| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| Delaware | 13-1920657 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 1845 Walnut Street, Philadelphia, PA | 19103 | |
| (Address of principal executive offices) | (Zip Code) |
| Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
| (Do not check if a smaller reporting company) |
2
| Three Months Ended | ||||||||
| June 30, | ||||||||
| (In thousands, except per share data) | 2011 | 2010 | ||||||
SALES |
$ | 55,040 | $ | 53,288 | ||||
COSTS AND EXPENSES |
||||||||
Cost of sales |
43,286 | 39,555 | ||||||
Selling, general and administrative expenses |
20,450 | 22,352 | ||||||
Restructuring expenses |
3,060 | 41 | ||||||
Interest expense, net |
43 | 209 | ||||||
Other expense, net |
24 | 68 | ||||||
| 66,863 | 62,225 | |||||||
LOSS BEFORE INCOME TAXES |
(11,823 | ) | (8,937 | ) | ||||
INCOME TAX BENEFIT |
(4,254 | ) | (3,200 | ) | ||||
NET LOSS |
$ | (7,569 | ) | $ | (5,737 | ) | ||
BASIC AND DILUTED NET LOSS PER COMMON SHARE |
$ | (.78 | ) | $ | (.59 | ) | ||
WEIGHTED AVERAGE BASIC AND DILUTED SHARES
OUTSTANDING |
9,735 | 9,683 | ||||||
CASH DIVIDENDS PER SHARE OF COMMON STOCK |
$ | .15 | $ | .15 | ||||
3
| June 30, | March 31, | June 30, | ||||||||||
| (In thousands) | 2011 | 2011 | 2010 | |||||||||
| (Unaudited) | (Audited) | (Unaudited) | ||||||||||
ASSETS |
||||||||||||
CURRENT ASSETS |
||||||||||||
Cash and cash equivalents |
$ | 4,426 | $ | 50,407 | $ | 2,811 | ||||||
Accounts receivable, net of allowances of $1,793, $3,050 and $3,415 |
46,612 | 42,615 | 47,807 | |||||||||
Inventories |
107,953 | 80,767 | 118,291 | |||||||||
Deferred income taxes |
3,787 | 4,051 | 6,153 | |||||||||
Other current assets |
21,635 | 14,474 | 20,437 | |||||||||
Total current assets |
184,413 | 192,314 | 195,499 | |||||||||
PROPERTY, PLANT AND EQUIPMENT, NET |
31,577 | 32,345 | 48,686 | |||||||||
DEFERRED INCOME TAXES |
8,575 | 8,854 | 5,184 | |||||||||
OTHER ASSETS |
||||||||||||
Goodwill |
17,233 | 17,233 | 17,233 | |||||||||
Intangible assets, net |
30,980 | 31,408 | 32,839 | |||||||||
Other |
4,641 | 4,769 | 3,945 | |||||||||
Total other assets |
52,854 | 53,410 | 54,017 | |||||||||
Total assets |
$ | 277,419 | $ | 286,923 | $ | 303,386 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||||
CURRENT LIABILITIES |
||||||||||||
Short-term debt |
$ | — | $ | — | $ | 13,000 | ||||||
Current portion of long-term debt |
— | 66 | 384 | |||||||||
Accrued customer programs |
4,409 | 4,726 | 6,939 | |||||||||
Other current liabilities |
40,195 | 40,626 | 49,101 | |||||||||
Total current liabilities |
44,604 | 45,418 | 69,424 | |||||||||
LONG-TERM OBLIGATIONS |
5,790 | 5,846 | 7,341 | |||||||||
STOCKHOLDERS’ EQUITY |
227,025 | 235,659 | 226,621 | |||||||||
Total liabilities and stockholders’ equity |
$ | 277,419 | $ | 286,923 | $ | 303,386 | ||||||
4
| Three Months Ended | ||||||||
| June 30, | ||||||||
| (In thousands) | 2011 | 2010 | ||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (7,569 | ) | $ | (5,737 | ) | ||
Adjustments to reconcile net loss to net cash used for
operating activities: |
||||||||
Depreciation and amortization |
2,057 | 3,012 | ||||||
Provision for accounts receivable allowances |
547 | 889 | ||||||
Deferred tax provision |
543 | 267 | ||||||
Loss on sale or disposal of assets |
36 | — | ||||||
Stock-based compensation expense |
463 | 461 | ||||||
Changes in assets and liabilities: |
||||||||
Increase in accounts receivable |
(4,544 | ) | (2,985 | ) | ||||
Increase in inventory |
(27,186 | ) | (39,440 | ) | ||||
Increase in other assets |
(7,033 | ) | (3,090 | ) | ||||
(Decrease) increase in liabilities |
(817 | ) | 11,626 | |||||
Total adjustments |
(35,934 | ) | (29,260 | ) | ||||
Net cash used for operating activities |
(43,503 | ) | (34,997 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchase of property, plant and equipment |
(931 | ) | (1,098 | ) | ||||
Proceeds from sale of assets |
45 | — | ||||||
Net cash used for investing activities |
(886 | ) | (1,098 | ) | ||||
Cash flows from financing activities: |
||||||||
Payments on long-term debt |
(66 | ) | (163 | ) | ||||
Borrowings on credit facilities |
— | 37,670 | ||||||
Repayments on credit facilities |
— | (24,670 | ) | |||||
Dividends paid |
(1,460 | ) | (1,453 | ) | ||||
Proceeds from exercise of stock options |
15 | 289 | ||||||
Shares withheld for minimum tax withholding on restricted stock |
(54 | ) | — | |||||
Tax effect on stock awards |
(27 | ) | 16 | |||||
Net cash (used for) provided by financing activities |
(1,592 | ) | 11,689 | |||||
Effect of exchange rate changes on cash |
— | — | ||||||
Net decrease in cash and cash equivalents |
(45,981 | ) | (24,406 | ) | ||||
Cash and cash equivalents at beginning of period |
50,407 | 27,217 | ||||||
Cash and cash equivalents at end of period |
$ | 4,426 | $ | 2,811 | ||||
5
| (1) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation |
CSS Industries, Inc. (collectively with its subsidiaries, “CSS” or the “Company”) has prepared
the consolidated financial statements included herein pursuant to the rules and regulations of
the Securities and Exchange Commission. The Company has condensed or omitted certain
information and footnote disclosures normally included in consolidated financial statements
prepared in accordance with accounting principles generally accepted in the United States
pursuant to such rules and regulations. In the opinion of management, the statements include
all adjustments (which include normal recurring adjustments) required for a fair presentation of
financial position, results of operations and cash flows for the interim periods presented.
These consolidated financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for
the fiscal year ended March 31, 2011. The results of operations for the interim periods are not
necessarily indicative of the results for the full year. |
The Company’s 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 2012” refers to the fiscal year
ending March 31, 2012. |
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 decorative ribbons and
bows, boxed greeting cards, gift tags, gift wrap, gift bags, gift boxes, gift card holders,
decorative tissue paper, decorations, classroom exchange Valentines, 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 life’s 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 Company’s fiscal year, which ends
March 31, thereby causing significant fluctuations in the quarterly results of operations of the
Company. |
Reclassification |
Certain prior period amounts have been reclassified to conform with the current year
classification. |
Foreign Currency Translation and Transactions |
Translation adjustments are charged or credited to a separate component of stockholders’ equity.
Gains and losses on foreign currency transactions are not material and are included in other
expense, 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 Company’s 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. |
Management estimates full year incentive compensation expense primarily based on projected
financial performance as compared to the incentive compensation plan targets. In fiscal year
2011, the Company allocated expected annual incentive compensation expense on a straight-line
basis. Beginning in the first quarter of fiscal 2012, in order to better align the incentive
compensation expense to the seasonal nature of its business, the Company began to charge
incentive compensation expense to the periods in which profits are generated. As a result of
this change in estimate, there was no incentive compensation expense recorded in the first
quarter of fiscal 2012 compared to $1,473,000 in the first quarter of fiscal 2011. |
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 Company’s tradenames is calculated using a “relief
from royalty payments” methodology. Long-lived assets (including property, plant and
equipment), except for goodwill and indefinite lived intangible assets, are reviewed for
impairment when circumstances indicate the carrying value of an asset group may not be
recoverable. If such asset group is considered to be impaired, the impairment to be recognized
is the amount by which the carrying amount of the asset group exceeds the fair value of the
asset group. |
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 Company’s inventories
are stated at the lower of first-in, first-out (FIFO) cost or market. The remaining portion of
the inventory is valued at the lower of last-in, first-out (LIFO) cost or market. Inventories
consisted of the following (in thousands): |
| June 30, | March 31, | June 30, | ||||||||||
| 2011 | 2011 | 2010 | ||||||||||
Raw material |
$ | 10,671 | $ | 12,232 | $ | 15,652 | ||||||
Work-in-process |
24,837 | 20,127 | 24,783 | |||||||||
Finished goods |
72,445 | 48,408 | 77,856 | |||||||||
| $ | 107,953 | $ | 80,767 | $ | 118,291 | |||||||
7
Property, Plant and Equipment |
Property, plant and equipment are stated at cost and include the following (in thousands): |
| June 30, | March 31, | June 30, | ||||||||||
| 2011 | 2011 | 2010 | ||||||||||
Land |
$ | 2,508 | $ | 2,508 | $ | 2,508 | ||||||
Buildings, leasehold interests and improvements |
44,224 | 44,127 | 46,320 | |||||||||
Machinery, equipment and other |
120,222 | 119,784 | 146,624 | |||||||||
| 166,954 | 166,419 | 195,452 | ||||||||||
Less — Accumulated depreciation and amortization |
(135,377 | ) | (134,074 | ) | (146,766 | ) | ||||||
Net property, plant and equipment |
$ | 31,577 | $ | 32,345 | $ | 48,686 | ||||||
In connection with the Company’s review of the recoverability of its long-lived assets as it
prepared its financial statements for the fiscal year ended March 31, 2011, the Company
evaluated the recoverability of the long-lived asset group primarily related to the Cleo gift
wrap manufacturing and distribution facility. As a result of this analysis, it was determined
that the fair value of the Cleo asset group was less than the carrying value. This resulted in
an impairment charge of $11,051,000, which was recorded in the fourth quarter of fiscal 2011.
See further discussion regarding Cleo restructuring in Note 5 and Note 8. |
In addition, during the fourth quarter of fiscal 2011, the Company identified and wrote off
certain property, plant and equipment that was fully depreciated and no longer in use. The net
effect was to decrease gross cost and accumulated depreciation by $23,951,000. There was no
effect on net property, plant and equipment. |
Depreciation expense was $1,618,000 and $1,942,000 during the three months ended June 30, 2011
and 2010, respectively. |
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 Loss Per Common Share |
Due to the Company’s net losses, potentially dilutive securities of 938,000 shares and 1,175,000
shares as of June 30, 2011 and 2010, respectively, consisting of outstanding stock options and
non-vested restricted stock units, were excluded from the diluted loss per share calculation due
to their antidilutive effect. |
| (2) | STOCK-BASED COMPENSATION |
2004 Equity Compensation Plan |
Under the terms of the Company’s 2004 Equity Compensation Plan (“2004 Plan”), the Human
Resources Committee (“Committee”) of the Board of Directors (“Board”) 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. During the first
quarter of fiscal 2012, the Company granted performance-based stock options and
performance-based restricted stock units (“RSUs”) which vest providing that certain performance
metrics have been met during the performance period. All options outstanding as of June 30,
2011 become exercisable at the rate of 25% per year commencing one year after the date of grant;
in some cases, however, exercisability is further conditioned upon
satisfaction of performance-based vesting criteria. Outstanding RSUs generally vest (subject to
limited exceptions) 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; in some cases, however,
vesting is further conditioned upon satisfaction of performance-based vesting criteria. At June
30, 2011, 780,779 shares were available for grant under the 2004 Plan. |
8
On May 24, 2011, the Board approved an amendment to the 2004 Plan to reduce the number of shares
of the Company’s common stock authorized for issuance under the 2004 Plan by 500,000 shares. As
a result of this reduction, the 2004 Plan now provides that 1,500,000 shares of the Company’s
common stock may be issued as grants under the 2004 Plan. Prior to this amendment, the 2004
Plan provided that 2,000,000 shares of the Company’s common stock could be issued as grants
under the 2004 Plan. |
| 2011 | Stock Option Plan for Non-Employee Directors |
On May 24, 2011, the Board of the Company adopted the CSS Industries, Inc. 2011 Stock Option
Plan for Non-Employee Directors (“2011 Plan”), subject to stockholder approval which was
received on August 2, 2011. Under the 2011 Plan, non-qualified stock options to purchase up to
150,000 shares of common stock 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.
Options to purchase 4,000 shares of the Company’s common stock are granted automatically to each
non-employee director on the last day that the Company’s common stock is traded in November from
2011 to 2015. Each option will expire five years after the date the option is granted and
options may be exercised at the rate of 25% per year commencing one year after the date of
grant. |
The fair value of each stock option granted under the above plans was estimated on the date of
grant using the Black-Scholes option pricing model with the following average assumptions: |
| For the Three Months | ||||||||
| Ended June 30, | ||||||||
| 2011 | 2010 | |||||||
Expected dividend yield at time of grant |
3.29 | % | 3.11 | % | ||||
Expected stock price volatility |
54 | % | 55 | % | ||||
Risk-free interest rate |
2.39 | % | 2.63 | % | ||||
Expected life of option (in years) |
5.1 | 4.7 | ||||||
Expected volatilities are based on historical volatility of the Company’s common stock. The
expected life of the option is estimated using historical data pertaining to option exercises
and employee terminations. The risk-free interest rate is based on U.S. Treasury yields in
effect at the time of grant. |
The weighted average fair value of stock options granted during the three months ended June 30,
2011 and 2010 was $6.88 and $6.99, respectively. The weighted average fair value of restricted
stock units granted during the three months ended June 30, 2011 and 2010 was $16.25 and $16.94,
respectively. |
As of June 30, 2011, there was $2,722,000 of total unrecognized compensation cost related to
non-vested stock option awards granted under the Company’s equity incentive plans which is
expected to be recognized over a weighted average period of 2.7 years. As of June 30, 2011,
there was $1,881,000 of total unrecognized compensation cost related to non-vested RSUs granted
under the Company’s 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 $463,000 and $461,000 in the quarters ended
June 30, 2011 and 2010, respectively. |
9
| (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 expense, net as offsets of gains
and losses resulting from the underlying hedged transactions. As of June 30, 2011 and 2010, the
notional amount of open foreign currency forward contracts was $2,522,000 and $6,098,000,
respectively. The related unrealized gain was $1,000 and $236,000 at June 30, 2011 and 2010,
respectively. There were no open foreign currency forward contracts as of March 31, 2011. We
believe we do not have significant counterparty credit risks as of June 30, 2011. |
The following table shows the fair value of the foreign currency forward contracts designated as
hedging instruments and included in the Company’s condensed consolidated balance sheet as of
June 30, 2011 and 2010 (in thousands): |
| Fair Value of Derivative Instruments | ||||||||||
| Fair Value | ||||||||||
| Balance Sheet | June 30, | June 30, | ||||||||
| Location | 2011 | 2010 | ||||||||
Foreign currency forward contracts |
Other current assets | $ | 1 | $ | 236 | |||||
| (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 three months ended June 30,
2011, there have not been any such events. |
The gross carrying amount and accumulated amortization of other intangible assets is as follows
(in thousands): |
| June 30, 2011 | March 31, 2011 | June 30, 2010 | ||||||||||||||||||||||
| Gross | Gross | Gross | ||||||||||||||||||||||
| Carrying | Accumulated | Carrying | Accumulated | Carrying | Amortization | |||||||||||||||||||
| Amount | Amortization | Amount | Amortization | Amount | Amortization | |||||||||||||||||||
Tradenames and trademarks |
$ | 12,793 | $ | — | $ | 12,793 | $ | — | $ | 12,793 | $ | — | ||||||||||||
Customer relationships |
22,057 | 5,233 | 22,057 | 4,858 | 22,057 | 3,733 | ||||||||||||||||||
Non-compete |
200 | 180 | 200 | 167 | 200 | 129 | ||||||||||||||||||
Trademarks |
403 | 190 | 403 | 183 | 403 | 160 | ||||||||||||||||||
Patents |
1,337 | 207 | 1,337 | 174 | 1,492 | 84 | ||||||||||||||||||
| $ | 36,790 | $ | 5,810 | $ | 36,790 | $ | 5,382 | $ | 36,945 | $ | 4,106 | |||||||||||||
Amortization expense related to intangible assets was $428,000 and $430,000 for the three
months ended June 30, 2011 and 2010, respectively. Based on the current composition of
intangibles, amortization expense for the remainder of fiscal 2012 and each of the succeeding
four years is projected to be as follows (in thousands): |
Fiscal 2012 |
$ | 1,266 | ||
Fiscal 2013 |
1,661 | |||
Fiscal 2014 |
1,661 | |||
Fiscal 2015 |
1,642 | |||
Fiscal 2016 |
1,641 |
10
| (5) | BUSINESS RESTRUCTURING |
On May 24, 2011, the Company approved a plan to close its Cleo manufacturing facility located in
Memphis, Tennessee, with an exit to be completed no later than December 31, 2011. As part of
such closing, the Company plans to transition the sourcing of all gift wrap products to foreign
suppliers. The Company uses the Memphis, Tennessee facility primarily for the manufacture and
distribution of gift wrap products. The Company continually evaluates the efficiency and
productivity of its production and distribution facilities to maintain its competitiveness and
believes that it will experience better operational efficiencies as a result of this action. In
connection with the restructuring plan, the Company estimates that during fiscal 2012 it will
incur pre-tax expenses of up to $10,300,000 (reduced by $825,000 related to the sale of certain
tangible fixed assets as further described in Note 8) associated with the approved plan, which
costs primarily relate to cash expenditures for facility and staff costs (approximately
$7,100,000) and non-cash asset write-downs (approximately $3,200,000). Additionally, the
Company expects to incur $1,300,000 in cash spending during fiscal 2012 relating to this plan
which was expensed previously. The Company expects to complete the restructuring plan by March
31, 2012. During the three months ended June 30, 2011, staff termination costs of $3,042,000 are
included in restructuring expenses and $2,498,000 related to the write down of inventory to net
realizable value is included in cost of sales. In connection with this restructuring plan, as
of June 30, 2011, the Company recorded a restructuring reserve of $3,015,000, including
severance related to 573 employees, which was classified as a current liability in the
accompanying consolidated balance sheet and will be paid in fiscal 2012. See further discussion
in Note 8. |
| (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 June 30, 2011. |
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 June 30, 2011. |
The Company maintains two life insurance policies in connection with deferred compensation
arrangements with two former executives. The cash surrender value of the policies is recorded
in other long-term assets in the consolidated condensed balance sheets and is based on quotes
obtained from the insurance company as of June 30, 2011. |
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. |
11
The Company’s 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. |
The following table presents the Company’s fair value hierarchy for those financial assets and
liabilities measured at fair value on a recurring basis in its consolidated condensed balance
sheet as of June 30, 2011 (in thousands): |
| Fair Value Measurements at June 30, 2011 Using | ||||||||||||||||
| Quoted Prices | ||||||||||||||||
| In Active | Significant | |||||||||||||||
| Markets for | Other | Significant | ||||||||||||||
| Identical | Observable | Unobservable | ||||||||||||||
| June 30, | Assets | Inputs | Inputs | |||||||||||||
| 2011 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets |
||||||||||||||||
Marketable securities |
$ | 662 | $ | 662 | $ | — | $ | — | ||||||||
Cash surrender value of life insurance policies |
896 | — | 896 | — | ||||||||||||
Foreign exchange contracts |
1 | — | 1 | — | ||||||||||||
Total assets |
$ | 1,559 | $ | 662 | $ | 897 | $ | — | ||||||||
Liabilities |
||||||||||||||||
Deferred compensation plans |
$ | 662 | $ | 662 | $ | — | $ | — | ||||||||
Total liabilities |
$ | 662 | $ | 662 | $ | — | $ | — | ||||||||
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. |
| (8) | SUBSEQUENT EVENT |
On August 2, 2011, the Company entered into an agreement to sell certain tangible fixed assets
in its Cleo manufacturing facility located in Memphis, Tennessee. The Company expects to
receive $825,000 related to the sale of these assets during the second quarter of fiscal 2012,
of which $618,750 was received on August 2, 2011 as a deposit. Such proceeds are expected to
reduce the previously disclosed estimate of up to $10,300,000 of pre-tax expenses associated
with the approved Cleo restructuring plan as further discussed in Note 5. |
12
13
14
| Less than 1 | 1-3 | 4-5 | After 5 | |||||||||||||||||
| Year | Years | Years | Years | Total | ||||||||||||||||
Letters of credit |
$ | 3,702 | — | — | — | $ | 3,702 | |||||||||||||
15
16
| (a) | Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by
this report, the Company’s management, with the participation of the Company’s President and
Chief Executive Officer and Vice President — Finance and Chief Financial Officer, evaluated
the effectiveness of the Company’s 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 Company’s 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 Commission’s rules
and forms. |
| (b) | Changes in Internal Controls. There was no change in the Company’s internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) as promulgated by the
Securities and Exchange Commission under the Exchange Act) during the first quarter of fiscal
year 2012 that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting. |
17
| Exhibit 10.1 | Amendment 2011-1 to the CSS Industries, Inc. 2004 Equity Compensation Plan
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed on May 24, 2011). |
|
| *Exhibit 10.2 | Form of Non-Qualified Stock Option Grant for performance-vested grants under
2004 Equity Compensation Plan. |
|
| *Exhibit 10.3 | Form of Stock Bonus Award Grant for performance-vested restricted stock unit
grants under 2004 Equity Compensation Plan. |
|
| *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. |
|
| **101.INS | XBRL Instance Document. |
|
| **101.SCH | XBRL Schema Document. |
|
| **101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. |
|
| **101.LAB | XBRL Taxonomy Extension Label Linkbase Document. |
|
| **101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
| * | Filed with this Quarterly Report on Form 10-Q. |
|
| ** | Furnished with this Quarterly Report on Form 10-Q. |
18
| CSS INDUSTRIES, INC. (Registrant) |
||||
| Date: August 4, 2011 | By: | /s/Christopher J. Munyan | ||
| Christopher J. Munyan | ||||
| President and Chief
Executive Officer (principal executive officer) |
||||
| Date: August 4, 2011 | By: | /s/Vincent A. Paccapaniccia | ||
| Vincent A. Paccapaniccia | ||||
| Vice President — Finance and Chief Financial Officer (principal financial and accounting officer) |
||||
19