<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
FORM 10-Q
For the Quarter Ended Commission file number 1-2661
June 30, 1995
- ------------------
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 June 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 11
<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 June 30, 1995 and December 31, 1994 and the results of
operations and cash flows for the three months and six months ended June 30,
1995 and 1994. The results for the three months and six months ended June 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, with the March 31, 1995 quarterly report on
Form 10-Q and with Part II of this document.
PAGE NO.
-------
Consolidated Statements of Operations -
Three months and six months ended June 30, 1995 and 1994 3
Consolidated Condensed Balance Sheets - June 30, 1995 and
December 31, 1994 4
Consolidated Statements of Cash Flows - Six months ended
June 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 4. Submission of Matters to a Vote of Security Holders 10
SIGNATURE 11
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-2-
<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except
per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
SALES $43,038 $33,222 $85,567 $68,383
------- ------- ------- -------
COSTS AND EXPENSES
Cost of sales 24,432 17,463 47,740 36,349
Selling, general and administrative expenses 16,265 13,894 34,488 28,850
Interest expense (income), net 367 (11) 552 199
Rental and other income, net (359) (329) (592) (599)
------- ------- ------- -------
40,705 31,017 82,188 64,799
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST 2,333 2,205 3,379 3,584
INCOME TAXES 949 903 1,374 1,459
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST 1,384 1,302 2,005 2,125
MINORITY INTEREST IN INCOME OF
SUBSIDIARIES, NET 124 163 244 290
------- ------- ------- -------
NET INCOME FROM CONTINUING OPERATIONS 1,260 1,139 1,761 1,835
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 $ 1,260 $ 1,139 $ 1,761 $11,610
======= ======= ======= =======
NET INCOME PER COMMON SHARE
Continuing operations $ .12 $ .09 $ .16 $ .15
Discontinued operations -- -- -- .01
Gain on sale of subsidiary -- -- -- .80
------- ------- ------- -------
$ .12 $ .09 $ .16 $ .96
======= ======= ======= =======
CASH DIVIDENDS PER SHARE OF
COMMON STOCK $ -- $ -- $ -- $ --
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
(In thousands)
June 30, December 31,
1995 1994
----------- ------------
(Unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and temporary investments $ 1,922 $ 8,774
Marketable securities 2,708 --
Accounts receivable, net 25,006 52,886
Inventories 76,145 35,862
Deferred taxes 6,170 6,170
Other current assets 6,818 5,729
-------- --------
Total current assets 118,769 109,421
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 41,148 38,905
-------- --------
OTHER ASSETS
Intangible assets 58,621 55,404
Other 1,568 1,351
-------- --------
Total other assets 60,189 56,755
-------- --------
Total assets $220,106 $205,081
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
TOTAL CURRENT LIABILITIES $60,853 $37,346
LONG-TERM OBLIGATIONS 8,210 14,398
MINORITY INTEREST 3,254 3,005
DEFERRED TAXES 7,352 7,352
SHAREHOLDERS' EQUITY 140,437 142,980
-------- --------
Total liabilities and shareholders' equity $220,106 $205,081
======== ========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
Six Months Ended
June 30,
---------------------------
1995 1994
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,761 $11,610
------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,928 3,661
Gain on sale of assets, net (107) (9,692)
Provision for doubtful accounts 493 510
Minority interest in income or loss of
subsidiaries 244 309
Changes in assets and liabilities, net of
effects of business combinations and
divestitures:
Decrease in accounts receivable 27,248 33,800
(Increase) in inventories (35,520) (32,155)
(Increase) in other assets (682) (1,115)
(Decrease) in current liabilities (3,817) (4,018)
------- -------
Total adjustments (8,213) (8,700)
------- -------
Net cash (used for) provided by
operating activities (6,452) 2,910
------- -------
Cash flows from investing activities:
Purchase of marketable securities (2,080) --
Purchase of businesses (8,740) --
Purchase of property, plant and equipment (5,042) (3,343)
Proceeds on sale of marketable securities 349 --
Proceeds on sale of business -- 30,431
Proceeds on sale of property, plant
and equipment 28 56
------- -------
Net cash (used for) provided by
investing activities (15,485) 27,144
------- -------
Cash flows from financing activities:
Payments on long-term obligations (1,655) (585)
Borrowings on (repayment of) note payable 21,961 (10,193)
Dividends paid -- (169)
Purchase of treasury stock (5,254) (94)
Purchase of subsidiary stock and options
from minority shareholders -- (615)
Proceeds from exercise of stock options 4 402
------- -------
Net cash provided by (used for)
financing activities 15,056 (11,254)
------- -------
Effect of foreign currency translation adjustment 29 33
------- -------
Net (decrease) increase in cash and temporary
investments (6,852) 18,833
Cash and temporary investments at beginning
of period 8,774 12,473
------- -------
Cash and temporary investments at end of period $ 1,922 $31,306
======= =======
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
June 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:
June 30, December 31,
1995 1994
----------- -----------
Raw material............... $12,335,000 $ 8,192,000
Work-in-process............ 13,548,000 5,820,000
Finished goods............. 50,262,000 21,850,000
----------- -----------
$76,145,000 $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-
---------------------------
Fully diluted net income per common share is based on the weighted
average number of common and common equivalent shares outstanding
during the second quarter and six months ended June 30, 1995 and 1994
- 10,895,245 and 11,024,911 in 1995 and 12,019,097 and 12,050,174 in
1994. Average outstanding shares used in the computation of primary
net income per share were not materially different and did not have an
impact on net income per common share as presented in the consolidated
statements of operations.
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.
-6-
<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) COMMON STOCK:
-------------
On May 12, 1995, the Company repurchased 339,000 shares of its common
stock for approximately $5,255,000, or $15.50 per share. On June 20,
1994, the Company repurchased 810,900 shares of its common stock for
approximately $12,975,000, or $16.00 per share.
-7-
<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
RESULTS OF OPERATIONS
- ---------------------
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 Six Months of 1994 Compared to First Six Months of 1993
- -------------------------------------------------------------
Consolidated sales for the six months ended June 30, 1995 increased by 25% to
$85,567,000 from $68,383,000 in 1994. This increase was primarily attributable
to incremental sales of companies acquired since June 30,1994. Net of the
incremental sales of Topstone, Illusive Concepts, Histacount and Business
Envelope, sales for the six month period increased 6% due to increased sales at
Berwick and Paper Magic.
Cost of sales, as a percentage of sales, was 56% in 1995 and 53% in 1994,
while selling, general and administrative expenses were 40% in 1995 and 42% in
1994. The increase in cost of sales reflects the acquisition of lower margin
businesses and margin compression brought on by competitive pricing and changes
in product mix at Paper Magic. The reduction in selling, general and
administrative expenses was due primarily to cost cutting measures at Paper
Magic.
The increase in interest expense, net was attributable to the utilization of
cash to purchase and fund four acquisitions since June 30, 1994 and to fund the
repurchase of treasury shares.
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, goodwill and other charges not
deductible for tax purposes.
Net income from continuing operations decreased 4% to $1,761,000, or $.16 per
common share in 1995 from $1,835,000, or $.15 per common share in 1994. The
improvement in earnings per share on slightly lower earnings reflects the
repurchase of CSS common stock in 1995 and 1994.
Second Quarter 1995 Compared to Second Quarter 1994
- ---------------------------------------------------
Second quarter 1995 sales compared to the prior year increased by 30% to
$43,038,000 from $33,222,000. The increase was primarily due to incremental
sales related to the companies acquired since June 30, 1994. Net of these
incremental sales, revenues of the Company increased 9% due to stronger sales at
Berwick and Paper Magic.
During the second quarter, cost of sales as a percentage of sales was 57% in
1995 and 53% in 1994, while selling, general and administrative expenses as a
percentage of sales were 38% in 1995 and 42% in 1994. The reasons for the
changes in operating percentages are explained above in the six month narrative.
-8-
<PAGE>
The increase in interest income, net; rental and other income, net and income
taxes are explained above in the six month comparison section.
Net income from continuing operations increased 11% to $1,260,000, or $.12 per
common share in 1995 from $1,139,000, or $.09 per common share in 1994.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30, 1995, the Company had working capital of $57,916,000 and
shareholders' equity of $140,437,000.
The Company relies primarily on cash generated from its operations and
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 June 30, 1995, Paper
Magic had borrowed $16,402,000 and the Company had borrowed $4,887,000 under
their respective lines.
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.
-9-
<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The annual meeting of shareholders of the Registrant was
held on May 2, 1995.
(b) The following were elected to serve as Directors of the Registrant
until the next annual meeting and until their successors shall be
elected and qualify:
SHARES OF VOTING STOCK
-----------------------
FOR WITHHELD
--- --------
Willard M. Bright 9,286,806 26,244
James H. Bromley 9,287,138 25,912
John R. Bunting, Jr. 9,278,938 34,112
Jack Farber 9,287,201 25,849
Richard G. Gilmore 9,281,338 31,712
Leonard E. Grossman 9,287,338 25,712
James E. Ksansnak 9,287,338 25,712
Michael L. Sanyour 9,287,338 25,712
William C. Warren 9,286,806 26,244
(c) The result of the rates of the shareholders on the proposal
to approve the 1994 Equity Compensation Plan was as follows:
For 8,198,125
Against 721,732
Withheld 8,188
-10-
<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: August 3, 1995 By: /s/James G. Baxter
------------------
James G. Baxter
Vice President - Finance
Chief Financial Officer and
Principal Accounting Officer
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000020629
<NAME> CSS INDUSTRIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,922
<SECURITIES> 2,708
<RECEIVABLES> 25,006
<ALLOWANCES> 2,035
<INVENTORY> 76,145
<CURRENT-ASSETS> 118,769
<PP&E> 80,724
<DEPRECIATION> 39,576
<TOTAL-ASSETS> 220,106
<CURRENT-LIABILITIES> 60,853
<BONDS> 5,858
<COMMON> 1,210
0
0
<OTHER-SE> 139,227
<TOTAL-LIABILITY-AND-EQUITY> 220,106
<SALES> 85,567
<TOTAL-REVENUES> 85,567
<CGS> 47,740
<TOTAL-COSTS> 47,740
<OTHER-EXPENSES> 33,403
<LOSS-PROVISION> 493
<INTEREST-EXPENSE> 552
<INCOME-PRETAX> 3,379
<INCOME-TAX> 1,374
<INCOME-CONTINUING> 1,761
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,761
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
