þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 13-1920657 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
1845 Walnut Street, Philadelphia, PA | 19103 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
PAGE NO. | ||||||||
PART I FINANCIAL INFORMATION |
||||||||
Item 1. Financial Statements (Unaudited) |
||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6-13 | ||||||||
14-17 | ||||||||
17 | ||||||||
18 | ||||||||
19 | ||||||||
20 | ||||||||
Exhibit 10.1 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
2
Three Months Ended | ||||||||
June 30, | ||||||||
2009 | 2008 | |||||||
SALES |
$ | 53,677 | $ | 54,647 | ||||
COSTS AND EXPENSES |
||||||||
Cost of sales |
39,065 | 37,713 | ||||||
Selling, general and administrative expenses |
21,361 | 23,550 | ||||||
Interest expense, net |
368 | 284 | ||||||
Other income, net |
(113 | ) | (66 | ) | ||||
60,681 | 61,481 | |||||||
LOSS BEFORE INCOME TAXES |
(7,004 | ) | (6,834 | ) | ||||
INCOME TAX BENEFIT |
(2,514 | ) | (2,338 | ) | ||||
NET LOSS |
$ | (4,490 | ) | $ | (4,496 | ) | ||
BASIC AND DILUTED NET LOSS PER COMMON SHARE |
$ | (.47 | ) | $ | (.44 | ) | ||
WEIGHTED AVERAGE BASIC AND DILUTED SHARES
OUTSTANDING |
9,605 | 10,255 | ||||||
CASH DIVIDENDS PER SHARE OF COMMON STOCK |
$ | .15 | $ | .15 | ||||
COMPREHENSIVE LOSS |
||||||||
Net loss |
$ | (4,490 | ) | $ | (4,496 | ) | ||
Foreign currency translation adjustment |
| 2 | ||||||
Comprehensive loss |
$ | (4,490 | ) | $ | (4,494 | ) | ||
3
June 30, | March 31, | |||||||
2009 | 2009 | |||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | 1,846 | $ | 2,179 | ||||
Accounts receivable, net |
46,615 | 43,741 | ||||||
Inventories |
125,475 | 99,971 | ||||||
Deferred income taxes |
5,946 | 5,758 | ||||||
Assets held for sale |
1,363 | 1,363 | ||||||
Other current assets |
19,846 | 15,295 | ||||||
Total current assets |
201,091 | 168,307 | ||||||
PROPERTY, PLANT AND EQUIPMENT, NET |
54,607 | 54,942 | ||||||
OTHER ASSETS |
||||||||
Goodwill |
49,258 | 49,258 | ||||||
Intangible assets, net |
45,354 | 45,649 | ||||||
Other |
4,026 | 4,103 | ||||||
Total other assets |
98,638 | 99,010 | ||||||
Total assets |
$ | 354,336 | $ | 322,259 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Notes payable |
$ | 36,700 | $ | 4,150 | ||||
Current portion of long-term debt |
10,482 | 10,479 | ||||||
Accrued customer programs |
7,551 | 9,909 | ||||||
Other current liabilities |
36,572 | 29,398 | ||||||
Total current liabilities |
91,305 | 53,936 | ||||||
LONG-TERM DEBT, NET OF CURRENT PORTION |
327 | 485 | ||||||
LONG-TERM OBLIGATIONS |
4,482 | 4,376 | ||||||
DEFERRED INCOME TAXES |
4,310 | 4,208 | ||||||
STOCKHOLDERS EQUITY |
253,912 | 259,254 | ||||||
Total liabilities and stockholders equity |
$ | 354,336 | $ | 322,259 | ||||
4
Three Months Ended | ||||||||
June 30, | ||||||||
2009 | 2008 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (4,490 | ) | $ | (4,496 | ) | ||
Adjustments to reconcile net loss to net cash used for
operating activities: |
||||||||
Depreciation and amortization |
3,126 | 3,418 | ||||||
Provision for doubtful accounts |
(132 | ) | 52 | |||||
Deferred tax (benefit) provision |
(87 | ) | 383 | |||||
Loss (gain) on sale or disposal of assets |
5 | (35 | ) | |||||
Share-based compensation expense |
589 | 665 | ||||||
Changes in assets and liabilities, net of effects from purchase
of a business: |
||||||||
Increase in accounts receivable |
(2,742 | ) | (4,580 | ) | ||||
Increase in inventory |
(25,379 | ) | (37,731 | ) | ||||
(Increase) decrease in other assets |
(4,474 | ) | 1,216 | |||||
Increase in other liabilities |
4,890 | 1,612 | ||||||
Total adjustments |
(24,204 | ) | (35,000 | ) | ||||
Net cash used for operating activities |
(28,694 | ) | (39,496 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchase of a business |
(225 | ) | (300 | ) | ||||
Final payment of purchase price for a business previously acquired |
| (2,700 | ) | |||||
Purchase of property, plant and equipment |
(2,402 | ) | (4,049 | ) | ||||
Proceeds from sale of assets |
1 | 102 | ||||||
Net cash used for investing activities |
(2,626 | ) | (6,947 | ) | ||||
Cash flows from financing activities: |
||||||||
Payments on long-term obligations |
(122 | ) | (60 | ) | ||||
Borrowings on notes payable |
75,645 | 44,600 | ||||||
Repayments on notes payable |
(43,095 | ) | (14,900 | ) | ||||
Dividends paid |
(1,441 | ) | (1,541 | ) | ||||
Purchase of treasury stock |
| (2,637 | ) | |||||
Proceeds from exercise of stock options |
| 79 | ||||||
Tax benefit realized for stock options exercised |
| 4 | ||||||
Net cash provided by financing activities |
30,987 | 25,545 | ||||||
Effect of exchange rate changes on cash |
| 2 | ||||||
Net decrease in cash and cash equivalents |
(333 | ) | (20,896 | ) | ||||
Cash and cash equivalents at beginning of period |
2,179 | 28,109 | ||||||
Cash and cash equivalents at end of period |
$ | 1,846 | $ | 7,213 | ||||
5
(1) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
Basis of Presentation |
||
CSS Industries, Inc. (collectively with its subsidiaries, CSS or the Company) has prepared
the consolidated financial statements included herein pursuant to the rules and regulations of
the Securities and Exchange Commission. The Company has condensed or omitted certain
information and footnote disclosures normally included in consolidated financial statements
prepared in accordance with accounting principles generally accepted in the United States
pursuant to such rules and regulations. In the opinion of management, the statements include
all adjustments (which include normal recurring adjustments) required for a fair presentation of
financial position, results of operations and cash flows for the interim periods presented.
These consolidated financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Companys Annual Report on Form 10-K for
the fiscal year ended March 31, 2009. The results of operations for the interim periods are not
necessarily indicative of the results for the full year. |
||
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 2010 refers to the year ended March 31,
2010. |
||
Principles of Consolidation |
||
The consolidated financial statements include the accounts of the Company and all of its
subsidiaries. All significant intercompany transactions and accounts have been eliminated in
consolidation. |
||
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. 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. |
||
Foreign Currency Translation and Transaction |
||
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
income, net in the consolidated statements of operations. |
6
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 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. |
||
Impairment of Long-Lived Assets including Goodwill and Other Intangible Assets |
||
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. We believe the use of multiple valuation techniques
results in a more accurate indicator of the fair value of each reporting unit. 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. 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. 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. |
||
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. Inventories
consisted of the following (in thousands): |
June 30, | March 31, | |||||||
2009 | 2009 | |||||||
Raw material |
$ | 16,865 | $ | 17,533 | ||||
Work-in-process |
31,402 | 25,437 | ||||||
Finished goods |
77,208 | 57,001 | ||||||
$ | 125,475 | $ | 99,971 | |||||
Assets Held for Sale |
Assets held for sale in the amount of $1,363,000 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. |
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. |
7
Net Loss Per Common Share |
The following table sets forth the computation of basic and diluted net loss per common share
for the three months ended June 30, 2009 and 2008 (in thousands, except per share data): |
Three Months Ended | ||||||||
June 30, | ||||||||
2009 | 2008 | |||||||
Numerator: |
||||||||
Net loss |
$ | (4,490 | ) | $ | (4,496 | ) | ||
Denominator: |
||||||||
Weighted average shares outstanding for basic
loss per common share |
9,605 | 10,255 | ||||||
Effect of dilutive stock options |
| | ||||||
Adjusted weighted average shares outstanding for
diluted loss per common share |
9,605 | 10,255 | ||||||
Basic and diluted net loss per common share |
$ | (.47 | ) | $ | (.44 | ) | ||
The effect of dilutive stock options is not reflected as they are anti-dilutive. |
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. |
(2) | RECENT ACCOUNTING PRONOUNCEMENTS |
In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 168, The FASB Accounting Standards Codification and Hierarchy
of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162 (SFAS No.
168). SFAS No. 168 establishes the FASB Standards Accounting Codification (Codification) as
the source of authoritative GAAP recognized by the FASB to be applied to nongovernmental
entities and rules and interpretive releases of the SEC as authoritative GAAP for SEC
registrants. The Codification will supersede all the existing non-SEC accounting and reporting
standards upon its effective date, and on and after its effective date, the FASB will not issue
new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force
Abstracts. SFAS No. 168 will become effective for the Company in the second quarter of fiscal
2010 and is not expected to have an impact on its financial position or results of operations. |
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS No. 165), which
establishes general standards of accounting for, and disclosure of, events that occur after the
balance sheet date, but before financial statements are issued or are available to be issued.
SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009.
The adoption of SFAS No. 165 did not have an effect on the Companys financial position or
results of operations. The Company evaluated subsequent events through the date the
accompanying consolidated financial statements were issued, which was August 4, 2009. |
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 adopted FSP FAS
107-1 and APB 28-1 effective June 30, 2009. Other than the required disclosures (see Note 9),
the adoption of FSP FAS 107-1 and APB 28-1 had no impact on the Companys consolidated financial
statements. |
8
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
No. 141(R)), which replaced 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 also changes the
recognition of assets acquired and liabilities assumed arising from contingencies, requires the
capitalization of in-process research and development at fair value, and requires the expensing
of acquisition-related costs as incurred. 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(R) for the initial recognition and measurement, subsequent
measurement and accounting, and disclosures for assets and liabilities arising from
contingencies in business combinations, and retains most of the provisions in SFAS No. 141,
Business Combinations for acquired contingencies. This FSP is effective for all business
acquisitions occurring on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008. The Company adopted the provisions of SFAS No. 141(R) and FSP
SFAS 141(R)-1 for business combinations with an acquisition date on or after April 1, 2009. |
(3) | SHARE-BASED COMPENSATION |
2004 Equity Compensation Plan |
||
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
the date or dates on which granted options become exercisable. All options outstanding as of
June 30, 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 June 30, 2009, 1,024,054 shares were available
for grant under the 2004 Plan. |
||
2006 Stock Option Plan for Non-Employee Directors |
||
Under the terms of the CSS Industries, Inc. 2006 Stock Option Plan for Non-Employee Directors
(2006 Plan), non-qualified stock options are available for grant to non-employee directors at
exercise prices of not less than 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 exercisable at the rate of 25% per year. At June 30, 2009, 132,000 shares were
available for grant under the 2006 Plan. |
||
The fair value of each stock option granted under the above plans was estimated on the date of
grant using the Black-Scholes option pricing model with the following average assumptions: |
For the Three Months | ||||||||
Ended June 30, | ||||||||
2009 | 2008 | |||||||
Expected dividend yield at time of grant |
2.90 | % | 2.18 | % | ||||
Expected stock price volatility |
55 | % | 36 | % | ||||
Risk-free interest rate |
3.22 | % | 3.50 | % | ||||
Expected life of option (in years) |
4.0 | 4.2 |
9
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 weighted average fair value of stock options granted during the three months ended June 30,
2009 and 2008 was $7.72 and $7.70, respectively. The weighted average fair value of restricted
stock units granted during the three months ended June 30, 2009 and 2008 was $16.64 and $27.57,
respectively. |
As of June 30, 2009, there was $2,908,000 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 2.3 years. As of June 30, 2009,
there was $2,016,000 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 3.2 years. |
Compensation cost related to stock options and RSUs recognized in operating results (included in
selling, general and administrative expenses) was $589,000 and $665,000 for the three months
ended June 30, 2009 and 2008, respectively. |
(4) | DERIVATIVE FINANCIAL INSTRUMENTS |
The Company enters into foreign currency forward contracts in order to reduce the impact of
certain foreign currency fluctuations on sales denominated in a foreign currency. Derivatives
are not used for trading or speculative activities. Firmly committed transactions and the
related receivables may be hedged with forward exchange contracts. Gains and losses arising
from foreign currency forward contracts are recorded in other income, net as offsets of gains
and losses resulting from the underlying hedged transactions. As of June 30, 2009, the notional
amount of open foreign currency forward contracts was $8,899,000 and the related unrealized gain
was $335,000. There were no open foreign currency forward contracts as of March 31, 2009. We
believe we do not have significant counterparty credit risk as of June 30, 2009. |
The following table shows the fair value of the foreign currency forward contracts which are
designated as hedging instruments under SFAS No. 133 included in the Companys condensed
consolidated balance sheet as of June 30, 2009 (in thousands): |
Fair Value of Derivative Instruments | ||||||||
Balance Sheet | ||||||||
Location | Fair Value | |||||||
Foreign currency forward contracts |
Other current assets | $ | 335 |
(5) | BUSINESS RESTRUCTURING |
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 quarter ended June 30, 2009, the Company made payments of $34,000
for costs related to severance. As of June 30, 2009, the remaining liability of $21,000 was
classified as a current liability in the accompanying consolidated balance sheet and will be
paid through the third quarter of fiscal 2010. The Company expects to incur additional period
expenses related to this restructuring program of approximately $189,000 during the remainder of
fiscal 2010. |
10
Restructuring reserve as of March 31, 2009 |
$ | 55 | ||
Cash paid fiscal 2010 |
(34 | ) | ||
Restructuring reserve as of June 30, 2009. |
$ | 21 | ||
(6) | GOODWILL AND INTANGIBLES |
The Company performs the required annual impairment test of the carrying amount of goodwill and
indefinite-lived intangible assets in the fourth quarter of its fiscal year. |
The gross carrying amount and accumulated amortization of other intangible assets is as follows
(in thousands): |
June 30, 2009 | March 31, 2009 | |||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Tradenames and trademarks |
$ | 25,083 | $ | | $ | 25,083 | $ | | ||||||||
Customer relationships |
22,057 | 2,233 | 21,957 | 1,860 | ||||||||||||
Non-compete |
200 | 79 | 500 | 367 | ||||||||||||
Trademarks |
403 | 131 | 403 | 123 | ||||||||||||
Patents |
89 | 35 | 89 | 33 | ||||||||||||
$ | 47,832 | $ | 2,478 | $ | 48,032 | $ | 2,383 | |||||||||
Amortization expense related to intangible assets was $395,000 and $328,000 for the three months
ended June 30, 2009 and 2008, respectively. Based on the current composition of intangibles,
amortization expense for the remainder of fiscal 2010 and each of the succeeding four years is
projected to be as follows (in thousands): |
Fiscal 2010 |
$ | 1,191 | ||
Fiscal 2011 |
1,586 | |||
Fiscal 2012 |
1,570 | |||
Fiscal 2013 |
1,536 | |||
Fiscal 2014 |
1,525 |
(7) | ACCOUNTS RECEIVABLE SECURITIZATION FACILITY |
On May 8, 2009, the Company entered into an extension of its 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. This facility has a
funding limit of $75,000,000 during peak seasonal periods and $25,000,000 during off-peak
seasonal periods. 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. |
(8) | 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. |
11
(9) | FAIR VALUE MEASUREMENTS: |
The Company uses certain derivative financial instruments as part of its risk management
strategy to reduce foreign currency risk. The Company recorded all derivatives on the
consolidated condensed balance sheet at fair value based on quotes obtained from financial
institutions as of June 30, 2009. There were no foreign currency contracts outstanding as of
March 31, 2009. |
The Company maintains a Nonqualified Supplemental Executive Retirement Plan for highly
compensated employees and invests assets to mirror the obligations under this Plan. The
invested funds are maintained 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 investments 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 condensed balance sheets. The fair value of the
investments is based on the market price of the mutual funds as of June 30, 2009 and March 31,
2009. |
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 condensed balance sheets and is based on quotes
obtained from the insurance company as of June 30, 2009 and March 31, 2009. |
In accordance with SFAS No. 157, Fair Value Measurements, 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 condensed 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 include
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. |
12
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 condensed balance
sheet as of June 30, 2009 and March 31, 2009 (in thousands): |
Fair Value Measurements at June 30, 2009 Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
In Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
June 30, | Assets | Inputs | Inputs | |||||||||||||
2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets |
||||||||||||||||
Marketable securities |
$ | 691 | $ | 691 | $ | | $ | | ||||||||
Cash surrender value of life insurance policies |
843 | | 843 | | ||||||||||||
Foreign exchange contracts |
335 | | 335 | | ||||||||||||
Total assets |
$ | 1,869 | $ | 691 | $ | 1,178 | $ | | ||||||||
Liabilities |
||||||||||||||||
Deferred compensation plans |
$ | 691 | $ | 691 | $ | | $ | | ||||||||
Total liabilities |
$ | 691 | $ | 691 | $ | | $ | | ||||||||
Fair Value Measurements at March 31, 2009 Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
In Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
March 31, | Assets | Inputs | Inputs | |||||||||||||
2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
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 | $ | | $ | | ||||||||
13
14
15
Less than 1 | 1-3 | 4-5 | After 5 | |||||||||||||||||
Year | Years | Years | Years | Total | ||||||||||||||||
Letters of credit |
$ | 5,932 | | | | $ | 5,932 |
16
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
17
ITEM 4. | CONTROLS AND PROCEDURES |
(a) | Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by
this report, 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 in accordance with Rule
13a-15 of the Securities Exchange Act of 1934 (the Exchange Act). 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 under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commissions rules
and forms. |
(b) | Changes in Internal Controls. There was no change in the Companys internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) as promulgated by the
Securities and Exchange Commission under the Exchange Act) during the first quarter of fiscal
year 2010 that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting. |
18
Item 6. | Exhibits |
Exhibit 10.1 Amendment to Employment Agreement, dated as of May 27, 2009, between Paper
Magic Group, Inc. and Paul Quick. |
Exhibit 10.2 CSS Industries, Inc. Change of Control Severance Pay Plan for Executive
Management effective May 27, 2009 (incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed on June 2, 2009). |
Exhibit 10.3 Form of Non-Qualified Stock Option Grant for grants under the CSS Industries,
Inc. 2004 Equity Compensation Plan (incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed on June 2, 2009). |
Exhibit 10.4 Form of Stock Bonus Award Grant for time-vested restricted stock units under
the CSS Industries, Inc. 2004 Equity Compensation Plan (incorporated by reference to Exhibit
10.3 to the Registrants Current Report on Form 8-K filed on June 2, 2009). |
Exhibit 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. |
Exhibit 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. |
Exhibit 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. |
Exhibit 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. |
19
CSS INDUSTRIES, INC. (Registrant) |
||||
Date: August 4, 2009 | By: | /s/ Christopher J. Munyan | ||
Christopher J. Munyan | ||||
President and Chief Executive Officer (principal executive officer) |
||||
Date: August 4, 2009 | By: | /s/ Clifford E. Pietrafitta | ||
Clifford E. Pietrafitta | ||||
Vice President Finance and Chief Financial Officer (principal financial and accounting officer) |
20
Exhibit No. | Description | |||
10.1 | Amendment to Employment Agreement, dated as of May 27, 2009,
between Paper Magic Group, Inc. and Paul Quick. |
|||
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. |
|||
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. |
21