SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
FORM 10-Q
For the Quarter Ended Commission file number 1-2661
September 30, 1995
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CSS INDUSTRIES, INC.
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(Exact name of registrant as specified in its Charter)
Delaware 13-1920657
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
1845 Walnut Street, Philadelphia, PA 19103
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(Address of principal executive offices) (Zip Code)
(215) 569-9900
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
----- -----
As of September 30, 1995, there were 10,655,773 shares of Common Stock
outstanding which excludes shares which may still be issued upon exercise of
stock options.
Page 1 of 10
<PAGE>
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, 1995 and December 31, 1994 and the
results of operations and cash flows for the three months and nine months ended
September 30, 1995 and 1994. The results for the three months and nine months
ended September 30, 1995 and 1994 are not necessarily indicative of the expected
results for the full year. As certain previously reported notes and footnote
disclosures have been omitted, these financial statements should be read in
conjunction with the latest annual report on Form 10-K and with the June 30,
1995 quarterly report on Form 10-Q.
PAGE NO.
--------
Consolidated Statements of Operations - Three months and
nine months ended September 30, 1995 and 1994 3
Consolidated Condensed Balance Sheets - September 30, 1995
and December 31, 1994 4
Consolidated Statements of Cash Flows - Nine months ended
September 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6-7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-9
PART II - OTHER INFORMATION
Items 1 through 5 - Not Applicable
Item 6 - Exhibit 5 9
SIGNATURE 10
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<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except
per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ---------------------
1995 1994 1995 1994
--------- ---------- -------- --------
<S> <C> <C> <C> <C>
SALES $100,736 $77,016 $186,303 $145,399
-------- ------- -------- --------
COSTS AND EXPENSES
Cost of sales 64,043 48,591 111,783 84,940
Selling, general and administrative expenses 22,581 17,047 57,069 45,897
Interest expense, net 877 304 1,429 503
Rental and other income, net (472) (99) (1,064) (698)
-------- ------- -------- --------
87,029 65,843 169,217 130,642
-------- ------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST 13,707 11,173 17,086 14,757
INCOME TAXES 5,481 4,562 6,855 6,021
-------- ------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST 8,226 6,611 10,231 8,736
MINORITY INTEREST IN INCOME OF
SUBSIDIARIES, NET 106 (115) 350 175
-------- ------- -------- --------
NET INCOME FROM CONTINUING OPERATIONS 8,120 6,726 9,881 8,561
DISCONTINUED OPERATIONS
Income from discontinued operations, net
of taxes of $95 -- -- -- 114
Gain on sale of subsidiary, net of taxes of $6,145 -- -- -- 9,661
-------- ------- -------- --------
NET INCOME $ 8,120 $ 6,726 $ 9,881 $ 18,336
======== ======= ======== ========
NET INCOME PER COMMON SHARE
Primary-
Continuing operations $ .75 $ .61 $ .91 $ .73
Discontinued operations -- -- -- .01
Gain on sale of subsidiary -- -- -- .83
-------- ------- -------- --------
$ .75 $ .61 $ .91 $ 1.57
======== ======= ======== ========
Fully diluted-
Continuing operations $ .74 $ .61 $ .89 $ .73
Discontinued operations -- -- -- .01
Gain on sale of subsidiary -- -- -- .83
-------- ------- -------- --------
$ .74 $ .61 $ .89 $ 1.57
======== ======= ======== ========
CASH DIVIDENDS PER SHARE OF
COMMON STOCK $ -- $ -- $ -- $ --
======== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and temporary investments $ 1,336 $ 8,774
Marketable securities 2,458 --
Accounts receivable, net 82,864 52,886
Inventories 63,164 35,862
Deferred taxes 6,170 6,170
Other current assets 5,958 5,729
-------- --------
Total current assets 161,950 109,421
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 41,633 38,905
-------- --------
OTHER ASSETS
Intangible assets 57,764 55,404
Other 1,476 1,351
-------- --------
Total other assets 59,240 56,755
-------- --------
Total assets $262,823 $205,081
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
TOTAL CURRENT LIABILITIES $ 95,412 $ 37,346
LONG-TERM OBLIGATIONS 8,141 14,398
MINORITY INTEREST 3,361 3,005
DEFERRED TAXES 7,352 7,352
SHAREHOLDERS' EQUITY 148,557 142,980
-------- --------
Total liabilities and shareholders' equity $262,823 $205,081
======== ========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,881 $ 18,336
-------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 6,032 4,719
(Gain) on sale of assets (331) (9,797)
Provision for doubtful accounts 982 968
Minority interest in income of subsidiaries 350 194
Changes in assets and liabilities, net of effects of business
combinations and divestitures:
(Increase) in accounts receivable (31,099) (5,219)
(Increase) in inventories (23,528) (19,357)
Decrease in other assets 270 25
Increase (decrease) in current liabilities 5,935 (1,892)
-------- --------
Total adjustments (41,389) (30,359)
-------- --------
Net cash (used for) operating activities (31,508) (12,023)
-------- --------
Cash flows from investing activities:
Purchase of marketable securities (2,080) --
Purchases of businesses (8,740) --
Purchase of property, plant and equipment (7,173) (5,045)
Proceeds on sale of marketable securities 788 --
Proceeds on sale of business -- 30,431
Proceeds on sale of property, plant and equipment 181 384
-------- --------
Net cash (used for) provided by investing activities (17,024) 25,770
-------- --------
Cash flows from financing activities:
Payments on long-term obligations (1,850) (917)
Borrowings on (repayment of) note payable 48,181 (3,402)
Dividends paid on subsidiary and CSS stock -- (169)
Purchase of treasury stock (5,254) (16,030)
Purchase of subsidiary stock and options from minority shareholders -- (2,561)
Proceeds from exercise of stock options 4 1,460
-------- --------
Net cash provided by (used for) financing activities 41,081 (21,619)
-------- --------
Effect of foreign currency translation adjustment 13 64
-------- --------
Net (decrease) in cash and temporary investments (7,438) (7,808)
Cash and temporary investments at beginning of period 8,774 12,473
-------- --------
Cash and temporary investments at end of period $ 1,336 $ 4,665
======== ========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(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. Translation adjustments of a foreign
subsidiary are charged or credited to a separate component of
shareholders' equity.
Inventories-
Inventories are stated primarily 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 cost or market. Inventories consisted
of the following:
September 30, December 31,
1995 1994
------------- ------------
Raw material................... $11,173,000 $ 8,192,000
Work-in-process................ 9,784,000 5,820,000
Finished goods................. 42,207,000 21,850,000
----------- -----------
$63,164,000 $35,862,000
=========== ===========
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-
Primary net income per common share is based on the weighted average
number of common and common equivalent shares outstanding during the
third quarter and nine months ended September 30, 1995 and 1994 -
10,854,316 and 10,913,987 in 1995 and 11,110,045 and 11,709,195 in
1994. Average outstanding shares used in the computation of fully
diluted net income per share were 10,996,699 and 11,147,365 for the
quarter and nine months ended September 30, 1995 and 11,110,045 and
11,709,195 for the quarter and nine months ended September 30, 1994.
See Note 2 for supplemental disclosure of noncash investing activities.
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<PAGE>
(2) BUSINESS ACQUISITIONS AND DIVESTITURES:
On June 6, 1995, Paper Magic acquired substantially all of the assets and
the businesses of Topstone Industries, Inc. ("Topstone") and Illusive
Concepts, Inc. ("Illusive Concepts"). Topstone designs, markets and
distributes Halloween masks, wigs, costumes, accessories and novelties
sold to mass merchandisers, drug chains and party stores. Illusive
Concepts designs and markets highly crafted latex masks, accessories
and decorative displays sold primarily to party and gift shops. In
consideration for the purchase of these businesses, Paper Magic assumed
and paid off $8,740,000 of outstanding debt. The acquisition was
accounted for as a purchase and the excess of cost over fair market
value of $4,255,000 was recorded as goodwill in the accompanying
balance sheet and is being amortized over forty years.
On December 22, 1994, Rapidforms acquired certain assets and the business
of Business Envelope Manufacturers, Inc. ("Business Envelope"), a
direct marketer of envelopes, business forms, stationery, labels and
other office supplies for $4,743,000 in cash. The acquisition was
accounted for as a purchase and the excess of cost over fair market
value of $4,731,000 was recorded as goodwill and other intangible
assets in the accompanying balance sheet and is being amortized over 20
to 40 years.
On November 4, 1994, Rapidforms acquired substantially all of the assets
and business of Histacount Corporation ("Histacount"), for $14,598,000
in cash. Histacount is a direct marketer of customized business forms,
stationery and other related office products sold primarily to the
healthcare, legal and accounting professions. The acquisition was
accounted for as a purchase and the excess cost over fair market value
of $15,391,000 was recorded as goodwill and other intangible assets in
the accompanying balance sheet and is being amortized over 20 to 40
years.
(3) SUBSEQUENT EVENT:
On October 3, 1995 the Company agreed to acquire all of the outstanding
stock of Cleo, Inc., a designer, manufacturer and distributor of
promotional gift wrap and gift wrap accessories to mass market
retailers throughout the United States and Canada, for approximately
$128.5 million. The purchase price, which is substantially below Cleo's
projected net book value, is dependent on the financial condition of
Cleo at the date of closing due in part to the seasonal nature of its
business. Consummation of the transaction is anticipated on
November 15, 1995 and is subject to obtaining certain specified
regulatory approvals and consents of third parties and to certain other
customary closing conditions.
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<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On October 3, 1995, the Company agreed to acquire 100% of the capital stock
of Cleo, Inc. ("Cleo") for approximately $60 million less than book value, or an
estimated $128 million in cash and short-term notes, of which approximately $12
million will be held in escrow for certain post-closing adjustments and
indemnification obligations. The cash portion of the purchase price will be
funded from a bank financing. See "Liquidity and Capital Resources."
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 November. Cleo, located in
Memphis, Tennessee, is a designer, manufacturer and distributor of promotional
gift wrap and gift wrap accessories to mass market retailers throughout the
United States and Canada.
On June 6, 1995, Paper Magic acquired substantially all of the assets and
the business of Topstone and Illusive Concepts. Topstone designs, markets and
distributes Halloween masks, wigs, costumes, accessories and novelties sold to
mass merchandisers, drug chains and party stores. Illusive Concepts designs and
markets highly crafted latex masks, accessories and decorative displays sold
primarily to party and gift shops.
In the fourth quarter of 1994, Rapidforms acquired certain assets and the
businesses of Histacount and Business Envelope. Histacount is a direct marketer
of customized business forms, stationery and other related office products sold
primarily to the healthcare, legal and accounting professions. Business Envelope
is a direct marketer of envelopes, business forms, stationery, labels and other
office supplies.
First Nine Months of 1995 Compared to First Nine Months of 1994
Consolidated sales for the nine months ended September 30, 1995 increased
by 28% to $186,303,000 from $145,399,000 in 1994. The increase was largely the
result of incremental sales of companies acquired since September 30, 1994. Net
of the incremental sales of Topstone, Illusive Concepts, Histacount and Business
Envelope, sales for the nine month period increased 7% due to increased sales at
Berwick and Paper Magic.
Cost of sales, as a percentage of sales, was 60% in 1995 and 58% in 1994,
while selling, general and administrative expenses were 31% in 1995 and 32% in
1994. The increase in cost of sales reflects the acquisition of lower margin
businesses and margin compression brought on by competitive pricing, increases
in certain material costs and changes in product mix at Paper Magic. The
reduction in selling, general and administrative costs was due primarily to the
leveraging of higher sales from the four acquisitions over certain fixed
selling, general and administration expenses.
The increase in interest expense, net resulted from the utilization of
Corporate cash to finance four acquisitions, higher seasonal debt and the
repurchase of treasury shares in the second quarter of 1995.
Income taxes as a percentage of income before taxes and minority interest
was 41% in 1995 and 1994. These rates differ from the Federal statutory rate of
35% primarily due to state and foreign income taxes, tax exempt interest income
and goodwill and other charges not deductible for tax purposes.
Net income from continuing operations increased 15% to $9,881,000, or $.89
per common share, from $8,561,000, or $.73 per common share in 1994.
-8-
<PAGE>
Third Quarter 1995 Compared to Third Quarter 1994
Third quarter 1995 sales compared to the prior year increased by 31% to
$100,736,000 from $77,016,000. Net of incremental sales provided by companies
acquired since September 30, 1994, sales grew 8% largely on the strength of
seasonal sales at Berwick and Paper Magic.
During the third quarter, cost of sales as a percentage of sales was 64% in
1995 and 63% in 1994, while selling, general and administrative expenses as a
percentage of sales were 22% in 1995 and 1994.
The increase in rental and other income, net to $472,000 from $99,000
primarily represents a gain from the sale of marketable securities.
The change in interest expense, net and income taxes are explained above in
the nine month comparison section.
Net income from continuing operations was $8,120,000, or $.74 per common
share in 1995, compared to $6,726,000, or $.61 per common share in 1994.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, the Company had working capital of $66,538,000 and
shareholders' equity of $148,557,000.
The Company relies primarily on cash generated from its operations and from
seasonal borrowings to meet its liquidity requirements. Most Paper Magic and
Berwick revenues are seasonal with almost half of Paper Magic and two-thirds of
Berwick sales being Christmas related. As payment for Christmas related products
is usually not received until after the holiday in accordance with general
industry practice, short-term borrowing needs increase throughout the second and
third quarters, peaking prior to Christmas and dropping thereafter. Seasonal
borrowings at Paper Magic are made under a $40,000,000 line of credit facility
with four banks. Berwick seasonal cash needs are being funded by the Company's
excess cash and its $15,000,000 demand line of credit. At September 30, 1995,
Paper Magic borrowed $35,100,000 under its line of credit facility and the
Company borrowed $12,500,000 under it's demand line of credit.
The Company is currently negotiating a senior revolving credit facility
with certain banks in an aggregate principal amount of up to $195,000,000.
Proceeds of the new senior revolving credit facility would be used to fund the
Cleo acquisition, replace the existing CSS and Paper Magic credit facilities
and satisfy the working capital needs of the Company and its subsidiaries.
In the event the Cleo acquisition is not consummated and the Company does
not enter into a new credit 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.
Item 6 Exhibits.
Exhibit 2.1 Stock Purchase Agreement dated as of October 3, 1995 between
the Company and Gibson Greetings, Inc.
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<PAGE>
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 14, 1995 By: /s/James G. Baxter
------------------
James G. Baxter
Vice President - Finance
Chief Financial Officer and
Principal Accounting Officer
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<PAGE>
EXHIBIT INDEX
Exhibit No. Page
- - - - - ---------- ----
2.1 Stock Purchase Agreement dated as of October 12
3, 1995 between CSS Industries, Inc. and
Gibson Greetings, Inc.
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000020629
<NAME> CSS INDUSTRIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,336
<SECURITIES> 2,458
<RECEIVABLES> 82,864
<ALLOWANCES> 2,103
<INVENTORY> 63,164
<CURRENT-ASSETS> 161,950
<PP&E> 82,370
<DEPRECIATION> 40,737
<TOTAL-ASSETS> 262,823
<CURRENT-LIABILITIES> 95,412
<BONDS> 5,688
<COMMON> 1,210
0
0
<OTHER-SE> 147,347
<TOTAL-LIABILITY-AND-EQUITY> 262,823
<SALES> 186,303
<TOTAL-REVENUES> 186,303
<CGS> 111,783
<TOTAL-COSTS> 111,783
<OTHER-EXPENSES> 55,023
<LOSS-PROVISION> 982
<INTEREST-EXPENSE> 1,429
<INCOME-PRETAX> 17,086
<INCOME-TAX> 6,855
<INCOME-CONTINUING> 9,881
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,881
<EPS-PRIMARY> .91
<EPS-DILUTED> .89
</TABLE>
