**RUSS****®**

**Russ Berrie and Company, Inc.**

**111 Bauer Drive, Oakland, NJ 07436**

**(201) 337-9000 (800) 631-8465**

 

 

 

November 13, 2002

 

 

 

Jonathan G. Katz

Secretary

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C.  20549

 

Re:  Russ Berrie and Company, Inc. —Certification of Chief Executive Officer and Chief Financial Officer requiredby Section 906 of the Sarbanes-Oxley Act of 2002.

 

Dear Secretary Katz:

 

Enclosed on behalf of the Chief Executive Officer andChief Financial Officer of Russ Berrie and Company, Inc., please find one (1)original and one (1) copy of each of the following documents:

 

1.  Certification of Chief Executive Officerrequired by Section 906 of the Sarbanes-Oxley Act of 2002; and

 

2.  Certification of Chief Financial Officerrequired by Section 906 of the Sarbanes-Oxley Act of 2002.

 

Please file stamp the enclosed copy of this letter andthe enclosed copy of each Certification and return them to my attention.

 

 
|   | Very truly yours,       |
|--------|-------------------------|
|   |                    |
|   |                    |
|   |                    |
|   | /s/  John D. Wille |
|   | John D. Wille           |
|   | Vice President and      |
|   | Chief Financial Officer |

 

 

 

**RUSS****Ò**

**RussBerrie and Company, Inc.**

**111Bauer Drive, Oakland, NJ 07436**

**(201)337-9000 (800) 631-8465**

 

 

 

 

**CERTIFICATIONOF CHIEF EXECUTIVE OFFICER**

**REQUIREDBY THE SECTION 906 SARBANES-OXLEY ACT OF 2002**

 

 

In connection with the quarterly report of Russ Berrieand Company, Inc. (the "Company") on Form 10-Q for the period endingSeptember 30, 2002, as filed with the Securities and Exchange Commission on thedate hereof (the "Report"), I, Russell Berrie, Chief ExecutiveOfficer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.  The Report fully complies with therequirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;and

 

2.  The information contained in the Reportfairly presents, in all material respects, the financial condition and resultsof operations of the Company.

 
|   | November 13, 2002         |
|--------|---------------------------|
|   |                      |
|   |                      |
|   | /s/  Russell  Berrie |
|   | Russell Berrie            |
|   | Chief Executive Officer   |
|   |                      |

 

 

**CERTIFICATIONOF CHIEF FINANCIAL OFFICER**

**REQUIREDBY THE SECTION 906 SARBANES-OXLEY ACT OF 2002**

** **

In connection with the quarterly report of Russ Berrieand Company, Inc. (the "Company") on Form 10-Q for the period endingSeptember 30, 2002, as filed with the Securities and Exchange Commission on thedate hereof (the "Report"), I, John Wille, Chief Financial Officer ofthe Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.  The Report fully complies with therequirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;and

 

2.  The information contained in the Reportfairly presents, in all material respects, the financial condition and resultsof operations of the Company.

 
| November 13, 2002       |
|-------------------------|
|                    |
|                    |
| /s/  John D. Wille |
| John D. Wille           |
| Vice President and      |
| Chief Financial Officer |

 

----

 

 

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

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

 

**FORM10-Q**

 

**(MarkOne)**

 
| **ý**                                                                                                                                                                                                                     | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF  1934**  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                           |
| **For  the quarterly period ended September 30, 2002**                                                                                                                                                                         |
|                                                                                                                                                                                                                           |
| **OR**                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                           |
| **o**                                                                                                                                                                                                                          | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|                                                                                                                                                                                                                           |
| **For  the transition period  from                 to                 ** |
|                                                                                                                                                                                                                           |                                                                                            |   |

 

**Commissionfilenumber                                                                  1-8681**

 

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

 

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

 

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

 

The number of shares outstanding of each of theregistrant’s classes of common stock, as of November 4, 2002 was as follows:

 
|                                  | **CLASS**  |           |   |   | **OUTSTANDING  AT  November 4, 2002** |   |
|---------------------------------------|------------|----------------|--------|--------|---------------------------------------|--------|
| **Common  Stock, $0.10 stated value** | ** ** | **20,474,123** |

 

 

 

----

 

**RUSSBERRIE AND COMPANY, INC.**

 

**INDEX**

 
| **PART I – FINANCIAL  INFORMATION** |
|------------------------------------------|
|                                     |
| Item 1.                                  | Financial Statements |
|                                     |   |
| a)                                       | Consolidated Balance Sheet  as of September 30, 2002 and December 31, 2001 |
|                                     |   |
| b)                                       | Consolidated Statement  of Income for the three months and  the nine months ended September 30,  2002 and 2001 |
|                                     |   |
| c)                                       | Consolidated  Statement of Cash Flows for the nine months ended September 30, 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 |
|                                     |   |
| Item 4.                                  | Controls and  Procedures |
|                                     |   |
| **PART  II – OTHER INFORMATION**    |
|                                     |   |
| Item 1.                                  | Legal Proceedings |
|                                     |   |
| Item 6.                                  | Exhibits  and Reports on Form 8-K |
|                                     |   |
| Signatures                               |   |
|                                     |   |
| Certifications

                    | 1.  Certification of Chief  Executive Officer Required by  Section  302 of the Sarbanes-Oxley Act of 2002

 

2.  Certification of Chief Financial  Officer Required by Section 302 of the Sarbanes-Oxley Act of 2002

  |

 

4

----

 

**PART1 - FINANCIAL INFORMATION**

 

**ITEM1.  FINANCIAL STATEMENTS**

 

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

 

**CONSOLIDATED BALANCE SHEET**

 

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

**(UNAUDITED)**

 
| ** **                                                                                                                               | ** ** | **September  30,  2002** | ** ** | **December  31,  2001** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-------------------------|------------|
| ***ASSETS***                                                                                                                             |       |                     |       |                    |       |
| Current assets                                                                                                                           |       |                     |       |                    |       |
| Cash and cash equivalents                                                                                                                |       | $                        | 83,889     |                    | $          | 148,872 |   |
| Marketable securities and other investments                                                                                              |       | 122,190                  |       | 94,181                  |       |
| Accounts receivable, trade, less allowances of  $3,672 in 2002 and $3,454 in 2001                                                        |       | 92,020                   |       | 63,481                  |       |
| Inventories — net                                                                                                                   |       | 42,226                   |       | 37,374                  |       |
| Prepaid expenses and other current assets                                                                                                |       | 4,947                    |       | 4,550                   |       |
| Deferred income taxes                                                                                                                    |       | 6,772                    |       | 6,705                   |       |
| **Total  current assets**                                                                                                                |       | 352,044                  |       | 355,163                 | ** ** |
|                                                                                                                                     |       |                     |       |                    |       |
| Property, plant and equipment — net                                                                                                 |       | 39,200                   |       | 24,623                  |       |
| Inventories — long term, net                                                                                                        |       | —                   |       | 2,284                   |       |
| Goodwill                                                                                                                                 |       | 28,328                   |       | 212                     |       |
| Other assets                                                                                                                             |       | 4,647                    |       | 4,362                   |       |
| **Total  assets**                                                                                                                        |       | $                        | 424,219    |                    | $          | 386,644 | ** ** |
|                                                                                                                                     |       |                     |       |                    |       |
| ***LIABILITIES AND SHAREHOLDERS’ EQUITY***                                                                                          |       |                     |       |                    |       |
| Current liabilities                                                                                                                      |       |                     |       |                    |       |
| Accounts payable                                                                                                                         |       | $                        | 8,047      |                    | $          | 5,376 |   |
| Accrued expenses                                                                                                                         |       | 27,006                   |       | 20,003                  |       |
| Accrued income taxes                                                                                                                     |       | 7,541                    |       | 6,848                   |       |
| **Total  current liabilities**                                                                                                           |       | 42,594                   |       | 32,227                  | ** ** |
| Commitments and contingencies                                                                                                            |       |                     |       |                    |       |
| Shareholders’ equity                                                                                                                |       |                     |       |                    |       |
| Common stock:  $.10 stated value per share;  authorized 50,000,000 shares; issued 2002, 26,106,163 shares; 2001,  25,862,364 shares |       | 2,611                    |       | 2,587                   |       |
| Additional paid in capital                                                                                                               |       | 78,956                   |       | 73,794                  |       |
| Retained earnings                                                                                                                        |       | 410,659                  |       | 392,272                 |       |
| Accumulated other comprehensive income (loss)                                                                                            |       | (391                     | )          | (4,165                  | )          |
| Unearned compensation                                                                                                                    |       | —                   |       | (75                     | )          |
| Treasury stock, at cost (5,639,314 shares at  September 30, 2002 and 5,632,014 shares at December 31, 2001)                              |       | (110,210                 | )          | (109,996                | )          |
|                                                                                                                                     |       |                     |       |                    |       |
| **Total  shareholders’ equity**                                                                                                     |       | 381,625                  |       | 354,417                 | ** ** |
|                                                                                                                                     |       |                     |       |                    |       |
| **Total  liabilities and shareholders’ equity**                                                                                     |       | $                        | 424,219    |                    | $          | 386,644 | ** ** |

 

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

 

 

5

----

 

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

 

**CONSOLIDATED STATEMENT OF INCOME**

 

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

 

**(UNAUDITED)**

 

 
|                                        |   | **THREE  MONTHS ENDED  SEPTEMBER 30,** |       | **NINE  MONTHS ENDED  SEPTEMBER 30,** |       |
|---------------------------------------------|--------|----------------------------------------|------------|---------------------------------------|------------|
|                                        |   | **2002**                               | ** ** | **2001**                              | ** ** | **2002** | ** ** | **2001** | ** ** |
|                                        |   |                                   |       |                                  |       |   |   |   |   |
| Net sales                                   |   | $                                      | 95,740     |                                  | $          | 87,441 |   | $ | 239,384 |   | $ | 224,648 |   |
|                                        |   |                                   |       |                                  |       |   |   |   |   |
| Cost of Sales                               |   | 41,893                                 |       | 38,808                                |       | 106,651 |   | 100,736 |   |
|                                        |   |                                   |       |                                  |       |   |   |   |   |
| **Gross  profit**                           |   | **53,847**                             | ** ** | **48,633**                            | ** ** | **132,733** | ** ** | **123,912** | ** ** |
|                                        |   |                                   |       |                                  |       |   |   |   |   |
| Selling, general and administrative expense |   | 30,931                                 |       | 27,887                                |       | 90,525 |   | 85,864 |   |
|                                        |   |                                   |       |                                  |       |   |   |   |   |
| Investment and other income-net             |   | 1,216                                  |       | 1,677                                 |       | 5,775 |   | 6,171 |   |
|                                        |   |                                   |       |                                  |       |   |   |   |   |
| **Income  before income taxes**             |   | **24,132**                             | ** ** | **22,423**                            | ** ** | **47,983** | ** ** | **44,219** | ** ** |
|                                        |   |                                   |       |                                  |       |   |   |   |   |
| Provision for income taxes                  |   | 6,533                                  |       | 5,981                                 |       | 13,675 |   | 13,192 |   |
|                                        |   |                                   |       |                                  |       |   |   |   |   |
| **Net****income**                           |   | **$**                                  | **17,599** | ** **                            | **$**      | **16,442** | ** ** | **$** | **34,308** | ** ** | **$** | **31,027** | ** ** |
|                                        |   |                                   |       |                                  |       |   |   |   |   |
| **Net  income per share:**                  |   |                                   |       |                                  |       |   |   |   |   |
| Basic                                       |   | $                                      | 0.86       |                                  | $          | 0.82 |   | $ | 1.68 |   | $ | 1.55 |   |
| Diluted                                     |   | $                                      | 0.86       |                                  | $          | 0.81 |   | $ | 1.67 |   | $ | 1.53 |   |

 

*Theaccompanying notes are an integral part of the consolidated financialstatements.*

 

6

----

 

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

 

**CONSOLIDATED STATEMENT OF CASH FLOWS**

 

**(Dollarsin Thousands)**

**(UNAUDITED)**

 
|                                                                               |   | **NINE  MONTHS ENDED   SEPTEMBER 30,** |   |
|------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
|                                                                               |   | **2002**                                    |   | **2001** |   |
| **Cash  flows from operating activities:**                                         |   |                                        |   |   |   |
| Net income                                                                         |   | $                                           | 34,308 |   | $ | 31,027 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |   |                                        |   |   |   |
| Depreciation and  amortization                                                     |   | 3,609                                       |   | 2,998 |   |
| Provision for  accounts receivable reserves                                        |   | 3,672                                       |   | 1,623 |   |
| Other                                                                              |   | 904                                         |   | 1,641 |   |
| Changes in  assets and liabilities net of effects from purchase of Sassy, Inc.:    |   |                                        |   |   |   |
| Accounts  receivable                                                               |   | (23,199                                     | )      | (23,872 | ) |
| Inventories —  net                                                            |   | 5,273                                       |   | 8,598 |   |
| Prepaid expenses  and other current assets                                         |   | (255                                        | )      | 1,468 |   |
| Other assets                                                                       |   | 85                                          |   | 31 |   |
| Accounts payable                                                                   |   | 1,097                                       |   | (157 | ) |
| Accrued expenses                                                                   |   | 5,015                                       |   | (324 | ) |
| Accrued income  taxes                                                              |   | 693                                         |   | 402 |   |
| Total  adjustments                                                                 |   | (3,106                                      | )      | (7,592 | ) |
| Net cash  provided by operating activities                                         |   | 31,202                                      |   | 23,435 |   |
|                                                                               |   |                                        |   |   |   |
| **Cash  flows from investing activities:**                                         |   |                                        |   |   |   |
| Purchase of  marketable securities                                                 |   | (156,320                                    | )      | (69,696 | ) |
| Proceeds from sale  of marketable securities                                       |   | 127,489                                     |   | 88,310 |   |
| Proceeds from  sale of property, plant and equipment                               |   | —                                      |   | 59 |   |
| Capital  expenditures                                                              |   | (13,006                                     | )      | (2,096 | ) |
| Payment for  purchase of Sassy, Inc.                                               |   | (46,100                                     | )      | — |   |
| Net cash (used  in) provided by investing activities                               |   | (87,937                                     | )      | 16,577 |   |
|                                                                               |   |                                        |   |   |   |
| **Cash  flows from financing activities:**                                         |   |                                        |   |   |   |
| Proceeds from  issuance of common stock                                            |   | 5,186                                       |   | 7,319 |   |
| Dividends paid  to shareholders                                                    |   | (15,921                                     | )      | (14,452 | ) |
| Purchase of  treasury stock                                                        |   | (214                                        | )      | (1,908 | ) |
| Net cash (used  in) financing activities                                           |   | (10,949                                     | )      | (9,041 | ) |
|                                                                               |   |                                        |   |   |   |
| Effect of  exchange rate changes on cash and cash equivalents                      |   | 2,701                                       |   | (629 | ) |
| Net (decrease)  increase in cash and cash equivalents                              |   | (64,983                                     | )      | 30,342 |   |
| Cash and cash  equivalents at beginning of period                                  |   | 148,872                                     |   | 77,794 |   |
| Cash and cash  equivalents at end of period                                        |   | $                                           | 83,889 |   | $ | 108,136 |   |
|                                                                               |   |                                        |   |   |   |
| **Cash  paid during the period for:**                                              |   |                                        |   |   |   |
| Interest                                                                           |   | $                                           | 20     |   | $ | 148 |   |
| Income taxes                                                                       |   | $                                           | 12,982 |   | $ | 12,790 |   |

 

*Theaccompanying notes are an integral part of the consolidated financialstatements.*

 

7

----

**NOTES****TO CONSOLIDATEDFINANCIAL STATEMENTS**

 

(Unaudited)

 

**NOTE 1 -INTERIM CONSOLIDATED FINANCIAL STATEMENTS**

 

The accompanying unaudited interim consolidatedfinancial statements have been prepared by Russ Berrie and Company, Inc. andits subsidiaries (the “Company”) in accordance with accounting principlesgenerally accepted in the United States of America for interim financialreporting and the instructions to Form 10-Q and Rule 10-01 of RegulationS-X.  Accordingly, certain information and footnote disclosures normallyincluded in financial statements prepared under generally accepted accountingprinciples have been condensed or omitted pursuant to such principles and regulations. The information furnished reflects all adjustments, which are, in the opinionof management, of a normal recurring nature and necessary for a fairpresentation of the Company’s financial position, results of operations andcash flows for the interim periods presented.  Results for interim periodsare not necessarily an indication of results to be expected for the year.

 

The Company operates in two segments which consist ofthe Company’s core gift business and the Company’s non-core business, which includesthe Company’s recent acquisition of Sassy, Inc. The Company’s core businessdesigns, manufactures through third parties and markets a wide variety of giftand home décor products to retail stores throughout the United States andthroughout the world via the Company’s international wholly-ownedsubsidiaries.  The Company’s non-corebusinesses design and market  functionalconsumer products sold at comparable price points with comparable gross marginsto consumers, primarily in the United States, through mass marketers andincludes the Company’s wholly-owned subsidiaries, Sassy, Inc. and Bright ofAmerica, Inc.

 

Net income in the Consolidated Statement of Income andthe Consolidated Statement of Cash Flows included non-cash income of $153,000and $164,000, after tax, relating to the impact of the 2000 stock optionrepricing for the three months ended September 30, 2002 and 2001, respectively,and non-cash charges of $32,000 and $736,000, after tax, relating to the impactof the 2000 stock option repricing for the nine months ended September 30, 2002and 2001, respectively.

 

This report on Form 10-Q for the three and nine monthsended September 30, 2002 should be read in conjunction with the Company’sQuarterly Reports on Form 10-Q for the three months ended March 31, and June30, 2002, and its Annual Report on Form 10-K for the year ended December 31,2001.

 

### **NOTE 2 - MARKETABLESECURITIES AND OTHER INVESTMENTS**

 

The Company has aninvestment in a limited partnership which manages a portfolio of mortgage-backedsecurities to achieve returns through yield income and priceappreciation.  This investment is accounted for using the equity methodand accordingly the Company’s proportionate share of the limited partnership’sincome or loss amounting to a non-cash loss of $599,000 and non-cash income of $97,000 for the three and nine monthsended September 30, 2002, respectively, is included in investment and otherincome-net in the Consolidated Statement of Income.  As of September 30,2002, the Company’s investment in this limited partnership amounted to$23,099,000 and is included in marketable securities and other investments inthe Consolidated Balance Sheet.

 

8

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### **NOTE 3 - EARNINGS PERSHARE**

 

A reconciliation of weighted average common sharesoutstanding to weighted average common shares outstanding assuming dilution isas follows:

 
|                                                                |   | **Three  Months Ended** |   | **Nine  Months Ended** |   |
|---------------------------------------------------------------------|--------|-------------------------|--------|------------------------|--------|
|                                                                |   | **September  30,**      |   | **September  30,**     |   |
|                                                                |   | **2002**                |   | **2001**               |   | **2002** |   | **2001** |   |
|                                                                |   |                    |   |                   |   |   |   |   |   |
| Average common shares  outstanding                                  |   | 20,452,000              |   | 20,162,000             |   | 20,401,000 |   | 20,060,000 |   |
|                                                                |   |                    |   |                   |   |   |   |   |   |
| Dilutive effect  of common shares issuable under stock option plans |   | 103,000                 |   | 186,000                |   | 124,000 |   | 170,000 |   |
| Average common  shares outstanding assuming dilution                |   | 20,555,000              |   | 20,348,000             |   | 20,525,000 |   | 20,230,000 |   |

 

There were no stock options outstanding at September30, 2002 or September 30, 2001, which were not included in the computation ofearnings per common share assuming dilution because none of the options’ exerciseprices were greater than the average market price of the common shares.

 

 

**NOTE 4 -DIVIDENDS**

 

Cash dividends of $5,318,000 ($0.26 per share)were paid on August 30, 2002 to shareholders of record of the Company’s CommonStock on August 16, 2002.  Cash dividends of $15,921,000 ($0.26 per shareper quarter) were paid in the nine months ended September 30, 2002.

 

Cash dividends of$4,842,000 ($0.24 per share) were paid on August 31, 2001 to shareholders ofrecord of the Company’s Common Stock on August 17, 2001.  Cash dividendsof $14,452,000 ($0.24 per share per quarter) were paid in the nine months endedSeptember 30, 2001.

 

### **NOTE 5 - COMPREHENSIVEINCOME**

 

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 ofdividends and unearned compensation, is reconciled to net income for the threemonths and the nine months ended September 30, 2002 and 2001 as follows:

 
|                                                                       |   | **Three  Months Ended  September 30,** |       | **Nine  Months Ended   September 30,** |   |
|----------------------------------------------------------------------------|--------|----------------------------------------|------------|----------------------------------------|--------|
|                                                                       |   | **2002**                               |       | **2001**                               |   | **2002** |   | **2001** |   |
| Net income                                                                 |   | $                                      | 17,599,000 |                                   | $      | 16,442,000 |   | $ | 34,308,000 |   | $ | 31,027,000 |   |
| Other comprehensive income (loss), (net of taxes):                         |   |                                   |       |                                   |   |   |   |   |   |
| Foreign currency translation adjustments                                   |   | (688,000)                              |       | 924,000                                |   | 3,285,000 |   | (1,002,000 | ) |
|                                                                       |   |                                   |       |                                   |   |   |   |   |   |
| Net unrealized gain (loss) on securities  available-for-sale               |   | (141,000)                              |       | 1,040,000                              |   | (61,000 | )  | 1,885,000 |   |
| Net unrealized gain (loss) on foreign currency  forward exchange contracts |   | (146,000)                              |       | 317,000                                |   | 550,000 |   | 920,000 |   |
| Other comprehensive income (loss)                                          |   | (975,000)                              |       | 2,281,000                              |   | 3,774,000 |   | 1,803,000 |   |
|                                                                       |   |                                   |       |                                   |   |   |   |   |   |
| Comprehensive income                                                       |   | $                                      | 16,624,000 |                                   | $      | 18,723,000 |   | $ | 38,082,000 |   | $ | 32,830,000 |   |

 

9

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**NOTE 6 -LITIGATION**

 

In the ordinary course of its business, the Company isparty to various copyright, patent and trademark infringement, unfaircompetition, breach of contract, customs, employment and other legal actionsincidental to its business, as plaintiff or defendant. In the opinion ofmanagement, the amount of ultimate liability with respect to these actions willnot materially affect the results of operations, financial condition or cashflows of the Company, except for the matter described below.

 

As previously reported in the Company’s Report on Form10-Q for the quarters ended March 31, and June 30, 2002, an action wascommenced against the Company on August 22, 2001, in the United States DistrictCourt, District of New Jersey, by Dam Things from Denmark (a/k/a Troll CompanyApS.), alleging, among other things, copyright infringement by the Company ofthe plaintiff’s reinstated United States copyrights for its troll designs andunfair competition under common law.  The plaintiff is seeking, amongother things, injunctive relief prohibiting the Company from continuing tooffer for sale its troll products, cancellation of the Company’s U.S. copyrightregistrations with respect to its various troll products, as well asunspecified damages and attorney’s fees and expenses.  On December 3,2001, a preliminary injunction was issued by the District Court which, assubsequently modified, prohibited the Company from manufacturing and importingits troll products into the United States and selling such products in theUnited States after a date specified by the court.  The issuance of thepreliminary injunction was appealed by the Company to the Third Circuit Courtof Appeals. On May 14, 2002, the appeals court vacated the preliminaryinjunction, and the matter was remanded to the District Court. 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.  As of December 31, 2001 in response to the issuance of thepreliminary injunction, the Company had segregated the amount of its trollproducts inventory and recorded such inventory as a long-term asset in theCompany’s Consolidated Balance Sheet. As a result of the vacation of thepreliminary injunction, such inventory is no longer segregated or classified asa long-term asset.  The Company does not believe that the ultimateresolution of this action will have a material adverse impact on the financialcondition of the Company.

 

10

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**NOTE 7 -AQUISITION**

 

On July 26, 2002, pursuant to the terms of an assetpurchase agreement, a wholly-owned subsidiary of the Company acquired the businessand substantially all of the assets of Sassy, Inc. (“Sassy”), a designer,manufacturer and distributor of baby and juvenile products based in GrandRapids, Michigan, including, but not limited to, real property, tangiblepersonal property, inventory, most accounts receivable, designated contracts,intellectual property rights, governmental authorizations and intangiblerights. The assets acquired will continue to be used by the Company in Sassy’sbusiness. In addition to the Sassy brand, the Company also gained distributionrights to certain baby soothing and comforting products from MAM BabyartikelGmbH, of Vienna, Austria. The Company purchased privately held Sassy, Inc. forapproximately $46,100,000 (including acquisition costs and the estimated workingcapital adjustment) from the Company’s own internal funds based on Sassy’scurrent and projected earnings before interest, taxes, depreciation andamortization, and working capital. Additional payments, not expected to exceed$4,300,000, may become payable based on future performance and othermeasurements. Sassy, Inc. had sales of approximately $44,000,000 for the yearended December 31, 2001. The results of operations of Sassy, Inc. are includedin the Company’s Consolidated Statement of Income since July 26, 2002.

 

The following table summarizes the estimated fairvalues of the assets acquired and liabilities assumed at the date ofacquisition. The Company is in process of obtaining third-party valuations ofproperty, plant and equipment and certain intangible assets; thus, theallocation of the purchase price is subject to refinement.

 
|                          |   | **At July  26, 2002** |   |
|-------------------------------|--------|-----------------------|--------|
|                          |   | **(000’s)**      |   |
| Current assets                |   | $                     | 16,995 |   |
| Property, plant and equipment |   | 4,552                 |   |
| Goodwill                      |   | 28,116                |   |
| Total assets acquired         |   | 49,663                |   |
|                          |   |                  |   |
| Current liabilities           |   |                  | 3,563  |   |
| Total liabilities assumed     |   |                  | 3,563  |   |
| Net assets acquired           |   | $                     | 46,100 |   |

 

 

All of the purchase price in excess of the netidentifiable assets acquired has been assigned to Goodwill, pending thecompletion of the third party valuation of certain intangible assets, and theCompany believes that any significant intangible assets identified and valuedupon the completion of the third party valuation will have an indefinite life.The goodwill was assigned to the non-core segment. Until the third partyvaluation has been completed, the amount expected to be deductible for taxpurposes can not be determined.

 

The following unaudited pro forma consolidated resultsof operations for the three months and nine months ended September 30, 2002 and2001 assume the acquisition of Sassy, Inc. occurred as of January 1 of eachperiod.

 

 
| **In thousands  (000’s)** |   | **Three  Months Ended  September 30,** |   | **Nine  Months Ended  September 30,** |   |
|--------------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
|                           |   | **2002**                               |   | **2001**                              |   | **2002** |   | **2001** |   |
| Net sales                      |   | $                                      | 98,597 |                                  | $      | 98,708 |   | $ | 265,865 |   | $ | 256,784 |   |
| Net income                     |   | $                                      | 17,900 |                                  | $      | 17,403 |   | $ | 36,420 |   | $ | 33,502 |   |
|                           |   |                                   |   |                                  |   |   |   |   |   |
| Net income per  share:         |   |                                   |   |                                  |   |   |   |   |   |
| Basic                          |   | $                                      | 0.88   |                                  | $      | 0.86 |   | $ | 1.79 |   | $ | 1.67 |   |
| Diluted                        |   | $                                      | 0.87   |                                  | $      | 0.86 |   | $ | 1.77 |   | $ | 1.66 |   |

 

The above amounts are based upon certain assumptionsand estimates, and do not reflect any benefits from combined operations. Thepro forma results have not been audited and do not necessarily representresults which would have occurred if the acquisition had taken place on thebasis assumed above, and may not be indicative of the results of futurecombined operations.

 

The changes in the carrying amount of goodwill duringthe nine months ended September 30, 2002 are as follows:

 
| **In  thousands  (000’s)**  |        | **Core**     |        | **Non-core** |      |   |   |
|----------------------------------|-------------|--------------|-------------|--------------|-----------|--------|--------|
|                             | **Segment** |         | **Segment** |         | **Total** |   |
| Balance as of January 1, 2002    |        | –– |        | $            | 212       |   | $      | 212 |   |
| Goodwill acquired during year    |        | –– |        | $            | 28,116    |   | $      | 28,116 |   |
| Balance as of September 30, 2002 |        | –– |        | $            | 28,328    |   | $      | 28,328 |   |

 

In July 2001, the FASB issued Statement No. 142,Goodwill and Other Intangible Assets, Statement No. 142 requires that goodwilland intangible assets with indefinite useful lives no longer be amortized, butinstead be tested for impairment annually in accordance with the provisions ofStatement No. 142. Statement No. 142 also requires that intangible assets withdefinite useful lives be amortized over their respective estimated useful livesto their estimated residual values. Intangible assets with definite usefullives are reviewed for impairment in accordance with Statement No. 144.

 

Statement No. 142 requires the annual testing for theimpairment of goodwill at a reporting unit level. The Company identified itsreporting units under Statement No. 142 as the core segment and the non-coresegment.  The Company has establishedthe first day of its third fiscal quarter as the Company’s annual imparirmenttest date and will test its goodwill on that date each year unlesscircumstances arise prior to that date indicating that impairment may exist.

 

11

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**NOTE 8 –SEGMENTS OF THE COMPANY AND RELATED INFORMATION**

** **

Since July 26,2002, due to the Company’s acquisition of Sassy, Inc., it now has tworeportable segments- (1) its core business and (2) its non-core business,whereas, previously, the Company had only one reportable segment. As a result,the Company has reclassified the prior year’s single segment information to beconsistent with the current period’s presentation. The segmentation of theCompany’s operations reflects how the Company’s Chief Executive Officer currentlyviews the results of operations. Income before income taxes for each segmentincludes each segments respective operating costs such as cost of sales andselling, general and administrative expenses. All transactions between segmentshave been eliminated and are not included in the table below. There are nointersegment revenues to eliminate.

 

The information set forth in Part I, FinancialInformation, Item 1, “Notes to Consolidated Financial Statements,” Note 1 -“Interim Consolidated Financial Statements,” of this Quarterly Report on Form10-Q is incorporated herein by reference thereto.

 
| **(In  thousands)**        |   |                    |   |                   |   |     |   |     |    |
|----------------------------|--------|-------------------------|--------|------------------------|--------|----------|--------|----------|---------|
|                       |   | **Three  months ended** |   | **Nine  months ended** |   |
|                       |   | **September  30,**      |   | **September  30,**     |   |
|                       |   | **2002**                |   | **2001**               |   | **2002** |   | **2001** |    |
| Core                       |   |                    |   |                   |   |     |   |     |    |
| Net sales                  |   | $                       | 83,761 |                   | $      | 83,310   |   | $        | 223,077 |   | $ | 215,340 |   |
| Income before income taxes |   | 22,258                  |   | 21,484                 |   | 45,465   |   | 42,495   |    |
|                       |   |                    |   |                   |   |     |   |     |    |
| Non-core                   |   |                    |   |                   |   |     |   |     |    |
| Net sales                  |   | 11,979                  |   | 4,131                  |   | 16,307   |   | 9,308    |    |
| Income before income taxes |   | 1,874                   |   | 939                    |   | 2,518    |   | 1,724    |    |
|                       |   |                    |   |                   |   |     |   |     |    |
| Consolidated               |   |                    |   |                   |   |     |   |     |    |
| Net sales                  |   | 95,740                  |   | 87,441                 |   | 239,384  |   | 224,648  |    |
| Income before income taxes |   | 24,132                  |   | 22,423                 |   | 47,983   |   | 44,219   |    |
|                            |        |                         |        |                        |        |          |        |          |         |  |  |  |  |

 

Additionally, total assets of each segment were as follows:

 
|     |   | **September 30, 2002** |   | **December  31, 2001** |   |
|----------|--------|------------------------|--------|------------------------|--------|
|     |   |                   |   |                   |   |
| Core     |   | 359,857                |   | 375,217                |   |
| Non-core |   | 64,362                 |   | 11,427                 |   |
|     |   |                   |   |                   |   |
| Total    |   | 424,219                |   | 386,644                |   |

** **

**NOTE 9 -RECENTLY ISSUED ACCOUNTING STANDARDS**

 

In July 2002, the Financials Accounting StandardsBoard (FASB) issued Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”which requires companies to recognize costs associated with exit or disposalactivities when they are incurred rather than at the date of a commitment to anexit or disposal plan. Such costs covered by the standard include leasetermination costs and certain employee severance costs that are associated witha restructuring, discontinued operation, plant closing, or other exit ordisposal activity.  SFAS No. 146 replaces the previous accounting guidanceprovided by the Emerging Issues Task Force Issue No. 94-3, “LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a Restructuring).”  SFASNo. 146 is to be applied prospectively to exit or disposal activities initiatedafter December 31, 2002 and the Company does not anticipate that the statementwill have a material impact on the Company’s consolidated financial statements.

 

 

12

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

 

The Company operates in two segments which consist ofthe Company’s core gift business and the Company’s non-core business, whichincludes the Company’s recent acquisition of Sassy, Inc. The Company’s corebusiness designs, manufactures through third parties and markets a wide varietyof gift and home décor products to retail stores throughout the United Statesand countries throughout the world.  TheCompany’s non-core businesses design and market functional consumer productssold at comparable price points with comparable gross margins to consumers,primarily in the United States, through mass marketers.

 

 

**RESULTSOF OPERATIONS FOR THE THREE MONTHS ENDEDSEPTEMBER  30, 2002 AND SEPTEMBER  30, 2001**

 

 

The Company’s consolidated net sales for the threemonths ended September 30, 2002 increased 9.5% to $95,740,000 compared to netsales of $87,441,000 for the three months ended September 30, 2001. Theincrease in net sales was primarily attributable to the Company’s non-coresegment, specifically, from sales generated by Sassy, Inc., whose results ofoperations are included since its acquisition on July 26, 2002. Consolidated netsales for the third quarter excluded approximately $7,700,000 and $6,000,000,for the three months ended September 30, 2002 and 2001, respectively, ofshipments related to Christmas merchandise that the Company historicallyshipped in the third quarter, however, had shipped to certain customers in Junedue to early product availability. The Company anticipates this trend tocontinue in future years.

 

The Company’s net sales for its core segment for thethree months ended September 30, 2002 increased slightly to $83,761,000 ascompared to $83,310,000 for the three months ended September 30, 2001. This wasprimarily the result of the Company’s sales growth in its internationalsubsidiaries, offset, in part, by the Company’s core domestic net sales being adverselyaffected by the weakened retail spending and current United States economy.

 

The Company’s net sales for its non-core segment forthe three months ended September 30, 2002, increased 190% to $11,979,000 ascompared to $4,131,000 for the three months ended September 30, 2001. Theincrease was due to the Company’s acquisition of Sassy, Inc., whose results ofoperations are included since July 26, 2002.

 

Consolidated cost of sales were 43.8% of net sales forthe three months ended September 30, 2002 as compared to 44.4% for the sameperiod in 2001. This decrease primarily reflects higher gross profit margins onsales of certain of the Company’s core product line concepts, lower relativevolumes being distributed through other than normal channels, a lower reserverequired on the Company’s core inventory, offset, in part, by the addition ofSassy, Inc.

 

Cost of sales for the Company’s core segment for thethree months ended September 30, 2002, decreased to 40.8% of net sales for suchsegment as compared to 43.5% for the same period in 2001. This decreaseprimarily reflects higher gross profit margins on sales of certain of theCompany’s core product line concepts, lower relative volumes being distributedthrough other than normal channels and a lower reserve required on theCompany’s core inventory.

 

Cost of sales for the Company’s non-core segment forthe three months ended September 30, 2002, increased to 64.4% of net sales forsuch segment as compared to 62.2% for the same period in 2001. This increase primarilyreflects the addition of Sassy, Inc.

 

13

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Consolidated selling, general and administrativeexpense was $30,931,000 or 32.3% of net sales for the three months endedSeptember 30, 2002 compared to $27,887,000 or 31.9% of net sales for the threemonths ended September 30, 2001, an increase of $3,044,000 or 10.9% compared tothe same period in the prior year.  The increase in selling, general andadministrative expense is due primarily to the Company’s strategicinvestment in new business ventures, primarily Russ Home, Inc., and thecontinued expansion of its worldwide salesforce for its core segment and theaddition of Sassy, Inc. to its non-core segment.

 

Investment and other income of $1,216,000 for thethree months ended September 30, 2002 compares to $1,677,000 for the threemonths ended September 30, 2001.  This decrease is due primarily toforeign exchange losses recognized by the Company’s international subsidiariesin its core segment.

 

The consolidated provision for income taxes as apercent of income before income taxes for the three months ended September 30,2002 was 27.1% compared to 26.7% in the same period for the prior year.

 

Consolidated net income for the three months endedSeptember 30, 2002 of $17,599,000 compared to consolidated net income of$16,442,000 for the same period last year, representing an increase of7.0%.  The increase in net income was primarily the result of higher grossprofits due to increased sales volumes, resulting from the addition of Sassy,Inc. to the Company’s non-core segment and a higher margin product mix in theCompany’s core segment, offset, in part, by increased consolidated selling,general and administrative expense and lower investment and other income in theCompany’s core segment, as described above.

 

**RESULTSOF OPERATIONS FOR THE NINE MONTHS ENDEDSEPTEMBER  30, 2002 AND SEPTEMBER  30, 2001**

 

The Company’s consolidated net sales for the ninemonths ended September 30, 2002 increased 6.6% to $239,384,000 compared toconsolidated net sales of $224,648,000 for the nine months ended September 30,2001. This net sales increase was primarily attributable to the Company’snon-core segment, specifically, from sales generated by Sassy, Inc., whoseresults of operations are included since its acquisition on July 26 2002, andthe sales growth of the Company’s core segment in its domestic, European andAustralian markets.

 

Cost of sales for the Company’s core segment were43.2% of net sales for such segment for the nine months ended September 30,2002 as compared to 44.1% for the nine months ended September 30, 2001. Cost ofsales for the Company’s non-core segment were 63.0% of net sales for suchsegment for the nine months ended September 30, 2002 as compared to 62.3% forthe nine months ended September 30, 2001. Consolidated cost of sales were 44.6%of net sales for the nine months ended September 30, 2002 and were slightlylower as compared to 44.8% for the same period in 2001. Included inconsolidated cost of sales for the nine months ended September 30, 2002 was acharitable donation of certain of the Company’s Troll inventory. Excluding thenet impact of this donation, consolidated cost of sales were 44.0% of net salescompared to 44.8% for the same period of 2001. This decrease primarily reflectshigher gross profit margins on sales of certain of the Company’s core productline concepts, lower relative volumes being distributed through other thannormal channels, lower reserve provisions required on the Company’s coreinventory, offset, in part, by the addition of Sassy, Inc. to the Company’snon-core segment.

 

Consolidated selling, general and administrativeexpense was $90,525,000 or 37.8% of net sales for the nine months endedSeptember 30, 2002 compared to $85,864,000 or 38.2% of net sales for the ninemonths ended September 30, 2001.  Excluding the unfavorable impact of the2000 stock option repricing, which amounted to a charge of $49,000 for thefirst nine months of 2002 and $1,132,000 in the first nine months of 2001,consolidated selling, general and administrative expense increased $5,744,000,or 6.8%,  for the nine months endedSeptember 30, 2002 from the same period in the prior year. This increase inselling, general and administrative expense is due primarily to theCompany’s strategic investment in new business ventures, primarily RussHome Inc., costs related to its new facility in the United Kingdom, thecontinued expansion of its worldwide salesforce, the development of newproducts for its core segment and the addition of Sassy, Inc. to its non-coresegment, offset, in part, by a decrease in showroom related costs to its coresegment.

 

 

13

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Investment and other income of $5,775,000 for the ninemonths ended September 30, 2002 compares to $6,171,000 for the nine monthsended September 30, 2001. This decrease was primarily the result of lowerinvestment income, offset, in part, by lower foreign exchange losses in theCompany’s core segment.

 

The consolidated provision for income taxes as apercent of income before taxes for the nine months ended September 30, 2002 was28.5% compared to 29.8% in the same period for the prior year.  Thisdecrease in the effective income tax rate is due primarily to the income taxbenefit of the charitable inventory donation in the Company’s results ofoperations for the quarter ended June 30, 2002, offset, in part, by lower taxadvantaged investment income.

 

Consolidated net income for the nine months endedSeptember 30, 2002 of $34,308,000 compared to consolidated net income of$31,027,000 for the same period last year, representing an increase of10.6%.  Excluding the unfavorable impact of the 2000 stock optionrepricing, which amounted to a charge of $32,000, after tax, for the firstnine months of 2002, and a charge of $736,000, after tax, for the first ninemonths of  2001, net income would have increased 8.1%.  The increasein consolidated net income was primarily the result of higher gross profits dueto increased sales volumes, primarily resulting from the acquisition of Sassy,Inc., and a higher margin product mix in the Company’s core segment, offset, inpart, by increased consolidated selling, general and administrative expense andlower investment and other income in the Company’s core segment, as describedabove.

TheInternational Longshoreman Workers Union’s (ILWU) contract with the PacificMaritime Association expired at midnight on July 1, 2002 and has not yet beenrenewed. Subsequent to failed negotiations a lockout ensued on September 27,2002 which stopped the flow of goods to ports on the West Coast for 11 daysuntil a federal judge issued an injunction on October 8, 2002 under theTaft-Hartley Act, prompting the re-opening of the ports for up to 80 days. Thisact mandates that a Federal Mediator participate in all aspect of contractnegotiations. In the event that a contract is not signed by the end of the80-day period and absent any new legislation from Congress, a strike or lockoutmay resume.

To date, the lockout has not caused a delay in theCompany’s Christmas or Valentines’ Day inventory receipts due to  preparations the Company had made earlier inthe year in anticipation of the July 1, 2002 contract expiration. The Companyis carefully monitoring the status of the union contract and the Company doesnot believe it will have a material impact on the Company’s net sales for itsEaster, Everyday and Russ Home inventories for the fourth quarter of 2002, butcould have a material impact on the Company’s net sales for the first quarterof 2003, should a strike or lockout resume.

 

The Company is dependent upon information technologysystems in many aspects of its business.  Beginning in the first quarterof 2002, the Company began a project to implement a new packaged computersoftware system for the Company and its wholly-owned subsidiaries.  TheCompany’s current custom software, that has been utilized to operate and manageits business and other third party software systems are being replaced using astrategic and phased approach. The Company has not experienced any significantbusiness disruptions related to the replacement of these systems andanticipates that the replacement of its current systems will not have amaterial adverse impact on its financial condition or results of operations.

 

 

**Liquidityand Capital Resources**

 

As of September 30, 2002, the Company had cash, cashequivalents, marketable securities and other investments of $206,079,000compared to cash and cash equivalents and marketable securities of $243,053,000at December 31, 2001.

 

As of September 30, 2002 and December 31, 2001, theCompany had marketable securities and other investments of $122,190,000 and$94,181,000 respectively, included in the amounts above. This increase isprimarily a result of the Company’s investments of additional cash and cashequivalents in marketable securities and other investments. As of September 30,2002 these investments consist of U.S. government obligations, municipalobligations, preferred stock, mutual funds and an equity investment in alimited partnership which primarily invests in mortgage-backedsecurities.  The objective of the investment portfolio is to maximizeafter-tax returns while minimizing risk.  The Company’s marketablesecurities are subject to market fluctuations based largely, but not exclusively,on the securities’ sensitivity to changes in interest rates.

 

14

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On July 26, 2002, pursuant to the terms of an assetpurchase agreement, a wholly-owned subsidiary of the Company acquired substantiallyall of the assets of Sassy, Inc. (“Sassy”), a designer, manufacturer anddistributor of baby and juvenile products based in Grand Rapids, Michigan. TheCompany purchased privately held Sassy, Inc. for approximately $46,100,000  from the Company’s own internal funds.  Additional payments, notexpected to exceed $4,300,000, may become payable based on future performanceand other measurements.  Sassy, Inc.,has sales of approximately $44,000,000 for the year ended December 31, 2001.

 

Working capital requirements during the three monthsended September 30, 2002 were met entirely through internally generatedfunds.  The Company anticipates capital expenditure requirements for 2002to be approximately $18,000,000, primarily for systems development and costsrelated to leasehold improvements in its new facility in the United Kingdom.Capital expenditures for the three and nine months ended September 30, 2002were $3,200,000 and $13,000,000, respectively.  The Company remains in ahighly liquid position and believes that the resources available from cash andcash equivalents, marketable securities and other investments, operations andbank lines of credit are sufficient to meet the foreseeable requirements of itsbusiness.

 

The new facility in the United Kingdom, referencedabove, was constructed by, and is being leased from an entity controlled byRussell Berrie, one of the Company’s directors, who is also Chairman and ChiefExecutive Officer of the Company and a significant shareholder.  Thelease, which commenced in June 2002, is for a term of twenty years and includesa tenant’s option to terminate the lease at the end of the tenth year. Annual rental is approximately $1,600,000 with rent reviews at the end of everyfifth year of the lease, adjusted to an open market rental value.

 

The Company enters into forward exchange contracts,principally to manage the economic currency risks associated with the purchaseof inventory by its European and Canadian subsidiaries.  Gains and lossesrelated to such contracts were not material to its results of operations. The Company does not anticipate any material adverse impact on its results ofoperations or financial position from these contracts.

 

As of September 30, 2002, the Board of Directors hadpreviously authorized the Company to repurchase 7,000,000 shares of commonstock of which 5,643,200 shares have been repurchased since the beginning ofthe Company’s stock repurchase program in March 1990.  During the threemonths ended September 30, 2002, the Company did not repurchase any shares.During the nine months ended September 30, 2002, the Company repurchased 7,300shares for $214,000.

 

The Company is subject to legal proceedings and claimsarising in the ordinary course of its business that could possibly have a materialadverse impact on the Company’s results of operations and cash flows.  SeeNote 6 of the Notes to Consolidated Financial Statements for informationregarding specific litigation.

 

Consistent with its past practices and in the normalcourse of its business, the Company regularly reviews acquisition opportunitiesof 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.

 

**RecentlyIssued Accounting Standards**

 

The information set forth in Part I, FinancialInformation, Item 1, “Notes to Consolidated Financial Statements, Note 9 -“Recently Issued Accounting Standards”, of this Quarterly Report on Form 10-Qis incorporated herein by reference thereto.

 

##### **Critical AccountingPolicies**

##### ** **

##### **As of  September 30, 2002, there have been no changes in the Company’scritical accounting policies from those previously described in the Company’sAnnual Report on Form 10-K for the fiscal year ended December 31, 2001.**

 

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##### **Forward-LookingStatements**

 

This Quarterly Report on Form 10-Q contains certainforward-looking statements.  Additional written and oral forward-lookingstatements may be made by the Company from time to time in Securities andExchange Commission (SEC) filings and otherwise.  The Private SecuritiesLitigation Reform Act of 1995 provides a safe-harbor for forward-lookingstatements.  These statements may be identified by the use offorward-looking words or phrases including, but not limited to, “anticipate”,“believe”, “expect”, “intend”, “may”, “planned”, “potential”, “should”, “will”or “would”.  The Company cautions readers that results predicted byforward-looking statements, including, without limitation, those relating tothe Company’s future business prospects, revenues, working capital, liquidity,capital needs, interest costs and income are subject to certain risks anduncertainties that could cause actual results to differ materially from thoseindicated in the forward-looking statements.  Specific risks anduncertainties include, but are not limited to, the ability to continue tomanufacture its products in the Far East, the seasonality of revenues, theactions of competitors, ability to increase production capacity, pricecompetition, the effects of government regulation, possible delays in theintroduction of new products, customer acceptance of products, issues relatedto the Company’s new business ventures, including, but not limited to, theCompany’s ability to successfully integrate the business of Sassy, Inc. intoits existing business, the ability to grow its direct sales force, changes inforeign currency exchange rates, issues related to the Company’s computersystems, possible delays in the importation of inventory if a strike or lockoutof the ILWU occurs, the current and future outlook of the global retail marketand other factors.

 

 

**ITEM 3.  QUANTITATIVE ANDQUALITATIVE DISCLOSURES****ABOUTMARKET RISK**

 

As of September 30, 2002, there have been no materialchanges in the Company’s market risks from December 31, 2001.

 

**ITEM 4.  CONTROLS AND PROCEDURES**

** **

Based on their evaluation, as of a date within 90 days of the filing dateof this Quarterly Report on Form 10-Q, the Company’s Chief Executive Officerand Chief Financial Officer have concluded that the Company’s disclosurecontrols and procedures (as defined in Rules 13a - 14(c) and 15d -14(c) underthe Securities Exchange Act of 1934, as amended) are effective. There have beenno significant changes in the Company’s internal controls or in other factorsthat could significantly affect these controls subsequent to the date of theirevaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

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**PARTII OTHER INFORMATION**

 

**ITEM1.  LEGAL PROCEEDINGS**

 

The information set forth in Part I, FinancialInformation, Item 1, “Notes to Consolidated Financial Statements, Note 6 —Litigation,”  of this Quarterly Report on Form 10-Q is incorporated hereinby reference 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 September 30, 2002, no reports on Form 8-K were filed by the Company. |
|--------|-------------------------------------------------------------------------------------------------|
|   |                                                                                            |
|   |                                                                                            |   |   |

 

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

 

17

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                   | RUSS BERRIE AND  COMPANY, INC. |                    |
|------------------------|--------------------------------|-------------------------|
|                   | (Registrant)                   |
|                   |                           |
|                   | By                             | /s/ John D. Wille       |   |
| Date November 13, 2002 |                           | John D. Wille           |
|                   |                           | Vice President and      |
|                   |                           | Chief Financial Officer |
|                   |                           |                    |   |   |

 

18

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**CERTIFICATIONS**

** **

I, RussellBerrie, certify that:

 

1.       Ihave reviewed this quarterly report on Form 10-Q of Russ Berrie and Company,Inc.;

 

2.       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

(a)   designedsuch disclosure controls and procedures to ensure that material

information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

(b)   evaluatedthe effectiveness of the registrant’s disclosure controls and procedures

as of a date within 90 days prior to the filing dateof this quarterly report (the “Evaluation Date”); and

 

(c)   presented in this quarterly report ourconclusions about the effectiveness of the

disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5.       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

(a)   all significant deficiencies in the design oroperation of internal controls which

could adversely affectthe registrant’s ability to record, process, summarize and report financialdata and have identified for the registrant’s auditors any material weaknessesin internal controls; and

 

(b)   any fraud, whether or not material, thatinvolves management or other employees

who have a significantrole in the registrant’s internal controls; and

 

6.       Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
| Date:  | November 13, 2002 |                    | /s/ Russell Berrie |
|--------|-------------------|-------------------------|--------------------|
|   |              | Russell Berrie          |
|   |              | Chief Executive Officer |

 

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**CERTIFICATIONS**

** **

I, JohnD. Wille, certify that:

 

1.       Ihave reviewed this quarterly report on Form 10-Q of Russ Berrie and Company,Inc.;

 

2.       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

(a)   designedsuch disclosure controls and procedures to ensure that material

information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

(b)   evaluatedthe effectiveness of the registrant’s disclosure controls and procedures

as of a date within 90 days prior to the filing dateof this quarterly report (the “Evaluation Date”); and

 

(c)   presented in this quarterly report ourconclusions about the effectiveness of the

disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5.       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

(a)   all significant deficiencies in the design oroperation of internal controls which

could adversely affectthe registrant’s ability to record, process, summarize and report financialdata and have identified for the registrant’s auditors any material weaknessesin internal controls; and

 

(b)   any fraud, whether or not material, thatinvolves management or other employees

who have a significantrole in the registrant’s internal controls; and

 

6.       Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
| Date:  | November 13, 2002 |                                        | /s/ John D. Wille |
|--------|-------------------|---------------------------------------------|-------------------|
|   |              | John D. Wille                               |
|   |              | Vice President and  Chief Financial Officer |

 

 

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