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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, 1999
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
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1845 Walnut Street, Philadelphia, PA 19103
- --------------------------------------- --------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (215) 569-9900
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
- ---------------------------- -----------------------------------------
Common Stock, $.10 par value New York Stock Exchange
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
--- ---
(Page 1 of Cover Page)
Securities registered pursuant to Section 12(g) of the Act:
None
--------------
(Title of class)
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 $92,921,891. 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 February 29, 2000 ($19.0625 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 2000 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 February 29, 2000, there were outstanding 9,293,720 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for its 2000 Annual Meeting of
Stockholders are incorporated by reference in Part III (under Items 10, 11, 12
and 13).
(Page 2 of Cover Page)
Part I
Item 1. Business
General
CSS Industries, Inc. ("CSS" or the "Company") is a consumer products
company primarily engaged in the manufacture and sale to mass market retailers
of seasonal, social expression products, including gift wrap, gift bags, boxed
greeting cards, gift tags, tissue paper, paper and vinyl decorations, seasonal
candles, classroom exchange Valentines, decorative ribbons and bows, Halloween
masks, costumes, make-ups and novelties and Easter egg dyes and novelties. CSS
provides its retail customers the opportunity to use a single vendor for much
of their seasonal product requirements. CSS' product breadth, product
innovation, creative design, manufacturing and packaging flexibility, product
quality and customer service are key to sustaining the Company's market
leadership position. A substantial portion of CSS' products are manufactured,
packaged and warehoused in thirteen domestic facilities, with the remainder
purchased primarily from Asian manufacturers. The Company's products are sold
to its retail customers by national and regional account managers and product
specialists and by a network of independent manufacturers' representatives. The
Company is comprised of The Paper Magic Group, Inc. ("Paper Magic"), acquired
by the Company in August 1988, Berwick Industries LLC ("Berwick"), acquired in
May 1993, and Cleo Inc ("Cleo"), acquired in November 1995.
On December 23, 1997, CSS sold Rapidforms, Inc. and its subsidiaries
("Rapidforms"). As a result of the sale, CSS no longer operates in the Direct
Mail Business Products industry.
The Company has experienced 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 operating business
and by acquiring other businesses with leading market positions.
Principal Products
CSS designs, manufactures and distributes a broad range of seasonal
consumer products primarily through the mass market distribution channel.
Christmas products include gift wrap, gift bags, boxed greeting cards, gift
tags, tissue paper, paper and vinyl decorations, candles and decorative ribbons
and bows. CSS' Valentine product offerings include classroom exchange Valentine
cards and other related Valentine products, while its Easter product offerings
include Dudley's(R) brand of Easter egg dyes and related Easter seasonal
products. For Halloween, CSS offers a full line of Halloween merchandise
including make-up, costumes, masks, candles, novelties, and the Illusive
Concepts(TM) and Don Post Studios(TM) brands of highly crafted masks. In
addition to seasonal products, CSS also designs and markets decorative products
and decorative ribbons and bows to its mass market and wholesale distribution
customers and teachers' aids to the education market through school supply
distributors and direct-to-retail teachers' stores.
CSS manufactures and warehouses its products in thirteen facilities
located in Pennsylvania and Tennessee. Boxed greeting cards, gift tags, paper
and vinyl decorations and classroom exchange Valentine products are primarily
produced and warehoused in five facilities in central and northeastern
Pennsylvania. Manufacturing processes include a wide range of finishing,
assembly and packaging operations. Halloween make-up and Easter egg dye
products are manufactured to specific proprietary formulae by contract
manufacturers who meet regulatory requirements for the formularization and
packaging of such products and are distributed from one facility in
northeastern Pennsylvania. Ribbons and bows are manufactured and warehoused in
five facilities located in northeastern 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 rolls of extruded film
go through various combinations of manufacturing processes before being made
into bows or packaged on ribbon spools or reels as required by various markets
and customers. Manufacturing of gift wrap, including web printing, finishing,
rewinding and packaging are performed in one facility in Memphis, Tennessee.
Finished goods are warehoused and shipped from both the production facility and
a separate facility in Memphis. Other products, designed to the specifications
of CSS, are imported from Asian manufacturers.
Sales and Marketing
Most of CSS' products are sold in the United States and Canada by national
and regional account sales managers, product specialists 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 CSS
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 teachers' stores. CSS' revenues
are primarily seasonal with approximately 65% of
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sales related to the Christmas season and the remaining sales relating to the
Halloween, Easter and Valentine's Day seasons and all-occasion product sales.
Seasonal products are generally designed and marketed beginning approximately
eighteen to twenty months before the event and manufactured during an eight to
ten month production cycle. With such long lead time requirements, timely
communication with outsourcing factories, retail customers and independent
manufacturers' representatives is critical to the timely production of seasonal
products. Because the products themselves are primarily seasonal, sales terms
do not generally require payment until after the holiday, in accordance with
industry practice. CSS maintains permanent showrooms in New York City, Memphis,
Minneapolis and Hong Kong where major retail buyers will typically visit for a
presentation and review of the new lines. In general, CSS products are not sold
under guaranteed or return privilege terms. All-occasion ribbon and bow
products are also sold through independent manufacturers representatives to
wholesale distributors who serve the floral, craft and retail packaging trades.
Finally, the Company also sells custom products to private label customers, to
other social expression companies, and to converters of the company's bulk gift
wrap or ribbon products. Custom products are sold by both independent
manufacturers' representatives and CSS sales managers.
Due to the ever increasing competitive retail environment, CSS plays a
crucial role in helping the retailer to develop programs to meet revenue
objectives while appealing to consumers' tastes. These objectives are met
through the development and manufacture of custom configured and designed
products. CSS' years of experience in program development and product quality
are key competitive advantages in helping the retailers meet their objectives.
Competition
CSS competes with various companies in each of its product offerings. In
Christmas boxed cards, CSS competes with the Plus Mark(R) line of American
Greetings Corporation, among others. CSS' gift tag line competes primarily with
Plus Mark(R), CPS Corporation and Jean Marie Creations, Inc. Competition with
regard to classroom exchange Valentines includes American Greetings and Hallmark
Cards, Inc., among others. In the ribbon and bow category there are a variety of
large and small domestic companies, including Plus Mark(R), Hollywood Ribbon,
Inc., CPS Corporation, Equality Specialties, Inc., Delaware Ribbon
Manufacturers, Inc., C. M. Offray and Son, Inc. and Variety Accessories. In
Christmas gift wrap, CSS competes primarily with Plus Mark(R) and CPS
Corporation. CSS' Dudley's(R) brand Easter egg dye products compete with the
PAAS(R) brand of Signature Brands, LLC, among others. Competitors offering
Halloween products include Disguise, Inc., Fun World, Inc. and Rubie's Costume
Co., Inc. Certain of these competitors are larger and have greater resources
than the Company.
CSS believes its products are positioned adequately for continued growth
in their primary markets. Since competition is based primarily on price, timely
delivery, creative design and increasingly, the ability to serve major retail
customers with single, combined product shipments for each holiday event, CSS'
product driven focus combined with consistent service levels allows it to
compete effectively in its core markets.
Employees
At February 29, 2000, approximately 2,138 persons were employed by CSS
(increasing to approximately 3,440 as seasonal employees are added).
With the exception of the bargaining unit at the gift wrap facilities in
Memphis, Tennessee, which included 277 employees as of February 29, 2000, CSS
employees are not represented by labor unions. Because of the seasonal nature
of certain of its businesses, the number of production employees fluctuates
during the year.
The Company believes that relationships with its employees are good.
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20
Item 2. Properties
The following table sets forth the location and approximate square footage
of the Company's major manufacturing and distribution facilities:
Approximate Square Feet
---------------------------
Location Use Owned Leased
- ------------------- -------------------------------- ------------ ------------
Elysburg, PA Manufacturing and distribution 253,000 --
Elysburg, PA Manufacturing 68,000 --
Danville, PA Distribution 133,000 --
New Berlin, PA Manufacturing -- 31,000
Troy, PA Manufacturing and distribution 223,000 --
Canton, PA Distribution 135,000 --
Berwick, PA Manufacturing and distribution 213,000 --
Berwick, PA Manufacturing and distribution 220,000 --
Berwick, PA Distribution 226,000 --
Berwick, PA Distribution -- 423,000
Berwick, PA Distribution -- 36,000
Memphis, TN Manufacturing and distribution -- 986,000
Memphis, TN Distribution -- 366,000
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Total 1,471,000 1,842,000
========= =========
The Company also utilizes owned and leased space aggregating 94,000 square
feet for various administrative purposes. The headquarters and principal
executive office of the Company are located in Philadelphia, Pennsylvania.
The Company is also the lessee of approximately 130,000 square feet of
office and retail space (which was related to former operations) which have
been subleased by the Company, as sublessor, to various sublessees.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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21
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 1999 and 1998.
High Low
----------- ---------
1999
- ----
First Quarter .......... $ 31 1/16 $ 22 1/4
Second Quarter ......... 28 9/16 22 1/4
Third Quarter .......... 28 3/16 20 3/8
Fourth Quarter ......... 221 5/16 20 1/2
1998
- ----
First Quarter .......... $ 36 $ 26 7/8
Second Quarter ......... 33 7/8 31 7/8
Third Quarter .......... 33 7/16 27 5/8
Fourth Quarter ......... 31 3/4 26 5/8
(b) Holders of Common Stock
At February 29, 2000, there were approximately 1,700 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 February 29, 2000, there were no shares of preferred stock outstanding.
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22
Item 6. Selected Financial Data
(In thousands, except per share amounts)
Years Ended December 31,
---------------------------------------------------------------------------
1999 1998(a) 1997 1996(b) 1995(b)
------------- ------------- ------------- ------------- -----------
Statement of Operations Data:
Sales ...................................... $ 392,553 $ 400,691 $ 357,720 $ 323,051 $202,294
Income from continuing operations before
income taxes ............................. 28,442 37,926 30,442 27,499 16,733
Income from continuing operations .......... 18,061 24,276 18,871 17,110 10,084
Income from discontinued operations, net of
income taxes ............................. -- -- 6,348 5,234 5,691
Gain on sale of discontinued operations, net
of income taxes .......................... -- -- 17,871 -- --
Net income ................................. 18,061 24,276 43,090 22,344 15,775
Income from continuing operations per
common share
Basic ...................................... 1.85 2.26 1.74 1.59 .94
Diluted .................................... 1.84 2.21 1.67 1.55 .93
Balance Sheet Data:
Working capital ............................ 130,889 145,165 129,245 71,780 66,395
Total assets ............................... 349,398 376,590 342,362 330,122 356,388
Short-term debt ............................ 63,488 96,198 52,524 99,027 129,618
Long-term debt ............................. 537 2,131 2,580 3,762 16,915
Shareholders' equity ....................... $ 219,477 $ 220,493 $ 221,649 $ 176,752 $153,856
(a) Results for 1998 include pre-tax income of $5,309, or net income of $3,398,
related to restructuring and other special items. For a complete
description of these items, see Management's Discussion and Analysis of
Financial Conditions and Results of Operations.
(b) Restated to reflect the historical results of Rapidforms as a discontinued
operation.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Business Acquisitions and Divestitures
On August 18, 1999, the Company acquired certain assets and the business
of Party Professionals, Inc. Party Professionals designs and markets highly
crafted latex masks, helmets and accessories sold to mass merchandisers, drug
chains, party and gift shops. In consideration, the Company paid $6,000,000 in
cash and assumed and repaid $1,606,000 of outstanding debt. The acquisition was
accounted for as a purchase and the excess of cost over fair market value of
$6,532,000 was recorded as goodwill in the accompanying balance sheet and is
being amortized over twenty years. The final purchase price is subject to
adjustment based on an audit of the closing balance sheet by an independent
public accounting firm. Subsequent to the acquisition, the operations of Party
Professionals, now known as Don Post Studios, Inc., were consolidated into
existing operations of the Company.
On December 23, 1997, the Company sold its Direct Mail Business Products
Group, composed of Rapidforms and its subsidiaries, for approximately
$84,635,000, resulting in a net gain of $17,521,000 and net cash proceeds of
approximately $60,000,000 after income taxes and the buy out of the minority
interest. Rapidforms designs and sells business forms, business supplies,
in-house retail merchandising products, holiday greeting cards and advertising
specialties to small and medium size businesses primarily through the direct
mailing of catalogs and brochures. On January 8, 1997, Rapidforms sold its
Standard Forms, Ltd. subsidiary for $4,083,000, resulting in a gain of
$350,000. Sales from these discontinued operations were $81,654,000 in 1997.
On January 17, 1997, the Company acquired all of the outstanding stock of
Color-Clings, Inc. ("Color-Clings") for $7,875,000 and assumed and repaid
$10,665,000 of outstanding debt. Color-Clings is a designer and marketer of
seasonal and everyday vinyl home decorations sold primarily to mass market
retailers in the United States and Canada. Subsequent to the acquisition, the
operations of Color-Clings was consolidated into existing operations of the
Company.
Litigation
In February 1999, CSS was awarded approximately $11,200,000, including
interest, in settlement of a dispute primarily related to the valuation of
inventory acquired in the 1995 acquisition of Cleo Inc. The funds were
subsequently released from escrow. The award increased slightly the goodwill
recorded on the 1998 balance sheet and had no impact on 1998 or 1999 results of
operations.
Seasonality
The seasonal nature of CSS' business results in low sales and operating
losses for the first two quarters and high shipment levels and operating
profits for the second half of the year, thereby causing significant
fluctuations in the quarterly results of operations of the Company.
Because of the seasonality and the general industry practice of deferred
payment terms, a material portion of the Company's trade receivables are
collected in December and January, thus enabling the Company to repay the
short-term debt borrowed to fund the inventory and accounts receivable build-up
during the year.
Restructuring and Other Special Items
The Company implemented a restructuring program in 1998 consisting of the
sale of underutilized real estate, the integration of certain functions, the
discontinuance of under-performing product lines and the reduction of overhead
costs. As a result of the restructuring, a 1,135,000 square foot warehouse,
two- thirds of which had been previously leased to a third party, was sold
subject to a leaseback of the space required for the Company's gift wrap
operation. The transaction resulted in a gain of $16,596,000. Earlier in the
year, the Company also sold an administrative building for a gain of $270,000.
Partially offsetting these gains were restructuring and special, non-recurring
charges, including (1) severance and other charges totaling $2,530,000 related
to the integration of certain functional responsibilities within the Company,
(2) $3,102,000 of charges associated with the write-off of previously
capitalized systems development costs and contract programming costs incurred
in 1998 to correct deficiencies within a management information system
implemented in 1997, and (3) costs totaling $5,925,000 related to the
discontinuance of certain ancillary, unprofitable products lines, including the
write-off of goodwill and product development costs of $3,982,000 and the
establishment of reserves necessary to liquidate the related inventory of
$1,943,000.
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24
A summary of total restructuring and other special items for the year
ended December 31, 1998 is provided below:
Year Ended
December 31, 1998
------------------------
(000's) Effect on
Pre-tax Diluted
Income Earnings
(Expense) Per Share
----------- ----------
Cost of sales:
Inventory disposition costs of
discontinued product lines $ (1,943) $(.11)
-------- ------
Restructuring and other special items:
Gain on sale of real estate 16,866 .98
Costs to discontinue product lines,
including goodwill write-off (3,982) (.23)
Integration of operations and
management functions (2,530) (.15)
Write-off of systems development costs (3,102) (.18)
-------- ------
7,252 .42
-------- ------
Total $ 5,309 $ .31
======== ======
The restructuring program was completed in 1998.
Results of Operations
Consolidated sales for 1999 decreased 2% to $392,553,000 from
$400,691,000. The decrease was due primarily to the absence of sales related to
certain everyday product lines discontinued in 1998. Excluding these lines,
sales were relatively flat as increased direct import sales were offset by
reduced sales of certain domestically manufactured product lines. Consolidated
sales for 1998 increased by 12% to $400,691,000 from $357,720,000. The increase
was primarily attributable to volume increases in sales of Christmas products.
As a percentage of sales, cost of sales was 74% in 1999, 73% in 1998 and
71% in 1997. The increase in cost of sales as a percentage of sales in 1999 was
attributable to the increased mix of lower margin direct import sales and
reduced absorption of manufacturing overheads due to lower sales of
manufactured product and inventory reduction strategies. Included in cost of
sales in 1998 is a charge of $1,943,000 to dispose of inventory related to
certain peripheral product lines which the Company has discontinued. Net of
this charge, cost of sales as a percentage of sales increased in 1998 as
competitive conditions did not allow for the complete recovery of increased raw
material costs, particularly raw paper.
Selling, general and administrative expenses, as a percentage of sales,
was 18% in 1999 and 1998 and 19% in 1997. On an absolute basis selling, general
and administrative costs decreased 3% in 1999 primarily due to improved
efficiencies as the benefits of a system implementation completed in 1998
resulted in incremental cost savings at one of the Company's locations.
Partially offsetting these savings were incremental costs associated with
organizational changes. These costs reduced 1999 earnings by $1,191,000, or
$.08 per share. The decrease in 1998 was the result of CSS' increased sales
base as well as the integration of certain management functions.
Interest expense, net was $4,294,000 in 1999, $4,445,000 in 1998 and
$7,178,000 in 1997. Interest expense decreased 3% in 1999 as cash flow from
1998 operations, the favorable settlement of an arbitration related to the
acquisition of Cleo and reduced working capital requirements for inventory and
accounts receivable were somewhat offset by cash outlays to repurchase the
Company's stock and to acquire Party Professionals, Inc. The decrease in 1998
was primarily attributable to lower borrowings due to cash received from the
sale of Rapidforms at the end of 1997. Excluding the impact of the Rapidforms
sale, cash requirements increased due to the repurchase of the Company's stock
and working capital required to fund sales volume increases in 1998.
Restructuring and other special items resulted in income of $7,252,000 in
1998 and included the gain of $16,596,000 related to the sale and partial
leaseback of a distribution center. This gain was partially offset by the
write-off of goodwill and product development expenses related to ancillary
product lines which the Company has discontinued, severance and other costs
related to the integration of management functions within the Company and the
write-off of certain systems development costs. The restructuring program was
completed in 1998.
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25
Rental and other income, net was $959,000 in 1999, $1,647,000 in 1998 and
$2,143,000 in 1997. The decrease in 1999 and 1998 resulted from lower income
related to sublease interests.
Income before income taxes was $28,442,000, or 7% of sales in 1999,
$37,926,000, or 9% of sales in 1998 and $30,442,000, or 9% of sales in 1997.
The decrease from 1998 is due to reduced sales and margins.
Net income to common shareholders for the year ended December 31, 1999
decreased 26% in 1999 to $18,061,000 and increased 29% in 1998 to $24,276,000.
Income from continuing operations per diluted share decreased 17% in 1999 to
$1.84 and increased 32% in 1998 to $2.21 per share. Excluding 1998 special
items, income from continuing per diluted share was $1.90 compared to $1.84 in
the current year.
Inflation
The financial statements are presented on a historical cost basis and do
not fully reflect the impact of prior years' inflation. The U.S. inflation rate
has been modest the past several years and the Company conducts the majority of
its business using U.S. currency. The ability to pass on inflationary costs is
uncertain due to general economic conditions and competitive situations. 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.
Liquidity and Capital Resources
At December 31, 1999, the Company had working capital of $130,889,000 and
shareholders' equity of $219,477,000. The decrease in accounts receivable, net
of reserves, from $182,983,000 in 1998 to $165,033,000 in 1999 reflected
improved collections and lower sales volume compared to 1998. Inventories, net
of reserves, decreased from $81,406,000 to $64,884,000 due to improved
inventory management. Other current assets decreased to $11,272,000 in 1999
from $20,583,000 due primarily to the receipt of proceeds awarded in settlement
of a dispute related to the Company's 1995 acquisition of Cleo Inc. Property,
plant and equipment increased from $49,409,000 in 1998 to $55,916,000 in 1999
due to the expansion of a production facility and incremental investments in
manufacturing equipment. The current portion of notes payable decreased to
$62,370,000 from $95,320,000 as cash generated as a result of net income and
improved balance sheet management substantially outdistanced the cash expended
for the acquisition of Party Professionals and the funding of the Company's
stock repurchase program.
The Company relies primarily on cash generated from its operations and
seasonal borrowings to meet its liquidity requirements. Most CSS revenues are
seasonal with approximately 76% percent of sales being Christmas and Halloween
related. As payment for sales of Christmas and Halloween related products is
usually not received until after the respective 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 $300,000,000 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, 1999, there
was $62,370,000 outstanding under this facility. In January, the Company repaid
all amounts outstanding on the facility by utilizing the proceeds from the
collection of trade accounts receivable. For information concerning the
revolving credit facility, see Note 8 of Notes to Consolidated Financial
Statements.
On February 19, 1998, the Company announced that its Board of Directors
had authorized the buyback of up to 1,000,000 shares of the Company's Common
Stock. On subsequent dates in 1999 and 1998, the Executive Committee of the
Board of Directors authorized additional repurchases of up to 1,500,000 shares
on terms acceptable to management. Any such buy back is subject to compliance
with regulatory requirements and relevant covenants of the Company's
$300,000,000 unsecured revolving credit facility. During 1999 and 1998 the
Company had repurchased 942,451 and 986,400 shares for $21,505,000 and
$28,771,000 respectively.
Based on its current operating plan, the Company believes its sources of
available capital are adequate to meet its ongoing cash needs for the
foreseeable future.
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26
Year 2000 Readiness Disclosure
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the Year 2000. This could result in a system
failure or miscalculations. These problems, in an extreme case, could render
the Company unable to process transactions and engage in the normal course of
business.
As of the date of this filing, the Company has not incurred any
significant business disruptions as a result of Year 2000 issues. However,
while no such occurrence has developed as of the date of this filing, Year 2000
issues that may arise related to material third parties may not become apparent
immediately and therefore, there is no assurance that the Company will not be
affected by third party noncompliance in the future. The Company will continue
to monitor the issue vigilantly and work to remediate any issues that may
arise.
Future Accounting Changes
The FASB issued SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" in 1998, which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires an
entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure these instruments at fair value.
SFAS No. 133 was scheduled to be effective for fiscal quarters of all fiscal
years beginning after June 15, 1999; however, in June of 1999 the FASB issued
SFAS No. 137 which deferred the effective date of SFAS No. 133 one year to
years beginning after June 15, 2000. Based on current operations, the Company
does not expect the adoption of this statement to have a material effect on its
financial position and results of operations.
Forward-Looking and Cautionary Statements
This document contains certain forward-looking statements that are subject
to risks and uncertainties. Forward-looking statements include certain
information related to the Company's capital resources and the costs related to
operational decisions, as well as information contained elsewhere in this
report where statements are preceded by, followed by, or include the words
"believes," "expects," "anticipates" or similar expressions. For such
statements the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including without limitation, general market conditions, increased competition,
and factors discussed elsewhere in this report and the documents incorporated
herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company does not utilize financial instruments for trading purposes
and holds no derivative financial instruments which could expose the Company to
significant market risk. The Company's primary market risk exposure with regard
to financial instruments is to changes in interest rates. Pursuant to the
Company's line of credit, a change in either the lender's base rate or LIBOR
would affect the rate at which the Company could borrow funds thereunder. The
Company believes that the effect of any such change would not be material.
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27
CSS INDUSTRIES, INC.
AND SUBSIDIARIES
Item 8. Financial Statements
INDEX
Page
--------
Report of Independent Public Accountants ..................................... 29
Consolidated Balance Sheets - December 31, 1999 and 1998 ..................... 30-31
Consolidated Statements of Operations - for the years ended December 31, 1999,
1998 and 1997 ............................................................... 32
Consolidated Statements of Cash Flows - for the years ended December 31, 1999,
1998 and 1997 ............................................................... 33
Consolidated Statements of Shareholders' Equity - for the years ended
December 31, 1999, 1998 and 1997 ............................................ 34-35
Notes to Consolidated Financial Statements ................................... 36-44
- -------
28
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,
1999 and 1998 and the related consolidated statements of operations, cash flows
and shareholders' equity for each of the three years in the period ended
December 31, 1999. 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, 1999 and 1998 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, 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 18, 2000
--------
29
CSS Industries, Inc. as Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
December 31,
---------------------------
1999 1998
ASSETS ------------ ------------
CURRENT ASSETS
Cash and temporary investments ................................................. $ 3,292 $ 2,214
Accounts receivable, net of allowance for doubtful accounts of 1,647 and $1,772 165,033 182,983
Inventories .................................................................... 64,884 81,406
Deferred income taxes .......................................................... 5,886 3,389
Other current assets ........................................................... 11,272 20,583
--------- ---------
Total current assets ......................................................... 250,367 290,575
--------- ---------
PROPERTY, PLANT AND EQUIPMENT
Land ........................................................................... 524 472
Buildings, leasehold interests and improvements ................................ 30,728 26,149
Machinery, equipment and other ................................................. 72,373 63,424
--------- ---------
103,625 90,045
Less -- Accumulated depreciation and amortization .............................. (47,709) (40,636)
--------- ---------
Net property, plant and equipment ............................................ 55,916 49,409
--------- ---------
OTHER ASSETS
Intangible assets, net of accumulated amortization of 8,483 and $7,249 ......... 39,971 34,508
Other .......................................................................... 3,144 2,098
--------- ---------
Total other assets ........................................................... 43,115 36,606
--------- ---------
$ 349,398 $ 376,590
========= =========
- -------
30
December 31,
--------------------------
1999 1998
LIABILITIES AND SHAREHOLDERS' EQUITY ------------ -----------
CURRENT LIABILITIES
Notes payable ...................................................................... $ 62,370 $ 95,320
Current portion of long-term debt .................................................. 1,118 878
Accounts payable ................................................................... 14,332 13,539
Accrued payroll and other compensation ............................................. 5,349 6,231
Accrued income taxes ............................................................... 7,451 8,217
Accrued expenses ................................................................... 28,858 21,225
--------- ---------
Total current liabilities ........................................................ 119,478 145,410
--------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION .............................................. 537 2,131
--------- ---------
OTHER LONG-TERM OBLIGATIONS ......................................................... 4,770 6,627
--------- ---------
DEFERRED INCOME TAXES ............................................................... 5,136 1,929
--------- ---------
COMMITMENTS AND CONTINGENCIES ....................................................... -- --
SHAREHOLDERS' EQUITY
Preferred stock, Class 2, $.01 par, authorized 1,000,000 shares .................... -- --
Common stock, $.10 par, authorized 20,000,000 shares, issued 12,366,566 shares ..... 1,237 1,237
Additional paid-in capital ......................................................... 29,358 28,866
Retained earnings .................................................................. 253,882 238,432
Common stock in treasury 2,998,381 and 2,234,811 shares, at cost ................... (65,000) (48,042)
--------- ---------
Total shareholders' equity ....................................................... 219,477 220,493
--------- ---------
$ 349,398 $ 376,590
========= =========
See notes to consolidated financial statements.
--------
31
CSS Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
Years Ended December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
SALES .......................................................... $392,553 $400,691 $357,720
-------- -------- --------
COSTS AND EXPENSES
Cost of sales ................................................. 289,815 294,326 252,687
Selling, general and administrative expenses .................. 70,961 72,893 69,556
Restructuring and other special items ......................... -- (7,252) --
Interest expense, net of interest income of $175, $59
and $152 .................................................... 4,294 4,445 7,178
Rental and other income, net .................................. (959) (1,647) (2,143)
-------- -------- --------
364,111 362,765 327,278
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES .................................................. 28,442 37,926 30,442
INCOME TAXES ................................................... 10,381 13,650 11,571
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS .............................. 18,061 24,276 18,871
DISCONTINUED OPERATIONS
Income from discontinued operations, net of income taxes
of $4,673 in 1997 ........................................... -- -- 6,348
Gain on sale of discontinued operations, net of income taxes of
$13,635 in 1997 ............................................. -- -- 17,871
-------- -------- --------
NET INCOME ..................................................... $ 18,061 $ 24,276 $ 43,090
======== ======== ========
NET INCOME PER COMMON SHARE
Basic
Continuing operations ....................................... $ 1.85 $ 2.26 $ 1.74
Discontinued operations ..................................... -- -- .59
Gain on sale of discontinued operations ..................... -- -- 1.64
-------- -------- --------
$ 1.85 $ 2.26 $ 3.97
======== ======== ========
Diluted
Continuing operations ....................................... $ 1.84 $ 2.21 $ 1.67
Discontinued operations ..................................... -- -- .56
Gain on sale of discontinued operations ..................... -- -- 1.58
-------- -------- --------
$ 1.84 $ 2.21 $ 3.81
======== ======== ========
See notes to consolidated financial statements.
- -------
32
CSS Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Years Ended December 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
Cash flows from operating activities:
Net income ............................................................... $ 18,061 $ 24,276 $ 43,090
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .......................................... 9,484 9,019 7,665
Write-down of goodwill ................................................. -- 3,530 --
Provision for doubtful accounts ........................................ 1,302 1,406 903
Deferred tax provision (benefit) ....................................... 710 (403) 3,248
Loss (gain) on sale or disposal of assets .............................. 223 (14,774) 95
(Gain) on sale of discontinued operations .............................. -- -- (17,871)
Changes in assets and liabilities of discontinued operations ........... -- -- (9,689)
Changes in assets and liabilities, net of effects from purchases and
disposal of businesses:
Decrease (increase) in accounts receivable ............................ 17,897 (18,628) (14,902)
Decrease (increase) in inventories .................................... 17,616 (15,136) (9,388)
Decrease (increase) in other assets ................................... 8,617 486 (3,464)
(Decrease) in accounts payable ........................................ (135) (1,140) (6,045)
(Decrease) in accrued taxes ........................................... (274) (11,917) (274)
Increase (decrease) in accrued expenses ............................... 4,820 618 (6,007)
--------- --------- ---------
Total adjustments .................................................... 60,260 (46,939) (55,729)
--------- --------- ---------
Net cash provided by (used for) operating activities ................. 78,321 (22,663) (12,639)
--------- --------- ---------
Cash flows from investing activities:
Purchases of businesses, net of cash received of $120, $0 and $976 ....... (7,486) -- (17,564)
Purchase of property, plant and equipment ................................ (14,858) (14,800) (13,682)
Proceeds from sale of businesses ......................................... -- -- 88,718
Proceeds from sale of assets ............................................. 70 21,743 2,422
--------- --------- ---------
Net cash (used for) provided by investing activities ................. (22,274) 6,943 59,894
--------- --------- ---------
Cash flows from financing activities:
Payments on long-term obligations ........................................ (2,450) (1,131) (2,832)
(Repayments) borrowings on notes payable ................................. (32,950) 43,750 (46,805)
Purchase of treasury stock ............................................... (21,505) (28,771) (644)
Proceeds from exercise of stock options .................................. 1,936 2,721 1,701
--------- --------- ---------
Net cash (used for) provided by financing activities ................. (54,969) 16,569 (48,580)
--------- --------- ---------
Net increase (decrease) in cash and temporary investments ................. 1,078 849 (1,325)
Cash and temporary investments at beginning of year ....................... 2,214 1,365 2,690
--------- --------- ---------
Cash and temporary investments at end of year ............................. $ 3,292 $ 2,214 $ 1,365
========= ========= =========
See notes to consolidated financial statements.
--------
33
CSS Industries, Inc. and Subsidiaries
Consolidated Statements of
Shareholders' Equity
(In thousands, except share amounts)
Preferred Stock Common Stock Additional
------------------- ----------------------- Paid-in
Shares Amount Shares Amount Capital
-------- -------- ------------ -------- -----------
BALANCE, JANUARY 1, 1997 ......................... -- $ -- 12,293,090 $1,229 $ 28,675
Issuance of common stock upon exercise of
stock options ................................. -- -- 73,476 8 573
Increase in treasury shares ..................... -- -- -- -- --
Redemption of outstanding options ............... -- -- -- -- (1,000)
Foreign currency translation adjustment ......... -- -- -- -- --
Net income ...................................... -- -- -- -- --
---- ---- ---------- ------ --------
BALANCE, DECEMBER 31, 1997 ....................... -- -- 12,366,566 1,237 28,248
Tax benefit associated with issuance of stock
options ....................................... -- -- -- -- 618
Issuance of common stock upon exercise of
stock options ................................. -- -- -- -- --
Increase in treasury shares ..................... -- -- -- -- --
Net income ...................................... -- -- -- -- --
---- ---- ---------- ------ --------
BALANCE, DECEMBER 31, 1998 ....................... -- -- 12,366,566 1,237 28,866
Tax benefit associated with issuance of stock
options ....................................... -- -- -- -- 492
Issuance of common stock upon exercise of
stock options ................................. -- -- -- -- --
Increase in treasury shares ..................... -- -- -- -- --
Net income ...................................... -- -- -- -- --
---- ---- ---------- ------ --------
BALANCE, DECEMBER 31, 1999 ....................... -- $ -- 12,366,566 $1,237 $ 29,358
==== ==== ========== ====== ========
- -------
34
Cumulative
Foreign Common Stock
Currency in Treasury
Retained Translation ------------------------------
Earnings Adjustment Shares Amount Total
------------ ------------ ------------- ------------ -----------
$171,658 $ (188) (1,523,780) $ (24,622) $ 176,752
-- -- 118,642 2,682 3,263
-- -- (24,839) (644) (644)
-- -- -- -- (1,000)
-- 188 -- -- 188
43,090 -- -- -- 43,090
-------- ------ ---------- --------- ---------
214,748 -- (1,429,977) (22,584) 221,649
-- -- -- -- 618
(592) -- 181,566 3,313 2,721
-- -- (986,400) (28,771) (28,771)
24,276 -- -- -- 24,276
-------- ------ ---------- --------- ---------
238,432 -- (2,234,811) (48,042) 220,493
-- -- -- -- 492
(2,611) -- 178,881 4,547 1,936
-- -- (942,451) (21,505) (21,505)
18,061 -- -- -- 18,061
-------- ------ ---------- --------- ---------
$253,882 $ (2,998,381) $ (65,000) $ 219,477
======== ====== ========== ========= =========
--------
35
CSS Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999
(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. Gains and
losses on foreign currency transactions are included in the consolidated
statements of income.
Reclassification
Certain other prior-period amounts have been reclassified to conform with
current-year classification.
Nature of Business
CSS Industries, Inc. ("CSS" or the "Company") is a consumer products
company primarily engaged in the manufacture and sale to mass market retailers
of seasonal, social expression products, including gift wrap, gift bags, boxed
greeting cards, gift tags, tissue paper, paper and vinyl decorations, seasonal
candles, classroom exchange Valentines, decorative ribbons and bows, Halloween
masks, costumes, make-ups and novelties and Easter egg dyes and novelties. CSS
provides its retail customers the opportunity to use a single vendor for much
of their seasonal product requirements. CSS' product breadth, product
innovation, creative design, manufacturing and packaging flexibility, product
quality and customer service are key to sustaining the Company's market
leadership position. A substantial portion of CSS' products are manufactured,
packaged and warehoused in thirteen domestic facilities, with the remainder
purchased primarily from Asian manufacturers. The Company's products are sold
to its retail customers by national and regional account managers and product
specialists and by a network of independent manufacturers' representatives. The
Company is comprised of The Paper Magic Group, Inc. ("Paper Magic"), acquired
by the Company in August 1988, Berwick Industries LLC ("Berwick"), acquired in
May 1993, and Cleo Inc ("Cleo"), acquired in November 1995.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
Substantially all of the Company's inventories are 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 $1,204,000 and $1,516,000 at December 31, 1999 and 1998,
respectively. Inventories consisted of the following:
1999 1998
(in thousands) ---------- ----------
Raw material ............. $19,848 $30,636
Work-in-process .......... 15,967 12,992
Finished goods ........... 29,069 37,778
------- -------
$64,884 $81,406
======= =======
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 11 years
- -------
36
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
periods 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 specific need or historical
experience.
Net Income Per Common Share
The following table sets forth the computation of basic net earnings per
share and diluted earnings per share for the years ended December 31, 1999,
1998 and 1997:
1999 1998 (a) 1997
(000's) ------------ ------------ ------------
Numerator:
Net income
Continuing operations .................. $ 18,061 $ 24,276 $ 18,871
Discontinued operations ................ -- -- 6,348
Gain on sale of discontinued
operations ............................ -- -- 17,871
-------- -------- --------
Total .................................. $ 18,061 $ 24,276 $ 43,090
Denominator:
Weighted average shares outstanding
for basic earnings per share ........... 9,747 10,737 10,850
Effect of dilutive stock options ......... 48 271 442
-------- -------- --------
Adjusted weighted average shares
outstanding for diluted earnings
per share .............................. 9,795 11,008 11,292
======== ======== ========
Basic earnings per share
Continuing operations .................... $ 1.85 $ 2.26 $ 1.74
Discontinued operations .................. -- -- .59
Gain on sale of discontinued operations -- -- 1.64
-------- -------- --------
Total .................................. $ 1.85 $ 2.26 $ 3.97
======== ======== ========
Diluted earnings per share
Continuing operations .................... $ 1.84 $ 2.21 $ 1.67
Discontinued operations .................. -- -- .56
Gain on sale of discontinued operations -- -- 1.58
-------- -------- --------
Total .................................. $ 1.84 $ 2.21 $ 3.81
======== ======== ========
(a) Results for 1998 include pre-tax income of $5,309, or net income of $3,398,
related to restructuring and other special items. For a complete
description of these items, see Note 3.
--------
37
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)
1999 1998 1997
---------- ---------- ----------
Cash paid during the year for:
Interest .............................. $ 4,533 $ 4,011 $ 7,009
======= ======= =======
Income taxes .......................... $10,258 $24,126 $12,538
======= ======= =======
Details of acquisitions:
Fair value of assets acquired ......... $ 9,739 -- $35,988
Liabilities assumed ................... 2,133 -- 17,448
------- ------- -------
Cash paid ............................. 7,606 -- 18,540
Less cash acquired .................... 120 -- 976
------- ------- -------
Net cash paid for acquisitions .......... $ 7,486 $ -- $17,564
======= ======= =======
See Note 2 for supplemental disclosure of non-cash investing activities.
(2) BUSINESS ACQUISITIONS AND DIVESTITURES:
On August 18, 1999, the Company acquired certain assets and the business
of Party Professionals, Inc. Party Professionals designs and markets highly
crafted latex masks, helmets and accessories sold to mass merchandisers, drug
chains, party and gift shops. In consideration, the Company paid $6,000,000 in
cash and assumed and repaid $1,606,000 of outstanding debt. The acquisition was
accounted for as a purchase and the excess of cost over fair market value of
$6,532,000 was recorded as goodwill in the accompanying balance sheet and is
being amortized over twenty years. The final purchase price is subject to
adjustment based on an audit of the closing balance sheet by an independent
public accounting firm. As of December 31, 1999, the operations of Party
Professionals, now known as Don Post Studios, Inc., were consolidated into
existing operations of the Company.
On December 23, 1997, the Company sold Rapidforms and its subsidiaries for
approximately $84,635,000, resulting in a net gain of $17,521,000 and net cash
proceeds of approximately $60,000,000 after income taxes and the buy out of the
minority interest. Rapidforms designs and sells business forms, business
supplies, in- house retail merchandising products, holiday greeting cards and
advertising specialties to small and medium size businesses primarily through
the direct mailing of catalogs and brochures. On January 8, 1997, Rapidforms
sold its Standard Forms, Ltd. subsidiary for $4,083,000, resulting in a gain of
$350,000. Sales from these discontinued operations were $81,654,000 in 1997.
On January 17, 1997, the Company acquired all of the outstanding stock of
Color-Clings, Inc. ("Color-Clings") for $7,875,000 and assumed and repaid
$10,665,000 of outstanding debt. Color-Clings is a designer and marketer of
seasonal and everyday vinyl home decorations sold primarily to mass market
retailers in the United States and Canada. The acquisition was accounted for as
a purchase and the excess of cost over fair market value of $15,698,000 was
recorded as goodwill and is being amortized over twenty years. During 1998, the
operations of Color-Clings was consolidated into existing operations of the
Company and the Company discontinued certain of its product lines. Accordingly,
the Company evaluated the goodwill associated with these product lines and
determined that a writedown of $3,530,000 of goodwill associated with the
Color-Clings acquisition was necessary. This amount was reported in
restructuring and other special items in the 1998 Consolidated Statement of
Operations.
(3) RESTRUCTURING AND OTHER SPECIAL ITEMS:
On July 7, 1998, a subsidiary of the Company sold a distribution facility
for $21,500,000 resulting in a gain of $16,596,000. Pursuant to the sale
agreement, the Company has entered into a five year agreement to lease back a
portion of the facility from the purchaser. The present value of the future
lease payments of $4,192,000 was recorded at the inception of the lease as
deferred revenue on the balance sheet and will offset rental expense over the
term of the lease. Earlier in the year, the Company also sold an administrative
building for a gain of $270,000. Partially offsetting these gains
- -------
38
were restructuring and special, non-recurring charges, including (1) severance
and other charges totaling $2,530,000 related to the integration of certain
functional responsibilities within the Company, (2) $3,102,000 of charges
associated with the write-off of previously capitalized systems development
costs and contract programming costs incurred in 1998 to correct deficiencies
within a management information system implemented in 1997, and (3) costs
totaling $3,982,000 related to the discontinuance of certain ancillary,
unprofitable product lines, including the write-off of goodwill and product
development costs. The Company also recorded $1,943,000 in Cost of Sales to
reserve for the liquidation of inventory related to discontinued product lines.
The restructuring program was completed in 1998.
(4) TREASURY STOCK TRANSACTIONS:
On February 19, 1998, the Company announced that its Board of Directors
had authorized the buyback of up to 1,000,000 shares of the Company's Common
Stock. On subsequent dates, the Executive Committee of the Board of Directors
authorized additional repurchases of an additional 1,500,000 shares on terms
acceptable to management. Any such buy back is subject to compliance with
regulatory requirements and relevant covenants of the Company's $300,000,000
unsecured revolving credit facility. As of December 31, 1999 and 1998, the
Company had repurchased 942,451 shares for $21,505,000 and 986,400 shares for
$28,771,000, respectively.
(5) STOCK OPTION PLANS:
Under the terms of the CSS Industries, Inc. 1995 Stock Option Plan for
Non-Employee Directors ("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. At December 31, 1999, options to
acquire 208,000 shares were available for grant under the 1995 Plan.
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, 1999, options to acquire 791,384
shares were available for grant under the 1994 Plan.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans. Had compensation expense for
the Company's stock option plans been determined based upon the fair value at
the grant date for awards under these plans consistent with the methodology
prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company's net income and earnings per share would have been reduced in 1999,
1998 and 1997 as follows:
1999 1998 1997
(in thousands, except per share values) ------------ ------------ ------------
Income from continuing operations -- as reported .......................... $ 18,061 $ 24,276 $ 18,871
Income from continuing operations -- pro forma ............................ 15,705 21,902 16,803
Basic income per share from continuing operations -- as reported .......... $ 1.85 $ 2.26 $ 1.74
Basic income per share from continuing operations -- pro forma ............ $ 1.61 $ 2.04 $ 1.55
Diluted income per share from continuing operations -- as reported ........ $ 1.84 $ 2.21 $ 1.67
Diluted income per share from continuing operations -- pro forma .......... $ 1.60 $ 1.99 $ 1.49
--------
39
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
1999 1998 1997
----------- ----------- ----------
Expected dividend yield .................. 0% 0% 0%
Expected stock price volatility .......... 39% 32% 30%
Risk-free interest rate .................. 5.6% 5.73% 5.84%
Expected life of option .................. 3.6 years 4.7 years 4.8 years
Transactions from January 1, 1997 through December 31, 1999, under the
above plans were as follows:
Weighted Weighted
Number Option Price Average Average Life
of Shares per Share Price Remaining
------------- -------------------- ---------- -------------
Options outstanding at January 1, 1997 ........... 1,224,258 $14.38 -- 25.63 $ 18.26 2.95 years
Granted ....................................... 549,500 25.88 -- 33.13 26.49
Exercised ..................................... (216,403) 14.38 -- 25.63 16.31
Canceled ...................................... (121,257) 15.06 -- 31.75 24.15
--------- -------------------- -------
Options outstanding at December 31, 1997 ......... 1,436,098 15.38 -- 33.13 21.31 2.80 years
Granted ....................................... 233,400 27.31 -- 33.94 28.13
Exercised ..................................... (229,098) 15.38 -- 25.88 17.69
Canceled ...................................... (193,825) 15.38 -- 33.44 23.57
--------- -------------------- -------
Options outstanding at December 31, 1998 ......... 1,246,575 16.00 -- 33.94 22.90 2.20 years
Granted ....................................... 423,100 21.38 -- 28.63 26.97
Exercised ..................................... (315,380) 16.00 -- 25.88 18.06
Canceled ...................................... (346,911) 16.00 -- 33.94 27.83
--------- -------------------- -------
Options outstanding at December 31, 1999 ......... 1,007,384 $16.00 -- $33.13 $ 25.26 2.80 years
========= ==================== =======
Options exercisable at December 31, 1999 ......... 357,208 $16.00 -- $33.13 $ 23.03
========= ==================== =======
In 1997 the Company redeemed outstanding stock options granted to the
former owner of a subsidiary. The amount paid of $1,000,000 was charged
directly to additional paid in capital.
(6) PROFIT SHARING PLANS:
The Company maintains defined contribution profit sharing and 401(k) plans
covering substantially all of its employees as of December 31, 1999. Annual
contributions under the plans are determined by the Board of Directors of the
Company or each subsidiary, as appropriate. Consolidated expense related to the
plans for the years ended December 31, 1999, 1998 and 1997 was $2,230,000,
$2,550,000 and $2,407,000, respectively.
- -------
40
(7) FEDERAL INCOME TAXES:
The following table summarizes the provision for U.S. federal, state and
foreign taxes on income:
1999 1998 1997
(in thousands) ----------- ---------- ---------
Current:
Federal ............... $ 8,817 $12,389 $ 6,971
State ................. 56 610 530
Foreign ............... 798 1,054 822
------- ------- -------
9,671 14,053 8,323
------- ------- -------
Deferred:
Federal ............... 723 (271) 3,042
State ................. (13) (132) 206
Foreign ............... -- -- --
------- ------- -------
710 (403) 3,248
------- ------- -------
$10,381 $13,650 $11,571
======= ======= =======
The differences between the statutory and effective federal income tax
rates on income from continuing operations before income taxes were as follows:
1999 1998 1997
---------- ---------- ----------
U.S. federal statutory rate ....................... 35.0% 35.0% 35.0%
State income taxes, less federal benefit .......... .1 .9 1.6
Non-deductible goodwill ........................... 1.0 .5 1.1
Other ............................................. .4 ( .4) .3
----- ----- -----
36.5% 36.0% 38.0%
===== ===== =====
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
income tax assets as of December 31, 1999 and 1998:
1999 1998
(in thousands) ----------- -----------
Deferred income tax assets:
Accounts receivable ................................. $ 1,043 --
Inventory ........................................... 3,258 $ 5,081
Accrued expenses .................................... 2,162 2,764
State net operating loss carryforward ............... 5,232 5,646
Other ............................................... 2,074 2,737
-------- --------
13,769 16,228
Valuation allowance ................................. (5,232) (5,646)
-------- --------
$ 8,537 $ 10,582
======== ========
Deferred income tax liabilities:
Accounts receivable ................................. -- 3,311
Property, plant and equipment ....................... 2,293 437
Unremitted earnings of foreign subsidiaries ......... 1,136 1,180
Other ............................................... 4,358 4,194
-------- --------
7,787 9,122
-------- --------
Net deferred income tax asset ....................... $ 750 $ 1,460
======== ========
At December 31, 1999 and 1998, the Company had net operating loss
carryforwards for state income tax purposes of $5,232,000 and $5,646,000,
respectively, that expire in various years through 2014. For financial
reporting purposes, valuation allowances have been established to offset these
deferred tax assets as it is more likely than not that the net operating loss
carryforwards will not be realized prior to expiration.
--------
41
(8) LONG-TERM DEBT AND CREDIT ARRANGEMENTS:
Long-term debt consisted of the following:
December 31,
-----------------------
1999 1998
(in thousands) ----------- ---------
Mortgages, payable monthly through 2001, interest at rates ranging from 6%
to 9.5% ................................................................. $ 201 $ 605
Industrial Development Revenue Bonds, payable periodically through 2005,
interest at rates ranging from 4% to 9.25% .............................. 150 317
Berwick acquisition debt, payable in 2003, interest at 8% ................ 653 1,133
Other .................................................................... 651 954
-------- ------
1,655 3,009
Less -- current portion .................................................. (1,118) (878)
-------- ------
$ 537 $2,131
======== ======
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. This facility was amended on July 21, 1997 to provide CSS with an
unsecured revolving credit facility with thirteen banks and financial
institutions. The amended facility allows for borrowings up to $300,000,000,
expires on April 30, 2001 and provides that borrowings are limited during a
consecutive 30 day period during each year of the agreement. The loan agreement
contains provisions to increase or reduce the interest pricing spread over
LIBOR based upon the achievement of certain benchmarks related to the ratio of
earnings to interest expense. As of December 31, 1999, at the Company's option,
interest on 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 1/2%. The loan agreement
also contains covenants, the most restrictive of which pertain to net worth;
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 these loan agreements for 1999, 1998 and 1997 was 6.24%,
6.36% and 6.71%, respectively.
On August 13, 1996, CSS entered into an interest rate swap agreement to
reduce the impact of changes in interest rates on its floating rate revolving
credit facility. At December 31, 1997, the Company had a swap agreement with a
total notional amount of $20,000,000. This agreement fixed the interest rate on
$20,000,000 of the borrowings under the revolving credit facility at 7.125%.
The interest rate swap agreement matured on February 13, 1998 and was not
replaced. This agreement involved the exchange of fixed-rate and floating-rate
interest payments periodically over the life of the agreement without the
exchange of the underlying principal amounts. The differential to be paid or
received was accrued as interest rates changed and recognized over the life of
the agreement as an adjustment to interest expense. The fair value of this swap
agreement was not material at December 31, 1997, and was not recognized in the
financial statements.
The Company maintains various notes relating to the financing of
manufacturing facilities which are secured by mortgages on the facilities. The
Company also maintains second mortgages on several facilities financed with
Industrial Development Revenue Bonds. The bonds mature between 1999 and 2001,
accrue interest at rates ranging from 4% 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. In accordance with the
January 2000 Settlement Agreement, all outstanding claims for indemnification
against the primary selling shareholder were resolved and the original term
loan of $3,000,000 was reduced to a principle balance of $653,000. Subsequent
to year end, the note was paid in full.
Long-term debt matures as follows:
(in thousands)
2000 ........................ $1,118
2001 ........................ 316
2002 ........................ 221
2003 ........................ --
2004 ........................ --
Thereafter .................. --
------
Total ....................... $1,655
======
- -------
42
(9) OPERATING LEASES:
The future minimum rental payments associated with all noncancelable lease
obligations are as follows:
(in thousands)
2000 ........................ $ 6,291
2001 ........................ 5,562
2002 ........................ 4,766
2003 ........................ 3,637
2004 ........................ 2,665
Thereafter .................. 4,079
-------
Total ....................... $27,000
=======
Rent expense was $6,971,000, $7,016,000 and $6,144,000 in 1999, 1998 and
1997, respectively.
(10) COMMITMENTS AND CONTINGENCIES:
The Company is subject to various lawsuits and claims arising out of the
normal course of business. In the opinion of Company counsel and management the
ultimate liabilities resulting from such lawsuits and claims will not
materially affect the consolidated financial position of the Company.
In February 1999, CSS was awarded and received approximately $11,200,000,
including interest, in settlement of a dispute primarily related to the
valuation of inventory acquired in the 1995 acquisition of Cleo Inc. The award
increased slightly the goodwill recorded on the 1998 balance sheet and had no
impact on 1998 or 1999 results of operations.
(11) SEGMENT DISCLOSURE:
For the year ended December 31, 1998, the Company adopted SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. SFAS No.
131 introduces a new model for segment reporting called the "management
approach". The management approach is based on the way the chief operating
decision maker organizes the business for making operating decisions and
assessing performance. The Company operates in a single segment, the
manufacture, distribution and sale of non-durable seasonal consumer goods,
primarily to mass market retailers. CSS conducts substantially all of its
business in the United States.
The Company's detail of revenues from its various products is as follows:
1999 1998 1997
(in thousands) ----------- ----------- -----------
Christmas ................. $256,122 $253,886 $229,833
Everyday .................. 49,539 58,722 52,421
Halloween ................. 43,675 45,201 40,935
Other ..................... 43,217 42,882 34,531
-------- -------- --------
Total ..................... $392,553 $400,691 $357,720
======== ======== ========
One customer accounted for sales of $82,169,000 or 20.9% of total sales in
1999, $76,650,000, or 19.1% in 1998 and $75,550,000, or 21.1% in 1997.
--------
43
(12) QUARTERLY FINANCIAL DATA (UNAUDITED):
Quarters
1999 -----------------------------------------------------------
First Second Third Fourth
(In thousands, except per share amounts) ------------ ------------ ------------- -------------
Sales .................................... $ 26,367 $ 36,761 $ 127,416 $ 202,009
-------- -------- --------- ---------
Gross profit ............................. 7,011 8,404 31,493 55,830
-------- -------- --------- ---------
Net income ............................... $ (4,835) $ (3,627) $ 6,806 $ 19,717
======== ======== ========= =========
Net income per common share:
Basic- .................................. $ (.48) $ (.37) $ .71 $ 2.09
======== ======== ========= =========
Diluted- ................................ $ (.48) $ (.37) $ .70 $ 2.09
======== ======== ========= =========
Quarters
1998 (a) -----------------------------------------------------------
First Second Third Fourth
------------ ------------ ------------- -------------
Sales .................................... $ 27,959 $ 36,200 $ 152,408 $ 184,124
-------- -------- --------- ---------
Gross profit ............................. 9,650 9,170 40,209 47,336
-------- -------- --------- ---------
Net income ............................... $ (5,759) $ (4,950) $ 18,613 $ 16,372
======== ======== ========= =========
Net income per common share:
Basic- .................................. $ (.52) $ (.45) $ 1.73 $ 1.59
======== ======== ========= =========
Diluted- ................................ $ (.52) $ (.45) $ 1.69 $ 1.56
======== ======== ========= =========
(a) 1998 quarterly results include restructuring and other special items. See
Note 3 for a complete discussion.
The seasonal nature of CSS' business results in low sales and operating
losses for the first two quarters and high shipment levels and operating
profits for the second half of the year, thereby causing significant
fluctuations in the quarterly results of operations of the Company.
(13) FUTURE ACCOUNTING CHANGES:
The FASB issued SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" in 1998, which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires an
entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure these instruments at fair value.
SFAS No. 133 was scheduled to be effective for fiscal quarters of all fiscal
years beginning after June 15, 1999; however, in June of 1999 the FASB issued
SFAS No. 137 which deferred the effective date of SFAS No. 133 one year to
years beginning after June 15, 2000. Based on current operations, the Company
does not expect the adoption of this statement to have a material effect on its
financial position and results of operations.
-------
44
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 2000 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 2000 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 2000 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 2000 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, 1999 and 1998
Consolidated Statements of Operations - for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Cash Flows - for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity - for the years ended
December 31, 1999, 1998 and 1997
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 1999
None
(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.
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 27,
1999). (10) (Exhibit 3.1)
--------
45
Material Contracts
10.1 CSS Industries, Inc. 1991 Stock Option Plan for Non-Employee
Directors. (2) (Exhibit 10.1)
10.2 CSS Industries, Inc. 1995 Stock Option Plan for Non-Employee
Directors. (7) (Exhibit 10.2)
10.3 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)
10.4 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 July 21,
1997. (8) (Exhibit 10.4)
10.5 Interest Rate Swap Master Agreement dated as of August 9, 1996
between CoreStates Bank, N.A. and CSS Industries, Inc. (7) (Exhibit
10.8)
*10.6 Settlement Agreement dated January 1, 2000 between Berwick
Industries LLC and Henry T. Doherty
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 (as last amended
January 23, 1996). (8) (Exhibit 10.10)
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. (4) (Exhibit 10.14)
*10.11 CSS Industries, Inc. Annual Incentive Compensation Arrangement,
Administrative Guidelines, dated March 15, 1993 (as amended January 1,
2000).
10.12 The Paper Magic Group, Inc. Management Incentive Bonus Program,
Administrative Guidelines, dated March 15, 1993. (2) (Exhibit 10.28)
10.13 1994 Amendment to The Paper Magic Group, Inc. Management Incentive
Bonus Program, Administrative Guidelines, dated March 2, 1994. (4)
(Exhibit 10.26)
10.14 The Paper Magic Group, Inc. 1994 Incentive Stock Option Plan. (5)
(Exhibit 10.16)
10.15 Berwick Industries, Inc. Incentive Bonus Plan, dated January 1,
1994. (4) (Exhibit 10.27)
10.16 Cleo Inc Management Incentive Plan, dated March 7, 1996. (6)
(Exhibit 10.23)
10.17 Berwick Industries, Inc. Non-Qualified Supplemental Executive
Retirement Plan, dated November 18, 1996. (7) (Exhibit 10.26)
10.18 The Paper Magic Group, Inc. Non-Qualified Supplemental Executive
Retirement Plan, dated December 5, 1996. (7) (Exhibit 10.27)
10.19 Cleo Inc Non-Qualified Supplemental Executive Retirement Plan dated
November 26, 1996. (9) (Exhibit 10.18)
*10.20 Employment Agreement dated as of June 1, 1999 between CSS
Industries, Inc. and David J. M. Erskine.
*10.21 Employment Offer Letter dated as of June 3, 1999 between The Paper
Magic Group, Inc. and Steven A. Cohen.
*10.22 Severance Agreement dated as of November 11, 1999 between CSS
Industries, Inc. and John A. Pinti.
Subsidiaries
*21. List of Significant Subsidiaries of the Registrant
- -------
46
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 Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1993 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 December 31, 1994 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, 1995 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, 1996 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, 1997 and incorporated herein by reference.
(9) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1998 and incorporated herein by reference.
(10) Filed as an exhibit to the Quarterly Report on Form 10-Q (No. 1-2661) for
the fiscal quarter ended September 30, 1999 and incorporated herein by
reference.
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.
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 the Secretary, CSS Industries, Inc., 1845
Walnut Street, Philadelphia, Pennsylvania 19103.
--------
47
CSS Industries, Inc. and Subsidiaries
Schedule II
Valuation and Qualifying Accounts
(In thousands)
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
----------- ---------- -------------- ------------ ----------
Year ended December 31, 1999
Doubtful accounts receivable-customers ......... $1,772 $1,302 $ 67 (a) $1,494 $1,647
Year ended December 31, 1998
Doubtful accounts receivable-customers ......... $2,292 $1,406 $ -- $1,926 $1,772
Year ended December 31, 1997
Doubtful accounts receivable-customers ......... $2,941 $ 903 $280 (b) $1,832 $2,292
Notes: (a) Balance at acquisition of Don Post Studios
(b) Balance at acquisition of Color-Clings
- -------
48
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/ David J. M. Erskine
------------------------------------------------------
David J. M. Erksine, President and Chief Executive
Officer (principal executive officer)
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 2, 2000 /s/ David J. M. Erskine
-------------------------------------------------------
David J. M. Erskine, President and Chief Executive
Officer (principal executive officer and a director)
Dated: March 2, 2000 /s/ Clifford E. Pietrafitta
-------------------------------------------------------
Clifford E. Pietrafitta, Vice President -- Finance and
Chief Financial Officer (principal financial and
accounting officer)
Dated: March 2, 2000 /s/ Jack Farber
-------------------------------------------------------
Jack Farber, Director
Dated: March 2, 2000 /s/ James H. Bromley
-------------------------------------------------------
James H. Bromley, Director
Dated: March 2, 2000 /s/ John R. Bunting, Jr.
-------------------------------------------------------
John R. Bunting, Jr., Director
Dated: March 2, 2000 /s/ Stephen V. Dubin
-------------------------------------------------------
Stephen V. Dubin, Director
Dated: March 2, 2000 /s/ Richard G. Gilmore
-------------------------------------------------------
Richard G. Gilmore, Director
Dated: March 2, 2000 /s/ Leonard E. Grossman
-------------------------------------------------------
Leonard E. Grossman, Director
Dated: March 2, 2000 /s/ James E. Ksansnak
-------------------------------------------------------
James E. Ksansnak, Director
Dated: March 2, 2000 /s/ Michael L. Sanyour
-------------------------------------------------------
Michael L. Sanyour, Director
--------
49