                                                                      |   |                |        |   |   |
| Accounts  payable                                                                                                                         |   | $                   | 5,430       |   | $ | 5,376 |   |
| Accrued  expenses                                                                                                                         |   | 16,510              |        | 20,003 |   |
| Accrued  income taxes                                                                                                                     |   | 10,680              |        | 6,848 |   |
| **Total current  liabilities**                                                                                                            |   | **32,620**          | ** **  | **32,227** | ** ** |
| Commitments  and contingencies                                                                                                            |   |                |        |   |   |
| Shareholders’  equity                                                                                                                |   |                |        |   |   |
| Common  stock:  $.10 stated value per share;  authorized 50,000,000 shares; issued 2002, 26,034,615 shares; 2001,  25,862,364 shares |   | 2,603               |        | 2,587 |   |
| Additional  paid in capital                                                                                                               |   | 77,538              |        | 73,794 |   |
| Retained  earnings                                                                                                                        |   | 396,914             |        | 392,272 |   |
| Accumulated  other comprehensive loss                                                                                                     |   | (5,785              | )           | (4,165 | ) |
| Unearned  compensation                                                                                                                    |   | —              |        | (75 | ) |
| Treasury  stock, at cost (5,639,314 shares at March 31, 2002 and 5,632,014 shares at  December 31, 2001)                                  |   | (110,210            | )           | (109,996 | ) |
|                                                                                                                                      |   |                |        |   |   |
| **Total shareholders’  equity**                                                                                                      |   | **361,060**         | ** **  | **354,417** | ** ** |
|                                                                                                                                      |   |                |        |   |   |
| **Total liabilities  and shareholders’ equity**                                                                                      |   | **$**               | **393,680** | ** ** | **$** | **386,644** | ** ** |

 

The accompanying notes are an integralpart of the consolidated financial statements.

 

3

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**RUSSBERRIE AND COMPANY, INC. AND SUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENT OF INCOME**

 

**(Dollarsin Thousands, Except Per Share Data)**

 
|                                         |   | **(UNAUDITED)**                    |       |
|----------------------------------------------|--------|------------------------------------|------------|
|                                         |   | **THREE  MONTHS ENDED  MARCH 31,** |       |
|                                         |   | **2002**                           |       | **2001** |   |
|                                         |   |                               |       |   |   |
| Net sales                                    |   | $                                  | 77,602     |   | $ | 75,929 |   |
|                                         |   |                               |       |   |   |
| Cost of  Sales                               |   | 33,716                             |       | 33,714 |   |
|                                         |   |                               |       |   |   |
| **Gross profit**                             |   | **43,886**                         | ** ** | **42,215** | ** ** |
|                                         |   |                               |       |   |   |
| Selling,  general and administrative expense |   | 30,821                             |       | 30,890 |   |
|                                         |   |                               |       |   |   |
| Investment  and other income-net             |   | 2,308                              |       | 1,778 |   |
|                                         |   |                               |       |   |   |
| **Income before taxes**                      |   | **15,373**                         | ** ** | **13,103** | ** ** |
|                                         |   |                               |       |   |   |
| Provision  for income taxes                  |   | 5,437                              |       | 4,380 |   |
|                                         |   |                               |       |   |   |
| **Net income**                               |   | **$**                              | **9,936**  | ** ** | **$** | **8,723** | ** ** |
|                                         |   |                               |       |   |   |
| **Net income per  share:**                   |   |                               |       |   |   |
| Basic                                        |   | $                                  | 0.49       |   | $ | 0.44 |   |
| Diluted                                      |   | $                                  | 0.49       |   | $ | 0.43 |   |

 

***The accompanying notes are an integral partof the consolidated financial statements.***

 

4

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**RUSS BERRIE AND COMPANY, INC. ANDSUBSIDIARIES**

 

**CONSOLIDATEDSTATEMENT OF CASH FLOWS**

 

**(Dollarsin Thousands)**

 
|                                                                               |   | **(UNAUDITED)**                    |    |
|------------------------------------------------------------------------------------|--------|------------------------------------|---------|
|                                                                               |   | **THREE  MONTHS ENDED  MARCH 31,** |    |
|                                                                               |   | **2002**                           |    | **2001** |   |
| **Cash flows from  operating activities:**                                         |   |                               |    |   |   |
| Net income                                                                         |   | $                                  | 9,936   |   | $ | 8,723 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |   |                               |    |   |   |
| Depreciation  and amortization                                                     |   | 1,040                              |    | 982 |   |
| Provision  for accounts receivable reserves                                        |   | 587                                |    | 510 |   |
| Other                                                                              |   | (544                               | )       | 593 |   |
| Changes in  assets and liabilities:                                                |   |                               |    |   |   |
| Accounts  receivable                                                               |   | (2,470                             | )       | (3,558 | ) |
| Inventories  — net                                                            |   | 8,061                              |    | 6,284 |   |
| Prepaid expenses  and other current assets                                         |   | (964                               | )       | 1,688 |   |
| Other assets                                                                       |   | 6                                  |    | 16 |   |
| Accounts  payable                                                                  |   | 54                                 |    | (440 | ) |
| Accrued  expenses                                                                  |   | (3,493                             | )       | (4,073 | ) |
| Accrued  income taxes                                                              |   | 3,832                              |    | 2,331 |   |
| Total  adjustments                                                                 |   | 6,109                              |    | 4,333 |   |
| Net cash  provided by operating activities                                         |   | 16,045                             |    | 13,056 |   |
|                                                                               |   |                               |    |   |   |
| **Cash flows from  investing activities:**                                         |   |                               |    |   |   |
| Purchase of  marketable securities                                                 |   | (75,841                            | )       | (25,889 | ) |
| Proceeds  from sale of marketable securities                                       |   | 21,716                             |    | 28,664 |   |
| Proceeds  from sale of fixed assets                                                |   | —                             |    | 26 |   |
| Capital  expenditures                                                              |   | (2,847                             | )       | (743 | ) |
| Net cash  (used in) provided by investing activities                               |   | (56,972                            | )       | 2,058 |   |
|                                                                               |   |                               |    |   |   |
| **Cash flows from  financing activities:**                                         |   |                               |    |   |   |
| Proceeds  from issuance of common stock                                            |   | 3,760                              |    | 4,153 |   |
| Dividends  paid to shareholders                                                    |   | (5,294                             | )       | (4,793 | ) |
| Purchase of  treasury stock                                                        |   | (214                               | )       | — |   |
| Net cash  (used in) financing activities                                           |   | (1,748                             | )       | (640 | ) |
|                                                                               |   |                               |    |   |   |
| Effect of  exchange rate changes on cash and cash equivalents                      |   | (631                               | )       | (2,155 | ) |
| Net  (decrease) increase in cash and cash equivalents                              |   | (43,306                            | )       | 12,319 |   |
| Cash and  cash equivalents at beginning of period                                  |   | 148,872                            |    | 77,794 |   |
| Cash and  cash equivalents at end of period                                        |   | $                                  | 105,566 |   | $ | 90,113 |   |
|                                                                               |   |                               |    |   |   |
| **Cash paid during  the period for:**                                              |   |                               |    |   |   |
| Interest                                                                           |   | $                                  | 12      |   | $ | 26 |   |
| Income taxes                                                                       |   | $                                  | 1,605   |   | $ | 2,050 |   |

 

***The accompanying notes are an integral partof the consolidated financial statements.***

 

5

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

(Unaudited)

 

**NOTE1 – INTERIM CONSOLIDATED FINANCIAL STATEMENTS**

 

The accompanyingunaudited interim consolidated financial statements have been prepared by RussBerrie and Company, Inc. and its subsidiaries (the “Company”) in accordancewith accounting principles generally accepted in the United States of Americafor interim financial reporting and the instructions to Form 10-Q and Rule10-01 of Regulation S-X.  Accordingly, certain information and footnotedisclosures normally included in financial statements prepared under generallyaccepted accounting principles have been condensed or omitted pursuant to suchprinciples and regulations.  The information furnished reflects alladjustments, which are, in the opinion of management, of a normal recurringnature and necessary for a fair presentation of the Company’s financial position,results of operations and cash flows for the interim periods presented. Results for interim periods are not necessarily an indication of results to beexpected for the year.

 

Net income in the ConsolidatedStatement of Cash Flows included non-cash charges of $120,000 and $908,000relating to the impact of the 2000 stock option repricing for the three monthsended March 31, 2002 and 2001, respectively.

 

This report onForm 10-Q for the three months ended March 31, 2002 should be read inconjunction with the Company’s Annual Report on Form 10-K for its year endedDecember 31, 2001.

 

### **NOTE2 – MARKETABLE SECURITIES AND OTHER INVESTMENTS**

 

During the three months ended March 31, 2002 the Company invested in alimited partnership which manages a portfolio of mortgage backed securities toachieve returns through yield income and price appreciation.  This investment is accounted for using theequity method and accordingly the Company’s proportionate share of the limited partnership’sincome or loss is included in investment and other income-net in theConsolidated Statement of Income.  As ofMarch 31, 2002, the Company’s investment in this limited partnership amountedto $23,570,000 and is included in marketable securities and other investmentsin the Consolidated Balance Sheet.

 

### **NOTE3 – EARNINGS PER SHARE**

 

Areconciliation of weighted average common shares outstanding to weightedaverage common shares outstanding assuming dilution is as follows:

 
|                                                 |   | **Three  Months Ended  March 31,** |   |
|------------------------------------------------------|--------|------------------------------------|--------|
|                                                 |   | **2002**                           |   | **2001** |   |
|                                                 |   |                               |   |   |   |
| Average common  shares outstanding                   |   | 20,332,000                         |   | 19,939,000 |   |
| Dilutive  effect of common shares issuable (1)       |   | 120,000                            |   | 146,000 |   |
| Average  common shares outstanding assuming dilution |   | 20,452,000                         |   | 20,085,000 |   |

 

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(1)  Issuable under stock option plans.

 

Stock optionsoutstanding at March 31, 2001 to purchase 160,625 shares of common stock werenot included in the computation of earnings per common share assuming dilutionbecause the options’ exercise prices were greater than the average market priceof the common shares.  There were nosuch options outstanding at March 31, 2002.

 

### ** **

### **NOTE4 – DIVIDENDS**

 

Cash dividendsof $5,294,000 ($0.26 per share) were paid on March 22, 2002 toshareholders of record of the Company’s Common Stock on March 8, 2002.  Cash dividends of $4,793,000 ($0.24 pershare) were paid on March 23, 2001 to shareholders of record of the Company’sCommon Stock on March 9, 2001.

 

6

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### **NOTE5 – COMPREHENSIVE INCOME**

 

In accordancewith Statement of Financial Accounting Standards (SFAS) No. 130, “ReportingComprehensive Income”, comprehensive income, representing all changes inShareholders’ equity during the period other than changes resulting from theissuance or repurchase of the Company’s common stock, payment of dividends andunearned compensation, is reconciled to net income for the three months endedMarch 31, 2002 and 2001 as follows:

 
|                                                                          |   | **Three  Months Ended  March 31,** |      |
|-------------------------------------------------------------------------------|--------|------------------------------------|-----------|
|                                                                          |   | **2002**                           |      | **2001** |   |
|                                                                          |   |                               |      |   |   |
| Net income                                                                    |   | $                                  | 9,936,000 |   | $ | 8,723,000 |   |
| Other comprehensive income (loss), net of  taxes:                             |   |                               |      |   |   |
| Foreign currency translation adjustments                                      |   | (771,000                           | )         | (2,805,000 | ) |
| Net unrealized gain (loss) on securities  available-for-sale                  |   | (919,000                           | )         | 891,000 |   |
| Net unrealized gain on foreign currency  forward exchange contracts and other |   | 70,000                             |      | 473,000 |   |
|                                                                          |   |                               |      |   |   |
| Other comprehensive income (loss)                                             |   | (1,620,000                         | )         | (1,441,000 | ) |
|                                                                          |   |                               |      |   |   |
| Comprehensive income                                                          |   | $                                  | 8,316,000 |   | $ | 7,282,000 |   |

 

**NOTE6 – LITIGATION**

 

In the ordinary course of its business, theCompany is party to various copyright, patent and trademark infringement,unfair competition, breach of contract, customs, employment and other legalactions incidental to its business, as plaintiff or defendant. In the opinionof management, the amount of ultimate liability with respect to these actionswill not materially affect the results of operations, financial condition orcash flows of the Company, except for the matter described below.

 

An action was commenced againstthe Company on August 22, 2001, in the United States District Court, Districtof New Jersey, by Dam Things from Denmark (a/k/a Troll Company ApS.), alleging,among other things, copyright infringement by the Company of the plaintiff’sreinstated United States copyrights for its troll designs and unfaircompetition under common law.  Theplaintiff is seeking, among other things, injunctive relief prohibiting theCompany from continuing to offer for sale its troll products, cancellation ofthe Company’s U.S. copyright registrations with respect to its various trollproducts, as well as unspecified damages and attorney’s fees and expenses.  On December 3, 2001, a preliminaryinjunction was issued by the District Court which, as subsequently modified,prohibits the Company from manufacturing and importing its troll products intothe United States and selling such products in the United States after March28, 2002.  The issuance of thepreliminary injunction was appealed by the Company and the hearing on suchappeal was held on March 7, 2002.  OnMarch 27, 2002, the Third Circuit Court of Appeals issued an order staying thepreliminary injunction pending the further order of the court.  To date, no decision has been received withrespect to the appeal.  The Companybelieves it has substantial defenses to the allegations. In 2002, the sale oftroll products represented less than one-half of one percent of the Company’snet sales.  The ultimate resolution ofthis injunction and the timing of the disposition of this inventory cannot bedetermined at this time.  As such, theCompany has segregated the amount of its troll products inventory, at itsestimated net book value of $1,959,000 at March 31, 2002 and $2,284,000 atDecember 31, 2001 and has recorded it as a long-term asset in the Company’sConsolidated Balance Sheet.  The Companydoes not believe that the ultimate resolution of this action will have amaterial adverse impact on the financial condition of the Company.

 

7

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**NOTE7 – RECENTLY ISSUED ACCOUNTING STANDARDS**

 

**SFASNos. 142 and 144**

 

SFAS No. 142, “Goodwill and Other IntangibleAssets” specifies the financial accounting and reporting for goodwill and otherintangible assets.  Amortization ofgoodwill, including goodwill recorded in past business combinations, has ceasedfor fiscal years beginning after December 15, 2001 and therefore there is noamortization of goodwill in the Consolidated Statement of Income for the threemonths ended March 31, 2002.  Goodwillrecognized on or before June 30, 2001, has been assigned to one or morereporting units and shall be tested, at least annually, for impairment as ofthe beginning of the fiscal year in which SFAS No. 142 is initially applied inits entirety.  The Company adopted SFASNo. 142, effective January 1, 2002, and such adoption did not have a materialeffect on the Company’s consolidated financial statements.

 

In October 2001, the FASB issuedSFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”,which is effective for fiscal years beginning after December 15, 2001 andinterim periods within those fiscal years. SFAS No. 144 addresses financial accounting and reporting for theimpairment or disposal of long-lived assets and supersedes SFAS No. 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assetsto be Disposed Of” and the accounting and reporting provisions of AccountingPrincipals Board Opinion No. 30, “Reporting the Results of Operations —Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events and Transactions”, forthe disposal of a segment of a business. The Company adopted SFAS No. 144 on January 1, 2002, and such adoptiondid not have a material effect on the Company’s consolidated financialstatements.

 

8

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

 

**RESULTS OF OPERATIONS FOR THE THREE MONTHSENDEDMARCH  31, 2002 AND MARCH  31, 2001**

 

The Company’s net sales for the three monthsended March 31, 2002 increased 2.2% to $77,602,000 compared to net sales of$75,929,000 for the three months ended March 31, 2001.  Net sales for the first quarter of 2002would have been approximately $600,000 higher had first quarter 2001 exchangerates remained in effect for the first quarter of 2002.

 

Cost of sales was 43.4% of net sales for thethree months ended March 31, 2002 as compared to 44.4% for the same period in2001.  This percentage decreaseprimarily reflects higher gross profit margins on sales of certain of theCompany’s product line concepts.

 

Selling, general andadministrative expense was $30,821,000 or 39.7% of net sales for the threemonths ended March 31, 2002 compared to $30,890,000 or 40.7% of net sales for thethree months ended March 31, 2001. Excluding the unfavorable impact of the 2000 stock option repricing,which amounted to a charge of $120,000, in the first quarter of 2002 and$908,000 in the first quarter of 2001, selling, general and administrativeexpense increased $719,000, or 2.4% compared to the same period in the prioryear.  The increase in selling, generaland administrative expense is due primarily to the Company’s strategicinvestment in the development of new products, business ventures and systems,offset, in part, by a decrease in showroom related costs, as compared to thethree months ended March 31, 2001.

 

Investment and other income of $2,308,000 forthe three months ended March 31, 2002 compares to $1,778,000 for the threemonths ended March 31, 2001.  Thisincrease is due primarily to higher returns on the Company’s investmentportfolio.

 

The provision for income taxesas a percent of income before taxes for the three months ended March 31, 2002was 35.4% compared to 33.4% in the same period for the prior year.  This increase in the effective tax rate isdue primarily to higher effective tax rates for the Company’s Europeanoperations and the non recurring reduction in the Company’s state tax valuationallowance in the first quarter of 2001.

 

Net income for the three months ended March31, 2002 of $9,936,000 compared to net income of $8,723,000 for the same periodlast year.  Excluding the unfavorableimpact of the 2000 stock option repricing, which amounted to a charge of$78,000, after tax,  in the firstquarter of 2002 and a charge of $590,000, after tax, or $0.03 per dilutedshare, in the first quarter of 2001, net income would have increased 7.5% andearnings per diluted share would have increased 6.5%.  The increase in net income was primarily the result of highergross profits due to increased sales volumes, a higher margin product mix andhigher investment income offset, in part, by a higher effective tax rate, asdescribed above.

 

The Company is dependent uponinformation technology systems in many aspects of its business.  Beginning in the first quarter of 2002, theCompany began a project to implement a new packaged computer software systemfor the Company and its wholly-owned subsidiaries and convert its second UnitedStates distribution facility to a new warehouse management system.  The Company’s current custom software, thathas been utilized to operate and manage its business, and other third partysoftware systems will be replaced using a strategic and phased approach.  The Company has not experienced anysignificant business disruptions related to the replacement of these systemsand anticipates that the replacement of its current systems will not have amaterial adverse impact on its financial condition or results of operations.

 

In January 2002, the European Union’s commoncurrency, the Euro, was issued and legacy currencies from participatingEuropean nations were withdrawn from circulation.  The Company has operating subsidiaries in the European Union,both participating in the establishment of the common currency and others thathad elected not to participate and remain on existing currencies.  The Company’s operating subsidiariesaffected by the Euro conversion have addressed the system and business issuesraised by the Euro conversion.  The Euroconversion has not had, and the Company anticipates that it will not have, amaterial adverse impact on its financial condition, or results of operations orcash flows.

 

9

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**Liquidityand Capital Resources**

 

As of March 31, 2002, theCompany had cash and cash equivalents and marketable securities of $253,249,000compared to cash and cash equivalents and marketable securities of $243,053,000at December 31, 2001.

 

As of March 31, 2002 andDecember 31, 2001, the Company had marketable securities and other investmentsof $147,683,000 and $94,181,000 respectively, included in the amountsabove.  As of March 31, 2002 theseinvestments consist of U.S. government obligations, municipal obligations,preferred stock mutual funds and a limited partnership primarily focused onmortgage backed securities.  The objective of the investmentportfolio is to maximize after tax returns while minimizing risk.  The Company’s marketable securities are subjectto market fluctuations based largely, but not exclusively, on the securities’sensitivity to changes in interest rates.

 

Working capital requirementsduring the three months ended March 31, 2002 were met entirely throughinternally generated funds.  TheCompany anticipates capital expenditures requirements for 2002 to beapproximately $18,000,000 primarily for systems development and costs relatedto leasehold improvements in its new facility in the United Kingdom.  The Company remains in a highly liquidposition and believes that the resources available from cash and cashequivalents, investments, operations and bank lines of credit are sufficient tomeet the foreseeable requirements of its business.

 

The Company enters into forward exchangecontracts, principally to manage the economic currency risks associated withthe purchase of inventory by its European and Canadian subsidiaries. Gains and losses related to such contracts were not material to its results ofoperations.  The Company does not anticipate any material adverse impacton its results of operations or financial position from these contracts.

 

As of March 31, 2002, the Boardof Directors had previously authorized the Company to repurchase 7,000,000shares of common stock of which 5,643,200 shares have been repurchased sincethe beginning of the Company’s stock repurchase program in March 1990.  During the three months ended March 31,2002, the Company repurchased 7,300 shares for $214,000.

 

The Company is subject to legal proceedingsand claims arising in the ordinary course of its business that could possiblyhave a material adverse impact on the Company’s results of operations and cashflows.  See Note 5 of the Notes toConsolidated Financial Statements for information regarding specific litigation.

 

Consistent with its past practices and as anormal course of business, the Company regularly reviews acquisitionopportunities of varying sizes.  Therecan be no assurance, however, that any discussions arising in connectiontherewith will result in definitive purchase agreements and, if they do, whatthe terms or timing of any such agreements would be.

 

10

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##### **Forward-Looking Statements**

 

This Quarterly Report on Form 10-Q containscertain forward-looking statements. Additional written and oral forward-looking statements may be made bythe Company from time to time in Securities and Exchange Commission (SEC)filings and otherwise.  The PrivateSecurities Litigation Reform Act of 1995 provides a safe-harbor forforward-looking statements.  Thesestatements may be identified by the use of forward-looking words or phrasesincluding, but not limited to, “anticipate”, “believe”, “expect”, “intend”,“may”, “planned”, “potential”, “should”, “will” or “would”.  The Company cautions readers that resultspredicted by forward-looking statements, including, without limitation, thoserelating to the Company’s future business prospects, revenues, working capital,liquidity, capital needs, interest costs and income are subject to certainrisks and uncertainties that could cause actual results to differ materiallyfrom 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 itsproducts in the Far East, the seasonality of revenues, the actions ofcompetitors, ability to increase production capacity, price competition, theeffects of government regulation, possible delays in the introduction of newproducts, customer acceptance of products, issues related to the Company’s newbusiness ventures, the ability to grow its direct sales force, changes inforeign currency exchange rates, issues related to the Company’s computersystems, the current and future outlook of the global retail market and otherfactors.

 

**ITEM 3.  QUANTITATIVE ANDQUALITATIVE DISCLOSURES****ABOUT MARKET RISK**

 

As of March 31, 2002, therehave been no material changes in the Company’s market risks from December 31,2001.

 

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**PART II OTHERINFORMATION**

 

**ITEM 1.  LEGAL PROCEEDINGS**

 

The information set forth inPart I, Financial Information, Item 1, “Notes to Consolidated FinancialStatements, Note 6 – Litigation," of this Quarterly Report on Form 10-Q is incorporated herein byreference thereto.

 

**ITEM 6.  EXHIBITS AND REPORTS ONFORM 8-K**

 
| a) |   | There are no exhibits to this Quarterly  Report on Form 10-Q.                |
|----|--------|------------------------------------------------------------------------------|
| b) |   | During the quarter ended March 31, 2002, no  reports on Form 8-K were filed. |

 

 

 

 

 

**Items 2, 3, 4, and 5 are not applicable andhave been omitted.**

 

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**SIGNATURES**

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the Registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.

 
|                               | RUSS BERRIE  AND COMPANY, INC. |                    |   |   |
|------------------------------------|--------------------------------|-------------------------|--------|--------|
|                               | (Registrant)                   |                    |   |
|                               |                           |                    |
|                               | By                             | /s/ John D. Wille       |   |
| Date:   May 9, 2002 |                           | John D. Wille           |
|                               |                           | Vice President and      |
|                               |                           | Chief Financial Officer |
|                                    |                                |                         |        |        |  |

 

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