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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the year ended December 31, 1995
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ------ to ------
Commission File number 1-2661
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 No.)
1845 Walnut Street, Philadelphia, PA 19103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 569-9900
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Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
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Common Stock, $.10 par value New York Stock Exchange
(Page 1 of Cover Page)
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
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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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to
the best of Registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K.
[X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is approximately $127,309,000. Such aggregate market value was
computed by reference to the closing price of the Common Stock of the
Registrant on the New York Stock Exchange on March 11, 1996 ($21.50 per
share). Such calculation excludes the shares of Common Stock beneficially
owned at such date by certain directors and officers of the Registrant, by
the Farber Foundation and by the Farber Family Foundation, as described under
the section entitled "CSS SECURITY OWNERSHIP" in the Proxy Statement to be
filed by the Registrant for its 1996 Annual Meeting of Stockholders. In
making such calculation, Registrant does not determine the affiliate or
non-affiliate status of any holders of the shares of Common Stock for any
other purpose.
At March 11, 1996, there were outstanding 10,714,016 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for its 1996 Annual Meeting
of Stockholders are incorporated by reference in Part III (under Items 10,
11, 12 and 13).
(Page 2 of Cover Page)
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PART I
Item 1. Business
General
CSS Industries, Inc. ("CSS" or the "Company") is a diversified company
with two groups of businesses - the Consumer Products Group and the Direct
Mail Business Products Group. The Consumer Products Group is primarily
engaged in the manufacture and sale to mass market retailers of seasonal gift
wrap, gift bags, boxed greeting cards, gift tags, tissue paper and vinyl
decorations, classroom exchange Valentines, decorative ribbons and bows,
Halloween masks, costumes, make-ups and novelties and Easter egg dyes and
novelties. The Consumer Products Group is comprised of The Paper Magic Group,
Inc. ("Paper Magic"), acquired by the Company in August 1988, Berwick
Industries, Inc. ("Berwick"), acquired in May 1993, and Cleo Inc. ("Cleo"),
acquired in November 1995. The Direct Mail Business Products Group, composed
of Rapidforms, Inc. and its subsidiaries ("Rapidforms"), develops and sells
business forms, business supplies, in-store retail merchandising products,
holiday greeting cards and advertising specialties to small and medium sized
businesses in the United States, the United Kingdom and France, primarily
through the direct mailing of catalogs and brochures. Rapidforms was acquired
by CSS in January 1985.
The Company has experienced significant growth through a combination of
acquisitions and the expansion of existing operations. The Company's goal is
to continue to expand by developing new or complementary products, by
entering new markets, by acquiring companies that are complementary with its
existing groups of operating businesses and by acquiring other businesses
with leading market positions.
Consumer Products Group
General
The Consumer Products Group was formed in November 1995 with the
acquisition of Cleo and with the objective of providing superior customer
satisfaction through the blending, where appropriate, of the marketing,
sales, operations and administrative functions of Paper Magic, Berwick and
Cleo.
Paper Magic
Principal Products Paper Magic designs, manufactures and distributes a
broad range of seasonal and decorative products to the consumer primarily
through the mass market distribution channel. Paper Magic Winter products
include Christmas boxed greeting cards, gift tags, classroom exchange
Valentine cards, and seasonal decorations for both inside and outside the
home. In 1996, Paper Magic will also manufacture and distribute the Cleo(R)
brand of Christmas cards and classroom exchange Valentines. Paper Magic
Spring products include the Dudley(R) brand of Easter egg dyes and related
Easter seasonal products. Paper Magic Fall products include a full line of
Halloween merchandise ranging from make-up to costumes to masks, including
the Illusive Concepts' brand of highly crafted masks and collectibles. In
addition, Paper Magic also designs and markets everyday decorative products
and teachers aids to the education market through school supply distributors
and direct to retail teachers' stores.
The wide range of products within each season permits Paper Magic
customers the opportunity to use a single vendor for major retail seasons
with key categories shipped and invoiced together, simplifying the ordering,
receiving and accounts payable processes for the customer. Paper Magic's
products are produced and warehoused in four facilities in central and
northeastern Pennsylvania. Manufacturing processes include a wide range of
finishing and assembly operations leading into high volume, high speed
packaging. As a result of the Cleo acquisition, there will be incremental
volume of boxed Christmas cards, gift tags and classroom exchange Valentine
cards processed through existing Paper Magic facilities. Paper Magic
Halloween make-up and Easter egg dye products are manufactured to specific
proprietary formulae by contract manufacturers who meet regulatory
requirements for the formularization in packaging such products.
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Paper Magic has maximized market share by structuring its organization
around key selling seasons. Separate product marketing groups representing
Spring, Fall and Winter receive product development input from consumer focus
groups, key retail partners, and the Paper Magic creative staff. Each group
has a single-minded dedication to increasing market share profitably and in
developing both strategic and tactical plans to meet those objectives. Paper
Magic is product driven, and creative design is critical to the success of
Paper Magic products. Paper Magic maintains creative offices in Scranton,
Pennsylvania; Minneapolis, Minnesota; and Concord, California. As seasonal
opportunities continue to increase, Paper Magic continues to increase its use
of state of the art computerized graphic hardware and software systems to
assist the creative personnel in maintaining volume and schedule needs.
Sales and Marketing Paper Magic products are sold in the United States and
Canada by national and regional account sales managers and by a network of
independent manufacturers' representatives. Products are displayed and
presented in showrooms maintained by these representatives in major cities in
the United States and Canada. Relationships are developed with key retail
customers by Paper Magic sales management personnel and the independent
manufacturers representatives. Customers are generally mass merchandise
retailers, warehouse clubs, drug and food chains, independent card shops and
retail teacher stores. Paper Magic's revenues are seasonal with approximately
60% being Christmas season related and the remainder spread over Spring,
Fall, and Everyday products. Seasonal products are generally designed and
sold beginning well over a year before the event and manufactured during a
8-10 month production cycle. With such long lead time requirements, timely
communication with outsourcing factories, retail customers and independent
sales representatives is critical to the timely production of seasonal
inventory. Because the products themselves are seasonal, sales terms do not
require payment until after the holiday in accordance with industry
practices. In general, Paper Magic products are not sold under guaranteed or
return privilege terms.
Each of the major seasonal product groups is sold in a cycle of annual
introduction programs, and Paper Magic, together with Berwick and Cleo,
maintains permanent showrooms for this purpose. Toy Fair in February is a
major trade show for the introduction of the new Christmas lines, and the
March Halloween Show in Chicago functions for the same purpose for Halloween.
Major retail buyers will typically visit Paper Magic's or the manufacturers'
representatives' showroom for a presentation and review of the new lines.
Due to the seasonal nature of the majority of Paper Magic products, the
development and communication of accurate sales projections of specific
products by season are critical to the operation of Paper Magic's business.
This translation of internal sales projections to specific material
requirements is a continuous process. Because of the many seasonal designs
offered on both a domestic and import basis, the increased demand by
retailers for special designs, configurations and packaging, and the
relatively short seasonal shipping period, flexible short-term production
scheduling is critical to the operational success of Paper Magic.
Competition Paper Magic competes with a wide range of companies in its
various product lines. In Christmas boxed cards and gift trims sold to mass
merchandisers and both drug and food retail chain stores, Paper Magic
competes with the Plus Mark(R) line of American Greetings Corporation and the
Kristen(R) line of Burgoyne, Inc., among many others. Paper Magic Spring's
Dudley(R) brand Easter egg dye products compete with several brands including
the PAAS(R) brand of Schering-Plough HealthCare Products. Paper Magic Fall
has many competitors in all categories, notably Fun World, Inc. and Rubie's.
Certain of these competitors are larger and have greater resources than the
Company. Historically, Paper Magic has not competed directly, except to a
limited extent, with Hallmark Cards, Inc. and other product offerings of
American Greetings Corporation. More recently, however, certain of these
companies have penetrated the mass market retail outlets to which Paper Magic
sells with similar brand offerings.
Paper Magic believes its brands are well positioned for continued growth
in their primary markets. The Cleo acquisition will provide incremental
volume processed through existing Paper Magic facilities with limited added
fixed overhead. Since competition is based primarily on price, timely
delivery, creative design and increasingly, the ability to serve major retail
customers with single, combined products for each holiday event, Paper
Magic's product driven focus combined with consistent service levels allows
it to compete effectively in its core markets.
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Berwick
Principal Products Berwick designs, manufactures and distributes a wide
array of decorative ribbons, bows and related products to various markets
under the following registered trademarks: Berwick(R), Flora Satin(R), Grand
Prix(R), Brilliance(R), The Perfect Bow(R), Splendorette(R), Veltex(R), and
Trim Time(R). Approximately 88% of its ribbon and bow products are
manufactured by Berwick using extruded polypropylene resins. These products,
together with fabric ribbon and accessories, which are either manufactured or
imported for resale, are sold to a diverse base of customers in the United
States and in forty-one countries around the world.
Berwick manufactures and warehouses its products in eight facilities
located in northeast Pennsylvania. The manufacturing process is vertically
integrated. Most ribbon and bow products are made from polypropylene resin, a
petroleum-based product, which is mixed with color pigment, melted and
pressed through an extruder. Large bolts of extruded film go through various
combinations of processes such as slitting, crimping, embossing, printing,
laminating and hot-stamping before being made into bows or packaged on ribbon
spools or reels as required by various markets and customers. Berwick
possesses certain proprietary manufacturing processes that enable it to
produce a plastic ribbon with a woven texture appearance. Iridescent and
metallic ribbon products are also made from polypropylene produced ribbon
that is coated with a special film to produce an iridescent or metallic
sheen.
Berwick imports several products for resale and also ships certain
unfinished material, primarily large rolls of ribbon, to subcontractors for
conversion into finished products such as pull bows and bows used to decorate
Christmas trees and wreaths. Such items are more labor intensive than items
produced at Berwick's manufacturing facilities and are manufactured to
Berwick's specifications by subcontractors based in The People's Republic of
China.
Sales and Marketing Berwick sells its products to customers primarily
through three distribution channels. Seasonal and everyday products are sold
to mass merchandise retailers, drug store chains, supermarket chains and
variety stores. These customers are served by national account sales managers
and a network of independent sales representatives. Products are also sold
through independent sales representatives to wholesale distributors who serve
the floral, craft and packaging trades. And, lastly, the company sells custom
products to private label customers, to other social expression companies,
and to converters of the company's bulk ribbon products. Custom products are
sold and marketed by both independent sales representatives and by Berwick
sales managers. Berwick's sales are highly seasonal with approximately 68%
shipped during the Christmas selling season.
Competition Berwick competes primarily with a variety of large and small
domestic companies, including the Plus Mark(R) line of American Greetings
Corp., Hollywood Ribbon, Inc., CPS Corporation, Delaware Ribbon
Manufacturers, Inc., C. M. Offray and Son, Inc. and W.F.R. Ribbon, Inc. One
of these competitors is larger and has greater financial resources than the
Company.
Berwick believes that its products are well established in its various
markets and are well positioned for continued growth. Berwick's new product
development, product quality, breadth of product line, cost effective
manufacturing techniques, extensive sales network and product pricing allow
it to compete effectively in its various markets.
Cleo
Principal Products Effective November 15, 1995, Cleo was acquired by CSS
for approximately $133,000,000. The purchase price includes $12,000,000 held
in escrow for certain post closing adjustments and indemnification
obligations. 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. Prior to the acquisition by CSS, Cleo designed,
manufactured and distributed a wide array of social expression products,
including Christmas gift wrap, gift bags, tissue, boxed greeting cards, gift
boxes, gift tags and ribbons and bows. In addition, "contra seasonal"
offerings included classroom exchange Valentine cards, calendars and
all-occasion gift wrap and gift bags.
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Subsequent to the acquisition, the Cleo line of gift tags and ribbons and
bows have been blended with those of Paper Magic and Berwick, respectively,
while the gift box line was sold. In 1996, Cleo product offerings will include
Christmas and all-occasion gift wrap and gift wrap alternative products, such
as gift bags and tissue, as well as calendars, boxed greeting cards and
classroom exchange Valentines sold under the Cleo brand name.
Cleo's 1995 products were manufactured in six facilities and warehoused in
and distributed from five other permanent and temporary facilities.
Subsequent to the acquisition by CSS, five of the manufacturing facilities
have been closed and four of the warehouse and distribution facilities have
been vacated. Manufacturing of gift wrap, including web printing, finishing,
rewinding and packaging, as well as the assembly of calendars are performed
in one facility in Memphis, Tennessee. Finished goods are distributed from a
separate Memphis facility. Although designed to the specifications of Cleo,
gift bags and tissue, as well as the manufacturing of calendar components,
are all purchased from outside vendors. Cleo brand boxed greeting cards and
classroom exchange Valentine cards sold in 1996 will be manufactured and
packaged by Paper Magic in existing Paper Magic facilities in central and
northeastern Pennsylvania. The blending of gift tags and ribbons and bows
into the Paper Magic and Berwick lines, the elimination of redundant
facilities, the consolidation of Cleo's boxed card and Valentine
manufacturing and packaging requirements with those of Paper Magic, and the
refocus on gift wrap as Cleo's core product category will serve to improve
Cleo's operational and financial performance in 1996.
During 1995, the quality and caliber of the design of the product lines
were significantly enhanced through a refocused effort toward trend and color
marketing. The revitalized positioning of the 1995 lines has been further
enhanced in 1996 by the use of state-of-the-art computerized graphic hardware
and software systems.
Sales and Marketing Cleo products are sold in the United States (including
Puerto Rico), Canada and Mexico through a combination of an in-house
dedicated sales organization as well as independent manufacturers'
representatives. Customers represent various classes of trade, including mass
merchandise retailers, drug and food chains and warehouse clubs. In addition
to the above markets, through sales and licensing agreements, Cleo also sells
products to Hong Kong/China and Australia.
Sales efforts are conducted through a combination of travel to retailers'
offices, use of regional showrooms maintained by manufacturers'
representatives, and an annual trade show in New York. Furthermore, because
Cleo enjoys a strong working relationship with its key customers, many of
them travel to Memphis annually to conduct their business in on-site
showrooms.
Cleo's revenues are highly seasonal with approximately 80% being Christmas
related. Industry practices require production based on commitments or
bookings early in the selling cycle with actual purchase orders received
within a short period prior to shipment. Because the products are seasonal,
sales terms do not require payment until after the Christmas season in
accordance with industry practices.
Due to the ever increasing competitive retail environment, Cleo plays a
crucial role in helping the customer to develop retail programs to meet
product performance objectives while appealing to consumers' tastes. These
objectives are met through the development and manufacture of custom
configured and designed products. Cleo's years of experience in program
development and product quality are key competitive advantages in helping the
retailers meet their objectives.
Competition In its core product line of Christmas gift wrap, Cleo competes
primarily with Plus Mark(R), a division of American Greetings Corporation and
CPS Corporation. Historically, Cleo has not competed directly, except to a
limited extent, with Hallmark Cards, Inc. and other product offerings of
American Greetings Corporation. More recently, however, these companies have
begun to penetrate the mass market retail outlets in which Cleo sells its
products.
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Direct Mail Business Products Group
General
The Direct Mail Business Products Group, composed of Rapidforms and its
subsidiaries, designs and sells business forms, business supplies, in-store
retail merchandising products, holiday greeting cards and advertising
specialties to small and medium size businesses primarily through the direct
mailing of catalogs and brochures.
Principal Products Rapidforms has developed and sells a wide range of
standard business forms, including snap-apart, register, continuous and laser
forms. Rapidforms also sells a variety of other products for small businesses
and other organizations, including office supplies (such as labels, envelopes
and stationery), promotional products (such as printed pens, postcards and
appointment reminders), retail merchandising products (such as price cards
and tags, bags, sales kits, baskets and hangers), products for the healthcare
industry (such as prescription pads, patient record forms and superbills),
human resources products (such as motivational posters, awards and products
for employee administration) and greeting cards. Rapidforms maintains an
active new product development program and holds several trademarks covering
a small number of items sold by it. Rapidforms(R) and Rapidforms Design(R)
are registered trademarks of Rapidforms.
Snap-apart forms produce multiple copies of information manually written
or typed on the first sheet of the form and are available in carbon and
carbonless designs. Register forms are used with countertop registers, and
continuous and laser forms are used for printing information generated by
desk-top computers. The continuous and laser forms product lines consist
principally of forms compatible with various microcomputer software developed
by software companies. Many of such companies have endorsed Rapidforms'
continuous forms for use with their computer software packages.
Rapidforms offers imprinting (of customer names, addresses and logos) and
numbering on most of its standard business forms and supplies. Approximately
71% of the products sold by Rapidforms in 1995 were imprinted and/or
numbered. In addition to standard forms, Rapidforms offers a full range of
custom products including continuous, laser, snap-apart and register forms,
labels, tags, envelopes and stationery.
Although most of the forms sold by Rapidforms are produced by outside
vendors, Rapidforms also manufactures a portion of its continuous forms for
its base stock. Rapidforms believes that alternate sources are available for
most merchandise appearing in its catalogs, and has generally not had any
problems obtaining necessary items. Inventory is maintained at a high level
in order to fill customer orders promptly. Non-imprinted products are
generally shipped by the day after receipt of an order and standard imprinted
products are shipped within four to six working days. Custom products are
generally shipped within ten working days of approval of proofs.
In November 1994, Rapidforms acquired the assets and business of
Histacount Corporation ("Histacount"), located in Melville, New York.
Histacount sells, by direct mail, personalized printed products such as
stationery, envelopes, labels and business forms, as well as other supply
items to physicians, dentists, veterinarians, accountants, lawyers and other
professionals under the names Histacount, Expressions, ASH Accountants'
(America's Supply House), and Napco Press. Rapidforms moved Histacount into
its facility in Thorofare, New Jersey during the spring of 1995.
In December 1994, Rapidforms acquired the assets and business of Business
Envelope Manufacturers, Inc. ("Business Envelope"), located in Deer Park, New
York with fulfillment in Claysburg, Pennsylvania. Business Envelope is a
direct mail marketer of a wide variety of envelopes, labels, business forms,
stationery and supply items, to small businesses of many types. In 1995, the
sellers continued to fulfill most Business Envelope orders for Rapidforms.
Early in 1996, the fulfillment operations of Business Envelope were moved
into the Thorofare facility and integrated with the operations of Rapidforms.
Sales and Marketing Rapidforms sells to customers located throughout the
United States (including Puerto Rico), the United Kingdom and France and, to
a limited extent, in Canada. Its typical customers are small to medium sized
manufacturing, wholesale, retail, and automotive businesses, and
professionals such as physicians, dentists, veterinarians, accountants and
lawyers. Sales at wholesale (principally to distributors of business forms,
supplies and merchandising products as well as drug wholesalers) are made to
a smaller number of customers.
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Rapidforms sells its products primarily through the direct mailing of
catalogs and brochures to existing and prospective customers. Rapidforms uses
various types of catalogs which are revised regularly to reflect product line
and price changes. It also periodically mails a variety of brochures featuring
one product or a few related products. Rapidforms now has approximately
800,000 customers. In 1995, approximately 21,500,000 catalogs and brochures
were mailed to customers and prospective customers. In addition to catalog
sales, products are also sold to a limited extent through distributors and
dealers and in the case of retail merchandising products, direct to large
end-users. Continuous forms are marketed, among other ways, through inserts
which are placed in the software manuals for various computer software.
Products for automotive dealers and repair shops in the United Kingdom and
France are sold under sales arrangements with major auto manufacturers.
Retail orders are received by mail, facsimile and over toll-free telephone
lines provided by Rapidforms. Rapidforms' business is characterized by a high
volume of small orders, with an average order totaling approximately $143. To
handle these orders efficiently, Rapidforms generally has computerized its
operations. The computer systems are also used for customer profile analysis
in order to determine which customers should receive Rapidforms mailings.
Rapidforms has a 100% satisfaction guaranteed customer return and
cancellation policy, consistent with industry practices.
Competition The direct mail industry is highly competitive. Rapidforms
believes that its business forms, supplies and other products are well
positioned in its industry, and that it offers a wide selection of forms
designed specially to meet the needs of the businesses in which its customers
are involved.
In the United States, Rapidforms competes primarily with other direct mail
companies, some of which have more extensive customer lists and greater
financial resources. The company is aware of approximately twenty companies
marketing competitive products by mail, which include New England Business
Services, Inc., Deluxe Check Printers, Inc., Viking Office Products and
Executive Greetings, Inc. Rapidforms competes with these firms through a
combination of methods, including product selection, design and quality,
speed of delivery, price, selection of markets and quality of its customer
and prospect lists.
To a lesser extent, Rapidforms also competes with non-mail distributors,
local job printers and retail stationery stores located throughout the United
States. Most local job printers have no salesmen and their markets are
typically limited to small geographic areas. Local printers have the
advantage of physical proximity to their customers but frequently lack design
expertise and are generally unable to offer products of complex construction.
Typically, pre-printed business forms offered by stationers are limited to
general purpose forms suitable for use by a broad cross-section of businesses
and not designed for specific types of business firms. Continuing growth in
the availability and use of computers and copy machines by Rapidforms'
customers also affects Rapidforms, and, in certain respects, Rapidforms'
products compete with forms that can be designed by computer users with
"desk-top publishing" or forms software capabilities.
In the United Kingdom and France, Rapidforms' primary competition is from
local printers. Rapidforms also competes there with a few direct mail
companies and with manufacturers of custom business forms that seek similar
endorsed forms supply relationships. Rapidforms' customers in Europe also are
affected by the increased availability and functionality of desk-top
computers.
Employees
At March 11, 1996, approximately 590 persons were employed by Paper Magic,
774 persons were employed by Berwick, 725 were employed by Cleo (with
personnel increasing to approximately 1,160; 1,050 and 1,700 , respectively,
as seasonal employees are added), 686 persons were employed at Rapidforms,
and 18 persons were employed at the Company's headquarters.
With the exception of the bargaining unit at Cleo, which includes 480
employees, the employees at Paper Magic, Berwick and Rapidforms are not
represented by labor unions. Because of the seasonal nature of certain of its
businesses, the number of Paper Magic, Berwick and Cleo production employees
fluctuate during the year.
The Company believes that relationships with all of its employees are
good.
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Item 2. Properties
Paper Magic operates out of 810,000 square feet of owned production and
warehouse space and 40,000 square feet of leased office space located
principally in central and northeast Pennsylvania. Berwick owns five buildings
in northeast Pennsylvania which represent 661,000 square feet of production,
warehouse and office space and leases 227,000 square feet of additional
warehouse space in three buildings located in northeast Pennsylvania. Cleo
operates principally in two facilities in Memphis, Tennessee. The
manufacturing operations, raw materials warehouse and offices are in a
1,003,000 square foot leased facility while finished goods warehousing and
distribution are in a 1,153,000 square foot owned facility. Rapidforms
maintains principal facilities in a 121,000 square foot owned facility in
southern New Jersey. Rapidforms also has other owned and leased facilities
totaling approximately 150,000 square feet located in southern New Jersey;
Santa Fe Springs, California; Romsey, England; and LeHavre, France. The
Company believes such facilities are adequate for current production
requirements.
The headquarters and principal executive office of the Company are located
in Philadelphia, Pennsylvania.
The Company is also the lessee of approximately 242,000 square feet of
office, loft, retail and warehouse space (which was related primarily to its
former retail and home furnishings operations) which have been subleased by
the Company, as sublessor, to various sublessees.
Item 3. Legal Proceedings
Effective November 15, 1995, CSS acquired all of the outstanding shares of
Cleo from Gibson Greetings, Inc. ("Gibson") in accordance with a stock
purchase agreement dated October 3, 1995. The purchase price is subject to
adjustment based on the Closing Date Statement of Net Equity of Cleo at
November 15, 1995 (the "Statement"). Based upon the Statement prepared by
Cleo, CSS has requested that Gibson consent to the release to CSS of the
$12,000,000 of the purchase price currently held in escrow for the resolution
of such purchase price adjustments and the payment of any indemnification
claims. Gibson has indicated that it disagrees with the Statement and
believes that none of the $12,000,000 held in escrow should be released to
CSS. The disagreement relates primarily to the valuation of Cleo's inventory.
CSS and Gibson have agreed to engage an independent public accounting firm
to resolve the disputed items on the Statement. CSS anticipates that it will
be unable to satisfy the financial statement requirements of Form 8-K with
regard to the Cleo acquisition at this time, and thus is unable to have
future registration statements declared effective until it is in compliance
with its Exchange Act financial statement requirements. CSS cannot at this
time estimate when the disputed items will be resolved.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Principal Market for Common Stock
The Common Stock of the Company is listed for trading on the New York
Stock Exchange. The following table sets forth the high and low sales prices
per share of that stock for each of the calendar quarters during 1995 and
1994.
High Low
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1995
First Quarter ....................... $17 3/4 $15 1/2
Second Quarter ...................... 18 15 3/4
Third Quarter ....................... 24 3/4 17
Fourth Quarter ...................... 23 20 5/8
1994
First Quarter ....................... $21 $17 3/4
Second Quarter ...................... 19 15 3/4
Third Quarter ....................... 17 15 5/8
Fourth Quarter ...................... 17 3/8 15 3/4
(b) Holders of Common Stock
At March 11, 1996, there were approximately 2,300 holders of the Company's
Common Stock.
(c) Dividends
The Company has not declared or paid any dividends on its Common Stock for
more than the past three fiscal years. The ability of the Company to pay any
cash dividends on its Common Stock is dependent on the Company's earnings and
profits and cash requirements and is further limited by the terms of the
Company's revolving line of credit. The Company does not anticipate that it
will declare or pay any cash dividends on its Common Stock for the
foreseeable future.
At March 11, 1996, there were no shares of preferred stock outstanding.
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Item 6. Selected Financial Data
(In thousands, except
per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
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1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales ................................ $288,412 $218,235 $205,743 $151,679 $133,903
Income from continuing operations
before income taxes and minority
interest ............................ 27,386 24,462 24,385 18,643 17,424
Net income from continuing operations . 15,775 14,027 13,975 10,001 10,343
Gain on sale and income from
discontinued operation, net of income
taxes ............................... -- 9,775 3,019 2,876 2,076
Net income ........................... 15,775 23,802 16,994 12,877 12,419
Net income from continuing operations
per common share --
Primary ............................ 1.45 1.21 1.18 .91 .90
Fully diluted ...................... 1.43 1.21 1.17 .88 .86
Balance Sheet Data:
Working capital ...................... 66,395 72,075 85,288 86,467 63,452
Total assets ......................... 374,961 205,081 200,143 151,923 154,591
Long-term obligations and redeemable
preferred stock .................... 20,412 14,398 14,385 8,594 10,589
Shareholders' equity ................. $153,856 $142,980 $133,952 $111,843 $ 99,727
</TABLE>
9
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Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Business Acquisitions and Divestitures
CSS acquired all of the outstanding stock of Cleo Inc., effective November
15, 1995, for approximately $133,000,000. The purchase price includes
$12,000,000 held in escrow for certain post closing adjustments and
indemnification obligations. The Company and the seller have disagreed on the
disbursement of the escrow and have engaged an independent accounting firm to
resolve the disputed items. Cleo, based in Memphis, Tennessee, 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.
Subsequent to the acquisition of Cleo, the Company's management approved a
restructuring plan that was substantially implemented by December 31, 1995.
Cleo's 1995 products were manufactured in six facilities and warehoused in
and distributed from five other permanent and temporary facilities. As a part
of this plan, five of Cleo's six manufacturing facilities have been closed
and four of the five warehouse and distribution facilities have been vacated.
Cleo's boxed card, Valentine, gift tags and ribbon and bow manufacturing and
packaging requirements will be blended into existing lines at Paper Magic and
Berwick during early 1996. In addition, all applicable inventory will be
transferred from Cleo to Paper Magic and Berwick. As a result of the closure
of facilities and consolidation of manufacturing processes, employees at the
affected facilities were severed.
The unaudited consolidated results of operations of the Company and Cleo
on a pro forma basis as though the transaction had been consummated at the
beginning of the respective years were as follows:
1995 1994
---------- ----------
Sales ..................... $429,106 $392,478
Net income ................ 5,634 5,313
Net income per common share
Primary .............. .52 .46
Fully diluted . ...... $ .51 $ .46
Pro forma adjustments included in the above results reflect (1) increased
inventory obsolescence reserves required for the periods prior to November
15, 1995, (2) reduced rental expense related to a renegotiated lease and to
leases on terminated facilities, (3) reduction of administrative payroll
costs and management fees, and (4) the effect of purchase accounting
adjustments on interest, depreciation, amortization and tax expense.
On June 6, 1995, Paper Magic acquired the assets and businesses of
Topstone Industries, Inc. and Illusive Concepts, Inc. for approximately
$8,740,000 in cash. Topstone is a designer and distributor of a broad range
of Halloween masks, wigs, costumes, accessories and novelties sold to mass
merchandisers, drug chains and party stores. Illusive Concepts, based in
Concord, California, designs and markets highly crafted latex masks,
accessories and decorative displays sold primarily to party and gift stores.
On December 22, 1994, Rapidforms acquired certain assets and the business
of Business Envelope Manufacturers, Inc., a direct marketer of envelopes,
business forms, stationery, labels and other office supplies for
approximately $4,743,000 in cash.
On November 4, 1994, Rapidforms acquired substantially all of the assets
and business of Histacount Corporation for approximately $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.
On March 30, 1994, the Company sold its 96% interest in its former Ellisco
subsidiary for $30,431,000. The sale resulted in an after-tax gain of
$9,661,000 and after-tax cash proceeds of approximately $24,000,000.
10
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Seasonality
The seasonal nature of the Consumer Products Group businesses (Paper Magic,
Berwick and Cleo) resulted in low sales and operating profits 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. In addition, the fourth quarter of 1995
includes a pre-tax loss of $1,906,000 incurred by Cleo subsequent to its
acquisition, as the majority of Christmas shipments were made prior to
consummation of the transaction. Quarterly fluctuations of sales and earnings
are expected to be further pronounced in 1996 with the inclusion of a full
year of Cleo's results.
Because of the seasonality and the general industry practice of deferred
payment terms, the Consumer Products Group businesses experience significant
collections of accounts receivable in December and January, thus enabling
them to make major reductions in the short-term debt borrowed during the year
to fund their inventory and accounts receivable build-up.
Results of Operations
Consolidated sales for 1995 increased by 32% to $288,412,000 from
$218,235,000. The increase was primarily attributable to incremental sales of
companies acquired in 1994 and 1995 as well as 10% growth in the internal
sales of Paper Magic, Berwick and Rapidforms. The 6% increase in sales to
$218,235,000 in 1994 from $205,743,000 in 1993 was primarily due to the
timing of the acquisition of Berwick in May 1993, as sales growth at Berwick
and Rapidforms in 1994 was substantially offset by sales declines of Paper
Magic.
The increase in cost of sales of 38% in 1995 and 8% in 1994 was primarily
attributable to the rise in revenues. As a percentage of sales, cost of sales
was 62% in 1995, 59% in 1994, and 58% in 1993. The increase in cost of sales
as a percentage of sales in 1995 reflected competitive pricing pressures in
consumer products businesses, the timing of the Cleo acquisition, the
acquisition of lower margin businesses, the increasing importance of direct
import sales and higher paper and resin costs. Selling, general and
administrative expenses, as a percentage of sales, was 28% in 1995, and 30%
in 1994 and 1993. The decrease in 1995 was due to incrementally lower
selling, general and administrative costs of acquired companies.
Interest expense, net was $3,957,000 in 1995, $923,000 in 1994, and
$1,559,000 in 1993. The increase in 1995 was due primarily to increased
borrowings to fund acquisitions in late 1994 and 1995 and to finance
additional working capital requirements. The decrease in 1994 was due
primarily to cash generated by the March 30, 1994 sale of Ellisco.
Rental and other income, net of $1,727,000 increased from its 1994 amount
of $910,000 primarily due to the gain on the sale of marketable securities in
1995.
Income before income taxes and minority interest was $27,386,000, or 10%
of sales in 1995, $24,462,000, or 11% of sales in 1994, and $24,385,000, or
12% of sales in 1993.
Income taxes as a percentage of income before income taxes was 40% in
1995, 41% in 1994, and 42% in 1993. The decrease in 1995 was primarily due to
tax benefits related to certain permanent differences. The decrease in 1994
was primarily due to the effects of the investment of the Company's excess
cash in tax-exempt money market securities.
Minority interest in income of subsidiaries was $615,000 in 1995, or 4% of
income before minority interest, $388,000 or 3% in 1994, and $173,000 or 1% in
1993. The change between years was due to the varying stock valuation formulae
required by certain subsidiary buy/sell agreements and the mix of earnings
from year to year. Historically, the Company's business strategy provided in
certain instances for the purchase by subsidiary operating management of
minority interests in the businesses they were managing. With the 1993
acquisition of Berwick, the Company began offering operating management the
opportunity to purchase stock of the Company by participating in the Company's
then Incentive Stock Option Plan and thereafter by participating in its Equity
Compensation Plan. With the retirement of a significant Paper Magic
shareholder in 1994, the Company offered the remaining minority shareholders
of Paper Magic the opportunity to redeem their shares for cash and to exchange
11
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any outstanding Paper Magic stock options for CSS stock options. The remaining
minority interest liability on the consolidated balance sheet relates to
Rapidforms minority ownership and the appreciation on unexercised Rapidforms'
stock options.
Net income from continuing operations increased 13% in 1995 to
$15,775,000, and was up slightly in 1994 to $14,027,000. Fully diluted net
income from continuing operations per share rose 18% in 1995 to $1.43 per
share and 3% in 1994 to $1.21 per share.
Net income to common shareholders of $23,802,000 in 1994 reflected the
$9,661,000 gain on the sale of Ellisco, net of income taxes.
Inflation
The Company attempts to alleviate inflationary material and labor
pressures by increasing selling prices to help offset rising costs (subject
to competitive conditions), increasing productivity, and improving design and
manufacturing techniques. Raw material cost increases in certain grades of
paper, polypropylene resin and corrugated negatively impacted 1995 margins by
less than 2% as a percentage of sales.
Liquidity and Capital Resources
At December 31, 1995, the Company had working capital of $66,395,000 and
shareholders' equity of $153,856,000. 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 of 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 December 31, 1995, there was $102,950,000
outstanding under this facility and a note payable of $24,547,000 due to the
seller of Cleo. For information concerning the bank credit facility, see Note
6 of Notes to Consolidated Financial Statements.
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.
Future Accounting Changes
"Accounting for Stock-Based Compensation," SFAS No. 123, was issued in
October 1995. This statement provides for alternatives relating to the
measurement of compensation expense for stock options and other stock-based
compensation. One option is to recognize compensation expense in the
consolidated financial statements using a fair-value based method, applied to
virtually all stock-based compensation. The alternative would not change the
current intrinsic-value approach to expense recognition, but would require
pro forma disclosure in the notes to the consolidated financial statements of
the impact using the fair-value method. The Company plans to adopt the pro
forma disclosure option in 1996, and management of the Company believes the
adoption of such method will not have a material effect on the consolidated
financial condition or results of operations.
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of," SFAS No. 121, was issued in March 1995. This
statement requires review and measurement methods to calculate impairment of
long-lived assets, including certain identifiable intangibles and goodwill.
The statement also requires that long-lived assets to be disposed of be
reported at the lower of the carrying amount or fair value less costs to
sell. Although asset impairment is always a possibility from changes in
business conditions, strategy and organization, management of the Company
believes the adoption of this statement in 1996 will not result in any
significant write-downs of assets.
12
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[THIS PAGE INTENTIONALLY LEFT BLANK]
13
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Item 8. Financial Statements
CSS INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
Page
-------
Report of Independent Public Accountants .......................... 15
Consolidated Balance Sheets -- December 31, 1995 and 1994 ......... 16-17
Consolidated Statements of Operations -- for the years ended
December 31, 1995, 1994 and 1993 ................................ 18
Consolidated Statements of Cash Flows -- for the years ended
December 31, 1995, 1994 and 1993 ................................ 19
Consolidated Statements of Shareholders' Equity -- for the years
ended December 31, 1995, 1994 and 1993 ........................... 20-21
Notes to Consolidated Financial Statements ........................ 22-33
14
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of CSS Industries, Inc.:
We have audited the accompanying consolidated balance sheets of CSS
Industries, Inc. (a Delaware Corporation) and subsidiaries as of December 31,
1995 and 1994 and the related consolidated statements of operations, cash
flows and shareholders' equity for each of the three years in the period
ended December 31, 1995. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CSS
Industries, Inc. and subsidiaries as of December 31, 1995 and 1994 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplemental schedule
listed in Item 14(a) is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, PA
February 23, 1996
15
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| CSS |
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except
share amounts)
<TABLE>
<CAPTION>
December 31,
------------------------
ASSETS 1995 1994
------ ---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and temporary investments ................ $ 3,102 $ 8,774
Marketable securities ......................... 800 --
Accounts receivable, net of allowance for
doubtful accounts of $4,684 and $1,950 ...... 174,832 52,886
Inventories ................................... 76,397 35,862
Deferred income taxes ......................... -- 6,170
Other current assets .......................... 8,349 5,729
---------- ----------
Total current assets ..................... 263,480 109,421
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land .......................................... 1,876 1,661
Buildings, leasehold interests and improvements 33,836 30,713
Machinery, equipment and other ................ 53,024 46,007
---------- ----------
88,736 78,381
Less -- Accumulated depreciation and
amortization ................................ 43,741 39,476
---------- ----------
Net property, plant and equipment ........ 44,995 38,905
---------- ----------
OTHER ASSETS
Intangible assets, net of accumulated
amortization of $7,299 and $5,041 ........... 50,019 55,404
Deferred income taxes ......................... 1,829 --
Other ......................................... 14,638 1,351
---------- ----------
Total other assets ....................... 66,486 56,755
---------- ----------
$374,961 $205,081
========== ==========
</TABLE>
16
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<TABLE>
<CAPTION>
December 31,
------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
- ------------------------------------ ---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable ............................... $128,547 $ 424
Current portion of long-term debt ........... 6,531 869
Accounts payable ............................ 15,337 9,461
Accrued redemption of subsidiary stock ...... 1,019 6,236
Accrued payroll and other compensation ...... 6,932 6,407
Accrued expenses ............................ 36,620 13,949
Deferred income taxes ....................... 2,099 --
---------- ----------
Total current liabilities .............. 197,085 37,346
---------- ----------
LONG-TERM DEBT, NET OF CURRENT PORTION ........... 17,865 11,043
---------- ----------
OTHER LONG-TERM OBLIGATIONS ...................... 2,547 3,355
---------- ----------
MINORITY INTEREST ................................ 3,608 3,005
---------- ----------
DEFERRED INCOME TAXES ............................ -- 7,352
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock, Class 2, $.01 par,
authorized 1,000,000 shares ............... -- --
Common stock, $.10 par, authorized 20,000,000
shares, issued 12,193,848 shares and
12,096,648 shares ......................... 1,219 1,210
Additional paid-in capital .................. 27,087 26,197
Retained earnings ........................... 149,314 133,539
Unrealized gain on marketable securities .... 327 --
Cumulative foreign currency translation
adjustment ................................ (463) (471)
Common stock in treasury, 1,479,832 and
1,101,875 shares, at cost ................. (23,628) (17,495)
---------- ----------
Total shareholders' equity ............. 153,856 142,980
---------- ----------
$374,961 $205,081
========== ==========
</TABLE>
See notes to consolidated financial statements.
17
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CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except
per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
SALES ..................................................... $288,412 $218,235 $205,743
---------- ---------- ----------
COSTS AND EXPENSES
Cost of sales ........................................... 178,481 129,079 119,453
Selling, general and administrative expenses ............ 80,315 64,681 61,253
Interest expense, net of interest income of $316, $704
and $302 ............................................. 3,957 923 1,559
Rental and other income, net ............................ (1,727) (910) (907)
---------- ---------- ----------
261,026 193,773 181,358
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
MINORITY INTEREST ....................................... 27,386 24,462 24,385
INCOME TAXES .............................................. 10,996 10,047 10,237
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST 16,390 14,415 14,148
MINORITY INTEREST IN INCOME OF SUBSIDIARIES ............... 615 388 173
---------- ---------- ----------
NET INCOME FROM CONTINUING OPERATIONS ..................... 15,775 14,027 13,975
DISCONTINUED OPERATION
Income from discontinued operation, net of income taxes
of $0, $95 and $1,893 ................................ -- 114 3,019
Gain on sale of subsidiary, net of income taxes of $6,145
in 1994 .............................................. -- 9,661 --
---------- ---------- ----------
NET INCOME ................................................ $ 15,775 $ 23,802 $ 16,994
========== ========== ==========
NET INCOME PER COMMON SHARE
Primary:
Continuing operations ................................ $ 1.45 $ 1.21 $ 1.18
Discontinued operation ............................... -- .01 .25
Gain on sale of subsidiary ........................... -- .83 --
---------- ---------- ----------
$ 1.45 $ 2.05 $ 1.43
========== ========== ==========
Fully diluted:
Continuing operations ................................ $ 1.43 $ 1.21 $ 1.17
Discontinued operation ............................... -- .01 .25
Gain on sale of subsidiary ........................... -- .83 --
---------- ---------- ----------
$ 1.43 $ 2.05 $ 1.42
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
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CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................... $ 15,775 $ 23,802 $ 16,994
----------- ---------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................. 8,170 6,800 5,634
Provision for doubtful accounts ........................... 1,698 910 1,882
Deferred tax (benefit) provision .......................... (912) (284) 8,787
Minority interest in income of subsidiaries ............... 615 388 173
(Gain) on sale of assets .................................. (40) (61) (42)
(Gain) on sale of marketable securities ................... (1,061)
(Gain) on sale of discontinued operation .................. -- (9,661) --
Changes in assets and liabilities of discontinued operation -- (6,915) 609
Changes in assets and liabilities, net of effects from
purchases and disposal of businesses: ...................
Decrease (increase) in accounts receivable .............. 7,645 3,074 (11,508)
Decrease (increase) in inventories ...................... 5,438 (1,313) 2,135
(Increase) decrease in other assets ..................... (1,443) (282) 764
Increase (decrease) in accounts payable ................. 5,876 2,277 (3,262)
(Decrease) increase in accrued expenses ................. (16,671) 1,331 3,069
----------- ---------- ---------
Total adjustments .................................... 9,315 (3,736) 8,241
----------- ---------- ---------
Net cash provided by operating activities ............ 25,090 20,066 25,235
----------- ---------- ---------
Cash flows from investing activities:
Purchases of marketable securities ........................... (2,080) -- --
Proceeds on sale of marketable securities .................... 2,668 -- --
Purchases of businesses, net of cash received of $63, $0 and
$655 ...................................................... (143,298) (19,341) (27,039)
Purchase of property, plant and equipment .................... (8,823) (5,602) (6,661)
Proceeds from sale of business ............................... -- 30,431 --
Proceeds from sale of assets ................................. 313 397 67
----------- ---------- ---------
Net cash (used for) provided by investing activities . (151,220) 5,885 (33,633)
----------- ---------- ---------
Cash flows from financing activities:
Payments on long-term obligations ............................ (2,444) (1,263) (2,783)
Borrowings (repayments) of notes payable ..................... 128,123 (10,351) 7,688
Dividends paid ............................................... (120) (110) (228)
Purchase of treasury stock ................................... (6,133) (16,237) (252)
Purchase of subsidiary stock from minority shareholders ...... -- (3,123) (1,105)
Proceeds from exercise of stock options ...................... 1,007 1,390 723
Redemption of preferred stock ................................ -- -- (16)
----------- ---------- ---------
Net cash provided by (used for) financing activities . 120,433 (29,694) 4,027
----------- ---------- ---------
Effect of exchange rate changes on cash ........................ 25 58 (48)
----------- ---------- ---------
Net (decrease) in cash and temporary investments ............... (5,672) (3,685) (4,419)
Cash and temporary investments at beginning of year ............ 8,774 12,459 16,878
----------- ---------- ---------
Cash and temporary investments at end of year .................. $ 3,102 $ 8,774 $ 12,459
=========== ========== =========
</TABLE>
See notes to consolidated financial statements.
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CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except
share amounts)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
-------------------- ------------------------ Paid-in
Shares Amount Shares Amount Capital
-------- -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 ................ -- $ -- 10,612,272 $ 1,061 $ 19,591
Issuance of common stock upon exercise
of stock options ................... -- -- 103,000 10 650
Issuance of common stock upon
conversion of Class 1 redeemable
preferred stock .................... -- -- 699,500 70 2,712
Issuance of common stock upon merger
with Philadelphia Industries, Inc. . -- -- 497,346 50 1,676
Issuance of common stock upon purchase
of partnership interest ............ -- -- 54,532 6 (191)
Issuance of common stock options in
consideration of assets purchased .. -- -- -- -- 500
Increase in treasury shares ........... -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
Net income ............................ -- -- -- -- --
Preferred dividends:
$5.83 per share for Class 1 ........ -- -- -- -- --
Other .............................. -- -- (2) -- --
-------- -------- ------------ -------- -----------
BALANCE, DECEMBER 31, 1993 .............. -- -- 11,966,648 1,197 24,938
Issuance of common stock upon exercise
of stock options ................... -- -- 130,000 13 1,259
Increase in treasury shares ........... -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
Net income ............................ -- -- -- -- --
-------- -------- ------------ -------- -----------
BALANCE, DECEMBER 31, 1994 .............. -- -- 12,096,648 1,210 26,197
Issuance of common stock upon exercise
of stock options ................... -- -- 97,200 9 890
Increase in treasury shares ........... -- -- -- -- --
Unrealized gain on marketable
securities ......................... -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
Net income ............................ -- -- -- -- --
-------- -------- ------------ -------- -----------
BALANCE, DECEMBER 31, 1995 .............. -- $ -- 12,193,848 $ 1,219 $ 27,087
======== ======== ============ ======== ===========
</TABLE>
20
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<TABLE>
<CAPTION>
Cumulative
Unrealized Foreign Common Stock
Gain on Currency in Treasury
Retained Marketable Translation ----------------------------
Earnings Securities Adjustment Shares Amount Total
- ---------- ------------ ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$ 92,758 $ -- $ (561) (83,966) $ (1,006) $111,843
-- -- -- -- -- 660
-- -- -- -- -- 2,782
-- -- -- -- -- 1,726
-- -- -- -- -- (185)
-- -- -- -- -- 500
-- -- -- (7,225) (252) (252)
-- -- (101) -- -- (101)
16,994 -- -- -- -- 16,994
(16) -- -- -- -- (16)
1 -- -- 1 -- 1
-------- ------------ ------------- ------------- ----------- ----------
109,737 -- (662) (91,190) (1,258) 133,952
-- -- -- -- -- 1,272
-- -- -- (1,010,685) (16,237) (16,237)
-- -- 191 -- -- 191
23,802 -- -- -- -- 23,802
-------- ------------ ------------- ------------- ----------- ----------
133,539 -- (471) (1,101,875) (17,495) 142,980
-- -- -- -- -- 899
-- -- -- (377,957) (6,133) (6,133)
-- 327 -- -- -- 327
-- -- 8 -- -- 8
15,775 -- -- -- -- 15,775
- -------- ------------ ------------- ------------- ----------- ----------
$149,314 $ 327 $ (463) (1,479,832) $(23,628) $153,856
======== ============ ============= ============= =========== ==========
</TABLE>
See notes to consolidated financial statements.
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CSS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of CSS
Industries, Inc. ("Company") and all subsidiaries. All significant
intercompany transactions and accounts have been eliminated in consolidation.
Translation adjustments of a foreign subsidiary are charged or credited to a
separate component of shareholders' equity.
Nature of Business
CSS is a diversified company with two groups of businesses - the Consumer
Products Group and the Direct Mail Business Products Group. The Consumer
Products Group is primarily engaged in the manufacture and sale to mass
market retailers of seasonal gift wrap, gift bags, boxed greeting cards, gift
tags, tissue paper and vinyl decorations, 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
Consumer Products Group with the majority of sales occurring in the third and
fourth quarters, a material portion of the Company's trade receivables are
due in December and January of each year. The Consumer Products Group is
comprised of The Paper Magic Group, Inc. ("Paper Magic"), acquired by the
Company in August 1988, Berwick Industries, Inc. ("Berwick"), acquired in May
1993, and Cleo Inc. ("Cleo"), acquired in November 1995. The Direct Mail
Business Products Group, composed of Rapidforms, Inc. and its subsidiaries
("Rapidforms"), develops and sells business forms, business supplies,
in-store retail merchandising products, holiday greeting cards and
advertising specialties to small and medium sized businesses in the United
States, the United Kingdom and France, primarily through the direct mailing
of catalogs and brochures. Rapidforms was acquired by CSS in January 1985.
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.
Marketable Securities
In accordance with Statement of Financial Accounting Standards No. 115
("SFAS No. 115"), the Company values certain equity securities at market
value at the end of each accounting period. Unrealized market value gains and
losses are charged to earnings if the securities are traded for short-term
profit. Otherwise, such unrealized gains and losses are charged or credited
to a separate component of shareholders' equity.
Management determines the proper classifications of investments in
marketable equity securities at the time of purchase and reevaluates such
designations as of each balance sheet date. At December 31, 1995, all
securities covered by SFAS No. 115 were designated as available for sale.
Accordingly, these securities are stated at fair value, with unrealized gains
and losses reported in a separate component of shareholders' equity. Realized
gains and losses on sales of investments, as determined in a specific
identification basis, are included in the Consolidated Statements of
Operations.
22
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| CSS |
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 cost or market. Had all inventories been
valued at the lower of FIFO cost or market, inventories would have been
greater by $1,643,000 and $1,616,000 at December 31, 1995 and 1994,
respectively. Inventories consisted of the following:
1995 1994
------------- ---------------
Raw material ............................... $21,926,000 $ 8,192,000
Work-in-process ............................ 13,196,000 5,820,000
Finished goods ............................. 41,275,000 21,850,000
------------- ---------------
$76,397,000 $35,862,000
============= ===============
Advertising Materials
Product catalogs for direct mail advertising at Rapidforms are revised and
printed in large quantities several times during the year. The costs of such
catalogs are expensed when mailed. The direct costs of prep work, printing
and binding relating to unmailed catalogs and catalogs in the process of
completion were $2,322,000 and $1,665,000 at December 31, 1995 and 1994, and
were included in other current assets.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided generally on the straight-line method and are based
on estimated useful lives or terms of leases as follows:
Buildings, leasehold interests and improvements ... Lease term to 40 years
Machinery, equipment and other .................... 3 to 12 years
When property is retired or otherwise disposed of, the related cost and
accumulated depreciation and amortization are eliminated from the accounts.
Any gain or loss from the disposition of property, plant and equipment is
included in other income. Maintenance and repairs are expensed as incurred
while improvements are capitalized and depreciated over their estimated
useful lives.
Intangible Assets
The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of its intangible
assets may warrant revision or that the remaining balance of goodwill may not
be recoverable. Intangible assets, including goodwill, are amortized over a
period not to exceed 40 years.
Income Taxes
The Company follows the liability method of accounting for deferred income
taxes. Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and
liabilities. Deferred tax assets or liabilities at the end of each period are
determined using the tax rate expected to be in effect when taxes are
actually paid or recovered.
Revenue Recognition
The Company recognizes revenues in accordance with its shipping terms.
Returns and allowances are reserved for based on 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 period
- -- 10,890,825 in 1995, 11,578,956 in 1994, and 11,878,752 in 1993. Average
outstanding shares used in the computation of fully diluted net income per
share were 11,031,022 in 1995, 11,578,956 in 1994, and 11,998,300 in 1993.
23
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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.
Supplemental Schedule of Cash Flow Information
----------------------------------------------
(In thousands) 1995 1994 1993
---------- --------- ---------
Cash paid during the year for:
Interest .................... $ 2,804 $ 1,542 $ 1,641
========== ========= =========
Income taxes ................ $ 8,044 $15,339 $ 2,014
========== ========= =========
Details of acquisitions:
Fair value of assets acquired $192,772 $24,460 $54,326
Liabilities assumed ......... 49,411 5,119 26,632
---------- --------- ---------
Cash paid ................... 143,361 19,341 27,694
Less cash acquired .......... 63 -- 655
---------- --------- ---------
Net cash paid for acquisitions $143,298 $19,341 $27,039
========== ========= =========
See Note 2 for supplemental disclosure of noncash investing activities.
Future Accounting Changes
"Accounting for Stock-Based Compensation," SFAS No. 123, was issued in
October 1995. This statement provides for alternatives relating to the
measurement of compensation expense for stock options and other stock-based
compensation. One option is to recognize compensation expense in the
consolidated financial statements using a fair-value based method, applied to
virtually all stock-based compensation. The alternative would not change the
current intrinsic-value approach to expense recognition, but would require
pro forma disclosure in the notes to the consolidated financial statements of
the impact using the fair-value method. The Company plans to adopt the pro
forma disclosure option in 1996, and management of the Company believes the
adoption of such method will not have a material effect on the consolidated
financial condition or results of operations.
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of," SFAS No. 121, was issued in March 1995. This
statement requires review and measurement methods to calculate impairment of
long-lived assets, including certain identifiable intangibles and goodwill.
The statement also requires that long-lived assets to be disposed of be
reported at the lower of the carrying amount or fair value less costs to
sell. Although asset impairment may result from changes in business
conditions, strategies and organization, management of the Company believes
the adoption of this statement in 1996 will not result in any significant
write-downs of assets.
Reclassification
Certain prior-period amounts have been reclassified to conform with
current-year classifications.
(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
24
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| CSS |
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.
Subsequent to the acquisition of Cleo, the Company's management approved a
restructuring plan that was substantially implemented by December 31, 1995.
Cleo's 1995 products were manufactured in six facilities and warehoused in
and distributed from five other permanent and temporary facilities. As a part
of this plan, five of Cleo's six manufacturing facilities have been closed
and four of the five warehouse and distribution facilities have been vacated.
Cleo's boxed card, Valentine, gift tags and ribbon and bow manufacturing and
packaging requirements will be blended into existing lines at Paper Magic and
Berwick during early 1996. In addition, all applicable inventory will be
transferred from Cleo to Paper Magic and Berwick. As a result of the closure
of facilities and consolidation of manufacturing processes, employees at the
affected facilities were severed.
The unaudited consolidated results of operations of the Company and Cleo
on a pro forma basis as though the transaction had been consummated at the
beginning of the respective years were as follows:
1995 1994
--------------- ---------------
Sales ................................. $429,106 $392,478
Net income ............................ 5,634 5,313
Net income per common share ...........
Primary ............................. .52 .46
Fully diluted. ...................... $ .51 $ .46
Pro forma adjustments included in the above results reflect (1) increased
inventory obsolescence reserves required for the periods prior to November
15, 1995, (2) reduced rental expense related to a renegotiated lease and to
leases on terminated facilities, (3) reduction of administrative payroll
costs and management fees, and (4) the effect of purchase accounting
adjustments on interest, depreciation, amortization and tax expense.
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.
On December 22, 1994, Rapidforms acquired certain assets and the business
of Business Envelope Manufacturers, Inc., 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 $4,748,000 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 $15,446,000
was recorded as goodwill and other intangible assets in the accompanying
balance sheet and is being amortized over 20 to 40 years.
On March 30, 1994, the Company sold its 96% interest in its Ellisco
subsidiary for total proceeds to the Company of $30,431,000. The after-tax
gain on the sale was $9,661,000 while the net after-tax cash proceeds was
approximately $24,000,000. Sales from the discontinued operation were
$8,307,000 in 1994 and $38,834,000 in 1993. Operating income was $316,000 in
1994 and $3,726,000 in 1993.
25
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On January 21, 1993, Philadelphia Industries, Inc. ("PII"), a holding
company that owned 45.5% of the Company, merged with and into the Company.
Pursuant to the merger agreement, 5,606,752 shares of common stock of the
Company were issued to PII stockholders, representing 5,109,406 shares
beneficially owned by PII and 497,346 additional shares of common stock
issued in consideration of the other net assets of PII, primarily real estate
leased by PII, through a subsidiary and its 80% interest in Elfar Realty
Partners ("Elfar"), to certain subsidiaries of the Company net of the related
mortgage indebtedness. In addition, the Company acquired the remaining 20%
interest in Elfar on December 20, 1993, for $650,000 and 54,532 shares of
common stock.
(3) STOCK OPTION PLANS:
The Company's Board of Directors adopted, subject to approval of the
shareholders of the Company, the CSS Industries, Inc. 1995 Stock Option Plan
for Non-Employee Directors ("1995 Plan"). Under the terms of the 1995 Plan,
non-qualified stock options to purchase up to 300,000 shares of common stock
are available for grant to non-employee directors at exercise prices of not
less than fair market value on the date of grant. Options to purchase 4,000
shares of the Company's common stock are to be granted automatically to each
non-employee director on the last day of November through the year 2000.
Options may be exercised at the rate of 25% per year commencing one year
after the date of grant.
Under the terms of the 1994 Equity Compensation Plan ("1994 Plan"), the
Human Resources Committee ("Committee") of the Board of Directors may grant
incentive stock options, non-qualified stock options, restricted stock
grants, stock appreciation rights or combinations thereof to officers and
other key employees. Grants under the 1994 Plan may be made through November
2004 and are exercisable at the discretion of the Committee but in no event
greater than ten years from the date of grant. At December 31, 1995, options
to acquire 735,500 shares were available for grant under the 1994 plan.
Under the terms of the 1991 Stock Option Plan for Non-Employee Directors
("1991 Plan"), stock options to purchase up to 150,000 shares of common stock
were available for grant to non-employee directors at exercise prices of not
less than fair market value on the date of grant. Options to purchase 4,000
shares of the Company's common stock were granted automatically to each
non-employee director on the last day of November in each year from 1991
through 1995 and options may be exercised at the rate of 25% per year
commencing one year after the date of grant. At December 31, 1995, options to
acquire 10,000 shares were available for grant under the 1991 Plan.
Transactions from January 1, 1993 through December 31, 1995, under the
above plans were as follows:
Number Option Price
of Shares per Share
----------- ---------------
Options outstanding at January 1, 1993 .. 546,000 $ 6.06 - $15.06
Granted ............................... 193,000 15.81 - 19.13
Exercised ............................. (103,000) 6.06 - 13.88
Canceled .............................. (10,000) 18.00
----------- ----------------
Options outstanding at December 31, 1993 626,000 9.06 - 19.13
Granted ............................... 460,500 16.00 - 20.00
Exercised ............................. (130,000) 9.06 - 9.94
Canceled .............................. (134,000) 15.06 - 20.00
----------- ----------------
Options outstanding at December 31, 1994 822,500 9.25 - 20.00
Granted ............................... 255,000 15.38 - 22.25
Exercised ............................. (97,200) 9.25
Canceled .............................. (75,300) 9.25 - 16.25
----------- ----------------
Options outstanding at December 31, 1995 905,000 $ 13.88 - $22.25
=========== ================
Options exercisable at December 31, 1995 291,500 $ 13.88 - $20.00
=========== ================
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Rapidforms and certain of its subsidiaries maintain incentive stock option
plans in which options to acquire common shares may be granted to key
employees at the fair market value per share on the date of grant. See Note
8.
(4) PROFIT SHARING PLANS:
The Company's principal operating subsidiaries maintain profit sharing
plans covering substantially all of their employees. Corporate officers and
employees are covered by the Rapidforms, Inc. Profit Sharing Plan.
Annual contributions under the plans are determined by the Board of
Directors of the Company or each subsidiary, as appropriate. Consolidated
profit sharing expense for the years ended December 31, 1995, 1994 and 1993
was $1,862,000, $1,798,000 and $1,521,000.
(5) FEDERAL INCOME TAXES:
The following table summarizes the provision for U.S. federal, state and
foreign taxes on income:
1995 1994 1993
-------- -------- --------
Current:
Federal ...................... $10,298 $ 8,406 $ (71)
State ........................ 1,342 1,957 1,484
Foreign ...................... 268 (32) 37
-------- -------- --------
11,908 10,331 1,450
-------- -------- --------
Deferred:
Federal ...................... (1,252) (1) 8,349
State ........................ 340 (283) 438
Foreign ...................... -- -- --
-------- -------- --------
(912) (284) 8,787
-------- -------- --------
$10,996 $10,047 $10,237
======== ======== ========
The differences between the statutory and effective federal income tax
rates on income from continuing operations before income taxes and minority
interest were as follows:
1995 1994 1993
------- ------- -------
U.S. federal statutory rate ............ 35.0% 35.0% 35.0%
State income taxes, less federal benefit 4.0 4.4 5.1
Other .................................. 1.2 1.7 1.9
------- ------- -------
40.2% 41.1% 42.0%
======= ======= =======
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Deferred taxes are recorded based upon differences between the financial
statement and tax basis of assets and liabilities and available tax credit
carryforwards. The following temporary differences gave rise to net deferred
tax liabilities as of December 31, 1995 and 1994:
1995 1994
-------- -------
Deferred tax assets:
Accounts receivable ..................... $ -- $1,422
Inventory ............................... -- 1,814
Property, plant and equipment ........... 7,407 --
Accrued expenses ........................ 4,964 3,251
Other ................................... 878 725
-------- -------
$13,249 $7,212
-------- -------
Deferred tax liabilities:
Accounts receivable ..................... $ 6,836 $ --
Inventory ............................... 2,695 --
Property, plant and equipment ........... -- 2,492
Other ................................... 3,988 5,902
-------- -------
$13,519 $8,394
-------- -------
Net deferred tax liability .............. $ 270 $1,182
======== =======
(6) LONG-TERM DEBT AND CREDIT ARRANGEMENTS:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Mortgage on Rapidforms' facility, payable monthly
through March 1996, interest at 10.5% ................. $ 4,287,000 $ 4,328,000
Economic development revenue bonds (tax exempt) bearing
interest at a weighted average rate of 7.17% with
annual serial maturities through 1999 and a term
maturity in 2004, less unamortized discount of $130,000
to yield an effective rate of 7.29%. .................. 8,075,000 --
Economic development revenue bonds (taxable) bearing
interest at 9.10% with annual sinking fund payments
through 2004, less unamortized discount of $127,000 to
yield an effective rate of 9.35% ...................... 5,678,000 --
Other mortgages, payable monthly through 2001, interest
at rates ranging from prime plus 1% to 11.5% .......... 1,180,000 1,403,000
Industrial Development Revenue Bonds, payable
periodically through 2005, interest at rates ranging
from 3% to 9.25% ...................................... 2,468,000 2,610,000
Berwick acquisition debt, payable in 2003, interest at
8% .................................................... 2,355,000 3,000,000
Other .................................................. 353,000 571,000
------------- -------------
24,396,000 11,912,000
Less -- current portion ................................ (6,531,000) (869,000)
------------- -------------
$17,865,000 $11,043,000
============= =============
</TABLE>
In conjunction with the acquisition of Cleo and the consolidation of other
credit facilities, the Company entered into a $195,000,000 unsecured
revolving credit facility with thirteen banks and financial institutions on
November 15, 1995. The facility expires on November 15, 2000 and provides
that borrowings are limited during a consecutive 30 day period during each
year of the agreement. At the Company's option, interest on
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the facility accrues at (1) the greater of the prime rate or 1/2% in excess
of the Federal Funds Rate, or (2) LIBOR plus 1 1/4%. The loan agreement
contains covenants, the most restrictive of which pertain to net worth;
earnings before interest, income taxes and depreciation; capital
expenditures; the ratio of operating cash flow to fixed charges; the ratio of
earnings to interest expense and the ratio of debt to capitalization. The
weighted average interest rate under the loan agreement for 1995 was 8.22%,
including all facility fees.
In connection with the acquisition of Cleo on November 15, 1995, the
Company entered into a short-term note with the seller for $24,574,000. The
note accrued interest at the rate of 8% and was repaid on January 29, 1996.
Prior to November 15, 1995, Paper Magic had a $40,000,000 unsecured
revolving credit facility with four banks. In addition, the Company
maintained a $15,000,000 unsecured demand line of credit with a bank.
Rapidforms had a $4,287,000 note outstanding with a financial institution
which accrued interest at 10.5% and was secured by a mortgage on its primary
office, manufacturing and warehouse facility. This note was repaid in full in
February 1996. The Company and Berwick maintain various notes relating to the
financing of manufacturing facilities which are secured by mortgages on the
facilities.
Cleo financed the construction of its primary distribution facility with
the proceeds from Economic Development Revenue Bonds. Cleo also maintains an
Urban Development Action Grant ("UDAG") bearing interest at 8% and payable in
quarterly installments. The UDAG is secured by land and property.
A subsidiary of Rapidforms obtained financing through the issuance of
Industrial Development Revenue Bonds for the construction of a manufacturing,
office and warehouse facility and the purchases of new equipment. The bonds,
which bear interest at a rate that approximates 75% of prime, are secured by
a mortgage on the facility, security interests in the equipment and the
guarantee of Rapidforms.
The Company and Berwick maintain second mortgages on several facilities
financed with Industrial Development Revenue Bonds. The bonds mature between
1998 and 2001, accrue interest at rates ranging from 3% to 9.25% and are
secured by mortgages on the facilities.
In connection with the acquisition of Berwick in 1993, the Company entered
into a term loan with the primary selling shareholder. The original term loan
of $3,000,000 was reduced for indemnification claims to $2,355,000 and is
payable on May 3, 2003 with interest payable quarterly at a rate of 8% per
year. The note is callable at the option of the noteholder after May 3, 1996,
subject to then unresolved claims.
Long-term debt matures as follows:
1996 .................................................. $ 6,531,000
1997 .................................................. 1,878,000
1998 .................................................. 1,942,000
1999 .................................................. 2,114,000
2000 .................................................. 931,000
Thereafter ............................................ 11,000,000
--------------
Total ............................................... $24,396,000
==============
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(7) OPERATING LEASES:
The future minimum rental payments associated with all noncancelable lease
obligations are as follows:
1996 .................................................. $ 5,965,000
1997 .................................................. 4,353,000
1998 .................................................. 2,999,000
1999 .................................................. 2,727,000
2000 .................................................. 2,481,000
Thereafter ............................................ 5,817,000
--------------
Total ............................................... $24,342,000
==============
Rent expense was $2,792,000 in 1995, $2,510,000 in 1994, and $2,488,000 in
1993.
(8) COMMITMENTS AND CONTINGENCIES:
Rapidforms had entered into agreements with minority shareholders or stock
option grantees that require the subsidiary to repurchase shares or options
held upon death, termination of employment or upon the permissible voluntary
tender of shares by the shareholder. The repurchase price was established by
reference to a multiple of pre-tax earnings or the fair market value of such
shares or options as determined by Rapidforms' board of directors.
During 1994, Paper Magic agreed to purchase for cash or notes all shares
of Paper Magic common stock held by its minority shareholders. The total
redemption liability was $9,781,000, of which $1,258,000 remains as a
liability in the accompanying balance sheet.
As of December 31, 1995 and 1994, only Rapidforms and certain of its
subsidiaries had minority shareholders and outstanding stock options. The
liability of Rapidforms to repurchase such shares was $3,608,000 and
$3,005,000 at December 31, 1995 and 1994, respectively, and was reported as
minority interest on the accompanying balance sheet.
(9) PREFERRED STOCK:
In connection with the merger with Philadelphia Industries, Inc. on
January 21, 1993 and other January 1993 transactions, all of the Class 1
redeemable preferred stock was converted into 699,500 shares of common stock.
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(10) SEGMENT INFORMATION:
The Company operates in two business segments - consumer products and
direct mail business products. Operations within the consumer products
segment includes the manufacture and sale primarily to mass market retailers
of seasonal gift wrap, gift bags, boxed greeting cards, gift tags, tissue
paper, paper and vinyl decorations, classroom exchange Valentines, decorative
ribbon and bows, Halloween masks, costumes, make-ups and novelties and Easter
egg dyes and novelties. The direct mail business products segment develops
and sells business forms, business supplies, in-store retail merchandising
products, holiday greeting cards and advertising specialties to small and
medium sized businesses in the United States, the United Kingdom and France,
primarily through the direct mailing of catalogs and brochures.
Operations by Business Segment
(In thousands)
<TABLE>
<CAPTION>
Consumer Products Direct Mail Business Products Consolidated
------------------------------------- ---------------------------------- -----------------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
---------- ---------- ---------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales to
unaffiliated
customers .... $202,274 $153,440 $147,603 $86,138 $64,795 $58,140 $288,412 $218,235 $205,743
========== ========== ========== ========= ========= =========
Operating
profit ....... $ 21,542 $ 17,091 $ 19,505 $11,222 $10,031 $ 9,280 32,764 27,122 28,785
========== ========== ========== ========= ========= =========
General
corporate
expenses ..... (3,148) (2,647) (3,748)
Interest
expense, net (3,957) (923) (1,559)
Rental and
other
income, net .. 1,727 910 907
---------- ---------- ----------
Income before
income taxes . $ 27,386 $ 24,462 $ 24,385
========== ========== ==========
Identifiable
assets at
December 31 .. $297,791 $124,681 $128,118 $60,970 $60,901 $32,942 $358,761 $185,582 $161,060
========== ========== ========== ========= ========= =========
Corporate
assets ....... 16,200 19,499 39,083
---------- ---------- ----------
Total assets .. $374,961 $205,081 $200,143
========== ========== ==========
Depreciation
and
amortization . $ 4,398 $ 4,076 $ 3,256 $ 3,205 $ 2,212 $ 1,894
========== ========== ========== ========= ========= =========
Capital
expenditures . $ 4,895 $ 4,008 $ 4,638 $ 3,855 $ 1,651 $ 1,836
========== ========== ========== ========= ========= =========
</TABLE>
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(11) QUARTERLY FINANCIAL DATA (UNAUDITED):
(In thousands, except
per share amounts)
<TABLE>
<CAPTION>
Quarters
------------------------------------------------
1995 First Second Third Fourth
---- --------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Sales ........................................ $42,529 $43,038 $100,736 $102,109
========= ========= ========== ==========
Gross profit ................................. $19,221 $18,606 $ 36,693 $ 35,411
========= ========= ========== ==========
Net income from continuing operations ........ $ 501 $ 1,260 $ 8,120 $ 5,894
Income from discontinued operation, net of
income taxes ................................ -- -- -- --
Gain on sale of discontinued operation, net of
income taxes ................................ -- -- -- --
--------- --------- ---------- ----------
Net income ................................... $ 501 $ 1,260 $ 8,120 $ 5,894
========= ========= ========== ==========
Net income per common share:
Primary:
Continuing operations ................... $ .05 $ .12 $ .75 $ .54
Discontinued operation .................. -- -- -- --
Gain on sale of subsidiary .............. -- -- -- --
--------- --------- ---------- ----------
$ .05 $ .12 $ .75 $ .54
========= ========= ========== ==========
Fully diluted:
Continuing operations ................... $ .05 $ .12 $ .74 $ .54
Discontinued operation .................. -- -- -- --
Gain on sale of subsidiary .............. -- -- -- --
--------- --------- ---------- ----------
$ .05 $ .12 $ .74 $ .54
========= ========= ========== ==========
1994
----
Sales ........................................ $35,161 $33,222 $ 77,016 $ 72,836
========= ========= ========== ==========
Gross profit ................................. $16,275 $15,759 $ 28,425 $ 28,697
========= ========= ========== ==========
Net income from continuing operations ........ $ 696 $ 1,139 $ 6,726 $ 5,466
Income from discontinued operation, net of
income taxes ............................... 114 -- -- --
Gain on sale of discontinued operation, net of
income taxes ............................... 9,661 -- -- --
--------- --------- ---------- ----------
Net income ................................... $10,471 $ 1,139 $ 6,726 $ 5,466
========= ========= ========== ==========
Net income per common share:
Primary: ...................................
Continuing operations ................... $ .06 $ .09 $ .61 $ .49
Discontinued operation .................. .01 -- -- --
Gain on sale of subsidiary .............. .80 -- -- --
--------- --------- ---------- ----------
$ .87 $ .09 $ .61 $ .49
========= ========= ========== ==========
Fully diluted:
Continuing operations ................... $ .06 $ .09 $ .61 $ .49
Discontinued operation .................. .01 -- -- --
Gain on sale of subsidiary .............. .80 -- -- --
--------- --------- ---------- ----------
$ .87 $ .09 $ .61 $ .49
========= ========= ========== ==========
</TABLE>
32
<PAGE>
| |
| |
| CSS |
Most Paper Magic, Berwick and Cleo revenues are seasonally oriented, with
approximately 70% of sales being Christmas and Halloween related. As a
result, consolidated revenues and profits are typically lowest in the first
half of the year when Paper Magic, Berwick and Cleo are producing their
inventory of Christmas and Halloween products and highest in the second half
when their products are shipped. Quarterly fluctuations of sales and earnings
are expected to be further pronounced in 1996 with the inclusion of a full
year of Cleo's results.
Item 9. Disagreements on Accounting and Financial Disclosure
None
33
<PAGE>
| |
| |
| CSS |
PART III
Item 10. Directors and Executive Officers of the Registrant
See "ELECTION OF DIRECTORS" and "EXECUTIVE OFFICERS OF CSS" in the Proxy
Statement for the 1996 Annual Meeting of Stockholders of the Company, which
will be incorporated herein by reference.
Item 11. Executive Compensation
See "EXECUTIVE COMPENSATION" in the Proxy Statement for the 1996 Annual
Meeting of Stockholders of the Company, which will be incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See "CSS SECURITY OWNERSHIP" in the Proxy Statement for the 1996 Annual
Meeting of Stockholders of the Company, which will be incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
See "CERTAIN TRANSACTIONS AND SUBSIDIARY MATTERS" in the Proxy Statement
for the 1996 Annual Meeting of Stockholders of the Company, which will be
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Attached hereto and filed as part of this report are the financial
statement schedules and the exhibits listed below.
1. Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets -- December 31, 1995 and 1994
Consolidated Statements of Operations -- for the years ended December
31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows -- for the years ended December
31, 1995, 1994 and 1993
Consolidated Statements of Shareholders' Equity -- for the years ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
(b) Reports on Form 8-K filed during the last quarter of 1995
The Company filed a report on Form 8-K with respect to the acquisition
of Cleo by the Company on November 15, 1995. CSS anticipates that it
will be unable to satisfy the financial statement requirements of Form
8-K with regard to the Cleo acquisition until its dispute with Gibson
regarding the statement has been resolved. (See Legal Proceedings).
(c) Exhibits, Including Those Incorporated by Reference The following is a
list of exhibits filed as part of this annual report on Form 10-K.
Where so indicated by footnote, exhibits which were previously filed
are incorporated by reference. For exhibits incorporated by reference,
the location of the exhibit in the previous filing is indicated in
parentheses.
34
<PAGE>
| |
| |
| CSS |
Articles of Incorporation and By-laws
3.1 Restated Certificate of Incorporation filed December 5, 1990. (1)
(Exhibit 3.1)
3.2 Amendment to Restated Certificate of Incorporation filed May 8, 1992.
(2) (Exhibit 3.2)
3.3 Certificate eliminating Class 2, Series A, $1.35 Preferred stock filed
September 27, 1991. (3) (Exhibit 3.2)
3.4 Certificate eliminating Class 1, Series B, Convertible Preferred Stock
filed January 28, 1993. (2) (Exhibit 3.5)
3.5 By-laws of the Company, as amended to date (as last amended July 25,
1989). (4) (Exhibit 3.10)
Material Contracts
10.1 CSS Industries, Inc. 1991 Stock Option Plan for Non-Employee
Directors. (2) (Exhibit 10.1)
10.2 Registration Rights Grant dated January 21, 1993, between the Company
and certain former holders of common stock in Philadelphia Industries,
Inc. (2) (Exhibit 10.2)
10.3 Shareholders' Agreement, dated as of February 4, 1985, by and among
shareholders of Rapidforms, Inc. (5) (Exhibit 4 (B))
10.4 First Amendment to Shareholders' Agreement, dated as of December 17,
1990, by and among shareholders of Rapidforms, Inc. (3) (Exhibit 10.7)
10.5 Loan Agreement among CSS Industries, Inc., the Lending Institutions
listed therein, CoreStates Bank, N.A. as the Administrative Agent, and
Merrill Lynch & Co. as the Syndication Agent, dated as of November 15,
1995 (9) (Exhibit 10.1)
10.6 Stock Purchase Agreement dated as of October 3, 1995 between the
Company and Gibson Greetings, Inc. (10) (Exhibit 2.1)
Executive Compensation Plans and Arrangements
10.7 CSS Industries, Inc. 1985 Incentive Stock Option Plan, as last amended
in 1991. (3) (Exhibit 10.1)
*10.8 CSS Industries, Inc. 1994 Equity Compensation Plan
10.9 CSS Industries, Inc. Non-Qualified Supplemental Executive Retirement
Agreements, dated March 3, 1993, with certain executive officers of
the Company. (2) (Exhibit 10.15)
10.10 CSS Industries, Inc. Non-Qualified Supplemental Executive Retirement
Plan Guidelines, dated January 25, 1994. (6) (Exhibit 10.14)
10.11 Deferred Compensation Agreement between Jack Farber and CSS
Industries, Inc., restated as of December 8, 1994. (8) (Exhibit 10.8)
10.12 CSS Industries, Inc. Annual Incentive Compensation Arrangement,
Administrative Guidelines, dated March 15, 1993. (2) (Exhibit 10.17)
10.13 Rapidforms, Inc. Incentive Stock Option Plan, dated June 25, 1987,
and form of stock option agreement. (7) (Exhibit 10.5)
10.14 Amendment to Rapidforms, Inc. Incentive Stock Option Plan, dated
December 11, 1990. (1) (Exhibit 10.5)
10.15 Rapidforms, Inc. Profit Sharing Plan, as last amended January 12,
1995. (8) (Exhibit 10.12)
10.16 Rapidforms, Inc. Annual Incentive Compensation Arrangement,
Administrative Guidelines, dated March 15, 1993. (2) (Exhibit 10.22)
10.17 The Paper Magic Group, Inc. Management Incentive Bonus Program,
Administrative Guidelines, dated March 15, 1993. (2) (Exhibit 10.28)
35
<PAGE>
| |
| |
| CSS |
10.18 1994 Amendment to The Paper Magic Group, Inc. Management Incentive
Bonus Program, Administrative Guidelines, dated March 2, 1994. (6)
(Exhibit 10.26)
10.19 The Paper Magic Group, Inc. 1994 Incentive Stock Option Plan. (8)
(Exhibit 10.16)
10.20 Berwick Industries, Inc. Incentive Bonus Plan, dated January 1, 1994.
(6) (Exhibit 10.27)
10.21 Employment Agreement between John Pinti and Berwick Industries,
Incorporated, dated October 1, 1992. (8) (Exhibit 10.18)
10.22 Amendment to Employment Agreement between Berwick Industries,
Incorporated and John Pinti, dated May 3, 1993. (8) (Exhibit 10.19)
*10.23 Cleo Inc. Management Incentive Plan, dated March 7, 1996.
Subsidiaries
*21. List of Significant Subsidiaries of the Registrant
Footnotes to List of Exhibits
-----------------------------
- ------
* Filed with this Annual Report on Form 10-K.
(1) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1990 and incorporated herein by reference.
(2) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1992 and incorporated herein by reference.
(3) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1991 and incorporated herein by reference.
(4) Filed as an exhibit to the Registration Statement on Form S-2 (No. 33-31082)
and incorporated herein by reference.
(5) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended February 2, 1985 and incorporated herein by reference.
(6) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1993 and incorporated herein by reference.
(7) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1988 and incorporated herein by reference.
(8) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1994.
(9) Filed as an exhibit to the Current Report on Form 8-K (No. 1-2661) dated
November 15, 1995.
(10) Filed as an exhibit to the Quarterly Report on Form 10-Q (No. 1-2661) for
the fiscal quarter ended September 30, 1995.
The Company agrees to provide the SEC upon request with copies of certain
long-term debt obligations of CSS Industries, Inc., Cleo Inc., Berwick
Industries, Inc., and a subsidiary of Rapidforms, Inc.
The Company agrees to furnish supplementally a copy of omitted Schedules
and Exhibits, if any, with respect to Exhibits listed above upon request.
Stockholders who have been furnished a copy of this Report may obtain
copies of any Exhibit listed above on payment of $.50 per page for
reproduction and mailing charges by writing to Secretary, CSS Industries,
Inc., 1845 Walnut Street, Philadelphia, Pennsylvania 19103.
36
<PAGE>
| |
| |
| CSS |
CSS INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- --------------------------------- ------------- ---------------------------- ------------- -------------
Additions
----------------------------
Balance Charged
at to costs Charged Balance
Beginning and to Other at End of
of Period Expenses Accounts Deductions Period
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Doubtful accounts
receivable-customers ....... $1,950 $1,698 $2,036 (a) $1,000 $4,684
Year ended December 31, 1994
Doubtful accounts
receivable-customers ....... $1,587 $ 910 $ 64 (b) $ 611 $1,950
Year ended December 31, 1993
Doubtful accounts receivable-
customers .................. $1,320 $1,882 $ 118 (c) $1,733 $1,587
</TABLE>
Notes: (a) Balance at acquisition of Cleo, Topstone and Illusive Concepts.
(b) Balance at acquisition of Histacount and Business Envelope.
(c) Balance at acquisition of Berwick.
37
<PAGE>
| |
| |
| CSS |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on behalf of the undersigned hereunto duly authorized.
CSS INDUSTRIES, INC.
-----------------------------------------------------
Registrant
By /s/ Jack Farber
--------------------------------------------------
Jack Farber, Chairman of the Board, President and
Chief Executive Officer (principal executive
officer)
Dated: March 12, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant
and in the capacities on the date indicated.
Dated: March 12, 1996 /s/ Jack Farber
--------------------------------------------
Jack Farber, Chairman of the Board,
President and Chief Executive Officer
(principal executive officer and a director)
Dated: March 12, 1996 /s/ James G. Baxter
--------------------------------------------
James G. Baxter, President-Consumer Products
Group and Chief Financial Officer (principal
financial and accounting officer and a
director)
Dated: March 12, 1996 /s/ Willard M. Bright
--------------------------------------------
Willard M. Bright, Director
Dated: March 12, 1996 /s/ James H. Bromley
--------------------------------------------
James H. Bromley, Director
Dated: March 12, 1996 /s/ John R. Bunting, Jr.
--------------------------------------------
John R. Bunting, Jr., Director
Dated: March 12, 1996 /s/ Stephen V. Dubin
--------------------------------------------
Stephen V. Dubin, Director
Dated: March 12, 1996 /s/ Richard G. Gilmore
--------------------------------------------
Richard G. Gilmore, Director
Dated: March 12, 1996 /s/ Leonard E. Grossman
--------------------------------------------
Leonard E. Grossman, Director
Dated: March 12, 1996 /s/ James E. Ksansnak
--------------------------------------------
James E. Ksansnak, Director
Dated: March 12, 1996 /s/ Michael L. Sanyour
--------------------------------------------
Michael L. Sanyour, Director
Dated: March 12, 1996 /s/ William C. Warren
--------------------------------------------
William C. Warren, Director
38
<PAGE>
CSS INDUSTRIES, INC.
EQUITY COMPENSATION PLAN
The purpose of the Equity Compensation Plan (the "Plan") of CSS
Industries, Inc. (the "Company") is to promote the interests of the Company by
providing incentives to designated officers and other employees of the Company
or a Subsidiary Corporation (as defined herein), to encourage them to acquire
a proprietary interest, or to increase their proprietary interest, in the
Company. The Company believes that the Plan will cause participants to
contribute materially to the growth of the Company, thereby benefitting the
Company's stockholders. For purposes of the Plan, the terms "Parent
Corporation" and "Subsidiary Corporation" shall have the meanings set forth in
subsections (e) and (f) of Section 424 of the Internal Revenue Code of 1986,
as amended (the "Code").
1. Administration
The Plan shall be administered and interpreted by the Human Resources
Committee of the Board of Directors (the "Committee") consisting of not less
than three persons, all of whom shall be "disinterested persons" as defined
under Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange
Act") or any successor provisions. The Committee shall have the sole authority
to determine (i) who is eligible to receive Grants (as defined in Section 2
below) under the Plan; (ii) the type, size and terms of each Grant under the
Plan (subject to Section 4 below); (iii) the time when each Grant will be made
and the duration of any exercise or restriction period; (iv) any restrictions
on resale applicable to the shares to be issued or transferred pursuant to the
Grant; and (v) any other matters arising under the Plan. The Committee may, if
it so desires, base any of the foregoing determination upon the
recommendations of management of the Company. The Committee shall have full
power and authority to administer and interpret the Plan and to adopt or amend
such rules, regulations, agreements and instruments as it may deem appropriate
for the proper administration of the Plan. The Committee's interpretations of
the Plan and all determinations made by the Committee pursuant to the powers
vested in it hereunder shall be conclusive and binding on all persons having
any interests in the Plan or in any Grants under the Plan. No person acting
under this Section shall be held liable for any action or determination made
in good faith with respect to the Plan or any Grant under the Plan.
2. Grants
Incentives under the Plan shall consist of Incentive Stock Options
(as defined in Section 5(b) below), Non-Qualified Stock Options (as defined in
Section 5(b) below), Restricted Stock Grants (as defined in Section 6 below)
and SARs (as defined in Section 7 below) (hereinafter collectively referred to
as "Grants"). All Grants shall be subject to the terms and conditions set
forth herein and to such other terms and conditions of any nature as long as
they are not inconsistent with the Plan as the Committee deems appropriate and
specifies in writing to the participant (the "Grant Letter"). The Committee
shall approve the form and provisions of each Grant Letter. Grants under any
section of the Plan need not be uniform as among the participants receiving
the same type of Grant, and Grants under two or more sections of the Plan may
be combined in one Grant Letter.
<PAGE>
3. Shares Subject to the Plan
(a) The aggregate number of shares of the Common Stock, par value
$.10 ("Common Stock"), of the Company that may be issued or transferred under
the Plan is 1,000,000 shares, subject to adjustment pursuant to Section 3(b)
below. The shares may be authorized but unissued shares or reacquired shares.
If and to the extent that options granted under the Plan terminate, expire or
are cancelled without having been exercised (including shares cancelled as
part of an exchange of Grants), or if any shares of restricted stock are
forfeited, the shares subject to such Grant shall again be available for
subsequent Grants under the Plan.
(b) If any change is made to the Common Stock (whether by reason of
merger, consolidation, reorganization, recapitalization, stock dividend, stock
split, combination of shares, or exchange of shares or any other change in
capital structure made without receipt of consideration), then unless such
event or change results in the termination of all outstanding Grants under the
Plan, the Committee shall preserve the value of the outstanding Grants by
adjusting the maximum number and class of shares issuable under the Plan to
reflect the effect of such event or change in the Company's capital structure,
and by making appropriate adjustments to the number and class of shares, the
exercise price of each outstanding option and otherwise, except that any
fractional shares resulting from each adjustments shall be eliminated by
rounding any portion of a share equal to .500 or greater up, and any portion
of a share equal to less than .500 down, in each case to the nearest whole
number.
4. Eligibility for Participation
Officers and other employees of the Company or a Subsidiary
Corporation shall be eligible to participate in the Plan (referred to
individually as an "Eligible Participant" and collectively as "Eligible
Participants"). The Committee shall select from among the Eligible
Participants those who will receive Grants (referred to individually as
"Grantee" and collectively as "Grantees") and shall determine the number of
shares of Common Stock subject to each Grant. The Committee may, if it so
desires, base any such selections or determinations upon the recommendations
of management of the Company. Nothing contained in the Plan shall be construed
to limit in any manner whatsoever the right of the Company to grant rights or
options to acquire Common Stock or awards of Common Stock otherwise than
pursuant to the Plan.
5. Stock Options
(a) Number of Shares. The Committee, in its sole discretion, shall
determine the number of shares of Common Stock that will be subject to each
option.
(b) Type of Option and Option Price.
2
<PAGE>
(1) The Committee may grant options qualifying as incentive
stock options within the meaning of Section 422 of the Code
("Incentive Stock Options") and other stock options
("NonQualified Stock Options"), in accordance with the terms
and conditions set forth herein, or may grant any
combination of Incentive Stock Options and NonQualified
Stock Options (hereinafter referred to collectively as
"Stock Options"). The option price per share of an Incentive
Stock Option shall be the fair market value (as defined
herein) of a share of Common Stock on the date of grant.
However, if the Grantee of an Incentive Stock Option is the
owner of Common Stock (as determined under section 424(d) of
the Code) who possesses more than 10% of the total combined
voting power of all classes of stock of the Company or a
Parent Corporation or Subsidiary Corporation, the option
price per share in the case of an Incentive Stock Option
shall not be less than 110% of the fair market value of a
share of Common Stock on the date of grant. The option price
per share of a Non-Qualified Stock Option shall be an
amount determined by the Committee in the exercise of its
discretion, but in no event shall such option price be less
than the book value of a share of Common Stock on the date
of grant unless an option price of less than such book value
is approved by the Board of Directors of the Company.
(2) For all valuation purposes under the Plan, the fair
market value of a share of Common Stock shall be determined
in accordance with the following provisions:
(A) If the Common Stock is not at the time listed
or admitted to trading on any stock exchange but is
traded either on the over-the-counter market or
listed on Nasdaq National Market segment of the
Nasdaq Stock Market, the fair market value shall be
the closing selling price of one share of Common
Stock on the date immediately preceding the date in
question as such price is reported by the NASDAQ
system or any successor system. If there is no
reported closing selling price for the Common Stock
on the date immediately preceding the date in
question, then the closing selling price on the
next preceding date for which such quotation exists
shall be determinative of fair market value.
(B) If the Common Stock is at the time listed or
admitted to trading on any stock exchange, then the
fair market value shall be the closing selling
price of one share of Common Stock on the date
immediately preceding the date in question on the
stock exchange determined by the Committee to be
the primary market for the Common Stock, as such
prices are officially quoted on such exchange. If
there is no reported closing selling price of
Common Stock on such exchange on the date
immediately preceding the date in question, then
the fair market value shall be the closing selling
price on the next preceding date for which such
quotation exists.
3
<PAGE>
(C) If the Common Stock is at the time neither
listed or admitted to trading on any stock
exchange nor traded in the over-the-counter market
(or, if the Committee determines that the value as
determined pursuant to Section 5(b) (2) (A) or (B)
above does not reflect fair market value), then
the Committee shall determine fair market value
after taking into account such factors as it deems
appropriate.
(c) Exercise Period. The Committee shall determine the option
exercise period of each Stock Option. The exercise period shall not exceed ten
years from the date of grant. However, if the Grantee of an Incentive Stock
Option is the owner of Common Stock (as determined under Section 424(d) of the
Code) who then possesses more than 10% of the total combined voting power of
all classes of stock of the Company or a Parent Corporation or Subsidiary
Corporation, the exercise period shall not exceed five years.
(d) Vesting of Options and Restrictions on Shares. The vesting period
for Stock Options shall commence on the date of grant and shall end on the
date or dates, determined by the Committee, that shall be specified in the
Grant Letter. The Committee may impose upon the shares of Common Stock
issuable upon the exercise of a Stock Option such restrictions as it deems
appropriate and specifies in the Grant Letter. During any period in which such
restrictions apply, the provisions of Section 6(d) below shall be applicable
to such shares, and the Committee, in such circumstances as it deems
equitable, may determine that all such restrictions shall lapse.
(e) Manner of Exercise. A Grantee may exercise a Stock Option by
delivering a duly completed notice of exercise to the Secretary of the
Company, together with payment of the option price.
(f) Termination of Employment, Disability or Death.
(1) If a Grantee ceases to be an Eligible Participant for
any reason other than either by reason of the death of such Grantee,
the termination for cause of the Grantee's employment by the Company,
or the Grantee's voluntary termination of his or her employment with
the Company, any Stock Option which is otherwise exercisable by the
Grantee shall terminate unless exercised within ninety days following
the date on which the Grantee ceases to be an Eligible Participant
(or within such other period of time, which may be longer or shorter
than ninety days, as may be specified in the Grant Letter).
(2) In the event of a death of a Grantee while he or she is
an Eligible Participant or within not more than ninety days following
the date on which the Grantee ceases to be an Eligible Participant
(or within such other period of time, which may be longer or shorter
than ninety days, as may be specified in the Grant Letter), any Stock
Option which was otherwise exercisable by the Grantee at the date of
death may be exercised by the Grantee's personal representative at
any time prior to the expiration of one hundred eighty days from the
date of death, but in any event no later than the date of expiration
of the option exercise period.
4
<PAGE>
(3) If a Grantee ceases to be an Eligible Participant either
by reason of termination of the Grantee's employment by the Company
for cause or the Grantee's voluntary termination of such employment,
any Stock Option which is otherwise exercisable by the Grantee shall
terminate on the date of termination of employment with the Company.
(g) Satisfaction of Option Price. The Grantee shall pay the option
price in good funds received by the Company, or with the consent of the
Committee in its sole discretion, by delivering shares of Common Stock already
owned by the Grantee and having a fair market value equal to the option price
or a combination of cash and shares of Common Stock. The Grantee shall pay the
option price and the amount of withholding tax due, if any, at the time of
exercise. Shares of Common Stock shall not be issued or transferred upon any
purported exercise of a Stock Option until the option price and the
withholding obligation are fully paid.
(h) Limits on Incentive Stock Options. Each Grant of an Incentive
Stock Option shall provide that:
(1) the Stock Option is not transferable by the Grantee,
except, in the case of an individual Grantee, by will or the
laws of descent and distribution;
(2) the Stock Option is exercisable only by the Grantee,
except as otherwise provided herein or in the Grant Letter
in the event of the death of an individual Grantee;
(3) the aggregate fair market value of the Common Stock on
the date of the Grant with respect to which Incentive Stock
Options are exercisable for the first time by a Grantee
during any calendar year under the Plan and under any other
stock option plan of the Company shall not exceed $100,000;
and
(4) unless the Grantee could otherwise transfer Common Stock
issued pursuant to the Stock Option without incurring
liability under Section 16(b) of the Exchange Act, at least
six months must elapse from the date of acquisition of the
Stock Option until the date of disposition of the Common
Stock issued upon exercise thereof.
6. Restricted Stock Grants
The Committee may issue shares of Common Stock to an Eligible
Participant pursuant to an incentive or long range compensation plan, program
or contract approved by the Committee (a "Restricted Stock Grant"). The
following provisions are applicable to Restricted Stock Grants:
5
<PAGE>
(a) General Requirements. Shares of Common Stock issued pursuant to a
Restricted Stock Grant will be issued for or in consideration for cash or
services rendered having a value, as determined by the Committee, at least
equal to the par value thereof. All conditions and restrictions imposed under
each Restricted Stock Grant, and the period of years during which the
Restricted Stock Grant will remain subject to such restrictions, shall be set
forth in the Grant Letter and designated therein as the "Restriction Period."
All restrictions imposed under any Restricted Stock Grant shall lapse on such
date or dates as the Committee may approve until the restrictions have lapsed
as to 100% of the shares. In addition, the Committee, in circumstances that it
deems equitable, may determine as to any or all Restricted Stock Grants, that
all the restrictions shall lapse, notwithstanding any Restriction Period.
(b) Number of Shares. The Committee, in its sole discretion, shall
determine the number of shares of Common Stock that will be granted in each
Restricted Stock Grant.
(c) Requirement of Relationship with Company. If the Grantee's
relations with the Company as an employee terminates during the period
designated in the Grant Letter as the Restriction Period, the Restricted Stock
Grant shall terminate as to all shares covered by the Grant as to which
restrictions on transfer have not lapsed, and such shares shall be immediately
returned to the Company. The Committee may, in its sole discretion, provide
for complete or partial exceptions to the provisions of this Section 6(c).
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Common Stock to which such Restriction
Period applies except to a Successor Grantee pursuant to Section 8 below. Each
certificate representing a share of Common Stock issued or transferred under a
Restricted Stock Grant shall contain a legend giving appropriate notice of the
restrictions in the Grant. The Grantee shall be entitled to have the legend
removed from the stock certificate or certificates representing any such
shares as to which all restrictions have lapsed.
(e) Stockholder Rights. Except as provided in this Section 6, the
Grantee shall have, with respect to shares of Common Stock issued pursuant to
a Restricted Stock Grant, all of the rights of a stockholder, including the
right to vote the shares and the right to receive any dividends thereon.
7. Stock Appreciation Rights
(a) General Provisions. Stock Appreciation Rights ("SARs") may be
granted in conjunction with all or part of any Stock Option granted under the
Plan. In the case of a NonQualified Stock Option, such rights may be granted
either at or after the time of grant of such Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of grant
of such Stock Option. The exercise price of each SAR shall be equal to (i) the
exercise price or option price of the related Stock Option or (ii) the fair
market value of a share of Common Stock as of the date of grant of such SARs
(as determined in accordance with the valuation method set forth in Section
5(b)(2) hereof), but only in such circumstances where the SAR is granted
subsequent to the date of grant of the related Stock Option and an exercise
price established in accordance with clause (i) above would result in the
disallowance of the Company's expense deduction pursuant to Section 162(m) of
the Code.
6
<PAGE>
(b) Number of SARs. The number of SARs granted to a Grantee which
shall be exercisable during any given period of time shall not exceed the
number of shares of Common Stock which the Grantee may purchase upon the
exercise of the related Stock Option during such period. Upon the exercise of
a Stock Option, the SARs relating to the Common Stock covered by the Stock
Option shall terminate. Upon the exercise of any SARs, the related Stock
Option shall terminate to the extent of an equal number of shares of Common
Stock.
(c) Settlement Amount. Upon a Grantee's exercise of some or all of
the Grantee's SARs, the Grantee shall receive in settlement of such SARs an
amount equal to the stock appreciation (as defined herein) for the number of
SARs exercised, payable in cash, Common Stock or a combination thereof. The
"stock appreciation" for an SAR is the difference between the option price
specified for the related Stock Option and the fair market value of the
underlying Common Stock (as determined in accordance with the valuation method
set forth in Section 5 (b)(2) hereof),on the date of exercise of the SAR.
(d) Settlement Election. Upon a Grantee's exercise of any SARs, the
Grantee shall have the right to elect the portions of the settlement amount
that the Grantee desires to receive in cash and shares of Common Stock,
respectively. For purposes of calculating the number of shares of Common Stock
to be received upon settlement, shares of Common Stock shall be valued at
their fair market value (as determined in accordance with the valuation method
set forth in Section 5 (b)(2) hereof), on the date of exercise of the SARs.
Notwithstanding the foregoing, the Committee shall have the right (i) to
disapprove a Grantee's election to receive such settlement in whole or in part
in cash, and to require that shares of Common Stock be delivered in lieu of
cash or (ii) to require that settlement be made in cash if the Company does
not or may not in the future have sufficient shares authorized for issuance.
If shares of Common Stock are to be received upon exercise of an SAR, cash
shall be delivered in lieu of any fractional share.
(e) Exercise. An SAR is exercisable only during the period when the
Stock Option to which it is related is also exercisable. No SAR may be
exercised, in whole or in part, by any person who is subject to Section 16 of
the Exchange Act except in accordance with Rule 16b-3(e) under the Exchange
Act.
8. Transferability of Options and Grants
Only a Grantee (or, in the case of an individual Grantee, his or her
authorized legal representative) may exercise rights under a Grant. No
individual Grantee may transfer those rights except by will or by the laws of
descent and distribution or, if permitted under Rule 16b-3 of the Exchange Act
and by the Committee in its sole discretion, pursuant to a qualified domestic
relations order as defined under the Code or Title I of ERISA or the rules
thereunder. Upon the death of an individual Grantee, the personal
representative or other person entitled to succeed to the rights of the
Grantee ("Successor Grantee") may exercise such rights. A Successor Grantee
shall furnish proof satisfactory to the Company of such person's right to
receive the Grant under the Grantee's will or under the applicable laws of
descent and distribution.
7
<PAGE>
9. Certain Corporate Changes
(a) Sale or Exchange of Assets, Dissolution or Liquidation, or Merger
or Consolidation Where the Company Does Not Survive. If all or substantially
all of the assets of the Company are to be sold or exchanged, the Company is
to be dissolved or liquidated, or the Company is a party to a merger or
consolidation with another corporation in which the Company will not be the
surviving corporation, then, at least ten days prior to the effective date of
such event, the Company shall give each Grantee with any outstanding Grants
written notice of such event and shall indicate in such notice one of the
following determinations by the Committee (which determination shall be made
in the exercise of the sole and absolute discretion of the Committee and shall
be binding on the Grantee): (i) the Grantee shall have the right to exercise
in full any installments of such Grants not previously exercised (whether or
not the right to exercise such installments has accrued pursuant to such
Grants), within ten days after such written notice is sent by the Company, and
any installments of such Grants not so exercised shall thereafter lapse and be
of no further force or effect; or, (ii) the Grantee shall receive new Grants
in substitution for any then unexpired Grants under terms set forth in such
notice; or, (iii) any such successor to the Company shall assume any then
unexpired Grants in accordance with their terms.
(b) Merger or Consolidation Where the Company Survives. If the
Company is a party to a merger or consolidation in which the Company will be
the surviving corporation, then the Committee may, in its sole and absolute
discretion, elect to give each Grantee with any outstanding Grants written
notice of such event. If such notice is given, each such Grantee shall
thereupon have the right to exercise in full any installments of such Grants
not previously exercised (whether or not the right to exercise such
installments has accrued pursuant to such Grants), within ten days after such
written notice is sent by the Company. Any installments of such Grants not so
exercised shall thereafter lapse and be of no further force or effect.
10. Stockholder Approval
The Plan is subject to and no Options shall be exercisable hereunder
until after approval of the Plan by holders of a majority of the shares of
Common Stock present or represented by a proxy in a separate vote at a duly
held meeting of the stockholders of the Company within twelve months after the
date of the adoption of the Plan by the Board of Directors.
11. Approval By The Committee
The Plan is subject to and no Options or SARs shall be exercisable
hereunder until after approval of the Plan and Grants by the Committee which
is comprised solely of the then directors who are (i) not presently employees
of the Company (or related entities); (ii) not former employees still
receiving compensation for prior services (other than benefits under a
tax-qualified pension plan); (iii) not officers of the Company (or related
entities) at any time; and (iv) not currently receiving compensation for
personal services in any capacity other than as a director.
8
<PAGE>
12. Amendment and Termination of the Plan
(a) Amendment. The Board of Directors may amend or terminate the Plan
at any time, subject to the following limitations:
(1) the approval by the stockholders of the Company and approval by
the Committee shall be required in respect or any amendment that (a)
materially increases the benefits accruing to Eligible Participants
under the Plan, (b) increases the aggregate number of shares of
Common Stock that may be issued or transferred under the Plan (other
than by operation of Section 3(b) above), (c) increases the maximum
number of shares of Common Stock for which any Grantee may be granted
options under the Plan, (d) materially modifies the requirements as
to eligibility for participation in the Plan, or (e) modifies the
provisions for determining the fair market value of a share of Common
Stock; and
(2) the Board of Directors shall not amend the Plan if such amendment
would cause the Plan, any Grant or the exercise of any right under
the Plan to fail to comply with the requirements of Rule 16b-3 under
the Exchange Act, or if such amendment would cause the Plan or the
Grant or exercise of an Incentive Stock Option to fail to comply with
the requirements of Section 422 of the Code including, without
limitation, a reduction of the option price set forth in Section 5(b)
above or an extension of the periods during which an Incentive Stock
Option may be exercised as set forth in Section 5(c) above.
(b) Termination of the Plan. The Plan shall terminate on the tenth
anniversary of its effective date (as set forth in Section 19 below) unless
earlier terminated by the Board of Directors.
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant is made shall not result in
the termination or amendment of the Grant unless the Grantee consents or
unless the Committee acts under Section 20(b) below. The termination of the
Plan shall not impair the power and authority of the Committee with respect to
an outstanding Grant. Whether or not the Plan has terminated, an outstanding
Grant may be terminated or amended under Section 20(b) below or may be amended
by agreement of the Company and the Grantee which is consistent with the Plan.
13. Funding of the Plan
The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under the Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
9
<PAGE>
14. Rights of Eligible Participants
Nothing in the Plan shall entitle any Eligible Participant or other
person to any claim or right to any Grant under the Plan. Neither the Plan nor
any action taken hereunder shall be construed as giving any eligible
Participant or Grantee any rights to be retained by the Company in any
capacity, whether as an employee, non-employee member of the Board of
Directors, independent contractor, consultant or otherwise.
15. Withholding of Taxes
The Company shall have the right to deduct from all Grants paid in
cash any federal, state or local taxes required by law to be withheld with
respect to such Grants paid in cash. In the case of Grants paid in Common
Stock, the Company shall have the right to require the Grantee to pay to the
Company the amount of any taxes which the Company is required to withhold in
respect of such Grants or to take whatever action it deems necessary to
protect the interest of the Company in respect of such tax liabilities,
including, without limitation, withholding a portion of the shares of Common
Stock otherwise deliverable pursuant to the Plan. The Company's obligation to
issue or transfer shares of Common Stock upon the exercise of a Stock Option
or SAR or the acceptance of a Restricted Stock Grant shall be conditioned upon
the Grantee's compliance with the requirements of this Section to the
satisfaction of the Committee.
16. Agreements with Grantees
Each Grant made under the Plan shall be evidenced by a Grant Letter
containing such terms and conditions as the Committee may from time to time
approve.
17. Requirements for Issuance of Shares
No Common Stock shall be issued or transferred under the Plan unless
and until all applicable legal requirements have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Stock Option, Restricted Stock Grant or SAR on the Grantee's undertaking
in writing to comply with such restrictions on any subsequent dispositions of
the shares of Common Stock issued or transferred thereunder as is deemed
necessary or advisable as a result of any applicable law, regulation or
official interpretation thereof, and certificates representing such shares may
be legended to reflect any such restrictions.
18. Headings
The section headings of the Plan are for reference only. In the event
of a conflict between a section heading and the content of a Section of the
Plan, the content of the Section shall control.
19. Effective Date
The provisions of the Plan shall be effective as of the date the Plan
is adopted by the Board of Directors of the Company, subject to the approval
of the Company's stockholders within twelve months of the effective date.
10
<PAGE>
20. Miscellaneous
(a) Substitute Grants. The Committee may make a Grant to an employee
who was an employee of another corporation and became an Eligible Participant
by reason of a corporate merger, consolidation, acquisition of stock or
property, reorganization or liquidation involving the Company or a Subsidiary
Corporation and such other corporation. Any such Grant shall be made in
substitution for a stock option or restricted stock grant granted by the other
corporation ("Substituted Stock Incentives"), but the terms and conditions of
the substitute Grant may vary from the terms and conditions required by the
Plan and from those of the Substituted Stock Incentives. The Committee shall
prescribe the provisions of the substitute Grants.
(b) Compliance with Law. The Plan, the exercise of Grants and the
obligations of the Company to issue or transfer shares of Common Stock under
Grants shall be subject to all applicable laws and required approvals by
governmental or regulatory agencies. With respect to persons subject to
Section 16 of the Exchange Act, it is the intent of the Company that the Plan
and all transactions under the Plan shall comply with all applicable
conditions of Rule 16b-3 or any successor provisions under the Exchange Act.
The Committee may revoke any Grant if it is contrary to law or modify any
Grant to bring it into compliance with any then applicable government
regulations. The Committee may also adopt rules regarding the withholding of
taxes on payments to Grantees.
(c) Ownership of Stock. A Grantee or Successor Grantee shall have no
rights as a stockholder with respect to any shares of Common Stock covered by
a Grant until the shares are issued or transferred to the Grantee or Successor
Grantee on the stock transfer records of the Company.
11
<PAGE>
CLEO INC
MANAGEMENT INCENTIVE PLAN
1996
I. PURPOSE
The Cleo Inc Management Incentive Program (MIP) is a
financial reward based program designed to provide incentive to eligible
management participants to encourage accomplishment of established company and
individual performance goals.
II. GENERAL
The MIP is an annual cash payment program based upon
achievement of Cleo's pre-tax (operating income) budget, and individual
performance goals (MBO's).
Individual participants will receive an incentive payment
annually computed as a percent of annual salary depending upon their MIP
Grouping, provided annual goals are met or exceeded (Exhibit "A").
The established Groups are:
GROUP MAX INCENTIVE
(% OF SALARY)
I-A 50%
I-B 45%
II 30%
III 20%
IV 10%
III. PLAN SPECIFICS
Seventy (70) percent of a participant's annual incentive
will be based upon accomplishment of the company's 1996 financial goal, a
<PAGE>
budgeted loss from operations of $1,857,000. Thirty (30) percent of a
participant's annual incentive will be based upon accomplishment of individual
MBO's (3-5 written goals set by the participant and management), and an
overall satisfactory performance evaluation for the plan year.
Should the 1996 financial goal be achieved by Cleo,
participants will be eligible to receive 100% of their incentive payment in
accordance with their assigned MIP Group's limitation (i.e. Group I
participants could receive up to 45% of base annual salary if all MBO's are
accomplished and the company meets or exceeds the financial goal). No
incentive payments will be earned should Cleo
fail to attain the 1996 financial goal.
IV. PARTICIPATION CRITERIA
A. Eligible participants must be actively employed by Cleo at the
time incentive payments are distributed, except retirees will receive a
pro-rata share based upon full months worked in the plan year.
B. The plan year is January 1 through December 31.
C. Base pay for purposes of calculating incentive payments shall
be the eligible participants annualized salary on January 1 of the plan year.
D. New Hires into an eligible Group will receive a pro-rata share
of the applicable Group incentive rate if hired prior to June 1 of the plan year
(full month worked). New hires subsequent to June 1 of the plan year will not
be eligible to participate in the MIP.
<PAGE>
E. Transfers from one eligible Group to another within the plan
year will receive a pro-rata share based upon number of days worked in each
Group during the plan year.
F. The MIP is separate and distinct from any annual merit
increases granted by the company based upon regular annual individual
performance reviews.
NOTE: Cleo Sales Associates are not included in the MIP since a separate
Sales Incentive Bonus program is applied to the Sales group.
March 7, 1996
<PAGE>
LIST OF SIGNIFICANT SUBSIDIARIES
OF CSS INDUSTRIES, INC.
Name of Subsidiary State of Incorporation
------------------ ----------------------
The Paper Magic Group, Inc. Pennsylvania
Rapidforms, Inc. New Jersey
Berwick Industries, Inc. Florida
Cleo Inc. Tennessee
Phila Industries, Inc. f/k/a
Specialty Investment Corp. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000020629
<NAME> CSS INDUSTRIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,102
<SECURITIES> 800
<RECEIVABLES> 174,832
<ALLOWANCES> 4,684
<INVENTORY> 76,397
<CURRENT-ASSETS> 8,349
<PP&E> 88,736
<DEPRECIATION> 43,741
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<CURRENT-LIABILITIES> 197,085
<BONDS> 17,865
0
0
<COMMON> 1,219
<OTHER-SE> 152,646
<TOTAL-LIABILITY-AND-EQUITY> 374,961
<SALES> 288,412
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<CGS> 178,481
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<OTHER-EXPENSES> 76,890
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<INCOME-PRETAX> 27,386
<INCOME-TAX> 10,996
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<DISCONTINUED> 0
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<NET-INCOME> 15,775
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