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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, 1996
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
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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
- --------------------------------------- ---------
(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
- ---------------------------- -----------------------------------------
Common Stock, $.10 par value New York Stock Exchange
(Page 1 of Cover Page)
Securities registered pursuant to Section 12(g) of the Act:
None
--------------
(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
--- ---
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 $171,497,000. 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 February 28, 1997 ($27.75
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 1997 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 28, 1997, there were outstanding 10,804,722 shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for its 1997 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
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General
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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, paper and vinyl decorations,
calendars, 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, 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
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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. Paper
Magic Spring products include the Dudley's(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. On January 17, 1997 Paper Magic acquired all
of the outstanding stock of Color Clings, Inc. ("Color Clings") for
approximately $8,000,000. Color Clings, headquartered in Bloomington, Minnesota,
is a designer and marketer of seasonal and everyday vinyl home decorations sold
primarily to mass market retailers in the United States and Canada.
1
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, a facility in Bloomington, Minnesota and a facility
in Reynosa, Mexico. 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, incremental volumes of boxed Christmas cards,
gift tags and classroom exchange Valentine cards were processed through existing
Paper Magic facilities in 1996. 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 and
packaging of such products.
Paper Magic has maximized market share by structuring its organization
around key selling seasons. Separate product marketing groups representing
Spring, Fall, Winter and Everyday receive product development input from
consumer focus groups, key retail customers, and the Paper Magic creative staff.
Each group is dedicated to increasing market share profitably and in developing
both strategic and tactical plans to meet that objective. 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
and Bloomington, Minnesota; and Concord, California. As seasonal opportunities
continue to increase, Paper Magic continues to increase its use of 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 Winter 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 manufacturers' representatives is
critical to the timely production of seasonal inventory. Because the products
themselves are seasonal, sales terms do not generally 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, maintain
permanent showrooms for this purpose in New York City and Memphis, Tennessee.
Toy Fair in February is a major trade show for the introduction of the new
Christmas lines. The March Halloween Show in Chicago serves a similar 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
2
of Burgoyne, Inc., among many others. Paper Magic Spring's Dudley's(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
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. 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.
Berwick
- -------
Principal Products Berwick designs, manufactures and distributes an 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), Ribbon Magic(R), and
Veltex(R). Approximately 90% of its products are manufactured by Berwick using
extruded polypropylene resins. These products, together with fabric ribbon and
accessories, which are either manufactured or purchased for resale, are sold to
a diverse base of customers in the United States and in forty-one countries
around the world. On October 29, 1996 Berwick acquired the assets and business
of Ribbon Magic, Inc. ("Ribbon Magic"). In consideration for the purchase of
this business, Berwick assumed and paid off $1,581,000 of outstanding debt.
Ribbon Magic, headquartered in Minneapolis, Minnesota, manufactures and
distributes a line of upscale ribbon and bow products to mass market retailers
in the United States and Canada.
Berwick manufactures and warehouses its products in five 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 rolls 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. Iridescent and
metallic ribbon products are also made from polypropylene produced ribbon that
is coated or laminated 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 bows used, for example, 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, warehouse clubs, drug store chains, supermarket
chains and variety stores. These customers are served by national account sales
managers and a network of independent manufacturers' representatives. Products
are also sold through independent sales representatives to wholesale
distributors who serve the floral, craft and retail 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
manufacturers' representatives and by Berwick sales managers. Berwick's sales
are highly seasonal with approximately 76% shipped for the Christmas selling
season.
3
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 Variety Accessories. Certain of these competitors
are larger and have greater financial resources than the Company.
Berwick believes that its products are established in its various markets
and are 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 Prior to the acquisition by CSS in November 1995, 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.
Subsequent to the acquisition, the Cleo line of gift tags and ribbons and
bows were blended with those of Paper Magic and Berwick, respectively, while the
gift box line was sold. In 1996, Cleo product offerings included 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(R) 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 were
closed and four of the warehouse and distribution facilities were 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(R) brand boxed greeting cards and classroom exchange
Valentine cards sold in 1996 were 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 served
to improve Cleo's operational and financial performance in 1996.
During the past two years, 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 lines has been
further enhanced in 1997 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.
4
Cleo's revenues are highly seasonal with approximately 90% 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 of time 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.
Direct Mail Business Products Group
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General
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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.
On January 8, 1997 Rapidforms sold its Standard Forms, Ltd. subsidiary
("Standard Forms") for $4,300,000 resulting in an immaterial financial gain.
Standard Forms, a British company headquartered in Romsey, England, sold
business forms and related products by direct mail to automotive dealers and
repair shops in the United Kingdom and France.
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
personal computers. The continuous and laser forms product lines consist
principally of forms compatible with various business software applications
developed by software companies. Many of such companies have endorsed
Rapidforms' continuous and laser 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 69%
of the products sold by Rapidforms in 1996 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.
5
Although many 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 three to five 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 the Histacount
operations 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 and 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), 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
pharmaceutical wholesalers) are made to a smaller number of customers.
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 1996, approximately 22,500,000 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 and
laser forms are marketed, among other ways, through brochures which are inserted
in the software packages for various computer software.
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
$152. 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.
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
6
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 sales people 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.
Employees
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At February 28, 1997, approximately 725 persons were employed by Paper
Magic, 682 persons were employed by Berwick, 440 were employed by Cleo (with
personnel increasing to approximately 1,390; 1,280 and 1,400, respectively, as
seasonal employees are added), 586 persons were employed at Rapidforms, and 22
persons were employed at the Company's headquarters.
With the exception of the bargaining unit at Cleo, which includes 254
employees as of February 28, 1997, 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.
Item 2. Properties
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Paper Magic operates out of 810,000 square feet of owned production and
warehouse space in northeast Pennsylvania and 192,000 square feet of leased
production and warehouse space in Bloomington, Minnesota and Reynosa, Mexico.
Paper Magic also leases 52,000 square feet of space for creative design
activities and general administrative purposes in Scranton, Pennsylvania,
Concord, California, New York, New York and Minneapolis, Minnesota. Berwick owns
four buildings in northeast Pennsylvania which represent 623,000 square feet of
production, warehouse and office space and leases 345,000 square feet of
additional warehouse space in one building 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 1,135,000 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
137,000 square feet located in southern New Jersey and Santa Fe Springs,
California. 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 to former
operations) which have been subleased by the Company, as sublessor, to various
sublessees.
7
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 engaged an independent public accounting firm to
resolve the disputed items on the Statement. Gibson's current and Cleo's former
public accountants have completed their audit of the Statement and have issued
an adverse opinion. CSS disagrees with that conclusion. Regardless of the
outcome of the arbitration, CSS now believes that Gibson's current and Cleo's
former public accountants will never be willing to issue an unqualified opinion
on the Statement. As such, CSS will be unable to satisfy the financial
requirements of Form 8-K with regard to the Cleo acquisition.
CSS has sent to the Securities and Exchange Commission, contemporaneously
with the filing of this Annual Report, a request to waive CSS' requirement to
file historical audited Cleo financial statements. CSS believes at this point
that audited pre-acquisition Cleo financial statements are not material to an
investor, in part, because of material changes in the financial position of Cleo
since the acquisition and, in part, because the relevant current financial
information regarding Cleo is included in CSS' audited financial statements. CSS
cannot estimate at this time the timing for determination of the waiver request
and there is no assurance that any waiver will be granted.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
Not applicable.
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 1996 and 1995.
High Low
---- ---
1996
----
First Quarter....................................... $22 1/4 $20 1/2
Second Quarter...................................... 25 3/4 22 1/8
Third Quarter....................................... 23 1/2 21 1/4
Fourth Quarter...................................... 26 1/4 23
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
8
(b) Holders of Common Stock
-----------------------
At February 28, 1997, there were approximately 2,100 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 28, 1997, there were no shares of preferred stock
outstanding.
Item 6. Selected Financial Data
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(In thousands, except
per share amounts)
Years Ended December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Statement of Operations Data:
Sales.................................... $412,079 $288,412 $218,235 $205,743 $151,679
Income from continuing operations
before income taxes
and minority interest................. 37,273 27,386 24,462 24,385 18,643
Net income from continuing
operations ........................... 22,344 15,775 14,027 13,975 10,001
Gain on sale and income from discontinued
operation, net of income taxes........ - - 9,775 3,019 2,876
Net income............................... 22,344 15,775 23,802 16,994 12,877
Net income from continuing operations
per common share -
Primary .......................... 2.03 1.45 1.21 1.18 .91
Fully diluted ..................... 2.01 1.43 1.21 1.17 .88
Balance Sheet Data:
Working capital.......................... 71,780 66,395 72,075 85,288 86,467
Total assets ............................ 346,364 374,961 205,081 200,143 151,923
Short-term debt.......................... 100,016 135,078 1,293 11,650 3,087
Long-term debt........................... 4,612 17,865 11,043 11,810 5,796
Shareholders' equity .................... $176,752 $153,856 $142,980 $133,952 $111,843
9
Item 7. Management's Discussion and Analysis of Financial Condition and
- -----------------------------------------------------------------------
Results of Operations
- ---------------------
Business Acquisitions and Divestitures
- --------------------------------------
On January 17, 1997 Paper Magic acquired all of the outstanding stock of
Color Clings, Inc. ("Color Clings") for approximately $8,000,000. Color Clings,
headquartered in Bloomington, Minnesota, is a designer and marketer of seasonal
and everyday vinyl home decorations sold primarily to mass market retailers in
the United States and Canada.
On January 8, 1997 Rapidforms sold its Standard Forms subsidiary for
$4,300,000 resulting in an immaterial financial gain. Standard Forms, a British
company headquartered in Romsey, England, sold business forms and related
products by direct mail to automotive dealers and repair shops in the United
Kingdom and France.
On October 29, 1996 Berwick acquired the assets and business of Ribbon
Magic. In consideration for the purchase of this business, Berwick assumed and
paid off $1,581,000 of outstanding debt. Ribbon Magic, headquartered in
Minneapolis, Minnesota , manufactures and distributes a line of upscale ribbon
and bow products to mass market retailers in the United States and Canada.
CSS acquired all of the outstanding stock of Cleo Inc., effective
November 15, 1995, for approximately $135,000,000 which 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.
Concurrent with the acquisition of Cleo, CSS divided its businesses into
two distinct business units - the Consumer Products Group ("CPG"), comprised of
Paper Magic, Berwick and Cleo and the Direct Mail Business Products Group
("BPG"), comprised of Rapidforms and its subsidiaries.
Subsequent to the acquisition of Cleo, the Company's management initiated
a restructuring plan that was substantially implemented by December 31, 1995.
Prior to its acquisition by CSS, 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 were closed and four of the five warehouse and distribution
facilities were vacated. Cleo's boxed card, Valentine, gift tags and ribbon and
bow manufacturing and packaging requirements were blended into existing lines at
Paper Magic and Berwick in early 1996. In addition, all applicable inventory was
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 and staffing at the headquarters was reduced.
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
10
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 and limited
edition collectibles sold through various channels.
Seasonality
- -----------
The seasonal nature of the CPG businesses (Paper Magic, Berwick and Cleo)
results 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. Quarterly fluctuation of sales and earnings were further pronounced in
1996 due to the acquisition of Cleo.
Because of the seasonality and the general industry practice of deferred
payment terms, the CPG 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 1996 increased by 43% to $412,079,000 from
$288,412,000. The increase was primarily attributable to incremental sales
provided by the November 15, 1995 acquisition of Cleo. Excluding Cleo, sales
decreased 2% as CPG sales decreased 5%, but this decrease was partially offset
by BPG sales increases. The sales decline at CPG was the result of
discontinuance and divestiture of certain product categories, anticipated
Christmas volume erosion, the effect of significant Cleo closeout sales on
existing Paper Magic and Berwick accounts and weak sales in Berwick's wholesale
markets. The increase in BPG sales was attributable to price increases as
overall volume was modestly down from a year ago, reflecting lower orders for
business forms. The increase in sales of 32% to $288,412,000 in 1995 from
$218,235,000 in 1994 was primarily attributable to incremental sales of
companies acquired in 1994 and 1995, as well as 12% growth in CPG sales and 4%
growth in sales of BPG.
As a percentage of sales, cost of sales was 65% in 1996, 62% in 1995 and
59% in 1994. CPG cost of sales as a percentage of sales increased to 71% in 1996
from 70% in 1995 due primarily to the inclusion of lower margin Cleo sales in
1996. BPG cost of sales percentage increased to 45% in 1996 from 44% in 1995 as
a result of higher material costs. The increase in cost of sales as a percentage
of sales in 1995 reflected competitive pricing pressures in consumer products
business, the timing of the Cleo acquisition, the acquisition of lower margin
businesses in 1995, the increasing importance of consumer product direct import
sales and higher paper and resin costs.
Selling, general and administrative expenses, as a percentage of sales,
was 24% in 1996, 28% in 1995 and 30% in 1994. The decrease in 1996 and 1995 was
due to incrementally lower selling, general and administrative costs of acquired
companies and the increased mix of CPG businesses which require less selling,
general and administrative expenses compared to advertising intensive BPG
businesses.
11
Interest expense, net was $8,235,000 in 1996, $3,957,000 in 1995 and
$923,000 in 1994. The increase in 1996 and 1995 was primarily due to increased
borrowings to fund acquisitions in 1994 and 1995 and to finance additional
working capital requirements.
Rental and other income, net was $1,131,000 in 1996, $1,727,000 in 1995
and $910,000 in 1994. The decrease in 1996 was due to the absence of sublease
income related to a leasehold interest which expired in late 1995 and lower
gains from sales of marketable securities. The increase in 1995 compared to 1994
was primarily due to gains realized on the sale of marketable securities in
1995.
Income before income taxes and minority interest was $37,273,000, or 9%
of sales in 1996, $27,386,000, or 10% of sales in 1995 and $24,462,000, or 11%
of sales in 1994.
Income taxes as a percentage of income before income taxes was 39% in
1996, 40% in 1995 and 41% in 1994. The decrease in 1996 was attributable to
lower state tax expense . The decrease in 1995 was primarily due to permanent
differences in book and tax income.
Minority interest in income of subsidiaries was $540,000 in 1996, or 2%
of income before minority interest, $615,000 or 4% in 1995 and $388,000 or 3% in
1994. The decrease in 1996 was directly related to reduced earnings of the BPG.
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 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 42% in 1996 to
$22,344,000, and increased 13% in 1995 to $15,775,000. Fully diluted net income
from continuing operations per share rose 41% in 1996 to $2.01 per share and
increased 18% in 1995 to $1.43 per share.
Net income to common shareholders of $23,802,000 in 1994 reflected the
$9,661,000 gain on the sale of its former Ellisco subsidiary, 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 decreases in certain grades of
paper, polypropylene resin and corrugated positively impacted 1996 margins by
approximately 1% as a percentage of sales.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1996, the Company had working capital of $71,780,000 and
shareholders' equity of $176,752,000. The decrease in accounts receivable, net
of reserves, from $174,832,000 in 1995 to $159,008,000 in 1996 reflected
collection of accounts receivable of Cleo and Paper Magic product lines divested
in 1996. Inventories, net of reserves, decreased from $76,397,000 to $58,189,000
due primarily to the sale and disposal of excess acquired inventories of Cleo.
This reduction was somewhat offset by increased
12
raw paper purchases at the end of 1996. Property increased from $44,995,000 in
1995 to $53,246,000 in 1996 due to incremental investments in information
systems and manufacturing equipment. Current liabilities were reduced due to
payments of $7,615,000 made to reduce Cleo's restructuring reserve and a net
reduction of the Company's Notes Payable of $29,283,000. The decrease in
long-term debt was due to the repayment of Cleo economic development revenue
bonds as well as repayment of the mortgage on the primary Rapidforms' facility.
The Company relies primarily on cash generated from its operations and
seasonal borrowings to meet its liquidity requirements. Most Paper Magic,
Berwick and Cleo revenues are seasonal with approximately 70 percent of sales
being Christmas and Halloween related. As payment for 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 $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, 1996, there was $98,375,000 outstanding under this facility. 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.
13
Item 8. Financial Statements
- ------- --------------------
CSS INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
-----
Page
----
Report of Independent Public Accountants 15
Consolidated Balance Sheets - December 31, 1996 and 1995 16 - 17
Consolidated Statements of Operations - for the years ended
December 31, 1996, 1995 and 1994 18
Consolidated Statements of Cash Flows - for the years ended
December 31, 1996, 1995 and 1994 19
Consolidated Statements of Shareholders' Equity - for the years ended
December 31, 1996, 1995 and 1994 20 - 21
Notes to Consolidated Financial Statements 22 - 34
14
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,
1996 and 1995 and the related consolidated statements of operations, cash flows
and shareholders' equity for each of the three years in the period ended
December 31, 1996. 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, 1996 and 1995 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, 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 20, 1997
15
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except
share amounts)
December 31,
--------------------------------
ASSETS 1996 1995
------ ---------- ---------
CURRENT ASSETS
Cash and temporary investments...................................... $ 2,755 $ 3,102
Marketable securities............................................... -- 800
Accounts receivable, net of allowance for doubtful
accounts of $3,838 and $4,684.................................... 159,008 174,832
Inventories ........................................................ 58,189 76,397
Deferred income taxes............................................... 1,883 --
Other current assets................................................ 7,269 8,349
--------- ---------
Total current assets............................................. 229,104 263,480
--------- ---------
PROPERTY, PLANT AND EQUIPMENT
Land ............................................................... 1,828 1,876
Buildings, leasehold interests and improvements..................... 33,469 33,836
Machinery, equipment and other...................................... 62,603 53,024
--------- ---------
97,900 88,736
Less - Accumulated depreciation and amortization................... 44,654 43,741
--------- ---------
Net property, plant and equipment .............................. 53,246 44,995
--------- ---------
OTHER ASSETS
Intangible assets, net of accumulated amortization of
$7,364 and $7,299 .............................................. 49,388 50,019
Deferred income taxes.............................................. -- 1,829
Other ........................................................... 14,626 14,638
--------- ---------
Total other assets ............................................. 64,014 66,486
--------- ---------
$346,364 $374,961
========= =========
16
December 31,
-------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
------------------------------------ ---------- ----------
CURRENT LIABILITIES
Notes payable..................................................... $ 99,264 $128,547
Current portion of long-term debt................................. 752 6,531
Accounts payable.................................................. 15,553 15,337
Accrued payroll and other compensation............................ 10,708 7,951
Accrued income taxes.............................................. 6,371 4,278
Accrued expenses ................................................. 24,676 32,342
Deferred income taxes............................................. -- 2,099
---------- ----------
Total current liabilities ..................................... 157,324 197,085
---------- ----------
LONG-TERM DEBT, NET OF CURRENT
PORTION........................................................... 4,612 17,865
---------- ----------
OTHER LONG-TERM OBLIGATIONS.......................................... 2,824 2,547
---------- ----------
MINORITY INTEREST.................................................... 3,862 3,608
---------- ----------
DEFERRED INCOME TAXES................................................ 990 --
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 9)........................ -- --
SHAREHOLDERS' EQUITY
Preferred stock, Class 2, $.01 par, authorized
1,000,000 shares ............................................. -- --
Common stock, $.10 par, authorized 20,000,000 shares,
issued 12,293,090 shares and 12,193,848 shares ................ 1,229 1,219
Additional paid-in capital........................................ 28,675 27,087
Retained earnings................................................. 171,658 149,314
Unrealized gain on marketable securities.......................... -- 327
Cumulative foreign currency translation adjustment ............... (188) (463)
Common stock in treasury, 1,523,780 and 1,479,832
shares, at cost ............................................... (24,622) (23,628)
---------- ----------
Total shareholders' equity..................................... 176,752 153,856
---------- ----------
$346,364 $374,961
========== ==========
See notes to consolidated financial statements.
17
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except
per share amounts)
Years Ended December 31,
---------------------------------------------
1996 1995 1994
--------- --------- ---------
SALES................................................ $412,079 $288,412 $218,235
--------- --------- ---------
COSTS AND EXPENSES
Cost of sales...................................... 266,964 178,481 129,079
Selling, general and administrative expenses....... 100,738 80,315 64,681
Interest expense, net of interest income of $148,
$316 and $704................................... 8,235 3,957 923
Rental and other income, net....................... (1,131) (1,727) (910)
--------- --------- ---------
374,806 261,026 193,773
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND
MINORITY INTEREST...................................... 37,273 27,386 24,462
INCOME TAXES............................................. 14,389 10,996 10,047
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST............................... 22,884 16,390 14,415
MINORITY INTEREST IN INCOME
OF SUBSIDIARIES........................................ 540 615 388
--------- --------- ---------
NET INCOME FROM CONTINUING
OPERATIONS............................................. 22,344 15,775 14,027
DISCONTINUED OPERATION
Income from discontinued operation,
net of income taxes of $95 in 1994.................. -- -- 114
Gain on sale of subsidiary, net of income
taxes of $6,145 in 1994.............................. -- -- 9,661
--------- --------- ---------
NET INCOME............................................... $22,344 $15,775 $23,802
========= ========= =========
NET INCOME PER COMMON SHARE
Primary:
Continuing operations............................... $ 2.03 $ 1.45 $ 1.21
Discontinued operation.............................. -- -- .01
Gain on sale of subsidiary.......................... -- -- .83
--------- --------- ---------
$ 2.03 $ 1.45 $ 2.05
========= ========= =========
Fully diluted:
Continuing operations............................... $ 2.01 $ 1.43 $ 1.21
Discontinued operation.............................. -- -- .01
Gain on sale of subsidiary.......................... -- -- .83
--------- --------- ---------
$ 2.01 $ 1.43 $ 2.05
========= ========= =========
See notes to consolidated financial statements.
18
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
Cash flows from operating activities:
Net income............................................................... $22,344 $15,775 $23,802
--------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................................... 8,626 8,170 6,800
Provision for doubtful accounts....................................... 2,295 1,698 910
Deferred tax (benefit)................................................ (1,163) (912) (284)
Minority interest in income of subsidiaries........................... 540 615 388
(Gain) on sale of assets.............................................. (97) (40) (61)
(Gain) on sale of marketable securities............................... (251) (1,061)
(Gain) on sale of discontinued operation.............................. -- -- (9,661)
Changes in assets and liabilities of
discontinued operation............................................. -- -- (6,915)
Changes in assets and liabilities, net of effects from
purchases and disposal of businesses:
Decrease in accounts receivable.................................... 14,446 7,645 3,074
Decrease (increase) in inventories................................. 20,392 5,438 (1,313)
Decrease (increase) in other assets................................ 684 (1,443) (282)
(Decrease) increase in accounts payable............................ (201) 5,876 2,277
Increase in accrued taxes.......................................... 2,218 3,419 579
(Decrease) increase in accrued expenses............................ (6,155) (20,090) 752
--------- --------- ---------
Total adjustments............................................... 41,334 9,315 (3,736)
--------- --------- ---------
Net cash provided by operating activities....................... 63,678 25,090 20,066
--------- --------- ---------
Cash flows from investing activities:
Purchases of marketable securities....................................... -- (2,080) --
Proceeds on sale of marketable securities................................ 724 2,668 --
Purchases of businesses, net of cash received of $50, $63 and $0......... (1,581) (143,298) (19,341)
Purchase of property, plant and equipment................................ (15,980) (8,823) (5,602)
Proceeds from sale of business........................................... -- -- 30,431
Proceeds from sale of assets............................................. 1,753 313 397
--------- --------- ---------
Net cash (used for) provided by investing activities............ (15,084) (151,220) 5,885
--------- --------- ---------
Cash flows from financing activities:
Payments on long-term obligations........................................ (19,827) (2,444) (1,263)
Borrowings (repayments) of notes payable................................. (29,283) 128,123 (10,351)
Dividends paid to minority shareholders of a subsidiary.................. (118) (120) (110)
Purchase of treasury stock............................................... (994) (6,133) (16,237)
Purchase of subsidiary stock from minority shareholders.................. (168) -- (3,123)
Proceeds from exercise of stock options ................................. 1,473 1,007 1,390
--------- --------- ---------
Net cash (used for) provided by financing activities............. (48,917) 120,433 (29,694)
--------- --------- ---------
Effect of exchange rate changes on cash..................................... (24) 25 58
--------- --------- ---------
Net decrease in cash and temporary investments.............................. (347) (5,672) (3,685)
Cash and temporary investments at beginning of year......................... 3,102 8,774 12,459
--------- --------- ---------
Cash and temporary investments at end of year............................... $ 2,755 $ 3,102 $ 8,774
========= ========= =========
See notes to consolidated financial statements.
19
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, 1994 -- $ -- 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
Issuance of common stock upon exercise
of stock options -- -- 99,242 10 1,588
Increase in treasury shares -- -- -- -- --
Sale of marketable securities -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
Net income -- -- -- -- --
------ ------ ---------- ------- -------
BALANCE, DECEMBER 31, 1996 -- $ -- 12,293,090 $1,229 $28,675
====== ====== ========== ====== =======
20
Cumulative
Unrealized Foreign Common Stock
Gain on Currency in Treasury
Retained Marketable Translation ----------------------
Earnings Securities Adjustment Shares Amount Total
- -------- ---------- ---------- ------ ------ -----
$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
-- -- -- -- -- 1,598
-- -- -- (43,948) (994) (994)
-- (327) -- -- -- (327)
-- -- 275 -- -- 275
22,344 -- -- -- -- 22,344
------- ------------- ---------- ----------- --------- --------
$171,658 $ -- $ (188) (1,523,780) $(24,622) $176,752
======== ============= ========== =========== ========= ========
See notes to consolidated financial statements.
21
CSS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(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. The assets and
liabilities of International Subsidiaries are translated into U.S. dollars at
the year-end exchange rate; income and expense items are translated at the
average exchange rate for the period. Translation adjustments are charged or
credited to a separate component of shareholders' equity. Gains and losses on
foreign currency transactions are included in the consolidated statements of
income.
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, paper and vinyl decorations, calendars, 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, 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. During 1996, all remaining
marketable securities were sold resulting in a pre-tax gain of $251,000. At
December 31, 1995, all securities covered by SFAS No. 115 were designated as
available for sale. Accordingly, these securities are stated at fair
22
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.
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
$1,917,000 and $1,643,000 at December 31, 1996 and 1995, respectively.
Inventories consisted of the following:
1996 1995
----------- ------------
Raw material.................................. $17,372,000 $21,926,000
Work-in-process............................... 8,025,000 13,196,000
Finished goods................................ 32,792,000 41,275,000
------------ ------------
$58,189,000 $76,397,000
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 $1,587,000 and $2,322,000 at December 31, 1996 and 1995, 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.
23
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 -
11,006,822 in 1996, 10,890,825 in 1995, and 11,578,956 in 1994. Average
outstanding shares used in the computation of fully diluted net income per share
were 11,127,300 in 1996, 11,031,022 in 1995, and 11,578,956 in 1994.
Accounting Changes -
--------------------
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." 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. The adoption of this
statement in 1996 did not result in a material write-down of assets.
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" during 1996. 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 does not change the
current intrinsic-value approach to expense recognition, but requires pro forma
disclosure in the notes to the consolidated financial statements of the impact
using the fair-value method. The Company adopted the pro forma disclosure
option, and reference is made to the disclosure in Note 3.
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)
1996 1995 1994
-------- -------- ------
Cash paid during the year for:
Interest......................................... $ 8,790 $ 2,804 $ 1,542
======== ========= ========
Income taxes..................................... $ 13,561 $ 8,044 $ 15,339
======== ========= ========
Details of acquisitions:
Fair value of assets acquired.................... $ 2,430 $ 192,772 $ 24,460
Liabilities assumed.............................. 799 49,411 5,119
-------- --------- --------
Cash paid........................................ 1,631 143,361 19,341
Less cash acquired............................... 50 63 -
-------- --------- --------
Net cash paid for acquisitions $ 1,581 $ 143,298 $ 19,341
======== ========= ========
See Note 2 for supplemental disclosure of noncash investing activities.
24
Reclassification -
------------------
Certain prior-period amounts have been reclassified to conform with
current-year classifications.
(2) BUSINESS ACQUISITIONS AND DIVESTITURES:
---------------------------------------
On October 29, 1996 Berwick acquired the assets and business of Ribbon
Magic, Inc. ("Ribbon Magic"). In consideration for the purchase of this
business, Berwick assumed and paid off $1,581,000 of outstanding debt. Ribbon
Magic, headquartered in Minneapolis, Minnesota, manufacturers and distributes a
line of upscale ribbon and bow products to mass retailers in the United States
and Canada.
CSS acquired all of the outstanding stock of Cleo, effective November 15,
1995, for approximately $135,000,000. The purchase price included $12,000,000
held in escrow for certain post closing adjustments and indemnification
obligations which is included in other assets in the consolidated balance sheet.
The Company and the seller have disagreed on the disbursement of the escrow and
have engaged an independent public accounting firm to resolve the disputed
items. Cleo designs, manufactures and distributes a wide range of promotional
gift wrap and gift wrap accessories to mass market retailers in the United
States and Canada. The acquisition was accounted for as a purchase and the
excess of historical book value over the purchase price was recorded as a
$28,528,000 reduction to property, plant and equipment, an accrual for
restructuring expenses of $10,034,000, and a credit to goodwill of $7,243,000.
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 initiated
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 were closed and four of
the five warehouse and distribution facilities were vacated. Cleo's boxed card,
Valentine, gift tags and ribbon and bow manufacturing and packaging requirements
were blended into existing lines at Paper Magic and Berwick in early 1996. In
addition, all applicable inventory was 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 and
staffing at the headquarters was reduced.
The restructuring accrual was reduced to $2,419,000 at December 31, 1996
due to (1) the payment of $2,247,000 of severance and related termination costs,
(2) the payment of $3,432,000 of lease and occupancy costs related to idle
facilities and (3) the payment of $1,936,000 of other costs associated with the
integration and restructuring of Cleo.
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
25
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 and limited edition collectibles sold through various channels.
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 $3,598,000 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.
(3) 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, 1996, options to
acquire 272,000 shares were available 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, 1996, options to acquire 320,000
shares were available for grant under the 1994 plan.
26
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, 1996, options to acquire 10,000
shares were available for grant under the 1991 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 cost 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 1996 and
1995 as follows:
1996 1995
---- ----
Net income - as reported...................... $22,344 $15,775
Net income - pro forma........................ 21,366 15,451
Fully diluted earnings per share - as reported $2.01 $1.43
Fully diluted earnings per share - pro forma.. $1.94 $1.41
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:
1996 1995
---- ----
Expected dividend yield.................. 0% 0%
Expected stock price volatility.......... 21.8% 22.9%
Risk-free interest rate.................. 5.5% 5.7%
Expected life of option.................. 4.5 years 4.5 years
Transactions from January 1, 1994 through December 31, 1996, 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, 1994..... 626,000 $9.06 - $19.13 $13.43 2.77 years
Granted................................... 460,500 16.00 - 20.00 17.02
Exercised................................. (130,000) 9.06 - 9.94 9.78
Canceled.................................. (134,000) 15.06 - 20.00 18.22
-------- ------ ------ -------
Options outstanding at December 31, 1994... 822,500 9.25 - 20.00 15.24 3.41 years
Granted................................... 255,000 15.38 - 22.25 17.42
Exercised................................. (97,200) 9.25 9.25
Canceled.................................. (75,300) 9.25 - 16.25 $15.48
-------- ------ ------ --------
27
Options outstanding at December 31, 1995..... 905,000 13.88 - 22.25 16.47 3.18 years
Granted................................... 478,500 20.63 - 25.63 21.04
Exercised................................. (99,242) 13.88 - 16.00 14.84
Canceled.................................. (60,000) 15.81 - 20.63 17.70
------- ------- ------ -------
Options outstanding at December 31, 1996..... 1,224,258 $14.38 - $25.63 $18.26 2.95 years
========= ================= ======
Options exercisable at December 31, 1996..... 396,383 $14.38 - $22.25 $16.37 1.96 years
========= ================= ======
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, 1996, 1995 and 1994 was
$2,817,000, $1,862,000 and $1,798,000.
(5) FEDERAL INCOME TAXES:
---------------------
The following table summarizes the provision for U.S. federal, state and
foreign taxes on income:
1996 1995 1994
------- ------- ------
Current:
Federal............................................... $13,795 $10,298 $ 8,406
State................................................. 1,167 1,342 1,957
Foreign............................................... 590 268 (32)
----------- ---------- ----------
15,552 11,908 10,331
----------- ---------- ----------
Deferred:
Federal............................................... (1,732) (1,252) (1)
State................................................. 569 340 (283)
Foreign............................................... - - -
----------- ---------- ----------
(1,163) (912) (284)
----------- ---------- ----------
$14,389 $10,996 $10,047
=========== ========== ==========
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:
1996 1995 1994
------- ------- ------
U.S. federal statutory rate........................... 35.0% 35.0% 35.0%
State income taxes, less federal benefit.............. 3.0 4.0 4.4
Other. . ............................................. .6 1.2 1.7
------ ------ -----
38.6% 40.2% 41.1%
====== ====== =====
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
assets (liabilities) as of December 31, 1996 and 1995:
28
1996 1995
--------- ---------
Deferred tax assets:
Inventory............................................... $ 2,556 $ -
Property, plant and equipment........................... 3,158 7,407
Accrued expenses........................................ 2,403 4,964
Other................................................... 2,390 878
--------- ---------
10,507 13,249
--------- ---------
Deferred tax liabilities:
Accounts receivable..................................... 3,084 6,836
Inventory............................................... - 2,695
Unremitted earnings of foreign subsidiaries............. 1,253 331
Other................................................... 5,277 3,657
--------- ---------
9,614 13,519
--------- ---------
Net deferred tax asset (liability)...................... $ 893 $ (270)
========= ==========
(6) LONG-TERM DEBT AND CREDIT ARRANGEMENTS:
---------------------------------------
Long-term debt consisted of the following:
1996 1995
------------ ------------
Mortgage on Rapidforms' facility, payable monthly
through March 1996, interest at 10.5% .................. $ - $4,287,000
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%........................................ 941,000 1,180,000
Industrial Development Revenue Bonds, payable
periodically through 2005, interest at rates
ranging from 3% to 9.25% ............................... 1,824,000 2,468,000
Berwick acquisition debt, payable in 2003,
interest at 8%.......................................... 2,077,000 2,355,000
Other...................................................... 522,000 353,000
------------ ------------
5,364,000 24,396,000
Less - current portion..................................... (752,000) (6,531,000)
------------- -------------
$4,612,000 $17,865,000
============ ===========
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
29
during a consecutive 30 day period during each year of the agreement. 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 1/4%. The loan agreement contains provisions to reduce the interest pricing
spread over LIBOR based upon the achievement of certain benchmarks related to
the ratio of earnings to interest expense. The loan agreement also 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 1996 was 6.65%.
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, 1996 the Company has a swap agreement with a
total notional amount of $20,000,000. This agreement fixes the interest rate on
$20,000,000 of the borrowings under the revolving credit facility to 7.125%. The
interest rate swap agreement matures on February 13, 1998. This agreement
involves 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 is accrued
as interest rates change and recognized over the life of the agreement as an
adjustment to interest expense. The fair value of this swap agreement, which is
not material at December 31, 1996, is not recognized in the financial
statements. The counter party to the interest rate swap agreement is a major
financial institution. Management believes the risk of incurring losses related
to credit risk is remote and any potential losses would be immaterial.
On September 18, 1996, CSS entered into a $20,000,000 term loan with a
bank to provide additional capacity for seasonal requirements and general
corporate purposes. The term loan was repaid on December 23, 1996.
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.
On August 1, 1996, CSS utilized proceeds from its $195,000,000 unsecured
revolving credit facility to redeem the outstanding principal balance of
$12,880,000 related to economic development revenue bonds assumed in connection
with the acquisition of Cleo. Cleo financed the construction of its primary
distribution facility with the proceeds from these economic development revenue
bonds. Cleo also maintained an Urban Development Action Grant ("UDAG") bearing
interest at 8% and payable in quarterly installments. The UDAG was also repaid
on October 2, 1996.
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.
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.
30
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 $2,077,000 and is
payable on May 3, 2003 with interest payable quarterly at a rate of 8% per year.
The note is callable at the option of the noteholder after May 3, 1996, subject
to then unresolved claims.
Long-term debt matures as follows:
1997...........................................$ 752,000
1998........................................... 749,000
1999........................................... 829,000
2000........................................... 356,000
2001........................................... 151,000
Thereafter..................................... 2,527,000
----------
Total...................................... $5,364,000
==========
(7) OPERATING LEASES:
-----------------
The future minimum rental payments associated with all noncancelable lease
obligations are as follows:
1997............................................ $ 3,868,000
1998............................................ 3,165,000
1999............................................ 3,122,000
2000............................................ 2,740,000
2001............................................ 2,460,000
Thereafter...................................... 3,644,000
-----------
Total........................................ $18,999,000
===========
Rent expense was $5,173,000, $2,792,000 and $2,510,000 in 1996, 1995 and
1994, respectively.
(8) CONCENTRATION RISKS:
--------------------
During 1996, one customer accounted for 14% of the Company's sales.
(9) COMMITMENTS AND CONTINGENCIES:
------------------------------
Rapidforms has 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 is
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 $9,781,000 all shares of
Paper Magic common stock held by its minority shareholders.
As of December 31, 1996 and 1995, only Rapidforms and certain of its
subsidiaries had minority shareholders and outstanding stock options. The
liability of Rapidforms to repurchase such shares was $3,862,000 and $3,608,000
at December 31, 1996 and 1995, respectively, and was reported as minority
interest in the accompanying balance sheet.
31
(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, calendars, 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 primarily through the direct mailing of catalogs
and brochures.
Operations by Business Segment
(In thousands)
Consumer Products Direct Mail Business Products Consolidated
------------------------------- ------------------------------ --------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ---- ---- ---- ----
Sales to
unaffiliated
customers $323,051 $202,274 $153,440 $89,028 $86,138 $64,795 $412,079 $288,412 $218,235
========= ======== ======== ======== ======= =======
Operating profit $ 39,710 $ 21,542 $ 17,091 $10,000 $11,222 $10,031 49,710 32,764 27,122
========= ======== ======== ======== ======= =======
General
corporate
expenses (5,333) (3,148) (2,647)
Interest expense,
net (8,235) (3,957) (923)
Rental and other
income, net 1,131 1,727 910
-------- -------- --------
Income before
income taxes $ 37,273 $ 27,386 $ 24,462
======== ======== ========
Identifiable
assets at
December 31 $ 273,696 $297,791 $124,681 $62,077 $60,970 $60,901 $335,773 $358,761 $185,582
========= ======== ======== ======= ======= =======
Corporate assets 10,591 16,200 19,499
-------- -------- --------
Total assets $346,364 $374,961 $205,081
======== ======== ========
Depreciation and
amortization $ 3,975 $ 4,398 $ 4,076 $3,739 $ 3,205 $ 2,212
========= ======== ======== ====== ======= =======
Capital
expenditures $ 13,407 $ 4,895 $ 4,008 $2,528 $ 3,855 $ 1,651
========= ======== ======== ====== ======= =======
32
(11) QUARTERLY FINANCIAL DATA (UNAUDITED):
(In thousands, except
per share amounts)
Quarters
---------------------------------------------------------
1996 First Second Third Fourth
---- ----------- ----------- ----------- ------------
Sales.............................................. $47,270 $47,305 $147,527 $169,977
======== ======== ======== ========
Gross profit....................................... $19,782 $18,777 $ 49,552 $ 57,004
======== ======== ======== ========
Net Income......................................... $(2,085) $(1,757) $ 11,141 $ 15,045
======== ======== ======== ========
Net income per common share:
Primary......................................... $ (.19) $ (.16) $ 1.01 $ 1.36
======== ======== ======== ========
Fully diluted................................... $ (.19) $ (.16) $ 1.01 $ 1.35
======== ======== ======== ========
Quarters
---------------------------------------------------------
1995 First Second Third Fourth
---- ----------- ----------- ----------- ------------
Sales.............................................. $42,529 $43,038 $100,736 $102,109
======= ======= ======== ========
Gross profit....................................... $19,221 $18,606 $ 36,693 $ 35,411
======= ======= ======== ========
Net income......................................... $ 501 $ 1,260 $ 8,120 $ 5,894
======= ======= ======== ========
Net income per common share:
Primary......................................... $ .05 $ .12 $ .75 $ .54
======= ======= ======== ========
Fully diluted................................... $ .05 $ .12 $ .74 $ .54
======= ======= ======== ========
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 were further
pronounced in 1996 with the inclusion of a full year of Cleo's results.
(11) SUBSEQUENT EVENTS:
------------------
On January 17, 1997 Paper Magic acquired all of the outstanding stock of
Color Clings for approximately $8,000,000. Color Clings, headquartered in
Bloomington, Minnesota, 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 $11,375,000 was recorded as goodwill
and will be amortized over twenty years.
33
On January 8, 1997 Rapidforms sold its Standard Forms, Ltd. subsidiary
for $4,300,000 resulting in an immaterial financial gain. Sales and operating
income (loss) were $8,237,000 and $19,000 in 1996, $7,925,000 and $220,000 in
1995 and $6,672,000 and $(203,000) in 1994.
Item 9. Disagreements on Accounting and Financial Disclosure
- ------- ----------------------------------------------------
None
34
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 1997 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 1997 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 1997 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 1997 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, 1996 and 1995
Consolidated Statements of Operations - for the years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - for the years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity - for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
35
2. Financial Statement Schedules
-----------------------------
Schedule II - Valuation and Qualifying Accounts
(b) Reports on Form 8-K filed during the last quarter of 1996
---------------------------------------------------------
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 November
18, 1996).
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.
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 Shareholders' Agreement, dated as of February 4, 1985, by and among
shareholders of Rapidforms, Inc. (4) (Exhibit 4 (B))
10.5 First Amendment to Shareholders' Agreement, dated as of December 17,
1990, by and among shareholders of Rapidforms, Inc. (3) (Exhibit 10.7)
10.6 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 (8) (Exhibit 10.1)
10.7 Stock Purchase Agreement dated as of October 3, 1995 between the
Company and Gibson Greetings, Inc. (9) (Exhibit 2.1)
*10.8 Interest Rate Swap Master Agreement dated as of August 9, 1996 between
CoreStates Bank, N.A. and CSS Industries, Inc.
36
Executive Compensation Plans and Arrangements
- ---------------------------------------------
10.9 CSS Industries, Inc. 1985 Incentive Stock Option Plan, as last amended
in 1991. (3) (Exhibit 10.1)
*10.10 CSS Industries, Inc. 1994 Equity Compensation Plan (as last amended
January 23, 1996)
10.11 CSS Industries, Inc. Non-Qualified Supplemental Executive Retirement
Agreements, dated March 3, 1993, with certain executive officers of the
Company. (2) (Exhibit 10.15)
10.12 CSS Industries, Inc. Non-Qualified Supplemental Executive Retirement
Plan Guidelines, dated January 25, 1994. (5) (Exhibit 10.14)
10.13 Deferred Compensation Agreement between Jack Farber and CSS Industries,
Inc., restated as of December 8, 1994. (7) (Exhibit 10.8)
10.14 CSS Industries, Inc. Annual Incentive Compensation Arrangement,
Administrative Guidelines, dated March 15, 1993. (2) (Exhibit 10.17)
10.15 Rapidforms, Inc. Incentive Stock Option Plan, dated June 25, 1987, and
form of stock option agreement. (6) (Exhibit 10.5)
10.16 Amendment to Rapidforms, Inc. Incentive Stock Option Plan, dated
December 11, 1990. (1) (Exhibit 10.5)
*10.17 Rapidforms, Inc. Profit Sharing Plan, as last amended and restated
effective as of July 1, 1996.
10.18 Rapidforms, Inc. Annual Incentive Compensation Arrangement,
Administrative Guidelines, dated March 15, 1993. (2) (Exhibit 10.22)
10.19 The Paper Magic Group, Inc. Management Incentive Bonus Program,
Administrative Guidelines, dated March 15, 1993. (2) (Exhibit 10.28)
10.20 1994 Amendment to The Paper Magic Group, Inc. Management Incentive
Bonus Program, Administrative Guidelines, dated March 2, 1994. (5)
(Exhibit 10.26)
10.21 The Paper Magic Group, Inc. 1994 Incentive Stock Option Plan. (7)
(Exhibit 10.16)
10.22 Berwick Industries, Inc. Incentive Bonus Plan, dated January 1, 1994.
(5) (Exhibit 10.27)
10.23 Employment Agreement between John Pinti and Berwick Industries,
Incorporated, dated October 1, 1992. (7) (Exhibit 10.18)
10.24 Amendment to Employment Agreement between Berwick Industries,
Incorporated and John Pinti, dated May 3, 1993. (7) (Exhibit 10.19)
10.25 Cleo Inc. Management Incentive Plan , dated March 7, 1996. (10)
(Exhibit 10.23)
*10.26 Berwick Industries, Inc. Non-Qualified Supplemental Executive
Retirement Plan, dated November 18, 1996.
*10.27 The Paper Magic Group, Inc. Non-Qualified Supplemental Executive
Retirement Plan, dated December 5, 1996.
Subsidiaries
- ------------
*21. List of Significant Subsidiaries of the Registrant
37
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 February 2, 1985 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, 1993 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, 1988 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, 1994.
(8) Filed as an exhibit to the Current Report on Form 8-K (No. 1-2661)
dated November 15, 1995.
(9) Filed as an exhibit to the Quarterly Report on Form 10-Q (No. 1-2661)
for the fiscal quarter ended September 30, 1995.
(10) 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.
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.
38
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, 1996
Doubtful accounts
receivable-customers $4,684 $2,295 $ -- $3,141 $3,838
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
Notes: (a) Balance at acquisition of Cleo, Topstone and Illusive Concepts.
(b) Balance at acquisition of Histacount and Business Envelope.
39
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 5, 1997
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 5, 1997 /s/ Jack Farber
--------------------------------------------
Jack Farber, Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
Dated: March 5, 1997 /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 5, 1997 /s/ Willard M. Bright
--------------------------------------------
Willard M. Bright, Director
Dated: March 5, 1997 /s/ James H. Bromley
--------------------------------------------
James H. Bromley, Director
Dated: March 5, 1997 /s/ John R. Bunting, Jr.
--------------------------------------------
John R. Bunting, Jr., Director
Dated: March 5, 1997 /s/ Stephen V. Dubin
--------------------------------------------
Stephen V. Dubin, Director
Dated: March 5, 1997 /s/ Richard G. Gilmore
--------------------------------------------
Richard G. Gilmore, Director
Dated: March 5, 1997 /s/ Leonard E. Grossman
--------------------------------------------
Leonard E. Grossman, Director
Dated: March 5, 1997 /s/ James E. Ksansnak
--------------------------------------------
James E. Ksansnak, Director
Dated: March 5, 1997 /s/ Michael L. Sanyour
--------------------------------------------
Michael L. Sanyour, Director
Dated: March 5, 1997 /s/ William C. Warren
--------------------------------------------
William C. Warren, Director
40
INDEX TO EXHIBITS
-----------------
Exhibit No. Page
- ----------- ----
3.5 By-Laws of the Company, as amended to date (as last amended November
18, 1996)
10.2 CSS Industries, Inc. 1995 Stock Option Plan for Non-Employee Directors
10.8 Interest Rate Swap Master Agreement dated as of August 9, 1996 between
CoreStates Bank, N.A. and CSS Industries, Inc.
10.10 CSS Industries, Inc. 1994 Equity Compensation Plan (as last amended
January 23, 1996)
10.17 Rapidforms, Inc. Profit Sharing Plan, as last amended and restated effective
as of July 1, 1996
10.26 Berwick Industries, Inc. Non-Qualified Supplemental Executive Retirement
Plan, dated November 18, 1996.
10.27 The Paper Magic Group, Inc. Non-Qualified Supplemental Executive
Retirement Plan, dated December 5, 1996.