Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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1845 Walnut Street, Philadelphia, PA
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19103 |
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(Address of principal executive offices)
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(Zip Code) |
(215) 569-9900
(Registrants telephone number, including area code)
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.
þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such period that the registrant was required to submit and post such
files).
o Yes o No
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 the definitions of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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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) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
o Yes þ No
As of November 3, 2009, there were 9,640,511 shares of common stock outstanding which excludes
shares which may still be issued upon exercise of stock options or upon vesting of restricted
stock unit grants.
CSS INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
2
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
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Three Months Ended |
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Six Months Ended |
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September 30, |
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September 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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SALES |
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$ |
160,273 |
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$ |
174,161 |
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$ |
213,950 |
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$ |
228,808 |
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COSTS AND EXPENSES |
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Cost of sales |
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119,630 |
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129,454 |
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158,695 |
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167,167 |
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Selling, general and administrative expenses |
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26,238 |
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27,863 |
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47,599 |
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51,413 |
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Interest expense, net |
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661 |
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916 |
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1,029 |
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1,200 |
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Other (income) expense, net |
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(138 |
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36 |
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(251 |
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(30 |
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146,391 |
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158,269 |
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207,072 |
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219,750 |
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INCOME BEFORE INCOME TAXES |
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13,882 |
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15,892 |
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6,878 |
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9,058 |
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INCOME TAX EXPENSE |
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4,990 |
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5,388 |
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2,476 |
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3,050 |
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NET INCOME |
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$ |
8,892 |
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$ |
10,504 |
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$ |
4,402 |
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$ |
6,008 |
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NET INCOME PER COMMON SHARE |
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Basic |
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$ |
.92 |
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$ |
1.05 |
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$ |
.46 |
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$ |
.59 |
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Diluted |
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$ |
.92 |
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$ |
1.03 |
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$ |
.46 |
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$ |
.58 |
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WEIGHTED AVERAGE SHARES OUTSTANDING |
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Basic |
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9,628 |
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10,043 |
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9,617 |
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10,149 |
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Diluted |
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9,683 |
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10,156 |
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9,666 |
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10,282 |
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CASH DIVIDENDS PER SHARE OF COMMON
STOCK |
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$ |
.15 |
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$ |
.15 |
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$ |
.30 |
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$ |
.30 |
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COMPREHENSIVE INCOME |
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Net income |
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$ |
8,892 |
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$ |
10,504 |
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$ |
4,402 |
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$ |
6,008 |
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Foreign currency translation adjustment |
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2 |
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Comprehensive income |
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$ |
8,892 |
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$ |
10,504 |
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$ |
4,402 |
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$ |
6,010 |
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See notes to consolidated financial statements.
3
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
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September 30, |
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March 31, |
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2009 |
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2009 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
2,830 |
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$ |
2,179 |
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Accounts receivable, net |
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132,212 |
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43,741 |
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Inventories |
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122,422 |
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99,971 |
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Deferred income taxes |
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6,227 |
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5,758 |
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Assets held for sale |
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1,363 |
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1,363 |
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Other current assets |
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16,370 |
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15,295 |
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Total current assets |
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281,424 |
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168,307 |
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PROPERTY, PLANT AND EQUIPMENT, NET |
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52,691 |
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54,942 |
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OTHER ASSETS |
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Goodwill |
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49,258 |
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49,258 |
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Intangible assets, net |
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44,996 |
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45,649 |
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Other |
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3,971 |
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4,103 |
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Total other assets |
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98,225 |
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99,010 |
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Total assets |
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$ |
432,340 |
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$ |
322,259 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES |
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Notes payable |
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$ |
69,000 |
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$ |
4,150 |
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Current portion of long-term debt |
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10,517 |
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10,479 |
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Accrued customer programs |
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9,655 |
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9,909 |
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Other current liabilities |
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71,405 |
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29,398 |
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Total current liabilities |
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160,577 |
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53,936 |
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LONG-TERM DEBT, NET OF CURRENT PORTION |
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264 |
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485 |
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LONG-TERM OBLIGATIONS |
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4,568 |
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4,376 |
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DEFERRED INCOME TAXES |
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4,399 |
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4,208 |
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STOCKHOLDERS EQUITY |
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262,532 |
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259,254 |
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Total liabilities and stockholders equity |
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$ |
432,340 |
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$ |
322,259 |
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See notes to consolidated financial statements.
4
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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Six Months Ended |
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September 30, |
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2009 |
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2008 |
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Cash flows from operating activities: |
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Net income |
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$ |
4,402 |
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$ |
6,008 |
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Adjustments to reconcile net income to net cash used for operating activities: |
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Depreciation and amortization |
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6,264 |
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6,570 |
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Provision for doubtful accounts |
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81 |
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183 |
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Deferred tax (benefit) provision |
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(278 |
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356 |
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Loss (gain) on sale or disposal of assets |
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5 |
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(35 |
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Share-based compensation expense |
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1,212 |
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1,390 |
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Changes in assets and liabilities, net of effects from purchase of a business: |
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Increase in accounts receivable |
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(88,552 |
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(99,313 |
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Increase in inventory |
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(22,325 |
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(46,706 |
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(Increase) decrease in other assets |
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(3,670 |
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2,974 |
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Increase in other liabilities |
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39,889 |
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35,823 |
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Increase in accrued taxes |
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4,806 |
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495 |
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Total adjustments |
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(62,568 |
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(98,263 |
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Net cash used for operating activities |
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(58,166 |
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(92,255 |
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Cash flows from investing activities: |
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Purchase of a business |
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(225 |
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(10,614 |
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Final payment of purchase price for a business previously acquired |
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(2,700 |
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Purchase of property, plant and equipment |
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(3,132 |
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(7,338 |
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Proceeds from sale of assets |
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1 |
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102 |
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Net cash used for investing activities |
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(3,356 |
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(20,550 |
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Cash flows from financing activities: |
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Payments on long-term obligations |
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(277 |
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(131 |
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Borrowings on notes payable |
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225,100 |
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247,280 |
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Repayments on notes payable |
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(160,250 |
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(144,300 |
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Dividends paid |
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(2,886 |
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(3,044 |
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Purchase of treasury stock |
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(9,431 |
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Proceeds from exercise of stock options |
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486 |
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99 |
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Tax benefit realized for stock options exercised |
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4 |
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Net cash provided by financing activities |
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62,173 |
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90,477 |
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Effect of exchange rate changes on cash |
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2 |
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Net increase (decrease) in cash and cash equivalents |
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651 |
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(22,326 |
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Cash and cash equivalents at beginning of period |
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2,179 |
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28,109 |
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Cash and cash equivalents at end of period |
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$ |
2,830 |
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$ |
5,783 |
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See notes to consolidated financial statements.
5
CSS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
(Unaudited)
(1) |
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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) expense, 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):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
|
|
2009 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Raw material |
|
$ |
16,008 |
|
|
$ |
17,533 |
|
Work-in-process |
|
|
18,419 |
|
|
|
25,437 |
|
Finished goods |
|
|
87,995 |
|
|
|
57,001 |
|
|
|
|
|
|
|
|
|
|
$ |
122,422 |
|
|
$ |
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.
7
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.
Net Income Per Common Share -
The following table sets forth the computation of basic and diluted net income per common share
for the three and six months ended September 30, 2009 and 2008 (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
8,892 |
|
|
$ |
10,504 |
|
|
$ |
4,402 |
|
|
$ |
6,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic
income per common share |
|
|
9,628 |
|
|
|
10,043 |
|
|
|
9,617 |
|
|
|
10,149 |
|
Effect of dilutive stock options |
|
|
55 |
|
|
|
113 |
|
|
|
49 |
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average shares outstanding for
diluted income per common share |
|
|
9,683 |
|
|
|
10,156 |
|
|
|
9,666 |
|
|
|
10,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share |
|
$ |
.92 |
|
|
$ |
1.05 |
|
|
$ |
.46 |
|
|
$ |
.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share |
|
$ |
.92 |
|
|
$ |
1.03 |
|
|
$ |
.46 |
|
|
$ |
.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
Accounting Standards Codification
In June 2009, the Financial Accounting Standards Board (FASB) issued authoritative
guidance which replaced the previous hierarchy of Generally Accepted Accounting Principles
(GAAP) and establishes the FASB Codification as the single 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. This
guidance was effective for the Company in the second quarter of fiscal 2010. The adoption of
this guidance did not have an impact on the Companys financial position or results of
operations.
Subsequent Events
In May 2009, the FASB issued authoritative guidance 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. This guidance was effective for
the Company as of June 30, 2009. The adoption of this guidance did not have an impact
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 November 4, 2009.
8
Fair Value of Financial Instruments Disclosure
In April 2009, the FASB revised the authoritative guidance which requires disclosures
about fair value of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. The Company adopted the updated
guidance effective June 30, 2009. Other than the required disclosures (see Note 9),
the adoption of the updated guidance had no impact on the Companys consolidated financial
statements.
Business Combinations
In December 2007, the FASB revised the authoritative guidance for business combinations which
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 purchase accounting
method. 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 revised the authoritative guidance related to the initial recognition
and measurement, subsequent measurement and accounting, and disclosures for assets and
liabilities arising from contingencies in business combinations. This guidance became
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 updated
guidance 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 Companys 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 September 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
September 30, 2009, 1,035,194 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 September 30, 2009,
132,000 shares were available for grant under the 2006 Plan.
9
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 Six Months Ended |
|
|
|
September 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 |
|
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 six months ended September
30, 2009 and 2008 was $7.72 and $7.70, respectively. The weighted average fair value of
restricted stock units granted during the six months ended September 30, 2009 and 2008 was
$16.64 and $27.50, respectively.
As of September 30, 2009, there was $2,444,000 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 2.2
years. As of September 30, 2009, there was $1,822,000 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 2.9 years.
Compensation cost related to stock options and RSUs recognized in operating results
(included in selling, general and administrative expenses) was $623,000 and $725,000 in the
quarters ended September 30, 2009 and 2008, respectively, and was $1,212,000 and $1,390,000 for
the six months ended September 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 September
30, 2009, the notional amount of open foreign currency forward contracts was
$9,420,000 and the related unrealized loss was $328,000. 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 September 30, 2009.
The following table shows the fair value of the foreign currency forward contracts
designated as hedging instruments and included in the Companys condensed consolidated
balance sheet as of September 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Instruments |
|
|
|
Balance Sheet |
|
|
|
|
|
Location |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
Other current liabilities |
|
$ |
328 |
|
10
(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. 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 and six months ended September 30, 2009, the Company made payments
of $21,000 and $55,000, respectively, for costs related to severance. The Company
expects to incur additional period expenses related to this restructuring program of
approximately $85,000 during the remainder of fiscal 2010.
Selected information relating to the aforementioned restructuring follows (in thousands):
|
|
|
|
|
Restructuring reserve as of March 31, 2009 |
|
$ |
55 |
|
Cash paid fiscal 2010 |
|
|
(55 |
) |
|
|
|
|
Restructuring reserve as of September 30, 2009 |
|
$ |
|
|
|
|
|
|
(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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 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 |
|
|
|
2,608 |
|
|
|
21,957 |
|
|
|
1,860 |
|
Non-compete |
|
|
200 |
|
|
|
92 |
|
|
|
500 |
|
|
|
367 |
|
Trademarks |
|
|
403 |
|
|
|
138 |
|
|
|
403 |
|
|
|
123 |
|
Patents |
|
|
128 |
|
|
|
37 |
|
|
|
89 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
47,871 |
|
|
$ |
2,875 |
|
|
$ |
48,032 |
|
|
$ |
2,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to intangible assets was $397,000 and $363,000 for the
quarters ended September 30, 2009 and 2008, respectively, and was $792,000 and
$691,000 for the six months ended September 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 |
|
$ |
797 |
|
Fiscal 2011 |
|
|
1,592 |
|
Fiscal 2012 |
|
|
1,575 |
|
Fiscal 2013 |
|
|
1,542 |
|
Fiscal 2014 |
|
|
1,530 |
|
11
(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.
(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 September 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 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 September 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 September 30, 2009 and March 31, 2009.
To increase consistency and comparability in fair value measurements, the FASB
established a fair value hierarchy that prioritizes the inputs to valuation techniques, 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.
12
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.
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 September 30, 2009 and March 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 30, 2009 Using |
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
In Active |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
September 30, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities |
|
$ |
779 |
|
|
$ |
779 |
|
|
$ |
|
|
|
$ |
|
|
Cash surrender value of life insurance policies |
|
|
850 |
|
|
|
|
|
|
|
850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,629 |
|
|
$ |
779 |
|
|
$ |
850 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plans |
|
$ |
779 |
|
|
$ |
779 |
|
|
$ |
|
|
|
$ |
|
|
Foreign exchange contracts |
|
|
328 |
|
|
|
|
|
|
|
328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
1,107 |
|
|
$ |
779 |
|
|
$ |
328 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are
reflected at carrying value in the consolidated condensed 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 September 30, 2009, the carrying amount of long-term debt was $10,781,000 and the
fair value was estimated to be $10,798,000. 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.
13
CSS INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
STRATEGIC OVERVIEW
Approximately 63% of the Companys prior year sales were attributable to seasonal (Christmas,
Valentines Day, Easter and Halloween) products, with the remainder 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 growth and in some cases have declined 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, boxed greeting card, narrow woven ribbon, gift tissue and gift bag lines.
In addition, both seasonal and all occasion sales declines were further exacerbated
as the current economic downturn deepened in the fall of calendar 2008 and continues into the
current fiscal year as we have experienced slowness or reductions in order patterns by our
customers.
The Company has taken several measures to respond to sales volume, cost and price pressures. The
Company believes it continues to have strong core Christmas product offerings which has helped us
to maintain market share in this competitive market. In addition, we are aggressively 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 human resources, accounts receivable, accounts payable and payroll
functions into a combined back office operation, which was substantially completed in the first
quarter of fiscal 2010. Also completed in the first quarter of fiscal 2010 was the
implementation of the first phase of integrating the Companys enterprise
resource planning systems standardization project.
In recent months, our domestically-manufactured narrow woven ribbon product lines have experienced
significant price pressure and the prospect of reduced future sales volume due to competition from
low-priced imports from Taiwan and China. Based on its belief that these products may be imported
from Taiwan and China at less-than- fair-value and that the imports of these products
from China may benefit from governmental subsidies, our Berwick Offray company filed a
petition in July 2009 with the U.S. International Trade Commission (ITC) and the U.S. Department
of Commerce (Commerce Department) seeking the imposition of antidumping duties on narrow woven
ribbon imported from Taiwan and China, and seeking the imposition of countervailing duties on
narrow woven ribbon imported from China. We expect that the proceedings before the
ITC and Commerce Department will conclude by not later than October 2010. If the petition is
successful, duties potentially may be imposed on import shipments that arrive in the U.S.
beginning from September 2009 up to February 2010. The potential impact of these proceedings is not
determinable at this time, but management believes that any impact will not have a material affect
on the Companys consolidated results of operations or financial condition.
The Companys Halloween product line and all occasion, gift card holder, stationery and infant
product lines have higher inherent growth potential due to higher market growth rates. Further,
the Companys various all occasion 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.
Historically, significant growth at CSS has come through acquisitions. Management
anticipates that it will continue to utilize acquisitions to stimulate further growth.
14
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements are prepared in conformity with accounting principles
generally accepted in the United States. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The significant accounting policies of the Company are described in the notes to the
consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year
ended March 31, 2009. Judgments and estimates of uncertainties are required in applying the
Companys accounting policies in many areas. Following are some of the areas requiring
significant judgments and estimates: revenue; cash flow and valuation assumptions in performing
asset impairment tests of long-lived assets and goodwill; valuation reserves for
inventory and accounts receivable; income tax accounting and the valuation of share-based awards.
There have been no material changes to the critical accounting policies affecting the application
of those accounting policies as noted in the Companys Annual Report on Form 10-K for the fiscal
year ended March 31, 2009.
RESULTS OF OPERATIONS
Seasonality
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.
Six Months Ended September 30, 2009 Compared to Six Months Ended September 30, 2008
Sales for the six months ended September 30, 2009 decreased 6% to $213,950,000 from $228,808,000 in
the six months ended September 30, 2008 due in part to lower sales of Christmas products primarily
as a result of reduced customer purchases following weak retail sales in the preceding Christmas
selling season. Sales of all occasion products have also been negatively impacted by the current
economic downturn. Partially offsetting these declines were improved Halloween sales compared
to the prior year and sales related to businesses acquired since the beginning of last
fiscal year. Excluding sales of businesses acquired, sales declined 9%.
Cost of sales, as a percentage of sales, was 74% in 2009 and 73% in 2008. The increase was
primarily due to reduced sales volume and lower gross margins on Christmas and all
occasion products, partially offset by improved margins on Halloween products.
Selling, general and administrative (SG&A) expenses decreased $3,814,000, or 7%, from the prior
year period primarily related to decreased incentive compensation expenses as well as the impact
of initiatives implemented by the Company to reduce spending, including the impact of a reduction
in workforce initiated in March 2009.
Interest expense, net of $1,029,000 in 2009 decreased from interest expense, net of $1,200,000 in
2008 due to lower borrowing levels during the six months ended September 30, 2009 compared to the
same period in the prior year.
Income taxes, as a percentage of income before taxes, were 36% in 2009 and 34% in 2008. The
increase in the effective tax rate was primarily due to the absence of a benefit
recorded in the second quarter of fiscal 2009 following the settlement of an outstanding
tax audit.
15
Net income for the six months ended September 30, 2009 was $4,402,000, or $.46 per diluted share
compared to $6,008,000, or $.58 per diluted share in 2008. The decrease in net income was
primarily due to reduced sales volume and lower margins on Christmas and all occasion
products, partially offset by improved margins on Halloween products and reduced SG&A
expenses. The decline in diluted earnings per share of 21% for the six months ended September
30, 2009 was more favorable than the decline in net income due to the impact of the Companys
repurchase of its stock during fiscal 2009.
Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
Sales for the three months ended September 30, 2009 decreased 8% to $160,273,000 from $174,161,000
in the three months ended September 30, 2008 primarily due to lower Christmas giftwrap and ribbon
and bow sales and reduced all occasion product sales. Partially offsetting these declines were
sales of acquired businesses, improved Halloween sales and growth in our baby memory products
business. Excluding sales of businesses acquired, sales declined 9%.
Cost of sales, as a percentage of sales, was 75% in 2009 and 74% in 2008. The increase was
primarily due to reduced sales volume and lower gross margins on Christmas and all
occasion products, partially offset by improved margins on Halloween products.
SG&A expenses decreased $1,625,000, or 6%, from the prior year period primarily due to decreased
incentive compensation expenses as well as the impact of cost saving initiatives implemented early
in fiscal 2010.
Interest expense, net of $661,000 in 2009 decreased from interest expense, net of $916,000 in 2008
due to lower borrowing levels during the three months ended September 30, 2009 compared to the
same period in the prior year.
Income taxes, as a percentage of income before taxes, were 36% in 2009 and 34% in 2008. The
increase in the effective tax rate was primarily due to the absence of a benefit
recorded in the second quarter of fiscal 2009 following the settlement of an outstanding
tax audit.
Net income for the three months ended September 30, 2009 was $8,892,000, or $.92 per diluted share
compared to $10,504,000, or $1.03 per diluted share in 2008. The decrease in net income for the
quarter ended September 30, 2009 was primarily the result of lower sales and lower gross
margins on Christmas and all occasion products, partially offset by improved margins on
Halloween products and reduced SG&A expenses. The decline in diluted earnings per share of 11%
for the three months ended September 30, 2009 was more favorable than the decline in net income
due to the impact of the Companys repurchase of its stock during fiscal 2009.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2009, the Company had working capital of $120,847,000 and
stockholders equity of $262,532,000. The increase in accounts receivable from March 31, 2009
reflected seasonal billings of current year Halloween and Christmas accounts receivables, net of
current year collections. The increase in inventories and other current liabilities from
March 31, 2009 was primarily a result of the normal seasonal inventory build necessary
for the fiscal 2010 shipping season. Inventory levels decreased compared to the same period in the
prior year as a result of improved inventory management and reduced product demand. The increase
in stockholders equity from March 31, 2009 was primarily attributable to year-to-date net income,
partially offset by payments of cash dividends.
16
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 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 September 30, 2009, the Companys borrowings consisted of
$10,000,000 outstanding under the senior notes and $69,000,000 outstanding under the Companys
short-term credit facilities. In addition, the Company has approximately $730,000 of capital
leases outstanding at September 30, 2009. Based on its current operating plan, the
Company believes its sources of available capital are adequate to meet its future cash needs
for at least the next 12 months.
As of September 30, 2009, the Companys letter of credit commitments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1 |
|
|
1-3 |
|
|
4-5 |
|
|
After 5 |
|
|
|
|
|
|
Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
Total |
|
Letters of credit |
|
$ |
5,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,920 |
|
The Company has a reimbursement obligation with respect to stand-by letters of credit that
guarantee the funding of workers compensation claims and guarantee the funding of obligations to
certain vendors. The Company has no financial guarantees 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.
LABOR RELATIONS
With the exception of the bargaining units at the gift wrap facilities in Memphis,
Tennessee and the ribbon manufacturing facilities in Hagerstown, Maryland, which totaled
approximately 700 employees as of September 30, 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 union representing the Hagerstown-based
production and maintenance employees remains in effect until December 31, 2009.
ACCOUNTING PRONOUNCEMENTS
See Note 2 to the consolidated financial statements for information concerning recent accounting
pronouncements and the impact of those standards.
17
FORWARD-LOOKING 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
sales volume, cost and price pressures; and strengthened product lines and new product
initiatives. 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 (including competition from
foreign products which may be imported at less than fair value and from foreign
products which may benefit from foreign governmental subsidies); 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 enterprise resource planning 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 to 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 in the
Companys annual report on Form 10-K for the fiscal year ended March 31, 2009 and elsewhere in the
Companys 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of interest rate changes and manages this
exposure through the use of variable-rate and fixed-rate debt. The Company is also exposed to
foreign currency fluctuations which it manages by entering 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 does not enter into contracts for trading
purposes and does not use leveraged instruments. The market risks associated with debt
obligations and other significant instruments as of September 30, 2009 have not materially changed
from March 31, 2009 (see Item 7A of the Companys Annual Report on Form 10-K for the fiscal year
ended March 31, 2009).
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 second quarter
of fiscal year 2010 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over
financial reporting. |
18
CSS INDUSTRIES, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company was held on July 28, 2009. The only
matter voted upon at the annual meeting was the election of Directors, and the results of
that vote are reflected in the table that follows. The individuals listed in the table
were elected to serve as Directors of the Company until the next annual meeting and until
their successors shall be elected and qualify:
|
|
|
|
|
|
|
|
|
|
|
SHARES OF VOTING STOCK |
|
|
|
FOR |
|
|
WITHHELD |
|
Scott A. Beaumont |
|
|
8,856,994 |
|
|
|
154,656 |
|
James H. Bromley |
|
|
8,834,795 |
|
|
|
176,855 |
|
Jack Farber |
|
|
8,830,981 |
|
|
|
180,670 |
|
John J. Gavin |
|
|
8,824,614 |
|
|
|
187,036 |
|
Leonard E. Grossman |
|
|
8,767,842 |
|
|
|
243,808 |
|
James E. Ksansnak |
|
|
8,814,280 |
|
|
|
197,370 |
|
Rebecca C. Matthias |
|
|
8,851,782 |
|
|
|
159,868 |
|
Christopher J. Munyan |
|
|
8,809,053 |
|
|
|
202,597 |
|
Item 6. Exhibits
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
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
CSS INDUSTRIES,INC. (Registrant)
|
|
Date: November 4, 2009 |
By: |
/s/Christopher J. Munyan
|
|
|
|
Christopher J. Munyan |
|
|
|
President and Chief Executive Officer
(principal executive officer) |
|
|
|
|
|
Date: November 4, 2009 |
By: |
/s/Clifford E. Pietrafitta
|
|
|
|
Clifford E. Pietrafitta |
|
|
|
Vice President -- Finance and Chief Financial Officer
(principal financial and accounting officer) |
|
|
20
EXHIBIT INDEX
|
|
|
Exhibit No. |
|
Description |
|
|
|
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. |
21