-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CzOnegSEDjCX/cCD+l7mfBzdN/u87lY4phzpP0vqtJs6sD5GNCPiAD7tYmSbhUlt xi92WxTfYXSxpWPXjoazlg== 0000950116-98-001692.txt : 19980817 0000950116-98-001692.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950116-98-001692 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSS INDUSTRIES INC CENTRAL INDEX KEY: 0000020629 STANDARD INDUSTRIAL CLASSIFICATION: GREETING CARDS [2771] IRS NUMBER: 131920657 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02661 FILM NUMBER: 98687393 BUSINESS ADDRESS: STREET 1: 1845 WALNUT ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2155699900 FORMER COMPANY: FORMER CONFORMED NAME: CITY STORES CO DATE OF NAME CHANGE: 19851212 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q --------- For the Quarter Ended Commission file number 1-2661 June 30, 1998 - --------------------- CSS INDUSTRIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its Charter) Delaware 13-1920657 - ------------------------------ ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification number) 1845 Walnut Street, Philadelphia, PA 19103 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (215) 569-9900 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter 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 x No --- --- As of June 30, 1998, there were 10,810,050 shares of Common Stock outstanding which excludes shares which may still be issued upon exercise of stock options. Page 1 of 12 CSS INDUSTRIES, INC. AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments necessary to present fairly the financial position as of June 30, 1998 and December 31, 1997, the results of operations for the three months and six months ended June 30, 1998 and 1997 and the cash flows for the six months ended June 30, 1998 and 1997. The results for the three months and six months ended June 30, 1998 and 1997 are not necessarily indicative of the expected results for the full year. As certain previously reported notes and footnote disclosures have been omitted, these financial statements should be read in conjunction with the latest annual report on Form 10-K, with the March 31, 1998 quarterly report on Form 10-Q and with Part II of this document. PAGE NO. Consolidated Statements of Operations - Three months and six months ended June 30, 1998 and 1997 3 Consolidated Condensed Balance Sheets - June 30, 1998 and December 31, 1997 4 Consolidated Statements of Cash Flows - Six months ended June 30, 1998 and 1997 5 Notes to Consolidated Financial Statements 6-8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-10 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 11 SIGNATURE 12 -2- CSS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, ----------------------- -------------------- 1998 1997 1998 1997 ------- ------- ------- ------- SALES $36,200 $37,742 $64,159 $62,272 ------- ------- ------- ------- COSTS AND EXPENSES Cost of sales 27,030 24,484 45,339 41,250 Selling, general and administrative expenses 14,781 15,941 31,741 31,109 Restructuring and other special items 2,486 - 4,568 - Interest expense, net 468 1,270 869 2,354 Rental and other income, net (646) (118) (1,224) (406) ------- ------- ------- ------- 44,119 41,577 81,293 74,307 ------- ------- ------- ------- LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (7,919) (3,835) (17,134) (12,035) INCOME TAX BENEFIT (2,969) (1,194) (6,425) (4,363) ------- ------- ------- ------- LOSS FROM CONTINUING OPERATIONS (4,950) (2,641) (10,709) (7,672) DISCONTINUED OPERATIONS Income from discontinued operations, net of income taxes of $732 and $1,893 - 1,407 - 2,940 Gain on sale of discontinued operations, net of income taxes of $0 - - - 350 ------- ------- ------- ------- NET LOSS $(4,950) $(1,234) $(10,709) $(4,382) ======== ======== ========= ======== NET LOSS PER COMMON SHARE Basic Continuing operations $(.45) $(.24) $(.98) $(.70) Discontinued operations - .13 - .27 Gain on sale of discontinued operations - - - .03 ----- ----- ----- ----- $(.45) $(.11) $(.98) $(.40) ===== ===== ===== ===== Diluted Continuing operations $(.45) $(.24) $(.98) $(.70) Discontinued operations - .13 - .27 Gain on sale of discontinued operations - - - .03 ----- ----- ----- ----- $(.45) $(.11) $(.98) $(.40) ===== ===== ===== ===== WEIGHTED AVERAGE SHARES OUTSTANDING Basic 10,894 10,815 10,948 10,832 ====== ====== ====== ====== Diluted 10,894 10,815 10,948 10,832 ====== ====== ====== ====== CASH DIVIDENDS PER SHARE OF COMMON STOCK $ - $ - $ - $ - ====== ====== ====== ======
-3- CSS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands) June 30, December 31, 1998 1997 -------- -------- (Unaudited) ASSETS CURRENT ASSETS Cash and temporary investments $ 5,285 $ 1,365 Accounts receivable, net 32,657 165,761 Inventories 154,257 66,270 Deferred taxes 726 726 Other current assets 13,790 9,909 -------- -------- Total current assets 206,715 244,031 -------- -------- PROPERTY, PLANT AND EQUIPMENT, NET 46,309 44,868 -------- -------- OTHER ASSETS Intangible assets 37,777 38,648 Deferred income taxes 330 330 Other 14,483 14,485 -------- -------- Total other assets 52,590 53,463 -------- -------- Total assets $305,614 $342,362 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 57,952 $ 51,570 Other current liabilities 37,910 63,216 -------- -------- Total current liabilities 95,862 114,786 -------- -------- LONG-TERM OBLIGATIONS 5,688 5,927 -------- -------- SHAREHOLDERS' EQUITY 204,064 221,649 -------- -------- Total liabilities and shareholders' equity $305,614 $342,362 ======== ======== See notes to consolidated financial statements. -4- CSS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Six Months Ended June 30, --------------------------- 1998 1997 ------- ------- Cash flows from operating activities: Net loss ($ 10,709) ($ 4,382) ---------- ---------- Adjustments to reconcile net income to net cash provided by operating activities: Discontinued operations - 1,648 Depreciation and amortization 4,768 3,434 Loss on disposal/write down of assets, net 2,233 41 Gain on sale of discontinued operations - (350) Provision for doubtful accounts 273 393 Changes in assets and liabilities, net of effects from purchase and disposal of businesses: Decrease in accounts receivable 132,831 125,955 (Increase) in inventory (87,987) (70,174) (Increase) in other assets (4,049) (3,147) Increase (decrease) in other current liabilities 876 (9,917) (Decrease) in accrued taxes (25,462) (8,979) --------- ---------- Total adjustments 23,483 38,904 -------- -------- Net cash provided by operating activities 12,774 34,522 -------- -------- Cash flows from investing activities: Purchase of businesses, net of cash received of $976 in 1997 - (17,564) Purchase of property, plant and equipment (7,828) (8,066) Proceeds from sale of business - 4,083 Proceeds on sale of property, plant and equipment 428 2,310 --------- ----------- Net cash used for investing activities (7,400) (19,237) --------- ---------- Cash flows from financing activities: Payments on long-term obligations (960) (837) Borrowings (repayments) on notes payable 6,382 (14,215) Purchase of treasury stock (9,209) (287) Proceeds from exercise of stock options 2,333 968 --------- ----------- Net cash used for financing activities (1,454) (14,371) ---------- --------- Net increase in cash and temporary investments 3,920 914 Cash and temporary investments at beginning of period 1,365 2,690 ---------- --------- Cash and temporary investments at end of period $ 5,285 $ 3,604 ========= ========
See notes to consolidated financial statements. -5- CSS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation - The consolidated financial statements include the accounts of the Company and all subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation and all adjustments are of a normal recurring nature. Restatement of Prior Period Financial Statements - On December 23, 1997, the Company sold its Direct Mail Business Products Group, composed of Rapidforms, Inc. and its subsidiaries ("Rapidforms"). The gain on the sale and the operating results of Rapidforms prior to the sale have been accounted for as discontinued operations and, accordingly, have been segregated on the prior period financial statements and footnotes. Nature of Business - CSS is a consumer products company primarily engaged in the manufacture and sale to mass market retailers of seasonal, social expression products, including gift wrap, gift bags, boxed greeting cards, gift tags, tissue paper, paper and vinyl decorations, calendars, classroom exchange Valentines, decorative ribbons and bows, Halloween masks, costumes, make-ups and novelties and Easter egg dyes and novelties. Due to the seasonality of the Company's business, the majority of sales occur in the third and fourth quarters and a material portion of the Company's trade receivables are due in December and January of each year. As a result of the sale of Rapidforms on December 23, 1997, CSS no longer operates in the Direct Mail Business Products industry. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventories - Inventories are generally stated at the lower of first-in, first-out (FIFO) cost or market. The remaining portion of the inventory is valued at the lower of last-in, first-out (LIFO) cost or market. Inventories consisted of the following: -6- June 30, December 31, 1998 1997 ------------ ----------- Raw material.................. $ 42,464,000 $23,840,000 Work-in-process............... 17,835,000 9,789,000 Finished goods................ 93,958,000 32,641,000 ------------ ----------- $154,257,000 $66,270,000 ============ =========== Revenue Recognition - The Company recognizes revenues in accordance with its shipping terms. Returns and allowances are reserved for based on the Company's historical experience. Net Loss Per Common Share - Basic and diluted net loss per common share were computed based on the weighted average number of shares outstanding during the second quarter and six months ended June 30, 1998 and 1997 - 10,894,104 and 10,947,916 in 1998 and 10,815,245 and 10,831,675 in 1997. Shares used in the computation of basic and diluted net loss per common share are equal as the common stock equivalents that would normally be added to the weighted average shares outstanding for the computation of diluted net loss per share have an anti-dilutive effect when the Company has a net loss. Statements of Cash Flows - For purposes of the statements of cash flows, the Company considers all holdings of highly liquid debt instruments with original maturity of less than three months to be temporary investments. See Note 2 for supplemental disclosure of noncash investing activities. (2) BUSINESS ACQUISITIONS AND DIVESTITURES: On December 23, 1997, the Company sold Rapidforms and its subsidiaries for approximately $84,635,000, resulting in a net gain of $17,521,000 and net cash proceeds of approximately $60,000,000 after income taxes and the buy out of the minority interest. Rapidforms designs and sells business forms, business supplies, in-house retail merchandising products, holiday greeting cards and advertising specialties to small and medium size businesses primarily through the direct mailing of catalogs and brochures. On January 8, 1997, Rapidforms sold its Standard Forms, Ltd. subsidiary for $4,083,000, resulting in a gain of $350,000. Sales from these discontinued operations were $18,579,000 and $38,294,000 for the quarter and six months ended June 30, 1998. On January 17, 1997, the Company acquired all of the outstanding stock of Color-Clings, Inc. ("Color-Clings") for $7,875,000 and repaid $10,665,000 of debt. Color-Clings is a designer and marketer of seasonal and everyday vinyl home decorations sold primarily to mass market retailers in the United States and Canada. The acquisition was accounted for as a purchase and the excess of cost over fair market value of $15,698,000 was recorded as goodwill and is being amortized over twenty years. Subsequent to the acquisition, a substantial portion of the operations of Color-Clings were merged into existing operations of the Company. -7- (3) FUTURE ACCOUNTING CHANGES: In March 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The SOP requires companies to capitalize or expense costs incurred according to guidance provided in the Statement. The Company will apply this Statement beginning with fiscal year 1999. Adoption of the statement is not expected to have a material impact on the financial statements. (4) SUBSEQUENT EVENT: On July 7, 1998, a subsidiary of the Company sold a distribution facility for $21,500,000 resulting in a gain of approximately $16,600,000, or $10,800,000 after taxes. Pursuant to the sale agreement, the Company has entered into a five year agreement to lease back a portion of the facility from the purchaser. The present value of the future lease payments of $4,192,000 will be recorded as deferred revenue on the balance sheet and will offset rental expense over the term of the lease. -8- CSS INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Seasonality The seasonal nature of CSS' business results in low sales and operating losses for the first two quarters and high shipment levels and operating profits for the second half of the year, thereby causing significant fluctuations in the quarterly results of operations of the Company. First Six Months of 1998 Compared to First Six Months of 1997 Consolidated sales for the six months ended June 30, 1998, increased by 3% to $64,159,000 from $62,272,000. The increase in sales was due primarily to higher shipments of Easter and Halloween products, partially offset by the later timing of certain Christmas shipments and lower sales of everyday products. Cost of sales, as a percentage of sales was 71% in 1998 and 66% in 1997. The increase in the cost of sales percentage was due to decreased sales of higher margin everyday products and the earlier timing of direct import Halloween sales which carry lower gross margins. Selling, general and administrative ("SG&A") expenses, as a percentage of sales, decreased to 49% in 1998 from 50% in 1997. SG&A expenses as a percentage of sales decreased as the integration of certain management functions reduced salaries. This decrease was partially offset by additional costs incurred to complete the installation of new management information systems at one of the Company's subsidiaries. Restructuring and other special items of $4,568,000 in 1998, included severance and other costs related to the blending of certain management functions within the Company, the shut-down of two manufacturing and distribution facilities, the write-off of certain costs related to system development, and the gain associated with the sale of an administrative building. Interest expense, net decreased to $869,000 in 1998 from $2,354,000 in 1997 as the cash received from the sale of Rapidforms resulted in lower borrowing needs. Rental and other income, net increased to $1,224,000 from $406,000 in 1997. The increase was primarily attributable to income earned on the rental of a portion of one of the Company's distribution centers. Income taxes as a percentage of income before taxes were 37% in 1998 and 36% in 1997. The full year effective tax rate from continuing operations in 1997 was 38%. The loss from continuing operations for the six months ended June 30, 1998 was $10,709,000, or $.98 per share, compared to a net loss from continuing operations $7,672,000, or $.70 per share in 1997. The increased loss reflects the restructuring and other special items and lower margins discussed above. Second Quarter 1998 Compared to Second Quarter 1997 Consolidated sales for the second quarter of 1998 decreased 4% to $36,200,000 from $37,742,000 in 1997. The decrease in sales is due to lower sales of everyday products and the later timing of certain Christmas shipments. -9- Cost of sales, as percentage of sales, was 75% in 1998 compared to 65% in 1997. The increase is due to the earlier timing of direct import Halloween sales which carry lower margins, and the reduction of higher margin everyday sales. SG&A expenses as a percentage of sales declined to 41% from 42% in 1997. The decrease is due to lower salaries resulting from the combination of certain management functions within the Company. The decrease was partially offset by costs incurred to complete the installation of new management information systems at a subsidiary of the Company. Restructuring and other special items include all of the components discussed in the Results of Operations for the first six months of 1998 compared to the first six months of 1997. Interest expense, net decreased to $468,000 from $1,270,000 in 1997 as cash received from the sale of Rapidforms reduced seasonal borrowing needs. Rental and other income increased to $646,000 in 1998 from $118,000 in 1997 due to income earned on the rental of a portion of one of the Company's distribution centers. Income taxes, as a percentage of income before taxes, was 37% in 1998 and 31% in 1997. The difference in the effective tax rates was due primarily to an adjustment made in the second quarter of 1997 to adjust the year-to-date effective tax rate to the expected full year rate. For the second quarter, the Company incurred a net loss from continuing operations of $4,950,000, or $.45 per diluted share, compared to a net loss from continuing operations of $2,641,000, or $.24 per diluted share in 1997. The increased loss was primarily attributable to the restructuring and other special items. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1998, the Company had working capital of $110,853,000 and shareholders' equity of $204,064,000. The decrease in accounts receivable and the increase in inventories from December 31, 1997 reflected seasonal collections of 1997 Christmas accounts receivables and normal seasonal inventory increases in preparation for the 1998 shipping season. The increase in other current assets related to product development costs which will be expensed as shipments are made. The decrease in other accrued liabilities reflected the payment of income taxes. The decrease in shareholders' equity is primarily attributable to the net loss and to the repurchase of 278,200 shares of the Company's stock for $9,209,000. The Company relies primarily on cash generated from operations and seasonal borrowings to meet its liquidity requirements. Historically, most revenues are seasonal with over 80% of sales generated in the second half of the year. Payment for Christmas related products is usually not received until after the holiday in accordance with general industry practice. As a result, short-term borrowing needs decrease in the first quarter and increase through the remainder of the year, peaking prior to Christmas. Seasonal borrowings are made under a $300,000,000 unsecured revolving credit facility with thirteen banks and financial institutions. The credit facility is available to fund the seasonal borrowing needs and to provide the Company with a source of capital for general corporate purposes. As of June 30, 1998, the Company had short-term borrowings of $57,952,000. Based on its current operating plan, the Company believes its sources of available capital are adequate to meet its ongoing cash needs for the foreseeable future. INFORMATION SYSTEMS The Company has initiated a series of information systems improvements in the past two years, including the conversion of certain of its computer systems for compliance with the Year 2000. Costs incurred to modify existing systems to process transactions regarding the Year 2000 have been and will be expensed as incurred and are not expected to have a significant impact on the Company's ongoing results of operations. -10- CSS INDUSTRIES, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) The annual meeting of shareholders of the Registrant was held on May 5, 1998. (b) The following were elected to serve as Directors of the Registrant until the next annual meeting and until their successors shall be elected and qualify: SHARES OF VOTING STOCK FOR WITHHELD James G. Baxter 9,320,422 15,309 Willard M. Bright 9,318,772 16,959 James H. Bromley 9,320,422 15,309 John R. Bunting, Jr. 9,320,422 15,309 Stephen V. Dubin 9,320,422 15,309 Jack Farber 9,319,618 16,113 Richard G. Gilmore 9,319,922 15,809 Leonard E. Grossman 9,320,422 15,309 James E. Ksansnak 9,320,422 15,309 Michael L. Sanyour 9,320,422 15,309 William C. Warren 9,318,572 17,159 -11- SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CSS INDUSTRIES, INC. (Registrant) Date: August 14, 1998 By: /s/James G. Baxter ------------------ James G. Baxter Executive Vice President, Chief Financial Officer and Principal Accounting Officer -12- SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CSS INDUSTRIES, INC. (Registrant) Date: August 14, 1998 By: James G. Baxter Executive Vice President, Chief Financial Officer and Principal Accounting Officer -12- EX-27 2
5 0000020629 CSS INDUSTRIES 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 5,285 0 34,004 1,347 154,257 206,715 81,055 34,746 305,614 95,862 1,981 1,237 0 0 202,827 305,614 64,159 64,159 45,339 45,339 34,812 273 869 (17,134) (6,425) (10,709) 0 0 0 (10,709) (.98) (.98)
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