SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
FORM 10-Q
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For the Quarter Ended Commission file number 1-2661
March 31, 2000
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CSS INDUSTRIES, INC.
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(Exact name of registrant as specified in its Charter)
Delaware 13-1920657
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification number)
1845 Walnut Street, Philadelphia, PA 19103
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(Address of principal executive offices) (Zip Code)
(215) 569-9900
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(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
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As of March 31, 2000, there were 9,180,720 shares of Common Stock outstanding
which excludes shares which may still be issued upon exercise of stock options.
Page 1 of 10
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 March 31, 2000 and December 31, 1999, the results of
operations for the three months ended March 31, 2000 and 1999 and the cash flows
for the three months ended March 31, 2000 and 1999. The results for the three
months ended March 31, 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 and with Part II
of this document.
PAGE NO.
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Consolidated Statements of Operations - Three months ended
March 31, 2000 and 1999 3
Consolidated Condensed Balance Sheets - March 31, 2000 and
December 31, 1999 4
Consolidated Statements of Cash Flows - Three months ended
March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6-7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-9
PART II - OTHER INFORMATION
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Items 1 through 6 - Not applicable
SIGNATURE 10
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CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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(Unaudited)
(In thousands, except
per share amounts)
Three Months Ended
March 31,
--------------------------------
2000 1999
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SALES $ 24,589 $ 26,367
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COSTS AND EXPENSES
Cost of sales 17,639 19,356
Selling, general and administrative expenses 16,141 15,328
Interest expense, net 396 570
Rental and other expense (income), net 17 (1,163)
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34,193 34,091
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LOSS BEFORE INCOME TAXES (9,604) (7,724)
INCOME TAX BENEFIT (3,457) (2,889)
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NET LOSS $ (6,147) $ (4,835)
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NET LOSS PER COMMON SHARE
Basic $ (.66) $ (.48)
======== ========
Diluted $ (.66) $ (.48)
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WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 9,266 10,094
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Diluted 9,266 10,094
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CASH DIVIDENDS PER SHARE OF COMMON STOCK $ -- $ --
======== ========
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CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
March 31, December 31,
2000 1999
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(Unaudited)
ASSETS
CURRENT ASSETS
Cash and temporary investments $ 441 $ 3,292
Accounts receivable, net 25,961 165,033
Inventories 105,831 64,884
Deferred income taxes 5,886 5,886
Other current assets 11,950 11,272
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Total current assets 150,069 250,367
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PROPERTY, PLANT AND EQUIPMENT, NET 56,334 55,916
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OTHER ASSETS
Intangible assets 39,654 39,971
Other 2,727 3,144
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Total other assets 42,381 43,115
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Total assets $248,784 $349,398
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ -- $ 62,370
Other current liabilities 29,667 57,108
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Total current liabilities 29,667 119,478
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LONG-TERM OBLIGATIONS 4,456 5,307
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DEFERRED INCOME TAXES 5,086 5,136
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SHAREHOLDERS' EQUITY 209,575 219,477
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Total liabilities and shareholders' equity $248,784 $349,398
======== ========
See notes to consolidated financial statements.
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CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
(In thousands)
Three Months Ended
March 31,
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2000 1999
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Cash flows from operating activities:
Net loss $ (6,147) $ (4,835)
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,527 2,312
Gain on sale of assets (7) (14)
Provision for doubtful accounts 133 110
Deferred tax benefit (50) (3,332)
Changes in assets and liabilities:
Decrease in accounts receivable 138,939 153,027
(Increase) in inventory (40,947) (27,733)
(Increase) decrease in other assets (332) 8,930
(Decrease) in other current liabilities (14,877) (10,674)
(Decrease) in accrued income taxes (11,751) (6,939)
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Total adjustments 73,635 115,687
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Net cash provided by operating activities 67,488 110,852
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Cash flows from investing activities:
Purchase of property, plant and equipment (2,586) (4,430)
Proceeds on sale of property, plant and equipment 37 26
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Net cash used for investing activities (2,549) (4,404)
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Cash flows from financing activities:
Payments on long-term obligations (1,665) (464)
Net payments on notes payable (62,370) (95,320)
Purchase of treasury stock (3,819) (8,714)
Proceeds from exercise of stock options 64 701
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Net cash used for financing activities (67,790) (103,797)
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Net (decrease) increase in cash and temporary investments (2,851) 2,651
Cash and temporary investments at beginning of period 3,292 2,214
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Cash and temporary investments at end of period $ 441 $ 4,865
========= =========
See notes to consolidated financial statements.
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CSS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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Principles of Consolidation -
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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 -
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CSSis 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 -
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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:
March 31, December 31,
2000 1999
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Raw material................... $ 29,160,000 $19,848,000
Work-in-process................ 20,246,000 15,967,000
Finished goods................. 56,425,000 29,069,000
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$105,831,000 $64,884,000
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Revenue Recognition -
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The Company recognizes revenues in accordance with its shipping terms.
Returns and allowances are reserved for based on the Company's
historical experience.
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Net Income Per Common Share -
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Basic and diluted net loss per common shares are based on the weighted
average number of common shares outstanding during the first quarter -
9,266,053 in 2000 and 10,094,183 in 1999.
As of March 31, 2000, the numerator and denominator in the basic and
diluted earnings per share computations are equal as the Company has a
net loss for the three months ended March 31, 2000. Common stock
equivalents are not used in the computation of diluted earnings per
share as they would have an anti-dilutive effect in the periods
presented.
Statements of Cash Flows -
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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, 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 $6,532,000 was recorded as goodwill in the
accompanying balance sheet and is being amortized over twenty years. The
final purchase price is subject to adjustment based on an audit of the
closing balance sheet by an independent public accounting firm. 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:
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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 subsequent dates, the Executive Committee of the Board of
Directors authorized additional repurchases totaling 1,500,000 shares on
terms acceptable to management. 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 March 31, 2000, the
Company had repurchased 2,121,851 shares for $54,095,000, including 193,000
shares for $3,819,000 in the first quarter of 2000. As of March 31, 1999,
the Company had repurchased 1,338,800 shares for $37,485,000, including
352,400 shares for $8,714,000 in the first quarter of 1999.
(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. 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.
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CSS INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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Seasonality
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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
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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 subsequent dates, the Executive Committee of the Board of Directors
authorized additional repurchases totaling 1,500,000 shares on terms acceptable
to management. 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 March 31, 2000, the Company had repurchased
2,121,851 shares for $54,095,000, including 193,000 shares for $3,819,000 in the
first quarter of 2000. As of March 31, 1999, the Company had repurchased
1,338,800 shares for $37,485,000, including 352,400 shares for $8,714,000 in the
first quarter of 1999.
First Quarter 2000 Compared to First Quarter 1999
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Consolidated sales for the three months ended March 31, 2000 were
$24,589,000 or 7% below 1999 sales of $26,367,000. The decrease in sales was
primarily attributable to lower sales of classroom exchange Valentine cards as
improved production efficiencies allowed for the shipment of product related to
the 2000 holiday in late 1999. Additionally, the discontinuation of certain
ancillary product lines and lower closeout sales volume due to improved
inventory management also contributed to the reduction in sales volume. These
decreases were partially offset by increased sales of ribbons and bows to the
wholesale distribution channel and by increased sales of educational products.
Cost of sales, as percentage of sales, was 72% in 2000 and 73% in 1999. The
decrease in cost of sales, as a percentage of sales, was due to the reduction in
lower margin closeout sales volume. Selling, general and administrative ("SG&A")
expenses increased 5% to $16,141,000 in 2000 from $15,328,000 in 1999. The
increase in SG&A expenses was due to increased costs associated with product and
marketing initiatives.
Interest expense, net decreased to $396,000 from $570,000 in 1999. The
decrease in interest expense was due to lower borrowing levels as a result of
the cash generated from operations. The Company incurred rental and other
expense of $17,000 in 2000 compared to income of $1,163,000 in 1999. The change
from the prior year was primarily due to the absence of a pre-tax gain related
to the restructuring of a portion of the Company's deferred compensation
liability in 1999.
Income taxes, as a percentage of income before taxes, were 36% in 2000 and
37% in 1999.
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The net loss for the three months ended March 31, 2000 was $6,147,000, or
$.66 per share compared to a net loss of $4,835,000, or $.48 per share, in 1999.
The increased loss was due to the impact of the Company's stock repurchase plan,
the absence of non-recurring other income and increased costs to support product
and marketing initiatives.
LIQUIDITY AND CAPITAL RESOURCES
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At March 31, 2000, the Company had working capital of $120,402,000 and
shareholders' equity of $209,575,000. The decrease in accounts receivable and
the increase in inventories from December 31, 1999 reflected seasonal
collections of Christmas accounts receivables net of current year billings and
normal seasonal inventory increases necessary for the 2000 shipping season. The
decrease in other current liabilities reflected payment of income taxes, sales
commissions, royalties and employee benefits. The decrease in shareholders'
equity was primarily attributable to the repurchase of 193,000 shares of the
Company's common stock for $3,819,000 and to the first quarter net loss.
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 decreased to $0 in the first quarter 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 March 31, 2000, the Company had no borrowings
outstanding 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.
YEAR 2000
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As of the date of this filing, the Company has not incurred any significant
business disruptions as a result of Year 2000 issues. However, while no such
occurrence has developed as of the date of this filing, Year 2000 issues that
may arise related to material third parties may not become apparent immediately
and therefore, there is no assurance that the Company will not be affected by
third party noncompliance in the future. The Company will continue to monitor
the issue vigilantly and work to remediate any issues that may arise.
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SIGNATURE
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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.
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(Registrant)
Date: May 12, 2000 By: /s/ Clifford E. Pietrafitta
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Clifford E. Pietrafitta
Vice President - Finance,
Chief Financial Officer and
Principal Accounting Officer
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