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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****WASHINGTON,D.C.  20549**

**FORM 10-Q**

| **(Mark One)**                                    |
|---------------------------------------------------|
| ý                                            | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR** |
|                                              | **15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                              |
| **For  the quarterly period ended June 30, 2001** |
|                                              |
| **OR**                                            |
|                                              |
| o                                                 | **TRANSITION REPORT PURSUANT TO SECTION 13 OR** |
|                                              | **15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 
| **For the transition period  from_______________  to  _______________** |   |
|-----------------------------------------------------------------------------------|--------|
|                                                                              |   |
| **Commission file number         1-8681** |   |

** **

 

** **

| **RUSS BERRIE AND  COMPANY, INC.******                                                      |                               |
|---------------------------------------------------------------------------------------------|------------------------------------|
| (Exact name of  registrant as specified in its charter)                                     |                               |
|                                                                                        |                               |
| **New  Jersey******                                                                         | **22-1815337******                 |
| (State or other  jurisdiction of                                                            | (IRS Employer  Identification No.) |
| incorporation or  organization)                                                             |                               |
|                                                                                        |                               |
| **111  Bauer Drive, Oakland, New Jersey******                                               | **07436******                      |
| (Address of principal  executive offices)                                                   | (Zip Code)                         |
|                                                                                        |                               |
| **(201)  337-9000******                                                                     |
| (Registrant's  telephone number, including area code)                                       |
|                                                                                        |
| ********(Former name, former  address and former fiscal year, if changed since last report) |
|                                                                                             |                                    |  |

Indicateby check 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

Thenumber of shares outstanding of each of the registrant’s classes of commonstock, as of August 2, 2001 was as follows:

| **CLASS******                     | **OUTSTANDING AT   AUGUST 2, 2001****** |
|-----------------------------------|----------------------------------------------|
| Common Stock, $0.10  stated value | 20,160,113                                   |

 

----

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**RUSSBERRIE AND COMPANY, INC.**

**INDEX**

| **PART I - FINANCIAL  INFORMATION** |       |                                                   |
|-------------------------------------|------------|--------------------------------------------------------|
|                                |       |                                                   |
|                                | Item 1.    | Financial Statements                                   |   |   |
|                                |       |                                                   |   |   |
|                                |       | Consolidated Balance Sheet  as of June 30, 2001        |   |   |
|                                |       | and December 31, 2000                                  |   |   |
|                                |       |                                                   |   |   |
|                                |       | Consolidated Statement  of Income for the three months |   |   |
|                                |       | and the six months  ended June 30, 2001 and 2000       |   |   |
|                                |       |                                                   |   |   |
|                                |       | Consolidated  Statement of Cash Flows for the six      |   |   |
|                                |       | months ended June  30, 2001 and 2000                   |   |   |
|                                |       |                                                   |   |   |
|                                |       | Notes to  Consolidated Financial Statements            |   |   |
|                                |       |                                                   |   |   |
|                                | Item 2.    | Management's Discussion and  Analysis of Results of    |   |   |
|                                |       | Operations and Financial  Condition                    |   |   |
|                                |       |                                                   |   |   |
| **PART II - OTHER INFORMATION**     |       |                                                   |
|                                |       |                                                   |
|                                | Item 4.    | Submission of Matters to a Vote of  Security Holders   |   |   |
|                                |       |                                                   |   |   |
|                                | Item 6.    | Exhibits and Reports on Form 8-K                       |   |   |
|                                |       |                                                   |   |   |
|                                | Signatures |                                                   |   |

** **

**PART 1- FINANCIAL INFORMATION**

            **ITEM 1. FINANCIAL STATEMENTS**

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

**CONSOLIDATEDBALANCE SHEET**

**(Dollars in Thousands)**

|                                       | **(UNAUDITED)**                                                                                                           |         |
|--------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|--------------|
|                                       | **JUNE 30,  2001**                                                                                                        |         | **DECEMBER 31,  2000** |   |
|                                       | ****                                                                                                                      |         | **** |   |
| ***ASSETS***                               |                                                                                                                      |         |   |   |
| Current  assets                            |                                                                                                                      |         |   |   |
|                                       | Cash  and cash equivalents                                                                                                | $            | 119,762 |   | $ | 77,794 |   |
|                                       | Marketable  securities                                                                                                    | 120,239      |   | 141,032 |   |
|                                       | Accounts  receivable, trade, less allowances of  $3,677 in 2001 and $3,460 in 2000                                        | 48,094       |   | 58,673 |   |
|                                       | Inventories  – net                                                                                                   | 46,800       |   | 47,430 |   |
|                                       | Prepaid  expenses and other current assets                                                                                | 3,803        |   | 5,508 |   |
|                                       | Deferred  income taxes                                                                                                    | 6,231        |   | 6,628 | ** ** |
|                                       |                                                                                                                      | ****         |   | **** |   |
|                                       | **Total current assets**                                                                                                  | **344,929**  |   | **337,065** |   |
| Property,  plant and equipment – net  | 25,903                                                                                                                    |         | 26,745 |   |
| Other  assets                              | 3,663                                                                                                                     |         | 3,199 |   |
|                                       |                                                                                                                           |         |  |   |
|                                       | **Total assets**                                                                                                          | **$**        | **374,495** | ** ** | **$** | **367,009** |   |
|                                       |                                                                                                                      | ****         |   | **** |   |
|                                       |                                                                                                                      |         |   |   |
| ***LIABILITIES AND SHAREHOLDERS' EQUITY*** |                                                                                                                      | *** *** |   | *** *** |
| Current  liabilities                       |                                                                                                                      |         |   |   |
|                                       | Accounts  payable                                                                                                         | $            | 3,621 |   | $ | 4,913 |   |
|                                       | Accrued  expenses                                                                                                         | 18,285       |   | 20,313 |   |
|                                       | Accrued  income taxes                                                                                                     | 6,849        |   | 7,192 |   |
|                                       |                                                                                                                      |              |   |  |   |
|                                       | **Total current liabilities**                                                                                             | **28,755**   | ** ** | **32,418** | ** ** |
|                                       |                                                                                                                      | ****         |   | **** |   |
| Commitments  and contingencies             |                                                                                                                      |         |   |   |
| Shareholders'  equity                      |                                                                                                                      |         |   |   |
|                                       | Common  stock: $.10 stated value; authorized  50,000,000 shares; issued 2001, 25,700,841  shares; 2000, 25,413,626 shares | 2,571        |        | 2,541 |        |
|                                       | Additional  paid in capital                                                                                               | 69,687       |   | 63,103 |   |
|                                       | Retained  earnings                                                                                                        | 386,454      |   | 381,479 |   |
|                                       | Accumulated  other comprehensive loss                                                                                     | (4,788       | ) | (4,310 | ) |
|                                       | Unearned  compensation                                                                                                    | (111         | ) | (149 | ) |
|                                       | Treasury  stock, at cost (5,557,514 shares at  June 30, 2001 and  December 31, 2000)                                 | (108,073     | ) | (108,073 | ) |
|                                       |                                                                                                                      |              |   |  |   |
|                                       | **Total shareholders' equity**                                                                                            | **345,740**  | ** ** | **334,591** |   |
|                                       |                                                                                                                      | ****         |   | **** |   |
|                                       | **Total liabilities and shareholders' equity**                                                                            | **$**        | **374,495** | ** ** | **$** | **367,009** |   |
|                                       | ****                                                                                                                      |         | **** |   |
|                                            |                                                                                                                           |              |  |  |  |  |  |  |

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

 

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

**CONSOLIDATED STATEMENT OF INCOME**

**(Dollars in Thousands, ExceptPer Share Data)(UNAUDITED)**

|                                         | **THREE MONTHS ENDED**  |       | **SIX MONTHS ENDED** |       |
|----------------------------------------------|-------------------------|------------|----------------------|------------|
|                                         | **JUNE 30,**            |       | **JUNE 30,**         |       |
|                                         | **2001**                | ** ** | **2000**             | ** ** | **2001** | ** ** | **2000** | ** ** |
|                                         | ****                    |       | ****                 |       | **** |   | **** |   |
| Net sales                                    | $                       | 61,278     |                 | $          | 57,574 |   | $ | 137,207 |   | $ | 135,853 |   |
|                                         |                    |       |                 |       |   |   |   |   |
| Cost of Sales                                | 28,214                  |       | 26,782               |       | 61,928 |   | 59,498 |   |
|                                         |                         |       |                      |       |  |   |  |   |
|                                         |                    |       |                 |       |   |   |   |   |
|                                         | **Gross profit**        | **33,064** | ** **           | **30,792** | ** ** | **75,279** | ** ** | **76,355** | ** ** |
|                                         |                    |       |                 |       |   |   |   |   |
| Selling, general and  administrative expense | 27,087                  |       | 25,335               |       | 57,977 |   | 54,853 |   |
|                                         |                    |       |                 |       |   |   |   |   |
| Investment and other  income-net             | 2,716                   |       | 1,803                |       | 4,494 |   | 3,528 |   |
|                                         |                         |       |                      |       |  |   |  |   |
|                                         |                    |       |                 |       |   |   |   |   |
|                                         | **Income before taxes** | **8,693**  | ** **           | **7,260**  | ** ** | **21,796** | ** ** | **25,030** | ** ** |
|                                         |                    |       |                 |       |   |   |   |   |
| Provision for income  taxes                  | 2,831                   |       | 2,297                |       | 7,211 |   | 8,228 |   |
|                                         |                         |       |                      |       |  |   |  |   |
|                                         |                    |       |                 |       |   |   |   |   |
|                                         |                    |       |                 |       |   |   |   |   |
| **Net**  i**ncome**                          | **$**                   | **5,862**  | ** **           | **$**      | **4,963** | ** ** | **$** | **14,585** | ** ** | **$** | **16,802** | ** ** |
|                                         | ****                    |       | ****                 |       | **** |   | **** |   |
|                                         |                    |       |                 |       |   |   |   |   |
| **Net  income per share:**                   |                    |       |                 |       |   |   |   |   |
|                                         | Basic                   | $          | 0.29                 |       | $ | 0.24 |   | $ | 0.73 |   | $ | 0.82 |   |
|                                         |                    |            |                 |            |   |  |   |  |   |
|                                         |                    |       |                 |       |   |   |   |   |   |
|                                         | Diluted                 | $          | 0.29                 |       | $ | 0.24 |   | $ | 0.72 |   | $ | 0.82 |   |
|                                         |                         |       |                      |       |  |   |  |   |
|                                              |                         |            |                      |            |  |  |  |  |  |  |  |  |  |  |

***The accompanying notes are an integral part of theconsolidated financial statements.***

 

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

**CONSOLIDATEDSTATEMENT OF CASH FLOWS**

**(Dollarsin Thousands)**

|                                                                                | **(UNAUDITED)**                             |          |
|-------------------------------------------------------------------------------------|---------------------------------------------|---------------|
|                                                                                | **SIX MONTHS ENDED**                        |          |
|                                                                                | **JUNE 30,**                                |          |
|                                                                                | **2001**                                    |          | **2000** | ** ** |
|                                                                                | ****                                        |          | **** |   |
| **Cash  flows from operating activities:**                                          |                                        |          |   |   |
| Net income                                                                          | $                                           | 14,585        |   | $ | 16,802 |   |
| Adjustments to  reconcile net income to net cash  provided by operating activities: |                                        |     |   |     |
|                                                                                | Depreciation  and amortization              | 1,995         |   | 2,054 |   |
|                                                                                | Provision  for accounts receivable reserves | 950           |   | 1,011 |   |
|                                                                                | Other                                       | 861           |   | 186 |   |
|                                                                                | Changes  in assets and liabilities:         |          |   |   |   |
|                                                                                | Accounts receivable                         | 9,629         |   | 14,348 |   |
|                                                                                | Inventories  – net                     | 630           |   | (7,238 | ) |
|                                                                                | Prepaid  expenses and other current assets  | 1,705         |   | 85 |   |
|                                                                                | Other  assets                               | (16           | ) | (277 | ) |
|                                                                                | Accounts  payable                           | (1,292        | ) | (1,868 | ) |
|                                                                                | Accrued  expenses                           | (2,028        | ) | (2,157 | ) |
|                                                                                | Accrued  income taxes                       | (343          | ) | (634 | ) |
|                                                                                |                                        |               |   |  |   |
|                                                                                | Total  adjustments                          | 12,091        |   | 5,510 |   |
|                                                                                |                                        |               |   |  |   |
|                                                                                | Net cash provided by  operating activities  | 26,676        |   | 22,312 |   |
|                                                                                |                                        |          |   |   |   |
| **Cash  flows from investing activities:**                                          |                                        |          |   |   |
| Purchase  of marketable securities                                                  | (43,305                                     | )             | (19,798 | ) |
| Proceeds  from sale of marketable securities                                        | 64,646                                      |          | 25,491 |   |
| Proceeds  from sale of property, plant and equipment                                | 48                                          |          | 33 |   |
| Capital  expenditures                                                               | (1,646                                      | )             | (2,598 | ) |
|                                                                                |                                             |          |  |   |
|                                                                                | Net cash provided by  investing activities  | 19,743        |   | 3,128 |   |
|                                                                                |                                        |          |   |   |   |
| **Cash  flows from financing activities:**                                          |                                        |          |   |   |
| Proceeds  from issuance of common stock                                             | 6,614                                       |          | 1,084 |   |
| Dividends  paid to shareholders                                                     | (9,610                                      | )             | (9,015 | ) |
| Purchase  of treasury stock                                                         | -                                           |          | (8,499 | ) |
|                                                                                |                                             |          |  |   |
|                                                                                | Net  cash (used in) financing activities    | (2,996        | ) | (16,430 | ) |
|                                                                                |                                        |          |   |   |   |
| Effect  of exchange rate changes on cash and cash equivalents                       | (1,455                                      | )             | (365 | ) |
|                                                                                |                                             |          |  |   |
| Net  increase in cash and cash equivalents                                          | 41,968                                      |          | 8,645 |   |
| Cash  and cash equivalents at beginning of period                                   | 77,794                                      |          | 64,908 |   |
|                                                                                |                                             |          |  |   |
| Cash  and cash equivalents at end of period                                         | $                                           | 119,762       |   | $ | 73,553 |   |
|                                                                                |                                             |          |  |   |
| **Cash  paid during the period for:**                                               |                                        |          |   |   |
|                                                                                | Interest                                    | $             | 66 |   | $ | 25 |   |
|                                                                                | Income  taxes                               | $             | 7,555 |   | $ | 8,863 |   |
|                                                                                     |                                             |               |  |  |  |  |  |  |  |  |

***The accompanying notes are an integral part of theconsolidated financial statements.***

 

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**NOTE 1 – INTERIM CONSOLIDATEDFINANCIAL STATEMENTS**

The accompanying unaudited interimconsolidated financial statements have been prepared by Russ Berrie andCompany, Inc. and its subsidiaries (the “Company”) in accordance with generallyaccepted accounting principles for interim financial reporting and theinstructions to Form 10-Q and Rule 10-01 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.  Theinformation furnished reflects all adjustments, which are, in the opinion ofmanagement, of a normal recurring nature and necessary for a fair presentationof the Company’s financial position, results of operations and cash flows forthe interim periods presented.  Resultsfor interim periods are not necessarily an indication of results to be expectedfor the year.

This report on Form 10-Q for the threeand six months ended June 30, 2001 should be read in conjunction with theCompany’s Quarterly Report on Form 10-Q for the period ended March 31, 2001 andits Annual Report on Form 10-K for its year ended December 31, 2000.  Certain prior year amounts have beenreclassified to conform with current year’s presentation.

**NOTE 2 - EARNINGS PER SHARE**

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

|                                                  | **Three Months Ended** |   | **Six Months Ended** |   |
|-------------------------------------------------------|------------------------|--------|----------------------|--------|
|                                                  | **June 30,**           |   | **June 30,**         |   |
|                                                  | **2001**               |   | **2000**             |   | **2001** |   | **2000** |   |
|                                                  |                        |   |                      |   |  |   |  |   |
| Average common shares  outstanding                    | 20,078,000             |   | 20,333,000           |   | 20,009,000 |   | 20,454,000 |   |
| Dilutive effect of  common shares issuable (1)        | 192,000                |   | 41,000               |   | 162,000 |   | 41,000 |   |
|                                                  |                        |   |                      |   |  |   |  |   |
| Average common shares  outstanding  assuming dilution | 20,270,000             |   | 20,374,000           |   | 20,171,000 |   | 20,495,000 |   |
|                                                  |                        |   |                      |   |  |   |  |   |

(1)  Issuable under stock option plans.

Stock options outstanding at June 30,2000 to purchase 389,133 shares of common stock were not included in thecomputation of earnings per common share assuming dilution because the options’exercise prices were greater than the average market price of the commonshares.  There were no such optionsoutstanding at June 30, 2001.

TheNotes to these consolidated financial statements reflect basic earnings pershare unless otherwise stated or indicated.

**NOTE 3 - DIVIDENDS**

Cash dividends of $4,817,000 ($0.24 pershare) were paid on June 8, 2001 to shareholders of record of the Company’sCommon Stock on May 25, 2001.  Cashdividends of $9,610,000 ($0.24 per share per quarter) were paid in the sixmonths ended June 30, 2001.

Cash dividends of $4,494,000 ($0.22 pershare) were paid on June 7, 2000 to shareholders of record of the Company'sCommon Stock on May 24, 2000.  Cashdividends of $9,015,000 ($0.22 per share per quarter) were paid in the sixmonths ended June 30, 2000.

**NOTE 4 - COMPREHENSIVE INCOME**

In accordance with Statement of FinancialAccounting Standards (SFAS) No. 130, “Reporting Comprehensive Income”,comprehensive income, representing all changes in Shareholders’ equity duringthe period other than changes resulting from the issuance or repurchase of theCompany’s common stock and payment of dividends and unearned compensation, isreconciled to net income for the three and six months ended June 30, 2001 and2000 as follows:

|                                                                          | **Three Months Ended** |      | **Six Months Ended** |   |
|-------------------------------------------------------------------------------|------------------------|-----------|----------------------|--------|
|                                                                          | **June 30,**           |      | **June 30,**         |   |
|                                                                          | **2001**               |      | **2000**             |   | **2001** |   | **2000** |   |
|                                                                          |                        |      |                      |   |  |   |  |   |
| Net income                                                                    | $                      | 5,862,000 |                 | $      | 4,963,000 |   | $ | 14,585,000 |   | $ | 16,802,000 |   |
|                                                                          |                   |      |                 |   |   |   |   |   |
| Other comprehensive  income (loss), net of taxes:                             |                   |      |                 |   |   |   |   |   |
|                                                                          |                   |      |                 |   |   |   |   |   |
| Foreign currency  translation adjustments                                     | 879,000                |      | (1,196,000           | )      | (1,926,000 | ) | (1,604,000 | ) |
| Net unrealized gain  (loss) on securities available-for-sale                  | (46,000                | )         | 111,000              |   | 845,000 |   | (164,000 | ) |
| Net unrealized gain on  foreign currency forward exchange contracts and other | 130,000                |      | -                    |   | 603,000 |   | - |   |
|                                                                          |                        |      |                      |   |  |   |  |   |
|                                                                          |                   |      |                 |   |   |   |   |   |
| Other comprehensive  income (loss)                                            | 963,000                |      | (1,085,000           | )      | (478,000 | ) | (1,768,000 | ) |
|                                                                          |                        |      |                      |   |  |   |  |   |
| Comprehensive income                                                          | $                      | 6,825,000 |                 | $      | 3,878,000 |   | $ | 14,107,000 |   | $ | 15,034,000 |   |
|                                                                          |                        |      |                      |   |  |   |  |   |

**NOTE 5 – RECENT ACCOUNTING CHANGES**

**SFAS No. 133**

In June 1998, the Financial AccountingStandards Board ("FASB") issued SFAS No. 133, “Accounting forDerivatives Instruments and Hedging Activities”, as amended by SFAS No. 138,“Accounting for Certain Derivatives and Certain Hedging Activities, anamendment of SFAS No. 133”, establishing the accounting and reporting forderivatives and hedging activities.

Under the deferral permitted by SFAS No.137, “Accounting for Derivatives and Hedging Activities – Deferral of theEffective Date of SFAS No. 133”, SFAS No. 133 as amended by SFAS No. 138, wasadopted by the Company effective January 1, 2001 and did not have a materialeffect on the Company’s consolidated financial statements upon adoption and forthe three and the six months ended June 30, 2001.

Foreign Currency Forward ExchangeContracts

Certain of the Company’s foreignsubsidiaries periodically enter into foreign currency forward exchangecontracts ("Forward Contracts") to hedge inventory purchases, bothanticipated and firm commitments, denominated in the United States dollar.  These contracts reduce foreign currency riskcaused by changes in exchange rates and are used to hedge these inventorypurchases, generally for periods from 3 to 12 months.

Since there is a direct relationshipbetween the Forward Contracts and the currency denomination of the underlyingtransactions, such Forward Contracts are highly effective in hedging the cashflows of certain of the Company’s foreign subsidiaries related to transactionsdenominated in the United States dollar. These Forward Contracts meet the criteria for cash flow hedge accountingtreatment and accordingly, gains or losses, are included in other comprehensiveincome (loss) and are recognized in cost of sales based on the turnover ofinventory.

The fair value of the Forward Contractswas estimated by obtaining quotes for such contracts with similar terms,adjusted where necessary for maturity differences, and was included in theConsolidated Balance Sheet within other current assets with the correspondingoffset included in accumulated other comprehensive loss.

Options and Futures Contracts

The Company periodically enters intooptions and futures contracts in connection with managing interest rate riskassociated with a portion of its preferred securities investmentportfolio.  The Company does not designatethese derivatives as hedges.  Thederivatives are marked to fair value through the Consolidated Statement ofIncome and the preferred securities are marked to fair value through othercomprehensive income (loss).  The fairvalue of the options and futures contracts are included in the ConsolidatedBalance Sheet within marketable securities.

**SFAS Nos. 141, 142 and 143**

In July 2001, the FASB issued SFAS Nos.141 and 142. SFAS No. 141, “Business Combinations” is effective for allbusiness combinations initiated after June 30, 2001 and requires that thepurchase method of accounting be used. Use of the pooling of interests methodof accounting is prohibited except for transactions initiated prior to July 1,2001. This statement also requires that other intangible assets be recognizedas assets apart from goodwill if they arise from contractual or other legalrights, or if they are separable or capable of being separated from theacquired entity and sold, transferred, licensed, rented or exchanged. TheCompany does not currently have any pending acquisitions that will be impactedby this statement.

SFAS No. 142, “Goodwill and OtherIntangible Assets” specifies the financial accounting and reporting forgoodwill and other intangible assets. Amortization of goodwill, including goodwill recorded in past businesscombinations, will cease for fiscal years beginning after December 15, 2001.Goodwill recognized on or before June 30, 2001, should be assigned to one ormore reporting units and shall be tested, at least annually, for impairment asof the beginning of the fiscal year in which SFAS No. 142 is initially appliedin its entirety. The useful lives of other intangible assets acquired on orbefore June 30, 2001 should be reassessed and the remaining amortizationperiods adjusted accordingly. Previously recognized other intangible assetsdeemed to have indefinite lives should be tested for impairment. Thereassessment of other intangible assets must be completed during the firstquarter of 2002 and the assignment of goodwill to reporting units, along withcompletion of the first step of the transitional goodwill impairment tests,must be completed during the first six months of 2002. The Company is currentlyevaluating the effect of the adoption of SFAS No. 142 that becomes effective January1, 2002.

SFAS No. 143, “Accounting for AssetRetirement Obligations” was adopted by the FASB in July 2001 and requires therecognition of a liability for an asset retirement obligation in the period inwhich it is incurred.  When theliability is initially recorded, the carrying amount of the related long-livedasset is correspondingly increased. Over time, the liability is accreted to itspresent value and the related capitalized charge is depreciated over the usefullife of the asset. SFAS No. 143 is effective for fiscal years beginning afterJune 15, 2002, or calendar year 2003 for the Company. The Company is currentlyreviewing the impact, if any, of SFAS No. 143.

**ITEM 2.**

**MANAGEMENT'SDISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION**

**RESULTS OF OPERATIONS FOR THESIX MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000**

The Company's net sales for the sixmonths ended June 30, 2001 increased 1.0% to $137,207,000 compared to net salesof $135,853,000 for the six months ended June 30, 2000.  Net sales for the six months ended June 30,2001 included approximately $6,000,000 of shipments related to Christmasmerchandise that is typically shipped in the third quarter, but was shipped tocertain customers in June due to early availability.  Net sales for the six months ended June 30, 2001 would have beenapproximately $2,900,000 higher had exchange rates for the six months endedJune 30, 2000 remained in effect for the six months ended June 30, 2001.  Net Sales for the six months ended June 30,2000 have been restated to conform to the presentation for the six months endedJune 30, 2001, reflecting the impact of the new accounting standard forshipping and handling fees and costs.

Costof sales were 45.1% of net sales for the six months ended June 30, 2001 ascompared to 43.8% for the same period in 2000. This increase primarily reflects lower gross profit margins on sales ofcertain of the Company’s product line concepts due to a change in the Company’sproduct mix offset, in part, by lower relative volumes being distributedthrough other than normal channels. Cost of sales for the six months ended June 30, 2000 have been restatedto conform to the presentation for the six months ended June 30, 2001, reflectingthe impact of the new accounting standard for shipping and handling fees andcosts.

Selling,general and administrative expense was $57,977,000 or 42.3% of net sales forthe six months ended June 30, 2001 compared to $54,853,000 or 40.4% of netsales for the six months ended June 30, 2000, an increase of $3,124,000 or 5.7%compared to the same period in the prior year. Included in selling, general and administrative expense for the sixmonths ended June 30, 2001, was a charge of $1,384,000 resulting from theincrease of the Company’s stock price during the six months ended June 30,2001, subsequent to stock options granted and repriced during 2000.  Excluding this charge, selling, general andadministrative expense increased $1,740,000, or 3.2% to $56,593,000,representing a slight increase to 41.2% of net sales for the six months endedJune 30, 2001. The increase in selling, general and administrative expense isdue primarily to the Company’s strategic investment in an expanded sales forceand new and expanded showrooms. Selling, general and administrative expense forthe six months ended June 30, 2000 has been restated to conform to thepresentation for the six months ended June 30, 2001, reflecting the impact ofthe new accounting standard for shipping and handling fees and costs.

Investment and other income of $4,494,000for the six months ended June 30, 2001 compares to $3,528,000 for the sixmonths ended June 30, 2000.  Thisincrease primarily relates to increased investment income attributable to gainsrecognized on the sale of certain of the Company’s investment securities andlower foreign exchange losses recognized by the Company’s internationalsubsidiaries.

Theprovision for income taxes as a percent of income before taxes for the sixmonths ended June 30, 2001 was  33.1% ascompared to 32.9% for the six months ended June 30, 2000.

Netincome for the six months ended June 30, 2001 of $14,585,000 compares to netincome of $16,802,000 for the same period of the prior year, representing adecline in the amount of $2,217,000 or 13.2%. Included in net income for the six months ended June 30, 2001, was acharge of $900,000, ($1,384,000 before tax), resulting from the increase of theCompany’s stock price during the six months ended June 30, 2001, subsequent tostock options granted and repriced during 2000. Excluding this charge, netincome declined $1,317,000, or 7.8%, which, as described above, was dueprincipally to lower gross profit and increased selling, general andadministrative expense offset in part, by a lower provision for income taxesand by higher investment and other income.

**RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30,2001 AND JUNE 30, 2000**

The Company's net sales for the threemonths ended June 30, 2001 increased 6.4% to $61,278,000 compared to net salesof $57,574,000 for the three months ended June 30, 2000.  Net sales for the quarter includedapproximately $6,000,000 of shipments related to Christmas merchandise that istypically shipped in the third quarter, but was shipped to certain customers inJune due to early availability.  Netsales for the second quarter of 2001 would have been approximately $1,100,000higher had second quarter 2000 exchange rates remained in effect for the secondquarter of 2001.  Net Sales for thethree months ended June 30, 2000 have been restated to conform to thepresentation for the three months ended June 30, 2001, reflecting the impact ofthe new accounting standard for shipping and handling fees and costs.

Costof sales were 46.0% of net sales for the three months ended June 30, 2001 ascompared to 46.5% for the same period in 2000, primarily reflecting improvedprofit margins from the first quarter of 2001 on certain of the Company’sproduct line concepts and a change as compared to the three months ended June30, 2000, in the Company’s product mix with lower relative volume beingdistributed through other than normal channels.  Cost of sales for the three months ended June 30, 2000 have beenrestated to conform to the presentation for the three months ended June 30,2001, reflecting the impact of the new accounting standard for shipping andhandling fees and costs.

Selling,general and administrative expense was $27,087,000 or 44.2% of net sales forthe three months ended June 30, 2001 compared to $25,335,000 or 44.0% of netsales for the three months ended June 30, 2000, an increase of $1,752,000 or6.9% compared to the same period in the prior year.  Included in selling, general and administrative expense for thethree months ended June 30, 2001, was a charge of $476,000 resulting from theincrease of the Company’s stock price during the three months ended June 30,2001, subsequent to stock options granted and repriced during 2000. Excludingthis charge, selling, general and administrative expense increased $1,276,000,or 5.0% to $26,611,000 or a decrease to 43.4% of net sales for the three monthsended June 30, 2001.  The increase inselling, general and administrative expense is due primarily to the Company’sstrategic investment in the expanded sales force, new and expanded showroomsand its Russ Trading division in addition to higher distribution center costsdue to higher net sales.

Selling,general and administrative expense for the three months ended June 30, 2000 hasbeen restated to conform to the presentation for the three months ended June30, 2001, reflecting the impact of the new accounting standard for shipping andhandling fees and costs.

Investment and other income of $2,716,000for the three months ended June 30, 2001 compares to $1,803,000 for the threemonths ended June 30, 2000.  Thisincrease primarily relates to increased investment income attributable to gainsrecognized on the sale of certain of the Company’s investment securities andlower foreign exchange losses recognized by the Company’s internationalsubsidiaries.

Theprovision for income taxes as a percent of income before taxes for the threemonths ended June 30, 2001 was 32.6% compared to 31.6% in the same period ofthe prior year.  This increase is dueprimarily to the higher effective tax rate of the Company’s domestic operationsas a result of relatively lower permanent deductions for tax reporting purposesand a higher effective tax rate for certain of the Company's foreignsubsidiaries.

Netincome for the three months ended June 30, 2001 of $5,862,000 compares to netincome of $4,963,000 for the same period last year.  This represents an increase in net income in the amount of$899,000 or 18.1%.  Included in net incomefor the three months ended June 30, 2001, was a charge of  $309,000 ($476,000 before tax), resultingfrom the increase of the Company’s stock price during the three months endedJune 30, 2001, subsequent to stock options granted and repriced during2000.  Excluding this charge, net incomeincreased $1,208,000, or 24.3%, which, as described above, was due principallyto higher net sales and gross profit and higher investment and other incomeoffset, in part, by increased selling, general and administrative expense and ahigher provision for income taxes.

**Liquidity and Capital Resources**

As of June 30, 2001, the Company had cashand cash equivalents and marketable securities of $240,001,000 compared to cashand cash equivalents and marketable securities of $218,826,000 at December 31,2000.

As of June 30, 2001, the Company hadmarketable securities of $120,239,000, included in the amounts above. Theseinvestments consist of U.S. government obligations, municipal obligations andpreferred stock.  The objective of theinvestment portfolio is to maximize after tax returns while minimizing risk.

The Company’s portfolio of preferredsecurities investments are subject to market fluctuations based largely, butnot exclusively, on the securities’ sensitivity to changes in interestrates.  By maintaining a portion of theportfolio in government futures contracts and options, the Company seeks toreduce interest rate related risk.  Theportfolio of preferred securities and futures contracts and options areintended to produce offsetting capital gains and losses, realized andunrealized, as interest rates change.

The Company enters into forward exchangecontracts and currency options, principally to manage the economic currencyrisks associated with the purchase of inventory by its European and Canadianoperations.  Gains and losses, relatedto such contracts, were not material to its results of operations.  The Company does not anticipate any materialadverse impact on its results of operations or financial position from thesecontracts.

Workingcapital requirements during the six months ended June 30, 2001 were metentirely through internally generated funds. The Company remains in a highly liquid position and believes that theresources available from investments, operations and bank lines of credit aresufficient to meet the foreseeable requirements of its business.

Asof June 30, 2001, the Board of Directors had previously authorized the Companyto repurchase 7,000,000 shares of common stock of which 5,561,400 shares havebeen repurchased since the beginning of the Company’s stock repurchase programin March 1990.  During the six monthsended June 30, 2001, no shares were repurchased by the Company.

Consistentwith its past practices and as a normal course of business, the Companyregularly reviews acquisition opportunities of varying sizes.  There can be no assurance, however, that anydiscussions arising in connection therewith will result in definitive purchaseagreements and, if they do, what the terms or timing of any such agreementswould be.

**Forward-Looking Statements**

This Quarterly Report on Form 10-Qcontains certain 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 start up ofthe Company’s Russ Trading division, the ability to grow its direct salesforce, changes in foreign currency exchange rates, issues related to the Company’scomputer systems, the current and future outlook of the United States retailmarket and other factors.

**PART II - OTHER INFORMATION**

**ITEM 4****.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

OnApril 26, 2001 the registrant held its annual meeting of shareholders. Each ofthe eleven nominated directors was elected without contest. No other matterswere brought before the shareholders at the annual meeting. The votes for andthe votes withheld for each of the nominees for director were as follows:

| **Nominee******      | **For****** | **Withheld****** |
|----------------------|-------------|------------------|
| Raphael  Benaroya    | 19,201,129  | 130,479          |
| Angelica  Berrie     | 18,307,833  | 1,023,775        |
| Russell  Berrie      | 18,698,273  | 633,335          |
| Carl  Epstein        | 19,198,254  | 133,354          |
| Ilan  Kaufthal       | 19,199,554  | 132,054          |
| Charles  Klatskin    | 19,199,914  | 131,694          |
| Joseph  Kling        | 19,197,914  | 133,694          |
| William  A. Landman  | 19,199,414  | 132,194          |
| Sidney  Slauson      | 18,837,434  | 494,174          |
| Benjamin  J. Sottile | 19,201,329  | 130,279          |
| Josh  S. Weston      | 19,095,381  | 236,227          |

**ITEM 6.****  EXHIBITS AND REPORTS ON FORM 8-K**

a)          There are no exhibits to thisQuarterly Report on Form 10-Q.b)          During the quarter ended June30, 2001 no reports on Form 8-K were filed.

**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

|             |                              |
|------------------|-----------------------------------|
|             | RUSS BERRIE AND  COMPANY, INC.    |
|             | (Registrant)                      |
|             |                              |
| 08/13/01         | By    /s/ John D. Wille |
| Date   | John D. Wille                     |
|             | Vice President and                |
|             | Chief Financial Officer           |
|                  |                                   |  |