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Russ Berrie & Company (RUS)

Q4 2007 Earnings Call

April 2, 2008 10:00 am ET

Executives

Bruce G. Crain – President, Chief Executive Officer

Anthony P. Cappiello – Executive Vice President, Chief Administrative Officer, A/Chief Financial Officer

Leigh Parrish – Financial Dynamics

Analysts

David Liebowicz – Vernham

Arnie Brief – Goldsmith & Harris

Richard Stanley – Longpor Partners

Gerrick Johnson – BMO Capital Markets

Nelson Obis – Winfield Capital

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Russ Berrie & Company conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. (Operator Instructions).

Any reproduction of this call in whole or in part is not permitted without prior express written authorization of the company. And as a reminder, ladies and gentlemen, this conference call is being recorded.

I would now like to introduce your host for today’s call, Ms. Leigh Parrish of FD. Please go ahead.

Leigh Parrish

Thank you. Good morning, everyone, and welcome to Russ Berrie’s fourth quarter and full year 2007 conference call. If you have not viewed the press release issued yesterday afternoon and would like to receive one by E-mail or fax please feel free to call us at FD at 212-850-5600 and someone will send one to you immediately.

As stated in the company’s earnings release, this call is being webcast and can be accessed on the company’s website at www.russberrie.com. The webcast of the call will be archived on line shortly after the conference call for 90 days. A replay of the conference call will be available through April 9th, 2008, by dialling 1-800-642-1687 with the access code 41071714.

We will begin the call with comments from management and then we’ll open up the line for questions. Before we begin we would like to remind everyone of the cautionary language regarding forward-looking statements contained in the press release. That same language applies to comments made on this morning’s conference call.

And now I would like to turn the call over to Bruce Crain, CEO and President of Russ Berrie. Bruce?

Bruce G. Crain

Thanks, Leigh. Good morning and thank you, everyone, for joining us. I’m going to start with a brief overview of 2007 and then Tony Cappiello, our chief administrative officer and interim chief financial officer, will provide a more detailed discussion of our financial results.

In addition to our financial results we will also announce two acquisition agreements today and the planned expansion of our existing infant and juvenile credit facility, all of which will support our further growth in our infant juvenile business. We’re very excited by these growth-oriented developments and I’ll spend more time towards the end of this call before we open it up for your questions.

Let me begin by saying I’m very pleased to have joined Russ during an important and pretty exciting transformational phase for Russ. Russ Berrie’s a business I’ve tracked pretty darn closely over the last part of my career and I’m really excited now to be joining and leading the company.

In the last few years the company has experienced great growth in its infant and juvenile segment while at the same time taking steps to restructure the gift business for greater operational efficiencies. I look forward to building on these achievements and leading Russ through its business evolution.

As you can see from our results, we’ve been on a multi-year improvement quest here and there’s a lot of dramatic change. We’re particularly pleased with our strong sales results for 2007, as well as our ability to significantly improve further our bottom line results year over year. These results are particularly gratifying in light of the weakening retail environment and the impact of rising raw materials and labour costs that our industry has faced during the last year and continues to face.

Given external pressures in the macro environment that created head winds for many of our retail and consumer products companies during 2007 our ability to navigate through these conditions and generate top and bottom line growth for the year I think demonstrates our ability to deliver our strategic initiatives fairly well.

We’re also pleased to begin to see the benefit our gift segment restructuring efforts, as well as new product innovation throughout the year. Now let me briefly explain some of these and share some of these accomplishments from 2007.

First, we successfully launched many branded, design-led, and proprietary products in both our infant and juvenile and our gift segment last year. Some examples of these: Sassy successfully launched Earth Brights. It’s a new line of environmentally friendly products. This further built our strong portfolio brands and extended a lot of what our very important Sassy brand is all about. We also further expanded into other product categories, including baby gear, we penetrated new and existing distribution channels, and we added a lot of new retail customers.

As you’ve heard us mention in prior calls, in our gift segment 70% of our products are new and that was the case in 2007. Shining Stars importantly was one of the most successful products. As you know, it capitalized on our product development strengths and the growing market for dimensional products that include a viral or web-based component. Entering 2008 we had over a million registered users of Shining Stars’ website.

Although we’re pleased with the additional consumer excitement received in 2007 from Shining Stars, we do expect sales to moderate significantly in the coming year. We’re already beginning to see saturation due to more company’s entering the market with competing products and strategies. Shining Stars, however, will remain a really important part of our gift portfolio and we anticipate some of the reduction in Shining Stars sales will be compensated for by sales of other new products which we’ve launched, some of which were recently introduced at the toy fair.

Second, in our licensing area we identified areas for growth and improvement also. In the infant and juvenile area we signed new licences products for Kids Line, including a new line of Carter’s branded infant bedding accessories. This has allowed us to compete in new market sectors and to establish relationships with new customers in different channels of distribution. Another example of Sassy where we introduced new Leap Frog brand electronic games.

In our gift segment we continued to eliminate unprofitable licences while adding some exciting new ones. In 2007 our key licences in gift include Shining Stars, Corduroy, Raggedy Ann, Simpsons, as well as several others.

A third accomplishment area was our international business area where we believe we’ve done a solid job of driving expansion and profitability and we see further opportunities ahead in that area. Some examples there. We continue to grow our presence in Europe, Japan and China through both Sassy and Kids Line. Another example: in August we launched a new Disney licence under Kids Line Australia and further increased our recognition outside our core US market and distribution channels, which we think helped throughout with our global branding.

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