SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
FORM 10-Q
For the Quarter Ended Commission file number 1-2661
September 30, 1998
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CSS INDUSTRIES, INC.
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(Exact name of registrant as specified in its Charter)
Delaware 13-1920657
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
1845 Walnut Street, Philadelphia, PA 19103
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(215) 569-9900
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
--------- --------
As of September 30, 1998, there were 10,749,520 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 September 30, 1998 and December 31, 1997, the results
of operations for the three months and nine months ended September 30, 1998 and
1997 and the cash flows for the nine months ended September 30, 1998 and 1997.
The results for the three months and nine months ended September 30, 1998 and
1997 are not necessarily indicative of the expected results for the full year.
As certain previously reported notes and footnote disclosures have been omitted,
these financial statements should be read in conjunction with the latest annual
report on Form 10-K, with the June 30, 1998 quarterly report on Form 10-Q and
with Part II of this document.
PAGE NO.
--------
Consolidated Statements of Operations - Three months and nine months
ended September 30, 1998 and 1997 3
Consolidated Condensed Balance Sheets - September 30, 1998 and
December 31, 1997 4
Consolidated Statements of Cash Flows - Nine months ended
September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form S-K 13
SIGNATURE 14
-2-
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except
per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
SALES $ 152,408 $ 124,069 $ 216,567 $ 186,341
--------- --------- --------- ---------
COSTS AND EXPENSES
Cost of sales 112,199 85,195 157,538 126,445
Selling, general and administrative expenses 22,007 18,476 53,748 49,585
Restructuring and other special items (12,487) -- (7,919) --
Interest expense, net 1,401 2,228 2,270 4,582
Rental and other income, net (196) (117) (1,420) (523)
--------- --------- --------- ---------
122,924 105,782 204,217 180,089
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 29,484 18,287 12,350 6,252
INCOME TAX EXPENSE 10,871 6,899 4,446 2,536
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 18,613 11,388 7,904 3,716
DISCONTINUED OPERATIONS
Income from discontinued operations, net of
income taxes of $446 and $2,339 -- 619 -- 3,559
Gain on sale of discontinued operations, net of
income taxes of $0 -- -- -- 350
--------- --------- --------- ---------
NET INCOME $ 18,613 $ 12,007 $ 7,904 $ 7,625
========= ========= ========= =========
NET INCOME PER COMMON SHARE
Basic
Continuing operations $ 1.73 $ 1.05 $ .73 $ .34
Discontinued operations -- .06 -- .33
Gain on sale of discontinued operations -- -- -- .03
--------- --------- --------- ---------
$ 1.73 $ 1.11 $ .73 $ .70
========= ========= ========= =========
Diluted
Continuing operations $ 1.69 $ .99 $ .71 $ .32
Discontinued operations -- .05 -- .31
Gain on sale of discontinued operations -- -- -- .03
--------- --------- --------- ---------
$ 1.69 $ 1.04 $ .71 $ .66
========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 10,752 10,861 10,883 10,875
========= ========= ========= =========
Diluted 11,006 11,497 11,192 11,576
========= ========= ========= =========
CASH DIVIDENDS PER SHARE OF COMMON STOCK $ -- $ -- $ -- $ --
========= ========= ========= =========
-3-
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and temporary investments $ 191 $ 1,365
Accounts receivable, net 145,287 165,761
Inventories 151,832 66,270
Deferred income taxes 726 726
Other current assets 10,938 9,909
-------- --------
Total current assets 308,974 244,031
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 48,003 44,868
-------- --------
OTHER ASSETS
Intangible assets 33,796 38,648
Deferred income taxes -- 330
Other 14,020 14,485
-------- --------
Total other assets 47,816 53,463
-------- --------
Total assets $404,793 $342,362
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $114,733 $ 51,570
Other current liabilities 58,939 63,216
-------- --------
Total current liabilities 173,672 114,786
-------- --------
LONG-TERM OBLIGATIONS 8,254 5,927
-------- --------
DEFERRED INCOME TAXES 2,261 --
-------- --------
SHAREHOLDERS' EQUITY 220,606 221,649
-------- --------
Total liabilities and shareholders' equity $404,793 $342,362
======== ========
See notes to consolidated financial statements.
-4-
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
September 30,
---------------------------
1998 1997
-------- ---------
Cash flows from operating activities:
Net income $ 7,904 $ 7,625
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Discontinued operations -- 2,805
Depreciation and amortization 7,077 5,423
Write down of goodwill 3,530 --
(Gain) loss on sale or disposal of assets (14,805) 54
Gain on sale of discontinued operations -- (350)
Provision for doubtful accounts 1,036 953
Deferred income tax provision 2,591 --
Changes in assets and liabilities, net of effects from purchase and
disposal of businesses:
Decrease in accounts receivable 19,439 41,320
(Increase) in inventory (85,562) (72,250)
(Increase) in other assets (811) (2,337)
Increase (decrease) in other current liabilities 12,568 (9,378)
(Decrease) in accrued income taxes (17,287) (2,003)
-------- --------
Total adjustments (72,224) (35,763)
-------- --------
Net cash used for operating activities (64,320) (28,138)
-------- --------
Cash flows from investing activities:
Purchase of businesses, net of cash received of $976 in 1997 -- (17,564)
Purchase of property, plant and equipment (11,250) (10,948)
Proceeds from sale of business -- 4,083
Proceeds on sale of property, plant and equipment 21,604 2,391
-------- --------
Net cash provided by (used for) investing activities 10,354 (22,038)
-------- --------
Cash flows from financing activities:
Payments on long-term obligations (1,424) (2,074)
Net borrowings on notes payable 63,163 49,765
Purchase of treasury stock (11,278) (644)
Proceeds from exercise of stock options 2,331 2,058
-------- --------
Net cash provided by financing activities 52,792 49,105
-------- --------
Net decrease in cash and temporary investments (1,174) (1,071)
Cash and temporary investments at beginning of period 1,365 2,690
-------- --------
Cash and temporary investments at end of period $ 191 $ 1,619
======== ========
See notes to consolidated financial statements.
-5-
CSS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation -
The consolidated financial statements include the accounts of the Company
and all subsidiaries. All significant intercompany transactions and
accounts have been eliminated in consolidation and all adjustments are
of a normal recurring nature.
Restatement of Prior Period Financial Statements -
On December 23, 1997, the Company sold its Direct Mail Business Products
Group, composed of Rapidforms, Inc. and its subsidiaries
("Rapidforms"). The gain on the sale and the operating results of
Rapidforms prior to the sale have been accounted for as discontinued
operations and, accordingly, have been segregated on the prior period
financial statements and footnotes.
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, calendars, classroom
exchange Valentines, decorative ribbons and bows, Halloween masks,
costumes, make-ups and novelties and Easter egg dyes and novelties. Due
to the seasonality of the Company's business, the majority of sales
occur in the third and fourth quarters and a material portion of the
Company's trade receivables are due in December and January of each
year.
As a result of the sale of Rapidforms on December 23, 1997, CSS no longer
operates in the Direct Mail Business Products industry.
Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Inventories -
Inventories are generally stated at the lower of first-in, first-out
(FIFO) cost or market. The remaining portion of the inventory is valued
at the lower of last-in, first-out (LIFO) cost or market. Inventories
consisted of the following:
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September 30, December 31,
1998 1997
------------- -----------
Raw material................... $ 40,465,000 $23,840,000
Work-in-process................ 16,863,000 9,789,000
Finished goods................. 94,504,000 32,641,000
------------- ------------
$151,832,000 $66,270,000
============= ============
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 -
Basic net income per common share was computed based on the weighted
average number of shares outstanding during the third quarter and nine
months ended September 30, 1998 and 1997 - 10,751,697 and 10,882,510 in
1998 and 10,860,724 and 10,875,072 in 1997. Average outstanding shares
used in the computation of diluted net income per share include the
impact of dilutive stock options and were 11,006,040 and 11,192,145 in
1998 and 11,497,346 and 11,576,447 in 1997.
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.
See Note 2 for supplemental disclosure of noncash investing activities.
(2) BUSINESS ACQUISITIONS AND DIVESTITURES:
On December 23, 1997, the Company sold Rapidforms and its subsidiaries
for approximately $84,635,000, resulting in a net gain of $17,521,000 and net
cash proceeds of approximately $60,000,000 after income taxes and the buy out of
the minority interest. Rapidforms designs and sells business forms, business
supplies, in-house retail merchandising products, holiday greeting cards and
advertising specialties to small and medium size businesses primarily through
the direct mailing of catalogs and brochures. On January 8, 1997, Rapidforms
sold its Standard Forms, Ltd. subsidiary for $4,083,000, resulting in a gain of
$350,000. Sales from these discontinued operations were $18,972,000 and
$57,266,000 for the quarter and nine months ended September 30, 1997.
On January 17, 1997, the Company acquired all of the outstanding stock
of Color-Clings, Inc. ("Color-Clings") for $7,875,000 and repaid $10,665,000 of
debt. Color-Clings is a designer and marketer of seasonal and everyday vinyl
home decorations sold primarily to mass market retailers in the United States
and Canada. The acquisition was accounted for as a purchase and the excess of
cost over fair market value of $15,698,000 was recorded as goodwill and is being
amortized over twenty years. Subsequent to the acquisition, the operations of
Color-Clings were merged into existing operations of the Company and the Company
discontinued certain of its product lines. As a result, $3,530,000 of goodwill
associated with these lines has been written off in the third quarter of 1998
and was reported in restructuring and other special items on the statement of
operations.
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(3) RESTRUCTURING AND OTHER SPECIAL ITEMS
On July 7, 1998, a subsidiary of the Company sold a distribution facility for
$21,500,000 resulting in a gain of $16,596,000. Pursuant to the sale agreement,
the Company has entered into a five year agreement to lease back a portion of
the facility from the purchaser. The present value of the future lease payments
of $4,192,000 was recorded as deferred revenue on the balance sheet and will
offset rental expense over the term of the lease. Earlier in the year, the
Company also sold a former administrative building for a gain of $270,000.
Partially offsetting these gains were restructuring and special, non-recurring
charges, including (1) severance and other charges totaling $2,062,000 related
to the integration of certain functional responsibilities within the Company,
(2) $3,030,000 of charges associated with the write-off of capitalized systems
development costs and contract programming costs incurred in 1998 to correct
deficiencies within a management information system implemented in 1997, and (3)
costs totaling $5,708,000 related to the discontinuance of certain ancillary,
unprofitable product lines, including the write-off of goodwill and product
development costs of $3,855,000 and the establishment of reserves necessary to
liquidate the related inventory of $1,853,000.
(4) TREASURY STOCK TRANSACTIONS:
On February 19, 1998, the Company announced that its Board of Directors
had authorized the buyback of up to 1,000,000 shares of the Company's Common
Stock. As of September 30, 1998, the Company had repurchased 342,000 shares for
$11,278,000. From October 1, 1998 to November 13, 1998, the Company purchased an
additional 628,000 shares for $17,036,000. On November 6, 1998, the Executive
Committee of the Board of Directors authorized an additional repurchase of up to
500,000 shares on terms acceptable to management. Any such buy back is subject
to compliance with regulatory requirements and relevant covenants of the
Company's $300,000,000 unsecured revolving credit facility.
(5) FUTURE ACCOUNTING CHANGES:
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The SOP requires companies to
capitalize or expense costs incurred according to guidance provided in the
Statement. The Company will apply this Statement beginning with fiscal year
1999. Adoption of the statement is not expected to have a material impact on the
financial statements.
-8-
CSS INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Seasonality
The seasonal nature of CSS' business results in low sales and operating
losses for the first two quarters and high shipment levels and operating profits
for the second half of the year, thereby causing significant fluctuations in the
quarterly results of operations of the Company.
Restructuring and Other Special Items
The Company has implemented a restructuring program consisting of the sale
of underutilized real estate, the integration of certain functions, the
discontinuance of underperforming product lines and the reduction of overhead
costs. As a result of the restructuring, a 1,135,000 square foot warehouse of
which two-thirds had been previously leased to a third party was sold subject to
a leaseback of the space required for the Company's gift wrap operation. The
transaction resulted in a gain of $16,596,000. Earlier in the year, the Company
also sold a former administrative building for a gain of $270,000. Partially
offsetting these gains were restructuring and special, non-recurring charges,
including (1) severance and other charges totaling $2,062,000 related to the
integration of certain functional responsibilities within the Company, (2)
$3,030,000 of charges associated with the write-off of capitalized systems
development costs and contract programming costs incurred in 1998 to correct
deficiencies within a management information system implemented in 1997, and (3)
costs totaling $5,708,000 related to the discontinuance of certain ancillary,
unprofitable product lines, including the write-off of goodwill and product
development costs of $3,855,000 and the establishment of reserves necessary to
liquidate the related inventory of $1,853,000.
A summary of the components of restructuring and other special items and
where they have been reported in the Consolidated Statement of Operations for
the quarter and nine months ended September 30, 1998 is provided below:
(000's)
Quarter Ended Nine Months
September 30, 1998 Ended September 30, 1998
---------------------------- ---------------------------
Effect on Effect on
Pre-tax Diluted Pre-tax Diluted
Income Earnings Income Earnings
(Expense) Per Share (Expense) Per Share
---------- ----------- --------- ----------
Cost of sales:
Inventory disposition costs of
discontinued product lines $ (1,853) $ (.11) $ (1,853) $ (.11)
-------- ------- -------- -------
Restructuring and other special items:
Gain on sale of real estate 16,596 .95 16,866 .97
Costs to discontinue product lines,
including goodwill write-off (3,855) (.22) (3,855) (.22)
Blending of operations and
management functions (72) -- (2,062) (.12)
Write-off of systems development costs (182) (.01) (3,030) (.17)
-------- ------- -------- -------
12,487 .72 7,919 .46
-------- ------- -------- -------
Total $ 10,634 $ .61 $ 6,066 $ .35
======== ======= ======== =======
-9-
Stock Repurchase Program
On February 19, 1998, the Company announced that its Board of Directors had
authorized the buyback of up to 1,000,000 shares of the Company's Common Stock.
As of September 30, 1998, the Company had repurchased 342,000 shares for
$11,278,000. From October 1, 1998 to November 13, 1998, the Company purchased an
additional 628,000 shares for $17,036,000. On November 6, 1998, the Executive
Committee of the Board of Directors authorized an additional repurchase of up to
500,000 shares on terms acceptable to management. Any such buy back is subject
to compliance with regulatory requirements and relevant covenants of the
Company's $300,000,000 unsecured revolving credit facility.
First Nine Months of 1998 Compared to First Nine Months of 1997
Consolidated sales for the nine months ended September 30, 1998 were
$216,567,000 or 16% above 1997 sales of $186,341,000. The increase in sales was
primarily due to higher shipments of Christmas gift wrap, increased sales of
Halloween and Easter products and increased sales of Christmas ribbons and bows.
These increases were partially offset by lower shipments of non-seasonal
decorations.
Cost of sales, as a percentage of sales was 73% in 1998 and 68% in 1997.
Included in cost of sales in the current year is a charge of $1,853,000 to
dispose of inventory related to certain peripheral product lines which the
Company has discontinued. Net of this charge, cost of sales as a percentage of
sales increased to 72% as (1) competitive conditions did not allow for the
complete recovery of increased material and labor costs and (2) the Company
experienced a greater mix of Christmas gift wrap sales in 1998, which carry
lower gross margins compared to other Christmas products. Selling, general and
administrative ("SG&A") expenses, as a percentage of sales, decreased to 25%
from 27% in 1997. The decrease in SG&A expenses as a percentage of sales was due
to the increased sales base and reduced salaries due to the integration of
certain management functions.
Restructuring and other special items resulted in income of $7,919,000 and
included the gain of $16,596,000 related to the sale and partial leaseback of a
distribution center. This gain was partially offset by the write-off of goodwill
and product development expenses related to ancillary product lines which the
Company has discontinued, severance and other costs related to the blending of
management functions within the Company and the write-off of certain systems
development costs.
Interest expense, net decreased to $2,270,000 from $4,582,000 as the cash
received from the sale of Rapidforms resulted in lower borrowing needs.
Excluding the impact of the Rapidforms sale, borrowing requirements increased
due to the repurchase of the Company's stock and working capital required to
fund sales volume increases in 1998. Rental and other income increased to
$1,420,000 from $523,000 in 1997 due primarily to income earned on the rental of
a portion of a distribution center prior to its sale in July 1998.
Income taxes as a percentage of income before taxes were 36% in 1998 and
41% in 1997. The full year effective tax rate from continuing operations in 1997
was 38%. The decrease in the effective tax rate from 38% to 36% is primarily
attributable to the utilization of previously reserved state net operating loss
carryforward tax credits.
Net income from continuing operations for the nine months ended September
30, 1998 was $7,904,000, or $.71 per share, compared to net income from
continuing operations of $3,716,000, or $.32 per share in 1997. The increased
income is attributable to the effects of increased sales and non-recurring items
as discussed above.
Third Quarter 1998 Compared to Third Quarter 1997
Consolidated sales for the third quarter of 1998 increased 23% to
$152,408,000 in 1998 from $124,069,000 in 1997. The increase in sales was due to
increased shipments of Christmas gift wrap, Halloween products and Christmas
ribbons and bows. These increases were partially offset by lower sales of
non-seasonal decorations.
-10-
Cost of sales, as percentage of sales, was 74% in 1998 compared to 69% in
1997. Included in cost of sales in the third quarter was a non-recurring charge
of $1,853,000 for the costs required to dispose of inventory related to certain
product lines which were discontinued. Excluding non-recurring items, cost of
sales increased to 72% as (1) competitive conditions did not permit the complete
recovery of increased material and labor costs and (2) the Company experienced a
greater mix of Christmas gift wrap sales in 1998, which carry lower gross
margins compared to other Christmas products. SG&A expenses as a percentage of
sales decreased to 14% in 1998 from 15% in 1997. The decrease was due to the
higher sales base in 1998 and lower salaries resulting from the blending of
certain management functions within the Company.
Restructuring and other special items included the gain on the sale of a
distribution facility in the amount of $16,596,000, the write-off of goodwill
and product development costs related to discontinued ancillary product lines
and the write-off of certain systems development costs.
Interest expense, net decreased to $1,401,000 from $2,228,000 in 1997 as
the cash received from the sale of Rapidforms resulted in lower borrowing needs.
Excluding the impact of the Rapidforms sale, cash requirements increased due to
the repurchase of the Company's stock and the cash required to fund sales volume
increases in 1998. Rental and other income, net increased to $196,000 from
$117,000 in 1997.
Income taxes, as a percentage of income before taxes, decreased to 37% in
1998 from 38% in 1997, primarily as a result of utilization of previously
reserved state tax credits.
For the third quarter, the Company recorded net income from continuing
operations of $18,613,000, or $1.69 per share, compared to net income from
continuing operations of $11,388,000, or $.99 per share in 1997. The increased
was due to the effects of increased sales and non-recurring items as discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had working capital of $135,302,000 and
shareholders' equity of $220,606,000. The decrease in accounts receivable and
the increase in inventories from December 31, 1997 reflected seasonal
collections of 1997 Christmas accounts receivables net of current year billings
and normal seasonal inventory increases necessary for the 1998 shipping season.
The increase in other current assets related to product development costs which
will be expensed as shipments are made. The decrease in other accrued
liabilities reflected payment of 1997 income taxes in the first quarter. The
decrease in shareholders' equity is primarily attributable to the repurchase of
342,000 shares of the Company's common stock for $11,278,000 offset, in part, by
1998 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 half of the year.
Payment for Christmas related products is usually not received until after the
holiday in accordance with general industry practice. As a result, short-term
borrowing needs decrease in the first quarter and increase through the remainder
of the year, peaking prior to Christmas. Seasonal borrowings are made under a
$300,000,000 unsecured revolving credit facility with thirteen banks and
financial institutions. The credit facility is available to fund the seasonal
borrowing needs and to provide the Company with a source of capital for general
corporate purposes. As of September 30, 1998, the Company had short-term
borrowings of $114,680,000 under this facility. Based on its current operating
plan, the Company believes its sources of available capital are adequate to meet
its ongoing cash needs for the foreseeable future.
-11-
YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations. These problems, in an extreme case, could render the
Company unable to process transactions and engage in the normal course of
business.
To guard against these events, the Company has initiated a comprehensive
Year 2000 review and remediation program ("The Year 2000 Program"). Executive
management and information system employees throughout the Company have focused
on Year 2000 readiness. Each of the Company's subsidiaries and CSS' corporate
headquarters have established teams to identify and correct Year 2000 issues.
Attention is being given to computer hardware and software, communications
equipment, manufacturing equipment and facilities to achieve compliance in all
these areas. The teams are also charged with investigating the Year 2000
capabilities of suppliers, customers and other external entities, and with
developing contingency plans where necessary. Significant vendors (including,
but not limited to, suppliers of materials and manufacturing equipment, freight
carriers, landlords, financial institutions and computer hardware and software
manufacturers) and customers are being contacted to assess their ability to meet
the Year 2000 challenges. These entities are being asked to represent to CSS
that they will be able to correctly process transactions with regard to the Year
2000.
A detailed accounting and assessment of all computer systems and
application software utilized throughout the Company's operations has been
completed, and plans for establishing compliance have been developed. These
plans identify which non-compliant hardware and software will be remediated,
upgraded or replaced and the timetable and resource requirements to achieve
those objectives. Remediation and testing activities have been completed or are
in the process of being completed at all of the Company's subsidiaries and at
corporate headquarters. The Company is utilizing employees and, where
appropriate, contract labor to reprogram and test software for Year 2000
modifications. CSS anticipates completing the Year 2000 project prior to any
anticipated impact on its operating systems. The cost of this effort is not
expected to exceed $250,000 and will be funded through operating cash flows and
expensed as incurred.
The costs of The Year 2000 Program and the time table on which the Company
believes it will complete the Year 2000 program are based on management's best
estimates, which were derived using assumptions of future events. However, there
can be no guarantee that these estimates will be achieved and actual results
could differ materially from those anticipated. Although the Company believes
the program outlined above should be adequate to address the Year 2000 issue,
there can be no assurances to that effect.
-12-
CSS INDUSTRIES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form S-K
(a) By-laws of the Company, as amended and restated to date (last
amended September 23, 1998)
-13-
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CSS INDUSTRIES, INC.
----------------------------
(Registrant)
Date: November 13, 1998 By: /s/ James G. Baxter
-----------------------------
James G. Baxter
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
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