-----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, AJz7eoTY2i0+T31jh1TYzIGBCFMBZVRy+0flsRO/vqIvZGK41RlwgMBb1jP1dv19 80FC2mJxdcbW/g3AcwwnJw== /in/edgar/work/0000950116-00-002732/0000950116-00-002732.txt : 20001115 0000950116-00-002732.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950116-00-002732 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSS INDUSTRIES INC CENTRAL INDEX KEY: 0000020629 STANDARD INDUSTRIAL CLASSIFICATION: [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: 765911 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 0001.txt SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q For the Quarter Ended Commission file number 1-2661 September 30, 2000 - --------------------- 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 September 30, 2000, there were 8,925,520 shares of Common Stock outstanding which excludes shares which may still be issued upon exercise of stock options. Page 1 of 11 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 September 30, 2000 and December 31, 1999, the results of operations for the three months and nine months ended September 30, 2000 and 1999 and the cash flows for the nine months ended September 30, 2000 and 1999. The results for the three months and nine months ended September 30, 2000 and 1999 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 June 30, 2000 quarterly report on Form 10-Q and with Part II of this document.
PAGE NO. -------- Consolidated Statements of Operations - Three months and nine months ended September 30, 2000 and 1999 3 Consolidated Condensed Balance Sheets - September 30, 2000 and December 31, 1999 4 Consolidated Statements of Cash Flows - Nine months ended September 30, 2000 and 1999 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 Items 1 through 6 - Not Applicable SIGNATURE 11
-2- CSS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------ --------------------- 2000 1999 2000 1999 --------- --------- -------- -------- SALES $142,965 $127,416 $204,674 $ 190,544 -------- -------- -------- --------- COSTS AND EXPENSES Cost of sales 108,255 95,923 153,177 143,636 Selling, general and administrative expenses 21,566 19,281 53,346 48,382 Interest expense, net 1,755 1,274 2,781 2,305 Rental and other (income) expense, net (12) 10 (87) (1,168) --------- --------- -------- --------- 131,564 116,488 209,217 193,155 --------- --------- -------- --------- INCOME (LOSS) BEFORE INCOME TAXES 11,401 10,928 (4,543) (2,611) INCOME TAX EXPENSE (BENEFIT) 4,105 4,122 (1,635) (955) --------- --------- -------- --------- NET INCOME (LOSS) $ 7,296 $ 6,806 $ (2,908) $ (1,656) ========= ========= ======== ========= NET INCOME (LOSS) PER COMMON SHARE Basic $.81 $.71 $(.32) $(.17) ==== ==== ===== ===== Diluted $.81 $.70 $(.32) $(.17) ==== ==== ===== ===== WEIGHTED AVERAGE SHARES OUTSTANDING Basic 8,968 9,621 9,102 9,852 ===== ===== ===== ===== Diluted 8,973 9,682 9,102 9,852 ===== ===== ===== ===== CASH DIVIDENDS PER SHARE OF COMMON STOCK $ - $ - $ - $ - ========= ========= ======== =========
-3- CSS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands)
September 30, December 31, 2000 1999 ------------------ ------------------ (Unaudited) ASSETS CURRENT ASSETS Cash and temporary investments $ 2,200 $ 3,292 Accounts receivable, net 126,576 165,033 Inventories 143,042 64,884 Deferred income taxes 5,622 5,886 Other current assets 8,827 11,272 -------- -------- Total current assets 286,267 250,367 -------- -------- PROPERTY, PLANT AND EQUIPMENT, NET 58,918 55,916 -------- -------- OTHER ASSETS Intangible assets 39,171 39,971 Other 2,486 3,144 -------- -------- Total other assets 41,657 43,115 -------- -------- Total assets $386,842 $349,398 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $120,510 $62,370 Other current liabilities 49,301 57,108 -------- -------- Total current liabilities 169,811 119,478 -------- -------- LONG-TERM OBLIGATIONS 4,022 5,307 -------- -------- DEFERRED INCOME TAXES 5,208 5,136 -------- -------- SHAREHOLDERS' EQUITY 207,801 219,477 -------- -------- Total liabilities and shareholders' equity $386,842 $349,398 ======== ========
See notes to consolidated financial statements. -4- CSS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Nine Months Ended September 30, ------------------------------ 2000 1999 -------- ----------- Cash flows from operating activities: Net loss $(2,908) $(1,656) ------- ------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,676 7,058 Loss on sale or disposal of assets 23 20 Provision for doubtful accounts 808 731 Deferred income tax provision (benefit) 336 (1,379) Changes in assets and liabilities: Decrease in accounts receivable 37,650 63,514 (Increase) in inventory (78,158) (67,670) Decrease in other assets 2,891 8,895 Increase in other current liabilities 3,542 6,972 (Decrease) in accrued income taxes (10,258) (7,562) ------- ------- Total adjustments (35,490) 10,579 ------- ------- Net cash (used for) provided by operating activities (38,398) 8,923 ------- ------- Cash flows from investing activities: Purchase of business, net of cash received of $120 - (7,486) Purchase of property, plant and equipment (9,743) (11,733) Proceeds on sale of property, plant and equipment 56 54 ------- ------- Net cash (used for) investing activities (9,687) (19,165) ------- ------- Cash flows from financing activities: Payments on long-term obligations (2,377) (1,609) Borrowing on long-term obligation 86 - Net borrowings on notes payable 58,140 28,680 Purchase of treasury stock (8,920) (18,483) Proceeds from exercise of stock options 64 1,484 ------- ------- Net cash provided by financing activities 46,993 10,072 ------- ------- Net (decrease) in cash and temporary investments (1,092) (170) Cash and temporary investments at beginning of period 3,292 2,214 ------- ------- Cash and temporary investments at end of period $ 2,200 $ 2,044 ======= ========
See notes to consolidated financial statements -5- CSS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 (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. 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, 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. 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:
September 30, December 31, 2000 1999 -------------- ------------ Raw material................... $ 23,656,000 $ 19,848,000 Work-in-process................ 13,562,000 15,967,000 Finished goods................. 105,824,000 29,069,000 ------------ ------------ $143,042,000 $ 64,884,000 ============ ============
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. -6- Net Income (Loss) Per Common Share - Basic net income per common share was computed based on the weighted average number of shares outstanding during the third quarter and nine months ended September 30, 2000 and 1999 - 8,967,520 and 9,102,009 in 2000 and 9,621,224 and 9,852,155 in 1999. Average outstanding shares used in the computation of diluted net income per share for the third quarter include the impact of dilutive stock options and were 8,973,114 and 9,102,009 in 2000 and 9,682,324 and 9,852,155 in 1999. Shares used in the computation of basic and diluted net loss per common share are equal for the nine months ended September 30, 2000 as the common stock equivalents that would normally be added to the weighted average shares outstanding for the computation of diluted loss per common 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. Reclassifications - Certain prior period amounts have been reclassified to conform with current year classifications. (2) BUSINESS ACQUISITIONS AND DIVESTITURES: On August 18, 1999, the Company acquired certain assets and the business of Party Professionals, Inc. Party Professionals designs and markets highly crafted latex masks, helmets and accessories sold to mass merchandisers, drug chains, party and gift shops. In consideration for these businesses, the Company paid $6,000,000 in cash and assumed and repaid $1,606,000 of outstanding debt. The acquisition was accounted for as a purchase and the excess of cost over fair market value of $6,697,000 was recorded as goodwill in the accompanying balance sheet and is being amortized over twenty years. As of December 31, 1999, the operations of Party Professionals, now known as Don Post Studios, Inc., were consolidated into existing operations of the Company. (3) TREASURY STOCK TRANSACTIONS: On February 19, 1998, the Company announced that its Board of Directors had authorized the purchase of up to 1,000,000 shares of the Company's Common Stock. Subsequently, the Board of Directors authorized additional repurchases of shares on terms acceptable to management. The cumulative authorized repurchase amount is 3,000,000 shares. Any such buy back is subject to compliance with regulatory requirements and relevant covenants of the Company's $300,000,000 unsecured revolving credit facility. As of September 30, 2000, the Company had repurchased 2,377,000 shares for $59,196,000 including the purchase of 106,000 shares for $2,143,000 in the third quarter. -7- (4) FUTURE ACCOUNTING CHANGES: The FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" in 1998, which establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure these instruments at fair value. SFAS No. 133 was scheduled to be effective for fiscal quarters of all fiscal years beginning after June 15, 1999; however, in June of 1999 the FASB issued SFAS No. 137 which deferred the effective date of SFAS No. 133 one year to years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Derivative Instruments and Certain Hedging Activities," which amends SFAS No. 133. Based on current operations, the Company does not expect the adoption of this statement to have a material effect on its financial position and results of operations. The SEC issued Staff Accounting Bulletin (SAB) No. 101 in 1999, which summarized the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. Calendar year-end companies are required to adopt SAB No. 101, as amended, no later than the quarter ending December 31, 2000. Based on current operations, the Company does not except the adoption of this statement to have a material effect on its financial position and results of operations. -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. Stock Repurchase Program On February 19, 1998, the Company announced that its Board of Directors had authorized the purchase of up to 1,000,000 shares of the Company's Common Stock. Subsequently, the Board of Directors authorized additional repurchases of shares on terms acceptable to management. The cumulative authorized repurchase amount is 3,000,000 shares. Any such buy back is subject to compliance with regulatory requirements and relevant covenants of the Company's $300,000,000 unsecured revolving credit facility. As of September 30, 2000, the Company had repurchased 2,377,000 shares for $59,196,000 including 106,000 shares for $2,143,000 in the third quarter. First Nine Months of 2000 Compared to First Nine Months of 1999 Consolidated sales for the nine months ended September 30, 2000 increased 7% to $204,674,000 from $190,544,000 in 1999. The increase in sales was primarily due to higher sales of Christmas products, a portion of which relates to earlier customer requested ship dates compared to a year ago. Also contributing to the sales increase was higher sales of Halloween, educational and non-Christmas ribbon and bow products. These increases were partially offset by lower sales of closeouts, everyday window clings and classroom exchange Valentine cards as a result of improvements in production which allowed for the shipment of product related to the 2000 holiday in late 1999. Cost of sales, as a percentage of sales was 75% in 2000 and 1999. Selling, general and administrative ("SG&A") expenses, as a percentage of sales, increased to 26% from 25% in 1999. The increase in SG&A expenses as a percentage of sales was due to the previously announced move to a more decentralized management structure and costs associated with the implementation of an Enterprise Resource Planning System. Interest expense, net was $2,781,000 in 2000 and $2,305,000 in 1999. The increase in interest expense was primarily due to higher interest rates. Rental and other income decreased to $87,000 in 2000 from $1,168,000 in 1999 due to the impact of restructuring a portion of the Company's deferred compensation liability in 1999. -9- Income taxes as a percentage of income before taxes were 36% in 2000 and 36.5% in 1999. The net loss for the nine months ended September 30, 2000 was $2,908,000, or $.32 per share, compared to prior year net loss of $1,656,000, or $.17 per share. The decrease in earnings was due to higher SG&A and interest costs, partially offset by increased sales and gross margins. The disproportionate increase in the Company's loss per share was a result of the Company's continuing stock repurchase program which added $.09 to the loss per share for the nine months ended September 30, 2000. Third Quarter 2000 Compared to Third Quarter 1999 Sales for the quarter ended September 30, 2000 increased 12% to $142,965,000 from $127,416,000 in 1999. The increase in sales was due to higher Christmas shipments, a portion of which was a result of earlier customer requested ship dates than in the prior year, and higher sales of educational products. Cost of sales, as a percentage of sales, was 76% in 2000 and 75% in 1999. The increase in cost of sales was a result of the mix of product line shipments in the quarter compared to a year ago. Despite higher sales, SG&A expenses as a percentage of sales were 15% in both 2000 and 1999. The increase in SG&A expense was a result of higher costs related to the previously announced move to a more decentralized management structure Interest expense, net was $1,755,000 in 2000 compared to $1,274,000 in 1999. The increase was a result of higher interest rates compared to 1999. Income taxes, as a percentage of income before taxes were 36% in 2000 and 38% in 1999. Net income for the third quarter was $7,296,000, or $.81 per share, compared to prior year net income of $6,806,000, or $.70 per share. The increase in income was primarily due to increased sales. The Company's continuing stock repurchase program added $.04 to diluted earnings per share compared to the third quarter of 1999. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2000, the Company had working capital of $116,456,000 and shareholders' equity of $207,801,000. The decrease in accounts receivable and the increase in inventories from December 31, 1999 reflected seasonal collections of 1999 Christmas accounts receivables, net of current year billings and normal seasonal inventory increases necessary for the 2000 shipping season. The decrease in shareholders' equity is primarily attributable to the year-to-date repurchase of 448,200 shares of the Company's common stock for $8,920,000. 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 were repaid in the first quarter of 2000 but will 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 September 30, 2000, the Company had short-term borrowings of $120,510,000 under this facility. 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. -10- 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: November 14, 2000 By: /s/ Clifford E. Pietrafitta ---------------------------- Clifford E. Pietrafitta Vice President - Finance, Chief Financial Officer and Principal Accounting Officer -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: November 14, 2000 By: /s/ Clifford E. Pietrafitta ----------------------------- Clifford E. Pietrafitta Vice President - Finance, Chief Financial Officer and Principal Accounting Officer -11- EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 0000020629 CSS INDUSTRIES 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 2,200 0 127,579 1,003 143,042 286,267 118,074 59,156 386,842 169,811 385 0 0 1,237 206,564 386,842 204,674 204,674 153,177 153,177 52,451 808 2,781 (4,543) (1,635) (2,908) 0 0 0 (2,908) (.32) (.32)
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