SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
FORM 10-Q
---------
For the Quarter Ended Commission file number 1-2661
December 31, 2002
- ---------------------
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, 2002, there were 7,653,752 shares of Common Stock outstanding
which excludes shares which may still be issued upon exercise of stock options.
Page 1 of 23
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
INDEX
-----
PART I - FINANCIAL INFORMATION
- ------------------------------
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to present fairly the
financial position as of December 31, 2002 and March 31, 2002, the results of
operations for the three and nine months ended December 31, 2002 and 2001 and
the cash flows for the nine months ended December 31, 2002 and 2001. The results
for the three and nine months ended December 31, 2002 and 2001 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/A and with Part II of this document.
PAGE NO.
--------
Consolidated Statements of Operations and Comprehensive Income (Loss) - Three
and nine months ended December 31, 2002 and 2001 3
Condensed Consolidated Balance Sheets - December 31, 2002 and March 31, 2002 4
Consolidated Statements of Cash Flows - Nine months ended
December 31, 2002 and 2001 5
Notes to Consolidated Financial Statements 6-14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15-18
Item 3. Quantitive and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 19
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Certifications 22-23
Page 2 of 23
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
---------------------------------------------------------------------
(Unaudited)
(In thousands, except
per share amounts)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------ ------------------------
2002 2001 2002 2001
---- ---- ---- ----
NET SALES $250,682 $235,944 $476,691 $399,144
-------- -------- -------- --------
COSTS AND EXPENSES
Cost of sales 181,296 170,199 349,013 289,585
Selling, general and administrative expenses 27,906 28,638 74,386 64,988
Interest expense, net 1,496 1,180 2,903 1,931
Rental and other (income) expense, net (118) 148 (139) 171
-------- -------- -------- --------
210,580 200,165 426,163 356,675
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 40,102 35,779 50,528 42,469
INCOME TAX EXPENSE 14,436 12,720 18,190 15,128
-------- -------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 25,666 23,059 32,338 27,341
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE, NET OF TAX - - (8,813) -
-------- -------- -------- --------
NET INCOME $25,666 $23,059 $23,525 $27,341
======== ======== ======== ========
BASIC NET INCOME PER COMMON SHARE
Before cumulative effect of accounting change $3.36 $2.60 $4.09 $3.09
Cumulative effect of accounting change - - (1.11) -
----- ----- ----- -----
Basic net income per common share $3.36 $2.60 $2.98 $3.09
===== ===== ===== =====
DILUTED NET INCOME PER COMMON SHARE
Before cumulative effect of accounting change $3.19 $2.54 $3.89 $3.03
Cumulative effect of accounting change - - (1.06) -
----- ----- ----- -----
Diluted net income per common share $3.19 $2.54 $2.83 $3.03
===== ===== ===== =====
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 7,638 8,860 7,907 8,853
===== ===== ===== =====
DILUTED 8,058 9,089 8,322 9,014
===== ===== ===== =====
CASH DIVIDENDS PER SHARE OF COMMON STOCK $ - $ - $ - $ -
===== ===== ===== =====
- ----------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
Net income $25,666 $23,059 $23,525 $27,341
Change in fair value of interest rate swap agreements, net 209 227 (3) (345)
Foreign currency translation adjustment - - (1) -
-------- -------- -------- --------
Comprehensive income $25,875 $23,286 $23,521 $26,996
======== ======== ======== ========
See notes to consolidated financial statements.
Page 3 of 23
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands)
December 31, March 31,
2002 2002
------------ ---------
(Unaudited)
ASSETS
------
CURRENT ASSETS
Cash and temporary investments $ 12,467 $ 20,006
Accounts receivable, net 205,864 30,021
Inventories 85,223 98,541
Income tax receivable - 2,222
Deferred income taxes 6,091 6,408
Other current assets 13,288 19,471
--------- --------
Total current assets 322,933 176,669
--------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 83,576 80,426
--------- --------
OTHER ASSETS
Goodwill and other intangible assets 31,213 37,656
Other 4,823 3,744
--------- --------
Total other assets 36,036 41,400
--------- --------
Total assets $442,545 $298,495
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Notes payable $ 75,900 $ -
Other current liabilities 80,012 51,271
--------- --------
Total current liabilities 155,912 51,271
--------- --------
LONG-TERM DEBT 50,093 165
--------- --------
LONG-TERM OBLIGATIONS 3,612 2,973
--------- --------
DEFERRED INCOME TAXES 7,353 9,241
--------- --------
SHAREHOLDERS' EQUITY 225,575 234,845
--------- --------
Total liabilities and shareholders' equity $442,545 $298,495
========= ========
See notes to consolidated financial statements.
Page 4 of 23
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
(In thousands)
Nine Months Ended
December 31,
---------------------------
2002 2001
------- ------
Cash flows from operating activities:
Net income $23,525 $27,341
------- -------
Adjustments to reconcile net income to net cash
used for operating activities:
Cumulative effect of accounting change, net of tax 8,813 -
Depreciation and amortization 9,974 8,536
(Gain) on disposal of assets, net (7) (1)
Provision for doubtful accounts 1,725 5,590
Deferred taxes 1,272 1,000
Changes in assets and liabilities, net of effects from
purchase of a business:
(Increase) in accounts receivable (154,945) (160,830)
Decrease in inventory 30,629 39,948
Decrease in other assets 8,655 200
Increase in other current liabilities 5,346 17,343
Increase in accrued taxes 14,777 14,372
------- -------
Total adjustments (73,761) (73,842)
------- -------
Net cash (used for) operating activities (50,236) (46,501)
------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment (7,829) (8,613)
Purchase of a business, net of cash received of $1 (22,891) (7,849)
Proceeds on assets held for sale 30 4,248
------- -------
Net cash (used for) investing activities (30,690) (12,214)
------- -------
Cash flows from financing activities:
Payments on long-term obligations (599) (1,009)
Borrowings on long-term obligations - 170
Borrowings on notes payable 458,215 199,570
Payments on notes payable (382,315) (173,180)
Repayment of acquisition debt (18,828) -
Proceeds from the issuance of long-term debt 50,000 -
Payment of private placement transaction costs (294) -
Purchase of treasury stock (36,510) -
Proceeds from exercise of stock options 3,719 625
------- -------
Net cash provided by financing activities 73,388 26,176
------- -------
Effect of exchange rate changes on cash (1) -
------- -------
Net (decrease) in cash and temporary investments (7,539) (32,539)
Cash and temporary investments at beginning of period 20,006 41,687
------- -------
Cash and temporary investments at end of period $12,467 $ 9,148
======= ========
See notes to consolidated financial statements.
Page 5 of 23
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
December 31, 2002
-----------------
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Principles of Consolidation -
-----------------------------
The consolidated financial statements include the accounts of the Company
and all of its subsidiaries. All significant intercompany transactions and
accounts have been eliminated in consolidation. Translation adjustments are
charged or credited to a separate component of shareholders' equity. Gains
and losses on foreign currency transactions are not material and are
included in rental and other (income) expense, net in the consolidated
statements of operations.
Nature of Business -
--------------------
CSS is a consumer products company primarily engaged in the design,
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, 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 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 (in thousands):
December 31, March 31,
2002 2002
------------ ---------
Raw material................... $21,852 $25,196
Work-in-process................ 20,432 28,612
Finished goods................. 42,939 44,733
------- -------
$85,223 $98,541
======= =======
Page 6 of 23
Revenue Recognition -
----------------------
The Company recognizes revenue from product sales when the goods are
shipped and the title and risk of loss pass to the customer. Provisions for
allowances and rebates to customers, returns and other adjustments are
provided in the same period that the related sales are recorded.
Net Income Per Common Share -
-----------------------------
The following table sets forth the computation of basic income per common
share and diluted income per common share for the three months and nine
months ended December 31, 2002 and 2001 (in thousands, except per share
data):
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Numerator:
Income before cumulative effect of
accounting change................................. $25,666 $23,059 $32,338 $27,341
Cumulative effect of accounting change............. - - (8,813) -
------- ------- ------- -------
Net income ........................................ $25,666 $23,059 $23,525 $27,341
======= ======= ======= =======
Denominator:
Weighted average shares outstanding
for basic income per common share................ 7,638 8,860 7,907 8,853
Effect of dilutive stock options................... 420 229 415 161
------- ------- ------- -------
Adjusted weighted average shares outstanding
for diluted income per common share.............. 8,058 9,089 8,322 9,014
======= ======= ======= =======
Basic net income per common share:
Income before cumulative effect of
accounting change................................. $3.36 $2.60 $4.09 $3.09
Cumulative effect of accounting change............... - - (1.11) -
------- ------- ------- -------
Net income per common share.......................... $3.36 $2.60 $2.98 $3.09
======= ======= ======= =======
Diluted net income per common share:
Income before cumulative effect of
accounting change................................. $3.19 $2.54 $3.89 $3.03
Cumulative effect of accounting change............... - - (1.06) -
------- ------- ------- -------
Net income per common share.......................... $3.19 $2.54 $2.83 $3.03
======= ======= ======= =======
Statements of Cash Flows -
--------------------------
For purposes of the consolidated statements of cash flows, the Company
considers all holdings of highly liquid debt instruments with a purchased
maturity of less than three months to be temporary investments.
Reclassifications -
-------------------
Certain prior period amounts have been reclassified to conform with current
year classifications.
Page 7 of 23
(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, 2002, the notional amount of open foreign
currency forward contracts was $4,193,000 and the related gain was $66,000.
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 notional amounts of interest rate swap contracts subject to fixed
rates outstanding as of December 31, 2002 for the remainder of fiscal years
2003 and 2004 are $427,000 and $10,946,000, respectively. These agreements
involve the Company receiving variable rate payments in exchange 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 4.96% and 5.09% for fiscal years 2003 and 2004,
respectively. Variable rate payments are based on one month U.S. dollar
LIBOR. Interest rate differentials paid under these agreements are
recognized as adjustments to interest expense and amounted to $391,000 and
$424,000 for the quarters ended December 31, 2002 and 2001 and $706,000 and
$583,000 for the nine months ended December 31, 2002 and 2001.
The Company designates all of its interest rate swap agreements as cash
flow hedges and records the fair value of its interest rate swap agreements
in its consolidated 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. During the third
quarter of fiscal 2003, unrealized after tax net gains of $209,000 were
recorded in other comprehensive income. Unrealized after tax net losses of
$3,000 were recorded in other comprehensive loss during the nine months
ended December 31, 2002. The fair value of interest rate swap agreements is
included in other current liabilities and totaled $265,000 as of December
31, 2002.
(3) TREASURY STOCK TRANSACTIONS:
----------------------------
On June 24, 2002, the Company purchased an aggregate of 1,100,000 shares of
its common stock from its Chairman, members of his family and a trust for
members of his family. The terms of the purchase were negotiated on behalf
of the Company by a Special Committee of the Board of Directors consisting
of three independent directors. The Special Committee retained an
independent investment bank which rendered a fairness opinion. The Special
Committee unanimously recommended that the Company's Board of Directors
authorize the purchase, and the Board of Directors, other than its Chairman
who was not present at the meeting, unanimously authorized the purchase.
The total amount of this transaction was approximately $36,510,000.
On February 19, 1998, the Company's Board of Directors 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
3,100,000 shares, for a total of 4,100,000 shares, on terms acceptable to
management. As of December 31, 2002, the Company had repurchased 3,899,000
shares for $107,056,000 under this program.
(4) AMENDMENT TO REVOLVING CREDIT FACILITY:
---------------------------------------
Effective June 21, 2002, the Company amended its unsecured revolving credit
facility to increase the facility from $75,000,000 to $100,000,000. In
connection with the increase and in order to enable the Company to
effectuate the repurchase of common stock from certain of its shareholders,
Page 8 of 23
the minimum consolidated net worth financial covenant was also amended to
adjust for the aggregate amount paid by the Company for the stock
repurchase. Effective September 3, 2002, the Company again amended its
unsecured revolving credit facility increasing the facility from
$100,000,000 to $150,000,000 in order to provide the Company with an
adequate source of financing for an anticipated acquisition. In connection
with the increase and a change in accounting principle (see footnote 7),
certain financial covenants were amended. Effective December 13, 2002, in
connection with the Company's issuance of $50,000,000 of 4.48% Senior Notes
(see footnote 5), the unsecured revolving credit facility was reduced to
$100,000,000. The Company is in compliance with all covenants as of
December 31, 2002.
(5) ISSUANCE OF 4.48% SENIOR NOTES:
-------------------------------
On December 13, 2002, the Company issued $50,000,000 of 4.48% Senior Notes
due December 13, 2009 (the "Senior Notes"). The Senior Notes are to be paid
ratably over five years, beginning at the end of the third year of the
seven year term of the agreement. The net proceeds received by the Company
from the sale of the Senior Notes were approximately $49,706,000 after
deduction of costs associated with the transaction. The net proceeds from
the Senior Notes were used to repay short-term borrowings under the
Company's unsecured revolving credit facility. The note purchase agreement
contains covenants, the most restrictive of which pertain to net worth; the
ratio of operating cash flow to fixed charges and the ratio of debt to
capitalization. The Company is in compliance with all covenants.
(6) BUSINESS ACQUISITIONS AND DIVESTITURES:
---------------------------------------
Crystal Creative Products, Inc.
On October 18, 2002, a subsidiary of the Company acquired all of the
capital stock of Crystal Creative Products, Inc. ("Crystal") for
approximately $22,891,000, including transaction costs, and assumed and
repaid $18,828,000 of outstanding debt (primarily seasonal working capital
debt). Crystal, headquartered in Middletown, Ohio, is a leading designer,
manufacturer and distributor of consumer convenience gift wrap products.
Its product lines include gift tissue, gift bags, and related packaging
products for the consumer market, as well as specialty tissues used by
retailers for in-store packaging. A portion of the purchase price is being
held in escrow for certain post closing adjustments and indemnification
obligations. The acquisition was accounted for as a purchase and the excess
of cost over the fair market value of the net assets acquired of $5,295,000
was recorded as goodwill and other intangible assets in the accompanying
consolidated balance sheet. Of the $5,295,000 of acquired intangible
assets, $4,500,000 was assigned to trade names that are not subject to
amortization, $495,000 was assigned to goodwill and $300,000 was assigned
to a covenant not to compete which has a useful life of five years.
The Company is in the process of developing a restructuring plan, related
to the Crystal acquisition, under which the Company will restructure its
business to integrate the acquired entity with its current businesses. In
connection with this plan, the Company may dispose of certain product lines
assets of Crystal. The Company will record a restructuring reserve as part
of purchase accounting, in connection with this plan.
The unaudited consolidated results of operations of the Company and Crystal
on a pro forma basis, as though the transaction had been consummated at the
beginning of the respective periods, were as follows:
Page 9 of 23
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- -----------------------
2002 2001 2002 2001
---- ---- ---- ----
Net sales................................ $256,099 $271,596 $512,322 $466,482
Income before cumulative effect of
change in accounting principle........ 25,959 25,821 31,089 29,761
Net income............................... 25,959 25,821 22,276 29,761
Income per common share before
accounting change:
Basic................................. $3.40 $2.91 $3.93 $3.36
Diluted............................... $3.22 $2.84 $3.74 $3.30
Income per common share..................
Basic................................. $3.40 $2.91 $2.82 $3.36
Diluted............................... $3.22 $2.84 $2.68 $3.30
Pro forma adjustments included in the above reflect the effect of purchase
accounting adjustments on interest, depreciation and tax expense.
C.M. Offray & Son, Inc.
On March 15, 2002, a subsidiary of the Company completed the acquisition of
substantially all of the business and assets of the portion of C. M. Offray
& Son, Inc. ("Offray") which manufactures and sells decorative ribbon
products, floral accessories and narrow fabrics for apparel, craft and
packaging applications. In consideration, the Company paid approximately
$44,865,000 in cash, including transactions costs. A portion of the
purchase price is being held in escrow to cover indemnification
obligations. The acquisition was accounted for as a purchase and the cost
approximated the fair market value of the net assets acquired.
In conjunction with the acquisition of Offray, the Company's management
approved a restructuring plan. As part of this plan, the Company accrued
$4,541,000 on the day of acquisition for severance and costs related to the
closure of certain facilities. As of December 31, 2002, the Company had
closed Offray's distribution facility in Quebec, Canada and its warehouse
in Antietam, Maryland. As of December 31, 2002, the Company had terminated
57 of approximately 125 employees included in the restructuring plan.
Payments, mainly for severance costs, of approximately $125,000 and
$1,085,000 were made in the third quarter and in the nine months ended
December 31, 2002, respectively. In addition, during the quarter ended June
30, 2002, there were noncash reductions in the restructuring accrual of
approximately $1,935,000. Such reductions were for costs related to the
closure of certain facilities that were projected to be less than
originally estimated as well as severance and certain other costs that will
be expensed as incurred. There was a corresponding reduction in property,
plant and equipment for this amount. As of December 31, 2002, the remaining
liability of approximately $1,521,000 was classified as a current liability
in the accompanying consolidated balance sheet.
Page 10 of 23
Selected information relating to the restructuring costs follows (in
thousands):
Contractual
Obligations and
Severance Facility Exit Costs Total
--------- ------------------- -----
Initial accrual as of March 31, 2002 $2,465 $2,076 $4,541
Cash paid - 2003 (959) (126) (1,085)
Noncash reductions - 2003 (635) (1,300) (1,935)
------ ------ ------
Restructuring reserve as of December 31, 2002 $ 871 $ 650 $1,521
====== ====== ======
Tye-Sil Corporation Ltd.
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
approximately $7,849,000 in cash, including transaction costs. The
acquisition was accounted for as a purchase and the cost approximated the
fair market value of the net assets acquired. Subsequent to the
acquisition, the operations of Tye-Sil were consolidated into existing
operations of the Company.
(7) IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
------------------------------------------
Adoption of SFAS No. 142
Effective July 1, 2001 and April 1, 2002, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations,"
and SFAS No. 142, "Goodwill and Other Intangible Assets", respectively. The
guidance in SFAS No. 141 supercedes APB Opinion No. 16. "Business
Combinations." Upon adoption of SFAS No. 142, amortization of existing
goodwill ceased. Goodwill is now subject to fair-value based impairment
tests performed, at a minimum, on an annual basis. In addition, a
transitional goodwill impairment test was required as of the adoption date.
These impairment tests are conducted on each business of the Company where
goodwill is recorded, and may require two steps. The initial step is
designed to identify potential goodwill impairment by comparing an estimate
of fair value for each applicable business to its respective carrying
value. For those businesses where the carrying value exceeds fair value, a
second step is performed to measure the amount of goodwill impairment, if
any.
The Company had approximately $39,715,000 in positive goodwill and
$2,393,000 in negative goodwill recorded on its consolidated balance sheet
at the beginning of fiscal year 2003. The negative goodwill related
entirely to the acquisition of Cleo Inc ("Cleo"). Cleo was purchased on
November 15, 1995 at a discount to fair value and after all long-term
assets were reduced to $0 in purchase accounting, the remaining discount
was recorded as negative goodwill and amortized over ten years. The
$2,393,000 in negative goodwill within the Cleo reporting unit was required
to be reversed upon adoption of SFAS No. 142. The Company completed the
required transitional goodwill impairment test in the first quarter of
2003, and determined that $14,049,000 of goodwill recorded within the
Company's Paper Magic Group, Inc.- Fall, Spring and Everyday reporting unit
was impaired under the fair value impairment test approach required by SFAS
No. 142.
The fair value of the reporting units was estimated using the expected
present value of associated future cash flows and market values of
comparable businesses where available. Upon adoption of SFAS No. 142, an
$8,813,000 charge, net of tax, was recognized in the first quarter of 2003
to record this impairment as well as the removal of negative goodwill and
was classified as a cumulative effect of a change in accounting principle.
Page 11 of 23
Goodwill amortization expense for the three months and nine months ended
December 31, 2001 was $294,000 and $930,000, respectively. The effects on
income and income per common share of excluding such goodwill amortization
from the three months and nine months ended December 31, 2001 follow (in
thousands, except per share data):
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Income before accounting change as reported............... $25,666 $23,059 $32,338 $27,341
Add back:
Goodwill amortization, net of income taxes............. - 263 - 837
------- ------- ------- -------
Pro forma income before accounting change................. $25,666 $23,322 $32,338 $28,178
======= ======= ======= =======
Net income as reported.................................... $25,666 $23,059 $23,525 $27,341
Add back:
Goodwill amortization, net of income taxes............. - 263 - 837
------- ------- ------- -------
Pro forma net income ..................................... $25,666 $23,322 $23,525 $28,178
======= ======= ======= =======
Pro forma income per common share before accounting change:
Basic ............................................... $3.36 $2.63 $4.09 $3.18
===== ===== ===== =====
Diluted ............................................... $3.19 $2.57 $3.89 $3.13
===== ===== ===== =====
Pro forma net income per common share:
Basic ............................................... $3.36 $2.63 $2.98 $3.18
===== ===== ===== =====
Diluted ............................................... $3.19 $2.57 $2.83 $3.13
===== ===== ===== =====
The changes in the carrying amount of goodwill for the nine months ended
December 31, 2002 are as follows (in thousands):
Balance as of March 31, 2002 $37,322
Cumulative effect of adopting SFAS No. 142:
Impairment loss recognized (14,049)
Elimination of negative goodwill 2,393
-------
(11,656)
Acquisition of Crystal 495
-------
Balance as of December 31, 2002 $26,161
=======
In addition to goodwill, the Company has $4,500,000 of other intangible
assets relating to trade names that are not subject to amortization and
$552,000 of other intangible assets, net of amortization, relating
primarily to a covenant not to compete, that are being amortized over
periods of three to five years.
Adoption of SFAS No. 144
In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." 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 measures any impairment
loss as the difference between the carrying amount and the fair value of
the asset. SFAS No. 144 was adopted by the Company at the beginning of
fiscal year 2003 with no impact to the Company's financial position or
results of operations.
Page 12 of 23
Adoption of Interpretation No. 45
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." Interpretation No. 45 requires a
guarantor to include disclosure of certain obligations, and if applicable,
at the inception of the guarantee, recognize a liability for the fair value
of other certain obligations undertaken in issuing a guarantee. The
recognition requirement is effective for guarantees issued or modified
after December 31, 2002 and based on current operations, the Company does
not expect the adoption of the recognition requirements of this statement
to have a material effect on its financial position or results of
operations. The disclosure requirements are effective for financial
statements of interim and annual periods ending after December 31, 2002.
(8) EFFECT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED
--------------------------------------------------
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 or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement, among other things, rescinds SFAS No. 4,
"Reporting Gains and Losses from Extinguishment of Debt," and SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." The
Statement requires gains and losses from debt extinguishments that are used
as part of the Company's risk management strategy to be classified as part
of income from operations rather than as extraordinary items, net of tax.
SFAS No. 145 is effective for fiscal years beginning after May 15, 2002
with earlier adoption encouraged. Based on current operations, the Company
does not expect the adoption of SFAS No. 145 to have a material effect on
its financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires that a liability for costs
associated with an exit or disposal activity be recognized when the
liability is incurred rather than when a company commits to such an
activity and also establishes fair value as the objective for initial
measurement of the liability. The Company will adopt SFAS No. 146 for exit
or disposal activities that are initiated after December 31, 2002. Based on
current operations, the Company does not expect the adoption of this
statement to have a material effect on its financial position or results of
operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which amends SFAS No. 123,
"Accounting for Stock-Based Compensation". SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation and is
effective for fiscal years ending after December 31, 2002. In addition,
SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in annual and interim financial statements about the
method of accounting for stock-based compensation and the effect in
measuring compensation expense. The disclosure requirements of SFAS No. 148
are effective for interim periods beginning after December 15, 2002.
Page 13 of 23
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation No. 46 clarifies the
application of Accounting Research Bulletin No. 51 and applies immediately
to any variable interest entities created after January 31, 2003 and to
variable interest entities in which an interest is obtained after that
date. This Interpretation is applicable for the Company in the second
quarter of fiscal year 2004, which ends September 30, 2003, for interests
acquired in variable interest entities prior to February 1, 2003. Based on
current operations, the Company does not expect the adoption of
Interpretation No. 46 to have a material effect on its financial position
or results of operations.
Page 14 of 23
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
---------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States. The preparation
of these financial statements 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.
The significant accounting policies of the Company are described in the
notes to the consolidated financial statements included in the Annual Report on
Form 10-K/A. Judgments and estimates of uncertainties are required in applying
the Company's accounting policies in many areas. Following are some of the areas
requiring significant judgments and estimates: useful lives of plant and
equipment; cash flow and valuation assumptions in performing asset impairment
tests of long-lived assets and goodwill; valuation of inventory and accounts
receivable reserves; income tax valuation; and estimated costs to be incurred
for settlement of litigation.
RESULTS OF OPERATIONS
- ---------------------
Seasonality
- -----------
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 fiscal year, thereby
causing significant fluctuations in the quarterly results of operations of the
Company.
Stock Repurchases
- -----------------
On June 24, 2002, the Company purchased an aggregate of 1,100,000 shares of
its common stock from its Chairman, members of his family and a trust for
members of his family. The terms of the purchase were negotiated on behalf of
the Company by a Special Committee of the Board of Directors consisting of three
independent directors. The Special Committee retained an independent investment
bank which rendered a fairness opinion. The Special Committee unanimously
recommended that the Company's Board of Directors authorize the purchase, and
the Board of Directors, other than its Chairman who was not present at the
meeting, unanimously authorized the purchase. The total amount of this
transaction was approximately $36,510,000.
On February 19, 1998, the Company's Board of Directors 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 3,100,000 shares,
for a total of 4,100,000 shares, on terms acceptable to management. As of
December 31, 2002, the Company had repurchased 3,899,000 shares for $107,056,000
under this program.
Page 15 of 23
Nine Months Ended December 31, 2002 Compared to Nine Months Ended
December 31, 2001
- -----------------------------------------------------------------
Sales for the nine months ended December 31, 2002 increased 19% to
$476,691,000 from $399,144,000 in 2001. The increase in sales was primarily a
result of the inclusion of Offray, acquired on March 15, 2002 and Crystal,
acquired on October 18, 2002. Excluding Offray and Crystal, sales decreased
$10,085,000, or 3%, due primarily to lower sales of Halloween, Easter and
educational products and customer requested deferrals of Valentine shipments to
January 2003, partially offset by higher sales of Christmas products.
Cost of sales, as a percentage of sales, was 73% in 2002 and 2001.
Excluding Offray and Crystal, cost of sales, as a percentage of sales, decreased
to 72% compared to the prior year, as a result of favorable margins on Christmas
products due to increased manufacturing and distribution efficiencies.
Selling, general and administrative ("SG&A") expenses, as a percentage of
sales, were 16% in 2002 and 2001. Excluding Offray and Crystal, SG&A expenses
decreased to 15%. The decrease was primarily due to the provision of
approximately $4,916,000 as of December 31, 2001 related to Kmart's subsequent
Chapter 11 bankruptcy filing. In the fourth quarter of fiscal 2002, an
additional decline in value of $5,436,000 was offset by the impact of a Claims
Put Agreement entered into in January 2002. The Claims Put Agreement with a
financial institution allowed for the assignment of a portion of the Company's
interest in Kmart's accounts receivable balance in the event Kmart filed for
bankruptcy. Also contributing to the decrease were lower consulting costs
related to the enterprise resource planning system implemented in the prior
year.
Interest expense, net was $2,903,000 in 2002 and $1,931,000 in 2001.
Average borrowings for the nine months ended December 31, 2002 were $88,869,000
compared with $42,907,000 for the same nine months in the prior year. The
increase in interest expense was primarily due to increased borrowings related
to the purchase of Offray on March 15, 2002, the purchase of Crystal on October
18, 2002 and stock repurchases in the current year, net of cash generated from
operations.
Income taxes as a percentage of income before taxes were 36% in 2002 and
2001.
Net income before cumulative effect of change in accounting principle
increased 18% to $32,338,000 or $3.89 per diluted share, compared to prior year
net income of $27,341,000, or $3.03 per diluted share. The increase in net
income before the cumulative effect of the accounting change, versus the prior
year, was primarily due to higher sales and margins on Christmas products, the
absence of the net write-off related to the Kmart Chapter 11 filing as discussed
above, lower professional fees related to the enterprise resource planning
system implemented in the prior year, the absence of goodwill amortization in
the current year in accordance with SFAS No. 142, and the current year pre-tax
contribution of $2,500,000 related to the Offray and Crystal acquisitions. These
improvements were partially offset by the impact of lower sales and margins on
Halloween, Easter and educational products and increased interest expense. The
Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets", effective
April 1, 2002, which resulted in a non-cash write-off of goodwill and negative
goodwill in the amount of $8,813,000, net of taxes, or $1.06 per diluted share.
Quarter Ended December 31, 2002 Compared to Quarter Ended December 31, 2001
- ---------------------------------------------------------------------------
Sales for the quarter ended December 31, 2002 increased 6% to $250,682,000
from $235,944,000. The increase in sales was primarily due to the inclusion of
Offray, acquired on March 15, 2002 and Crystal, acquired on October 18, 2002.
Excluding Offray and Crystal, sales decreased $25,990,000, or 11%, primarily due
to the earlier shift of Christmas shipments into the second quarter from the
third quarter. Also contributing to the sales decline were customer requested
shipment deferrals of Valentine products to January 2003 and lower sales of
Easter products and educational products.
Page 16 of 23
Cost of sales, as a percentage of sales, was 72% for the quarter ended
December 31, 2002 and 2001. Excluding Offray and Crystal, cost of sales, as a
percentage of sales, decreased to 71% compared to the same quarter in the prior
year. The decrease in cost of sales was primarily a result of favorable margins
on Christmas products due to increased production efficiencies.
Selling, general and administrative expenses, as a percentage of sales,
decreased to 11% in the third quarter of fiscal 2003, compared to 12% in the
prior year quarter. Excluding Offray and Crystal, SG&A spending declined to 10%,
as a percentage of sales. The reduction in SG&A was primarily due to the
provision of approximately $4,916,000 as of December 31, 2001 related to Kmart's
subsequent Chapter 11 bankruptcy filing. In the fourth quarter of fiscal 2002,
an additional decline in value of $5,436,000 was offset by the impact of a
Claims Put Agreement entered into in January 2002. The Claims Put Agreement with
a financial institution allowed for the assignment of a portion of the Company's
interest in Kmart's accounts receivable balance in the event Kmart filed for
bankruptcy.
Interest expense, net was $1,496,000 for the quarter ended December 31,
2002 compared to $1,180,000 for the same quarter of the prior year. Average
borrowings for the third quarter of fiscal 2003 were $165,604,000 compared with
$86,049,000 in the same quarter of fiscal 2002. The increase in interest expense
was due to increased borrowing levels related to the acquisitions of Offray and
Crystal, and stock repurchases, net of cash generated from operations.
Income taxes, as a percentage of income before taxes, were 36% in the third
quarter of fiscal 2003 and 2002.
Net income increased to $25,666,000 for the quarter ended December 31,
2002, or $3.19 per diluted share, compared to prior year net income of
$23,059,000, or $2.54 per diluted share. The increase in net income was
primarily due to favorable margins on Christmas products, the absence of the net
write-off related to the Kmart Chapter 11 filing as discussed above, the
contribution related to the Offray and Crystal acquisitions and the absence of
goodwill amortization in the current year in accordance with SFAS No. 142,
partially offset by lower sales and margins on Halloween, Easter and educational
products and higher interest expense.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 2002, the Company had working capital of $167,021,000 and
shareholders' equity of $225,575,000. The increase in accounts receivable from
March 31, 2002 reflected seasonal billings of Christmas accounts receivables,
net of current year collections. The decrease in inventories reflected normal
seasonal shipments during the fiscal 2003 shipping season. The decrease in other
current assets from March 31, 2002 is primarily attributable to the collection
of amounts due under a claims put agreement related to the Chapter 11 proceeding
of Kmart. The decrease in goodwill and other intangibles is due to the
impairment charge recognized upon adoption of SFAS No. 142 on April 1, 2002, net
of the reversal of negative goodwill. The increase in other current liabilities
is due to increased accruals of income taxes, sales commissions, royalties and
employee benefits. The decrease in shareholders' equity was primarily
attributable to the Company's repurchase of an aggregate of 1,100,000 shares of
its common stock for $36,510,000 on June 24, 2002, partially offset by the
Company's year to date net income.
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 the
holiday in accordance with general industry practice. As a result, short-term
borrowing needs increase through December and peak prior to Christmas. Seasonal
borrowings are made under an unsecured revolving credit facility with five
banks, which was increased from $75,000,000 to $100,000,000 effective June 21,
2002 and a receivable purchase agreement in an amount up to $100,000,000 with an
issuer of receivables-backed commercial paper. On December 13, 2002, the Company
Page 17 of 23
issued $50,000,000 of 4.48% Senior Notes due December 13, 2009. The net proceeds
received by the Company from the sale of the Senior Notes were approximately
$49,706,000 after deduction of costs associated with the sale. The net proceeds
from the Senior Notes were used to repay short-term borrowings under the
Company's unsecured revolving credit facility. These financial facilities are
available to fund the Company's seasonal borrowing needs and to provide the
Company with sources of capital for general corporate purposes, including
acquisitions as permitted under the unsecured revolving credit facility. As of
December 31, 2002, the Company had short-term borrowings of $75,900,000. 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.
Contractual Obligations
(in thousands)
Less than 1 1-3 4-5 After 5
Year Years Years Years Total
----------- ------- ------- -------- --------
Short term debt $75,900 $ - $ - $ - $ 75,900
Capital lease obligations 107 93 - - 200
Long-term debt - 10,000 20,000 20,000 50,000
------- ------- ------- ------- --------
$76,007 $10,093 $20,000 $20,000 $126,100
======= ======= ======= ======= ========
In addition, the Company has recorded $3,612,000 in long-term obligations
on its consolidated balance sheet as of December 31, 2002, which consists of
medical post-retirement liabilities and deferred compensation arrangements.
All of the Company's off-balance sheet financing is in the form of
operating leases which are disclosed in the notes to consolidated financial
statements included in the Annual Report on Form 10-K/A for the year ended March
31, 2002. The Company has no financial guarantees or other arrangements with any
third parties or related parties other than its subsidiaries. All significant
intercompany transactions are eliminated in the consolidated financial
statements.
NEW ACCOUNTING STANDARDS
- ------------------------
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for
Asset Retirement Obligations." In August 2001, the FASB issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." In April 2002,
the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections." In June 2002,
the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities." In November 2002, the FASB issued Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." In December 2002, the FASB
issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure". In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities." See the notes to the consolidated
financial statements for information concerning the Company's implementation and
impact of these new standards.
ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -----------------------------------------------------------------
The Company is exposed to the impact of interest rate changes and manages
this exposure through the use of variable-rate and fixed-rate debt and by
utilizing interest rate swaps. The Company does not enter into contracts for
trading purposes and does not use leveraged instruments. The market risks
associated with debt obligations and other significant instruments as of
December 31, 2002 has not materially changed from March 31, 2002 (See Item 7A of
the Annual Report on Form 10-K/A).
Page 18 of 23
ITEM 4. CONTROLS AND PROCEDURES
- --------------------------------
(a) Evaluation of Disclosure Controls and Procedures. Within 90 days prior to
the filing date of this report, with the participation of the Company's
management, the Company's President and Chief Executive Officer and Vice
President - Finance and Chief Financial Officer, evaluated the
effectiveness of the Company's disclosure controls and procedures in
accordance with Rule 13a-14 of the Securities Exchange Act of 1934 (the
"Exchange Act"). Based upon that evaluation, the President and Chief
Executive Officer and Vice President - Finance and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are
effective in providing reasonable assurance that information required to be
disclosed by the Company in reports that it files under the Exchange Act is
recorded, processed, summarized and reported within the time period
specified in the Commission's rules and procedures.
(b) Changes in Internal Controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluation.
Page 19 of 23
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 99.1 Certification of the Chief Executive Officer of CSS
Industries, Inc. Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.
Exhibit 99.2 Certification of the Chief Financial Officer of CSS
Industries, Inc. Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.
(b) The Company filed a report on Form 8-K on October 23, 2002 with
respect to the acquisition of Crystal Creative Products, Inc.
Page 20 of 23
SIGNATURES
----------
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, 2003 By: /s/David J. M. Erskine
-------------------------------
David J. M. Erskine
President and Chief
Executive Officer
Date: February 14, 2003 By: /s/Clifford E. Pietrafitta
-------------------------------
Clifford E. Pietrafitta
Vice President - Finance,
Chief Financial Officer and
Principal Accounting Officer
Page 21 of 23
CERTIFICATIONS
--------------
I, David J. M. Erskine, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CSS Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors:
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 14, 2003
/s/ David J. M. Erskine
David J. M. Erskine,
President and Chief Executive Officer
Page 22 of 23
CERTIFICATIONS
--------------
I, Clifford E. Pietrafitta, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CSS Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors:
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 14, 2003
/s/ Clifford E. Pietrafitta
Clifford E. Pietrafitta
Vice President - Finance, Chief Financial Officer and
Principal Accounting Officer
Page 23 of 23