<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
FORM 10-Q
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For the Quarter Ended Commission file number 1-2661
March 31, 1996
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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
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As of March 31, 1996, there were 10,719,016 shares of Common Stock outstanding
which excludes shares which may still be issued upon exercise of stock options.
Page 1 of 9
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CSS INDUSTRIES, INC. AND SUBSIDIARIES
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INDEX
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PART I - FINANCIAL INFORMATION
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In the opinion of management, the accompanying unaudited consolidated condensed
financial statements contain all adjustments necessary to present fairly the
financial position as of March 31, 1996 and December 31, 1995 and the results of
operations and cash flows for the three months ended March 31, 1996 and 1995.
The results for the three months ended March 31, 1996 and 1995 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.
PAGE NO.
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Consolidated Statements of Operations - Three months ended
March 31, 1996 and 1995 3
Consolidated Condensed Balance Sheets - March 31, 1996 and
December 31, 1995 4
Consolidated Statements of Cash Flows - Three months ended
March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6-7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II - OTHER INFORMATION
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Items 1 through 6 - Not Applicable
SIGNATURE 9
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CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except
per share amounts)
Three Months Ended
March 31,
----------------------
1996 1995
---- ----
SALES $47,270 $42,529
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COSTS AND EXPENSES
Cost of sales 27,488 23,308
Selling, general and administrative expenses 21,901 18,223
Interest expense, net 1,499 185
Rental and other income, net (236) (233)
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50,652 41,483
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(LOSS) INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST (3,382) 1,046
INCOME TAX (BENEFIT) PROVISION (1,415) 425
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(LOSS) INCOME BEFORE MINORITY INTEREST (1,967) 621
MINORITY INTEREST IN INCOME OF
SUBSIDIARIES, NET 118 120
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NET (LOSS) INCOME $(2,085) 501
======== =========
NET (LOSS) INCOME PER COMMON SHARE
Primary $ (.19) $ .05
========== ==========
Fully diluted $ (.19) $ .05
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 10,954 11,049
========= ==========
Fully diluted 11,001 11,124
========= ==========
CASH DIVIDENDS PER SHARE OF
COMMON STOCK $ - $ -
========= ==========
See notes to consolidated financial statements.
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<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
March 31, December 31,
1996 1995
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(Unaudited)
ASSETS
------
CURRENT ASSETS
Cash and temporary investments $ 2,757 $ 3,102
Marketable securities 378 800
Accounts receivable, net 38,874 174,832
Inventories 98,044 76,397
Deferred taxes 4,495 -
Other current assets 7,851 8,349
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Total current assets 152,399 263,480
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PROPERTY, PLANT AND EQUIPMENT, NET 46,579 44,995
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OTHER ASSETS
Intangible assets 49,689 50,019
Deferred income taxes 1,803 1,829
Other 15,106 14,638
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Total other assets 66,598 66,486
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Total assets $265,576 $374,961
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
TOTAL CURRENT LIABILITIES $ 90,392 $197,085
LONG-TERM OBLIGATIONS 20,082 20,412
MINORITY INTEREST 3,532 3,608
SHAREHOLDERS' EQUITY 151,570 153,856
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Total liabilities and shareholders' equity $265,576 $374,961
========== ==========
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>
Three Months Ended
March 31,
-------------------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (2,085) $ 501
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,952 1,966
Gain on sale of assets, net (5) (6)
Gain on sale of marketable securities (118)
Deferred tax benefit (6,568) -
Provision for doubtful accounts 280 253
Minority interest in income of subsidiaries 118 119
Changes in assets and liabilities, net:
Decrease in accounts receivable 135,678 29,283
(Increase) in inventories (21,647) (11,250)
Decrease in other assets 30 708
(Decrease) in current liabilities (6,781) (5,460)
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Total adjustments 102,939 15,613
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Net cash provided by operating activities 100,854 16,114
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Cash flows from investing activities:
Purchase of property, plant and equipment (3,761) (2,360)
Proceeds on sale of property 498 13
Proceeds on sale of marketable securities 317 -
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Net cash used for investing activities (2,946) (2,347)
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Cash flows from financing activities:
Payments on long-term obligations (5,825) (1,337)
(Repayments) borrowings on notes payable (92,306) 253
Redemption of subsidiary stock from minority shareholder (194) -
Proceeds from exercise of stock options 80 4
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Net cash used for financing activities (98,245) (1,080)
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Effect of exchange rate changes on cash (8) 26
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Net (decrease) increase in cash and temporary investments (345) 12,713
Cash and temporary investments at beginning of period 3,102 8,774
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Cash and temporary investments at end of period $ 2,757 $ 21,487
========= =========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(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 of certain subsidiaries are stated at the lower of first-in,
first-out (FIFO) cost or market while the remaining portion of the
inventory is valued at the lower of last-in, first-out cost or market.
Inventories consisted of the following:
March 31, December 31,
1996 1995
------------ ---------------
Raw material................... $21,803,000 $21,926,000
Work-in-process................ 28,911,000 13,196,000
Finished goods................. 47,330,000 41,275,000
------------ ------------
$98,044,000 $76,397,000
=========== ===========
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
first quarter - 10,953,905 in 1996 and 11,048,561 in 1995. Average
outstanding shares used in the computation of fully diluted net income
per share were 11,001,404 in 1996 and 11,124,030 in 1995.
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:
---------------------------------------
CSS acquired all of the outstanding stock of Cleo, effective November 15,
1995, for approximately $108,500,000 in cash and $24,547,000 in short-term
notes. The purchase price includes $12,000,000 held in escrow for certain post
closing adjustments and indemnification obligations and is included in other
assets in the consolidated balance sheet. The Company and the seller have
disagreed on the disbursement of the escrow and have engaged an independent
public accounting firm to resolve the disputed items. Cleo designs, manufactures
and distributes a wide range of promotional gift wrap and gift wrap accessories
to mass market retailers in the United States and Canada. The acquisition was
accounted for as a purchase and the excess of historical book value over the
purchase price was recorded as a $28,528,000 reduction to fixed assets, an
accrual for restructuring expenses of $11,000,000, and a credit to goodwill of
$7,562,000. Negative goodwill is included in intangible assets in the
accompanying balance sheet and is being amortized over ten years.
On June 6, 1995, Paper Magic acquired substantially all of the assets
and the business 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 $3,558,000 was recorded as goodwill in the accompanying balance
sheet and is being amortized over forty years.
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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
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Three Months of 1996 Compared to Three Months of 1995
- -----------------------------------------------------
Consolidated sales for the three months ended March 31, 1996 increased by
11% to $47,270,000 from $42,529,000 in 1995. The increase was primarily the
result of incremental sales of Cleo Inc., acquired by the Company in the fourth
quarter of 1995. Net of these incremental sales, the Company reported a sales
decrease of 4% due to the acceleration of Paper Magic Easter and Valentine sales
into the fourth quarter of 1995 and lower wholesale sales at Berwick due to the
absence in 1996 of an impending price increase which benefitted 1995 first
quarter sales.
Cost of sales, as a percentage of sales, was 58% in 1996 compared to 55% in
1995. The increase in the percentage of cost of sales was primarily caused by
the acquisition of Cleo, Inc. The margins at Cleo were negatively effected by
the volume of closeout sales in the first quarter of 1996. Selling, general and
administrative expense as a percentages of sales increased to 46% from 43% in
1995. The increase is the result of lower sales at Paper Magic and Berwick and
incremental Cleo costs on seasonally low sales volume.
Interest expense, net of $1,499,000 increased from $185,000 in 1995
reflecting the increased seasonal borrowing needs and acquisition debt
associated with Cleo. Rental and other income, net was $236,000 in 1996 compared
to $233,000 in 1995.
Income taxes as a percentage of income from continuing operations before
income taxes and minority interest was 42% in 1996 compared to 41% in the first
quarter of 1995. The increase in the effective rate reflects the mix of
anticipated earnings after the impact of the acquisition of Cleo. The effective
tax rate differs from the statutory rate of 35% primarily due to state and
foreign income taxes and goodwill and other charges not deductible for tax
purposes.
The net loss for the three months ended March 31, 1996 was ($2,085,000)
compared to net income of $501,000 in 1995. Due to the significance of the Cleo
acquisition and the highly seasonal nature of Cleo's business, the quarterly
distribution of profits and losses will be much more pronounced than in the
past. The Company expects low sales and operating losses during the first half
of the year and high shipment levels and operating profits for the second half
of the year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1996, the Company had working capital of $62,007,000 and
shareholders' equity of $151,570,000.
The Company relies primarily on cash generated from its operations and
seasonal borrowings to meet its liquidity requirements. Most Paper Magic,
Berwick and Cleo revenues are seasonal with approximately 70 percent of sales
being Christmas and Halloween 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 are made under a $195,000,000 unsecured revolving credit facility
with thirteen banks and financial institutions. The facility is available to
fund the seasonal borrowing needs and to provide the Company with a source of
capital for general corporate purposes. At March 31, 1996, there was $35,120,000
outstanding under this facility. A note payable of $24,547,000 due to the seller
of Cleo was repaid during the first quarter of 1996.
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.
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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.
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(Registrant)
Date: May 10 , 1996 By: /s/James G. Baxter
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James G. Baxter
President, Consumer Products Group
Chief Financial Officer and
Principal Accounting Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000020629
<NAME> CSS INDUSTRIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-30-1996
<CASH> 2,757
<SECURITIES> 378
<RECEIVABLES> 44,335
<ALLOWANCES> 5,461
<INVENTORY> 98,044
<CURRENT-ASSETS> 152,399
<PP&E> 100,268
<DEPRECIATION> 53,689
<TOTAL-ASSETS> 265,576
<CURRENT-LIABILITIES> 90,392
<BONDS> 17,574
0
0
<COMMON> 1,220
<OTHER-SE> 150,350
<TOTAL-LIABILITY-AND-EQUITY> 265,576
<SALES> 47,270
<TOTAL-REVENUES> 47,270
<CGS> 27,488
<TOTAL-COSTS> 27,488
<OTHER-EXPENSES> 21,385
<LOSS-PROVISION> 280
<INTEREST-EXPENSE> 1,499
<INCOME-PRETAX> (3,382)
<INCOME-TAX> (1,415)
<INCOME-CONTINUING> (2,085)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,085)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
