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 December 31, 2010
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 |
(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 |
(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 February 8, 2011, there were 9,733,405 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
(Unaudited)
(In thousands, except per share data)
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Three Months Ended |
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Nine Months Ended |
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December 31, |
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December 31, |
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2010 |
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2009 |
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2010 |
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2009 |
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SALES |
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$ |
174,621 |
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$ |
182,230 |
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$ |
387,854 |
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$ |
396,180 |
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COSTS AND EXPENSES |
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Cost of sales |
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130,478 |
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136,661 |
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290,764 |
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295,356 |
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Selling, general and administrative expenses |
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23,600 |
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25,224 |
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71,622 |
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72,823 |
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Interest expense, net |
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425 |
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645 |
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1,018 |
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1,674 |
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Other (income) expense, net |
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(116 |
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(86 |
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(67 |
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(337 |
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154,387 |
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162,444 |
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363,337 |
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369,516 |
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INCOME BEFORE INCOME TAXES |
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20,234 |
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19,786 |
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24,517 |
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26,664 |
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INCOME TAX EXPENSE |
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7,379 |
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7,086 |
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8,934 |
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9,562 |
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NET INCOME |
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$ |
12,855 |
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$ |
12,700 |
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$ |
15,583 |
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$ |
17,102 |
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NET INCOME PER COMMON SHARE |
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Basic |
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$ |
1.32 |
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$ |
1.32 |
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$ |
1.61 |
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$ |
1.78 |
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Diluted |
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$ |
1.32 |
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$ |
1.31 |
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$ |
1.61 |
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$ |
1.77 |
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WEIGHTED AVERAGE SHARES OUTSTANDING |
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Basic |
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9,703 |
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9,646 |
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9,694 |
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9,627 |
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Diluted |
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9,714 |
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9,682 |
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9,706 |
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9,671 |
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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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$ |
.45 |
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$ |
.45 |
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See notes to consolidated financial statements.
3
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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December 31, |
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March 31, |
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December 31, |
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2010 |
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2010 |
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2009 |
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(Unaudited) |
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(Audited) |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
4,221 |
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$ |
27,217 |
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$ |
4,619 |
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Accounts receivable, net of allowances of $4,388, $4,742 and $4,215 |
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145,877 |
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45,711 |
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152,536 |
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Inventories |
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75,800 |
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78,851 |
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67,530 |
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Deferred income taxes |
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5,102 |
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6,165 |
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6,609 |
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Assets held for sale |
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1,323 |
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1,363 |
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1,363 |
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Other current assets |
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12,358 |
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15,986 |
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11,986 |
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Total current assets |
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244,681 |
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175,293 |
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244,643 |
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PROPERTY, PLANT AND EQUIPMENT, NET |
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44,665 |
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47,786 |
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50,657 |
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DEFERRED INCOME TAXES |
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4,767 |
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5,439 |
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OTHER ASSETS |
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Goodwill |
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17,233 |
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17,233 |
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49,258 |
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Intangible assets, net |
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31,962 |
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32,027 |
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44,733 |
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Other |
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3,880 |
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3,984 |
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3,936 |
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Total other assets |
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53,075 |
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53,244 |
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97,927 |
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Total assets |
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$ |
347,188 |
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$ |
281,762 |
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$ |
393,227 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES |
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Short-term debt |
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$ |
33,300 |
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$ |
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$ |
46,100 |
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Current portion of long-term debt |
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166 |
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481 |
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497 |
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Accrued customer programs |
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10,288 |
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8,380 |
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13,034 |
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Other current liabilities |
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50,971 |
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35,535 |
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48,423 |
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Total current liabilities |
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94,725 |
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44,396 |
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108,054 |
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LONG-TERM DEBT, NET OF CURRENT PORTION |
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66 |
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166 |
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LONG-TERM OBLIGATIONS |
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6,206 |
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4,255 |
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4,646 |
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DEFERRED INCOME TAXES |
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5,768 |
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STOCKHOLDERS EQUITY |
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246,257 |
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233,045 |
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274,593 |
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Total liabilities and stockholders equity |
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$ |
347,188 |
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$ |
281,762 |
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$ |
393,227 |
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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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Nine Months Ended |
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December 31, |
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2010 |
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2009 |
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Cash flows from operating activities: |
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Net income |
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$ |
15,583 |
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$ |
17,102 |
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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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8,395 |
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9,160 |
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Provision for doubtful accounts |
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40 |
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174 |
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Deferred tax provision |
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1,734 |
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709 |
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Loss on sale or disposal of assets |
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37 |
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5 |
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Share-based compensation expense |
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1,473 |
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1,806 |
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Changes in assets and liabilities, net of effects of acquisition: |
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Increase in accounts receivable |
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(100,206 |
) |
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(108,969 |
) |
Decrease in inventory |
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3,051 |
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32,566 |
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Decrease in other assets |
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3,733 |
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3,301 |
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Increase in other accrued liabilities |
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10,420 |
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16,323 |
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Increase in accrued taxes |
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6,400 |
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6,190 |
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Total adjustments |
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(64,923 |
) |
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(38,735 |
) |
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Net cash used for operating activities |
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(49,340 |
) |
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(21,633 |
) |
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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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Purchase of property, plant and equipment |
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(2,703 |
) |
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(3,606 |
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Proceeds from sale of assets |
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80 |
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13 |
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Net cash used for investing activities |
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(2,623 |
) |
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(3,818 |
) |
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Cash flows from financing activities: |
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Payments on long-term obligations |
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(489 |
) |
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(10,396 |
) |
Borrowings on notes payable |
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308,525 |
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341,460 |
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Repayments on notes payable |
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(275,225 |
) |
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(299,510 |
) |
Dividends paid |
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(4,363 |
) |
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(4,334 |
) |
Proceeds from exercise of stock options |
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479 |
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|
671 |
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Tax benefit realized for stock options exercised |
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40 |
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Net cash provided by financing activities |
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28,967 |
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27,891 |
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Effect of exchange rate changes on cash |
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Net (decrease) increase in cash and cash equivalents |
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(22,996 |
) |
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|
2,440 |
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Cash and cash equivalents at beginning of period |
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27,217 |
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|
2,179 |
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Cash and cash equivalents at end of period |
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$ |
4,221 |
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$ |
4,619 |
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See notes to consolidated financial statements.
5
CSS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010
(Unaudited)
(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, 2010. 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 fiscal year refer to the
fiscal year ending in March of that year. For example, fiscal 2011 refers to the fiscal year
ending March 31, 2011.
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, stickers, 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 Transactions -
Translation adjustments are charged or credited to a separate component of stockholders equity.
Gains and losses on foreign currency transactions are not material and are included in other
(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 and long-lived assets, income tax accounting, the valuation of share-based
awards and resolution of litigation and other proceedings. Actual results could differ from
these estimates. The current economic environment has increased the uncertainty inherent in
such estimates and judgments.
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 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw material |
|
$ |
14,313 |
|
|
$ |
12,696 |
|
|
$ |
11,443 |
|
Work-in-process |
|
|
11,060 |
|
|
|
20,881 |
|
|
|
10,539 |
|
Finished goods |
|
|
50,427 |
|
|
|
45,274 |
|
|
|
45,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
75,800 |
|
|
$ |
78,851 |
|
|
$ |
67,530 |
|
|
|
|
|
|
|
|
|
|
|
Assets Held for Sale -
Assets held for sale in the amount of $1,323,000 at December 31, 2010 and $1,363,000 as of March
31, 2010 and December 31, 2009, represents a former manufacturing facility which the Company is
in the process of selling. The Company expects to sell this facility within the next 12 months
for an amount greater than the current carrying value. The Company ceased depreciating this
facility at the time it was classified as held for sale.
7
Property, Plant and Equipment -
Property, plant and equipment are stated at cost and include the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
$ |
2,508 |
|
|
$ |
2,508 |
|
|
$ |
2,608 |
|
Buildings, leasehold interests and improvements |
|
|
45,570 |
|
|
|
45,165 |
|
|
|
46,376 |
|
Machinery, equipment and other |
|
|
147,049 |
|
|
|
147,305 |
|
|
|
146,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195,127 |
|
|
|
194,978 |
|
|
|
195,663 |
|
Less Accumulated depreciation and amortization |
|
|
(150,462 |
) |
|
|
(147,192 |
) |
|
|
(145,006 |
) |
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment |
|
$ |
44,665 |
|
|
$ |
47,786 |
|
|
$ |
50,657 |
|
|
|
|
|
|
|
|
|
|
|
In conjunction with negotiating certain lease extensions during the first quarter of fiscal
2011, the Company identified a previously unrecognized asset retirement obligation at one of its
leased facilities. The Company believes that this obligation existed since the adoption of
Financial Accounting Standards Board (FASB) No. 143, Asset Retirement Obligations, which was
later codified as ASC 420-20, which became effective for the Company beginning in fiscal 2004.
The Company calculated the historical impact as if it had appropriately adopted the standard in
fiscal 2004, and the impact was not material to any individual period from fiscal 2004 through
fiscal 2010. The impact of recording the asset retirement obligation resulted in an asset and a
liability, each in the amount of $1,704,000, as of April 1, 2003. Additionally, on April 1,
2010, a reduction in income of $1,326,000 was recorded related to depreciation and accretion
from fiscal 2004 through fiscal 2010 in the amount of $712,000 and $614,000, respectively. In
December 2010, the Company entered into a lease amendment which resulted in a reduction in the
asset retirement obligation of $1,049,000 and a reduction of depreciation expense of $134,000
during the third quarter of fiscal 2011. During the nine months ended December 31, 2010, the
impact of the asset retirement obligation included $76,000 of depreciation expense and $85,000
of accretion expense. Accretion expense was recorded as a component of depreciation and
amortization. The asset retirement obligation of $110,000 and $545,000 is included in current
and other long-term obligations, respectively, at December 31, 2010.
Additionally, during the first quarter of fiscal 2011, the Company determined that the useful
lives used to amortize leasehold improvements at the same leased facility from fiscal 2006 to
fiscal 2010 did not follow the guidance in the codification referenced above. Leasehold
improvements were being amortized through the lease end date without consideration of lease
renewal periods that were reasonably assured. The Company calculated the historical impact as
if it had used the proper useful life of the assets, and such impact was not material to any
individual period from fiscal 2006 through fiscal 2010. The impact of adjusting the leasehold
improvement amortization periods resulted in additional net book value of $1,293,000 as of April
1, 2010 that was recorded as a reduction of depreciation expense in the first quarter of fiscal
2011.
The correction of these items did not have a material impact on the Companys consolidated
statement of cash flows. Management evaluated the quantitative and qualitative impact of the
corrections on previously reported periods as well as the three months ended June 30, 2010 and
the nine months ended December 31, 2010. Based upon this evaluation, management concluded that
these adjustments were not material to the Companys consolidated financial statements.
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.
8
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 nine months ended December 31, 2010 and 2009 (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
12,855 |
|
|
$ |
12,700 |
|
|
$ |
15,583 |
|
|
$ |
17,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic
income per common share |
|
|
9,703 |
|
|
|
9,646 |
|
|
|
9,694 |
|
|
|
9,627 |
|
Effect of dilutive stock options |
|
|
11 |
|
|
|
36 |
|
|
|
12 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average shares outstanding for
diluted income per common share |
|
|
9,714 |
|
|
|
9,682 |
|
|
|
9,706 |
|
|
|
9,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share |
|
$ |
1.32 |
|
|
$ |
1.32 |
|
|
$ |
1.61 |
|
|
$ |
1.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share |
|
$ |
1.32 |
|
|
$ |
1.31 |
|
|
$ |
1.61 |
|
|
$ |
1.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options on 628,000 shares and 978,000 shares of common stock were not included in computing
diluted net income per common share for the nine months ended December 31, 2010 and 2009,
respectively, because their effects were antidilutive.
(2) |
|
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
December 31, 2010 become exercisable at the rate of 25% per year commencing one year after the
date of grant. Outstanding time-vested restricted stock units (RSUs) generally 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 December 31, 2010, 1,202,969 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 options vest and become exercisable at the rate of 25% per year
on each of the first four anniversaries of the grant date. At December 31, 2010, 104,000 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 Nine Months |
|
|
|
Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
Expected dividend yield at time of grant |
|
|
3.17 |
% |
|
|
2.98 |
% |
Expected stock price volatility |
|
|
55 |
% |
|
|
54 |
% |
Risk-free interest rate |
|
|
2.39 |
% |
|
|
2.92 |
% |
Expected life of option (in years) |
|
|
4.7 |
|
|
|
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 nine months ended December
31, 2010 and 2009 was $6.89 and $7.40, respectively. The weighted average fair value of
restricted stock units granted during the nine months ended December 31, 2010 and 2009 was
$16.75 and $16.70, respectively.
As of December 31, 2010, there was $1,735,000 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 2.5 years. As of December 31, 2010,
there was $2,056,000 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 2.5 years.
Compensation cost related to stock options and RSUs recognized in operating results (included in
selling, general and administrative expenses) was $507,000 and $594,000 in the quarters ended
December 31, 2010 and 2009, respectively, and was $1,473,000 and $1,806,000 for the nine months
ended December 31, 2010 and 2009, respectively.
(3) |
|
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) expense, net as offsets
of gains and losses resulting from the underlying hedged transactions. Realized losses of
$142,000 and $146,000 were recorded in the quarter and nine months ended December 31, 2010.
Realized losses of $328,000 and $419,000 were recorded in the quarter and nine months ended
December 31, 2009. As of December 31, 2010 and 2009, the notional amount of open foreign
currency forward contracts was $4,538,000 and $6,733,000, respectively. The related unrealized
loss was $11,000 and $5,000 at December 31, 2010 and 2009, respectively. There were no open
foreign currency forward contracts as of March 31, 2010. We believe we do not have significant
counterparty credit risks as of December 31, 2010.
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
December 31, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Instruments |
|
|
|
|
|
Fair Value |
|
|
|
Balance Sheet |
|
December 31, |
|
|
December 31, |
|
|
|
Location |
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
Other current liabilities |
|
$ |
11 |
|
|
$ |
5 |
|
10
(4) |
|
GOODWILL AND INTANGIBLES |
The Company performs an annual impairment test of the carrying amount of goodwill and
indefinite-lived intangible assets in the fourth quarter of its fiscal year. Additionally, the
Company would perform its impairment testing at an interim date if events or circumstances
indicate that goodwill or intangibles might be impaired. During the nine months ended December
31, 2010, there have not been any such events.
The gross carrying amount and accumulated amortization of other intangible assets is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames and trademarks |
|
$ |
12,793 |
|
|
$ |
|
|
|
$ |
12,793 |
|
|
$ |
|
|
|
$ |
25,083 |
|
|
$ |
|
|
Customer relationships |
|
|
22,057 |
|
|
|
4,483 |
|
|
|
22,057 |
|
|
|
3,358 |
|
|
|
22,057 |
|
|
|
2,983 |
|
Non-compete |
|
|
200 |
|
|
|
155 |
|
|
|
200 |
|
|
|
117 |
|
|
|
200 |
|
|
|
104 |
|
Trademarks |
|
|
403 |
|
|
|
176 |
|
|
|
403 |
|
|
|
153 |
|
|
|
403 |
|
|
|
145 |
|
Patents |
|
|
1,479 |
|
|
|
156 |
|
|
|
250 |
|
|
|
48 |
|
|
|
266 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
36,932 |
|
|
$ |
4,970 |
|
|
$ |
35,703 |
|
|
$ |
3,676 |
|
|
$ |
48,009 |
|
|
$ |
3,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended December 31, 2010, there was an increase in patents in the
amount of $1,229,000 related to the Seastone royalty earn out, equal to 5% of the estimated net
sales of certain products through 2014. The Company believes that the obligation related to the
earn out is determinable beyond a reasonable doubt.
Amortization expense related to intangible assets was $432,000 and $401,000 for the quarters
ended December 31, 2010 and 2009, respectively, and was $1,294,000 and $1,193,000 for the nine
months ended December 31, 2010 and 2009, respectively. Based on the current composition of
intangibles, amortization expense for the remainder of fiscal 2011 and each of the succeeding
four years is projected to be as follows (in thousands):
|
|
|
|
|
Remainder of fiscal 2011 |
|
$ |
430 |
|
Fiscal 2012 |
|
|
1,708 |
|
Fiscal 2013 |
|
|
1,675 |
|
Fiscal 2014 |
|
|
1,675 |
|
Fiscal 2015 |
|
|
1,657 |
|
On May 7, 2010, the Company entered into an extension of its accounts receivable securitization
facility through July 6, 2010, subject to earlier termination in the event of termination of the
commitments of the facilitys back-up purchasers. The facility continued to be subject to the
off-peak seasonal funding limit of $25,000,000, the funding limit that had been in place since
February 1, 2010.
On July 6, 2010, the Company entered into another extension of its accounts receivable
securitization facility until July 5, 2011, although this facility may terminate prior to such
date in the event of termination of the commitments of the facilitys back-up purchasers. This
facility has a seasonally-adjusted funding limit of $60,000,000 through January 31, 2011 and
$15,000,000 from February 1, 2011 to July 5, 2011. Financing costs for amounts funded under
this facility are equal to a variable commercial paper rate plus 1.25% and commitment fees of
0.5% per annum on the unused commitment.
On September 28, 2010, the Company entered into an amendment of its $110,000,000 revolving
credit facility. The amendment modified the covenant defining the maximum permissible Leverage
Ratio increasing the maximum permissible Leverage Ratio as of September 30, 2010 to 4.00 to 1
(from 3.50 to 1). The Company is in compliance with all debt covenants as of December 31, 2010.
11
As of December 31, 2010 and 2009, the outstanding balance under these facilities was $33,300,000
and $46,100,000, respectively. The Company also had outstanding letters of credit of $3,755,000
and $4,920,000 as of December 31, 2010 and 2009, respectively.
(6) |
|
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.
(7) |
|
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 December 31, 2010.
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 December 31, 2010.
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 December 31, 2010.
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.
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 December 31, 2010
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2010 Using |
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
In Active |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
December 31, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2010 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities |
|
$ |
676 |
|
|
$ |
676 |
|
|
$ |
|
|
|
$ |
|
|
Cash
surrender value of life insurance policies |
|
|
883 |
|
|
|
|
|
|
|
883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,559 |
|
|
$ |
676 |
|
|
$ |
883 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plans |
|
$ |
676 |
|
|
$ |
676 |
|
|
$ |
|
|
|
$ |
|
|
Foreign exchange contracts |
|
|
11 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
687 |
|
|
$ |
676 |
|
|
$ |
11 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
The carrying amount and estimated fair value of long-term debt was $166,000 as of December 31, 2010
and represents capital lease obligations which are due within the next 12 months.
13
CSS INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
STRATEGIC OVERVIEW
Approximately 59% 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, ribbon and bow,
gift tissue and gift bag lines. In addition, both seasonal and all occasion sales declines were
further exacerbated as the current economic downturn resulted in slowness or reductions in order
patterns by its 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 allowed it
to compete effectively in this competitive market. In addition, the Company is 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 that 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 six 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. The Company
consolidated 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 a phase of
integrating the Companys enterprise resource planning systems standardization project.
The Companys all occasion craft, gift card holder, stickers, stationery and memory product lines
have higher inherent growth potential due to higher market growth rates. Further, the Companys
all occasion craft, gift card holder, stickers, stationery and floral product lines have higher
inherent growth potential due to CSS relatively low current market share. The Company continues
to pursue sales growth in these and other areas.
Historically, significant revenue growth at CSS has come through acquisitions. Management
anticipates that it will continue to utilize acquisitions to stimulate further growth.
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 current economic environment has increased the
uncertainty inherent in such estimates and judgments.
14
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,
2010. 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, 2010.
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.
Nine Months Ended December 31, 2010 Compared to Nine Months Ended December 31, 2009
Sales for the nine months ended December 31, 2010 decreased 2% to $387,854,000 from $396,180,000 in
the nine months ended December 31, 2009 primarily due to lower sales of Christmas boxed greeting
cards, gift wrap and all occasion products, partially offset by higher sales of ribbons and bows.
Cost of sales, as a percentage of sales, was 75% in 2010 and 2009 as higher freight and
distribution costs were substantially offset by improved plant efficiencies.
Selling, general and administrative (SG&A) expenses were $71,622,000 in the nine months ended
December 31, 2010 and $72,823,000 in the nine months ended December 31, 2009 primarily due to lower
payroll and stock compensation expenses.
Interest expense, net of $1,018,000 in 2010 decreased from interest expense, net of $1,674,000 in
2009 due to lower borrowing levels during the nine months ended December 31, 2010 compared to the
same period in the prior year.
Income taxes, as a percentage of income before taxes, were 36% in 2010 and 2009.
Net income for the nine months ended December 31, 2010 was $15,583,000, or $1.61 per diluted share
compared to $17,102,000, or $1.77 per diluted share in 2009. The decrease in net income for the
nine months ended December 31, 2010 was primarily due to reduced sales volume, partially offset by
lower incentive and stock compensation expenses and lower interest expense.
Three Months Ended December 31, 2010 Compared to Three Months Ended December 31, 2009
Sales for the three months ended December 31, 2010 decreased 4% to $174,621,000 from $182,230,000
in the three months ended December 31, 2009 primarily due to lower sales of gift wrap during the
quarter compared to the same quarter in the prior year. Also contributing to the shortfall was
lower sales of all occasion products, partially offset by higher sales of Christmas boxed greeting
cards and ribbons and bows.
Cost of sales, as a percentage of sales, was 75% in 2010 and 2009.
SG&A expenses decreased $1,624,000, or 6%, from the prior year period primarily as a result of
lower payroll related expenses in the third quarter of fiscal 2011 compared to the same quarter in
the prior year.
15
Interest expense, net of $425,000 in 2010 decreased over interest expense, net of $645,000 in 2009
due to lower borrowing levels during the three months ended December 31, 2010 compared to the same
period in the prior year.
Income taxes, as a percentage of income before taxes, were 36% in 2010 and 2009.
Net income for the three months ended December 31, 2010 was $12,855,000, or $1.32 per diluted share
compared to $12,700,000, or $1.31 per diluted share in 2009. The increase in net income for the
quarter ended December 31, 2010 was primarily due to lower payroll related expenses and interest
expense, partially offset by the impact of lower sales volume.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2010, the Company had working capital of $149,956,000 and stockholders equity of
$246,257,000. The increase in accounts receivable from March 31, 2010 reflected seasonal billings
of current year Christmas accounts receivables, net of current year collections. The decrease in
inventories from March 31, 2010 reflects the normal seasonal shipments during the fiscal 2011
shipping season. The increase in other current liabilities from March 31, 2010 was primarily due
to higher accounts payable and increased accruals for income taxes, sales commissions and
royalties. The increase in other long-term obligations was primarily attributable to the recording
of the asset retirement obligation (see Note 1) and the Seastone royalty earn out obligation (see
Note 4). The increase in stockholders equity from March 31, 2010 was primarily attributable to
year-to-date net income, partially offset by payments of cash dividends.
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 75% 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 $60,000,000 during peak
seasonal periods and $15,000,000 during off-peak seasonal periods. 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 December 31, 2010, the Companys borrowings consisted of $33,300,000
outstanding under the Companys short-term credit facilities and the Company has approximately
$166,000 of capital leases outstanding. As of the date of this filing, the Companys borrowings
under its short-term credit facilities was $0. 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 December 31, 2010, 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 |
|
$ |
3,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,755 |
|
The Company has a reimbursement obligation with respect to stand-by letters of credit that
guarantee the funding of workers compensation claims. The Company has no financial guarantees with
any third parties or related parties other than its subsidiaries.
As of December 31, 2010, the Company is committed to purchase approximately $884,000 of electric
power from a vendor over a one year term. The Company believes the minimum commodity purchases
under this agreement are well within the Companys annual commodity requirements.
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.
16
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 600
employees as of December 31, 2010, 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, 2011. The collective bargaining agreement with the
labor union representing the Hagerstown-based production and maintenance employees remains in
effect until December 31, 2011.
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 the anticipated
effects of measures taken by the Company to respond to sales volume, cost and price pressures.
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 realization of intangible assets and recoverability of long-lived
assets, and 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, 2010 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 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 December
31, 2010 have not materially changed from March 31, 2010 (see Item 7A of the Companys Annual
Report on Form 10-K for the fiscal year ended March 31, 2010).
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 third quarter of fiscal
year 2011 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 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
Unregistered Sales of Equity Securities
On November 1, 2010, CSS issued 6,000 shares of its common stock ($.10 par value) to a former
member of the Board of Directors of CSS, upon such individuals exercise of stock options
previously granted to such individual pursuant to CSS 1995 Stock Option Plan for Non-Employee
Directors (the 1995 Plan). The aggregate purchase price for these 6,000 shares of CSS common
stock was $76,260, which was paid in cash.
On November 5, 2010, CSS issued 6,000 shares of its common stock ($.10 par value) to a member of
the Board of Directors of CSS, upon such directors exercise of stock options previously granted to
such director under the 1995 Plan. The aggregate purchase price for these 6,000 shares of CSS
common stock was $76,260, which was paid in cash.
On November 30, 2010, CSS issued options to purchase 20,000 shares of its common stock ($.10 par
value) to the non-employee members of the Board of Directors of CSS pursuant to CSS 2006 Stock
Option Plan for Non-Employee Directors (the 2006 Plan). The 2006 Plan provides for the automatic
issuance of an option to purchase 4,000 shares of CSS common stock to each non-employee director of
CSS on the last trading day of November of each year from 2006 to 2010. In accordance with the
automatic grant provisions of the 2006 Plan, each of the options granted on November 30, 2010: (i)
has an exercise price of $18.27 per share, the closing price for shares of CSS common stock on the
date of the grant; (ii) becomes exercisable in four equal installments, commencing on the first
anniversary of the date of grant and annually thereafter; and (iii) expires five years after the
date of grant. No consideration is required to be paid to the Company in connection with the
issuance of options under the 2006 Plan, and none was received.
The options granted pursuant to the 1995 Plan and the 2006 Plan were not registered under the
Securities Act of 1933, as amended (the Securities Act), and the shares of CSS common stock
issued upon exercise of the aforementioned options issued under the 1995 Plan were not registered
under the Securities Act. CSS believes that the issuance of the options, and the issuance of the
aforementioned shares of CSS common stock in connection with the exercise of options, was exempt
from registration under (a) Section 4(2) of the Securities Act as transactions not involving any
public offering and such securities having been acquired for investment and not with a view to
distribution, or (b) Rule 701 under the Securities Act as transactions made pursuant to a written
compensatory benefit plan or pursuant to a written contract relating to compensation. All
recipients had adequate access to information about CSS. CSS did not engage an underwriter in
connection with the foregoing stock option grants and stock issuances.
|
|
|
*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. |
|
|
|
* |
|
Filed or furnished with this Quarterly Report on Form 10-Q. |
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: February 9, 2011 |
By: |
/s/ Christopher J. Munyan
|
|
|
|
Christopher J. Munyan |
|
|
|
President and Chief
Executive Officer
(principal executive officer) |
|
|
|
|
Date: February 9, 2011 |
By: |
/s/ Vincent A. Paccapaniccia
|
|
|
|
Vincent A. Paccapaniccia |
|
|
|
Vice President Finance and
Chief Financial Officer
(principal financial and accounting officer) |
|
20