Back to GetFilings.com
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, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ------------------- to -------------------
Commission File Number 1-2661
CSS INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-1920657
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1845 Walnut Street, Philadelphia, PA 19103
------------------------------------ -----
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (215) 569-9900
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
- ---------------------------- -----------------------------------------
Common Stock, $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
---------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
(Page 1 of Cover Page)
17
Securities registered pursuant to Section 12(g) of the Act:
None
----------------
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is approximately $139,583,239. Such aggregate market value was
computed by reference to the closing price of the Common Stock of the
Registrant on the New York Stock Exchange on March 2, 1999 ($25.5625 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 1999 Annual Meeting of Stockholders. In making such
calculation, Registrant does not determine the affiliate or non-affiliate
status of any holders of the shares of Common Stock for any other purpose.
At March 2, 1999, there were outstanding 10,212,010 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for its 1999 Annual Meeting of
Stockholders are incorporated by reference in Part III (under Items 10, 11, 12
and 13).
(Page 2 of Cover Page)
18
Part I
Item 1. Business
General
CSS Industries, Inc. ("CSS" or the "Company") is a consumer products
company primarily engaged in the manufacture and sale to mass market retailers
of seasonal, social expression products, including gift wrap, gift bags, boxed
greeting cards, gift tags, tissue paper, paper and vinyl decorations, classroom
exchange Valentines, decorative ribbons and bows, Halloween masks, costumes,
make-ups and novelties and Easter egg dyes and novelties. CSS provides its
retail customers the opportunity to use a single vendor for much of their
seasonal product requirements. CSS' product breadth, product innovation,
creative design, manufacturing and packaging flexibility, product quality and
customer service are key to sustaining the Company's market leadership
position. A substantial portion of CSS' products are manufactured, packaged and
warehoused in twelve domestic facilities, with the remainder purchased
primarily from Asian manufacturers. The Company's products are sold to its
retail customers by national and regional account managers and product
specialists and by a network of independent manufacturers' representatives. The
Company is comprised of The Paper Magic Group, Inc. ("Paper Magic"), acquired
by the Company in August 1988, Berwick Industries, Inc. ("Berwick"), acquired
in May 1993, and Cleo Inc ("Cleo"), acquired in November 1995.
On December 23, 1997, CSS sold Rapidforms, Inc. and its subsidiaries
("Rapidforms"). As a result of the sale, CSS no longer operates in the Direct
Mail Business Products industry.
The Company has experienced growth through a combination of acquisitions
and the expansion of existing operations. The Company's goal is to continue to
expand by developing new or complementary products, by entering new markets, by
acquiring companies that are complementary with its existing operating business
and by acquiring other businesses with leading market positions.
PRINCIPAL PRODUCTS -- CSS designs, manufactures and distributes a broad
range of seasonal consumer products primarily through the mass market
distribution channel. Christmas products include gift wrap, gift bags, boxed
greeting cards, gift tags, tissue paper, paper and vinyl decorations and
decorative ribbons and bows. CSS' Valentine product offerings include classroom
exchange Valentine cards and other related Valentine products, while its Easter
product offerings include Dudley's(R) brand of Easter egg dyes and related
Easter seasonal products. For Halloween, CSS offers a full line of Halloween
merchandise including make-up, costumes, masks, novelties, and the Illusive
Concepts(TM) brand of highly crafted masks. In addition to seasonal products,
CSS also designs and markets all-occasion gift wrap, gift bags, tissue paper,
decorative products and decorative ribbons and bows to its mass market and
wholesale distribution customers and teachers' aids to the education market
through school supply distributors and direct-to-retail teachers' stores.
CSS manufactures and warehouses its products in twelve facilities located
in Pennsylvania and Tennessee. Boxed greeting cards, gift tags, paper and vinyl
decorations and classroom exchange Valentine products are primarily produced
and warehoused in four facilities in central and northeastern Pennsylvania.
Manufacturing processes include a wide range of finishing, assembly and
packaging operations. Halloween make-up and Easter egg dye products are
manufactured to specific proprietary formulae by contract manufacturers who
meet regulatory requirements for the formularization and packaging of such
products and are distributed from one facility in northeastern Pennsylvania.
Ribbons and bows are manufactured and warehoused in five facilities located in
northeastern Pennsylvania. The manufacturing process is vertically integrated.
Most ribbon and bow products are made from polypropylene resin, a
petroleum-based product, which is mixed with color pigment, melted and pressed
through an extruder. Large rolls of extruded film go through various
combinations of manufacturing processes before being made into bows or packaged
on ribbon spools or reels as required by various markets and customers.
Manufacturing of gift wrap, including web printing, finishing, rewinding and
packaging are performed in one facility in Memphis, Tennessee. Finished goods
are warehoused and shipped from both the production facility and a separate
facility in Memphis. Other products, designed to the specifications of CSS, are
imported from Asian manufacturers.
SALES AND MARKETING -- Most of CSS' products are sold in the United States
and Canada by national and regional account sales managers and by a network of
CSS independent manufacturers' representatives. Products are displayed and
presented in showrooms maintained by these representatives in major cities in
the United States and Canada. Relationships are developed with key retail
customers by CSS sales management personnel and the independent manufacturers'
representatives. Customers are generally mass merchandise retailers, warehouse
clubs, drug and food chains, independent card shops and retail teachers'
stores. CSS' revenues are seasonal with approximately 65% of sales related to
the Christmas
19
season and the remaining sales relating to the Halloween, Easter and
Valentine's Day seasons and all-occasion product sales. Seasonal products are
generally designed and marketed beginning approximately eighteen to twenty
months before the event and manufactured during an eight to ten month
production cycle. With such long lead time requirements, timely communication
with outsourcing factories, retail customers and independent manufacturers'
representatives is critical to the timely production of seasonal products.
Because the products themselves are seasonal, sales terms do not generally
require payment until after the holiday, in accordance with industry practice.
CSS maintains permanent showrooms in New York City and Memphis, Tennessee where
major retail buyers will typically visit for a presentation and review of the
new lines. In general, CSS products are not sold under guaranteed or return
privilege terms. All-occasion ribbon and bow products are also sold through
independent sales representatives to wholesale distributors who serve the
floral, craft and retail packaging trades. Finally, the Company also sells
custom products to private label customers, to other social expression
companies, and to converters of the company's bulk gift wrap or ribbon
products. Custom products are sold and marketed by both independent
manufacturers' representatives and by CSS sales managers.
Due to the ever increasing competitive retail environment, CSS plays a
crucial role in helping the retailer to develop programs to meet revenue
objectives while appealing to consumers' tastes. These objectives are met
through the development and manufacture of custom configured and designed
products. CSS' years of experience in program development and product quality
are key competitive advantages in helping the retailers meet their objectives.
COMPETITION -- CSS competes with various companies in each of its product
offerings. In Christmas boxed cards, CSS competes with the Plus Mark(R) line of
American Greetings Corporation, among others. CSS' gift tag line competes with
Plus Mark(R), CPS Corporation and Jean Marie Creations, Inc. Competition with
regard to classroom exchange Valentines includes Hallmark Cards, Inc., among
others. In the ribbon and bow category there are a variety of large and small
domestic companies, including Plus Mark(R), Hollywood Ribbon, Inc., CPS
Corporation, Equality Specialties, Inc., Delaware Ribbon Manufacturers, Inc.,
C. M. Offray and Son, Inc. and Variety Accessories. In Christmas gift wrap, CSS
competes primarily with Plus Mark(R) and CPS Corporation. CSS' Dudley's(R)
brand Easter egg dye products compete with the PAAS(R) brand of Schering-Plough
HealthCare Products, among others. Competitors offering Halloween products
include Disguise, Inc., Fun World, Inc. and Rubie's Costume Co., Inc. Certain
of these competitors are larger and have greater resources than the Company.
Historically, CSS has not competed directly, except to a limited extent, with
Hallmark Cards, Inc. and other product offerings of American Greetings
Corporation. In recent years, these companies have expanded their promotional
offerings to the mass market retail distribution channel.
CSS believes its products are positioned adequately for continued growth
in their primary markets. Since competition is based primarily on price, timely
delivery, creative design and increasingly, the ability to serve major retail
customers with single, combined product shipments for each holiday event, CSS'
product driven focus combined with consistent service levels allows it to
compete effectively in its core markets.
Employees
At March 2, 1999, approximately 2,185 persons were employed by CSS
(increasing to approximately 3,774 as seasonal employees are added).
With the exception of the bargaining unit at the gift wrap facilities in
Memphis, Tennessee, which included 430 employees as of March 2, 1999, CSS
employees are not represented by labor unions. Because of the seasonal nature
of certain of its businesses, the number of production employees fluctuates
during the year.
The Company believes that relationships with all of its employees are
good.
20
Item 2. Properties
The following table sets forth the location and approximate square footage
of the Company's major manufacturing and distribution facilities:
Approximate Square Feet
---------------------------
Location Use Owned Leased
- ----------------- -------------------------------- ------------ ------------
Elysburg, PA Manufacturing and distribution 253,000 --
Elysburg, PA Manufacturing 68,000 --
Danville, PA Distribution 133,000 --
Troy, PA Manufacturing and distribution 223,000 --
Canton, PA Distribution 135,000 --
Berwick, PA Manufacturing and distribution 165,000 --
Berwick, PA Manufacturing and distribution 220,000 --
Berwick, PA Distribution 226,000 --
Berwick, PA Distribution -- 423,000
Berwick, PA Distribution -- 36,000
Memphis, TN Manufacturing and distribution -- 986,000
Memphis, TN Distribution -- 366,000
------- -------
Total 1,423,000 1,811,000
========= =========
The Company also utilizes owned and leased space aggregating 84,000 square
feet for various administrative purposes. The headquarters and principal
executive office of the Company are located in Philadelphia, Pennsylvania.
The Company is also the lessee of approximately 130,000 square feet of
office and retail space (which was related to former operations) which have
been subleased by the Company, as sublessor, to various sublessees.
Item 3. Legal Proceedings
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 was 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 requested
that Gibson consent to the release to CSS of the $12,000,000 of the purchase
price held in escrow for the resolution of such purchase price adjustments and
the payment of any indemnification claims. Gibson disagreed with the Statement
and believed 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 engaged an independent public accounting firm to resolve the
disputed items on the Statement.
In February 1999, CSS was awarded approximately $11,200,000, including
interest, by the independent public accounting firm charged with the resolution
of the disputed items. The funds were subsequently released from escrow. The
award increased slightly the goodwill recorded on the 1998 balance sheet and
had no impact on 1998 results of operations. Upon receipt of the award, CSS
moved for judicial confirmation. In March 1999, Gibson objected to confirmation
and has sought to vacate the award.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
21
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Principal Market for Common Stock
The Common Stock of the Company is listed for trading on the New York
Stock Exchange. The following table sets forth the high and low sales prices
per share of that stock for each of the calendar quarters during 1998 and 1997.
High Low
---- ---
1998
- ----
First Quarter ............................... $ 36 $ 26 7/8
Second Quarter .............................. 33 7/8 31 7/8
Third Quarter ............................... 33 7/16 27 5/8
Fourth Quarter .............................. 31 3/4 26 5/8
1997
- ----
First Quarter ............................... $ 30 1/8 $ 25 1/4
Second Quarter .............................. 34 3/4 29 1/2
Third Quarter ............................... 39 1/4 30 7/16
Fourth Quarter .............................. 37 1/2 30 11/16
(b) Holders of Common Stock
At March 2, 1999, there were approximately 1,900 holders of the Company's
Common Stock.
(c) Dividends
The Company has not declared or paid any dividends on its Common Stock for
more than the past three fiscal years. The ability of the Company to pay any
cash dividends on its Common Stock is dependent on the Company's earnings and
profits and cash requirements and is further limited by the terms of the
Company's revolving line of credit. The Company does not anticipate that it
will declare or pay any cash dividends on its Common Stock for the foreseeable
future.
At March 2, 1999, there were no shares of preferred stock outstanding.
22
Item 6. Selected Financial Data
(In thousands, except per share amounts)
Years Ended December 31,
-------------------------------------------------------------------------
1998(a) 1997 1996(b) 1995(b) 1994(c)
------------- ------------- ------------- ----------- -----------
Statement of Operations Data:
Sales ...................................... $ 400,691 $ 357,720 $ 323,051 $202,294 $153,440
Income from continuing operations before
income taxes ............................. 37,926 30,442 27,499 16,733 14,514
Income from continuing operations .......... 24,276 18,871 17,110 10,084 8,817
Income from discontinued operations, net of
income taxes ............................. -- 6,348 5,234 5,691 5,324
Gain on sale of discontinued operations, net
of income taxes .......................... -- 17,871 -- -- 9,661
Net income ................................. 24,276 43,090 22,344 15,775 23,802
Income from continuing operations per
common share --
Basic .................................... 2.26 1.74 1.59 .94 .77
Diluted .................................. 2.21 1.67 1.55 .93 .76
Balance Sheet Data:
Working capital ............................ 145,165 129,245 71,780 66,395 72,075
Total assets ............................... 376,590 342,362 330,122 356,388 180,744
Short-term debt ............................ 96,198 52,524 99,027 129,618 678
Long-term debt ............................. 2,131 2,580 3,762 16,915 5,656
Shareholders' equity ....................... $ 220,493 $ 221,649 $ 176,752 $153,856 $142,980
(a) Results for 1998 include pre-tax income of $5,309, or net income of $3,398,
related to restructuring and other special items. For a complete
description of these items, see Management's Discussion and Analysis of
Financial Conditions and Results of Operations.
(b) Restated to reflect the historical results of Rapidforms as a discontinued
operation.
(c) Restated to reflect the historical results of Rapidforms and Ellisco as
discontinued operations.
23
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Business Acquisitions and Divestitures
On December 23, 1997, the Company sold its Direct Mail Business Products
Group, composed of Rapidforms and its subsidiaries, for approximately
$84,635,000, resulting in a net gain of $17,521,000 and net cash proceeds of
approximately $60,000,000 after income taxes and the buy out of the minority
interest. Rapidforms designs and sells business forms, business supplies,
in-house retail merchandising products, holiday greeting cards and advertising
specialties to small and medium size businesses primarily through the direct
mailing of catalogs and brochures. On January 8, 1997, Rapidforms sold its
Standard Forms, Ltd. subsidiary for $4,083,000, resulting in a gain of
$350,000. Sales from these discontinued operations were $81,654,000 and
$89,028,000 in 1997 and 1996, respectively.
On January 17, 1997, the Company acquired all of the outstanding stock of
Color-Clings, Inc. ("Color-Clings") for $7,875,000 and assumed and repaid
$10,665,000 of outstanding debt. Color-Clings is a designer and marketer of
seasonal and everyday vinyl home decorations sold primarily to mass market
retailers in the United States and Canada. Subsequent to the acquisition, a
substantial portion of the operations of Color-Clings was merged into existing
operations of the Company.
Litigation
In February 1999, CSS was awarded approximately $11,200,000, including
interest, in settlement of a dispute primarily related to the valuation of
inventory acquired in the 1995 acquisition of Cleo Inc. The funds were
subsequently released from escrow. The award increased slightly the goodwill
recorded on the 1998 balance sheet and had no impact on 1998 results of
operations. Upon receipt of the award, CSS moved for judicial confirmation. In
March 1999, Gibson objected to confirmation and has sought to vacate the award.
Seasonality
The seasonal nature of CSS' business results in low sales and operating
losses for the first two quarters and high shipment levels and operating
profits for the second half of the year, thereby causing significant
fluctuations in the quarterly results of operations of the Company.
Because of the seasonality and the general industry practice of deferred
payment terms, a material portion of the Company's trade receivables are
collected in December and January, thus enabling the Company to repay the
short-term debt borrowed to fund the inventory and accounts receivable build-up
during the year.
Restructuring and Other Special Items
The Company implemented a restructuring program in 1998 consisting of the
sale of underutilized real estate, the integration of certain functions, the
discontinuance of under-performing product lines and the reduction of overhead
costs. As a result of the restructuring, a 1,135,000 square foot warehouse,
two-thirds of which had been previously leased to a third party, was sold
subject to a leaseback of the space required for the Company's gift wrap
operation. The transaction resulted in a gain of $16,596,000. Earlier in the
year, the Company also sold an administrative building for a gain of $270,000.
Partially offsetting these gains were restructuring and special, non-recurring
charges, including (1) severance and other charges totaling $2,530,000 related
to the integration of certain functional responsibilities within the Company,
(2) $3,102,000 of charges associated with the write-off of previously
capitalized systems development costs and contract programming costs incurred
in 1998 to correct deficiencies within a management information system
implemented in 1997, and (3) costs totaling $5,925,000 related to the
discontinuance of certain ancillary, unprofitable products lines, including the
write-off of goodwill and product development costs of $3,982,000 and the
establishment of reserves necessary to liquidate the related inventory of
$1,943,000.
24
A summary of total restructuring and other special items for the year
ended December 31, 1998 is provided below:
Year Ended
December 31, 1998
------------------------
(000's) Effect on
Pre-tax Diluted
Income Earnings
(Expense) Per Share
----------- ----------
Cost of sales:
Inventory disposition costs of
discontinued product lines $ (1,943) $(.11)
-------- -----
Restructuring and other special items:
Gain on sale of real estate 16,866 .98
Costs to discontinue product lines,
including goodwill write-off (3,982) (.23)
Integration of operations and
management functions (2,530) (.15)
Write-off of systems development costs (3,102) (.18)
-------- -----
7,252 .42
-------- -----
Total $ 5,309 $ .31
======== =====
Results of Operations
Consolidated sales for 1998 increased by 12% to $400,691,000 from
$357,720,000. The increase was primarily attributable to volume increases in
sales of Christmas products. Consolidated sales for 1997 increased by 11%
primarily as a result of incremental sales provided by the January 17, 1997
acquisition of Color-Clings. Excluding Color-Clings, sales increased 1% as
increased Halloween, Valentine and ribbon and bow sales were substantially
offset by a decrease in sales of Christmas paper products.
As a percentage of sales, cost of sales was 73% in 1998, 71% in 1997 and
72% in 1996. Included in cost of sales in the current year is a charge of
$1,943,000 to dispose of inventory related to certain peripheral product lines
which the Company has discontinued. Net of this charge, cost of sales as a
percentage of sales increased as competitive conditions did not allow for the
complete recovery of increased raw material costs, particularly raw paper. Cost
of sales as a percentage of sales decreased to 71% in 1997 from 72% in 1996 due
primarily to increased efficiencies at the Company's ribbon and bow operation,
reduced reserve requirements and lower sales of close-out gift wrap
merchandise, and reduced workers compensation expense due to better loss
experience in recent years. These improvements were offset, in part, by lower
selling prices of certain Christmas products and increased labor and overhead
costs at the Company's gift wrap operation caused by operational problems
associated with the implementation of a new, fully integrated business
management system.
Selling, general and administrative expenses, as a percentage of sales,
was 18% in 1998, 19% in 1997 and 18% in 1996. The decrease in 1998 was the
result of CSS' increased sales base as well as the integration of certain
management functions. The increase in 1997 was primarily due to incrementally
higher selling, general and administrative expenses of Color-Clings,
incremental costs associated with the implementation of a new, fully integrated
business management system at the Company's gift wrap operation, higher sales
commissions and higher salaries.
Interest expense, net was $4,445,000 in 1998, $7,178,000 in 1997 and
$8,035,000 in 1996. The decrease in 1998 was primarily attributable to lower
borrowings due to cash received from the sale of Rapidforms at the end of 1997.
Excluding the impact of the Rapidforms sale, cash requirements increased due to
the repurchase of the Company's stock and working capital required to fund
sales volume increases in 1998. The decrease in 1997 was primarily due to lower
average borrowings during the year as operating cash generated from the 1996
selling season more than offset incremental cash expended for the acquisition
of Color-Clings.
Restructuring and other special items resulted in income of $7,252,000 and
included the gain of $16,596,000 related to the sale and partial leaseback of a
distribution center. This gain was partially offset by the write-off of
goodwill and product development expenses related to ancillary product lines
which the Company has discontinued, severance and other costs related to the
integration of management functions within the Company and the write-off of
certain systems development costs.
25
Rental and other income, net was $1,647,000 in 1998, $2,143,000 in 1997
and $1,158,000 in 1996. The decrease in 1998 resulted from lower income related
to sublease interests. The increase in 1997 was primarily due to the sale of a
sublease interest and incremental rental income of a distribution facility.
Income before income taxes was $37,926,000, or 9% of sales in 1998,
$30,442,000, or 9% of sales in 1997 and $27,499,000, or 9% of sales in 1996.
Income taxes as a percentage of income before income taxes was 36% in 1998
and 38% in 1997 and 1996. The decrease in 1998 was primarily due to the reduced
impact of non-deductible goodwill as a percentage of pre-tax income and lower
state tax expense.
Income from continuing operations increased 29% in 1998 to $24,276,000 and
increased 10% in 1997 to $18,871,000. Income from continuing operations per
diluted share rose 32% in 1998 to $2.21 per share and increased 8% in 1997 to
$1.67 per share.
Net income to common shareholders for the year ended December 31, 1998 was
$24,276,000, or $2.21 per share, compared to net income to common shareholders
of $43,090,000, or $3.81, per share in 1997.
Excluding the restructuring and other special items discussed above,
including those recorded as part of cost of sales, income before taxes was
$32,617,000 or 8% of sales. The decrease as a percentage of sales from 1997 is
due to competitive conditions prohibiting the complete recovery of increased
raw material costs. On that same basis, net income was $20,878,000, or $1.90
per diluted share. The increase over 1997 is primarily attributable to lower
interest expense.
Inflation
The financial statements are presented on a historical cost basis and do
not fully reflect the impact of prior years' inflation. The U.S. inflation rate
has been modest the past several years and the Company conducts the majority of
its business using U.S. currency. The ability to pass on inflationary costs is
uncertain due to general economic conditions and competitive situations. The
Company attempts to alleviate inflationary material and labor pressures by
increasing selling prices to help offset rising costs (subject to competitive
conditions), increasing productivity, and improving design and manufacturing
techniques.
Liquidity and Capital Resources
At December 31, 1998, the Company had working capital of $145,165,000 and
shareholders' equity of $220,493,000. The increase in accounts receivable, net
of reserves, from $165,761,000 in 1997 to $182,983,000 in 1998 reflected
increased sales volume compared to 1997. Inventories, net of reserves,
increased from $66,270,000 to $81,406,000 due primarily to earlier purchases
and production for 1999 and increased seasonal inventory carryover. Property,
plant and equipment increased from $44,868,000 in 1997 to $49,409,000 in 1998
due to incremental investments in information systems and manufacturing
equipment. The decrease in accrued income taxes reflected the paydown of taxes
from the proceeds of the sale of Rapidforms.
The Company relies primarily on cash generated from its operations and
seasonal borrowings to meet its liquidity requirements. Most CSS revenues are
seasonal with approximately 75 percent of sales being Christmas and Halloween
related. As payment for sales of Christmas and Halloween related products is
usually not received until after the respective holiday in accordance with
general industry practice, short-term borrowing needs increase throughout the
second and third quarters, peaking prior to Christmas and dropping thereafter.
Seasonal borrowings are made under a $300,000,000 unsecured revolving credit
facility with thirteen banks and financial institutions. The facility is
available to fund the seasonal borrowing needs and to provide the Company with
a source of capital for general corporate purposes. At December 31, 1998, there
was $95,320,000 outstanding under this facility. In February, the Company
repaid all amounts outstanding on the facility by utilizing the proceeds from
the collection of trade accounts receivable. For information concerning the
revolving credit facility, see Note 8 of Notes to Consolidated Financial
Statements.
On February 19, 1998, the Company announced that its Board of Directors
had authorized the buyback of up to 1,000,000 shares of the Company's Common
Stock. During 1998, the Company repurchased 986,400 shares for $28,771,000. On
November 6, 1998, the Executive Committee of the Board of Directors authorized
an additional repurchase of up to 500,000 shares on terms acceptable to
management. Any such buy back is subject to compliance with regulatory
requirements and relevant covenants of the Company's $300,000,000 unsecured
revolving credit facility.
26
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.
Year 2000 Readiness Disclosure
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations. These problems, in an extreme case, could render
the Company unable to process transactions and engage in the normal course of
business.
To guard against these events, the Company has initiated a comprehensive
Year 2000 review and remediation program (the "Year 2000 Program"). Each of the
Company's subsidiaries and CSS' corporate headquarters have established teams,
which include members of executive management, to identify and correct Year
2000 issues. Attention is being given to computer hardware and software,
communications equipment, manufacturing equipment and facilities to achieve
compliance in all these areas. The teams are also charged with investigating
the Year 2000 capabilities of suppliers, customers and other external entities,
and with developing contingency plans where necessary. Significant vendors
(including, but not limited to, suppliers of materials and manufacturing
equipment, freight carriers, landlords, financial institutions and computer
hardware and software manufacturers) and customers are being contacted to
assess their ability to meet the Year 2000 challenges. These entities are being
asked to represent to CSS that they will be able to correctly process
transactions with regard to the Year 2000.
A detailed accounting and assessment of all computer systems and
application software utilized throughout the Company's operations has been
completed, and plans for establishing compliance have been developed. These
plans identify which non-compliant hardware and software will be remediated,
upgraded or replaced and the timetable and resource requirements to achieve
those objectives. Remediation and testing activities have been completed or are
in the process of being completed at all of the Company's subsidiaries and at
corporate headquarters. The Company is utilizing employees and, where
appropriate, contract labor to reprogram and test software for Year 2000
modifications. CSS anticipates completing the Year 2000 project prior to any
anticipated impact on its operating systems. The external cost of this effort
is not expected to exceed $250,000 and will be funded through operating cash
flows and expensed as incurred.
The Company maintains contingency plans for computer failures, power
outages, natural disasters, etc. Year 2000 contingency plans for mission
critical systems will be developed and integrated with the existing contingency
plans where appropriate by December 1999.
The costs of the Year 2000 Program and the time table on which the Company
believes it will complete the Year 2000 Program are based on management's best
estimates, which were derived using assumptions of future events. However,
there can be no guarantee that these estimates will be achieved, and actual
results could differ materially from those anticipated. Although the Company
believes the program outlined above should be adequate to address the Year 2000
issue, there can be no assurances to that effect.
Forward Looking Cautionary Statements
This document contains certain forward-looking statements that are subject
to risks and uncertainties. Forward-looking statements include certain
information related to the Company's capital resources and the costs related to
operational decisions, as well as information contained elsewhere in this
report where statements are preceded by, followed by, or include the words
"believes," "expects," "anticipates" or similar expressions. For such
statements the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including without limitation, general market conditions, increased competition,
and factors discussed elsewhere in this report and the documents incorporated
herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company does not utilize financial instruments for trading purposes
and holds no derivative financial instruments which could expose the Company to
significant market risk. The Company's primary market risk exposure with regard
to financial instruments is to changes in interest rates. Pursuant to the
Company's line of credit, a change in either the lender's base rate or LIBOR
would affect the rate at which the Company could borrow funds thereunder. The
Company believes that the effect of any such change would be minimal.
27
CSS Industries, Inc.
and Subsidiaries
Item 8. Financial Statements
INDEX
Page
------
Report of Independent Public Accountants ....................................................................... 29
Consolidated Balance Sheets -- December 31, 1998 and 1997 ...................................................... 30-31
Consolidated Statements of Operations -- for the years ended December 31, 1998, 1997 and 1996 .................. 32
Consolidated Statements of Cash Flows -- for the years ended December 31, 1998, 1997 and 1996 .................. 33
Consolidated Statements of Shareholders' Equity -- for the years ended December 31, 1998, 1997 and 1996 ......... 34-35
Notes to Consolidated Financial Statements ...................................................................... 36-45
28
Report of Independent Public Accountants
To the Board of Directors and Shareholders
of CSS Industries, Inc.:
We have audited the accompanying consolidated balance sheets of CSS
Industries, Inc. (a Delaware Corporation) and subsidiaries as of December 31,
1998 and 1997 and the related consolidated statements of operations, cash flows
and shareholders' equity for each of the three years in the period ended
December 31, 1998. 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, 1998 and 1997 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, 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 16, 1999
29
CSS Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
December 31,
---------------------------
1998 1997
ASSETS ------------ ------------
CURRENT ASSETS
Cash and temporary investments ............................ $ 2,587 $ 1,365
Accounts receivable, net of allowance for doubtful accounts
of $1,772 and $2,292 .................................... 182,983 165,761
Inventories ............................................... 81,406 66,270
Deferred income taxes ..................................... 3,389 726
Other current assets ...................................... 20,210 9,909
--------- ---------
Total current assets .................................... 290,575 244,031
--------- ---------
PROPERTY, PLANT AND EQUIPMENT
Land ...................................................... 472 472
Buildings, leasehold interests and improvements ........... 26,149 24,454
Machinery, equipment and other ............................ 63,424 55,006
--------- ---------
90,045 79,932
Less -- Accumulated depreciation and amortization ......... (40,636) (35,064)
--------- ---------
Net property, plant and equipment ....................... 49,409 44,868
--------- ---------
OTHER ASSETS
Intangible assets, net of accumulated amortization of $7,249
and $6,069 ................................................ 34,508 38,648
Deferred income taxes ...................................... -- 330
Other ...................................................... 2,098 14,485
--------- ---------
Total other assets ...................................... 36,606 53,463
--------- ---------
$ 376,590 $ 342,362
========= =========
30
December 31,
-------------------------
1998 1997
LIABILITIES AND SHAREHOLDERS' EQUITY ----------- -----------
CURRENT LIABILITIES
Notes payable ........................................................... $ 95,320 $ 51,570
Current portion of long-term debt ....................................... 878 954
Accounts payable ........................................................ 13,539 14,679
Accrued payroll and other compensation .................................. 6,231 6,447
Accrued income taxes .................................................... 8,217 20,752
Accrued expenses ........................................................ 21,225 20,384
--------- ---------
Total current liabilities ............................................. 145,410 114,786
--------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION ................................... 2,131 2,580
--------- ---------
OTHER LONG-TERM OBLIGATIONS .............................................. 6,627 3,347
--------- ---------
DEFERRED INCOME TAXES .................................................... 1,929 --
--------- ---------
COMMITMENTS AND CONTINGENCIES ............................................ -- --
SHAREHOLDERS' EQUITY
Preferred stock, Class 2, $.01 par, authorized 1,000,000 shares ......... -- --
Common stock, $.10 par, authorized 20,000,000 shares, issued
12,366,566 shares ..................................................... 1,237 1,237
Additional paid-in capital .............................................. 28,274 28,248
Retained earnings ....................................................... 239,024 214,748
Common stock in treasury 2,234,811 and 1,429,977 shares, at cost ........ (48,042) (22,584)
--------- ---------
Total shareholders' equity ............................................ 220,493 221,649
--------- ---------
$ 376,590 $ 342,362
========= =========
See notes to consolidated financial statements.
31
CSS Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
Years Ended December 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
SALES ............................................................ $400,691 $357,720 $323,051
-------- -------- --------
COSTS AND EXPENSES
Cost of sales ................................................... 294,326 252,687 230,997
Selling, general and administrative expenses .................... 72,893 69,556 57,678
Restructuring and other special items ........................... (7,252) -- --
Interest expense, net of interest income of $59, $152, and $147 4,445 7,178 8,035
Rental and other income, net .................................... (1,647) (2,143) (1,158)
-------- -------- --------
362,765 327,278 295,552
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES .................................................... 37,926 30,442 27,499
INCOME TAXES ..................................................... 13,650 11,571 10,389
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS ................................ 24,276 18,871 17,110
DISCONTINUED OPERATIONS
Income from discontinued operations, net of income taxes of
$4,673 in 1997 and $4,000 in 1996 ............................. -- 6,348 5,234
Gain on sale of discontinued operations, net of income taxes of
$13,635 in 1997 ............................................... -- 17,871 --
-------- -------- --------
NET INCOME ....................................................... $ 24,276 $ 43,090 $ 22,344
======== ======== ========
NET INCOME PER COMMON SHARE
Basic
Continuing operations ......................................... $ 2.26 $ 1.74 $ 1.59
Discontinued operations ....................................... -- .59 .49
Gain on sale of discontinued operations ....................... -- 1.64 --
-------- -------- --------
$ 2.26 $ 3.97 $ 2.08
======== ======== ========
Diluted
Continuing operations ......................................... $ 2.21 $ 1.67 $ 1.55
Discontinued operations ....................................... -- .56 .48
Gain on sale of discontinued operations ....................... -- 1.58 --
-------- -------- --------
$ 2.21 $ 3.81 $ 2.03
======== ======== ========
See notes to consolidated financial statements.
32
CSS Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Years Ended December 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
Cash flows from operating activities:
Net income ............................................................... $ 24,276 $ 43,090 $ 22,344
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .......................................... 9,019 7,665 4,883
Write-down of goodwill ................................................. 3,530 -- --
Provision for doubtful accounts ........................................ 1,406 903 1,821
Deferred tax (benefit) provision ....................................... (403) 3,248 (1,215)
(Gain) loss on sale or disposal of assets .............................. (14,774) 95 (114)
(Gain) on sale of marketable securities ................................ -- -- (251)
(Gain) on sale of discontinued operations .............................. -- (17,871) --
Changes in assets and liabilities of discontinued operations ........... -- (9,689) (1,562)
Changes in assets and liabilities, net of effects from purchases and
disposal of businesses:
(Increase) decrease in accounts receivable ............................ (18,628) (14,902) 14,070
(Increase) decrease in inventories .................................... (15,136) (9,388) 19,969
Decrease (increase) in other assets ................................... 859 (3,464) 271
(Decrease) increase in accounts payable ............................... (1,140) (6,045) 804
(Decrease) increase in accrued taxes .................................. (11,917) (274) 1,918
Increase (decrease) in accrued expenses ............................... 618 (6,007) (6,806)
--------- --------- ---------
Total adjustments .................................................... (46,566) (55,729) 33,788
--------- --------- ---------
Net cash (used for) provided by operating activities ................. (22,290) (12,639) 56,132
--------- --------- ---------
Cash flows from investing activities:
Proceeds on sale of marketable securities ................................ -- -- 724
Purchases of businesses, net of cash received of $0, $976 and $50......... -- (17,564) (1,581)
Purchase of property, plant and equipment ................................ (14,800) (13,682) (13,449)
Proceeds from sale of businesses ......................................... -- 88,718 --
Proceeds from sale of assets ............................................. 21,743 2,422 1,732
--------- --------- ---------
Net cash provided by (used for) investing activities ................. 6,943 59,894 (12,574)
--------- --------- ---------
Cash flows from financing activities:
Payments on long-term obligations ........................................ (1,131) (2,832) (15,390)
Borrowings (repayments) on notes payable ................................. 43,750 (46,805) (29,149)
Purchase of treasury stock ............................................... (28,771) (644) (994)
Proceeds from exercise of stock options .................................. 2,721 1,701 1,473
--------- --------- ---------
Net cash provided by (used for) financing activities ................. 16,569 (48,580) (44,060)
--------- --------- ---------
Effect of exchange rate changes on cash ................................... -- -- 274
--------- --------- ---------
Net increase (decrease) in cash and temporary investments ................. 1,222 (1,325) (228)
Cash and temporary investments at beginning of year ....................... 1,365 2,690 2,918
--------- --------- ---------
Cash and temporary investments at end of year ............................. $ 2,587 $ 1,365 $ 2,690
========= ========= =========
See notes to consolidated financial statements.
33
CSS Industries, Inc. and Subsidiaries
Consolidated Statements of
Shareholders' Equity
(In thousands, except share amounts)
Preferred Stock Common Stock Additional
------------------- ----------------------- Paid-in
Shares Amount Shares Amount Capital
-------- -------- ------------ -------- -----------
BALANCE, JANUARY 1, 1996 .......................... -- $ -- 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 ...................... -- -- -- -- --
Unrealized gain on marketable securities ......... -- -- -- -- --
Foreign currency translation adjustment .......... -- -- -- -- --
Net income ....................................... -- -- -- -- --
---- ----- ---------- ------ --------
BALANCE, DECEMBER 31, 1996 ........................ -- -- 12,293,090 1,229 28,675
Issuance of common stock upon exercise of
stock options .................................. -- -- 73,476 8 573
Increase in treasury shares ...................... -- -- -- -- --
Redemption of outstanding options ................ -- -- -- -- (1,000)
Foreign currency translation adjustment .......... -- -- -- -- --
Net income ....................................... -- -- -- -- --
---- ----- ---------- ------ --------
BALANCE, DECEMBER 31, 1997 ........................ -- -- 12,366,566 1,237 28,248
Issuance of common stock upon exercise of
stock options .................................. -- -- -- -- 26
Increase in treasury shares ...................... -- -- -- -- --
Net income ....................................... -- -- -- -- --
---- ----- ---------- ------ --------
BALANCE, DECEMBER 31, 1998 ........................ -- $ -- 12,366,566 $1,237 $ 28,274
==== ===== ========== ====== ========
34
Cumulative
Unrealized Foreign Common Stock
Gain on Currency in Treasury
Retained Marketable Translation -------------------------------
Earnings Securities Adjustment Shares Amount Total
- ---------- ------------ ------------- --------------- ------------- -----------
$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
-- -- -- 118,642 2,682 3,263
-- -- -- (24,839) (644) (644)
-- -- -- -- -- (1,000)
-- -- 188 -- -- 188
43,090 -- -- -- -- 43,090
-------- ------ ------ ---------- --------- ---------
214,748 -- -- (1,429,977) (22,584) 221,649
-- -- -- 181,566 3,313 3,339
-- -- -- (986,400) (28,771) (28,771)
24,276 -- -- -- -- 24,276
-------- ------ ------ ---------- --------- ---------
$239,024 $ -- $ -- (2,234,811) $ (48,042) $ 220,493
======== ====== ====== ========== ========= =========
35
CSS Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of CSS
Industries, Inc. ("Company") and all subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation. Gains and
losses on foreign currency transactions are included in the consolidated
statements of income.
Restatement of Prior Years Financial Statements
On December 23, 1997, the Company sold its Direct Mail Business Products
Group, composed of Rapidforms, Inc. and its subsidiaries ("Rapidforms"). The
gain on the sale and the operating results of Rapidforms prior to the sale have
been accounted for as discontinued operations and, accordingly, have been
segregated on the statement of operations. The 1996 financial statements and
footnotes have also been restated to conform to the current year presentation.
Certain other prior-period amounts have been reclassified to conform with
current-year classification.
Nature of Business
CSS is a consumer products company primarily engaged in the manufacture
and sale to mass market retailers of seasonal, social expression products,
including gift wrap, gift bags, boxed greeting cards, gift tags, tissue paper,
paper and vinyl decorations, 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 Company's business, the majority
of sales occur in the third and fourth quarters and a material portion of the
Company's trade receivables are due in December and January of each year. CSS
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.
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.
Inventories
Substantially all of the Company's inventories are stated at the lower of
first-in, first-out (FIFO) cost or market. The remaining portion of the
inventory is valued at the lower of last-in, first-out cost or market. Had all
inventories been valued at the lower of FIFO cost or market, inventories would
have been greater by $1,516,000 and $1,651,000 at December 31, 1998 and 1997,
respectively. Inventories consisted of the following:
1998 1997
(in thousands) ------- -------
Raw material ............. $30,636 $23,840
Work-in-process .......... 12,992 9,789
Finished goods ........... 37,778 32,641
------- -------
$81,406 $66,270
======= =======
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided generally on the straight-line method and are based
on estimated useful lives or terms of leases as follows:
Buildings, leasehold interests and improvements ......... Lease term to 40 years
Machinery, equipment and other .......................... 3 to 11 years
36
When property is retired or otherwise disposed of, the related cost and
accumulated depreciation and amortization are eliminated from the accounts. Any
gain or loss from the disposition of property, plant and equipment is included
in other income. Maintenance and repairs are expensed as incurred while
improvements are capitalized and depreciated over their estimated useful lives.
Intangible Assets
The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of its intangible
assets may warrant revision or that the remaining balance of goodwill may not
be recoverable. Intangible assets, including goodwill, are amortized over
periods not to exceed 40 years.
Income Taxes
The Company follows the liability method of accounting for deferred income
taxes. Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and
liabilities. Deferred tax assets or liabilities at the end of each period are
determined using the tax rate expected to be in effect when taxes are actually
paid or recovered.
Revenue Recognition
The Company recognizes revenues in accordance with its shipping terms.
Returns and allowances are reserved for based on specific need or historical
experience.
Net Income Per Common Share
The following table sets forth the computation of basic net earnings per
share and diluted earnings per share for the years ended December 31, 1998,
1997 and 1996:
1998 (a) 1997 1996
(000's) ------------ ------------ ------------
Numerator:
Net income
Continuing operations .................. $ 24,276 $ 18,871 $ 17,110
Discontinued operations ................ -- 6,348 5,234
Gain on sale of discontinued
operations ............................ -- 17,871 --
-------- -------- --------
Total ................................. $ 24,276 $ 43,090 $ 22,344
Denominator:
Weighted average shares outstanding
for basic earnings per share ........... 10,737 10,850 10,731
Effect of dilutive stock options ......... 271 442 276
-------- -------- --------
Adjusted weighted average shares out-
standing for diluted earnings per
share .................................. 11,008 11,292 11,007
======== ======== ========
Basic earnings per share
Continuing operations .................... $ 2.26 $ 1.74 $ 1.59
Discontinued operations .................. -- .59 .49
Gain on sale of discontinued operations -- 1.64 --
-------- -------- --------
Total .................................... $ 2.26 $ 3.97 $ 2.08
======== ======== ========
Diluted earnings per share
Continuing operations .................... $ 2.21 $ 1.67 $ 1.55
Discontinued operations .................. -- .56 .48
Gain on sale of discontinued operations -- 1.58 --
-------- -------- --------
Total .................................. $ 2.21 $ 3.81 $ 2.03
======== ======== ========
(a) Results for 1998 include pre-tax income of $5,309, or net income of $3,398,
related to restructuring and other special items. For a complete
description of these items, see Note 3.
37
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all
holdings of highly liquid debt instruments with original maturity of less than
three months to be temporary investments.
Supplemental Schedule of Cash Flow Information
(In thousands) 1998 1997 1996
--------- --------- ---------
Cash paid during the year for:
Interest .............................. $ 4,011 $ 7,009 $ 8,595
======= ======= =======
Income taxes .......................... $24,126 $12,538 $13,076
======= ======= =======
Details of acquisitions:
Fair value of assets acquired ......... -- $35,988 $ 2,430
Liabilities assumed ................... -- 17,448 799
------- ------- -------
Cash paid ............................. -- 18,540 1,631
Less cash acquired .................... -- 976 50
------- ------- -------
Net cash paid for acquisitions .......... $ -- $17,564 $ 1,581
======= ======= =======
See Note 2 for supplemental disclosure of non-cash investing activities.
(2) BUSINESS ACQUISITIONS AND DIVESTITURES:
On December 23, 1997, the Company sold Rapidforms and its subsidiaries for
approximately $84,635,000, resulting in a net gain of $17,521,000 and net cash
proceeds of approximately $60,000,000 after income taxes and the buy out of the
minority interest. Rapidforms designs and sells business forms, business
supplies, in-house retail merchandising products, holiday greeting cards and
advertising specialties to small and medium size businesses primarily through
the direct mailing of catalogs and brochures. On January 8, 1997, Rapidforms
sold its Standard Forms, Ltd. subsidiary for $4,083,000, resulting in a gain of
$350,000. Sales from these discontinued operations were $81,654,000 and
$89,028,000 in 1997 and 1996, respectively.
On January 17, 1997, the Company acquired all of the outstanding stock of
Color-Clings, Inc. ("Color-Clings") for $7,875,000 and assumed and repaid
$10,665,000 of outstanding debt. Color-Clings is a designer and marketer of
seasonal and everyday vinyl home decorations sold primarily to mass market
retailers in the United States and Canada. The acquisition was accounted for as
a purchase and the excess of cost over fair market value of $15,698,000 was
recorded as goodwill and is being amortized over twenty years. During 1998, a
substantial portion of the operations of Color-Clings was merged into existing
operations of the Company and the Company discontinued certain of its product
lines. Accordingly, the Company evaluated the goodwill associated with these
product lines and determined that a writedown of $3,530,000 of goodwill
associated with the Color-Clings acquisition was necessary. This amount was
reported in restructuring and other special items in the 1998 Consolidated
Statement of Operations.
(3) RESTRUCTURING AND OTHER SPECIAL ITEMS:
On July 7, 1998, a subsidiary of the Company sold a distribution facility
for $21,500,000 resulting in a gain of $16,596,000. Pursuant to the sale
agreement, the Company has entered into a five year agreement to lease back a
portion of the facility from the purchaser. The present value of the future
lease payments of $4,192,000 was recorded as deferred revenue on the balance
sheet and will offset rental expense over the term of the lease. Earlier in the
year, the Company also sold an administrative building for a gain of $270,000.
Partially offsetting these gains were restructuring and special, non-recurring
charges, including (1) severance and other charges totaling $2,530,000 related
to the integration of certain functional responsibilities within the Company,
(2) $3,102,000 of charges associated with the write-off of previously
capitalized systems development costs and contract programming costs incurred
in 1998 to correct deficiencies within a management information system
implemented in 1997, and (3) costs totaling $3,982,000 related to the
discontinuance of certain ancillary, unprofitable product lines, including the
write-off of goodwill and product development costs. The Company also recorded
$1,943,000 in Cost of Sales to reserve for the liquidation of inventory related
to discontinued product lines.
38
(4) TREASURY STOCK TRANSACTIONS:
On February 19, 1998, the Company announced that its Board of Directors
had authorized the buyback of up to 1,000,000 shares of the Company's Common
Stock. On November 6, 1998, the Executive Committee of the Board of Directors
authorized an additional repurchase of up to 500,000 shares on terms acceptable
to management. Any such buy back is subject to compliance with regulatory
requirements and relevant covenants of the Company's $300,000,000 unsecured
revolving credit facility. As of December 31, 1998, the Company had repurchased
986,400 shares for $28,771,000.
(5) STOCK OPTION PLANS:
Under the terms of the CSS Industries, Inc. 1995 Stock Option Plan for
Non-Employee Directors ("1995 Plan"), non-qualified stock options to purchase
up to 300,000 shares of common stock are available for grant to non-employee
directors at exercise prices of not less than fair market value on the date of
grant. Options to purchase 4,000 shares of the Company's common stock are to be
granted automatically to each non-employee director on the last day of November
through the year 2000. Options may be exercised at the rate of 25% per year
commencing one year after the date of grant. At December 31, 1998, options to
acquire 212,000 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, 1998, options to acquire 871,675
shares were available for grant under the 1994 Plan.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans. Had compensation expense for
the Company's stock option plans been determined based upon the fair value at
the grant date for awards under these plans consistent with the methodology
prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company's net income and earnings per share would have been reduced in 1998,
1997 and 1996 as follows:
1998 1997 1996
(in thousands, except per share values) ------------ ------------ ------------
Income from continuing operations -- as reported .......................... $ 24,276 $ 18,871 $ 17,110
Income from continuing operations -- pro forma ............................ 21,902 16,803 16,132
Basic income per share from continuing operations -- as reported .......... $ 2.26 $ 1.74 $ 1.59
Basic income per share from continuing operations -- pro forma ............ $ 2.04 $ 1.55 $ 1.50
Diluted income per share from continuing operations -- as reported ........ $ 2.21 $ 1.67 $ 1.55
Diluted income per share from continuing operations -- pro forma .......... $ 1.99 $ 1.49 $ 1.48
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:
1997 1996 1995
----------- ----------- ----------
Expected dividend yield .................. 0% 0% 0%
Expected stock price volatility .......... 32% 30% 22%
Risk-free interest rate .................. 5.73% 5.84% 5.50%
Expected life of option .................. 4.7 years 4.8 years 4.5 years
39
Transactions from January 1, 1996 through December 31, 1998, 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, 1996 ........... 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
Granted ....................................... 549,500 25.88 -- 33.13 26.49
Exercised ..................................... (216,403) 14.38 -- 25.63 16.31
Canceled ...................................... (121,257) 15.06 -- 31.75 24.15
--------- -------------------- -------
Options outstanding at December 31, 1997 ......... 1,436,098 15.38 -- 33.13 21.31 2.80 years
Granted ....................................... 233,400 27.31 -- 33.94 28.13
Exercised ..................................... (229,098) 15.38 -- 25.88 17.69
Canceled ...................................... (193,825) 15.38 -- 33.44 23.57
--------- -------------------- -------
Options outstanding at December 31, 1998 ......... 1,246,575 $16.00 -- $33.94 $ 22.90 2.20 years
========= ==================== =======
Options exercisable at December 31, 1998 ......... 522,125 $16.00 -- $33.13 $ 19.91
========= ==================== =======
In 1997 the Company redeemed outstanding stock options granted to the
former owner of a subsidiary. The amount paid of $1,000,000 was charged
directly to additional paid in capital.
(6) PROFIT SHARING PLANS:
The Company maintains defined contribution profit sharing plans covering
substantially all of their employees as of December 31, 1998. 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, 1998, 1997 and 1996 was $2,550,000, $2,407,000
and $2,164,000, respectively.
(7) FEDERAL INCOME TAXES:
The following table summarizes the provision for U.S. federal, state and
foreign taxes on income:
1998 1997 1996
(in thousands) ---------- --------- ----------
Current:
Federal ............... $12,389 $ 6,971 $ 10,297
State ................. 610 530 717
Foreign ............... 1,054 822 590
------- ------- --------
14,053 8,323 11,604
------- ------- --------
Deferred:
Federal ............... (271) 3,042 (1,646)
State ................. (132) 206 431
Foreign ............... -- -- --
------- ------- --------
(403) 3,248 (1,215)
------- ------- --------
$13,650 $11,571 $ 10,389
======= ======= ========
40
The differences between the statutory and effective federal income tax
rates on income from continuing operations before income taxes were as follows:
1998 1997 1996
---------- ---------- ----------
U.S. federal statutory rate ....................... 35.0% 35.0% 35.0%
State income taxes, less federal benefit .......... .9 1.6 2.7
Non-deductible goodwill ........................... .5 1.1 1.0
Other ............................................. (.4) .3 (.9)
----- ----- -----
36.0% 38.0 % 37.8%
===== ===== =====
Deferred taxes are recorded based upon differences between the financial
statement and tax basis of assets and liabilities and available tax credit
carryforwards. The following temporary differences gave rise to net deferred
income tax assets as of December 31, 1998 and 1997:
1998 1997
(in thousands) ----------- -----------
Deferred income tax assets:
Inventory ........................................... $ 5,081 $ 2,326
Property, plant and equipment ....................... -- 3,033
Accrued expenses .................................... 2,764 2,655
State net operating loss carryforward ............... 5,646 4,823
Other ............................................... 2,737 2,421
-------- --------
16,228 15,258
Valuation allowance ................................. (5,646) (4,823)
-------- --------
$ 10,582 $ 10,435
======== ========
Deferred income tax liabilities:
Accounts receivable ................................. 3,311 3,253
Property, plant and equipment ....................... 437 --
Unremitted earnings of foreign subsidiaries ......... 1,180 1,253
Other ............................................... 4,194 4,873
-------- --------
9,122 9,379
-------- --------
Net deferred income tax asset ....................... $ 1,460 $ 1,056
======== ========
At December 31, 1998 and 1997, the Company had net operating loss
carryforwards for state income tax purposes of $5,646,000 and $4,823,000,
respectively, that expire in various years through 2014. For financial
reporting purposes, valuation allowances have been established to offset these
deferred tax assets as it is more likely than not that the net operating loss
carryforwards will not be realized prior to expiration.
(8) LONG-TERM DEBT AND CREDIT ARRANGEMENTS:
Long-term debt consisted of the following:
December 31,
----------------------
1998 1997
(in thousands) ---------- ---------
Mortgages, payable monthly through 2001, interest at rates ranging from
4.5% to 9% ............................................................ $ 605 $ 696
Industrial Development Revenue Bonds, payable periodically through 2005,
interest at rates ranging from 4% to 9.25% ............................ 317 617
Berwick acquisition debt, payable in 2003, interest at 8% .............. 1,133 1,148
Other .................................................................. 954 1,073
------ ------
3,009 3,534
Less -- current portion ................................................ (878) (954)
------ ------
$2,131 $2,580
====== ======
41
In conjunction with the acquisition of Cleo and the consolidation of other
credit facilities, the Company entered into a $195,000,000 unsecured revolving
credit facility with thirteen banks and financial institutions on November 15,
1995. This facility was amended on July 21, 1997 to provide CSS with an
unsecured revolving credit facility with thirteen banks and financial
institutions. The amended facility allows for borrowings up to $300,000,000,
expires on April 30, 2001 and provides that borrowings are limited during a
consecutive 30 day period during each year of the agreement. The loan agreement
contains provisions to increase or reduce the interest pricing spread over
LIBOR based upon the achievement of certain benchmarks related to the ratio of
earnings to interest expense. As of December 31, 1998, at the Company's option,
interest on the facility accrues at (1) the greater of the prime rate or 1/2%
in excess of the Federal Funds Rate, or (2) LIBOR plus 1/2%. The loan agreement
also contains covenants, the most restrictive of which pertain to net worth;
the ratio of operating cash flow to fixed charges; the ratio of earnings to
interest expense and the ratio of debt to capitalization. The weighted average
interest rate under these loan agreements for 1998, 1997 and 1996 was 6.36%,
6.71% and 6.65%, respectively.
On August 13, 1996, CSS entered into an interest rate swap agreement to
reduce the impact of changes in interest rates on its floating rate revolving
credit facility. At December 31, 1997, the Company had a swap agreement with a
total notional amount of $20,000,000. This agreement fixed the interest rate on
$20,000,000 of the borrowings under the revolving credit facility at 7.125%.
The interest rate swap agreement matured on February 13, 1998 and was not
replaced. This agreement involved the exchange of fixed-rate and floating-rate
interest payments periodically over the life of the agreement without the
exchange of the underlying principal amounts. The differential to be paid or
received was accrued as interest rates changed and recognized over the life of
the agreement as an adjustment to interest expense. The fair value of this swap
agreement was not material at December 31, 1997 and 1996, and was not
recognized in the financial statements.
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.
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 a 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.
The Company maintains various notes relating to the financing of
manufacturing facilities which are secured by mortgages on the facilities. The
Company and Berwick also maintain second mortgages on several facilities
financed with Industrial Development Revenue Bonds. The bonds mature between
1999 and 2001, accrue interest at rates ranging from 4% to 9.25% and are
secured by mortgages on the facilities.
In connection with the acquisition of Berwick in 1993, the Company entered
into a term loan with the primary selling shareholder. The original term loan
of $3,000,000 was reduced for indemnification claims and a payment to principal
of $700,000 and was payable on May 3, 2003 subject to requirement of prepayment
upon notice of the selling shareholder with interest payable quarterly at a
rate of 8% per year. The selling shareholder exercised his right of mandatory
prepayment, but payment of the remaining principal is subject to unresolved
claims.
Long-term debt matures as follows:
(in thousands)
1999 ........................ $ 878
2000 ........................ 464
2001 ........................ 316
2002 ........................ 218
2003 ........................ 1,133
Thereafter .................. --
------
Total ....................... $3,009
======
42
(9) OPERATING LEASES:
The future minimum rental payments associated with all noncancelable lease
obligations are as follows:
(in thousands)
1999 ........................ $ 6,454
2000 ........................ 5,552
2001 ........................ 4,912
2002 ........................ 2,981
2003 ........................ 1,230
Thereafter .................. 2,102
-------
Total ...................... $23,231
=======
Rent expense was $7,016,000, $6,144,000 and $4,710,000 in 1998, 1997 and
1996, respectively.
(10) COMMITMENTS AND CONTINGENCIES:
The Company is subject to various lawsuits and claims arising out of the
normal course of business. In the opinion of Company counsel and management the
ultimate liabilities resulting from such lawsuits and claims will not
materially affect the consolidated financial position of the Company.
(11) SEGMENT DISCLOSURE:
For the year ended December 31, 1998, the Company adopted SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. SFAS No.
131 introduces a new model for segment reporting called the "management
approach". The management approach is based on the way the chief operating
decision maker organizes the business for making operating decisions and
assessing performance. The Company operates in a single segment, the
manufacture, distribution and sale of non-durable seasonal consumer goods,
primarily to mass market retailers. CSS conducts substantially all of its
business in the United States.
The Company's detail of revenues from its various products is as follows:
1998 1997 1996
(in thousands) ----------- ----------- -----------
Christmas ................. $253,886 $229,833 $212,649
Everyday .................. 58,722 52,421 50,193
Halloween ................. 45,201 40,935 26,978
Other ..................... 42,882 34,531 33,231
-------- -------- --------
Total ....... ............ $400,691 $357,720 $323,051
======== ======== ========
One customer accounted for sales of $76,650,000, or 19.1% of total sales
in 1998, $75,550,000, or 21.1% in 1997 and $57,961,000, or 17.9%, in 1996.
43
(12) QUARTERLY FINANCIAL DATA (UNAUDITED):
Quarters
1998(a) -----------------------------------------------------------
First Second Third Fourth
(In thousands, except per share amounts) ------------ ------------ ------------- -------------
Sales .............................................. $ 27,959 $ 36,200 $ 152,408 $ 184,124
-------- -------- --------- ---------
Gross profit ....................................... 9,650 9,170 40,209 47,335
-------- -------- --------- ---------
Income from continuing operations .................. (5,759) (4,950) 18,613 16,372
Income from discontinued operations, net of
income taxes ...................................... -- -- -- --
Gain on sale of discontinued operations, net of
income taxes ...................................... -- -- -- --
-------- -------- --------- ---------
Net income ......................................... $ (5,759) $ (4,950) $ 18,613 $ 16,372
======== ======== ========= =========
Net income per common share:
Basic-
Continuing operations ........................... $ (.52) $ (.45) $ 1.73 $ 1.59
Discontinued operations ......................... -- -- -- --
Gain on sale of discontinued operations ......... -- -- -- --
-------- -------- --------- ---------
$ (.52) $ (.45) $ 1.73 $ 1.59
======== ======== ========= =========
Diluted-
Continuing operations ........................... $ (.52) $ (.45) $ 1.69 $ 1.56
Discontinued operations ......................... -- -- -- --
Gain on sale of discontinued operations ......... -- -- -- --
-------- -------- --------- ---------
$ (.52) $ (.45) $ 1.69 $ 1.56
======== ======== ========= =========
(a) 1998 quarterly results include restructuring and other special items. See
Note 3 for a complete discussion.
44
Quarters
1997 -----------------------------------------------------------
First Second Third Fourth
(In thousands, except per share amounts) ------------ ------------ ------------- -------------
Sales .............................................. $ 24,530 $ 37,742 $ 124,069 $ 171,379
-------- -------- --------- ---------
Gross profit ....................................... 7,764 13,258 38,874 45,137
-------- -------- --------- ---------
Income from continuing operations .................. (5,031) (2,641) 11,388 15,155
Income from discontinued operations, net of
income taxes ...................................... 1,533 1,407 619 2,789
Gain on sale of discontinued operations, net of
income taxes ...................................... 350 -- -- 17,521
-------- -------- --------- ---------
Net income ......................................... $ (3,148) $ (1,234) $ 12,007 $ 35,465
======== ======== ========= =========
Net income per common share:
Basic-
Continuing operations ........................... $ (.46) $ (.24) $ 1.05 $ 1.39
Discontinued operations ......................... .14 .13 .06 .25
Gain on sale of discontinued operations ......... .03 -- -- 1.61
-------- -------- --------- ---------
$ (.29) $ (.11) $ 1.11 $ 3.25
======== ======== ========= =========
Diluted-
Continuing operations ........................... $ (.46) $ (.24) $ .99 $ 1.33
Discontinued operations ......................... .14 .13 .05 .24
Gain on sale of discontinued operations ......... .03 -- -- 1.53
-------- -------- --------- ---------
$ (.29) $ (.11) $ 1.04 $ 3.10
======== ======== ========= =========
The seasonal nature of CSS' business results in low sales and operating
losses for the first two quarters and high shipment levels and operating
profits for the second half of the year, thereby causing significant
fluctuations in the quarterly results of operations of the Company.
(13) SUBSEQUENT EVENT:
In February 1999, CSS was awarded approximately $11,200,000, including
interest, in settlement of a dispute primarily related to the valuation of
inventory acquired in the 1995 acquisition of Cleo Inc. The funds were
subsequently released from escrow. The award increased slightly the goodwill
recorded on the 1998 balance sheet and had no impact on 1998 results of
operations. Upon receipt of the award, CSS moved for judicial confirmation. In
March 1999, an objection to confirmation was filed and the objectioner has
sought to vacate the award.
45
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 1999 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 1999 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 1999 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 1999 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, 1998 and 1997
Consolidated Statements of Operations - for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Cash Flows - for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity - for the years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
(b) Reports on Form 8-K filed during the last quarter of 1998
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 September
23, 1998). (9) (Exhibit 3.1)
46
Material Contracts
10.1 CSS Industries, Inc. 1991 Stock Option Plan for Non-Employee
Directors. (2) (Exhibit 10.1)
10.2 CSS Industries, Inc. 1995 Stock Option Plan for Non-Employee
Directors. (7) (Exhibit 10.2)
10.3 Registration Rights Grant dated January 21, 1993, between the Company
and certain former holders of common stock in Philadelphia Industries,
Inc. (2) (Exhibit 10.2)
10.4 Loan Agreement among CSS Industries, Inc., the Lending Institutions
listed therein, CoreStates Bank, N.A. as the Administrative Agent, and
Merrill Lynch & Co. as the Syndication Agent, dated as of July 21,
1997. (8) (Exhibit 10.4)
10.5 Interest Rate Swap Master Agreement dated as of August 9, 1996
between CoreStates Bank, N.A. and CSS Industries, Inc. (7) (Exhibit
10.8)
Executive Compensation Plans and Arrangements
10.6 CSS Industries, Inc. 1985 Incentive Stock Option Plan, as last
amended in 1991. (3) (Exhibit 10.1)
10.7 CSS Industries, Inc. 1994 Equity Compensation Plan (as last amended
January 23, 1996). (8) (Exhibit 10.10)
10.8 CSS Industries, Inc. Non-Qualified Supplemental Executive Retirement
Agreements, dated March 3, 1993, with certain executive officers of the
Company. (2) (Exhibit 10.15)
10.9 CSS Industries, Inc. Non-Qualified Supplemental Executive Retirement
Plan Guidelines, dated January 25, 1994. (4) (Exhibit 10.14)
10.10 CSS Industries, Inc. Annual Incentive Compensation Arrangement,
Administrative Guidelines, dated March 15, 1993. (2) (Exhibit 10.17)
10.11 The Paper Magic Group, Inc. Management Incentive Bonus Program,
Administrative Guidelines, dated March 15, 1993. (2) (Exhibit 10.28)
10.12 1994 Amendment to The Paper Magic Group, Inc. Management Incentive
Bonus Program, Administrative Guidelines, dated March 2, 1994. (4)
(Exhibit 10.26)
10.13 The Paper Magic Group, Inc. 1994 Incentive Stock Option Plan. (5)
(Exhibit 10.16)
10.14 Berwick Industries, Inc. Incentive Bonus Plan, dated January 1,
1994. (4) (Exhibit 10.27)
10.15 Cleo Inc Management Incentive Plan, dated March 7, 1996. (6)
(Exhibit 10.23)
10.16 Berwick Industries, Inc. Non-Qualified Supplemental Executive
Retirement Plan, dated November 18, 1996. (7) (Exhibit 10.26)
10.17 The Paper Magic Group, Inc. Non-Qualified Supplemental Executive
Retirement Plan, dated December 5, 1996. (7) (Exhibit 10.27)
*10.18 Cleo Inc Non-Qualified Supplemental Executive Retirement Plan dated
November 26, 1996.
Subsidiaries
*21. List of Significant Subsidiaries of the Registrant
Footnotes to List of Exhibits
- -----------
* Filed with this Annual Report on Form 10-K.
(1) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1990 and incorporated herein by reference.
(2) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1992 and incorporated herein by reference.
47
(3) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1991 and incorporated herein by reference.
(4) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1993 and incorporated herein by reference.
(5) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1994.
(6) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1995 and incorporated herein by reference.
(7) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1996 and incorporated herein by reference.
(8) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1997 and incorporated herein by reference.
(9) Filed as an exhibit to the Quarterly Report on Form 10-Q (No. 1-2661) for
the fiscal quarter ended September 30, 1998.
The Company agrees to provide the SEC upon request with copies of certain
long-term debt obligations of CSS Industries, Inc., Cleo Inc, Berwick
Industries, Inc.
The Company agrees to furnish supplementally a copy of omitted Schedules
and Exhibits, if any, with respect to Exhibits listed above upon request.
Stockholders who have been furnished a copy of this Report may obtain
copies of any Exhibit listed above on payment of $.50 per page for reproduction
and mailing charges by writing to the Secretary, CSS Industries, Inc., 1845
Walnut Street, Philadelphia, Pennsylvania 19103.
48
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, 1998
Doubtful accounts receivable-customers ......... $2,292 $1,406 $ -- $1,926 $1,772
Year ended December 31, 1997
Doubtful accounts receivable-customers ......... $2,941 $ 903 $ 280(a) $1,832 $2,292
Year ended December 31, 1996
Doubtful accounts receivable-customers ......... $3,864 $1,821 $ -- $2,744 $2,941
Notes: (a) Balance at acquisition of Color-Clings
49
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 4, 1999
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 4, 1999 /s/ Jack Farber
-------------------------------------------------------
Jack Farber, Chairman of the Board, President and Chief
Executive Officer (principal executive officer and a
director)
Dated: March 4, 1999 /s/ Clifford E. Pietrafitta
-------------------------------------------------------
Clifford E. Pietrafitta, Vice President -- Finance and
Chief Financial Officer (principal financial and
accounting officer)
Dated: March 4, 1999 /s/ Willard M. Bright
-------------------------------------------------------
Willard M. Bright, Director
Dated: March 4, 1999 /s/ James H. Bromley
-------------------------------------------------------
James H. Bromley, Director
Dated: March 4, 1999 /s/ John R. Bunting, Jr.
-------------------------------------------------------
John R. Bunting, Jr., Director
Dated: March 4, 1999 /s/ Stephen V. Dubin
-------------------------------------------------------
Stephen V. Dubin, Director
Dated: March 4, 1999 /s/ Richard G. Gilmore
-------------------------------------------------------
Richard G. Gilmore, Director
Dated: March 4, 1999 /s/ Leonard E. Grossman
-------------------------------------------------------
Leonard E. Grossman, Director
Dated: March 4, 1999 /s/ James E. Ksansnak
-------------------------------------------------------
James E. Ksansnak, Director
Dated: March 4, 1999 /s/ Michael L. Sanyour
-------------------------------------------------------
Michael L. Sanyour, Director
Dated: March 4, 1999 /s/ William C. Warren
-------------------------------------------------------
William C. Warren, Director
50