SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
FORM 10-Q
For the Quarter Ended Commission file number 1-2661
December 31, 2001
- ---------------------
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 December 31, 2001, there were 8,861,370 shares of Common Stock outstanding
which excludes shares which may still be issued upon exercise of stock options.
Page 1 of 14
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 December 31, 2001 and March 31, 2001, the results of
operations for the three months and nine months ended December 31, 2001 and 2000
and the cash flows for the nine months ended December 31, 2001 and 2000. The
results for the three months and nine months ended December 31, 2001 and 2000
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 September 30, 2001 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
December 31, 2001 and 2000 3
Consolidated Condensed Balance Sheets - December 31, 2001 and
March 31, 2001 4
Consolidated Statements of Cash Flows - Nine months ended
December 31, 2001 and 2000 5
Notes to Consolidated Financial Statements 6-10
Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-13
PART II - OTHER INFORMATION
- ---------------------------
Items 1 through 6 - Not Applicable
SIGNATURE 14
- ---------
Page 2 of 14
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
(In thousands, except
per share amounts)
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- ---------------------
2001 2000 2001 2000
------ ------- ------ -------
SALES $235,944 $208,914 $399,144 $395,369
COSTS AND EXPENSES
Cost of sales 170,199 151,913 289,585 293,821
Selling, general and administrative expenses 28,638 21,789 64,988 58,994
Interest expense, net 1,180 2,299 1,931 4,684
Rental and other expense (income), net 148 (36) 171 (140)
----- --------- ------- -----------
200,165 175,965 356,675 357,359
-------- ------- ------- -------
INCOME BEFORE INCOME TAXES 35,779 32,949 42,469 38,010
INCOME TAX EXPENSE 12,720 11,810 15,128 13,632
------- -------- -------- --------
NET INCOME $23,059 $21,139 $27,341 $24,378
======= ======= ======= =======
NET INCOME PER COMMON SHARE
Basic $2.60 $2.39 $3.09 $2.72
===== ===== ===== =====
Diluted $2.54 $2.39 $3.03 $2.72
===== ===== ===== =====
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 8,860 8,842 8,853 8,961
===== ===== ===== =====
Diluted 9,089 8,846 9,014 8,965
===== ===== ===== =====
CASH DIVIDENDS PER SHARE OF COMMON STOCK $ - $ - $ - $ -
======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
Net income $23,059 $21,139 $27,341 $24,378
Change in fair value of interest
rate swap agreements, net 227 - (345) -
-------- ------ ---------- ----
Comprehensive income $23,286 $21,139 $26,996 $24,378
======= ======= ======= =======
Page 3 of 14
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(Unaudited)
(In thousands)
December 31, March 31,
2001 2001
------------------ ------------------
ASSETS
------
CURRENT ASSETS
Cash and temporary investments $ 9,148 $ 41,687
Accounts receivable, net 175,413 20,174
Inventories 45,351 82,140
Deferred income taxes 5,735 5,714
Other current assets 7,513 6,764
-------- ---------
Total current assets 243,160 156,479
-------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET 63,652 62,105
-------- ---------
OTHER ASSETS
Intangible assets 37,605 38,535
Other 4,248 5,292
-------- ---------
Total other assets 41,853 43,827
-------- ---------
Total assets $348,665 $262,411
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable $ 26,390 $ -
Other current liabilities 64,255 32,341
-------- ---------
Total current liabilities 90,645 32,341
-------- ---------
LONG-TERM OBLIGATIONS 2,117 2,908
-------- ---------
DEFERRED INCOME TAXES 7,271 6,250
-------- ---------
SHAREHOLDERS' EQUITY 248,632 220,912
-------- ---------
Total liabilities and shareholders' equity $348,665 $262,411
======== ========
See notes to consolidated financial statements.
Page 4 of 14
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
(In thousands)
Nine Months Ended
December 31,
---------------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net income $ 27,341 $ 24,378
-------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,536 7,831
(Gain) loss on sale or disposal of assets (1) 42
Provision for doubtful accounts 5,590 1,190
Deferred tax provision 1,000 1,750
Compensation expense on stock option issuance - 93
Changes in assets and liabilities, net of effects from
purchase of a business:
(Increase) in accounts receivable (160,830) (152,317)
Decrease in inventory 39,948 51,831
Decrease in other assets 200 1,760
Increase in other current liabilities 17,343 9,184
Increase in accrued income taxes 14,372 11,529
-------- ---------
Total adjustments (73,842) (67,107)
-------- ---------
Net cash (used for) operating activities (46,501) (42,729)
-------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (8,613) (11,291)
Purchase of a business (7,849) -
Proceeds on assets held for sale 4,248 19
-------- ---------
Net cash (used for) investing activities (12,214) (11,272)
-------- ---------
Cash flows from financing activities:
Payments on long-term obligations (1,009) (1,041)
Borrowing on long-term obligation 170 86
Net borrowings on notes payable 26,390 62,615
Purchase of treasury stock - (7,042)
Proceeds from exercise of stock options 625 -
-------- ---------
Net cash provided by financing activities 26,176 54,618
-------- ---------
Net (decrease) increase in cash and temporary investments (32,539) 617
Cash and temporary investments at beginning of period 41,687 441
-------- ---------
Cash and temporary investments at end of period $ 9,148 $ 1,058
======== =========
See notes to consolidated financial statements
Page 5 of 14
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
December 31, 2001
-----------------
(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. Gains and losses on foreign currency
transactions are not material and are included in other expense (income) in
the consolidated statements of operations.
Change in Fiscal Year -
- ---------------------
On February 21, 2001, CSS' Board of Directors approved a change in the Company's
fiscal year end from December 31 to March 31. The transition period began
January 1, 2001 and ended March 31, 2001. The Company's new fiscal year began
April 1, 2001 and will end March 31, 2002 ("Fiscal 2002"). With this change,
the Company's new fiscal year now coincides with its natural revenue cycle.
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, seasonal candles, classroom exchange Valentines, decorative
ribbons and bows, Halloween masks, costumes, make-ups and novelties, Easter
egg dyes and novelties and educational products. Due to the seasonality of the
Company's business, the majority of sales occur in the second and third
quarters of the Company's new fiscal year 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 accounting principles
generally accepted in the United States 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:
Page 6 of 14
December 31, March 31,
2001 2001
------------------ ---------------
Raw material................... $15,537,000 $17,795,000
Work-in-process................ 11,395,000 30,375,000
Finished goods................. 18,419,000 33,970,000
----------- ------------
$45,351,000 $82,140,000
=========== ============
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 Income Per Common Share -
- ---------------------------
The following table sets forth the computation of basic earnings per share and
diluted earnings per share for the three months and nine months ended December
31, 2001 and 2000:
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------- ----------------------
2001 2000 2001 2000
---- ---- ---- ----
Numerator:
Net income ................................. $23,059,000 $21,139,000 $27,341,000 $24,378,000
Denominator:
Weighted average shares outstanding
for basic earnings per share............. 8,860,000 8,842,000 8,853,000 8,961,000
Effect of dilutive stock options............ 229,000 4,000 161,000 4,000
-------- -------- -------- -------
Adjusted weighted average shares out-
standing for diluted earnings per share.. 9,089,000 8,846,000 9,014,000 8,965,000
========= ========= ========= =========
Basic earnings per share....................... $2.60 $2.39 $3.09 $2.72
===== ===== ===== =====
Diluted earnings per share..................... $2.54 $2.39 $3.03 $2.72
===== ===== ===== =====
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) DERIVATIVE FINANCIAL INSTRUMENTS:
---------------------------------
The Company enters into foreign currency forward contracts in order to reduce
the impact of certain foreign currency fluctuations. Firmly committed
transactions and the related receivables and payables may be hedged with foreign
currency forward contracts. Gains and losses arising from foreign currency
forward contracts are recognized in income or expense as offsets of gains and
losses resulting from the underlying hedged transactions. As of December 31,
2001, the notional amount of open foreign currency forward contracts was
$9,287,000 and the related gains and losses were not material.
Page 7 of 14
The Company enters into interest rate swap agreements to manage its exposure to
interest rate movements by effectively converting a portion of its anticipated
working capital debt from variable to fixed rates. The average annual notional
amounts of interest rate swap contracts subject to fixed rates as of December
31, 2001 were $32,838,000, $21,890,000 and $10,946,000 for fiscal years 2002,
2003 and 2004, respectively. These agreements involve the exchange of variable
rate payments for fixed rate payments without the effect of leverage and without
the exchange of the underlying face amount. Fixed interest rate payments are at
a weighted average rate of 4.82%, 4.96% and 5.09% for fiscal years 2002, 2003
and 2004, respectively. Variable rate payments are based on one month U.S.
dollar LIBOR. Interest rate differentials paid or received under these
agreements are recognized as adjustments to interest expense.
The Company designates all of its interest rate swap agreements as cash flow
hedges and recognizes the fair value of its interest rate swap agreements on the
balance sheet. Changes in the fair value of these agreements are recorded in
other comprehensive income and reclassified into earnings as the underlying
hedged item affects earnings. Unrealized after tax net income of $227,000 during
the three months ended and unrealized after tax net losses of $345,000 during
the nine months ended December 31, 2001 were recorded in other comprehensive
income.
When entering into hedging transactions, the Company documents the relationships
between hedging instruments and hedged items, as well as the risk management
objective and strategy. This process links all derivatives that are designated
fair value, cash flow or foreign currency hedges to specific assets and
liabilities on the Consolidated Condensed Balance Sheet. The Company assesses,
both at inception and on an on-going basis, the effectiveness of all hedges in
offsetting changes in fair values or cash flows of hedged items. Any
ineffectiveness is recorded in the consolidated statements of operations and was
immaterial as of December 31, 2001.
(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 totaling
2,000,000 shares on terms acceptable to management. As of December 31, 2001, the
Company had repurchased 2,472,000 shares for $61,137,000. There were no stock
repurchases in the quarter or nine month period ended December 31, 2001.
(4) DEBT REFINANCING:
----------------
On April 30, 2001, the Company replaced its expiring revolving credit facility
with two new financing facilities. The Company entered into a $75,000,000
unsecured revolving credit facility with five banks. This facility allows for
borrowings up to $75,000,000, expires on April 30, 2004 and provides that
borrowings are limited during a consecutive 30 day period in each year of the
agreement. The loan agreement contains provisions to increase or reduce the
interest pricing spread based on the achievement of certain benchmarks related
to the ratio of earnings to interest expense. At the Company's option, interest
on the facility currently accrues at (1) the greater of the prime rate minus
1/2% or the Federal Funds Rate, or (2) LIBOR plus 1%. The loan agreement also
contains covenants, the most restrictive of which pertain to net worth; the
ratio of operating cash flow to fixed charges; the ratio of earnings to interest
expense and the ratio of debt to capitalization.
Page 8 of 14
The Company also entered into a receivables purchase agreement with an issuer of
receivables-backed commercial paper. Under this arrangement, the Company sells,
on an ongoing basis and without recourse, its trade accounts receivable to a
wholly-owned special purpose subsidiary (the "SPS"), which in turn has the
option to sell, on an ongoing basis and without recourse, to the commercial
paper issuer an undivided percentage interest in the pool of accounts
receivable. Under the agreement, new trade receivables are automatically sold to
the SPS and become a part of the receivables pool. The agreement permits the
sale (and repurchase) of an undivided interest in the accounts receivable pool
for an amount up to $100,000,000 through April 30, 2004, subject to an annual
renewal. Interest on amounts financed under this facility is based on a variable
commercial paper rate plus 3/8%. This arrangement has been accounted for as a
financing transaction and reflected on the balance sheet as of December 31,
2001. At December 31, 2001, $26,000,000 was utilized under the program.
(5) BUSINESS ACQUISITIONS AND DIVESTITURES:
---------------------------------------
On May 8, 2001, the Company acquired certain assets of Tye-Sil Corporation Ltd.
of Montreal, Quebec, Canada. Tye-Sil had been the leading Canadian provider of
gift wrap and accessories. In consideration, the Company paid $7,849,000 in
cash, including transaction costs, which approximated the fair value of the
assets acquired. The acquisition was accounted for as a purchase. The operations
of Tye-Sil have been consolidated into existing operations of the Company.
(6) ACCOUNTING PRONOUNCEMENTS:
--------------------------
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires all business
combinations be accounted for by the purchase method and adds disclosure
requirements related to business combination transactions. SFAS No. 141 also
establishes criteria for the recognition of intangible assets apart from
goodwill. SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets. The Statement provides that goodwill and
some intangibles will no longer be amortized. SFAS No. 142 provides specific
guidance for testing goodwill for impairment. The Statement also requires new
disclosure of information about goodwill and other intangible assets subsequent
to their acquisition. The Company will adopt the provisions of SFAS No. 142
effective with the beginning of its next fiscal year, April 1, 2002, and will
discontinue the amortization of goodwill at that time. As of December 31, 2001,
goodwill totaled $40,166,000 and negative goodwill totaled $2,561,000. For the
nine months ended December 31, 2001, net amortization expense was $930,000.
Negative goodwill remaining at the date of adoption will be recorded as income
from a cumulative effect of accounting change. The Company is in the process of
evaluating the financial statement impact of the impairment provisions of SFAS
No. 142.
SFAS No. 143, "Accounting for Asset Retirement Obligations," was issued in June
2001. SFAS No. 143 addresses accounting and reporting for legal obligations and
related costs associated with the retirement of long-lived assets. The Statement
requires that the fair value of the liability for an asset retirement obligation
be recognized in the period incurred if a reasonable estimate of fair value can
be made. The estimated retirement costs are capitalized as part of the carrying
amount of the long-lived asset. SFAS No. 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002. 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.
SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," was
issued in August 2001 and is effective for fiscal years beginning after December
15, 2001. This statement retains existing requirements to recognize an
impairment loss only if the carrying amount of a long-lived asset is not
recoverable from its undiscounted cash flows and measure any impairment loss as
the difference between the carrying amount and the fair value of the asset. SFAS
No. 144 a) removes goodwill from its scope, b) allows for probability-weighted
cash flow estimation techniques when measuring for impairment, c) requires that,
for any assets to be abandoned, the depreciable life be adjusted and the
cumulative impact of such change treated as an accounting change and d) an
impairment loss be recognized at the date a long-lived asset is exchanged for a
similar productive asset or distributed to owners in a spinoff if the carrying
value of the asset exceeds its fair value. 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.
Page 9 of 14
(7) SUBSEQUENT EVENTS:
------------------
Chapter XI Filing by Major Customer
- -----------------------------------
On January 22, 2002, a major customer of the Company filed for protection under
Chapter XI of the United States Bankruptcy Act. Prior to the customer's Chapter
XI filing, the Company entered into a Claims Put Agreement with a financial
institution which allowed for the assignment of a portion of its interest in
this customer's accounts receivable balance. The remaining portion of
outstanding accounts receivable, as of the bankruptcy filing date, of
approximately $4,400,000 is fully reserved and the related provision is included
in selling, general and administrative expenses in the consolidated statements
of operations as of December 31, 2001.
Business Acquisition
- --------------------
On February 8, 2002, the Company agreed to acquire substantially all of the
business and assets of the segments of C. M. Offray & Son, Inc. ("Offray") which
manufacture and sell decorative ribbon products, floral accessories and narrow
fabrics for apparel, craft and packaging applications. For the year ended
December 31, 2001, Offray had net sales pertaining to the business segment to be
acquired by the Company of approximately $99,000,000. The purchase price of
approximately $45,000,000 in cash will be subject to certain post-closing
adjustments and indemnification obligations. Consummation of the transaction is
anticipated on or about March 15, 2002 and is subject to obtaining certain
specified regulatory approvals and consents of third parties and to certain
other customary closing conditions.
Page 10 of 14
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
RESULTS OF OPERATIONS
- ---------------------
Business Acquisition
- --------------------
On February 8, 2002, the Company agreed to acquire substantially all of the
business and assets of the segments of C. M. Offray & Son, Inc. ("Offray") for
an estimated $45,000,000 in cash, of which approximately $3,000,000 will be held
in escrow for certain post-closing adjustments and indemnification obligations.
The cash portion of the purchase price will be funded by the Company's excess
cash and its $75,000,000 unsecured revolving credit facility. Consummation of
the transaction is subject to obtaining consents of third parties and to certain
other customary closing conditions. The closing of the acquisition is
anticipated to be completed in March. Offray is a manufacturer and distributor
of decorative ribbon products, floral accessories and narrow fabrics for
apparel, craft and packaging applications.
Seasonality and Change in Fiscal Year
- -------------------------------------
The seasonal nature of CSS' business results in low sales and operating
losses in the first and fourth quarters and high shipment levels and operating
profits in the second and third quarters of the Company's new fiscal year,
thereby causing significant fluctuations in the quarterly results of operations
of the Company.
On February 21, 2001, CSS' Board of Directors approved a change in the
Company's fiscal year end from December 31 to March 31. The transition period
began January 1, 2001 and ended March 31, 2001. The Company's new fiscal year
began April 1, 2001 and will end March 31, 2002 ("Fiscal 2002"). With this
change, the Company's new fiscal year now coincides with its natural revenue
cycle.
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 totaling
2,000,000 shares on terms acceptable to management. As of December 31, 2001, the
Company had repurchased 2,472,000 shares for $61,137,000.
Nine Months Ended December 31, 2001 Compared to Nine Months Ended
December 31, 2000
- ------------------------------------------------------------------
Sales for the nine months ended December 31, 2001 increased 1% to
$399,144,000 from $395,369,000 in 2000. The increase in sales was primarily due
to incremental volume of approximately $14,000,000 related to the current year
acquisition of Tye-Sil. Net of these incremental sales, the Company reported a
3% decrease in sales for the nine month period primarily due to lower Halloween
and Christmas sales as a result of a cautious retail environment.
Cost of sales, as a percentage of sales, was 73% in 2001 compared to 74% in
2000. The decrease in cost of sales, as a percentage of sales, was a result of
favorable margins on mix of product shipped, decreased closeout sales and lower
manufacturing costs.
Page 11 of 14
Selling, general and administrative ("SG&A") expenses, as a percentage of
sales, increased to 16% from 15% in 2000. The increase in SG&A expenses, as a
percentage of sales, was primarily due to the write-off of receivables, net of
commissions and other related expense reversals, of approximately $3,500,000
associated with the Chapter XI filing by a major customer. Also contributing to
the increase was higher consulting costs associated with an enterprise resource
planning system implementation which is expected to be substantially completed
by the end of this fiscal year.
Interest expense, net was $1,931,000 in 2001 and $4,684,000 in 2000. The
decrease in interest expense was due to reduced interest rates and lower
borrowing levels as a result of cash generated from operations and improved
management of working capital.
Income taxes as a percentage of income before taxes were 36% in 2001 and
2000.
Net income for the nine months ended December 31, 2001 was $27,341,000, or
$3.03 per share, compared to prior year net income of $24,378,000, or $2.72 per
share. The increase in earnings was due to improved margins, primarily as a
result of reduced manufacturing costs, and lower interest expense which more
than offset the pre-tax loss of approximately $3,500,000, or $.25 per share,
associated with the Chapter XI filing by a major customer.
Third Quarter Fiscal 2002 Compared to Third Quarter Fiscal 2001
- ---------------------------------------------------------------
Sales for the quarter ended December 31, 2001 increased 13% to $235,944,000
from $208,914,000 in 2000. The increase in sales was primarily the result of
customer requested shipment deferrals of Christmas products from the second
quarter into the third quarter and the impact of incremental Tye-Sil sales.
Cost of sales, as a percentage of sales, was 72% in 2001 and 73% in 2000.
The decrease in cost of sales was due to lower closeout sales and reduced
manufacturing costs. SG&A expenses, as a percentage of sales, were 12% in 2001
compared to 10% in 2000. The increase in SG&A expenses, as a percentage of
sales, was primarily a result of the write-off of receivables, net of
commissions and other related expense reversals, of approximately $3,500,000
related to the Chapter XI filing by a major customer.
Interest expense, net was $1,180,000 in 2001 compared to $2,299,000 in
2000. The decrease in interest expense was primarily due to lower interest rates
and lower borrowing levels as a result of the cash generated from operations and
improved management of working capital.
Income taxes, as a percentage of income before taxes were 36% in 2001 and
2000.
Net income for the third quarter was $23,059,000, or $2.54 per share,
compared to prior year net income of $21,139,000, or $2.39 per share. The
increase in income was primarily due to higher margins and lower interest
expense, partially offset by the impact of the Chapter XI filing by a major
customer discussed above.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 2001, the Company had working capital of $152,515,000 and
shareholders' equity of $248,632,000. The increase in accounts receivable from
March 31, 2001 reflected seasonal billings of fiscal 2002 Christmas accounts
receivables, net of current year collections. The decrease in inventory
reflected normal seasonal shipments during the fiscal 2002 shipping season as
well as improved inventory management. The increase in other current liabilities
is due to increased accruals of income taxes, sales commissions, royalties and
employee benefits. The increase in shareholders' equity is primarily
attributable to year-to-date net income.
Page 12 of 14
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 and third quarters.
Payment for Christmas related products is usually not received until after mid
December in accordance with general industry practice. As a result, short-term
borrowing needs peak prior to Christmas and are repaid in December and January.
Seasonal borrowings are made under a $75,000,000 unsecured revolving credit
facility with five banks and a receivable purchase agreement in an amount up to
$100,000,000 with an issuer of receivables-backed commercial paper. These
financial facilities are available to fund the seasonal borrowing needs and to
provide the Company with sources of capital for general corporate purposes. As
of December 31, 2001, the Company had short-term borrowings of $26,390,000.
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.
Page 13 of 14
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: February 14, 2002 By: /s/ Clifford E. Pietrafitta
------------------------------
Clifford E. Pietrafitta
Vice President - Finance,
Chief Financial Officer and
Principal Accounting Officer
Page 14 of 14