##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2009
 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.
  New Jersey
(State of or other jurisdiction of 
incorporation or organization)
    
    22-1815337
(I.R.S. Employer Identification Number)1800 Valley Road, Wayne, New Jersey
(Address of principal executive offices)
    
    07470
(Zip Code)
 (201) 405-2400
 Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 Yes o No þ
  CLASS
    
    SHARES OUTSTANDINGCommon Stock, $0.10 stated value
    
    21,497,015




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##### 



RUSS BERRIE AND COMPANY, INC.
 INDEX
 PART I  FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)a) Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008
    
    
    3b) Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008
    
    
    4c) Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008
    
    
    5d) Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    34PART II  OTHER INFORMATIONItem 1A. Risk Factors
    
    
    34Item 6. Exhibits
    
    
    35Signatures
    
    
    36Exhibit Index
    
    
    37Exhibit 10.43Exhibit 10.44Exhibit 10.45Exhibit 10.46Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART 1  FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (In Thousands, Except Share and Per Share Data)
 (UNAUDITED)
 June 30, 2009
    
    
    December 31, 2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    2,721
    
    
    $
    3,728Accounts receivable- trade, less allowances of $6,068 in 2009 and $4,285 in 2008
    
    
    39,438
    
    
    
    39,509Inventories, net
    
    
    35,535
    
    
    
    47,169Prepaid expenses and other current assets
    
    
    2,366
    
    
    
    3,252Income tax receivable
    
    
    5
    
    
    
    16Deferred income taxes, net
    
    
    940
    
    
    
    940Total current assets
    
    
    81,005
    
    
    
    94,614Property, plant and equipment, net
    
    
    4,284
    
    
    
    4,466Intangible assets
    
    
    81,731
    
    
    
    84,019Note receivable, net allowance of $15,648 in 2009 and $0 in 2008
    
    
    
    
    
    
    15,300Investment
    
    
    
    
    
    
    4,500Deferred income taxes, net
    
    
    32,322
    
    
    
    28,960Other assets
    
    
    4,374
    
    
    
    3,575Total assets
    
    $
    203,716
    
    
    $
    235,434Liabilities and Shareholders EquityCurrent liabilities:Current portion of long-term debt
    
    $
    13,533
    
    
    $
    14,933Short-term debt
    
    
    17,120
    
    
    
    12,114Accounts payable
    
    
    15,922
    
    
    
    23,546Accrued expenses
    
    
    9,680
    
    
    
    13,249Income taxes payable
    
    
    5,438
    
    
    
    5,726Total current liabilities
    
    
    61,693
    
    
    
    69,568Income taxes payable, long-term
    
    
    4,252
    
    
    
    4,252Long-term debt, excluding current portion
    
    
    60,965
    
    
    
    75,765Deferred royalty income  long-term
    
    
    
    
    
    
    5,065Other long-term liabilities
    
    
    2,110
    
    
    
    2,908Total liabilities
    
    
    129,020
    
    
    
    157,558Commitments and contingenciesShareholders equity:Common stock: $0.10 stated value; authorized 50,000,000 shares; issued
26,727,780 shares at June 30, 2009 and December 31, 2008
    
    
    2,674
    
    
    
    2,674Additional paid-in capital
    
    
    89,647
    
    
    
    89,173Retained earnings
    
    
    84,319
    
    
    
    88,672Accumulated other comprehensive income
    
    
    282
    
    
    
    134Treasury stock, at cost, 5,230,765 and 5,258,962 shares at June 30, 2009 and
December 31, 2008, respectively
    
    
    (102,226
    )
    
    
    (102,777
    )Total shareholders equity
    
    
    74,696
    
    
    
    77,876Total liabilities and shareholders equity
    
    $
    203,716
    
    
    $
    235,434
 The accompanying notes are an integral part of these unaudited consolidated financial statements.
  3




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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In Thousands, Except Share and Per Share Data)
 (UNAUDITED)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    59,966
    
    
    $
    62,231
    
    
    $
    116,244
    
    
    $
    103,843Cost of sales
    
    
    41,013
    
    
    
    42,234
    
    
    
    80,676
    
    
    
    68,691Gross profit
    
    
    18,953
    
    
    
    19,997
    
    
    
    35,568
    
    
    
    35,152Selling, general and administrative expenses
    
    
    11,388
    
    
    
    13,425
    
    
    
    23,617
    
    
    
    22,410Impairment and valuation reserve
    
    
    15,620
    
    
    
    
    
    
    
    15,620
    
    
    
    (Loss) income from continuing operations
    
    
    (8,055
    )
    
    
    6,572
    
    
    
    (3,669
    )
    
    
    12,742Other (expense) income:Interest expense, including amortization
and write-off of deferred financing costs
    
    
    (1,714
    )
    
    
    (2,586
    )
    
    
    (3,893
    )
    
    
    (3,606
    )Interest and investment income
    
    
    5
    
    
    
    37
    
    
    
    10
    
    
    
    82Other, net
    
    
    224
    
    
    
    284
    
    
    
    203
    
    
    
    270(1,485
    )
    
    
    (2,265
    )
    
    
    (3,680
    )
    
    
    (3,254
    )(Loss) income from continuing operations
before income tax (benefit) provision
    
    
    (9,540
    )
    
    
    4,307
    
    
    
    (7,349
    )
    
    
    9,488Income tax (benefit) provision
    
    
    (3,851
    )
    
    
    1,680
    
    
    
    (2,996
    )
    
    
    3,701Net (loss) income from continuing operations
    
    
    (5,689
    )
    
    
    2,627
    
    
    
    (4,353
    )
    
    
    5,787Discontinued operations:Loss from discontinued operations before
income tax provision (benefit)
    
    
    
    
    
    
    (14,479
    )
    
    
    
    
    
    
    (16,685
    )Income tax provision (benefit) from
discontinued operations
    
    
    
    
    
    
    287
    
    
    
    
    
    
    
    (759
    )Loss from discontinued
operations, net of tax
    
    
    
    
    
    
    (14,766
    )
    
    
    
    
    
    
    (15,926
    )Net loss
    
    $
    (5,689
    )
    
    $
    (12,139
    )
    
    $
    (4,353
    )
    
    $
    (10,139
    )Basic (loss) earnings per share:Continuing operations
    
    $
    (0.26
    )
    
    $
    0.12
    
    
    $
    (0.20
    )
    
    $
    0.27Discontinued operations
    
    
    
    
    
    
    (0.69
    )
    
    
    
    
    
    
    (0.75
    )$
    (0.26
    )
    
    $
    (0.57
    )
    
    $
    (0.20
    )
    
    $
    (0.48
    )Diluted (loss) earnings per share:Continuing operations
    
    $
    (0.26
    )
    
    $
    0.12
    
    
    $
    (0.20
    )
    
    $
    0.27Discontinued operations
    
    
    
    
    
    
    (0.69
    )
    
    
    
    
    
    
    (0.75
    )$
    (0.26
    )
    
    $
    (0.57
    )
    
    $
    (0.20
    )
    
    $
    (0.48
    )Weighted average shares:Basic
    
    
    21,497,000
    
    
    
    21,300,000
    
    
    
    21,498,000
    
    
    
    21,300,000Diluted
    
    
    21,497,000
    
    
    
    21,304,000
    
    
    
    21,498,000
    
    
    
    21,309,000
 The accompanying notes are an integral part of these unaudited consolidated financial statements.
  4




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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In Thousands)
 (UNAUDITED)
 Six Months Ended June 30,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (4,353
    )
    
    $
    (10,139
    )Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    1,909
    
    
    
    3,659Provision for impairment of fixed assets
    
    
    
    
    
    
    7,041Amortization of deferred financing costs
    
    
    950
    
    
    
    383Provision for impairment and valuation reserve
    
    
    15,620
    
    
    
    Accounts receivable allowance
    
    
    13,932
    
    
    
    9,395Provision for inventory reserve
    
    
    588
    
    
    
    1,996Share-based compensation expense
    
    
    945
    
    
    
    904Deferred income taxes
    
    
    (3,362
    )
    
    
    2,512Other
    
    
    
    
    
    
    (355
    )Change in assets and liabilities:Restricted cash
    
    
    
    
    
    
    (4
    )Accounts receivable
    
    
    (13,699
    )
    
    
    4,613Income tax receivable
    
    
    11
    
    
    
    (609
    )Inventories
    
    
    11,276
    
    
    
    (4,581
    )Prepaid expenses and other current assets
    
    
    886
    
    
    
    208Other assets
    
    
    46
    
    
    
    (246
    )Accounts payable
    
    
    (7,515
    )
    
    
    (4,239
    )Accrued expenses
    
    
    (4,787
    )
    
    
    (2,188
    )Income taxes payable
    
    
    (288
    )
    
    
    72Net cash provided by operating activities
    
    
    12,159
    
    
    
    8,422Cash flows from investing activities:Capital expenditures
    
    
    (259
    )
    
    
    (1,350
    )Payment for purchase of LaJobi Industries, Inc., net of cash acquired
    
    
    
    
    
    
    (51,749
    )Other
    
    
    (2
    )
    
    
    Payment for purchase of CoCaLo, Inc., net of cash acquired
    
    
    
    
    
    
    (16,624
    )Payment of Kids Line, LLC earnout consideration
    
    
    
    
    
    
    (3,622
    )Net cash used in investing activities
    
    
    (261
    )
    
    
    (73,345
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    80
    
    
    
    Issuance of long-term debt
    
    
    
    
    
    
    100,000Repayment of long-term debt
    
    
    (16,200
    )
    
    
    (50,000
    )Payment of deferred financing fees
    
    
    (1,646
    )
    
    
    (1,655
    )Net borrowing on revolving credit facility
    
    
    5,006
    
    
    
    11,450Payment of capital lease obligations
    
    
    
    
    
    
    (97
    )Net cash (used in) provided by financing activities
    
    
    (12,760
    )
    
    
    59,698Effect of exchange rate changes on cash and cash equivalents
    
    
    (145
    )
    
    
    219Net decrease in cash and cash equivalents
    
    
    (1,007
    )
    
    
    (5,006
    )Cash and cash equivalents at beginning of period
    
    
    3,728
    
    
    
    21,925Cash and cash equivalents at end of period
    
    $
    2,721
    
    
    $
    16,919Cash paid during the period for:Interest
    
    $
    3,666
    
    
    $
    2,777Income taxes
    
    $
    799
    
    
    $
    593Noncash items:Note payable CoCaLo purchase
    
    $
    
    
    
    $
    1,439
 The accompanying notes are an integral part of these unaudited consolidated financial statements.
  5




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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  INTERIM CONSOLIDATED FINANCIAL STATEMENTS
      Subsequent Events,
 NOTE 2  ACQUISITIONS
 LaJobi
   6




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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  CoCaLo
    Pro Forma Information
   June 30, 2008Net sales
    
    $
    126,345Net loss
    
    $
    (9,489
    )Basic (loss) income per share:Continuing operations
    
    $
    0.30Discontinued operations
    
    
    (0.75
    )$
    (0.45
    )Diluted (loss) income per share:Continuing operations
    
    $
    0.30Discontinued operations
    
    
    (0.75
    )$
    (0.45
    )
   7




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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 3  SALE OF GIFT BUSINESS AND DISCONTINUED OPERATIONS
  ® ®
   Three Months
    
    
    Six MonthsEnded June 30
    
    
    Ended June 302008
    
    
    2008Sales
    
    $
    25,462
    
    
    $
    59,774Loss before income taxes
    
    $
    14,479
    
    
    $
    16,685Provision (benefit) for income taxes
    
    $
    287
    
    
    $
    (759
    )Loss from discontinued operations
    
    $
    14,766
    
    
    $
    15,926
 NOTE 4  SHAREHOLDERS EQUITY
 Share-Based Compensation
    8




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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Equity Plans
    Impact on Net Income
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Stock option expense
    
    $
    192
    
    
    $
    232
    
    
    $
    384
    
    
    $
    453Restricted stock expense
    
    
    170
    
    
    
    183
    
    
    
    340
    
    
    
    362Restricted stock unit expense
    
    
    4
    
    
    
    
    
    
    
    8
    
    
    
    SAR expense
    
    
    
    
    
    
    
    
    
    
    131
    
    
    
    ESPP expense
    
    
    43
    
    
    
    44
    
    
    
    82
    
    
    
    89Total share-based payment expense
    
    $
    409
    
    
    $
    459
    
    
    $
    945
    
    
    $
    904
   9




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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Stock Options
    Six Months EndedJune 30, 2008Dividend yield
    
    
    0.0
    %Risk-free interest rate
    
    
    3.03
    %Volatility
    
    
    38.6
    %Expected term (years)
    
    
    5Weighted-average fair value of options granted
    
    $
    14.43
  All Stock Options OutstandingWeighted AverageShares
    
    
    Exercise PriceOptions Outstanding as of December 31, 2008
    
    
    1,941,379
    
    
    $
    17.31Options Granted
    
    
    Options Exercised
    
    
    Options Forfeited / Cancelled
    
    
    (247,404
    )
    
    $
    19.75Options Outstanding as of June 30, 2009
    
    
    1,693,975
    
    
    $
    16.95Option price range at June 30, 2009
    
    $
    7.28-$34.05
   Weighted Average GrantStock options
    
    Options
    
    
    Date Fair ValueUnvested at December 31, 2008
    
    
    672,837
    
    
    $
    12.69Granted
    
    
    Vested
    
    
    (30,200
    )
    
    $
    14.43Forfeited/cancelled
    
    
    (21,360
    )
    
    $
    16.77Unvested options at June 30, 2009
    
    
    621,277
    
    
    $
    12.47
  10




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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Restricted Stock
    Restricted Stock Units
    WeightedRestricted
    
    
    AverageStock
    
    
    Grant-DateUnits
    
    
    Fair ValueUnvested at December 31, 2008
    
    
    13,900
    
    
    $
    6.43Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited/cancelled
    
    
    
    
    
    
    Unvested at June 30, 2009
    
    
    13,900
    
    
    $
    6.43
   11




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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Stock Appreciation Rights
 provided
    Six Months EndedJune 30, 2009Dividend yield
    
    
    0
    %Risk-free interest rate
    
    
    1.62
    %Volatility
    
    
    0.837
    %Expected term (years)
    
    
    4.2Weighted-average fair value of SARs granted
    
    $
    0.86
  All SARs OutstandingWeighted AverageSARs
    
    
    Exercise PriceSARs outstanding as of December 31, 2008
    
    
    118,000
    
    
    $
    6.43SARs Granted
    
    
    564,943
    
    
    
    1.50SARs Exercised
    
    
    
    
    
    
    SARs Forfeited / Cancelled
    
    
    
    
    
    
    SARs Outstanding as of June 30, 2009
    
    
    682,943
    
    
    $
    2.35SAR price range at June 30, 2009
    
    $
    1.36-$6.43
    12




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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Employee Stock Purchase Plan
   Six Months Ended June 30,2009
    
    
    2008Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rate
    
    
    0.40
    %
    
    
    3.17
    %Volatility
    
    
    129.0
    %
    
    
    34.4
    %Expected term (years)
    
    
    1.0
    
    
    
    1.0
  NOTE 5  WEIGHTED AVERAGE COMMON SHARES
  Three Months EndedJune 30,
    
    
    Six Months EndedJune 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Weighted average common shares outstanding-Basic
    
    
    21,497
    
    
    
    21,300
    
    
    
    21,498
    
    
    
    21,300Dilutive effect of common shares issuable upon exercise of stock options and SARS
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    9Weighted average common shares outstanding assuming dilution
    
    
    21,497
    
    
    
    21,304
    
    
    
    21,498
    
    
    
    21,309
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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6  DEBT
  June 30,
    
    
    December 31,2009
    
    
    2008Term Loan (Credit Agreement)
    
    $
    73,500
    
    
    $
    89,200Note Payable (CoCaLo purchase)
    
    
    998
    
    
    
    1,498Total
    
    
    74,498
    
    
    
    90,698Less current portion
    
    
    13,533
    
    
    
    14,933Long-term debt
    
    $
    60,965
    
    
    $
    75,765
   At June 30, 2009LIBOR Loans
    
    
    Base Rate LoansRevolving Loan
    
    
    4.41
    %
    
    
    6.25
    %Term Loan
    
    
    4.91
    %
    
    
    6.25
    %
 Credit Agreement Summary
     14




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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
          15




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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
         Debtors Accounting for a
Modification or Exchange of Debt Instruments, Debtors Accounting for Changes in
Line-of-Credit or Revolving-Debt Arrangements
  16




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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 7  INTANGIBLE ASSETS
  Weighted Average
    
    June 30,
    
    
    December 31,Amortization Period
    
    2009
    
    
    2008Sassy trade name
    
    Indefinite life
    
    $
    5,400
    
    
    $
    5,400Applause trade name
    
    5 years
    
    
    
    
    
    
    911Kids Line customer relationships
    
    20 years
    
    
    29,934
    
    
    
    30,711Kids Line trade name
    
    Indefinite life
    
    
    5,300
    
    
    
    5,300LaJobi trade name
    
    Indefinite life
    
    
    18,600
    
    
    
    18,600LaJobi customer relationships
    
    20 years
    
    
    11,906
    
    
    
    12,224LaJobi royalty agreements
    
    5 years
    
    
    1,929
    
    
    
    2,146CoCaLo trade name
    
    Indefinite life
    
    
    6,100
    
    
    
    6,100CoCaLo customer relationships
    
    20 years
    
    
    2,531
    
    
    
    2,599CoCaLo foreign trade name
    
    Indefinite life
    
    
    31
    
    
    
    28Total intangible assets
    
    
    
    $
    81,731
    
    
    $
    84,019
   NOTE 8  CONCENTRATION OF RISK
      17




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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  FINANCIAL INSTRUMENTS
         Fair Value Measurements as of June 30, 2009June 30, 2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Interest Rate Swap Agreement
    
    $
    (1,517
    )
    
    $
    
    
    
    $
    (1,517
    )
    
    $
    
     18




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##### Table of Contents



RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Interim Disclosures
about Fair Value of Financial Instruments Disclosures about Fair Value of Financial Instruments Interim Financial Reporting
 Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly
 NOTE 10  COMPREHENSIVE INCOME (LOSS)
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net loss
    
    $
    (5,689
    )
    
    $
    (12,139
    )
    
    $
    (4,353
    )
    
    $
    (10,139
    )Other comprehensive income:Foreign currency translation adjustments
    
    
    163
    
    
    
    340
    
    
    
    147
    
    
    
    552Comprehensive loss
    
    $
    (5,526
    )
    
    $
    (11,799
    )
    
    $
    (4,206
    )
    
    $
    (9,587
    )
 NOTE 11  INCOME TAXES
    (in thousands)Balance at January 1, 2009
    
    $
    9,582Increase related to interest expense
    
    
    15Balance at March 31, 2009
    
    
    9,597Increase related to interest expense
    
    
    15Balance at June 30, 2009
    
    $
    9,612
  19




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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 12  LITIGATION; COMMITMENTS AND CONTINGENCIES
         20




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RUSS BERRIE AND COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 13  RECENTLY ISSUED ACCOUNTING STANDARDS
 Amendments to
FASB Interpretation No 46(R) Consolidation of Variable Interest
Entities (revised December 2003)  an interpretation of ARB No. 51
 FASB Accounting Standards Codification and
Hierarchy of Generally Accepted Accounting Principles
 NOTE 14  RELATED PARTY TRANSACTIONS
    21




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
  Shift to Infant and Juvenile Business
    ® ® ® ® Recent Disposition ®
    22




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Continuing Operations
         23




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
    
    focusing on design-led and branded product development at each of our
subsidiaries to enable us to continue to introduce compelling new products;
    
    pursuing organic growth opportunities to capture additional market share, including:
 (i)
    
    expanding our product offerings into related categories;
 (ii)
    
    increasing our existing product penetration (selling more products
to existing customer locations);
 (iii)
    
    increasing our existing store penetration (selling to more store
locations within each large, national retail customer); and
 (iv)
    
    expanding and diversifying of our distribution channels, with
particular emphasis on sales into international markets;
 
    
    growing through licensing, distribution or other strategic alliances, including
pursuing acquisition opportunities in businesses complementary to ours;
 
    
    implementing strategies to further capture synergies within and between our
confederation of businesses, through cross-marketing opportunities, consolidation of
certain operational activities and other collaborative activities; and
 
    
    continuing efforts to manage costs within each of our businesses.
 ® ®
  General Economic Conditions as they Impact Our Business
    24




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SEGMENTS
  BASIS OF PRESENTATION
  RESULTS OF OPERATIONSTHREE MONTHS ENDED JUNE 30, 2009 AND 2008
  ®
      25




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RESULTS OF OPERATIONSSIX MONTHS ENDED JUNE 30, 2009 AND 2008
        26




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Liquidity and Capital Resources
      Recent Acquisitions
 LaJobi
   27




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CoCaLo
      Recent Disposition
  ® ®
  28




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Debt Financing
  June 30,
    
    
    December 31,2009
    
    
    2008Term Loan (Credit Agreement)
    
    $
    73,500
    
    
    $
    89,200Note Payable (CoCaLo purchase)
    
    
    998
    
    
    
    1,498Total
    
    
    74,498
    
    
    
    90,698Less current portion
    
    
    13,533
    
    
    
    14,933Long-term debt
    
    $
    60,965
    
    
    $
    75,765
   At June 30, 2009LIBOR Loans
    
    
    Base Rate LoansRevolving Loan
    
    
    4.41
    %
    
    
    6.25
    %Term Loan
    
    
    4.91
    %
    
    
    6.25
    %
 Credit Agreement Summary
   29




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Debtors Accounting for a
Modification or Exchange of Debt Instruments, Debtors Accounting for Changes in
Line-of-Credit or Revolving-Debt Arrangements
 Other Events and Circumstances Pertaining to Liquidity
     Contractual Obligations
  Total
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    ThereafterOperating Lease Obligations
    
    $
    12,266
    
    
    $
    1,009
    
    
    $
    1,918
    
    
    $
    1,942
    
    
    $
    1,944
    
    
    $
    2,012
    
    
    $
    3,441Capitalized Leases
    
    
    11
    
    
    
    3
    
    
    
    7
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Purchase Obligations(1)
    
    
    28,734
    
    
    
    28,734
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Debt Repayment Obligations(2)
    
    
    73,500
    
    
    
    6,500
    
    
    
    13,000
    
    
    
    13,000
    
    
    
    13,000
    
    
    
    28,000
    
    
    
    Note Payable(3)
    
    
    1,067
    
    
    
    
    
    
    
    533
    
    
    
    534
    
    
    
    
    
    
    
    
    
    
    
    Interest on Debt Repayment
Obligations(4)
    
    
    9,231
    
    
    
    1,756
    
    
    
    3,025
    
    
    
    2,375
    
    
    
    1,725
    
    
    
    350
    
    
    
    Royalty Obligations
    
    
    5,817
    
    
    
    1,032
    
    
    
    1,710
    
    
    
    900
    
    
    
    1,075
    
    
    
    1,100
    
    
    
    Total Contractual Obligations
    
    $
    130,626
    
    
    $
    39,034
    
    
    $
    20,193
    
    
    $
    18,752
    
    
    $
    17,744
    
    
    $
    31,462
    
    
    $
    3,441
 
 (1)
    
    The Companys purchase obligations consist primarily of purchase orders for inventory.(2)
    
    Reflects repayment obligations under the Second Amendment effective as of March 20, 2009. See
Note 6 of Notes to Unaudited Consolidated Financial Statements for a description of the Second
Amendment, including amounts and dates of repayment obligations and provisions that create,
increase and/or accelerate obligations thereunder. Excludes, as of June 30, 2009, approximately
$17.1 million borrowed under the Revolving Loan. The estimated 2009 interest payment for this
Revolving Loan using a 5.0% interest rate is $0.9 million. Such amounts are estimates only and
actual interest payments could differ materially. The Revolving Loan facility matures in April
2013, at which time any amounts outstanding are due and payable.  32




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(3)
    
    Reflects a note payable with respect to the CoCaLo acquisition. The present value of the note
is $998,000 and the aggregate remaining imputed interest at 5.5% is $69,000. Upon the occurrence of
an event of default under the note, the holder could elect to declare all amounts outstanding to be
immediately due and payable.(4)
    
    This amount reflects estimated interest payments on the long-term debt repayment obligation as
of June 30, 2009 calculated using an interest rate of 5.0% and then-current levels of outstanding
long-term debt. Such amounts are estimates only and actual interest payments could differ
materially. This amount also excludes interest on amounts borrowed under the Revolving Loan.   Off Balance Sheet Arrangements
  CRITICAL ACCOUNTING POLICIES
    Recently Issued Accounting Standards
  Forward-Looking Statements
   33




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ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 ITEM 1A.
    
    RISK FACTORS
   34




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ITEM 6.
    
    EXHIBITS
  10.43
    
    

Form
of Equity Incentive Plan Stock Option Agreement*10.44
    
    
    Form of Equity Incentive Plan Restricted Stock Agreement*10.45
    
    
    Form of Equity Incentive Plan Stock Appreciation Right Agreement*10.46
    
    
    Form of Equity Incentive Plan Restricted Stock Unit Agreement*31.1
    
    
    Certification of CEO required by Section 302 of the Sarbanes Oxley Act of 2002.31.2
    
    
    Certification of CFO required by Section 302 of the Sarbanes Oxley Act of 2002.32.1
    
    
    Certification of CEO required by Section 906 of the Sarbanes Oxley Act of 2002.32.2
    
    
    Certification of CFO required by Section 906 of the Sarbanes Oxley Act of 2002.
 *
    
    Represent management contracts or compensatory plans or arrangements. Items 1, 2, 3, 4, and 5 are not applicable and have been omitted.
  35




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SIGNATURES
  RUSS BERRIE AND COMPANY, INC.
(Registrant)By:
    /s/ Guy A. PaglincoDate: August 5, 2009
    
    Guy A. PaglincoVice President, Chief Accounting Officer and
interim Chief Financial Officer  36




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EXHIBIT INDEX
 10.43
    
    

Form
of Equity Incentive Plan Stock Option Agreement*10.44
    
    
    Form of Equity Incentive Plan Restricted Stock Agreement*10.45
    
    
    Form of Equity Incentive Plan Stock Appreciation Right Agreement*10.46
    
    
    Form of Equity Incentive Plan Restricted Stock Unit Agreement*31.1
    
    
    Certification of CEO required by Section 302 of the Sarbanes Oxley Act of 2002.31.2
    
    
    Certification of CFO required by Section 302 of the Sarbanes Oxley Act of 2002.32.1
    
    
    Certification of CEO required by Section 906 of the Sarbanes Oxley Act of 2002.32.2
    
    
    Certification of CFO required by Section 906 of the Sarbanes Oxley Act of 2002.
 *
    
    Represent management contracts or compensatory plans or arrangements.  37