e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark one)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
March 31, 2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 1-2661
CSS INDUSTRIES, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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13-1920657
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1845 Walnut Street, Philadelphia, PA
(Address of principal
executive offices)
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19103
(Zip Code)
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Registrants telephone number, including area code:
(215) 569-9900
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, $.10 par value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
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 registrants 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. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See definition of large
accelerated filer, accelerated filer and
smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting stock held by
non-affiliates of the registrant is $215,116,284. 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 September 30, 2008, being the last trading day
of the registrants most recently completed second fiscal
quarter. 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 Ownership of CSS Common Stock in the proxy
statement to be filed by the registrant for its 2009 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 May 21, 2009, there were outstanding
9,605,331 shares of common stock.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement for
its 2009 Annual Meeting of Stockholders are incorporated by
reference into Part III of this
Form 10-K.
CSS
INDUSTRIES, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 2009
INDEX
PART I
General
CSS Industries, Inc. (CSS or the
Company) is a consumer products company primarily
engaged in the design, manufacture, procurement, distribution
and sale of seasonal and all occasion social expression
products, principally to mass market retailers. These seasonal
and all occasion products include gift wrap, gift bags, gift
boxes, gift card holders, boxed greeting cards, gift tags,
decorative tissue paper, decorations, classroom exchange
Valentines, decorative ribbons and bows, floral accessories,
Halloween masks, costumes,
make-up and
novelties, Easter egg dyes and novelties, craft and educational
products, memory books, stationery, journals, notecards, infant
and wedding photo albums, scrapbooks, and other gift items that
commemorate lifes celebrations. CSS product breadth
provides its retail customers the opportunity to use a single
vendor for much of their seasonal product requirements. A
substantial portion of CSS products are manufactured,
packaged
and/or
warehoused in thirteen facilities located in the United States,
with the remainder purchased primarily from manufacturers in
Asia and Mexico. The Companys products are sold to its
customers by national and regional account sales managers, sales
representatives, product specialists and by a network of
independent manufacturers representatives. CSS maintains a
purchasing office in Hong Kong to administer Asian sourcing
opportunities. The Companys principal operating
subsidiaries include Paper Magic Group, Inc. (Paper
Magic), BOC Design Group (consisting of Berwick Offray LLC
(Berwick Offray) and Cleo Inc (Cleo))
and C.R. Gibson, LLC (C.R. Gibson). The C.R. Gibson
business was acquired on December 3, 2007.
The Companys fiscal year ends on March 31. References
to a particular year refer to the fiscal year ending in March of
that year. For example fiscal 2009 refers to the year ended
March 31, 2009.
In fiscal 2007, the Company combined the operations of its Cleo
and Berwick Offray subsidiaries in order to improve
profitability and efficiency through the elimination of
redundant back office functions and certain management
positions. In fiscal 2009, the Company initiated the
consolidation of its accounts receivable, accounts payable and
payroll functions into a combined back office operation.
In fiscal 2009, CSS completed acquisitions of several businesses
that are complementary to its existing businesses. On
May 16, 2008, a subsidiary of the Company completed the
acquisition of substantially all of the business and assets of
iotatm
(iota). iota is a leading designer, manufacturer and
marketer of stationery products such as notecards, gift wrap,
journals and stationery kits. On August 5, 2008, a
subsidiary of the Company completed the acquisition of
substantially all of the business and assets of Hampshire Paper
Corp. (Hampshire Paper) which is a manufacturer and
supplier of pot covers, waxed tissue, paper and foil to the
wholesale floral and horticultural industries. On
February 20, 2009, a subsidiary of the Company completed
the acquisition of substantially all of the business and assets
of Seastone L.C. (Seastone) which is a provider of
specialty gift card holders.
The Companys goal is to expand by developing new or
complementary products, by entering new markets, by acquiring
companies that are complementary with its existing operating
businesses and by acquiring other businesses with leading market
positions.
Principal Products CSS designs,
manufactures, procures, distributes and sells a broad range of
seasonal consumer products primarily through the mass market
distribution channel. Christmas products include gift wrap, gift
bags, gift boxes, gift card holders, boxed greeting cards, gift
tags, decorative tissue paper, 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
Dudleys®
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 and novelties. In addition to seasonal products,
CSS also designs and markets all occasion boxed greeting cards,
gift wrap, gift bags, gift boxes, gift card holders, decorative
and waxed tissue, decorative ribbons and bows, decorative films
and foils, memory books, stationery, journals, notecards, infant
and wedding photo albums, scrapbooks, floral accessories and
other gift and craft items to its mass market, craft,
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specialty and floral retail and wholesale distribution
customers, and teachers aids and other learning oriented
products to the education market through mass market retailers,
school supply distributors and teachers stores.
Key brands include Paper
Magic®,
Berwick®,
Offray®,
Cleo®,
C.R.
Gibson®,
Crystal®,
Lion Ribbon
Company®,
Markings®,
Creative
Papers®,
Tapestry®,
Seastone®,
Dudleys®,
Don Post
Studios®,
Eureka®,
Learning
Playground®
and
iota®.
CSS operates thirteen manufacturing
and/or
distribution facilities located in Pennsylvania, Maryland, New
Hampshire, South Carolina, Alabama, Tennessee and Texas. A
description of the Companys product lines and related
manufacturing
and/or
distribution facilities is as follows:
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Boxed greeting cards are produced by Asian manufacturers to our
specifications. Domestically distributed products are warehoused
in a distribution facility in Pennsylvania.
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Gift tags and classroom exchange Valentine products are
domestically manufactured or imported from Asian manufacturers.
Manufacturing processes include a wide range of finishing,
assembly and packaging operations. Domestically distributed
products are warehoused in a facility in Pennsylvania.
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Halloween
make-up and
Easter egg dye products are manufactured in Asia to specific
formulae by contract manufacturers who meet regulatory
requirements for the formularization and packaging of such
products. Domestically distributed products are warehoused in a
distribution facility in Pennsylvania.
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Ribbons and bows are primarily manufactured and warehoused in
seven facilities located in Pennsylvania, Maryland, South
Carolina and Texas. The manufacturing process is vertically
integrated. Non-woven ribbon and bow products are primarily 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. Woven fabric ribbons are
manufactured domestically or sourced from Mexico and Asia.
Domestic woven products are either narrow woven or converted
from bulk rolls of wide width textiles.
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Gift wrap is primarily manufactured in one facility in Memphis,
Tennessee. Manufacturing includes web printing, finishing,
rewinding and packaging. Finished gift wrap products are
warehoused and shipped from both the production facility and a
separate facility in Memphis. A small portion of gift wrap
products are imported from Asia.
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Memory books, stationery, journals and notecards, infant and
wedding photo albums, scrapbooks, and other gift items are
imported from Asian manufacturers and warehoused and distributed
from a distribution facility in Florence, Alabama.
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Floral accessories, including pot covers, foil, waxed tissue,
shred aisle runners, corsage bags and other paper and film
products, are manufactured in a facility located in Milford, New
Hampshire. Manufacturing includes gravure and flexo printing,
waxing and converting. Products are warehoused and distributed
from a separate location near the manufacturing facility.
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Other products including, but not limited to, decorative tissue
paper, gift bags, gift boxes, gift card holders, decorations and
school products are designed to the specifications of CSS and
are imported primarily from Asian manufacturers.
During our 2009 fiscal year, CSS experienced no material
difficulties in obtaining raw materials from suppliers.
Intellectual Property Rights CSS has a
number of copyrights, patents, tradenames, trademarks and
intellectual property licenses which are used in connection with
its products. Substantially all of its designs and artwork are
protected by copyright. Intellectual property license rights
which CSS has obtained are viewed as especially important to the
success of its classroom exchange Valentines and juvenile gift
wrap. It is CSS view that its operations are not dependent
upon any individual patent, tradename, trademark, copyright or
intellectual property license. The collective value of CSS
intellectual property is viewed as substantial and CSS seeks to
protect its rights in all patents, copyrights, tradenames,
trademarks and intellectual property licenses.
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Sales and Marketing Most of CSS
products are sold in the United States and Canada by national
and regional account sales managers, sales representatives,
product specialists and by a network of independent
manufacturers representatives. CSS maintains permanent
showrooms in New York City, Memphis, Dallas, Atlanta, Las Vegas
and Hong Kong where buyers for major retail customers will
typically visit for a presentation and review of the new lines.
Products are also displayed and presented in showrooms
maintained by various independent manufacturers
representatives in major cities in the United States and Canada.
Relationships are developed with key retail customers by CSS
sales personnel and independent manufacturers
representatives. Customers are generally mass market retailers,
discount department stores, specialty chains, warehouse clubs,
drug and food chains, dollar stores, independent card, gift and
floral shops and retail teachers stores. Net sales to
Wal-Mart Stores, Inc. and its affiliates and Target Corporation
accounted for approximately 27% and 10% of total net sales,
respectively, during fiscal 2009. No other customer accounted
for 10% or more of the Companys net sales in fiscal 2009.
Approximately 63% of the Companys sales are attributable
to seasonal (Christmas, Halloween, Valentines Day and
Easter) products, with the remainder attributable to all
occasion products. Approximately 50% of CSS sales relate
to the Christmas season. Seasonal products are generally
designed and marketed beginning up to 18 to 20 months
before the holiday event and manufactured during an eight to ten
month production cycle. Due to these long lead time
requirements, timely communication with third party factories,
retail customers and independent manufacturers
representatives is critical to the timely production of seasonal
products. Because the products themselves are primarily
seasonal, sales terms do not generally require payment until
just before or just after the holiday, in accordance with
industry practice. C.R. Gibsons social stationery products
are sold by a national organization of sales representatives
that specialize in the gift and card shop channel, as well as by
C.R. Gibsons sales representatives. The Company also sells
custom products to private label customers, to other social
expression companies, and to converters of the Companys
ribbon products. Custom products are sold by both independent
manufacturers representatives and CSS sales managers. CSS
products, with some customer specific exceptions, are not sold
under guaranteed or return privilege terms. All occasion ribbon
and bow products are also sold through sales representatives or
independent manufacturers representatives to wholesale
distributors and independent small retailers who serve the
floral, craft and retail packaging trades.
Competition among retailers in the sale of the Companys
products to end users is intense. CSS seeks to assist retailers
in developing merchandising programs designed to enable the
retailers to meet their revenue objectives while appealing to
their consumers tastes. These objectives are met through
the development and manufacture of custom configured and
designed products and merchandising programs. CSS years of
experience in merchandising program development and product
quality are key competitive advantages in helping retailers meet
their objectives.
Competition CSS principal
competitor in Christmas products is American Greetings
Corporation. Image Arts, Inc., a subsidiary of Hallmark Cards,
Incorporated (Hallmark), is also a competitor in the
boxed greeting card business. CSS competes, to a limited extent,
with other product offerings of Hallmark and American Greetings
Corporation. These competitors are larger and have greater
resources than the Company. In addition, CSS also competes with
various domestic and foreign companies in each of its other
product offerings.
CSS believes its products are competitively positioned in their
primary markets. Since competition is based primarily on
category knowledge, timely delivery, creative design, price and,
with respect to seasonal products, the ability to serve major
retail customers with single, combined product shipments for
each holiday event, CSS focus on products combined with
consistent service levels allows it to compete effectively in
its core markets.
Employees
At May 21, 2009, approximately 2,100 persons were
employed by CSS (increasing to approximately 3,000 as seasonal
employees are added).
With the exception of the bargaining units at the gift wrap
facilities in Memphis, Tennessee and the ribbon manufacturing
facility in Hagerstown, Maryland, which totaled approximately
700 employees as of May 21, 2009, 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 collective bargaining agreement
with the labor union representing Cleos production and
maintenance employees at the Cleo gift wrap plant and warehouses
in Memphis, Tennessee remains in effect until December 31,
2010. The collective bargaining agreement with the labor
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union representing the Hagerstown-based production and
maintenance employees remains in effect until December 31,
2009.
The Company believes that relationships with its employees are
good.
SEC
Filings
The Companys Internet address is
www.cssindustries.com. Through its website, the
following filings are made available free of charge as soon as
reasonably practicable after they are electronically filed with
or furnished to the Securities and Exchange Commission: its
annual report on
Form 10-K,
its quarterly reports on
Form 10-Q,
its current reports on
Form 8-K
and any amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of
1934.
You should carefully consider each of the risk factors we
describe below, as well as other factors described in this
annual report on
Form 10-K
and elsewhere in our SEC filings.
Our
results of operations fluctuate on a seasonal basis, and quarter
to quarter comparisons may not be a good indicator of our
performance. Seasonal demand fluctuations may adversely affect
our cash flow and our ability to sell our
products.
Approximately 63% of our sales are attributable to seasonal
(Christmas, Halloween, Valentines Day and Easter)
products, with the remainder being attributable to all occasion
products. Approximately 50% of our sales relate to the Christmas
season. The seasonal nature of our business has historically
resulted in lower sales levels and operating losses in our first
and fourth quarters, and higher sales levels and operating
profits in our second and third quarters. As a result, our
quarterly results of operations fluctuate during our fiscal
year, and a quarter to quarter comparison is not a good
indication of our performance or how we will perform in the
future. For example, our overall results of operations in the
future may fluctuate substantially based on seasonal demand for
our products. Such variations in demand could have a material
adverse effect on the timing of cash flow and therefore our
ability to meet our obligations with respect to our debt and
other financial commitments. Seasonal fluctuations also affect
our inventory levels. We must carry significant amounts of
inventory, especially before the Christmas retail selling
period. If we are not successful in selling the inventory during
the relevant period, we may have to sell the inventory at
significantly reduced prices, or we may not be able to sell the
inventory at all.
We
rely on a few mass market retailers, warehouse clubs and
national drug store chains for a significant portion of our
sales. The loss of sales, or a significant reduction of sales,
to one or more of our large customers may adversely affect our
business, results of operations and financial condition. Past
and future consolidation within the retail sector also may lead
to reduced profit margins, which may adversely affect our
business, results of operations and financial
condition.
A few of our customers are material to our business and
operations. Our sales to Wal-Mart Stores, Inc. and its
affiliates and Target Corporation accounted for approximately
27% and 10% of our sales, respectively, during our 2009 fiscal
year. No other single customer accounted for 10% or more of our
sales in fiscal 2009. Our ten largest customers, which include
mass market retailers, warehouse clubs and national drug store
chains, accounted for approximately 60% of our sales in our 2009
fiscal year. Our business depends, in part, on our ability to
identify and define product and market trends, and to
anticipate, understand and react to changing consumer demands in
a timely manner. There can be no assurance that our large
customers will continue to purchase our products in the same
quantities that they have in the past. The loss of sales, or a
significant reduction of sales, to one or more of our large
customers may adversely affect our business, results of
operations and financial condition. Further, in recent years
there has been consolidation among our retail customer base. As
the retail sector consolidates, our customers become larger, and
command increased leverage in negotiating prices and other terms
of sale of our products, including credits, discounts,
allowances and other incentive considerations to these
customers. Past and future consolidation may lead to reduced
profit margins, which may adversely affect our business, results
of operations and financial condition.
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Increases
in raw material and energy costs, resulting from general
economic conditions, acts of nature, such as hurricanes,
earthquakes or influenza pandemics, or other factors, may raise
our cost of goods sold and adversely affect our business,
results of operations and financial condition.
Paper and petroleum-based materials are essential in the
manufacture of our products, and the cost of such materials is
significant to our cost of goods sold. Energy costs, especially
fuel costs, also are significant expenses in the production and
delivery of our products. Increased costs of raw materials or
energy resulting from general economic conditions, acts of
nature, such as hurricanes, earthquakes or influenza pandemics,
or other factors, may result in declining margins and operating
results if market conditions prevent us from passing these
increased costs on to our customers through timely price
increases on our products.
Risks
associated with our use of foreign suppliers may adversely
affect our business, results of operations and financial
condition.
For a large portion of our product lines, particularly our
Halloween, Easter, Christmas boxed greeting cards, gift bags,
gift tags, gift boxes, gift card holders, decorative tissue
paper, classroom exchange Valentines, craft and educational
products, memory books, stationery, journals, notecards, infant
and wedding photo albums and scrapbook product lines, we use
foreign suppliers to manufacture a significant portion of our
products. Approximately 53% of our sales in fiscal 2009 were
related to products sourced from foreign suppliers. Our use of
foreign suppliers exposes us to risks inherent in doing business
outside of the United States, including risks associated with
foreign currency fluctuations, transportation costs and delays,
difficulties in maintaining and monitoring quality control,
enforceability of agreed upon contract terms, compliance with
foreign laws and regulations, costs relating to the imposition
or retrospective application of duties on imported products,
economic or political instability, international public health
issues, and restrictions on the repatriation of profits and
assets.
Increased
overseas sourcing by our competitors and our customers may
reduce our market share and profit margins, adversely affecting
our business, results of operations and financial
condition.
We have relatively high market share in many of our seasonal
product categories. Most of our product markets have shown
little or no growth, and some of our product markets have
declined, in recent years, and we continue to confront
significant cost pressure as our competitors source certain
products from overseas and certain customers increase direct
sourcing from overseas factories. Increased overseas sourcing by
our competitors and certain customers may result in a reduction
of our market share and profit margins, adversely affecting our
business, results of operations and financial condition.
Difficulties
encountered by our key customers may cause them to reduce their
purchases from us and/or increase our exposure to losses from
bad debts, and adversely affect our business, results of
operations and financial condition.
Many of our largest customers are national and regional retail
chains. The retail channel in the United States has experienced
significant shifts in market share among competitors in recent
years. In addition, leveraged buyouts of certain large retailers
in recent years have left these companies with significant
levels of debt. Furthermore, the current economic slowdown,
including reduced consumer spending and increased difficulty and
costs associated with obtaining the financing and capital needed
by retailers to operate their businesses, has adversely affected
retailers in general, including our key customers. A
continuation or worsening of the current economic slowdown, or
even an uncertain economic outlook, could further adversely
affect our key customers. Our business, results of operations
and financial condition may be adversely affected if, as a
result of these factors, our customers file for bankruptcy
protection
and/or cease
doing business, significantly reduce the number of stores they
operate, significantly reduce their purchases from us, do not
pay us for their purchases, or if their payments to us are
delayed because of bankruptcy or other factors beyond our
control.
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Our
business, results of operations and financial condition may be
adversely affected by volatility in the demand for our
products.
Our success depends on the sustained demand for our products.
Many factors affect the level of consumer spending on our
products, including, among other things, general business
conditions, interest rates, the availability of consumer credit,
taxation, the effects of war, terrorism or threats of war, fuel
prices, consumer demand for our products based upon, among other
things, consumer trends and the availability of alternative
products, and consumer confidence in future economic conditions.
The current economic slowdown, in addition to adversely
affecting our customers, has adversely affected consumer
spending on discretionary items, including our products, which,
in turn, has adversely affected our business, results of
operations and financial condition. A continuation or worsening
of the current economic slowdown, or even an uncertain economic
outlook, could further adversely affect consumer spending on
discretionary items, including our products, which, in turn,
could further adversely affect our business, results of
operations and financial condition. We also routinely utilize
new artwork, designs or licensed intellectual property in
connection with our products, and our inability to design,
select or procure consumer-desired artwork, designs or licensed
intellectual property could adversely affect the demand for our
products, which could adversely affect our business, results of
operations and financial condition.
Our
business, results of operations and financial condition may be
adversely affected if we are unable to compete successfully
against our competitors.
Our success depends in part on our ability to compete against
our competitors in our highly competitive markets. Our
competitors, including large domestic corporations, such as
Hallmark and American Greetings Corporation, foreign
manufacturers who market directly to our customer base,
importers of products produced overseas and small privately
owned businesses, may be able to offer similar products with
more favorable pricing
and/or terms
of sale or may be able to provide products that more readily
meet customer requirements or consumer preferences. Our
inability to successfully compete against our competitors could
adversely affect our business, results of operations and
financial condition.
Our
business, results of operations and financial condition may be
adversely affected if we are unable to hire and retain
sufficient qualified personnel.
Our success depends, to a substantial extent, on the ability,
experience and performance of our senior management. Our
inability to retain our senior management team, or our inability
to attract and retain qualified replacement personnel, may
adversely affect us. We also regularly hire a large number of
seasonal employees. Any difficulty we may encounter in hiring
seasonal employees may result in significant increases in labor
costs, which may have an adverse effect on our business, results
of operations and financial condition.
Our
business, results of operations and financial condition may be
adversely affected if we fail to extend or renegotiate our
collective bargaining contracts with our labor unions as they
expire from time to time, or if our unionized employees were to
engage in a strike, or other work stoppage.
Approximately 700 of our employees at our ribbon manufacturing
facility in Hagerstown, Maryland and at our gift wrap facilities
in Memphis, Tennessee are represented by labor unions. The
collective bargaining agreement with the labor union
representing the Hagerstown-based production and maintenance
employees will expire on December 31, 2009. The collective
bargaining agreement with the labor union representing
Cleos production and maintenance employees at the Cleo
gift wrap plant and warehouses in Memphis, Tennessee will expire
on December 31, 2010. Although we believe our relations
with our employees are satisfactory, no assurance can be given
that we will be able to successfully extend or renegotiate our
collective bargaining agreements as they expire from time to
time. If we fail to extend or renegotiate our collective
bargaining agreements, if disputes with our unions arise, or if
our unionized workers engage in a strike or other work related
stoppage, we could incur higher ongoing labor costs or
experience a significant disruption of operations, which could
have an adverse effect on our business, results of operations
and financial condition.
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Our
acquisition strategy involves risks, and difficulties in
integrating potential acquisitions may adversely affect our
business, results of operations and financial
condition.
We regularly evaluate potential acquisition opportunities to
support, strengthen and grow our business. We cannot be sure
that we will be able to locate suitable acquisition candidates,
acquire possible acquisition candidates, acquire such candidates
on commercially reasonable terms, or integrate acquired
businesses successfully. Future acquisitions may require us to
incur additional debt and contingent liabilities, which may
adversely affect our business, results of operations and
financial condition. The process of integrating acquired
businesses into our existing operations may result in operating,
contract and supply chain difficulties, such as the failure to
retain customers or management personnel. Also, prior to our
completion of any acquisition, we could fail to discover
liabilities of the acquired business for which we may be
responsible as a successor owner or operator in spite of any
investigation we may make prior to the acquisition. Such
difficulties may divert significant financial, operational and
managerial resources from our existing operations, and make it
more difficult to achieve our operating and strategic
objectives. The diversion of management attention, particularly
in a difficult operating environment, may adversely affect our
business, results of operations and financial condition.
Our
inability to protect our intellectual property rights, or
infringement claims asserted against us by others, may adversely
affect our business, results of operations and financial
condition.
We have a number of copyrights, patents, tradenames, trademarks
and intellectual property licenses which are used in connection
with our products. While our operations are not dependent upon
any individual copyright, patent, tradename, trademark or
intellectual property license, we believe that the collective
value of our intellectual property is substantial. We rely upon
copyright and trademark laws in the United States and other
jurisdictions and on confidentiality agreements with some of our
employees and others to protect our proprietary rights. If our
proprietary rights were infringed, our business could be
adversely affected. In addition, our activities could infringe
upon the proprietary rights of others, who could assert
infringement claims against us. We could face costly litigation
if we are forced to defend these claims. If we are unsuccessful
in defending such claims, our business, results of operations
and financial condition could be adversely affected.
We seek to register our trademarks in the United States and
elsewhere. These registrations could be challenged by others or
invalidated through administrative process or litigation. In
addition, our confidentiality agreements with some employees or
others may not provide adequate protection in the event of
unauthorized use or disclosure of our proprietary information,
or if our proprietary information otherwise becomes known, or is
independently developed by competitors.
Various
laws and governmental regulations applicable to a manufacturer
or distributor of consumer products may adversely affect our
business, results of operations and financial
condition.
Our business is subject to numerous federal, state, provincial,
local and foreign laws and regulations, including laws and
regulations with respect to labor and employment, product
safety, including regulations enforced by the United States
Consumer Products Safety Commission, import and export
activities, taxes, chemical usage, air emissions, wastewater and
storm water discharges and the generation, handling, storage,
transportation, treatment and disposal of waste materials,
including hazardous materials. Although we believe that we are
in substantial compliance with all applicable laws and
regulations, because legal requirements frequently change and
are subject to interpretation, we are unable to predict the
ultimate cost of compliance or the consequences of
non-compliance with these requirements, or the affect on our
operations, any of which may be significant. If we fail to
comply with applicable laws and regulations, we may be subject
to criminal sanctions or civil remedies, including fines,
injunctions, or prohibitions on importing or exporting. A
failure to comply with applicable laws and regulations, or
concerns about product safety, also may lead to a recall or
post-manufacture repair of selected products. There is risk that
any claims or liabilities, including product liability claims,
relating to such noncompliance may exceed, or fall outside the
scope of, our insurance coverage. We cannot be certain that
existing laws or regulations, as currently interpreted or
reinterpreted in the future, or future laws or regulations, will
not have an adverse effect on our business, results of
operations and financial condition.
7
Our
business, results of operations and financial condition may be
adversely affected by national or global changes in economic or
political conditions.
Our business, results of operations and financial condition may
be adversely affected by national or global changes in economic
or political conditions, including foreign currency fluctuations
and fluctuations in inflation and interest rates, a national or
international economic downturn, and any future terrorist
attacks, and the national and global military, diplomatic and
financial exposure to such attacks or other threats.
Our
business, results of operations and financial condition may be
adversely affected by our ability to successfully implement our
enterprise resource planning systems standardization
project.
We are in the process of standardizing our enterprise resource
planning systems, master data and business processes across all
of our businesses. We believe that this project, which is
expected to be implemented in phases over a multiple year
period, will provide a sound, cost effective foundation for our
future growth, as well as provide the systems and business
process infrastructure for future acquisitions and operating
efficiencies. Such an implementation carries substantial
operations risk, including loss of data or information,
unanticipated increases in costs, disruption of operations or
business interruption. Further, we may not be successful in
implementing new systems or any new system may not perform as
expected. Our inability to successfully implement this project
could adversely affect our business, results of operations and
financial condition.
We are
subject to a number of restrictive covenants under our borrowing
and accounts receivable securitization financing arrangements,
including customary operating restrictions and customary
financial covenants. Our business, results of operations and
financial condition may be adversely affected if we are unable
to maintain compliance with such covenants.
Our borrowing arrangements contain a number of restrictive
covenants, including customary operating restrictions that limit
our ability to engage in such activities as borrowing and making
investments, capital expenditures, dividends and other
distributions on our capital stock, and engaging in mergers,
acquisitions, asset sales and repurchases of our capital stock.
Under such arrangements, we are also subject to customary
financial covenants, including covenants requiring us to
maintain our capital expenditures and leverage ratio below
certain maximum levels and to keep our fixed charge coverage
ratio and consolidated net worth at or above certain minimum
levels. Under our accounts receivable securitization facility,
our accounts receivable pool that forms the basis
for the funding provided by this facility is required to comply
with covenants setting maximum permissible levels for default,
dilution and delinquency ratios for the receivables pool as a
whole, and setting a maximum permissible level for the
current days sales outstanding for a portion of the
receivables pool. Compliance with the financial covenants
contained in our borrowing arrangements is based on financial
measures derived from our operating results, and compliance with
the financial covenants under our accounts receivable
securitization facility is based on the performance of our
accounts receivable pool forming the basis for funding under
that facility.
If our business, results of operations or financial condition or
our accounts receivable pool forming the basis for funding under
our accounts receivable securitization facility is adversely
affected by one or more of the risk factors described above, or
other factors described in this annual report on
Form 10-K
or elsewhere in our filings with the SEC, we may be unable to
maintain compliance with these financial covenants. If we fail
to comply with such covenants, our lenders under our borrowing
arrangements and the providers of funds under our accounts
receivable securitization facility could stop advancing funds to
us under these arrangements
and/or
demand immediate payment of amounts outstanding under such
arrangements. Under such circumstances, we would need to seek
alternate financing sources to fund our ongoing operations and
to repay amounts outstanding and satisfy our other obligations
under our existing borrowing and financing arrangements. Such
financing may not be available on favorable terms, if at all.
Consequently, we may be restricted in how we fund ongoing
operations and strategic initiatives and deploy capital, and in
our ability to make acquisitions and to pay dividends. As a
result, our business, results of operations and financial
condition may be further adversely affected if we are unable to
maintain compliance with the covenants under our borrowing
arrangements and accounts receivable securitization facility.
8
If our
business, results of operations or financial condition is
adversely affected as a result of any of the risk factors
described above or elsewhere in this annual report on
Form 10-K
or our other SEC filings, we may be required to incur financial
charges, such as goodwill impairment charges, which may, in
turn, have a further adverse affect on our results of operations
and financial condition.
If our business, results of operations or financial condition
are adversely affected by one or more circumstances, such as any
one or more of the risk factors above or other factors described
in this annual report on
Form 10-K
and elsewhere in our SEC filings, we then may be required under
applicable accounting rules to incur charges associated with
reducing the carrying value on our financial statements of
certain assets, such as goodwill. If we are required to incur
such charges, our results of operations and financial condition
may be further adversely affected.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
None.
The following table sets forth the location and approximate
square footage of the Companys manufacturing and
distribution facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Square Feet
|
|
Location
|
|
Use
|
|
Owned
|
|
|
Leased
|
|
|
Danville, PA
|
|
Distribution
|
|
|
133,000
|
|
|
|
|
|
Berwick, PA
|
|
Manufacturing and distribution
|
|
|
213,000
|
|
|
|
|
|
Berwick, PA
|
|
Manufacturing and distribution
|
|
|
220,000
|
|
|
|
|
|
Berwick, PA
|
|
Distribution
|
|
|
226,000
|
|
|
|
|
|
Berwick, PA
|
|
Distribution
|
|
|
|
|
|
|
547,000
|
|
Memphis, TN
|
|
Manufacturing and distribution
|
|
|
|
|
|
|
1,006,000
|
|
Memphis, TN
|
|
Distribution
|
|
|
|
|
|
|
404,000
|
|
Hagerstown, MD
|
|
Manufacturing and distribution
|
|
|
284,000
|
|
|
|
|
|
Hartwell, SC
|
|
Manufacturing
|
|
|
229,000
|
|
|
|
|
|
El Paso, TX
|
|
Distribution
|
|
|
|
|
|
|
100,000
|
|
Florence, AL
|
|
Distribution
|
|
|
|
|
|
|
180,000
|
|
Milford, NH
|
|
Manufacturing
|
|
|
|
|
|
|
56,000
|
|
Milford, NH
|
|
Distribution
|
|
|
|
|
|
|
61,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
1,305,000
|
|
|
|
2,354,000
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company also owns a former manufacturing facility
aggregating approximately 253,000 square feet which it is
in the process of selling, and utilizes owned and leased space
aggregating approximately 177,000 square feet for various
marketing and administrative purposes, including approximately
21,000 square feet utilized as an office and showroom in
Hong Kong. The headquarters and principal executive office of
the Company are located in Philadelphia, Pennsylvania.
The Company is the lessee of approximately 14,000 square
feet of space (which was used in former operations), portions of
which have been subleased by the Company, as sublessor, to
various sublessees. The Company also owns a distribution
facility (approximately 135,000 square feet) and
administrative office space of approximately 6,000 square
feet which has been leased to a third party.
9
|
|
Item 3.
|
Legal
Proceedings.
|
CSS and its subsidiaries are involved in ordinary, routine legal
proceedings that are not considered by management to be
material. In the opinion of Company counsel and management, the
ultimate liabilities resulting from such legal proceedings will
not materially affect the consolidated financial position of the
Company or its results of operations or cash flows.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
Not applicable.
10
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
|
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, and the dividends
declared per share, for each of the quarters during fiscal 2009
and fiscal 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
Fiscal 2009
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
First Quarter
|
|
$
|
36.83
|
|
|
$
|
23.71
|
|
|
$
|
.15
|
|
Second Quarter
|
|
|
30.83
|
|
|
|
23.30
|
|
|
|
.15
|
|
Third Quarter
|
|
|
25.98
|
|
|
|
15.15
|
|
|
|
.15
|
|
Fourth Quarter
|
|
|
18.94
|
|
|
|
10.02
|
|
|
|
.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
Fiscal 2008
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
First Quarter
|
|
$
|
42.29
|
|
|
$
|
35.18
|
|
|
$
|
.14
|
|
Second Quarter
|
|
|
42.48
|
|
|
|
29.23
|
|
|
|
.14
|
|
Third Quarter
|
|
|
42.16
|
|
|
|
35.00
|
|
|
|
.14
|
|
Fourth Quarter
|
|
|
38.40
|
|
|
|
27.47
|
|
|
|
.14
|
|
At May 21, 2009, there were approximately 1,740 holders of
the Companys common stock and there were no shares of
preferred stock outstanding.
The ability of the Company to pay any cash dividends on its
common stock is dependent on the Companys earnings and
cash requirements and is further limited by maintaining
compliance with financial covenants contained in the
Companys credit facilities. The Company anticipates that
quarterly cash dividends will continue to be paid in the future.
11
Performance
Graph
The graph below compares the cumulative total stockholders
return on the Companys common stock for the period from
April 1, 2004 through March 31, 2009, with
(i) the cumulative total return on the Standard and Poors
500 (S&P 500) Index and (ii) two peer
groups, as described below (assuming the investment of $100 in
our common stock, the S&P 500 Index, and the peer groups on
April 1, 2004 and reinvestment of all dividends).
The peer group utilized consists of American Greetings
Corporation, Blyth, Inc., Russ Berrie and Company, Inc., JAKKS
Pacific, Inc. and Lifetime Brands, Inc. (the Peer
Group). The Peer Group selected by the Company was revised
this year to exclude Lenox Group Inc. because it no longer is a
publicly-traded company, and to include Lifetime Brands, Inc.
The Company selected this group as its Peer Group because they
are engaged in businesses that are sometimes categorized with
the Companys business. However, management believes that a
comparison of the Companys performance to this Peer Group
will be flawed, because the businesses of the Peer Group
companies are in large part different from the Companys
business. In this regard, the Company competes with only certain
smaller product lines of American Greetings; Blyth is
principally focused on fragranced candle products and related
candle accessories, competing only with some of the
Companys products; Lifetime Brands is principally focused
on food preparation, tabletop and home décor, competing
only with some of the Companys products; and the other
companies principally sell toy
and/or
juvenile products. The peer group previously used by the
Company, which consisted of American Greetings Corporation,
Blyth, Inc., Lenox Group Inc., Russ Berrie and Company, Inc. and
JAKKS Pacific, Inc. (the Old Peer Group), is shown
in the chart above for comparative purposes.
12
|
|
Item 6.
|
Selected
Financial Data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
482,424
|
|
|
$
|
498,253
|
|
|
$
|
530,686
|
|
|
$
|
525,494
|
|
|
$
|
536,362
|
|
Income before income taxes
|
|
|
25,890
|
|
|
|
38,833
|
|
|
|
36,804
|
|
|
|
32,716
|
|
|
|
47,118
|
|
Net income
|
|
|
16,986
|
|
|
|
25,358
|
|
|
|
23,889
|
|
|
|
21,841
|
|
|
|
30,692
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.71
|
|
|
$
|
2.36
|
|
|
$
|
2.25
|
|
|
$
|
2.08
|
|
|
$
|
2.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.70
|
|
|
$
|
2.31
|
|
|
$
|
2.19
|
|
|
$
|
2.00
|
|
|
$
|
2.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
114,371
|
|
|
$
|
136,000
|
|
|
$
|
188,309
|
|
|
$
|
161,482
|
|
|
$
|
151,878
|
|
Total assets
|
|
|
322,259
|
|
|
|
345,041
|
|
|
|
343,070
|
|
|
|
334,149
|
|
|
|
333,906
|
|
Current portion of long-term debt
|
|
|
10,479
|
|
|
|
10,246
|
|
|
|
10,195
|
|
|
|
10,169
|
|
|
|
10,442
|
|
Long-term debt
|
|
|
485
|
|
|
|
10,192
|
|
|
|
20,392
|
|
|
|
30,518
|
|
|
|
40,000
|
|
Stockholders equity
|
|
|
259,254
|
|
|
|
262,353
|
|
|
|
261,110
|
|
|
|
232,510
|
|
|
|
216,489
|
|
Cash dividends declared per common share
|
|
$
|
.60
|
|
|
$
|
.56
|
|
|
$
|
.48
|
|
|
$
|
.48
|
|
|
$
|
.40
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Overview
Approximately 63% of the Companys sales are attributable
to seasonal (Christmas, Valentines Day, Easter and
Halloween) products, with the remainder being attributable to
all occasion products. Seasonal products are sold primarily to
mass market retailers, and the Company has relatively high
market share in many of these categories. Most of these markets
have shown little or no growth in recent years, and the Company
continues to confront significant price pressure as its
competitors source certain products from overseas and its
customers increase direct sourcing from overseas factories.
Increasing customer concentration has augmented their bargaining
power, which has also contributed to price pressure. In recent
fiscal years, the Company experienced lower sales in its gift
wrap, gift tissue and gift bag lines. In addition, many of our
mass market customers reduced purchases for Christmas 2008 due
to poor sales of seasonal products at store level in the prior
calendar year. Both seasonal and all occasion sales declines
were further exacerbated as the current economic downturn
deepened in the fall of calendar 2008.
The Company has taken several measures to respond to sales
volume, cost and price pressures. The Company believes it has
strengthened its core Christmas product offerings for the
upcoming 2009 Christmas selling season with new and innovative
designs and licenses. In addition, we are pursuing new product
initiatives related to seasonal, craft and all occasion
products, including new licensed and non-licensed product
offerings. CSS continually invests in product and packaging
design and product knowledge to assure it can continue to
provide unique added value to its customers. In addition, CSS
maintains an office and showroom in Hong Kong to be able to
provide alternatively sourced products at competitive prices.
CSS continually evaluates the efficiency and productivity of its
North American production and distribution facilities and of its
back office operations to maintain its competitiveness. In the
last five fiscal years, the Company has closed five
manufacturing plants and five warehouses totaling
1,209,000 square feet. Additionally, in fiscal 2007 the
Company combined the management and back office support for its
Memphis, Tennessee based Cleo gift wrap operation into its
Berwick Offray ribbon and bow subsidiary. In fiscal 2009, the
Company initiated the consolidation of its accounts receivable,
accounts payable and payroll functions into a combined back
office operation.
The Companys all occasion craft, gift card holder,
stationery and memory product lines have higher inherent growth
potential due to higher market growth rate. Further, the
Companys all occasion craft, gift card holder,
13
stationery and floral product lines have higher inherent growth
potential due to CSS relatively low current market share.
The Company continues to pursue sales growth in these and other
areas.
The seasonal nature of CSS business has historically
resulted in lower sales levels and operating losses in the first
and fourth quarters and comparatively higher sales levels and
operating profits in the second and third quarters of the
Companys fiscal year, which ends March 31, thereby
causing significant fluctuations in the quarterly results of
operations of the Company.
Historically, significant growth at CSS has come through
acquisitions. Management anticipates that it will continue to
utilize acquisitions to stimulate further growth.
On February 20, 2009, a subsidiary of the Company completed
the acquisition of substantially all of the business and assets
of Seastone for $1,139,000 in cash. The purchase price is
subject to adjustment, equal to 5% of net sales of certain
products sold, through fiscal 2014. Seastone is a provider of
specialty gift card holders. The acquisition was accounted for
as a purchase and there was no goodwill recorded in this
transaction.
On August 5, 2008, a subsidiary of the Company completed
the acquisition of substantially all of the business and assets
of Hampshire Paper for approximately $9,725,000 in cash,
including transaction costs of approximately $49,000. Hampshire
Paper is a manufacturer and supplier of pot covers, waxed
tissue, paper and foil to the wholesale floral and horticultural
industries. A portion of the purchase price is being held in
escrow for certain indemnification obligations. The acquisition
was accounted for as a purchase and the excess of cost over fair
market value of the net tangible and identifiable intangible
assets acquired of $897,000 was recorded as goodwill.
On May 16, 2008, a subsidiary of the Company completed the
acquisition of substantially all of the business and assets of
iota for approximately $300,000 in cash and a note payable to
the seller in the amount of $100,000. The purchase price is
subject to adjustment, based on future sales volume through
fiscal 2014, up to a maximum of $2,000,000. In addition, the
seller retains a 50% interest in royalty income associated with
the sale by third parties of licensed iota products through the
fifth anniversary of the closing date. iota is a leading
designer, manufacturer and marketer of stationery products such
as notecards, gift wrap, journals, and stationery kits. The
acquisition was accounted for as a purchase and there was no
goodwill recorded in this transaction.
On December 3, 2007, the Company completed the acquisition
of substantially all of the business and assets of C.R. Gibson,
which is a designer, marketer and distributor of memory books,
stationery, journals and notecards, infant and wedding photo
albums, scrapbooks, and other gift items that commemorate
lifes celebrations. In consideration, the Company paid
approximately $73,847,000 in cash, including transaction costs
of approximately $200,000. A portion of the purchase price is
being held in escrow for certain indemnification obligations.
The acquisition was accounted for as a purchase and the excess
of cost over the fair market value of the net tangible and
identifiable intangible assets acquired of $17,409,000 was
recorded as goodwill.
Litigation
CSS and its subsidiaries are involved in ordinary, routine legal
proceedings that are not considered by management to be
material. In the opinion of Company counsel and management, the
ultimate liabilities resulting from such legal proceedings will
not materially affect the consolidated financial position of the
Company or its results of operations or cash flows.
Results
of Operations
Fiscal
2009 Compared to Fiscal 2008
Consolidated net sales for fiscal 2009 decreased 3% to
$482,424,000 from $498,253,000 in fiscal 2008. Excluding net
sales of businesses acquired over the last two fiscal years,
sales declined 12%. Our fiscal 2009 Christmas business was
negatively impacted by reduced sales of Christmas gift wrap,
gift bags and decorative tissue paper and generally reduced
purchases by many of our retailer customers in response to poor
retail sales during the calendar 2007 Christmas (fiscal
2008) selling season. The weakening economy in the second
half of fiscal 2009 further impacted our sales of all occasion
and Christmas products, as some of our customers canceled or
delayed purchases and, in certain cases, returned products in
the face of the poor retail environment.
14
Cost of sales, as a percentage of net sales, increased to 74% in
fiscal 2009 from 72% in fiscal 2008. The increase in the
percentage of cost of goods sold to net sales is primarily due
to increased material costs and increased fixed manufacturing
overhead costs per unit due to reduced production volume.
Selling, general and administrative (SG&A)
expenses of $96,723,000 in fiscal 2009 remained relatively
unchanged from $96,703,000 in fiscal 2008. SG&A expenses,
as a percentage of net sales, increased to 20% in fiscal 2009
from 19% in fiscal 2008. The increase, as a percentage of net
sales, is primarily due to a full year of C.R. Gibson activity
and the lower sales base in fiscal 2009. C.R. Gibson, acquired
on December 3, 2007, maintains a higher level of SG&A
expenses, relative to its sales, than our other businesses.
Partially offsetting this increase was lower incentive
compensation expense compared to the prior year.
Restructuring expenses were $1,138,000 in fiscal 2009 and
$1,717,000 in fiscal 2008. The decline in restructuring expenses
represents lower costs recorded in fiscal 2009 compared to
fiscal 2008 related to the closure of two production facilities
and a distribution center and a net gain of $761,000 recorded in
fiscal 2009 related to the sale of two buildings that were
previously classified as available for sale. Partially
offsetting this decline were severance costs recorded in fiscal
2009 associated with permanent workforce reductions and the
consolidation of certain back office operations.
Interest expense, net increased to $2,551,000 in fiscal 2009
from $974,000 in fiscal 2008. The increase in interest expense,
net was primarily due to higher average borrowing levels
primarily as a result of acquisitions and stock repurchases
during fiscal 2009 compared to the prior year. The impact of
higher average borrowings was partially offset by a lower
average interest rate compared to the prior year.
Income before income taxes was $25,890,000, or 5% of sales, in
fiscal 2009 and $38,833,000, or 8% of sales, in fiscal 2008.
Income taxes, as a percentage of income before taxes, were 34%
in fiscal 2009 and 35% in fiscal 2008. The decrease in fiscal
2009 was primarily due to the reduction of tax reserves,
partially offset by a reduction in tax exempt interest income
and higher state taxes.
Net income for the year ended March 31, 2009 decreased 33%
to $16,986,000 from $25,358,000 in fiscal 2008. The decrease in
net income was primarily attributable to reduced sales volume,
higher material costs, plant inefficiencies resulting from lower
production volume and higher interest expense, partially offset
by lower incentive compensation.
Fiscal
2008 Compared to Fiscal 2007
Consolidated net sales for fiscal 2008 decreased 6% to
$498,253,000 from $530,686,000 in fiscal 2007. The decrease in
net sales was primarily due to lower sales of products sold to
warehouse clubs and lower sales of Christmas gift wrap,
decorative tissue paper and gift bags and educational products.
These sales reductions were partially offset by C.R. Gibson
sales since its acquisition on December 3, 2007. Excluding
sales from C.R. Gibson, net sales declined 9% from prior year.
Cost of sales, as a percentage of net sales, decreased to 72% in
fiscal 2008 from 74% in fiscal 2007. The decrease in cost of
sales was primarily due to improved efficiencies in the gift
wrap, gift bag and tissue product lines resulting from the
restructuring program announced in November 2006.
SG&A expenses, as a percentage of net sales, increased to
19% in fiscal 2008 from 18% in fiscal 2007. The increase in
SG&A expenses, as a percentage of net sales, is primarily
attributable to the mix of expenses compared to the prior year
resulting from the acquisition of the C.R. Gibson business on
December 3, 2007.
Restructuring expenses were $1,717,000 in fiscal 2008 and
$2,327,000 in fiscal 2007. The decrease in restructuring
expenses was due to the absence of costs related to a
restructuring program in the prior year to combine the
operations of the Cleo and Berwick Offray subsidiaries, to close
Cleos Maysville, Kentucky production facility and to exit
a non-material, non-core business which was partially offset by
costs related to a restructuring program announced on
January 4, 2008 to close the Companys two production
facilities in Elysburg, Pennsylvania and a distribution center
in Troy, Pennsylvania. See Note 4 to the consolidated
financial statements for further discussion.
15
Interest expense, net decreased to $974,000 in fiscal 2008 from
$2,285,000 in fiscal 2007. The decrease in interest expense, net
was primarily due to lower average borrowing levels during
fiscal 2008 compared to the prior year as a result of cash
generated from operations, offset by the impact of cash utilized
to purchase the C.R. Gibson business and to repurchase the
Companys common stock and the impact of a lower rate of
return on invested cash resulting from the Companys
investment in a tax exempt municipal fund in the current year.
Income before income taxes was $38,833,000, or 8% of net sales,
in fiscal 2008 and $36,804,000, or 7% of net sales, in fiscal
2007.
Income taxes, as a percentage of income before taxes, were 35%
in fiscal 2008 and fiscal 2007. Reductions in the Companys
effective tax rate from the Companys investment during
fiscal 2008 in a federal tax exempt municipal fund and from a
decrease in the Companys state effective tax rate were
substantially offset by the non-recurrence of tax benefits
recorded in fiscal 2007 related to decreases in foreign and
state valuation allowances and state tax reserves.
Net income for the year ended March 31, 2008 increased 6%
to $25,358,000 from $23,889,000 in fiscal 2007. The increase in
net income was primarily attributable to current fiscal year
cost savings and lower implementation expense associated with
restructuring plans implemented in November 2006 and January
2008, incremental earnings contributed by the recently acquired
C.R. Gibson business and reduced interest expense, net of the
impact of reduced sales volume.
Liquidity
and Capital Resources
At March 31, 2009, the Company had working capital of
$114,371,000 and stockholders equity of $259,254,000. The
increase in accounts receivable, net of reserves, to $43,741,000
at March 31, 2009 from $39,144,000 at March 31, 2008
was primarily the result of receivables of businesses acquired
in fiscal 2009. Inventories decreased to $99,971,000 from
$105,532,000 primarily due to reduced inventories of raw paper
at Cleo. Raw paper inventories at the end of fiscal 2008 were
higher than normal as Cleo purchased a higher volume of paper in
anticipation of scheduled price increases from vendors.
Partially offsetting this decline were inventories of newly
acquired businesses and increased all occasion products due to
slowing sales in the second half of fiscal 2009. We expect that
all occasion inventories will return to normal levels in the
first half of fiscal 2010. The decrease in assets held for sale
was attributable to the sale of a manufacturing facility and a
distribution facility in the third quarter of fiscal 2009.
Capital expenditures increased to $14,143,000 in fiscal 2009
from $8,330,000 in fiscal 2008 primarily due to the enterprise
resource planning (ERP) system integration project
announced in October 2007. The increase in goodwill and
intangible assets, net was primarily attributable to the
acquisition of Hampshire Paper and Seastone, as more fully
described in Note 2 to the consolidated financial
statements. Accounts payable decreased to $14,332,000 from
$18,275,000 primarily as a result of reduced inventory purchases
in response to lower demand for our products in the second half
of fiscal 2009. The decrease in accrued payroll and other
compensation to $5,677,000 at March 31, 2009 from
$11,526,000 at March 31, 2008 was due to lower incentive
compensation and employee benefits in fiscal 2009 compared to
the prior year. Accrued other expenses decreased to $9,317,000
from $13,586,000 primarily due to the absence of a $2,700,000
purchase price obligation related to the acquisition of C.R.
Gibson which was included in accrued other expenses as of
March 31, 2008 and was paid in the first quarter of fiscal
2009. The decrease in stockholders equity from
$262,353,000 at March 31, 2008 to $259,254,000 at
March 31, 2009 was primarily due to repurchases of our
common stock under our stock repurchase program and payments of
cash dividends, partially offset by the current year net income.
Under stock repurchase programs previously authorized by the
Companys Board of Directors, the Company repurchased
687,000 shares of the Companys common stock for
$16,687,000 in fiscal 2009 and 747,424 shares of the
Companys common stock for $25,449,000 in fiscal 2008. As
of March 31, 2009, the Company had 313,000 shares
remaining available for repurchase under the Boards
authorization.
The Company relies primarily on cash generated from its
operations and seasonal borrowings to meet its liquidity
requirements. Historically, a significant portion of the
Companys revenues have been seasonal, with approximately
80% of sales recognized in the second and third quarters. As
payment for sales of Christmas related products is usually not
received until just before or just after the holiday selling
season in accordance with general industry practice, short-term
borrowing needs increase throughout the second and third
quarters, peaking prior to
16
Christmas and dropping thereafter. Seasonal financing
requirements are met under a $110,000,000 revolving credit
facility with four banks and an accounts receivable
securitization facility with an issuer of receivables-backed
commercial paper. This facility has a funding limit of
$75,000,000 during peak seasonal periods and $25,000,000 during
off-peak seasonal periods. In addition, the Company has
outstanding $10,000,000 of 4.48% senior notes due in
December 2009. These financing facilities are available to fund
the Companys seasonal borrowing needs and to provide the
Company with sources of capital for general corporate purposes,
including acquisitions as permitted under the revolving credit
facility. At March 31, 2009, the Companys borrowings
consisted of $10,000,000 outstanding under the senior notes and
$4,150,000 outstanding under the Companys short-term
credit facilities. For information concerning these credit
facilities, see Note 9 to the consolidated financial
statements. In addition, the Company had approximately $864,000
of capital leases outstanding at March 31, 2009.
Based on its current operating plan, the Company believes its
sources of available capital are adequate to meet its ongoing
cash needs for at least the next 12 months.
As of March 31, 2009, the Companys contractual
obligations and commitments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1
|
|
|
1-3
|
|
|
4-5
|
|
|
After 5
|
|
|
|
|
Contractual Obligations
|
|
Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Total
|
|
|
Short-term debt
|
|
$
|
4,150
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,150
|
|
Note payable to seller
|
|
|
50
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
Capital lease obligations
|
|
|
429
|
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
864
|
|
Operating leases
|
|
|
8,606
|
|
|
|
7,618
|
|
|
|
1,549
|
|
|
|
421
|
|
|
|
18,194
|
|
Long-term debt(1)
|
|
|
10,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,314
|
|
Other long-term obligations(2)
|
|
|
|
|
|
|
427
|
|
|
|
300
|
|
|
|
2,068
|
|
|
|
2,795
|
|
Purchase obligation(3)
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,749
|
|
|
$
|
8,530
|
|
|
$
|
1,849
|
|
|
$
|
2,489
|
|
|
$
|
37,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest on long-term debt is based on amounts outstanding and
on the fixed interest rate of 4.48%. |
|
(2) |
|
Other long-term obligations consist primarily of postretirement
medical liabilities and deferred compensation arrangements.
Future timing of payments for other long-term obligations is
estimated by management. |
|
(3) |
|
The Company is committed to purchase approximately $1,200,000 of
certain paper raw material products from a vendor over a one
year term. The Company believes the minimum product purchases
under this agreement are well within the Companys annual
product requirements. |
The above table excludes any potential uncertain income tax
liabilities that may become payable upon examination of the
Companys income tax returns by taxing authorities. Such
amounts and periods of payment cannot be reliably estimated. See
Note 8 to the consolidated financial statements for further
explanation of the Companys uncertain tax positions.
As of March 31, 2009, the Companys other commitments
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1
|
|
|
1-3
|
|
|
4-5
|
|
|
After 5
|
|
|
|
|
|
|
Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Total
|
|
|
Letter of credit
|
|
$
|
4,100
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,100
|
|
The Company has a reimbursement obligation with respect to
stand-by letters of credit that guarantee the funding of workers
compensation claims. The Company has no financial guarantees or
other similar arrangements with any third parties or related
parties other than its subsidiaries.
In the ordinary course of business, the Company enters into
arrangements with vendors to purchase merchandise in advance of
expected delivery. These purchase orders do not contain any
significant termination payments or other penalties if cancelled.
17
Critical
Accounting Policies
In preparing our consolidated financial statements, management
is required to make estimates and assumptions that, among other
things, affect the reported amounts of assets, liabilities,
revenue and expenses. These estimates and assumptions are most
significant where they involve levels of subjectivity and
judgment necessary to account for highly uncertain matters or
matters susceptible to change, and where they can have a
material impact on our financial condition and operating
performance. Below are the most significant estimates and
related assumptions used in the preparation of our consolidated
financial statements. If actual results were to differ
materially from the estimates made, the reported results could
be materially affected.
Revenue
Revenue is recognized from product sales when goods are shipped,
title and risk of loss have been transferred to the customer and
collection is reasonably assured. The Company records estimated
reductions to revenue for customer programs, which may include
special pricing agreements for specific customers, volume
incentives and other promotions. In limited cases, the Company
may provide the right to return product as part of its customer
programs with certain customers. The Company also records
estimated reductions to revenue, based primarily on historical
experience, for customer returns and chargebacks that may arise
as a result of shipping errors, product damaged in transit or
for other reasons that become known subsequent to recognizing
the revenue. These provisions are recorded in the period that
the related sale is recognized and are reflected as a reduction
from gross sales, and the related reserves are shown as a
reduction of accounts receivable, except for reserves for
customer programs which are shown as a current liability. If the
amount of actual customer returns and chargebacks were to
increase or decrease significantly from the estimated amount,
revisions to the estimated allowance would be required.
Accounts
Receivable
The Company offers seasonal dating programs related to certain
seasonal product offerings pursuant to which customers that
qualify for such programs are offered extended payment terms.
While some customers are granted return rights as part of their
sales program, customers generally do not have the right to
return product except for reasons the Company believes are
typical of our industry, including damaged goods, shipping
errors or similar occurrences. The Company is generally not
required to repurchase products from its customers, nor does the
Company have any regular practice of doing so. In addition, the
Company endeavors to mitigate its exposure to bad debts by
evaluating the creditworthiness of its major customers utilizing
established credit limits and purchasing credit insurance when
warranted in managements judgment and available on terms
that management deems appropriate. Bad debt and returns and
allowances reserves are recorded as an offset to accounts
receivable while reserves for customer programs are recorded as
accrued liabilities. The Company evaluates accounts receivable
related reserves and accruals monthly by specifically reviewing
customers creditworthiness, historical recovery
percentages and outstanding customer deductions and program
arrangements.
Inventory
Valuation
Inventories are valued at the lower of cost or market. Cost is
primarily determined by the
first-in,
first-out method although certain inventories are valued based
on the
last-in,
first-out method. The Company writes down its inventory for
estimated obsolescence in an amount equal to the difference
between the cost of the inventory and the estimated market value
based upon assumptions about future demand, market conditions,
customer planograms and sales forecasts. Additional inventory
write downs could result from unanticipated additional carryover
of finished goods and raw materials, or from lower proceeds
offered by parties in our traditional closeout channels.
Goodwill
Goodwill is subject to an assessment for impairment using a
two-step fair value-based test, the first step of which must be
performed at least annually, or more frequently if events or
circumstances indicate that goodwill might be impaired. The
Company performs its required annual assessment as of the fiscal
year end. The first step of the test compares the fair value of
a reporting unit to its carrying amount, including goodwill, as
of the date of the test. The Company uses a dual approach to
determine the fair value of its reporting units including both a
market
18
approach and an income approach. The market approach computes
fair value using a multiple of earnings before interest, income
taxes, depreciation and amortization which was developed
considering both the multiples of recent transactions as well as
trading multiples of consumer products companies. The income
approach is based on the present value of discounted cash flows
and terminal value projected for each reporting unit. The income
approach requires significant judgments, including the
Companys projected net cash flows, the weighted average
cost of capital (WACC) used to discount the cash
flows and terminal value assumptions. The projected net cash
flows are derived using the most recent available estimate for
each reporting unit. The WACC rate is based on an average of the
capital structure, cost of capital and inherent business risk
profiles of the Company and peer consumer products companies. We
believe the use of multiple valuation techniques results in a
more accurate indicator of the fair value of each reporting unit.
The Company then corroborates the reasonableness of the total
fair value of the reporting units by reconciling the aggregate
fair values of the reporting units to the Companys total
market capitalization adjusted to include an estimated control
premium. The estimated control premium is derived from reviewing
observable transactions involving the purchase of controlling
interests in comparable companies. The market capitalization is
calculated using the relevant shares outstanding at the testing
date and an average closing stock price which considers
volatility around the test date. The exercise of reconciling the
market capitalization to the computed fair value further
supports the Companys conclusion on the fair value. If the
carrying amount of the reporting unit exceeds its fair value,
the second step is performed. The second step compares the
carrying amount of the goodwill to the implied fair value of the
goodwill. If the implied fair value of the goodwill is less than
the carrying amount of the goodwill, an impairment loss would be
reported.
Accounting
for Income Taxes
As part of the process of preparing our consolidated financial
statements, we are required to estimate our actual current tax
expense (state, federal and foreign), including the impact of
permanent and temporary differences resulting from differing
bases and treatment of items for tax and accounting purposes,
such as the carrying value of intangibles, deductibility of
expenses, depreciation of property, plant and equipment, and
valuation of inventories. Temporary differences and operating
loss and credit carryforwards result in deferred tax assets and
liabilities, which are included within our consolidated balance
sheets. We must then assess the likelihood that our deferred tax
assets will be recovered from future taxable income. Actual
results could differ from this assessment if sufficient taxable
income is not generated in future periods. To the extent we
determine the need to establish a valuation allowance or
increase such allowance in a period, we would record additional
tax expense in the accompanying consolidated statements of
operations. The management of the Company periodically estimates
the probable tax obligations of the Company using historical
experience in tax jurisdictions and informed judgments. There
are inherent uncertainties related to the interpretation of tax
regulations. The judgments and estimates made at a point in time
may change based on the outcome of tax audits, as well as
changes to or further interpretations of regulations. If such
changes take place, there is a risk that the tax rate may
increase or decrease in any period.
Share-Based
Compensation
Effective April 1, 2006, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 123R,
Share Based Payment, using the modified prospective
transition method and began accounting for its share-based
compensation using a fair-value based recognition method. Under
the provisions of SFAS No. 123R, share-based
compensation cost is estimated at the grant date based on the
fair value of the award and is expensed ratably over the
requisite service period of the award. Determining the
appropriate fair-value model and calculating the fair value of
share-based awards at the grant date requires considerable
judgment, including estimating stock price volatility and the
expected option life.
The Company uses the Black-Scholes option valuation model to
value employee stock options. The Company estimates stock price
volatility based on historical volatility of its common stock.
Estimated option life assumptions are also derived from
historical data. Had the Company used alternative valuation
methodologies and assumptions, compensation cost for share-based
payments could be significantly different. The Company
recognizes compensation expense using the straight-line
amortization method for share-based compensation awards with
graded vesting.
19
Accounting
Pronouncements
See Note 14 to the consolidated financial statements for
information concerning recent accounting pronouncements and the
impact of those standards.
Forward-Looking
and Cautionary Statements
This report includes forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995, including statements regarding continued use of
acquisitions to stimulate further growth; the expected future
impact of legal proceedings and changes in accounting
principles; the anticipated effects of measures taken by the
Company to respond to cost and price pressures; the expected
reduction of inventory levels; strengthened product lines and
new product initiatives; and the Companys anticipation
that quarterly cash dividends will continue to be paid in the
future. Forward-looking statements are based on the beliefs of
the Companys management as well as assumptions made by and
information currently available to the Companys management
as to future events and financial performance with respect to
the Companys operations. Forward-looking statements speak
only as of the date made. The Company undertakes no obligation
to update any forward-looking statements to reflect the events
or circumstances arising after the date as of which they were
made. 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 and
economic conditions; increased competition; increased operating
costs, including labor-related and energy costs and costs
relating to the imposition or retrospective application of
duties on imported products; currency risks and other risks
associated with international markets; risks associated with
acquisitions, including acquisition integration costs and the
risk that the Company may not be able to integrate and derive
the expected benefits from such acquisitions; risks associated
with the Companys ERP systems standardization project,
including the risk that the cost of the project will exceed
expectations, the risk that the expected benefits of the project
will not be realized and the risk that implementation of the
project will interfere with and adversely affect the
Companys operations and financial performance; the risk
that customers may become insolvent, may delay payments or may
impose deductions or penalties on amounts owed on the Company;
costs of compliance with governmental regulations and government
investigations; liability associated with non-compliance with
governmental regulations, including regulations pertaining to
the environment, Federal and state employment laws, and import
and export controls and customs laws, and other factors
described more fully elsewhere in this annual report on
Form 10-K
and in the Companys previous filings with the Securities
and Exchange Commission. As a result of these factors, readers
are cautioned not to place undue reliance on any forward-looking
statements included herein or that may be made elsewhere from
time to time by, or on behalf of, the Company.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
The Companys activities expose it to a variety of market
risks, including the effects of changes in interest rates and
foreign currency exchange rates. These financial exposures are
monitored and, where considered appropriate, managed by the
Company as described below.
Interest
Rate Risk
The Companys primary market risk exposure with regard to
financial instruments is to changes in interest rates. Pursuant
to the Companys variable rate lines of credit, a change in
either the lenders base rate or the London Interbank
Offered Rate (LIBOR) would affect the rate at which the Company
could borrow funds thereunder. Based on average borrowings under
these credit facilities of $50,372,000 for the year ended
March 31, 2009, a 1% increase or decrease in floating
interest rates would have increased or decreased annual interest
expense by approximately $504,000. Based on an average cash
balance of $8,597,000 for the year ended March 31, 2009, a
1% increase or decrease in interest rates would have increased
or decreased annual interest income by approximately $86,000.
20
Foreign
Currency Risk
Approximately 3% of the Companys sales in fiscal 2009 were
denominated in a foreign currency. The Company considers its
risk exposure with regard to foreign currency fluctuations
insignificant as it enters into foreign currency forward
contracts to hedge the majority of firmly committed transactions
and related receivables that are denominated in a foreign
currency. The Company has designated its foreign currency
forward contracts as fair value hedges. The gains or losses on
the fair value hedges are recognized in earnings and generally
offset the transaction gains or losses on the foreign
denominated assets that they are intended to hedge.
21
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
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Page
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23
|
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24
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25
|
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|
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26
|
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27
|
|
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|
|
28-49
|
|
Financial Statement Schedule:
|
|
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|
|
|
|
|
57
|
|
22
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
CSS Industries, Inc.:
We have audited the accompanying consolidated balance sheets of
CSS Industries, Inc. and subsidiaries as of March 31, 2009
and 2008, and the related consolidated statements of operations
and comprehensive income, stockholders equity and cash
flows for each of the years in the three-year period ended
March 31, 2009. In connection with our audits of the
consolidated financial statements, we also have audited the
financial statement schedule. These consolidated financial
statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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
March 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the
three-year period ended March 31, 2009, in conformity with
U.S. generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in notes 1 and 8 to the consolidated financial
statements, effective April 1, 2007, CSS Industries, Inc.
adopted the provisions of Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes. As discussed in note 14 to the
consolidated financial statements, effective April 1, 2008,
CSS Industries, Inc. adopted
EITF 06-10,
Accounting for Collateral Assignment Split-Dollar Life
Insurance Agreements.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), CSS
Industries, Inc.s internal control over financial
reporting as of March 31, 2009, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated June 1,
2009 expressed an unqualified opinion on the effectiveness of
the Companys internal control over financial reporting.
/s/ KPMG LLP
June 1, 2009
Philadelphia, PA
23
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
ASSETS
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,179
|
|
|
$
|
28,109
|
|
Accounts receivable, net of allowances of $5,166 and $5,291
|
|
|
43,741
|
|
|
|
39,144
|
|
Inventories
|
|
|
99,971
|
|
|
|
105,532
|
|
Deferred income taxes
|
|
|
5,758
|
|
|
|
7,276
|
|
Assets held for sale
|
|
|
1,363
|
|
|
|
3,590
|
|
Other current assets
|
|
|
15,295
|
|
|
|
16,242
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
168,307
|
|
|
|
199,893
|
|
|
|
|
|
|
|
|
|
|
NET PROPERTY, PLANT AND EQUIPMENT
|
|
|
54,942
|
|
|
|
50,632
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
49,258
|
|
|
|
48,361
|
|
Intangible assets, net of accumulated amortization of $2,383 and
$925
|
|
|
45,649
|
|
|
|
42,454
|
|
Other
|
|
|
4,103
|
|
|
|
3,701
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
99,010
|
|
|
|
94,516
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
322,259
|
|
|
$
|
345,041
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
4,150
|
|
|
$
|
|
|
Current portion of long-term debt
|
|
|
10,479
|
|
|
|
10,246
|
|
Accounts payable
|
|
|
14,332
|
|
|
|
18,275
|
|
Accrued income taxes
|
|
|
72
|
|
|
|
822
|
|
Accrued payroll and other compensation
|
|
|
5,677
|
|
|
|
11,526
|
|
Accrued customer programs
|
|
|
9,909
|
|
|
|
9,438
|
|
Accrued other expenses
|
|
|
9,317
|
|
|
|
13,586
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
53,936
|
|
|
|
63,893
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, NET OF CURRENT PORTION
|
|
|
485
|
|
|
|
10,192
|
|
|
|
|
|
|
|
|
|
|
OTHER LONG-TERM OBLIGATIONS
|
|
|
4,376
|
|
|
|
6,121
|
|
|
|
|
|
|
|
|
|
|
DEFERRED INCOME TAXES
|
|
|
4,208
|
|
|
|
2,482
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Notes 10 and 12)
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, Class 2, $.01 par,
1,000,000 shares authorized, no shares issued
|
|
|
|
|
|
|
|
|
Common stock, $.10 par, 25,000,000 shares authorized,
14,703,084 shares issued at March 31, 2009 and 2008
|
|
|
1,470
|
|
|
|
1,470
|
|
Additional paid-in capital
|
|
|
46,813
|
|
|
|
44,150
|
|
Retained earnings
|
|
|
352,674
|
|
|
|
342,688
|
|
Accumulated other comprehensive loss, net of tax
|
|
|
(81
|
)
|
|
|
(90
|
)
|
Common stock in treasury, 5,097,753 and 4,437,325 shares,
at cost
|
|
|
(141,622
|
)
|
|
|
(125,865
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
259,254
|
|
|
|
262,353
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
322,259
|
|
|
$
|
345,041
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
24
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
NET SALES
|
|
$
|
482,424
|
|
|
$
|
498,253
|
|
|
$
|
530,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
356,115
|
|
|
|
360,708
|
|
|
|
394,045
|
|
Selling, general and administrative expenses
|
|
|
96,723
|
|
|
|
96,703
|
|
|
|
96,125
|
|
Restructuring expenses, net
|
|
|
1,138
|
|
|
|
1,717
|
|
|
|
2,327
|
|
Interest expense, net of interest income of $137, $1,163
and $1,295
|
|
|
2,551
|
|
|
|
974
|
|
|
|
2,285
|
|
Other expense (income), net
|
|
|
7
|
|
|
|
(682
|
)
|
|
|
(900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
456,534
|
|
|
|
459,420
|
|
|
|
493,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
25,890
|
|
|
|
38,833
|
|
|
|
36,804
|
|
INCOME TAX PROVISION
|
|
|
8,904
|
|
|
|
13,475
|
|
|
|
12,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
16,986
|
|
|
$
|
25,358
|
|
|
$
|
23,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.71
|
|
|
$
|
2.36
|
|
|
$
|
2.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.70
|
|
|
$
|
2.31
|
|
|
$
|
2.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,986
|
|
|
$
|
25,358
|
|
|
$
|
23,889
|
|
Foreign currency translation adjustment
|
|
|
3
|
|
|
|
2
|
|
|
|
1
|
|
Postretirement medical plan, net of tax
|
|
|
6
|
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
16,995
|
|
|
$
|
25,269
|
|
|
$
|
23,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
25
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,986
|
|
|
$
|
25,358
|
|
|
$
|
23,889
|
|
Adjustments to reconcile net income to net cash provided by
|
|
|
|
|
|
|
|
|
|
|
|
|
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
13,195
|
|
|
|
13,218
|
|
|
|
14,335
|
|
Provision for doubtful accounts
|
|
|
525
|
|
|
|
5
|
|
|
|
26
|
|
Asset impairments
|
|
|
|
|
|
|
1,222
|
|
|
|
422
|
|
Deferred tax provision (benefit)
|
|
|
3,244
|
|
|
|
2,622
|
|
|
|
(3,621
|
)
|
Gain on sale or disposal of assets
|
|
|
(925
|
)
|
|
|
(386
|
)
|
|
|
(418
|
)
|
Share-based compensation expense
|
|
|
2,632
|
|
|
|
2,830
|
|
|
|
2,825
|
|
Changes in assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
(4,012
|
)
|
|
|
9,204
|
|
|
|
(1,613
|
)
|
Decrease (increase) in inventories
|
|
|
9,127
|
|
|
|
(10,737
|
)
|
|
|
21,632
|
|
Decrease (increase) in other assets
|
|
|
537
|
|
|
|
(1,274
|
)
|
|
|
4,575
|
|
Decrease in accounts payable
|
|
|
(3,943
|
)
|
|
|
(196
|
)
|
|
|
(2,282
|
)
|
(Decrease) increase in accrued income taxes
|
|
|
(1,968
|
)
|
|
|
3,493
|
|
|
|
(3,466
|
)
|
Decrease in accrued expenses and other long-term obligations
|
|
|
(7,477
|
)
|
|
|
(3,665
|
)
|
|
|
(957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
27,921
|
|
|
|
41,694
|
|
|
|
55,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of businesses, net of cash received of $2 in 2008
|
|
|
(11,164
|
)
|
|
|
(71,145
|
)
|
|
|
|
|
Final payment of purchase price for a business previously
acquired
|
|
|
(2,700
|
)
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(14,143
|
)
|
|
|
(8,330
|
)
|
|
|
(5,289
|
)
|
Proceeds from sale of assets
|
|
|
3,227
|
|
|
|
3,092
|
|
|
|
732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(24,780
|
)
|
|
|
(76,383
|
)
|
|
|
(4,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt obligations
|
|
|
(10,417
|
)
|
|
|
(10,149
|
)
|
|
|
(10,241
|
)
|
Borrowings on notes payable
|
|
|
545,385
|
|
|
|
186,900
|
|
|
|
172,360
|
|
Payments on notes payable
|
|
|
(541,235
|
)
|
|
|
(186,900
|
)
|
|
|
(172,360
|
)
|
Payment of financing transaction costs
|
|
|
(621
|
)
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(5,939
|
)
|
|
|
(5,983
|
)
|
|
|
(5,100
|
)
|
Purchase of treasury stock
|
|
|
(16,687
|
)
|
|
|
(25,449
|
)
|
|
|
(323
|
)
|
Proceeds from exercise of stock options
|
|
|
435
|
|
|
|
3,936
|
|
|
|
5,486
|
|
Tax benefit realized for stock options exercised
|
|
|
5
|
|
|
|
350
|
|
|
|
1,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(29,074
|
)
|
|
|
(37,295
|
)
|
|
|
(8,356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
3
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(25,930
|
)
|
|
|
(71,982
|
)
|
|
|
42,435
|
|
Cash and cash equivalents at beginning of period
|
|
|
28,109
|
|
|
|
100,091
|
|
|
|
57,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
2,179
|
|
|
$
|
28,109
|
|
|
$
|
100,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
26
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Common Stock
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
in Treasury
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
BALANCE, APRIL 1, 2006
|
|
|
|
|
|
$
|
|
|
|
|
14,703,084
|
|
|
$
|
1,470
|
|
|
$
|
36,033
|
|
|
$
|
313,879
|
|
|
$
|
(2
|
)
|
|
|
(4,216,584
|
)
|
|
$
|
(118,870
|
)
|
|
$
|
232,510
|
|
Tax benefit associated with exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,822
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,825
|
|
Issuance of common stock upon exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,422
|
)
|
|
|
|
|
|
|
368,813
|
|
|
|
12,908
|
|
|
|
5,486
|
|
Increase in treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,800
|
)
|
|
|
(323
|
)
|
|
|
(323
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Cash dividends ($.48 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,100
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, MARCH 31, 2007
|
|
|
|
|
|
|
|
|
|
|
14,703,084
|
|
|
|
1,470
|
|
|
|
40,680
|
|
|
|
325,246
|
|
|
|
(1
|
)
|
|
|
(3,857,571
|
)
|
|
|
(106,285
|
)
|
|
|
261,110
|
|
Tax benefit associated with exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
640
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,830
|
|
Issuance of common stock upon exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,933
|
)
|
|
|
|
|
|
|
167,670
|
|
|
|
5,869
|
|
|
|
3,936
|
|
Increase in treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(747,424
|
)
|
|
|
(25,449
|
)
|
|
|
(25,449
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Cash dividends ($.56 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,983
|
)
|
Postretirement medical plan, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
(91
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, MARCH 31, 2008
|
|
|
|
|
|
|
|
|
|
|
14,703,084
|
|
|
$
|
1,470
|
|
|
|
44,150
|
|
|
|
342,688
|
|
|
|
(90
|
)
|
|
|
(4,437,325
|
)
|
|
|
(125,865
|
)
|
|
|
262,353
|
|
Cumulative effect of adoption of
EITF 06-10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(566
|
)
|
Tax benefit associated with exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,632
|
|
Issuance of common stock upon exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(495
|
)
|
|
|
|
|
|
|
26,572
|
|
|
|
930
|
|
|
|
435
|
|
Increase in treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(687,000
|
)
|
|
|
(16,687
|
)
|
|
|
(16,687
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Cash dividends ($.60 per common share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,939
|
)
|
Postretirement medical plan, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, MARCH 31, 2009
|
|
|
|
|
|
$
|
|
|
|
|
14,703,084
|
|
|
$
|
1,470
|
|
|
$
|
46,813
|
|
|
$
|
352,674
|
|
|
$
|
(81
|
)
|
|
|
(5,097,753
|
)
|
|
$
|
(141,622
|
)
|
|
$
|
259,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
27
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
MARCH 31,
2009
|
|
(1)
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Principles
of Consolidation
The consolidated financial statements include the accounts of
CSS Industries, Inc. (CSS or the
Company) and all of its subsidiaries. All
significant intercompany transactions and accounts have been
eliminated in consolidation.
Foreign
Currency Translation and Transactions
Translation adjustments are charged or credited to a separate
component of stockholders equity. Gains and losses on
foreign currency transactions are not material and are included
in other expense (income), net in the consolidated statements of
operations.
Nature
of Business
CSS is a consumer products company primarily engaged in the
design, manufacture, procurement, distribution and sale of
seasonal and all occasion social expression products,
principally to mass market retailers. These seasonal and all
occasion products include gift wrap, gift bags, gift boxes, gift
card holders, boxed greeting cards, gift tags, decorative tissue
paper, decorations, classroom exchange Valentines, decorative
ribbons and bows, floral accessories, Halloween masks, costumes,
make-up and
novelties, Easter egg dyes and novelties, craft and educational
products, memory books, stationery, journals, notecards, infant
and wedding photo albums, scrapbooks, and other gift items that
commemorate lifes celebrations. CSS product breadth
provides its retail customers the opportunity to use a single
vendor for much of their seasonal product requirements. A
substantial portion of CSS products are manufactured,
packaged
and/or
warehoused in thirteen facilities located in the United States,
with the remainder purchased primarily from manufacturers in
Asia and Mexico. The Companys products are sold to its
customers by national and regional account sales managers, sales
representatives, product specialists and by a network of
independent manufacturers representatives. CSS maintains a
purchasing office in Hong Kong to administer Asian sourcing
opportunities.
The Companys principal operating subsidiaries include
Paper Magic Group, Inc. (Paper Magic), BOC Design
Group (consisting of Berwick Offray LLC (Berwick
Offray) and Cleo Inc (Cleo)) and C.R. Gibson,
LLC (C.R. Gibson). The C.R. Gibson business was
acquired on December 3, 2007. In fiscal 2007, the Company
combined the operations of its Cleo and Berwick Offray
subsidiaries in order to improve profitability and efficiency
through the elimination of redundant back office functions and
certain management positions. In fiscal 2009, the Company
initiated the consolidation of its accounts receivable, accounts
payable and payroll functions into a combined back office
operation. Approximately 700 of its 2,100 employees
(increasing to approximately 3,000 as seasonal employees are
added) are represented by labor unions. The collective
bargaining agreement with the labor union representing the
production and maintenance employees in Memphis, Tennessee
remains in effect until December 31, 2010. The collective
bargaining agreement with the labor union representing the
production and maintenance employees in Hagerstown, Maryland
remains in effect until December 31, 2009.
Reclassification
Certain prior period amounts have been reclassified to conform
with the current year classification.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
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. Judgments and
assessments of uncertainties
28
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
are required in applying the Companys accounting policies
in many areas. Such estimates pertain to the valuation of
inventory and accounts receivable, the assessment of the
recoverability of goodwill and other intangible assets, income
tax accounting, the valuation of share-based awards and
resolution of litigation and other proceedings. Actual results
could differ from these estimates.
Accounts
Receivable
The Company offers seasonal dating programs related to certain
seasonal product offerings pursuant to which customers that
qualify for such programs are offered extended payment terms.
With some exceptions, customers do not have the right to return
product except for reasons the Company believes are typical of
our industry, including damaged goods, shipping errors or
similar occurrences. The Company generally is not required to
repurchase products from its customers, nor does the Company
have any regular practice of doing so. In addition, the Company
mitigates its exposure to bad debts by evaluating the
creditworthiness of its major customers utilizing established
credit limits and purchasing credit insurance when appropriate
and available. Bad debt and returns and allowances reserves are
recorded as an offset to accounts receivable while reserves for
customer programs are recorded as accrued liabilities. The
Company evaluates accounts receivable related reserves and
accruals monthly by specifically reviewing customers
creditworthiness, historical recovery percentages and
outstanding customer deductions and program arrangements.
Inventories
The Company records inventory when title is transferred, which
occurs upon receipt or prior to receipt dependent on supplier
shipping terms. The Company adjusts unsaleable and slow-moving
inventory to its estimated net realizable value. Substantially
all of the Companys 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 (LIFO) cost or market, which was $711,000 and $838,000
at March 31, 2009 and 2008, respectively. Had all
inventories been valued at the lower of FIFO cost or market,
inventories would have been greater by $851,000 and $761,000 at
March 31, 2009 and 2008, respectively. Inventories
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw material
|
|
$
|
17,533
|
|
|
$
|
22,836
|
|
Work-in-process
|
|
|
25,437
|
|
|
|
29,827
|
|
Finished goods
|
|
|
57,001
|
|
|
|
52,869
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
99,971
|
|
|
$
|
105,532
|
|
|
|
|
|
|
|
|
|
|
Assets
Held for Sale
Assets held for sale in the amount of $1,363,000 at
March 31, 2009 represents a former manufacturing facility
which the Company is in the process of selling. The Company
expects to sell this facility within the next 12 months for
an amount greater than the current carrying value. The Company
ceased depreciating this facility at the time it was classified
as held for sale. Assets held for sale in the amount of
$3,590,000 as of March 31, 2008 also included a former
manufacturing facility and a distribution facility which the
Company sold in the third quarter of fiscal 2009 resulting in a
pre-tax gain of approximately $761,000, which is included in
restructuring expenses, net in the accompanying consolidated
statements of operations.
29
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property,
Plant and Equipment
Property, plant and equipment are stated at cost and include the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
2,608
|
|
|
$
|
2,619
|
|
Buildings, leasehold interests and improvements
|
|
|
44,803
|
|
|
|
42,920
|
|
Machinery, equipment and other
|
|
|
149,410
|
|
|
|
137,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196,821
|
|
|
|
182,835
|
|
Less Accumulated depreciation
|
|
|
(141,879
|
)
|
|
|
(132,203
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
54,942
|
|
|
$
|
50,632
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2009, the Company corrected certain fiscal 2008
amounts of gross cost of assets and accumulated depreciation.
The net effect was to increase gross cost and accumulated
depreciation by $6,177,000. There was no net effect on property,
plant and equipment.
Depreciation is provided generally on the straight-line method
and is based on estimated useful lives or terms of leases as
follows:
|
|
|
|
|
Buildings, leasehold interests and improvements
|
|
|
Lease term to 45 years
|
|
Machinery, equipment and other
|
|
|
3 to 15 years
|
|
When property is retired or otherwise disposed of, the related
cost and accumulated depreciation and amortization are
eliminated from the consolidated balance sheet. Any gain or loss
from the disposition of property, plant and equipment is
included in other expense (income), net with the exception of a
gain of $761,000 recorded in fiscal 2009 related to the sale of
two facilities associated with a restructuring program (see
Note 4). Maintenance and repairs are expensed as incurred
while improvements are capitalized and depreciated over their
estimated useful lives.
The Company leased $853,000 of computer equipment and $122,000
of trucks, net of accumulated amortization of $239,000, under
capital leases as of March 31, 2009. As of March 31,
2008, the Company leased $461,000 of computer equipment, net of
accumulated amortization of $473,000. The amortization of
capitalized assets is included in depreciation expense.
Depreciation expense was $10,936,000, $12,604,000 and
$14,101,000 for the years ended March 31, 2009, 2008 and
2007, respectively.
Impairment
of Long-Lived Assets including Goodwill and Other Intangible
Assets
When a company is acquired, the difference between the fair
value of its net assets, including intangibles, and the purchase
price is recorded as goodwill. Goodwill is subject to an
assessment for impairment using a two-step fair value-based
test, the first step of which must be performed at least
annually, or more frequently if events or circumstances indicate
that goodwill might be impaired. The Company performs its
required annual assessment as of the fiscal year end. The first
step of the test compares the fair value of a reporting unit to
its carrying amount, including goodwill, as of the date of the
test. The Company uses a dual approach to determine the fair
value of its reporting units including both a market approach
and an income approach. The market approach computes fair value
using a multiple of earnings before interest, income taxes,
depreciation and amortization which was developed considering
both the multiples of recent transactions as well as trading
multiples of consumer products companies. The income approach is
based on the present value of discounted cash flows and a
terminal value projected for each reporting unit. The income
approach requires significant judgments including the
Companys projected net cash flows, the weighted average
cost of capital (WACC) used to discount the cash
flows and terminal value assumptions. The projected net cash
flows are derived using the most recent available estimate for
each reporting unit. The WACC rate is based on an average of the
capital structure, cost of capital and inherent
30
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
business risk profiles of the Company and peer consumer products
companies. We believe the use of multiple valuation techniques
results in a more accurate indicator of the fair value of each
reporting unit.
The Company then corroborates the reasonableness of the total
fair value of the reporting units by reconciling the aggregate
fair values of the reporting units to the Companys total
market capitalization adjusted to include an estimated control
premium. The estimated control premium is derived from reviewing
observable transactions involving the purchase of controlling
interests in comparable companies. The market capitalization is
calculated using the relevant shares outstanding and an average
closing stock price which considers volatility around the test
date. The exercise of reconciling the market capitalization to
the computed fair value further supports the Companys
conclusion on the fair value. If the carrying amount of the
reporting unit exceeds its fair value, the second step is
performed. The second step compares the carrying amount of the
goodwill to the implied fair value of the goodwill. If the
implied fair value of the goodwill is less than the carrying
amount of the goodwill, an impairment loss would be reported.
Other indefinite lived intangible assets consist primarily of
tradenames which are also required to be tested annually. The
fair value of the Companys tradenames is calculated using
a relief from royalty payments methodology. This
approach involves first estimating reasonable royalty rates for
each trademark then applying these royalty rates to a net sales
stream and discounting the resulting cash flows to determine the
fair value. The royalty rate is estimated using both a market
and income approach. The market approach relies on the existence
of identifiable transactions in the marketplace involving the
licensing of tradenames similar to those owned by the Company.
The income approach uses a projected pretax profitability rate
relevant to the licensed income stream. We believe the use of
multiple valuation techniques results in a more accurate
indicator of the fair value of each tradename. This fair value
is then compared with the carrying value of each tradename.
Long-lived assets, except for goodwill and indefinite lived
intangible assets, are reviewed for impairment when
circumstances indicate the carrying value of an asset may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the assets to
future net cash flows estimated by the Company to be generated
by such assets. If such assets are considered to be impaired,
the impairment to be recognized is the amount by which the
carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are recorded at the lower of
their carrying value or estimated net realizable value.
In the fourth quarter of fiscal 2009, 2008 and 2007, the Company
performed the required annual impairment test of the carrying
amount of goodwill and indefinite lived intangible assets and
determined that no impairment existed.
Derivative
Financial Instruments
The Company uses certain derivative financial instruments as
part of its risk management strategy to reduce foreign currency
risk. Derivatives are not used for trading or speculative
activities.
The Company recognizes all derivatives on the consolidated
balance sheet at fair value. On the date the derivative
instrument is entered into, the Company generally designates the
derivative as either (1) a hedge of the fair value of a
recognized asset or liability or of an unrecognized firm
commitment (fair value hedge), or (2) a hedge
of a forecasted transaction or of the variability of cash flows
to be received or paid related to a recognized asset or
liability (cash flow hedge). Changes in the fair
value of a derivative that is designated as, and meets all the
required criteria for, a fair value hedge, along with the gain
or loss on the hedged asset or liability that is attributable to
the hedged risk, are recorded in current period earnings.
Changes in the fair value of a derivative that is designated as,
and meets all the required criteria for, a cash flow hedge are
recorded in accumulated other comprehensive income and
reclassified into earnings as the underlying hedged item affects
earnings. The portion of the change in fair value of a
derivative associated with hedge ineffectiveness or the
component of a derivative instrument excluded from the
assessment of hedge effectiveness is recorded currently in
earnings. Also, changes in the entire fair value of a derivative
that is not designated as a hedge are recorded immediately in
earnings. The Company formally
31
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
documents all relationships between hedging instruments and
hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. This
process includes relating all derivatives that are designated as
fair value or cash flow hedges to specific assets and
liabilities on the consolidated balance sheet or to specific
firm commitments or forecasted transactions.
The Company also formally assesses, both at the inception of the
hedge and on an ongoing basis, whether each derivative is highly
effective in offsetting changes in fair values or cash flows of
the hedged item. If it is determined that a derivative is not
highly effective as a hedge or if a derivative ceases to be a
highly effective hedge, the Company will discontinue hedge
accounting prospectively.
The Company enters into foreign currency forward contracts in
order to reduce the impact of certain foreign currency
fluctuations. Firmly committed transactions and the related
receivables and payables may be hedged with forward exchange
contracts. Gains and losses arising from foreign currency
forward contracts are recognized in income or expense as offsets
of gains and losses resulting from the underlying hedged
transactions. There were no open forward exchange contracts as
of March 31, 2009 and 2008.
Income
Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences
and carryforwards are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
Effective April 1, 2007, the Company adopted the provisions
of Financial Accounting Standards Board Interpretation No.
(FIN) 48, Accounting for Uncertainty in Income
Taxes, which clarifies the accounting for uncertain tax
positions. FIN 48 requires that the Company recognize in
its consolidated financial statements the impact of a tax
position if that position is more likely than not of being
sustained on the technical merits of the position. See
Note 8 for further discussion.
Revenue
Recognition
The Company recognizes revenue from product sales when the goods
are shipped, title and risk of loss have been transferred to the
customer and collection is reasonably assured. Provisions for
returns, allowances, rebates to customers and other adjustments
are provided in the same period that the related sales are
recorded.
Product
Development Costs
Product development costs consist of purchases of outside
artwork, printing plates, cylinders, catalogs and samples. For
seasonal products, the Company typically begins to incur product
development costs approximately 18 to 20 months before the
applicable holiday event and amortizes the costs monthly over
the selling season, which is generally within two to four months
of the holiday event. Development costs related to all occasion
products are incurred within a period beginning six to nine
months prior to the applicable sales period and are generally
amortized over a six to twelve month selling period. The expense
of certain product development costs that are related to the
manufacturing process are recorded in cost of sales while the
portion that relates to creative and selling efforts are
recorded in selling, general and administrative expenses.
Product development costs capitalized as of March 31, 2009
and 2008 were $7,368,000 and $6,316,000, respectively, and are
included in other current assets in the consolidated financial
statements. Product development expense of $9,809,000,
$9,194,000 and $7,887,000 was recognized in the years ended
March 31, 2009, 2008 and 2007, respectively.
32
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Shipping
and Handling Costs
Shipping and handling costs are reported in cost of sales in the
consolidated statements of operations.
Share-Based
Compensation
Effective April 1, 2006, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 123R,
Share-Based Payment, using the modified prospective
transition method, and began accounting for its share-based
compensation using a fair-value based recognition method. Under
the provisions of SFAS No. 123R, share-based
compensation cost is estimated at the grant date based on a
fair-value model. Calculating the fair value of share-based
awards at the grant date requires considerable judgment,
including estimating stock price volatility and expected option
life.
The Company uses the Black-Scholes option valuation model to
value employee stock options. The Company estimates stock price
volatility based on historical volatility of its common stock.
Estimated option life assumptions are also derived from
historical data. Had the Company used alternative valuation
methodologies and assumptions, compensation cost for share-based
payments could be significantly different. The Company
recognizes compensation expense using the straight-line
amortization method for share-based compensation awards with
graded vesting.
Net
Income Per Common Share
The following table sets forth the computation of basic net
income per common share and diluted net income per common share
for the years ended March 31, 2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except
|
|
|
|
per share amounts)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,986
|
|
|
$
|
25,358
|
|
|
$
|
23,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic income per common
share
|
|
|
9,909
|
|
|
|
10,732
|
|
|
|
10,622
|
|
Effect of dilutive stock options
|
|
|
81
|
|
|
|
261
|
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average shares outstanding for diluted income
per common share
|
|
|
9,990
|
|
|
|
10,993
|
|
|
|
10,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
1.71
|
|
|
$
|
2.36
|
|
|
$
|
2.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
1.70
|
|
|
$
|
2.31
|
|
|
$
|
2.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options on 1,434,000 shares, 232,000 shares and
58,000 shares of common stock were not included in
computing diluted net income per common share for the years
ended March 31, 2009, 2008 and 2007, respectively, because
their effects were antidilutive.
Statements
of Cash Flows
For purposes of the consolidated statements of cash flows, the
Company considers all holdings of highly liquid debt instruments
with a maturity at time of purchase of three months or less to
be cash equivalents.
33
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Supplemental
Schedule of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
2,896
|
|
|
$
|
2,413
|
|
|
$
|
3,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
7,741
|
|
|
$
|
8,445
|
|
|
$
|
17,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
11,560
|
|
|
$
|
82,442
|
|
|
$
|
|
|
Liabilities assumed
|
|
|
296
|
|
|
|
8,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
11,264
|
|
|
|
73,847
|
|
|
|
|
|
Amount due seller
|
|
|
100
|
|
|
|
2,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
|
|
|
11,164
|
|
|
|
71,147
|
|
|
|
|
|
Less cash acquired
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for acquisitions
|
|
$
|
11,164
|
|
|
$
|
71,145
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
BUSINESS
ACQUISITIONS
|
On February 20, 2009, a subsidiary of the Company completed
the acquisition of substantially all of the business and assets
of Seastone L.C. (Seastone) for $1,139,000 in cash.
The purchase price is subject to adjustment, equal to 5% of net
sales of certain products sold, through fiscal 2014. Seastone is
a provider of specialty gift card holders. The acquisition was
accounted for as a purchase and there was no goodwill recorded
in this transaction.
On August 5, 2008, a subsidiary of the Company completed
the acquisition of substantially all of the business and assets
of Hampshire Paper Corp. (Hampshire Paper) for
approximately $9,725,000 in cash, including transaction costs of
approximately $49,000. Hampshire Paper is a manufacturer and
supplier of pot covers, waxed tissue, paper and foil to the
wholesale floral and horticultural industries. As of
March 31, 2009, a portion of the purchase price is being
held in escrow for certain indemnification obligations. The
acquisition was accounted for as a purchase and the excess of
cost over fair market value of the net tangible and identifiable
intangible assets acquired of $897,000 was recorded as goodwill
in the accompanying consolidated balance sheet. For tax
purposes, goodwill resulting from this acquisition is deductible.
On May 16, 2008, a subsidiary of the Company completed the
acquisition of substantially all of the business and assets of
iotatm
(iota) for approximately $300,000 in cash and a note
payable to the seller in the amount of $100,000. The purchase
price is subject to adjustment, based on future sales volume
through fiscal 2014, up to a maximum of $2,000,000. In addition,
the seller retains a 50% interest in royalty income associated
with the sale by third parties of licensed iota products through
the fifth anniversary of the closing date. iota is a leading
designer, manufacturer and marketer of stationery products such
as notecards, gift wrap, journals, and stationery kits. The
acquisition was accounted for as a purchase and there was no
goodwill recorded in this transaction.
34
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition (in thousands):
|
|
|
|
|
Currents assets
|
|
$
|
5,418
|
|
Property, plant and equipment
|
|
|
593
|
|
Intangible assets
|
|
|
4,652
|
|
Goodwill
|
|
|
897
|
|
|
|
|
|
|
Total assets acquired
|
|
|
11,560
|
|
|
|
|
|
|
Current liabilities
|
|
|
205
|
|
Other long-term obligations
|
|
|
91
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
296
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
11,264
|
|
|
|
|
|
|
The financial results of the fiscal 2009 acquisitions are
included in the Companys consolidated results from their
respective dates of acquisition. Pro forma results of operations
have not been presented as the effects of these acquisitions
were not deemed material.
On December 3, 2007, the Company completed the acquisition
of substantially all of the business and assets of C.R. Gibson,
Inc. (C.R. Gibson), through a newly-formed
subsidiary, C.R. Gibson, LLC, for approximately $73,847,000 in
cash, including transaction costs of approximately $200,000. In
the first quarter of fiscal 2009, $2,700,000 of the purchase
price was paid as settlement of an obligation assumed as
contemplated in the Asset Purchase Agreement. C.R. Gibson,
headquartered in Nashville, Tennessee, is a designer, marketer
and distributor of memory books, stationery, journals,
notecards, infant and wedding photo albums, scrapbooks, and
other gift items that commemorate lifes celebrations. At
March 31, 2009, a portion of the purchase price is being
held in escrow for certain indemnification obligations. The
acquisition was accounted for as a purchase and the excess of
cost over the fair market value of the net tangible and
identifiable intangible assets acquired of $17,409,000 was
recorded as goodwill in the accompanying consolidated balance
sheet. For tax purposes, goodwill resulting from this
acquisition is deductible.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition (in thousands):
|
|
|
|
|
Current assets
|
|
$
|
25,470
|
|
Property, plant and equipment
|
|
|
963
|
|
Intangible assets
|
|
|
38,600
|
|
Goodwill
|
|
|
17,409
|
|
|
|
|
|
|
Total assets acquired
|
|
|
82,442
|
|
|
|
|
|
|
Current liabilities
|
|
|
8,595
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
8,595
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
73,847
|
|
|
|
|
|
|
35
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(3)
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
The change in the carrying amount of goodwill and indefinite
lived intangible assets for the year ended March 31, 2009
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames
|
|
|
|
Goodwill
|
|
|
and Trademarks
|
|
|
Balance as of March 31, 2008
|
|
$
|
48,361
|
|
|
$
|
23,790
|
|
Acquisition of iota
|
|
|
|
|
|
|
275
|
|
Acquisition of Hampshire Paper
|
|
|
897
|
|
|
|
500
|
|
Acquisition of Seastone
|
|
|
|
|
|
|
518
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2009
|
|
$
|
49,258
|
|
|
$
|
25,083
|
|
|
|
|
|
|
|
|
|
|
The change in the gross carrying amount of other intangible
assets, including amortizable trademarks, for the year ended
March 31, 2009 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
|
|
|
|
|
|
|
|
|
|
|
|
|
Relationships
|
|
|
Trademarks
|
|
|
Patents
|
|
|
Non-compete
|
|
|
Balance as of March 31, 2008
|
|
$
|
18,957
|
|
|
$
|
103
|
|
|
$
|
29
|
|
|
$
|
500
|
|
Acquisition of Hampshire Paper
|
|
|
2,500
|
|
|
|
300
|
|
|
|
60
|
|
|
|
|
|
Acquisition of Seastone
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2009
|
|
$
|
21,957
|
|
|
$
|
403
|
|
|
$
|
89
|
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average amortization period of customer
relationships, trademarks and patents are 7 years,
10 years and 10 years, respectively.
The gross carrying amount and accumulated amortization of other
intangible assets as of March 31, 2009 and 2008 is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Tradenames and trademarks
|
|
$
|
25,083
|
|
|
$
|
|
|
|
$
|
23,790
|
|
|
$
|
|
|
Customer relationships
|
|
|
21,957
|
|
|
|
1,860
|
|
|
|
18,957
|
|
|
|
477
|
|
Non-compete
|
|
|
500
|
|
|
|
367
|
|
|
|
500
|
|
|
|
316
|
|
Trademarks
|
|
|
403
|
|
|
|
123
|
|
|
|
103
|
|
|
|
103
|
|
Patents
|
|
|
89
|
|
|
|
33
|
|
|
|
29
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,032
|
|
|
$
|
2,383
|
|
|
$
|
43,379
|
|
|
$
|
925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $1,458,000 for fiscal 2009, $474,000
for fiscal 2008 and $94,000 for fiscal 2007. The estimated
amortization expense for the next five fiscal years is as
follows (in thousands):
|
|
|
|
|
Fiscal 2010
|
|
$
|
1,566
|
|
Fiscal 2011
|
|
|
1,566
|
|
Fiscal 2012
|
|
|
1,550
|
|
Fiscal 2013
|
|
|
1,516
|
|
Fiscal 2014
|
|
|
1,505
|
|
36
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(4)
|
BUSINESS
RESTRUCTURING
|
During fiscal 2009, the Company reduced its workforce to improve
efficiency and to a lesser extent as a result of the
consolidation of various back office operations among its
subsidiaries. Involuntary termination benefits offered to
terminated employees were under the Companys pre-existing
severance program. The Company recorded approximately $1,321,000
in employee severance charges during fiscal 2009 and the
remaining liability of $1,015,000 is classified as a current
liability in the accompanying consolidated balance sheet as of
March 31, 2009 and will be paid in fiscal 2010.
On January 4, 2008, the Company announced a restructuring
plan to close the Companys Elysburg, Pennsylvania
production facilities and its Troy, Pennsylvania distribution
facility. This restructuring was undertaken as the Company has
increasingly shifted from domestically manufactured to foreign
sourced boxed greeting cards and gift tags. Under the
restructuring plan, both facilities were closed as of
March 31, 2008. As part of the restructuring plan, the
Company recorded a restructuring reserve of $628,000, including
severance related to 75 employees. Also, in connection with
the restructuring plan, the Company recorded an impairment of
property, plant and equipment at the affected facilities of
$1,222,000, which was included in restructuring expenses in the
fourth quarter of fiscal 2008. During the quarter ended
December 31, 2008, the Company sold two facilities
associated with this restructuring program and recognized a gain
of $761,000 related to this sale of assets. During fiscal 2009,
there was an increase in the restructuring reserve in the amount
of $426,000 primarily related to the ratable recognition of
retention bonuses for employees providing service until their
termination date. During the year ended March 31, 2009, the
Company made payments of $690,000 primarily for costs related to
severance. As of March 31, 2009, the remaining liability of
$55,000 was classified as a current liability in the
accompanying consolidated balance sheet and will be paid through
the first quarter of fiscal 2010. The Company expects to incur
additional period expenses related to this restructuring program
of approximately $240,000 during fiscal 2010.
Selected information relating to the fiscal 2008 restructuring
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Other
|
|
|
|
|
|
|
Costs
|
|
|
Costs
|
|
|
Total
|
|
|
Initial accrual
|
|
$
|
355
|
|
|
$
|
273
|
|
|
$
|
628
|
|
Cash paid fiscal 2008
|
|
|
(46
|
)
|
|
|
(263
|
)
|
|
|
(309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserve as of March 31, 2008
|
|
|
309
|
|
|
|
10
|
|
|
|
319
|
|
Cash paid fiscal 2009
|
|
|
(690
|
)
|
|
|
|
|
|
|
(690
|
)
|
Charges to expense fiscal 2009
|
|
|
436
|
|
|
|
(10
|
)
|
|
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserve as of March 31, 2009
|
|
$
|
55
|
|
|
$
|
|
|
|
$
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
TREASURY
STOCK TRANSACTIONS
|
Under stock repurchase programs authorized by the Companys
Board of Directors, the Company repurchased 687,000 shares
of the Companys common stock for $16,687,000 in fiscal
2009, 747,424 shares of the Companys common stock for
$25,449,000 in fiscal 2008 and 9,800 shares of the
Companys common stock for $323,000 in fiscal 2007. As of
March 31, 2009, the Company had 313,000 shares
remaining available for repurchase under the Boards
authorization.
Under the terms of the 2004 Equity Compensation Plan (2004
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, stock bonuses and other
awards to officers and other employees. Grants under the 2004
Plan may be made through August 3, 2014. The term of each
grant is at the discretion of the Committee, but in no event
greater than ten years from the date of grant. The Committee has
discretion to determine
37
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the date or dates on which granted options become exercisable.
All options outstanding as of March 31, 2009 become
exercisable at the rate of 25% per year commencing one year
after the date of grant. Outstanding performance-vested
restricted stock units (RSUs) vest on the third
anniversary of the date on which the award was granted, provided
that certain performance metrics have been met during the
performance period, and outstanding time-vested RSUs vest at the
rate of 50% of the shares underlying the grant on each of the
third and fourth anniversaries of the date on which the award
was granted. At March 31, 2009, 1,137,700 shares were
available for grant under the 2004 Plan.
Under the terms of the CSS Industries, Inc. 2006 Stock Option
Plan for Non-Employee Directors (2006 Plan),
non-qualified stock options to purchase up to
200,000 shares of common stock are available for grant to
non-employee directors at exercise prices of not less than the
fair market value of the underlying common stock on the date of
grant. Under the 2006 Plan, options to purchase
4,000 shares of the Companys common stock are granted
automatically to each non-employee director on the last day that
the Companys common stock is traded in November from 2006
to 2010. Each option will expire five years after the date the
option is granted and commencing one year after the date of
grant, options begin vesting and are excisable at the rate of
25% per year. At March 31, 2009, 132,000 shares were
available for grant under the 2006 Plan.
Effective April 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123R,
Share-Based Payment, using the modified prospective
transition method. Under that transition method, stock
compensation cost recognized in fiscal 2009, 2008 and 2007
includes: (a) compensation cost for all share-based
payments granted prior to, but not vested as of April 1,
2006, based on the grant date fair value estimated in accordance
with the original provisions of SFAS No. 123,
(b) compensation cost for all share-based payments granted
subsequent to April 1, 2006, based on the grant date fair
value estimated in accordance with the provisions of
SFAS No. 123R, and (c) compensation cost for all
share-based payments modified, repurchased, or cancelled
subsequent to April 1, 2006. Compensation cost is
recognized on a straight-line basis over the vesting period
during which employees perform related services.
Stock
Options
Compensation cost related to stock options recognized in
operating results (included in selling, general and
administrative expenses) was $2,460,000, $2,830,000 and
$2,825,000 in the years ended March 31, 2009, 2008 and
2007, respectively, and the associated future income tax benefit
recognized was $843,000, $775,000 and $666,000 in the years
ended March 31, 2009, 2008 and 2007, respectively.
The Company issues treasury shares for stock option exercises.
The cash flows resulting from the tax benefits from tax
deductions in excess of the compensation cost recognized for
those share awards (referred to as excess tax benefits) were
presented as financing cash flows in the consolidated statements
of cash flows.
38
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Activity and related information pertaining to stock options for
the years ended March 31, 2009, 2008 and 2007 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
of Options
|
|
|
Price
|
|
|
Contractual Life
|
|
|
Value
|
|
|
Outstanding at April 1, 2006
|
|
|
1,737,606
|
|
|
$
|
24.35
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
399,100
|
|
|
|
30.15
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(451,600
|
)
|
|
|
17.84
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled
|
|
|
(176,996
|
)
|
|
|
32.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2007
|
|
|
1,508,110
|
|
|
|
26.94
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
234,000
|
|
|
|
34.41
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(175,245
|
)
|
|
|
24.17
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled
|
|
|
(43,775
|
)
|
|
|
29.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008
|
|
|
1,523,090
|
|
|
|
28.34
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
98,000
|
|
|
|
24.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(29,622
|
)
|
|
|
18.27
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled
|
|
|
(145,270
|
)
|
|
|
28.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2009
|
|
|
1,446,198
|
|
|
$
|
28.20
|
|
|
|
2.4 years
|
|
|
$
|
201,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2009
|
|
|
991,523
|
|
|
$
|
27.06
|
|
|
|
2.0 years
|
|
|
$
|
190,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatilities are based on historical volatility of the
Companys common stock. The expected life of the option is
estimated using historical data pertaining to option exercises
and employee terminations. The risk-free interest rate is based
on U.S. Treasury yields in effect at the time of grant.
The fair value of each stock option granted was estimated on the
date of grant using the Black-Scholes option pricing model with
the following average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Years Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Expected dividend yield at time of grant
|
|
|
2.64
|
%
|
|
|
1.64
|
%
|
|
|
1.60
|
%
|
Expected stock price volatility
|
|
|
38
|
%
|
|
|
30
|
%
|
|
|
25
|
%
|
Risk-free interest rate
|
|
|
2.96
|
%
|
|
|
4.20
|
%
|
|
|
4.91
|
%
|
Expected life of option (in years)
|
|
|
4.3
|
|
|
|
4.3
|
|
|
|
4.7
|
|
The weighted average fair value of options granted during fiscal
2009, 2008 and 2007 was $6.77, $9.30 and $7.87 per share,
respectively. The total intrinsic value of options exercised
during the years ended March 31, 2009, 2008 and 2007 was
$252,000, $2,512,000 and $6,639,000, respectively.
As of March 31, 2009, there was $2,840,000 of total
unrecognized compensation cost related to non-vested stock
option awards granted under the Companys equity incentive
plans which is expected to be recognized over a weighted average
period of 2.1 years.
Restricted
Stock Units
Compensation cost related to time-vested RSUs recognized in
operating results (included in selling, general and
administrative expenses) was $172,000 and the associated future
income tax benefit recognized was $60,000 in the year ended
March 31, 2009. For the performance-based RSUs that were
issued in the first quarter of fiscal 2009,
39
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
there was no compensation cost recognized in the year ended
March 31, 2009 as it was subsequently determined in the
third quarter of fiscal 2009 that the performance measures
associated with these RSUs were improbable of achievement. There
were no issuances of RSUs prior to fiscal 2009.
Activity and related information pertaining to RSUs for the year
ended March 31, 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
|
of RSUs
|
|
|
Fair Value
|
|
|
Contractual Life
|
|
|
Outstanding at April 1, 2008
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Granted
|
|
|
58,150
|
|
|
|
25.70
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled
|
|
|
(9,800
|
)
|
|
|
26.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2009
|
|
|
48,350
|
|
|
$
|
25.63
|
|
|
|
2.8 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of each RSU granted was estimated on the day of
grant based on the closing price of the Companys common
stock reduced by the present value of the expected dividend
stream during the vesting period using the risk-free interest
rate.
As of March 31, 2009, there was $563,000 of total
unrecognized compensation cost related to non-vested RSUs
granted under the Companys equity incentive plans which is
expected to be recognized over a weighted average period of
2.7 years.
|
|
(7)
|
RETIREMENT
BENEFIT PLANS
|
Profit
Sharing Plans
The Company and its subsidiaries maintain defined contribution
profit sharing and 401(k) plans covering substantially all of
their employees as of March 31, 2009. Annual contributions
under the plans are determined by the Board of Directors of the
Company or each subsidiary, as appropriate. Consolidated expense
related to the plans for the years ended March 31, 2009,
2008 and 2007 was $128,000, $2,884,000 and $2,710,000,
respectively.
Postretirement
Medical Plan
The Companys Cleo subsidiary administers a postretirement
medical plan covering certain persons who were employees or
former employees of Crystal at the time of Cleos
acquisition of Crystal in October 2002. The plan is unfunded and
was frozen to new participants prior to Crystals
acquisition by the Company.
The following table provides a reconciliation of the benefit
obligation for the postretirement medical plan (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Benefit obligation at beginning of year
|
|
$
|
1,037
|
|
|
$
|
825
|
|
Interest cost
|
|
|
60
|
|
|
|
48
|
|
Actuarial (gain) loss and other adjustments
|
|
|
(7
|
)
|
|
|
212
|
|
Benefits paid
|
|
|
(68
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation recognized in the consolidated balance sheet
|
|
$
|
1,022
|
|
|
$
|
1,037
|
|
|
|
|
|
|
|
|
|
|
The net loss recognized in other comprehensive income at
March 31, 2009 was $85,000, net of tax, and the actuarial
loss expected to be amortized from accumulated other
comprehensive income into net periodic benefit cost during
fiscal 2010 is approximately $3,000.
40
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The assumptions used to develop the net periodic benefit cost
and benefit obligation for the postretirement medical plan as of
and for the years ended March 31, 2009, 2008 and 2007 were
a discount rate of 6.25% (6% for 2008 and 2007) and assumed
health care cost trend rates of 14% (15% for 2008 and 16% for
2007) trending down to an ultimate rate of 5% in 2018.
Net periodic pension and postretirement medical costs were
$60,000, $48,000 and $55,000 for the years ended March 31,
2009, 2008 and 2007, respectively.
Income from operations before income tax expense was as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
18,478
|
|
|
$
|
22,281
|
|
|
$
|
20,957
|
|
Foreign
|
|
|
7,412
|
|
|
|
16,552
|
|
|
|
15,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,890
|
|
|
$
|
38,833
|
|
|
$
|
36,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the provision for
U.S. federal, state and foreign taxes on income (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
4,451
|
|
|
$
|
8,147
|
|
|
$
|
12,679
|
|
State
|
|
|
(14
|
)
|
|
|
(311
|
)
|
|
|
899
|
|
Foreign
|
|
|
1,223
|
|
|
|
3,017
|
|
|
|
2,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,660
|
|
|
|
10,853
|
|
|
|
16,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,994
|
|
|
|
2,344
|
|
|
|
(3,172
|
)
|
State
|
|
|
250
|
|
|
|
278
|
|
|
|
(449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,244
|
|
|
|
2,622
|
|
|
|
(3,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,904
|
|
|
$
|
13,475
|
|
|
$
|
12,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The differences between the statutory and effective federal
income tax rates on income before income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
U.S. federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, less federal benefit
|
|
|
1.3
|
|
|
|
.8
|
|
|
|
1.7
|
|
Tax exempt interest income
|
|
|
(.1
|
)
|
|
|
(.7
|
)
|
|
|
|
|
Changes in tax reserves and valuation allowance
|
|
|
(1.4
|
)
|
|
|
.1
|
|
|
|
(1.6
|
)
|
Other, net
|
|
|
(.4
|
)
|
|
|
(.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34.4
|
%
|
|
|
34.7
|
%
|
|
|
35.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company receives distributions from its foreign operations
and, therefore, does not assume that the income from operations
of its foreign subsidiaries will be permanently reinvested.
Income tax benefits related to the exercise of stock options
reduced current taxes payable and increased additional paid-in
capital by $31,000 in fiscal 2009, $640,000 in fiscal 2008 and
$1,822,000 in fiscal 2007.
Deferred taxes are recorded based upon differences between the
financial statement and tax bases of assets and liabilities and
available net operating loss and credit carryforwards. The
following temporary differences gave rise to net deferred income
tax assets (liabilities) as of March 31, 2009 and 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
225
|
|
|
$
|
324
|
|
Inventories
|
|
|
3,947
|
|
|
|
3,886
|
|
Accrued expenses
|
|
|
3,434
|
|
|
|
5,265
|
|
State net operating loss and credit carryforwards
|
|
|
5,217
|
|
|
|
7,489
|
|
Share-based compensation
|
|
|
2,326
|
|
|
|
1,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,149
|
|
|
|
18,397
|
|
Valuation allowance
|
|
|
(5,217
|
)
|
|
|
(7,356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
9,932
|
|
|
|
11,041
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
2,302
|
|
|
|
1,221
|
|
Intangibles
|
|
|
3,219
|
|
|
|
1,607
|
|
Unremitted earnings of foreign subsidiaries
|
|
|
2,211
|
|
|
|
2,205
|
|
Other
|
|
|
650
|
|
|
|
1,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,382
|
|
|
|
6,247
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
1,550
|
|
|
$
|
4,794
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2009 and 2008, the Company had potential state
income tax benefits of $5,217,000 (net of federal tax of
$2,809,000) and $7,489,000 (net of federal tax of $4,033,000),
respectively, from net operating loss and credit carryforwards
that expire in various years through 2029. At March 31,
2009 and 2008, the Company provided valuation allowances (net of
federal tax) of $5,217,000 and $7,356,000, respectively. The
valuation allowance reflects managements assessment of the
portion of the deferred tax asset that more likely than not will
not be realized through future taxable earnings or
implementation of tax planning strategies. The decrease in state
net operating losses and credit carryforwards in fiscal 2009
primarily related to the expiration of a state net operating
loss carryforward that had been offset by a full valuation
allowance. Due to developments during fiscal 2009, the Company
increased its state valuation allowances by $133,000. The
deferred tax asset and corresponding valuation allowance for
state net operating loss carryforwards in fiscal 2008 is
presented net of federal tax consistent with fiscal 2009. In the
prior year, both were presented on a gross basis. There is no
net effect on the deferred tax asset.
Effective April 1, 2007, the Company adopted the provisions
of FASB Interpretation No. (FIN) 48,
Accounting for Uncertainty in Income Taxes, which
clarifies the accounting for uncertainty in income taxes.
FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a
tax return. The interpretation requires that the Company
recognize in the financial statements the impact of a tax
position, if that position is more likely than not of being
sustained on audit, based solely on the technical merits of the
position. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods and disclosure. The
42
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
implementation of FIN 48 did not result in an adjustment to
the Companys April 1, 2007 balance of retained
earnings. A reconciliation of the beginning and ending amount of
gross unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Gross unrecognized tax benefits at April 1
|
|
$
|
1,987
|
|
|
$
|
2,169
|
|
Additions based on tax positions related to the current year
|
|
|
119
|
|
|
|
84
|
|
Additions for tax positions of prior years
|
|
|
85
|
|
|
|
196
|
|
Reductions for tax positions of prior years
|
|
|
(115
|
)
|
|
|
(403
|
)
|
Reductions relating to settlements with taxing authorities
|
|
|
(460
|
)
|
|
|
(23
|
)
|
Reductions as a result of a lapse of the applicable statute of
limitations
|
|
|
(371
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefits at March 31
|
|
$
|
1,245
|
|
|
$
|
1,987
|
|
|
|
|
|
|
|
|
|
|
The total amount of gross unrecognized tax benefits at
March 31, 2009 of $1,245,000 was classified in other
long-term obligations in the accompanying consolidated balance
sheet and the amount that would favorably affect the effective
tax rate in future periods, if recognized, is $809,000. The
Company does not anticipate any significant changes to the
amount of gross unrecognized tax benefits in the next
12 months.
Consistent with the Companys historical financial
reporting, the Company recognizes potential accrued interest
and/or
penalties related to unrecognized tax benefits in income tax
expense in the consolidated statements of operations.
Approximately $335,000 of interest and penalties are accrued at
March 31, 2009, $86,000 of which was recorded during the
current year.
The Company is subject to U.S. federal income tax as well
as income tax in multiple state and foreign jurisdictions. The
Companys March 31, 2005 through March 31, 2007
federal tax returns were examined and settled with the Internal
Revenue Service after minor adjustments. State and foreign
income tax returns remain open back to March 31, 2003 in
major jurisdictions in which the Company operates.
|
|
(9)
|
LONG-TERM
DEBT AND CREDIT ARRANGEMENTS
|
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
4.48% Senior Notes due December 13, 2009
|
|
$
|
10,000
|
|
|
$
|
20,000
|
|
Other
|
|
|
964
|
|
|
|
438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,964
|
|
|
|
20,438
|
|
Less current portion
|
|
|
(10,479
|
)
|
|
|
(10,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
485
|
|
|
$
|
10,192
|
|
|
|
|
|
|
|
|
|
|
On December 13, 2002, the Company issued $50,000,000 of
4.48% Senior Notes due December 13, 2009 (the
Senior Notes). The Senior Notes are payable ratably
over five years, beginning at the end of the third year of the
seven year term of the agreement. The note purchase agreement
contains various financial covenants, the most restrictive of
which pertain to net worth, the ratio of operating cash flow to
fixed charges and the ratio of debt to capitalization. The
Company is in compliance with all covenants as of March 31,
2009.
On November 21, 2008, the Company replaced its $50,000,000
revolving credit facility, which was due to expire on
April 23, 2009, with a new $110,000,000 revolving credit
facility with four banks. This facility expires on
November 20, 2011. The loan agreement contains provisions
to increase or reduce the interest pricing spread based
43
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
on a measure of the Companys leverage. At the
Companys option, interest on the facility currently
accrues at (a) the one-, two-, three- or six-month London
Interbank Offered Rate (LIBOR) plus 1.25% or
(b) the greater of (1) the prime rate (2) the
federal funds open rate plus .5%, and (3) the daily LIBOR
plus 1.25%. The revolving credit facility provides for
commitment fees of .3% per annum on the daily average of the
unused commitment, subject to adjustment based on a measure of
the Companys leverage. The loan agreement also contains
covenants, the most restrictive of which pertain to the ratio of
operating cash flow to fixed charges, the ratio of debt to
operating cash flow and limitations on capital expenditures. As
of March 31, 2009, there was $1,200,000 outstanding under
this revolving credit facility and no amounts outstanding as of
March 31, 2008. The Company is in compliance with all
financial debt covenants as of March 31, 2009.
On November 21, 2008, the Company also entered into an
amendment to decrease its existing $100,000,000 accounts
receivable facility to $75,000,000 with an expiration of
July 25, 2009, subject to earlier termination in the event
of termination of the commitments of the
back-up
purchasers. The agreement permits the sale (and repurchase) of
an undivided interest in an accounts receivable pool. The
facility has a funding limit of $75,000,000 during peak seasonal
periods and $25,000,000 during off-peak seasonal periods. Under
this arrangement, the Company sells, on an ongoing basis and
without recourse, its trade accounts receivable to a
wholly-owned special purpose subsidiary (the SPS),
which in turn has the option to sell, on an ongoing basis and
without recourse, to a commercial paper issuer an undivided
percentage interest in the pool of accounts receivable. Under
the agreement, new trade receivables are automatically sold to
the SPS and become a part of the receivables pool. Prior to the
amendment described in the next paragraph, financing costs for
amounts funded under this facility were based on a variable
commercial paper rate plus 0.5%, and the Company paid commitment
fees of 0.25% per annum on the daily average of the unused
commitment. This arrangement is accounted for as a financing
transaction. As of March 31, 2009, there was $2,950,000
outstanding under this arrangement and no amounts were
outstanding as of March 31, 2008.
Subsequent to year end, the Company entered into an extension of
its $75,000,000 accounts receivable securitization facility
through May 7, 2010, although it may terminate prior to
such date in the event of termination of the commitments of the
facilitys
back-up
purchasers. Financing costs for amounts funded under this
facility are based on a variable commercial paper rate plus 1.5%
and commitment fees of 0.5% per annum on the unused commitment
are also payable under the facility. In addition, if the daily
amount outstanding is less than 50% of the seasonally adjusted
funding limit, an additional commitment fee of 0.25% per annum
will also be payable under the facility.
The weighted average interest rate under the revolving credit
facilities for the years ended March 31, 2009, 2008, and
2007, was 4.07%, 7.43% and 7.04%, respectively. The average and
peak borrowings were $50,372,000 and $129,230,000, respectively,
for the year ended March 31, 2009 and $12,323,000 and
$81,000,000, respectively, for the year ended March 31,
2008. Additionally, outstanding letters of credit under the
revolving credit facilities totaled $4,100,000 at March 31,
2009 and $3,883,000 at March 31, 2008. These letters of
credit guarantee funding of workers compensation claims.
The Company leases certain computer equipment and trucks under
capital leases. The future minimum annual lease payments,
including interest, associated with the capital lease
obligations are as follows (in thousands):
|
|
|
|
|
2010
|
|
$
|
442
|
|
2011
|
|
|
383
|
|
2012
|
|
|
58
|
|
|
|
|
|
|
Total minimum lease obligations
|
|
|
883
|
|
Less amount representing interest
|
|
|
(19
|
)
|
|
|
|
|
|
Present value of future minimum lease obligations
|
|
$
|
864
|
|
|
|
|
|
|
44
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-term debt, including capital lease obligations, matures as
follows (in thousands):
|
|
|
|
|
2010
|
|
$
|
10,479
|
|
2011
|
|
|
427
|
|
2012
|
|
|
58
|
|
|
|
|
|
|
Total
|
|
$
|
10,964
|
|
|
|
|
|
|
The Company maintains various lease arrangements for property
and equipment. The future minimum rental payments associated
with all noncancelable lease obligations are as follows (in
thousands):
|
|
|
|
|
2010
|
|
$
|
8,606
|
|
2011
|
|
|
5,393
|
|
2012
|
|
|
2,225
|
|
2013
|
|
|
1,114
|
|
2014
|
|
|
435
|
|
Thereafter
|
|
|
421
|
|
|
|
|
|
|
Total
|
|
$
|
18,194
|
|
|
|
|
|
|
Rent expense was $10,229,000, $8,405,000 and $8,507,000 for the
years ended March 31, 2009, 2008 and 2007, respectively.
|
|
(11)
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
The Company uses certain derivative financial instruments as
part of its risk management strategy to reduce foreign currency
risk. The Company recognizes all derivatives on the consolidated
balance sheet at fair value based on quotes obtained from
financial institutions. There were no foreign currency contracts
outstanding as of March 31, 2009 and 2008.
The Company maintains a Nonqualified Supplemental Executive
Retirement Plan for highly compensated employees. The assets of
the plan are held at a third party financial institution in the
name of CSS and are invested in publicly traded mutual funds.
The Company maintains separate accounts for each participant to
reflect deferred contribution amounts and the related gains or
losses on such deferred amounts. The plan assets are recorded as
marketable securities and included in other current assets and
the related liability is recorded as deferred compensation and
included in other long-term obligations in the consolidated
balance sheets. The fair value of the plan assets is based on
the market price of the mutual funds as of March 31, 2009
and 2008.
The Company maintains two life insurance policies in connection
with deferred compensation arrangements with two former
executives. The cash surrender value of the policies is recorded
in other long-term assets in the consolidated balance sheets and
is based on quotes obtained from the insurance company as of
March 31, 2009 and 2008.
The Company adopted the provisions of SFAS No. 157,
Fair Value Measurements, on April 1, 2008.
SFAS No. 157 defines fair value as the price that
would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. Market participants are defined as
buyers or sellers in the principle or most advantageous market
for the asset or liability that are independent of the reporting
entity, knowledgeable and able and willing to transact for the
asset or liability. There was no impact to the Companys
consolidated financial statements upon adoption of
SFAS No. 157.
45
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In accordance with SFAS No. 157, the Company has
categorized its financial assets and liabilities, based on the
priority of the inputs to the valuation technique, into a
three-level fair value hierarchy. The fair value hierarchy gives
the highest priority to quoted prices in active markets for
identical assets or liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3). If the
inputs used to measure the financial assets and liabilities fall
within different levels of the hierarchy, the categorization is
based on the lowest level input that is significant to the fair
value measurement of the instrument.
The Companys recurring assets and liabilities recorded on
the consolidated balance sheet are categorized based on the
inputs to the valuation techniques as follows:
Level 1 Financial assets and liabilities whose
values are based on unadjusted quoted prices for identical
assets or liabilities in an active market that the Company has
the ability to access.
Level 2 Financial assets and liabilities whose
values are based on quoted prices in markets that are not active
or model inputs that are observable either directly or
indirectly for substantially the full term of the asset or
liability. Examples of Level 2 inputs included quoted
prices for identical or similar assets or liabilities in
non-active markets and pricing models whose inputs are
observable for substantially the full term of the asset or
liability.
Level 3 Financial assets and liabilities whose
values are based on prices or valuation techniques that require
inputs that are both unobservable and significant to the overall
fair value measurement.
The following table presents the Companys fair value
hierarchy for those financial assets and liabilities measured at
fair value on a recurring basis in its consolidated balance
sheet as of March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
In Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
March 31,
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(In thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
628
|
|
|
$
|
628
|
|
|
$
|
|
|
|
$
|
|
|
Cash surrender value of life insurance policies
|
|
|
837
|
|
|
|
|
|
|
|
837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,465
|
|
|
$
|
628
|
|
|
$
|
837
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plans
|
|
$
|
628
|
|
|
$
|
628
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
628
|
|
|
$
|
628
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, accounts receivable, accounts payable
and accrued expenses are reflected at carrying value in the
consolidated balance sheets as such amounts are a reasonable
estimate of their fair values due to the short-term nature of
these instruments.
The carrying value of the Companys short-term borrowings
is a reasonable estimate of its fair value as borrowings under
the Companys credit facilities have variable rates that
reflect currently available terms and conditions for similar
debt.
The fair value of long-term debt instruments is estimated using
a discounted cash flow analysis. As of March 31, 2009, the
carrying amount of long-term debt was $10,964,000 and the fair
value was estimated to be $10,950,000. As of March 31,
2008, the carrying amount of long-term debt was $20,438,000 and
the fair value was estimated to be $20,557,000.
46
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(12)
|
COMMITMENTS
AND CONTINGENCIES
|
CSS and its subsidiaries are involved in ordinary, routine legal
proceedings that are not considered by management to be
material. In the opinion of Company counsel and management, the
ultimate liabilities resulting from such legal proceedings will
not materially affect the consolidated financial position of the
Company or its results of operations or cash flows.
The Company operates in a single reporting segment, the design,
manufacture, procurement, distribution and sale of non-durable
all occasion and seasonal social expression products, primarily
to mass market retailers in the United States and Canada.
The Companys detail of revenues from its various products
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Christmas
|
|
$
|
242,127
|
|
|
$
|
285,848
|
|
|
$
|
346,866
|
|
All occasion
|
|
|
179,479
|
|
|
|
151,410
|
|
|
|
127,163
|
|
Other seasonal
|
|
|
60,818
|
|
|
|
60,995
|
|
|
|
56,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
482,424
|
|
|
$
|
498,253
|
|
|
$
|
530,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One customer accounted for sales of $127,894,000, or 27% of
total sales in fiscal 2009, $133,456,000, or 27% of total sales
in fiscal 2008 and $144,464,000, or 27% of total sales in fiscal
2007. One other customer accounted for sales of $47,437,000, or
10% of total sales in fiscal 2009, $59,907,000, or 12% of total
sales in fiscal 2008 and $58,742,000, or 11% of total sales in
fiscal 2007.
|
|
(14)
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
In April 2009, the FASB issued FASB Staff Position Financial
Accounting Standard
No. 107-1
and Accounting Principles Board Opinion
28-1,
Interim Disclosures about Fair Value of Financial
Instruments (FSP
FAS 107-1
and APB
28-1),
which amends SFAS No. 107, Disclosures about
Fair Value of Financial Instruments, to require
disclosures about fair value of financial instruments for
interim reporting periods of publicly traded companies as well
as in annual financial statements. FSP
FAS 107-1
and APB 28-1
also amends APB Opinion No. 28, Interim Financial
Reporting, to require those disclosures in summarized
financial information at interim reporting periods. FSP
FAS 107-1
and APB 28-1
is effective for financial statements issued for interim or
annual periods ending after June 15, 2009. The Company does
not expect the adoption of FSP
FAS 107-1
and APB 28-1
to have a material impact on the Companys financial
position or results of operations.
In April 2009, the FASB issued FASB Staff Position Financial
Accounting Standard No. 141(R)-1, Accounting for
Assets Acquired and Liabilities Assumed in a Business
Combination That Arise From Contingencies (FSP
FAS 141(R)-1), which amends the provisions in
SFAS No. 141 (revised 2007), Business
Combinations for the initial recognition and measurement,
subsequent measurement and accounting, and disclosures for
assets and liabilities arising from contingencies in business
combinations, instead carrying forward most of the provisions in
SFAS No. 141, Business Combinations for
acquired contingencies. FSP FAS 141(R)-1 is effective for
fiscal year beginning after December 15, 2008 (fiscal 2010
for the Company) and will apply prospectively to business
combinations completed on or after April 1, 2009.
In April 2008, the FASB issued Staff Position Financial
Accounting Standard
No. 142-3,
Determination of the Useful Life of Intangible Assets
(FSP
FAS 142-3).
FSP
FAS No. 142-3
amends the factors an entity should consider in developing
renewal or extension assumptions used in determining the useful
life of recognized intangible assets under FASB Statement
No. 142, Goodwill and Other Intangible Assets.
This new guidance
47
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
applies prospectively to intangible assets that are acquired
individually or with a group of other assets in business
combinations and asset acquisitions. FSP
FAS No. 142-3
is effective for financial statements issued for fiscal years
and interim periods beginning after December 15, 2008. The
adoption of FSP
FAS No. 142-3
did not have a material effect on the Companys financial
position or results of operations.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities. SFAS No. 161 requires companies with
derivative instruments to disclose information that should
enable financial-statement users to understand how and why a
company uses derivative instruments, how derivative instruments
and related hedged items are accounted for under FASB Statement
No. 133, Accounting for Derivative Instruments and
Hedging Activities, and how derivative instruments and
related hedged items affect a companys financial position,
financial performance and cash flows. SFAS No. 161 is
effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The
Company adopted SFAS No. 161 beginning in the fourth
quarter of fiscal 2009. This statement only requires additional
disclosure and did not have an impact on the Companys
consolidated financial statements upon adoption.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS No. 141R), which replaces
SFAS No. 141. The statement retains the purchase
method of accounting for acquisitions, but requires a number of
changes, including changes in the way assets and liabilities are
recognized in the purchase accounting. It requires the
capitalization of in-process research and development at fair
value, and requires the expensing of acquisition-related costs
as incurred. SFAS No. 141R is effective for fiscal
year beginning after December 15, 2008 (fiscal 2010 for the
Company) and will apply prospectively to business combinations
completed on or after April 1, 2009.
In March 2007, the FASB ratified Emerging Issues Task Force
Issue
No. 06-10
Accounting for Collateral Assignment Split-Dollar Life
Insurance Agreements
(EITF 06-10).
EITF 06-10
provides guidance for determining a liability for the
postretirement benefit obligation as well as recognition and
measurement of the associated asset on the basis of the terms of
the collateral assignment agreement.
EITF 06-10
is effective for fiscal years beginning after December 15,
2007. As previously disclosed in the Companys Annual
Report on
Form 10-K
for the fiscal year ended March 31, 2008, the Company
adopted
EITF 06-10
on April 1, 2008 and recorded a cumulative effect of an
accounting change which resulted in a reduction to equity of
$566,000.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities. SFAS No. 159 permits companies to
choose to measure many financial instruments and certain other
items at fair value. The objective is to improve financial
reporting by providing companies with the opportunity to
mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to
apply complex hedge accounting provisions.
SFAS No. 159 was effective for fiscal years beginning
after November 15, 2007. The Company adopted
SFAS No. 159 on April 1, 2008 and it did not have
a material effect on its consolidated financial position or
results of operations.
48
|
|
(15)
|
QUARTERLY
FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
|
|
2009
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net sales
|
|
$
|
54,647
|
|
|
$
|
174,161
|
|
|
$
|
197,122
|
|
|
$
|
56,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
16,934
|
|
|
$
|
44,707
|
|
|
$
|
49,155
|
|
|
$
|
15,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(4,496
|
)
|
|
$
|
10,504
|
|
|
$
|
16,412
|
|
|
$
|
(5,434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(1)
|
|
$
|
(.44
|
)
|
|
$
|
1.05
|
|
|
$
|
1.69
|
|
|
$
|
(.57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted(1)
|
|
$
|
(.44
|
)
|
|
$
|
1.03
|
|
|
$
|
1.68
|
|
|
$
|
(.57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
|
|
2008
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net sales
|
|
$
|
46,802
|
|
|
$
|
172,882
|
|
|
$
|
222,170
|
|
|
$
|
56,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
13,283
|
|
|
$
|
46,199
|
|
|
$
|
61,382
|
|
|
$
|
16,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(4,427
|
)
|
|
$
|
13,535
|
|
|
$
|
22,854
|
|
|
$
|
(6,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(1)
|
|
$
|
(.41
|
)
|
|
$
|
1.25
|
|
|
$
|
2.12
|
|
|
$
|
(.63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted(1)
|
|
$
|
(.41
|
)
|
|
$
|
1.22
|
|
|
$
|
2.07
|
|
|
$
|
(.63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net (loss) income per common share amounts for each quarter are
required to be computed independently and may not equal the
amount computed for the total year. |
Fourth quarter net loss of fiscal 2009 included expenses of
approximately $666,000 related to a workforce reduction as
further described in Note 4 to the consolidated financial
statements.
Fourth quarter net loss of fiscal 2008 included expenses of
approximately $2,132,000 related to a restructuring plan
approved on January 4, 2008 to close the Companys
Elysburg, Pennsylvania production facilities and its Troy,
Pennsylvania distribution facility.
The seasonal nature of CSS business has historically
resulted in comparatively lower sales and operating losses in
the first and fourth quarters and comparatively higher sales
levels and operating profits in the second and third quarters of
the Companys fiscal year, thereby causing significant
fluctuations in the quarterly results of operations of the
Company.
49
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None.
|
|
Item 9A.
|
Controls
and Procedures.
|
|
|
(a)
|
Evaluation
of Disclosure Controls and Procedures.
|
The Companys management, with the participation of the
Companys President and Chief Executive Officer and Vice
President Finance and Chief Financial Officer,
evaluated the effectiveness of the Companys disclosure
controls and procedures (as defined in Securities Exchange Act
of 1934 (Exchange Act)
Rules 13a-15(e)
or
15d-15(e))
as of the end of the period covered by this report as required
by paragraph (b) of Exchange Act
Rules 13a-15
or 15d-15.
Based upon that evaluation, the President and Chief Executive
Officer and Vice President Finance and Chief
Financial Officer concluded that the Companys disclosure
controls and procedures are effective in providing reasonable
assurance that information required to be disclosed by the
Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange
Commissions rules and procedures.
|
|
(b)
|
Managements
Report on Internal Control over Financial Reporting.
|
Management is responsible for establishing and maintaining
adequate internal control over financial reporting of the
Company. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America.
The Companys internal control over financial reporting
includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the Company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management
and directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of
internal control over financial reporting based on the framework
in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management concluded that
the Companys internal control over financial reporting was
effective as of March 31, 2009. Managements
assessment of the effectiveness of the Companys internal
control over financial reporting as of March 31, 2009 has
been audited by KPMG LLP, an independent registered public
accounting firm, as stated in their report which is included
herein.
|
|
(c)
|
Changes
in Internal Control over Financial Reporting.
|
There was no change in the Companys internal control over
financial reporting that occurred during the fourth quarter of
fiscal year 2009 that has materially affected, or is reasonably
likely to materially affect, the Companys internal control
over financial reporting.
50
|
|
(d)
|
Report of
Independent Registered Public Accounting Firm.
|
The Board of Directors and Stockholders of
CSS Industries, Inc.:
We have audited CSS Industries, Inc.s internal control
over financial reporting as of March 31, 2009, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). CSS Industries Inc.s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the Managements Report on Internal Control
Over Financial Reporting. Our responsibility is to express an
opinion on the Companys internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, CSS Industries, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of March 31, 2009, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of CSS Industries, Inc. and
subsidiaries as of March 31, 2009 and 2008, and the related
consolidated statements of operations and comprehensive income,
stockholders equity and cash flows for each of the years
in the three-year period ended March 31, 2009, and our
report dated June 1, 2009 expressed an unqualified opinion
on those consolidated financial statements.
/s/ KPMG LLP
June 1, 2009
Philadelphia, PA
51
|
|
Item 9B.
|
Other
Information.
|
None.
Part III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
See Election of Directors, Our Executive
Officers, Section 16(a) Beneficial Ownership
Reporting Compliance, Code of Ethics and Internal
Disclosure Procedures (Employees) and Code of Business Conduct
and Ethics (Board), Board Committees; Committee
Membership; Committee Meetings and Audit
Committee in the Proxy Statement for the 2009 Annual
Meeting of Stockholders of the Company, which is incorporated
herein by reference.
|
|
Item 11.
|
Executive
Compensation.
|
See Executive Compensation, Human Resources
Committee Interlocks and Insider Participation,
Director Compensation and Human Resources
Committee Report in the Proxy Statement for the 2009
Annual Meeting of Stockholders of the Company, which is
incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
See Ownership of CSS Common Stock and
Securities Authorized for Issuance Under CSS Equity
Compensation Plans in the Proxy Statement for the 2009
Annual Meeting of Stockholders of the Company, which is
incorporated herein by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
See Board Independence and Related Party
Transactions in the Proxy Statement for the 2009 Annual
Meeting of Stockholders of the Company, which is incorporated
herein by reference.
|
|
Item 14.
|
Principal
Accounting Fees and Services.
|
See Audit Committee and Our Independent
Registered Public Accounting Firm, Their Fees and Their
Attendance at the Annual Meeting in the Proxy Statement
for the 2009 Annual Meeting of Stockholders of the Company,
which is incorporated herein by reference.
52
Part IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules.
|
(a) Following is a list of documents filed as part of this
report:
1. Financial Statements
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
|
Consolidated Balance Sheets March 31, 2009 and
2008
|
|
|
|
Consolidated Statements of Operations and Comprehensive
Income for the years ended March 31, 2009, 2008
and 2007
|
|
|
|
Consolidated Statements of Cash Flows for the years
ended March 31, 2009, 2008 and 2007
|
|
|
|
Consolidated Statements of Stockholders Equity
for the years ended March 31, 2009, 2008 and 2007
|
|
|
|
Notes to Consolidated Financial Statements
|
2. Financial Statement Schedules
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
|
3. Exhibits required by Item 601 of
Regulation S-K,
Including Those Incorporated by Reference
|
|
|
|
|
Articles of Incorporation and By-Laws
|
|
3
|
.1
|
|
Restated Certificate of Incorporation filed December 5,
1990 (incorporated by reference to Exhibit 3.1 to the
Registrants Annual Report on
Form 10-K
for the fiscal year ended March 31, 2006).
|
|
3
|
.2
|
|
Amendment to Restated Certificate of Incorporation filed
May 8, 1992 (incorporated by reference to Exhibit 3.2
to the Registrants Annual Report on
Form 10-K
for the fiscal year ended March 31, 2006).
|
|
3
|
.3
|
|
Certificate eliminating Class 2, Series A, $1.35
Preferred stock filed September 27, 1991 (incorporated by
reference to Exhibit 3.3 to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended March 31, 2006).
|
|
3
|
.4
|
|
Certificate eliminating Class 1, Series B, Convertible
Preferred Stock filed January 28, 1993 (incorporated by
reference to Exhibit 3.4 to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended March 31, 2006).
|
|
3
|
.5
|
|
Amendment to Restated Certificate of Incorporation filed
August 4, 2004 (incorporated by reference to
Exhibit 3.1 to the Registrants Quarterly Report on
Form 10-Q
dated November 8, 2004).
|
|
3
|
.6
|
|
Restated Certificate of Incorporation, as amended to date (as
last amended August 4, 2004) (incorporated by reference to
Exhibit 3.2 to the Registrants Quarterly Report on
Form 10-Q
dated November 8, 2004).
|
|
3
|
.7
|
|
By-laws of the Company, as amended to date (as last amended
August 2, 2007) (incorporated by reference to
Exhibit 3.1 to the Registrants Quarterly Report on
Form 10-Q
dated October 25, 2007).
|
|
Material Contracts
|
|
10
|
.1
|
|
Receivables Purchase Agreement among CSS Funding LLC, CSS
Industries, Inc., Market Street Funding Corporation and PNC
Bank, National Association, dated as of April 30, 2001
(incorporated by reference to Exhibit 10.9 to the
Registrants Annual Report on Form
10-K/A for
the fiscal year ended March 31, 2002).
|
|
10
|
.2
|
|
Purchase and Sale Agreement between Various Entities Listed on
Schedule I, as the Originators, CSS Industries, Inc. and
CSS Funding LLC, dated as of April 30, 2001 (incorporated
by reference to Exhibit 10.10 to the Registrants Annual
Report on
Form 10-K/A
for the fiscal year ended March 31, 2002).
|
|
10
|
.3
|
|
First Amendment to Receivables Purchase Agreement dated as of
August 24, 2001 (incorporated by reference to
Exhibit 10.12 to the Registrants Annual Report on
Form 10-K/A
for the fiscal year ended March 31, 2002).
|
53
|
|
|
|
|
|
10
|
.4
|
|
First Amendment to Purchase and Sale Agreement dated as of
August 24, 2001 (incorporated by reference to
Exhibit 10.13 to the Registrants Annual Report on
Form 10-K/A
for the fiscal year ended March 31, 2002).
|
|
10
|
.5
|
|
$50,000,000 4.48% Senior Notes due December 13, 2009
Note Purchase Agreement dated December 12, 2002
(incorporated by reference to Exhibit 10.17 to the
Registrants Annual Report on
Form 10-K
for the fiscal year ended March 31, 2003).
|
|
10
|
.6
|
|
Second Amendment to Purchase and Sale Agreement dated as of
July 29, 2003 (incorporated by reference to
Exhibit 10.2 to the Registrants Quarterly Report on
Form 10-Q
dated November 8, 2004).
|
|
10
|
.7
|
|
Third Amendment to Purchase and Sale Agreement dated
June 1, 2004 (incorporated by reference to
Exhibit 10.3 to the Registrants Quarterly Report on
Form 10-Q
dated November 8, 2004).
|
|
10
|
.8
|
|
Second Amendment to Receivables Purchase Agreement dated as of
July 29, 2003 (incorporated by reference to
Exhibit 10.4 to the Registrants Quarterly Report on
Form 10-Q
dated November 8, 2004).
|
|
10
|
.9
|
|
Third Amendment to Receivables Purchase Agreement dated as of
April 26, 2004 (incorporated by reference to
Exhibit 10.5 to the Registrants Quarterly Report on
Form 10-Q
dated November 8, 2004).
|
|
10
|
.10
|
|
Fourth Amendment to Receivables Purchase Agreement dated
June 1, 2004 (incorporated by reference to
Exhibit 10.6 to the Registrants Quarterly Report on
Form 10-Q
dated November 8, 2004).
|
|
10
|
.11
|
|
First Amendment to Note Purchase Agreement dated
October 27, 2004 (incorporated by reference to
Exhibit 10.8 to the Registrants Quarterly Report on
Form 10-Q
dated November 8, 2004).
|
|
10
|
.12
|
|
Asset Purchase Agreement dated as of October 31, 2007,
among CSS Industries, Inc., Delta Acquisition, LLC, C.R. Gibson,
Inc. and the shareholders of C.R. Gibson, Inc. (incorporated by
reference to Exhibit 2.1 to the Registrants Current
Report on
Form 8-K
filed on December 7, 2007).
|
|
10
|
.13
|
|
Closing letter dated November 30, 2007 by and among Delta
Acquisition, LLC, CSS Industries, Inc. and C.R. Gibson, Inc., on
behalf of itself and its shareholders (incorporated by reference
to Exhibit 2.2 to the Registrants Current Report on
Form 8-K
filed on December 7, 2007).
|
|
10
|
.14
|
|
Fifth Amendment to Receivables Purchase Agreement dated as of
August 1, 2007 (incorporated by reference to
Exhibit 10.1 to the Registrants Quarterly Report on
Form 10-Q
dated January 31, 2008).
|
|
10
|
.15
|
|
Second Amendment dated March 25, 2009 to Note Purchase
Agreement dated December 12, 2002 pertaining to $50,000,000
4.48% Senior Notes due December 13, 2009 (incorporated
by reference to Exhibit 10.1 to the Registrants
Current Report on
Form 8-K
filed on March 31, 2009).
|
|
10
|
.16
|
|
Asset Purchase Agreement dated August 1, 2008 among Granite
Acquisition Corp., Lion Ribbon Company, Inc., Hampshire Paper
Corp. and the Shareholders of Hampshire Paper Corp.
(incorporated by reference to Exhibit 10.3 to the
Registrants Quarterly Report on Form
10-Q dated
October 3, 2008).
|
|
10
|
.17
|
|
Second Amended and Restated Loan Agreement dated
November 21, 2008 among CSS Industries, Inc., the lenders
party thereto and PNC Bank, National Association, as
Administrative agent for the lenders party thereto (incorporated
by reference to Exhibit 10.1 to the Registrants
Current Report on
Form 8-K
dated November 21, 2008).
|
|
10
|
.18
|
|
Sixth Amendment to Receivables Purchase Agreement dated
November 21, 2008 (incorporated by reference to
Exhibit 10.2 to the Registrants Quarterly Report on
Form 10-Q
dated February 5, 2009).
|
|
10
|
.19
|
|
Seventh Amendment dated May 8, 2009 to Receivables Purchase
Agreement dated April 30, 2001 (incorporated by reference
to Exhibit 10.1 to the Registrants Current Report on
Form 8-K
filed on May 14, 2009).
|
|
Management Contracts, Compensatory Plans or Arrangements
|
|
10
|
.20
|
|
CSS Industries, Inc. 1995 Stock Option Plan for Non-Employee
Directors (incorporated by reference to Exhibit 10.2 to the
Registrants Annual Report on
Form 10-K
for the fiscal year ended December 31, 1996).
|
|
10
|
.21
|
|
CSS Industries, Inc. 2000 Stock Option Plan for Non-Employee
Directors (incorporated by reference to Exhibit 10.14 to
the Registrants Annual Report on
Form 10-K/A
for the fiscal year ended March 31, 2002).
|
|
10
|
.22
|
|
CSS Industries, Inc. 1994 Equity Compensation Plan (as last
amended August 7, 2002) (incorporated by reference to
Exhibit 10.29 to the Registrants Annual Report on
Form 10-K
for the fiscal year ended March 31, 2004).
|
54
|
|
|
|
|
|
10
|
.23
|
|
Employment Agreement dated as of May 12, 2006 between CSS
Industries, Inc. and Christopher J. Munyan (incorporated by
reference to Exhibit 10.2 to the Registrants
Quarterly Report on
Form 10-Q
dated August 9, 2006).
|
|
10
|
.24
|
|
CSS Industries, Inc. 2006 Stock Option Plan for Non-Employee
Directors (incorporated by reference to Exhibit 10.34 to
the Registrants Annual Report on
Form 10-K
for the fiscal year ended March 31, 2007).
|
|
10
|
.25
|
|
CSS Industries, Inc. Management Incentive Program (incorporated
by reference to Exhibit 10.1 to the Registrants
Quarterly Report on
Form 10-Q
dated August 3, 2007).
|
|
10
|
.26
|
|
CSS Industries, Inc. FY 2008 Management Incentive Program
Criteria for CSS Industries, Inc. (incorporated by reference to
Exhibit 10.2 to the Registrants Quarterly Report on
Form 10-Q
dated August 3, 2007).
|
|
10
|
.27
|
|
CSS Industries, Inc. FY 2008 Management Incentive Program
Criteria for BOC Design Group (incorporated by reference to
Exhibit 10.3 to the Registrants Quarterly Report on
Form 10-Q
dated August 3, 2007).
|
|
10
|
.28
|
|
CSS Industries, Inc. FY 2008 Management Incentive Program
Criteria for Paper Magic Group, Inc. (incorporated by reference
to Exhibit 10.4 to the Registrants Quarterly Report
on
Form 10-Q
dated August 3, 2007).
|
|
10
|
.29
|
|
CSS Industries, Inc. Management Incentive Program (as last
amended June 3, 2008) (incorporated by reference to
Exhibit 10.3 to the Registrants Current Report on
Form 8-K
filed on June 9, 2008).
|
|
10
|
.30
|
|
CSS Industries, Inc. FY2009 Management Incentive Program
Criteria for CSS Industries, Inc. (incorporated by reference to
Exhibit 10.2 to the Registrants Quarterly Report on
Form 10-Q
dated August 5, 2008).
|
|
10
|
.31
|
|
CSS Industries, Inc. FY2009 Management Incentive Program
Criteria for BOC Design Group (incorporated by reference to
Exhibit 10.3 to the Registrants Quarterly Report on
Form 10-Q
dated August 5, 2008).
|
|
10
|
.32
|
|
CSS Industries, Inc. FY2009 Management Incentive Program
Criteria for Paper Magic Group, Inc. (incorporated by reference
to Exhibit 10.4 to the Registrants Quarterly Report
on
Form 10-Q
dated August 5, 2008).
|
|
10
|
.33
|
|
CSS Industries, Inc. FY2009 Management Incentive Program
Criteria for C.R. Gibson, LLC (incorporated by reference to
Exhibit 10.5 to the Registrants Quarterly Report on
Form 10-Q
dated August 5, 2008).
|
|
10
|
.34
|
|
2004 Equity Compensation Plan (as last amended July 31,
2008) (incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K
dated July 31, 2008).
|
|
10
|
.35
|
|
Employment Agreement dated as of July 25, 2008 between CSS
Industries, Inc. and Paul Quick (incorporated by reference to
Exhibit 10.5 to the Registrants Quarterly Report on
Form 10-Q
dated October 30, 2008).
|
|
10
|
.36
|
|
Amendment to Employment Agreement dated as of September 5,
2008 between CSS Industries, Inc. and Christopher J. Munyan
(incorporated by reference to Exhibit 10.6 to the
Registrants Quarterly Report on
Form 10-Q
dated October 30, 2008).
|
|
10
|
.37
|
|
Amendment dated December 26, 2008 to Employment Agreement
between CSS Industries, Inc. and Christopher J. Munyan
(incorporated by reference to Exhibit 10.3 to the
Registrants Quarterly Report on
Form 10-Q
dated February 5, 2009).
|
|
10
|
.38
|
|
CSS Industries, Inc. Severance Pay Plan for Senior Management
and Summary Plan Description (as last amended December 29,
2008) (incorporated by reference to Exhibit 10.4 to the
Registrants Quarterly Report on
Form 10-Q
dated February 5, 2009).
|
|
10
|
.39
|
|
Nonqualified Supplemental Executive Retirement Plan Covering
Officer-Employees of CSS Industries, Inc. and its Subsidiaries
(Amended and Restated, Effective as of January 1, 2009)
(incorporated by reference to Exhibit 10.5 to the
Registrants Quarterly Report on
Form 10-Q
dated February 5, 2009).
|
|
Other
|
|
21
|
.
|
|
List of Significant Subsidiaries of the Registrant (incorporated
by reference to Exhibit 21 to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended March 31, 2008).
|
|
*23
|
.
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
*31
|
.1
|
|
Certification of the Chief Executive Officer of CSS Industries,
Inc. required by
Rule 13a-14(a)
under the Securities Exchange Act of 1934.
|
55
|
|
|
|
|
|
*31
|
.2
|
|
Certification of the Chief Financial Officer of CSS Industries,
Inc. required by
Rule 13a-14(a)
under the Securities Exchange Act of 1934.
|
|
*32
|
.1
|
|
Certification of the Chief Executive Officer of CSS Industries,
Inc. required by
Rule 13a-14(b)
under the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350.
|
|
*32
|
.2
|
|
Certification of the Chief Financial Officer of CSS Industries,
Inc. required by
Rule 13a-14(b)
under the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350.
|
|
|
|
* |
|
Filed or furnished with this Annual Report on
Form 10-K. |
56
CSS
INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
(In thousands)
|
|
|
Year ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable allowances
|
|
$
|
5,291
|
|
|
$
|
6,178
|
|
|
$
|
39
|
(d)
|
|
$
|
6,342
|
(a)
|
|
$
|
5,166
|
|
Accrued restructuring expenses
|
|
|
319
|
|
|
|
1,747
|
|
|
|
|
|
|
|
996
|
(c)
|
|
|
1,070
|
|
Year ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable allowances
|
|
$
|
4,850
|
|
|
$
|
4,542
|
|
|
$
|
997
|
(d)
|
|
$
|
5,098
|
(a)
|
|
$
|
5,291
|
|
Accrued restructuring expenses
|
|
|
1,456
|
|
|
|
628
|
|
|
|
|
|
|
|
1,765
|
(b)
|
|
|
319
|
|
Year ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable allowances
|
|
$
|
4,119
|
|
|
$
|
4,086
|
|
|
$
|
|
|
|
$
|
3,355
|
(a)
|
|
$
|
4,850
|
|
Accrued restructuring expenses
|
|
|
4
|
|
|
|
1,905
|
|
|
|
|
|
|
|
453
|
(c)
|
|
|
1,456
|
|
|
|
|
(a) |
|
Includes amounts written off as uncollectible, net of recoveries. |
|
(b) |
|
Includes payments and non cash reductions. |
|
(c) |
|
Includes payments. |
|
(d) |
|
Balance at acquisition of C.R. Gibson. |
57
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
thereunto duly authorized.
CSS INDUSTRIES, INC.
Registrant
|
|
|
|
By
|
/s/ Christopher
J. Munyan
|
Christopher J. Munyan, President and
Chief Executive Officer
(principal executive officer)
Dated: June 1, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
/s/ Christopher
J. Munyan
Christopher J. Munyan, President and
Chief Executive Officer
(principal executive officer and a director)
Dated: June 1, 2009
/s/ Clifford
E. Pietrafitta
Clifford E. Pietrafitta, Vice President Finance
and
Chief Financial Officer
(principal financial and accounting officer)
Dated: June 1, 2009
Jack Farber, Director
Dated: June 1, 2009
Scott A. Beaumont, Director
Dated: June 1, 2009
James H. Bromley, Director
Dated: June 1, 2009
John J. Gavin, Director
Dated: June 1, 2009
Leonard E. Grossman, Director
Dated: June 1, 2009
James E. Ksansnak, Director
Dated: June 1, 2009
Rebecca C. Matthias, Director
Dated: June 1, 2009
58