-----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, AAusvXa06ni0h91OiKiJTfawTFnHFo8rpleHQ2URFKYH0AnoIoabOqNa6VMMWcaR VvP/Ca1Loys1a0jYfizNXQ== 0000950116-99-001564.txt : 19990816 0000950116-99-001564.hdr.sgml : 19990816 ACCESSION NUMBER: 0000950116-99-001564 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 99689840 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 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q For the Quarter Ended Commission file number 1-2661 June 30, 1999 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, 1999, there were 9,845,463 shares of Common Stock outstanding which excludes shares which may still be issued upon exercise of stock options. Page 1 of 13 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, 1999 and December 31, 1998, the results of operations for the three months and six months ended June 30, 1999 and 1998 and the cash flows for the six months ended June 30, 1999 and 1998. The results for the three months and six months ended June 30, 1999 and 1998 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, 1999 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, 1999 and 1998 3 Consolidated Condensed Balance Sheets - June 30, 1999 and December 31, 1998 4 Consolidated Statements of Cash Flows - Six months ended June 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 6-8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-11 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 12 SIGNATURE 13 -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, --------------------- ----------------------- 1999 1998 1999 1998 --------- --------- -------- ---------- SALES $ 36,761 $ 36,200 $ 63,128 $ 64,159 -------- -------- -------- -------- COSTS AND EXPENSES Cost of sales 28,357 27,030 47,713 45,339 Selling, general and administrative expenses 13,773 14,781 29,101 31,741 Restructuring and other special items -- 2,486 -- 4,568 Interest expense, net 461 468 1,031 869 Rental and other income, net (15) (646) (1,178) (1,224) -------- -------- -------- -------- 42,576 44,119 76,667 81,293 -------- -------- -------- -------- LOSS BEFORE INCOME TAXES (5,815) (7,919) (13,539) (17,134) INCOME TAX BENEFIT (2,188) (2,969) (5,077) (6,425) -------- -------- -------- -------- NET LOSS $ (3,627) $ (4,950) $ (8,462) $(10,709) ======== ======== ======== ======== NET LOSS PER COMMON SHARE Basic $ (.37) $ (.45) $ (.85) $ (.98) ======== ======== ======== ======== Diluted $ (.37) $ (.45) $ (.85) $ (.98) ======== ======== ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING Basic 9,841 10,894 9,968 10,948 ======== ======== ======== ======== Diluted 9,841 10,894 9,968 10,948 ======== ======== ======== ======== CASH DIVIDENDS PER SHARE OF COMMON STOCK $ -- $ -- $ -- $ -- ======== ======== ======== ========
-3- CSS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands) June 30, December 31, 1999 1998 ---- ---- (Unaudited) ASSETS CURRENT ASSETS Cash and temporary investments $ 3 $ 2,214 Accounts receivable, net 29,658 182,983 Inventories 152,878 81,406 Deferred income taxes 6,721 3,389 Other current assets 11,348 20,583 -------- -------- Total current assets 200,608 290,575 -------- -------- PROPERTY, PLANT AND EQUIPMENT, NET 52,835 49,409 -------- -------- OTHER ASSETS Intangible assets 34,035 34,508 Other 4,027 2,098 -------- -------- Total other assets 38,062 36,606 -------- -------- Total assets $291,505 $376,590 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 40,000 $ 95,320 Other current liabilities 39,099 50,090 -------- -------- Total current liabilities 79,099 145,410 -------- -------- LONG-TERM OBLIGATIONS 7,184 8,758 -------- -------- DEFERRED INCOME TAXES 1,929 1,929 -------- -------- SHAREHOLDERS' EQUITY 203,293 220,493 -------- -------- Total liabilities and shareholders' equity $291,505 $376,590 ======== ======== See notes to consolidated financial statements. -4- CSS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Six Months Ended June 30, ---------------------------- 1999 1998 --------- --------- Cash flows from operating activities: Net loss ($ 8,462) ($ 10,709) --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,659 4,768 (Gain) loss on disposal/write down of assets, net (6) 2,233 Provision for doubtful accounts 256 273 Deferred tax benefit (3,332) -- Changes in assets and liabilities, net of effects from purchase and disposal of businesses: Decrease in accounts receivable 153,069 132,831 (Increase) in inventory (71,472) (87,987) Decrease (increase) in other assets 7,137 (4,049) (Decrease) increase in other current liabilities (1,656) 876 (Decrease) in accrued taxes (9,711) (25,462) --------- --------- Total adjustments 78,944 23,483 --------- --------- Net cash provided by operating activities 70,482 12,774 --------- --------- Cash flows from investing activities: Purchase of property, plant and equipment (7,526) (7,828) Proceeds on sale of property, plant and equipment 54 428 --------- --------- Net cash used for investing activities (7,472) (7,400) --------- --------- Cash flows from financing activities: Payments on long-term obligations (1,163) (960) (Repayments) borrowings on notes payable (55,320) 6,382 Purchase of treasury stock (9,761) (9,209) Proceeds from exercise of stock options 1,023 2,333 --------- --------- Net cash used for financing activities (65,221) (1,454) --------- --------- Net (decrease) increase in cash and temporary investments (2,211) 3,920 Cash and temporary investments at beginning of period 2,214 1,365 --------- --------- Cash and temporary investments at end of period $ 3 $ 5,285 ========= =========
See notes to consolidated financial statements. -5- CSS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1999 (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: June 30, December 31, 1999 1998 ------------ ------------ Raw material................... $ 31,792,000 $30,636,000 Work-in-process................ 22,250,000 12,992,000 Finished goods................. 98,836,000 37,778,000 ------------ ------------ $152,878,000 $81,406,000 ============ ============ 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 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, 1999 and 1998 - 9,841,059 and 9,967,621 in 1999 and 10,894,104 and 10,947,916 in 1998. 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. Reclassifications - Certain prior period amounts have been reclassified to conform with current year classifications. (2) RESTRUCTURING AND OTHER SPECIAL ITEMS: In 1998, the Company implemented a restructuring program consisting of the sale of under utilized real estate, the integration of certain management functions, the discontinuance of under-performing product lines and the reduction of overhead costs. For the quarter and six months ended June 30, 1998, the Company incurred pre-tax charges of $2,486,000 and $4,568,000, respectively, related to the restructuring program. The restructuring program was completed in 1998. (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. On November 6, 1998 and again on May 4, 1999, the Board of Directors authorized additional repurchases of up to 500,000 shares on terms acceptable to management, bringing total authorized repurchases to 2,000,000 shares. As of June 30, 1999, the Company had repurchased 1,383,800 shares for $38,532,000, including the purchase of 45,000 shares for $1,047,000 in the second quarter of 1999. Any such buyback is subject to compliance with regulatory requirements and relevant covenants of the Company's $300,000,000 unsecured revolving credit facility. (4) LEGAL PROCEEDINGS: In February 1999, CSS was awarded and subsequently received approximately $11,200,000, including interest, in settlement of a dispute primarily related to the valuation of inventory acquired in the 1995 acquisition of Cleo Inc from Gibson Greetings Inc. -7- (5) 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.1 33 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 June 15, 2000. The Company has not yet determined when it will adopt this statement. 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. -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 buy back of up to 1,000,000 shares of the Company's Common Stock. On November 6, 1998 and again on May 4, 1999 the Board of Directors authorized additional repurchases of up to 500,000 shares on terms acceptable to management, bringing total authorized repurchases to 2,000,000 shares. As of June 30, 1999, the Company had repurchased 1,383,800 shares for $38,532,000, including the purchase of 45,000 shares for $1,047,000 in the second quarter of 1999. 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. First Six Months of 1999 Compared to First Six Months of 1998 Consolidated sales for the six months ended June 30, 1999 decreased 2% to $63,128,000 from $64,159,000 in 1998. The decrease in sales was due to lower sales of Easter products and the later timing of Halloween shipments compared to the prior year, partially offset by an increase in direct import Christmas shipments. Cost of sales, as a percentage of sales was 76% in 1999 and 71% in 1998. The increase in the cost of sales as a percentage of sales was due to lower margins on Easter sales due to competitive pressures, a shift in the Halloween product mix toward lower margin products and an increased volume of lower margin direct import sales. Selling, general and administrative ("SG&A") expenses, as a percentage of sales, decreased to 46% from 49% in 1998. The decrease in SG&A expenses as a percentage of sales was due to lower commission expense and reduced salaries. In 1998 the Company implemented a restructuring program consisting of the sale of under utilized real estate, the integration of certain management functions, the discontinuance of under-performing product lines and the reduction of overhead costs. For the six months ended June 30, 1998, the Company incurred pre-tax charges of $4,568,000 related to the restructuring program. The restructuring program was completed in 1998. Interest expense, net increased to $1,013,000 from $869,000 in 1998. The increase in interest expense was due to higher borrowing levels as a result of the Company's stock repurchase program. The effects of the increased borrowings were partially offset by lower interest rates and the receipt of proceeds awarded in the resolution of a dispute with Gibson Greetings, Inc. related to the purchase price of the Company's Cleo subsidiary. Rental and other income, net decreased slightly to $1,178,000 from $1,224,000 in 1998 as the absence of rental income in 1998 was substantially offset by a gain related to the restructuring of a portion of the Company's deferred compensation liability in 1999. -9- Income taxes as a percentage of income before taxes were 37.5% in 1999 and 1998. The net loss for the six months ended June 30, 1999 was $8,462,000, or $.85 per share, compared to a net loss of $10,709,000, or $.98 per share, in 1998. The decreased loss was due to the absence of special charges and lower SG&A expense, partially offset by lower sales and lower margins. Second Quarter 1999 Compared to Second Quarter 1998 Sales for the quarter ended June 30, 1999 increased 2% to $36,761,000 from $36,200,000. The increase in sales was due to increased shipments of direct import Christmas products. This increase was partially offset by the later timing of Halloween shipments compared to 1998, and lower sales of everyday products. Cost of sales, as percentage of sales, was 77% in 1999 compared to 75% in 1998. The increase in cost of sales as a percentage of sales was due to an unfavorable shift in the mix of Halloween product and increased volume of lower margin direct import shipments. SG&A expenses as a percentage of sales declined to 37% from 41% in 1998 as a result of lower salaries and commission expense. In 1998 the Company implemented a restructuring program which consisted of the sale of under utilized real estate, the integration of certain management functions, the discontinuance of under-performing product lines and the reduction of overhead costs. For the second quarter of 1998, the Company incurred pre-tax charges of $2,486,000 related to the restructuring program. The restructuring program was completed in 1998. Interest expense, net was $461,000 in 1999 compared to $468,000 in 1998 as borrowings decreased due to the receipt of proceeds related to an arbitration award and improved cash management offset, in part, by increased borrowing needs for stock repurchases. Rental and other income, net decreased to $15,000 from $646,000 in 1998 due to the absence of sub-lease rental income. Income taxes, as a percentage of income before taxes, were 37.5% in 1999 and 1998. The net loss for the quarter ended June 30, 1999 was $3,627,000, or $.37 per share, compared to a net loss of $4,950,000, or $.45 per share, in 1998. The absence of special charges was primarily responsible for the decreased loss as lower SG&A expenses substantially offset the effects of lower margins. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1999, the Company had working capital of $121,509,000 and shareholders' equity of $203,293,000. The decrease in accounts receivable and the increase in inventories from December 31, 1998 reflected seasonal collections of 1998 Christmas accounts receivables and normal seasonal inventory increases in preparation for the 1999 shipping season. The decrease in other current assets was due to the receipt of proceeds awarded in the resolution of a dispute with Gibson Greetings, Inc. related to the purchase price of the Company's Cleo subsidiary. The decrease in other accrued liabilities reflected the payment of income taxes. The decrease in shareholders' equity is primarily attributable to the year-to-date net loss and the repurchase of 397,400 shares of the Company's stock for $9,761,000. -10- 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 and Halloween 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, 1999, the Company had short-term borrowings of $40,000,000. 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. YEAR 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations. These problems, in an extreme case, could render the Company unable to process transactions and engage in the normal course of business. To guard against these events, the Company initiated a comprehensive Year 2000 review and remediation program (the "Year 2000 Program") in 1998. Each of the Company's subsidiaries and CSS' corporate headquarters established teams, which included members of executive management, to identify and correct Year 2000 issues. Attention was given to computer hardware and software, communications equipment, manufacturing equipment and facilities to achieve compliance in all these areas. The teams were also charged with investigating the Year 2000 capabilities of suppliers, customers and other external entities, and with developing contingency plans where necessary. Significant vendors (including, but not limited to, suppliers of materials and manufacturing equipment, freight carriers, landlords, financial institutions and computer hardware and software manufacturers) and customers were contacted to assess their ability to meet the Year 2000 challenges. These entities are being asked to represent to CSS that they will be able to correctly process transactions with regard to the Year 2000. A detailed accounting and assessment of all computer systems and application software utilized throughout the Company's operations was completed, and plans for establishing compliance have been developed. These plans identify which non-compliant hardware and software will be remediated, upgraded or replaced and the timetable and resource requirements to achieve those objectives. Remediation and testing of the Company's primary transaction processing systems has been completed at all of the Company's subsidiaries and at corporate headquarters. Remediation and testing of the Company auxiliary systems is substantially complete. CSS anticipates completing the Year 2000 project prior to any anticipated impact on its operations. The cumulative external cost of this effort is not expected to exceed $250,000 and will be funded through operating cash flows and expensed as incurred. The Company maintains contingency plans for computer failures, power outages, natural disasters, etc. Year 2000 contingency plans for mission critical systems will be developed and integrated with the existing contingency plans where appropriate by December 1999. The costs of the Year 2000 Program and the time table on which the Company believes it will complete the Year 2000 Program are based on management's best estimates, which were derived using assumptions of future events. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those anticipated. Although the Company believes the program outlined above should be adequate to address the Year 2000 issue, there can be no assurances to that effect. -11- 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 4, 1999. (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 H. Bromley 9,300,479 15,059 John R. Bunting, Jr. 9,297,579 17,959 Stephen V. Dubin 9,300,579 14,959 Jack Farber 9,300,529 15,009 Richard G. Gilmore 9,297,579 17,959 Leonard E. Grossman 9,300,579 14,959 James E. Ksansnak 9,300,379 15,159 Michael L. Sanyour 9,300,579 14,959 -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 13, 1999 By: /s/Clifford E. Pietrafitta ------------------------------- Clifford E. Pietrafitta Vice President - Finance, Chief Financial Officer and Principal Accounting Officer -13- EX-27 2
5 0000020629 CSS INDUSTRIES 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 3 0 30,338 680 152,878 200,608 93,862 41,027 291,505 79,099 1,844 1,237 0 0 202,056 291,505 63,128 63,128 47,713 47,713 27,667 256 1,031 (13,539) (5,077) (8,462) 0 0 0 (8,462) (.85) (.85)
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