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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2012

or

 

¨ 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)

 

 

 

Delaware   13-1920657

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1845 Walnut Street, Philadelphia, PA   19103
(Address of principal executive offices)   (Zip Code)

(215) 569-9900

(Registrant’s 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.    x  Yes    ¨  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).    x  Yes    ¨  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.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    ¨  Yes    x  No

As of February 1, 2013, there were 9,467,140 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.

 

 

 


Table of Contents

CSS INDUSTRIES, INC. AND SUBSIDIARIES

INDEX

 

     PAGE NO.  

PART I—FINANCIAL INFORMATION

  

Item 1. Financial Statements (Unaudited)

  

Consolidated Statements of Operations – Three and nine months ended December 31, 2012 and 2011

     3   

Condensed Consolidated Balance Sheets – December 31, 2012, March  31, 2012 and December 31, 2011

     4   

Consolidated Statements of Cash Flows—Nine months ended December 31, 2012 and 2011

     5   

Notes to Consolidated Financial Statements

     6-18   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     19-24   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     24   

Item 4. Controls and Procedures

     24   

Part II—OTHER INFORMATION

  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     26   

Item 6. Exhibits

     27   

Signatures

     28   

 

2


Table of Contents

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

     Three Months Ended     Nine Months Ended  
     December 31,     December 31,  
     2012     2011     2012     2011  

Sales

   $ 116,020      $ 129,240      $ 310,572      $ 323,534   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses

        

Cost of sales

     78,407        87,662        214,930        227,758   

Selling, general and administrative expenses

     20,510        22,446        61,934        65,533   

Disposition of product line, net

     0        0        5,798        0   

Interest (income) expense, net

     (1     73        (68     227   

Other expense, net

     85        202        33        339   
  

 

 

   

 

 

   

 

 

   

 

 

 
     99,001        110,383        282,627        293,857   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     17,019        18,857        27,945        29,677   

Income tax expense

     5,419        6,748        10,372        10,701   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     11,600        12,109        17,573        18,976   

Income (loss) from discontinued operations, net of tax

     11        (1,131     55        (82
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 11,611      $ 10,978      $ 17,628      $ 18,894   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common share:

        

Basic:

        

Continuing operations

   $ 1.21      $ 1.25      $ 1.83      $ 1.95   

Discontinued operations

   $ 0.00      $ (0.12   $ 0.01      $ (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1.22      $ 1.13      $ 1.84      $ 1.94   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common share:

        

Diluted:

        

Continuing operations

   $ 1.21      $ 1.24      $ 1.83      $ 1.95   

Discontinued operations

   $ 0.00      $ (0.12   $ 0.01      $ (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1.22      $ 1.13      $ 1.84      $ 1.94   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding

        

Basic

     9,548        9,723        9,594        9,733   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     9,554        9,732        9,597        9,739   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends per share of common stock

   $ 0.15      $ 0.15      $ 0.45      $ 0.45   
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to consolidated financial statements.

 

3


Table of Contents

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

 

     December 31,      March 31,      December 31,  
     2012      2012      2011  

Assets

        

Current assets

        

Cash and cash equivalents

   $ 53,347       $ 66,135       $ 10,489   

Accounts receivable, net of allowances of $3,408, $1,764 and $2,811

     94,445         45,026         107,808   

Inventories

     66,087         71,671         74,005   

Deferred income taxes

     4,834         3,595         3,751   

Other current assets

     13,704         15,441         13,529   

Current assets of discontinued operations

     0         183         13,900   
  

 

 

    

 

 

    

 

 

 

Total current assets

     232,417         202,051         223,482   
  

 

 

    

 

 

    

 

 

 

Property, plant and equipment, net

     28,164         29,582         30,138   
  

 

 

    

 

 

    

 

 

 

Deferred income taxes

     195         1,184         4,633   
  

 

 

    

 

 

    

 

 

 

Other assets

        

Goodwill

     14,522         17,233         17,233   

Intangible assets, net

     28,446         29,689         30,129   

Other

     7,046         6,825         9,316   
  

 

 

    

 

 

    

 

 

 

Total other assets

     50,014         53,747         56,678   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 310,790       $ 286,564       $ 314,931   
  

 

 

    

 

 

    

 

 

 

Liabilities and Stockholders’ Equity

        

Current liabilities

        

Accrued customer programs

   $ 7,089       $ 3,298       $ 6,149   

Other current liabilities

     45,717         33,069         47,757   

Current liabilities of discontinued operations

     499         2,390         5,680   
  

 

 

    

 

 

    

 

 

 

Total current liabilities

     53,305         38,757         59,586   
  

 

 

    

 

 

    

 

 

 

Long-term obligations

     5,020         4,604         4,556   
  

 

 

    

 

 

    

 

 

 

Stockholders’ equity

     252,465         243,203         250,789   
  

 

 

    

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 310,790       $ 286,564       $ 314,931   
  

 

 

    

 

 

    

 

 

 

See notes to consolidated financial statements.

 

4


Table of Contents

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

     Nine Months Ended  
     December 31,  
     2012     2011  

Cash flows from operating activities:

    

Net income

   $ 17,628      $ 18,894   
  

 

 

   

 

 

 

Adjustments to reconcile net income to net cash used for operating activities:

    

Depreciation and amortization

     5,757        5,878   

Provision for accounts receivable allowances

     4,027        3,928   

Gain on sale of discontinued operations

     0        (5,849

Deferred tax (benefit) provision

     (689     4,521   

Stock-based compensation expense

     1,314        1,386   

Loss (gain) on sale or disposal of assets

     157        (776

Reduction of goodwill from disposition of product line

     2,711        0   

Changes in assets and liabilities:

    

Increase in accounts receivable

     (53,546     (69,325

Decrease (increase) in inventory

     4,617        (4,912

Decrease in other assets

     411        680   

Increase in other accrued liabilities

     17,270        11,485   
  

 

 

   

 

 

 

Total adjustments

     (17,971     (52,984
  

 

 

   

 

 

 

Net cash used for operating activities—continuing operations

     (343     (34,090

Net cash (used for) provided by operating activities—discontinued operations

     (1,709     1,932   
  

 

 

   

 

 

 

Net cash used for operating activities

     (2,052     (32,158
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of property, plant and equipment

     (3,269     (2,489

Proceeds from disposition of product line, net

     1,758        0   

Proceeds from sale of fixed assets

     16        48   
  

 

 

   

 

 

 

Net cash used for investing activities—continuing operations

     (1,495     (2,441

Net cash provided by investing activities—discontinued operations

     0        2,036   
  

 

 

   

 

 

 

Net cash used for investing activities

     (1,495     (405
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Payments on long-term obligations

     0        (376

Borrowings on credit facilities

     0        74,270   

Repayments on credit facilities

     0        (74,270

Dividends paid

     (4,310     (4,378

Purchase of treasury stock

     (4,864     (742

Proceeds from exercise of stock options

     192        58   

Payments for tax withholding on net restricted stock settlements

     (253     (60

Tax effect on stock awards

     (6     (27
  

 

 

   

 

 

 

Net cash used for financing activities – continuing operations

     (9,241     (5,525
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (12,788     (38,088

Cash and cash equivalents at beginning of period

     66,135        48,577   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 53,347      $ 10,489   
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

5


Table of Contents

CSS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012

(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 Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2012. The results of operations for the interim periods are not necessarily indicative of the results for the full year.

On September 5, 2012, the Company and its Paper Magic Group, Inc. (“PMG”) subsidiary sold the Halloween portion of PMG’s business and certain PMG assets relating to such business, including certain tangible and intangible assets associated with PMG’s Halloween business, to Gemmy Industries (HK) Limited (“Gemmy”). PMG’s remaining assets, including accounts receivable and inventory, were excluded from the sale. PMG retained the right and obligation to fulfill all customer orders for PMG Halloween products (such as Halloween masks, costumes, make-up and novelties) for the Halloween 2012 season. The inventory remaining after the Halloween 2012 season has been reduced to its estimated net realizable value. The purchase price of $2,281,000 was paid to PMG at closing. The Company incurred $523,000 of transaction costs (included within disposition of a product line further discussed in Note 2 to the condensed consolidated financial statements), yielding net proceeds of $1,758,000.

On September 9, 2011, the Company and its Cleo Inc (“Cleo”) subsidiary sold the Christmas gift wrap portion of Cleo’s business and certain Cleo assets relating to such business, including certain equipment, contract rights, customer lists, intellectual property and other intangible assets to Impact Innovations, Inc. (“Impact”). Cleo’s remaining assets, including accounts receivable and inventory, were excluded from the sale. Various prior period amounts contained in these unaudited condensed consolidated financial statements include assets, liabilities and cash flows related to Cleo’s Christmas gift wrap business which are presented as current assets and liabilities of discontinued operations. The results of operations for the three and nine month periods ended December 31, 2012 and 2011, as well as the accompanying notes, reflect the historical operations of Cleo’s Christmas gift wrap business as discontinued operations. The discussions in this quarterly report are presented on the basis of continuing operations, unless otherwise noted.

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 2013” refers to the fiscal year ending March 31, 2013.

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.

 

6


Table of Contents

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 all occasion and seasonal 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, 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.

Foreign Currency Translation and Transactions

Translation adjustments are recorded in 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.

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 revenue, 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 stock-based awards and resolution of litigation and other proceedings. Actual results could differ from these estimates.

Impairment of Long-Lived Assets including Goodwill and Other Intangible Assets

The Financial Accounting Standards Board (“FASB”) issued updated authoritative guidance in September 2011 to amend previous guidance on the annual and interim testing of goodwill for impairment; the guidance became effective for the Company at the beginning of its 2013 fiscal year. The guidance provides entities with the option of first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is determined, on the basis of the qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two step impairment test would still be required. 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. Annual impairment tests are performed by the Company in the fourth quarter of each year. The adoption of this updated authoritative guidance had no impact on the Company’s Consolidated Financial Statements.

In connection with the sale of the Halloween portion of PMG’s business on September 5, 2012, a portion of the goodwill associated with the PMG reporting unit was allocated to the business being sold. Such allocation was made on the basis of the fair value of the assets being sold relative to the overall fair value of the PMG reporting unit. This resulted in the Company recording a reduction of goodwill in the amount of $2,711,000 for the PMG reporting unit. See Note 7 for further information on goodwill and other intangible assets.

 

7


Table of Contents

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):

 

     December 31,      March 31,      December 31,  
     2012      2012      2011  

Raw material

   $ 9,665       $ 9,194       $ 9,593   

Work-in-process

     11,351         15,470         11,731   

Finished goods

     45,071         47,007         52,681   
  

 

 

    

 

 

    

 

 

 
   $ 66,087       $ 71,671       $ 74,005   
  

 

 

    

 

 

    

 

 

 

Property, Plant and Equipment

Property, plant and equipment are stated at cost and include the following (in thousands):

 

     December 31,     March 31,     December 31,  
     2012     2012     2011  

Land

   $ 2,508      $ 2,508      $ 2,508   

Buildings, leasehold interests and improvements

     37,185        37,064        37,103   

Machinery, equipment and other

     101,172        101,076        101,644   
  

 

 

   

 

 

   

 

 

 
     140,865        140,648        141,255   

Less—Accumulated depreciation and amortization

     (112,701     (111,066     (111,117
  

 

 

   

 

 

   

 

 

 

Net property, plant and equipment

   $ 28,164      $ 29,582      $ 30,138   
  

 

 

   

 

 

   

 

 

 

Depreciation expense was $1,464,000 and $1,405,000 for the quarters ended December 31, 2012 and 2011, respectively, and was $4,514,000 and $4,599,000 for the nine months ended December 31, 2012 and 2011, respectively.

Income Tax Valuation Allowance

During the quarter ended December 31, 2012, the Company released valuation allowances of $775,000 related to state net operating loss carryforwards which resulted in a tax benefit for the quarter. There was no such reversal of valuation allowances in the comparable quarter ended December 31, 2011.

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


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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, 2012 and 2011 (in thousands, except per share data):

 

     Three Months Ended     Nine Months Ended  
     December 31,     December 31,  
     2012      2011     2012      2011  

Numerator:

          

Income from continuing operations

   $ 11,600       $ 12,109      $ 17,573       $ 18,976   

Income (loss) from discontinued operations, net of tax

     11         (1,131     55         (82
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income

   $ 11,611       $ 10,978      $ 17,628       $ 18,894   
  

 

 

    

 

 

   

 

 

    

 

 

 

Denominator:

          

Weighted average shares outstanding for basic income per common share

     9,548         9,723        9,594         9,733   

Effect of dilutive stock options

     6         9        3         6   
  

 

 

    

 

 

   

 

 

    

 

 

 

Adjusted weighted average share outstanding for diluted income per common share

     9,554         9,732        9,597         9,739   
  

 

 

    

 

 

   

 

 

    

 

 

 

Basic:

          

Continuing operations

   $ 1.21       $ 1.25      $ 1.83       $ 1.95   

Discontinued operations

   $ 0.00       $ (0.12   $ 0.01       $ (0.01
  

 

 

    

 

 

   

 

 

    

 

 

 

Total (1)

   $ 1.22       $ 1.13      $ 1.84       $ 1.94   
  

 

 

    

 

 

   

 

 

    

 

 

 

Diluted:

          

Continuing operations

   $ 1.21       $ 1.24      $ 1.83       $ 1.95   

Discontinued operations

   $ 0.00       $ (0.12   $ 0.01       $ (0.01
  

 

 

    

 

 

   

 

 

    

 

 

 

Total (1)

   $ 1.22       $ 1.13      $ 1.84       $ 1.94   
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Total net income per share for certain periods does not foot due to rounding.

Options on 151,000 shares and 385,000 shares of common stock were not included in computing diluted net income per common share for the nine months ended December 31, 2012 and 2011, respectively, because their effects were antidilutive.

 

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Table of Contents

(2) DISPOSITION OF PRODUCT LINE

On September 5, 2012, the Company and its PMG subsidiary sold the Halloween portion of PMG’s business and certain PMG assets relating to such business, including certain tangible and intangible assets associated with the Halloween portion of PMG’s business, to Gemmy. PMG’s remaining Halloween assets, including accounts receivable and inventory, were excluded from the sale. PMG retained the right and obligation to fulfill all customer orders for PMG Halloween products (such as Halloween masks, costumes, make-up and novelties) for the Halloween 2012 season. The inventory remaining after the Halloween 2012 season has been reduced to its estimated net realizable value. The purchase price of $2,281,000 was paid to PMG at closing. In connection with the sale, the Company recorded charges of $5,368,000 during the second quarter of fiscal 2013 consisting of severance of 49 employees of $1,282,000, facility closure costs of $1,375,000, professional fees and other costs of $1,341,000 ($523,000 were costs of the transaction) and a non-cash write-down of assets of $1,370,000. Additionally, a portion of the goodwill associated with the PMG reporting unit was allocated to the business being sold. Such allocation was made on the basis of the fair value of the assets being sold relative to the overall fair value of the PMG reporting unit. This resulted in the Company recording a reduction of goodwill in the amount of $2,711,000 for the PMG reporting unit. There was also a non-cash charge of $966,000 related to the write-down of inventory to net realizable value which was recorded in cost of sales. Net sales of the Halloween business were $1,415,000 and $1,046,000 in the three months ended December 31, 2012 and 2011, respectively, and were $29,345,000 and $28,718,000 in the nine months ended December 31, 2012 and 2011, respectively.

During the three and nine months ended December 31, 2012, the Company made payments related to the restructuring of $630,000 and $1,417,000, respectively, and other adjustments of $82,000 in the second quarter of fiscal 2013. As of December 31, 2012, $2,037,000 of the remaining liability was classified in current liabilities and $462,000 was classified in long-term obligations in the accompanying condensed consolidated balance sheet and will be paid through December 2015.

Selected information relating to the aforementioned restructuring follows (in thousands):

 

     Employee
Termination
Costs
    Facility
Costs
    Professional
Fees and
Other Costs
    Total  

Initial restructuring reserve

   $ 1,282      $ 1,375      $ 1,341      $ 3,998   

Cash paid

     (495     (152     (770     (1,417

Non-cash adjustments

     (56     9        (35     (82
  

 

 

   

 

 

   

 

 

   

 

 

 

Restructuring reserve as of December 31, 2012

   $ 731      $ 1,232      $ 536      $ 2,499   
  

 

 

   

 

 

   

 

 

   

 

 

 

(3) DISCONTINUED OPERATIONS AND RELATED RESTRUCTURING CHARGES

On May 24, 2011, the Company approved a plan to close its Cleo manufacturing facility located in Memphis, Tennessee. The Company exited the Memphis facility in December 2011. In connection with this restructuring plan, which was completed by March 31, 2012, the Company recorded restructuring charges of $6,749,000 during fiscal 2012 primarily related to severance of 433 employees and facility closure costs. Additionally, there was a non-cash reduction of $177,000 related to severance that was less than originally estimated, which was included in restructuring expenses in fiscal 2012. During the three and nine months ended December 31, 2012, the Company made payments of $81,000 and $693,000, respectively, primarily for costs related to severance. Additionally, there was a reduction in the restructuring accrual of $92,000 during the nine months ended December 31, 2012 for costs that were less than originally estimated. As of December 31, 2012, the remaining liability of $45,000 was classified in current liabilities of discontinued operations in the accompanying condensed consolidated balance sheet and will be paid through fiscal 2013.

Selected information relating to the aforementioned restructuring follows (in thousands):

 

     Employee
Termination
Costs
    Facility and
Other Costs
    Total  

Restructuring reserve as of March 31, 2012

   $ 750      $ 80      $ 830   

Cash paid

     (663     (30     (693

Non-cash adjustments

     (45     (47     (92
  

 

 

   

 

 

   

 

 

 

Restructuring reserve as of December 31, 2012

   $ 42      $ 3      $ 45   
  

 

 

   

 

 

   

 

 

 

 

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Table of Contents

On September 9, 2011, the Company sold the Cleo Christmas gift wrap business and certain Cleo assets to Impact. Impact acquired the Christmas gift wrap portion of Cleo’s business and certain of Cleo’s assets relating to such business, including certain equipment, contract rights, customer lists, intellectual property and other intangible assets. Cleo’s remaining assets, including accounts receivable and inventory, were excluded from the sale. Cleo retained the right and obligation to fulfill all customer orders for Cleo Christmas gift wrap products for Christmas 2011. The purchase price was $7,500,000, of which $2,000,000 was paid to Cleo in cash at closing. The remainder of the purchase price was paid through the issuance by Impact of an unsecured subordinated promissory note, which provides for quarterly payments of interest at 7% and principal payments as follows: $500,000 on March 1, 2012; $2,500,000 on March 1, 2013; and all remaining principal and interest on March 1, 2014. All interest payments to date and the $500,000 principal payment due on March 1, 2012 were paid when due. As of December 31, 2012, $2,500,000 of this note receivable was recorded in other current assets and $2,500,000 of this note receivable was recorded in other long term assets in the accompanying condensed consolidated balance sheet. The Company subsequently received a $2,500,000 principal payment on January 23, 2013 in advance of the March 1, 2013 due date.

As a result of the sale of its Cleo Christmas gift wrap business, the Company has reported these operations, including operating income (loss) of the business and all exit activities, as discontinued operations, as shown in the following table (in thousands):

 

     Three Months Ended
December 31,
    Nine Months Ended
December 31,
 
     2012      2011     2012     2011  

Operating income (loss) (A)

   $ 22       $ 544      $ (8   $ (317

Exit costs

     0         (2,286     92        (6,485

Exit costs – equipment sale

     0         0        0        825   

Gain on sale of business to Impact

     0         0        0        5,849   
  

 

 

    

 

 

   

 

 

   

 

 

 

Discontinued operations, before income taxes

     22         (1,742     84        (128

Income tax expense (benefit)

     11         (611     29        (46
  

 

 

    

 

 

   

 

 

   

 

 

 

Discontinued operations, net of tax

   $ 11       $ (1,131   $ 55      $ (82
  

 

 

    

 

 

   

 

 

   

 

 

 

 

(A) During the quarter ended June 30, 2011, the Company recorded a write down of inventory to net realizable value of $2,498,000, which was included in cost of sales of the discontinued operations. During the quarter ended September 30, 2011, the Company was able to sell certain of the inventory written down during the quarter ended June 30, 2011 for amounts greater than its adjusted carrying value resulting in higher gross profit of $563,000 of the discontinued operations for the quarter ended September 30, 2011.

The following table presents the carrying values of the major accounts of discontinued operations that are included in the condensed consolidated balance sheet (in thousands):

 

     December 31,
2012
     March 31,
2012
     December 31,
2011
 

Accounts receivable, net

   $ 0       $ 78       $ 13,543   

Inventories

     0         105         131   

Other current assets

     0         0         226   
  

 

 

    

 

 

    

 

 

 

Total assets attributable to discontinued operations

   $ 0       $ 183       $ 13,900   
  

 

 

    

 

 

    

 

 

 

Accrued customer programs

   $ 179       $ 237       $ 701   

Restructuring reserve

     45         830         1,738   

Other current liabilities

     275         1,323         3,241   
  

 

 

    

 

 

    

 

 

 

Total liabilities associated with discontinued operations

   $ 499       $ 2,390       $ 5,680   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

(4) BUSINESS RESTRUCTURING

On March 27, 2012, the Company combined the operations of its Berwick Offray LLC (“Berwick Offray”) and PMG subsidiaries in order to drive sales growth by providing stronger management oversight and by reallocating sales and marketing resources in a more strategic manner. Involuntary termination benefits offered to terminated employees were in accordance with the applicable terms of the Company’s applicable pre-existing severance plans. As part of the restructuring plan, the Company recorded a restructuring reserve of $706,000 related to employee severance charges in the fourth quarter of fiscal 2012. Also during the fourth quarter of fiscal 2012, the Company made payments of $117,000 for costs related to severance. During the three and nine months ended December 31, 2012, the Company made payments of $103,000 and $447,000, respectively, for costs related to severance. Additionally, there was a reduction in the restructuring accrual of $11,000 during the nine months ended December 31, 2012 for costs that were less than originally estimated. The remaining liability of $132,000 and $590,000 is classified in other current liabilities in the accompanying condensed consolidated balance sheet as of December 31, 2012 and March 31, 2012, respectively. This amount will be paid in fiscal 2013.

(5) 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. Service-based options outstanding as of December 31, 2012 become exercisable at the rate of 25% per year commencing one year after the date of grant. Market-based stock options outstanding as of such date will become exercisable only if certain market conditions and service requirements are satisfied, and the date(s) on which they become exercisable will depend on the period in which such market conditions and service requirements are met, if at all. Market-based restricted stock units (“RSUs”) outstanding at December 31, 2012 will vest only if certain market conditions and service requirements have been met, and the date(s) on which they vest will depend on the period in which such market conditions and service requirements are met, if at all. Subject to limited exceptions, service-based RSUs outstanding as of December 31, 2012 vest at the rate of 50% of the shares underlying the grant on each of the third and fourth anniversaries of the grant date.

On May 24, 2011, our 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. At December 31, 2012, 771,623 shares were available for grant under the 2004 Plan.

The fair value of each market-based stock option and each market-based RSU granted under the above plan for the nine months ended December 31, 2012 and 2011 was estimated on the date of grant using Monte Carlo simulation. The fair value of each service-based RSU granted during the nine months ended December 31, 2011 was estimated on the day of grant based on the closing price of the Company’s common stock reduced by the present value of the expected dividend stream during the vesting period using the risk-free interest rate.

The weighted average fair value of stock options granted during the nine months ended December 31, 2012 and 2011 was $7.30 and $6.87, respectively. The weighted average fair value of restricted stock units granted during the nine months ended December 31, 2012 and 2011 was $14.78 and $16.25.

 

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Table of Contents

2011 Stock Option Plan for Non-Employee Directors

Under the terms of the Company’s 2011 Stock Option Plan for Non-Employee Directors (“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. Under the 2011 Plan, 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 of each year 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. At December 31, 2012, 114,000 shares were available for grant under the 2011 Plan.

The fair value of each stock option granted under the above plans was estimated on the date of grant using the Black-Scholes option pricing model with the following average assumptions:

 

     For the Nine Months  
     Ended December 31,  
     2012     2011  

Expected dividend yield at time of grant

     2.92     3.21

Expected stock price volatility

     54     54

Risk-free interest rate

     0.61     2.14

Expected life of option (in years)

     5.0        5.1   

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.

As of December 31, 2012, there was $1,463,000 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 2.3 years. As of December 31, 2012, there was $1,747,000 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 2.3 years.

Compensation cost related to stock options and RSUs recognized in operating results (included in selling, general and administrative expenses) was $400,000 and $430,000 in the quarters ended December 31, 2012 and 2011, respectively, and was $1,314,000 and $1,386,000 for the nine months ended December 31, 2012 and 2011, respectively.

(6) 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. Realized losses of $50,000 and $56,000 were recorded in the three and nine months ended December 31, 2012. Realized gains of $38,000 and $123,000 were recorded in the three and nine months ended December 31, 2011. As of December 31, 2012 and 2011, the notional amount of open foreign currency forward contracts was $5,230,000 and $3,599,000, respectively. The related unrealized loss was $13,000 at December 31, 2012 and the related unrealized gain was $17,000 at December 31, 2011. The Company believes that it does not have significant counterparty credit risks as of December 31, 2012.

 

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Table of Contents

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 December 31, 2012 and 2011 (in thousands):

 

    

Fair Value of Derivative Instruments

 
          Fair Value  
    

Balance Sheet

Location

   December 31,
2012
     December 31,
2011
 

Foreign currency forward contracts

   Other current liabilities    $ 13       $ 0   

Foreign currency forward contracts

   Other current assets      0         17   

(7) 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. In connection with the sale of the Halloween portion of PMG’s business on September 5, 2012, a portion of the goodwill associated with the PMG reporting unit was allocated to the business being sold. Such allocation was made on the basis of the fair value of the assets being sold relative to the overall fair value of the PMG reporting unit. This resulted in the Company recording a reduction of goodwill in the amount of $2,711,000 for the PMG reporting unit. As the sale of the Halloween portion of PMG’s business was a triggering event, the Company performed an interim impairment test on the goodwill remaining in the PMG reporting unit after the reduction in goodwill associated with the sale of the Halloween portion of PMG’s business was recorded. The Company determined that no impairment existed for the remainder of the goodwill of the PMG reporting unit.

The change in the carrying amount of goodwill for the nine months ended December 31, 2012 is as follows (in thousands):

 

Balance as of March 31, 2012

   $ 17,233   

Reduction related to disposition of product line

     (2,711
  

 

 

 

Balance as of December 31, 2012

   $ 14,522   
  

 

 

 

The gross carrying amount and accumulated amortization of other intangible assets is as follows (in thousands):

 

     December 31, 2012      March 31, 2012      December 31, 2011  
     Gross
Carrying
Amount
     Accumulated
Amortization
     Gross
Carrying
Amount
     Accumulated
Amortization
     Gross
Carrying
Amount
     Accumulated
Amortization
 

Tradenames and trademarks

   $ 12,793       $ 0       $ 12,793       $ 0       $ 12,793       $ 0   

Customer relationships

     22,057         7,484         22,057         6,358         22,057         5,984   

Non-compete

     0         0         200         200         200         200   

Trademarks

     403         235         403         213         403         205   

Patents

     1,301         389         1,301         294         1,337         272   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 36,554       $ 8,108       $ 36,754       $ 7,065       $ 36,790       $ 6,661   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Amortization expense related to intangible assets was $414,000 and $424,000 for the quarters ended December 31, 2012 and 2011, respectively, and was $1,243,000 and $1,279,000 for the nine months ended December 31, 2012 and 2011, respectively. Based on the current composition of intangibles, amortization expense for the remainder of fiscal 2013 and each of the succeeding four years is projected to be as follows (in thousands):

 

Remainder of fiscal 2013

   $ 415   

Fiscal 2014

     1,658   

Fiscal 2015

     1,639   

Fiscal 2016

     1,638   

Fiscal 2017

     1,638   

 

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Table of Contents

(8) TREASURY STOCK TRANSACTIONS

On December 11, 2012, the Company purchased, under the Company’s stock repurchase program, an aggregate 80,000 shares of its common stock from a trust established by a director of the Company. The terms of the purchase were negotiated on behalf of the Company by a Special Committee of the Board of Directors consisting of four independent, disinterested directors. The price of $20.00 per share was less than the fair market value of a share of the Company’s common stock on the date of the transaction. The Special Committee unanimously authorized the purchase. The total amount of this transaction was $1,600,000.

Under a stock repurchase program authorized by the Company’s Board of Directors, the Company repurchased 251,180 shares (inclusive of the 80,000 shares described above) of the Company’s common stock for $4,864,000 (inclusive of the $1,600,000 described above) during the nine months ended December 31, 2012 and repurchased 40,523 shares of the Company’s common stock for $742,000 during the nine months ended December 31, 2011. On July 31, 2012, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 500,000 shares of the Company’s common stock. As of December 31, 2012, the Company had 473,610 shares remaining available for repurchase under the Board’s authorization.

(9) 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.

(10) FAIR VALUE MEASUREMENTS

Recurring 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 condensed consolidated balance sheet at fair value based on quotes obtained from financial institutions as of December 31, 2012.

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 condensed consolidated balance sheets. The fair value of the investments is based on the market price of the mutual funds as of December 31, 2012.

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 condensed consolidated balance sheets and is based on quotes obtained from the insurance company as of December 31, 2012.

To increase consistency and comparability in fair value measurements, the Financial Accounting Standards Board (“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.

 

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Table of Contents

The Company’s recurring assets and liabilities recorded on the condensed consolidated balance sheet are categorized based on the inputs to the valuation techniques as follows:

Level 1 – Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access.

Level 2 – Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Examples of Level 2 inputs 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 condensed consolidated balance sheet as of December 31, 2012 and 2011 (in thousands):

 

            Fair Value Measurements at December 31, 2012 Using  
     December 31,
2012
     Quoted Prices In
Active Markets
for Identical
Assets (Level 1)
     Significant
Other
Observable
Inputs (Level 2)
     Significant
Unobservable
Inputs (Level 3)
 

Assets

           

Marketable securities

   $ 633       $ 633       $ 0       $ 0   

Cash surrender value of life insurance policies

     937         0         937         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 1,570       $ 633       $ 937       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Deferred compensation plans

   $ 633       $ 633       $ 0       $ 0   

Foreign exchange contracts

     13         0         13         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 646       $ 633       $ 13       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

 
            Fair Value Measurements at December 31, 2011 Using  
     December 31,
2011
     Quoted Prices In
Active Markets
for Identical
Assets (Level 1)
     Significant
Other
Observable
Inputs (Level 2)
     Significant
Unobservable
Inputs (Level 3)
 

Assets

           

Marketable securities

   $ 617       $ 617       $ 0       $ 0   

Cash surrender value of life insurance policies

     910         0         910         0   

Foreign exchange contracts

     17         0         17         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 1,544       $ 617       $ 927       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Deferred compensation plans

   $ 617       $ 617       $ 0       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 617       $ 617       $ 0       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses (included in other current liabilities in the condensed consolidated balance sheet) are reflected at carrying value in the condensed consolidated balance sheets as such amounts are a reasonable estimate of their fair values due to the short-term nature of these instruments.

 

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Table of Contents

The carrying value of the Company’s note receivable (included in other current assets and other assets in the condensed consolidated balance sheet) is a reasonable estimate of its fair value as the terms of the note reflect market conditions for similar entities.

Nonrecurring Fair Value Measurements

The Company’s nonfinancial assets which are measured at fair value on a nonrecurring basis include property, plant and equipment, goodwill, intangible assets and certain other assets. These assets are not measured at fair value on a recurring basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence that impairment may exist. In making the assessment of impairment, recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset group to future net cash flows estimated by the Company to be generated by such assets. 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. Assets to be disposed of are recorded at the lower of their carrying value or estimated net realizable value.

Goodwill and indefinite-lived intangibles are subject to impairment testing on an annual basis, or sooner if circumstances indicate a condition of impairment may exist. The valuations use assumptions such as interest and discount rates, growth projections and other assumptions of future business conditions. These valuation methods require a significant degree of management judgment concerning the use of internal and external data. In the event these methods indicate that fair value is less than the carrying value, the asset is recorded at fair value as determined by the valuation models. Accordingly, these fair value measurements fall in Level 3 of the fair value hierarchy.

In connection with the sale of the Halloween portion of PMG’s business on September 5, 2012, a portion of the goodwill associated with the PMG reporting unit was allocated to the business being sold. Such allocation was made on the basis of the fair value of the assets being sold relative to the overall fair value of the PMG reporting unit. This resulted in the Company recording a reduction of goodwill in the amount of $2,711,000 for the PMG reporting unit. As the sale of the Halloween portion of PMG’s business was a triggering event, the Company performed an interim impairment test on the goodwill remaining in the PMG reporting unit after the reduction in goodwill associated with the sale of the Halloween portion of PMG’s business was recorded. The Company determined that no impairment existed for the remainder of the goodwill of the PMG reporting unit. There were no other indications or circumstances indicating that an impairment might exist in regard to the Company’s other nonfinancial assets which are measured at fair value on a nonrecurring basis as of December 31, 2012.

(11) RECENT ACCOUNTING PRONOUNCEMENTS

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”) which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This standard eliminates the option to report other comprehensive income and its components in the statement of changes in equity. In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”). The amendments in ASU 2011-12 defer the requirement to present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. The amendments in ASU 2011-12 are effective at the same time as ASU 2011-05 so that entities will not be required to comply with the presentation requirements in ASU 2011-05 that ASU 2011-12 is deferring. The amendments in ASU 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. As this standard impacts presentation only, the adoption of ASU 2011-05, as amended by ASU 2011-12, did not impact the Company’s financial condition, results of operations and cash flows.

 

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In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment” (“ASU 2011-08”), which amends existing guidance by giving an entity the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If this is the case, a more detailed two-step goodwill impairment test will need to be performed which is used to identify potential goodwill impairments and to measure the amount of goodwill impairment losses to be recognized, if any. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The adoption of ASU 2011-08 did not have a material impact on the Company’s financial condition, results of operations and cash flows.

In December 2011, the FASB issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This update is intended to improve the comparability of statements of financial position prepared in accordance with U.S. GAAP and International Financial Reporting Standards, requiring both gross and net presentation of offsetting assets and liabilities. The new requirements are effective for fiscal years beginning on or after January 1, 2013, and for interim periods within those fiscal years. As this guidance only affects disclosures, the adoption of this standard will not have an impact on the Company’s financial condition, results of operations and cash flows.

In July 2012, the FASB issued ASU 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”), which amends existing guidance by giving an entity the option to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If this is the case, a more detailed fair value calculation will need to be performed which is used to identify potential impairments and to measure the amount of impairment losses to be recognized, if any. To perform a qualitative assessment, an entity must identify and evaluate changes in economic, industry and entity-specific events and circumstances that could affect the significant inputs used to determine the fair value of an indefinite-lived intangible asset. ASU 2012-02 is effective for annual and interim impairment tests performed by the Company for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company will adopt the provisions of ASU 2012-02 effective April 1, 2013. The Company does not expect the adoption of ASU 2012-02 to have a material impact on the Company’s future indefinite-lived intangibles impairment tests.

 

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CSS INDUSTRIES, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

STRATEGIC OVERVIEW

Approximately 54% of the Company’s prior year sales were attributable to all occasion products with the remainder attributable to seasonal (Christmas, Valentine’s Day, Easter and Halloween) 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. The Company believes that its 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 Company’s 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 consider acquisitions as a strategy to stimulate further growth.

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 a purchasing office 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 nine fiscal years, the Company has closed six manufacturing plants and seven warehouses totaling 2,680,000 square feet. Additionally, in the last four fiscal years, the Company has combined the operations of its Berwick Offray LLC (“Berwick Offray”) and Paper Magic Group, Inc. (“PMG”) subsidiaries in order to drive sales growth by providing stronger management oversight and by reallocating sales and marketing resources in a more strategic manner; consolidated its human resources, accounts receivable, accounts payable and payroll functions into a combined back office operation; and completed the implementation of a phase of the Company’s enterprise resource planning systems standardization project.

On September 5, 2012, the Company and its PMG subsidiary sold the Halloween portion of PMG’s business and certain PMG assets relating to such business, including certain tangible and intangible assets associated with PMG’s Halloween business, to Gemmy Industries (HK) Limited (“Gemmy”). PMG’s remaining Halloween assets, including accounts receivable and inventory, were excluded from the sale. PMG retained the right and obligation to fulfill all customer orders for PMG Halloween products (such as Halloween masks, costumes, make-up and novelties) for the Halloween 2012 season. The purchase price of $2,281,000 was paid to PMG at closing.

On September 9, 2011, the Company and its Cleo Inc (“Cleo”) subsidiary sold the Christmas gift wrap portion of Cleo’s business and certain of Cleo’s assets relating to such business, including certain equipment, contract rights, customer lists, intellectual property and other intangible assets to Impact Innovations, Inc. (“Impact”). Cleo’s remaining assets, including accounts receivable and inventory, were excluded from the sale. Cleo retained the right and obligation to fulfill all customer orders for Cleo Christmas gift wrap products for Christmas 2011. The purchase price was $7,500,000, of which $2,000,000 was paid to Cleo in cash at closing. The remainder of the purchase price was paid through the issuance by Impact of an unsecured subordinated promissory note, which provides for quarterly payments of interest at 7% and principal payments as follows: $500,000 on March 1, 2012; $2,500,000 on March 1, 2013; and all remaining principal and interest on March 1, 2014. All interest payments to date and the $500,000 principal payment due on March 1, 2012 were paid when due. Subsequent to the quarter ended December 31, 2012, the Company also received a $2,500,000 principal payment on January 23, 2013 in advance of the March 1, 2013 due date. The results of operations for the three and nine month periods ended December 31, 2012 and 2011 reflect the historical operations of the Cleo Christmas gift wrap business as discontinued operations and the discussion herein is presented on the basis of continuing operations, unless otherwise stated.

 

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CRITICAL ACCOUNTING POLICIES

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The significant accounting policies of the Company are described in the notes to the consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended March 31, 2012. Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in many areas. Following are some of the areas requiring significant judgments and estimates: revenue; the assessment of the recoverability of goodwill and other intangible and long-lived assets; the valuation of inventory and accounts receivable; income tax accounting; the valuation of stock-based awards and resolution of litigation and other proceedings. There have been no material changes to the critical accounting policies affecting the application of those accounting policies as noted in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2012.

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 Company’s fiscal year, which ends March 31, thereby causing significant fluctuations in the quarterly results of operations of the Company.

Nine Months Ended December 31, 2012 Compared to Nine Months Ended December 31, 2011

Sales for the nine months ended December 31, 2012 decreased 4% to $310,572,000 from $323,534,000 in the nine months ended December 31, 2011 primarily due to lower sales of Christmas boxed greeting cards, ribbons and bows, partially offset by the earlier timing of Valentine shipments compared to the prior year and higher sales of gift card holders.

Cost of sales, as a percentage of sales, decreased to 69% in the nine months ended December 31, 2012 compared to 70% in the nine months ended December 31, 2011. This favorable decrease was primarily due to manufacturing efficiencies and lower commodity and freight costs compared to the prior year, partially offset by a write-down of inventory to net realizable value of $966,000 related to the sale of the Halloween portion of PMG’s business.

Selling, general and administrative (“SG&A”) expenses of $61,934,000 in the nine months ended December 31, 2012 decreased from $65,533,000 in the nine months ended December 31, 2011 primarily due to reduced payroll and related costs.

Disposition of product line, net of $5,798,000 recorded in the nine months ended December 31, 2012 primarily relates to costs associated with the sale of the Halloween portion of PMG’s business, including severance of $1,282,000, facility closure costs of $1,375,000, professional fees of $1,341,000, a write-down of assets of $1,370,000 and a reduction of goodwill of $2,711,000. These costs were offset by proceeds received from the sale of $2,281,000. The Company incurred $523,000 of transaction costs, which is included in the aforementioned professional fees, yielding net proceeds of $1,758,000. A portion of the goodwill associated with the PMG reporting unit was required to be allocated to the business being sold. Such allocation was made on the basis of the fair value of the assets being sold relative to the overall fair value of the PMG reporting unit. See Note 2 to the condensed consolidated financial statements for further discussion.

 

 

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Interest income, net was $68,000 in the nine months ended December 31, 2012 compared to interest expense, net of $227,000 in the nine months ended December 31, 2011. The change was primarily due to there being no borrowings under the Company’s revolving credit facility in the current year versus the prior year (during which the Company had borrowings) and interest income received on the note receivable from Impact (issued by Impact as part of its purchase of the Cleo Christmas wrap business on September 9, 2011).

Income from continuing operations before income taxes for the nine months ended December 31, 2012 was $27,945,000 compared to $29,677,000 for the nine months ended December 31, 2011 as improved margins and lower SG&A expenses in the current year were offset by the impact of lower sales volume and the charges related to the sale of the Halloween portion of PMG’s business.

Income taxes, as a percentage of income before taxes, were 37% and 36% in the nine months ended December 31, 2012 and 2011, respectively. The increase in income taxes in the nine months ended December 31, 2012 was primarily attributable to a portion of the goodwill reduction being non-deductible for tax purposes, partially offset by the release of a valuation allowance related to state net operating loss carryforwards.

Income from discontinued operations, net of tax of $55,000 for the nine months ended December 31, 2012 reflects pre-tax income of $84,000 related to the Cleo Christmas gift wrap business which was sold on September 9, 2011. The loss from discontinued operations, net of tax of $82,000 for the nine months ended December 31, 2011 includes a pre-tax operating loss of the Cleo Christmas gift wrap business of $317,000 which includes a non-cash write-down of inventory to net realizable value; a pre-tax gain of $5,849,000 related to the sale of the Cleo Christmas gift wrap business and certain of Cleo’s assets to Impact; pre-tax proceeds of $825,000 related to the sale of the remaining equipment located in Cleo’s former Memphis, Tennessee manufacturing facility to a third party; and pre-tax exit costs of $6,485,000 consisting primarily of facility and staff termination costs.

Three Months Ended December 31, 2012 Compared to Three Months Ended December 31, 2011

Sales for the three months ended December 31, 2012 decreased 10% to $116,020,000 from $129,240,000 in the three months ended December 31, 2011 primarily due to lower sales of Christmas products, partially offset by the earlier timing of Valentine shipments compared to the prior year.

Cost of sales, as a percentage of sales, were 68% in the three months ended December 31, 2012 and 2011.

SG&A expenses of $20,510,000 in the three months ended December 31, 2012 decreased from $22,446,000 in the three months ended December 31, 2011 primarily due to reduced payroll and related costs.

Interest income, net was $1,000 in the three months ended December 31, 2012 compared to interest expense, net of $73,000 in the three months ended December 31, 2011. The change was primarily due to there being no borrowings under the Company’s revolving credit facility in the third quarter of fiscal 2013 versus the same quarter in the prior year (during which the Company had borrowings).

Income from continuing operations before income taxes for the three months ended December 31, 2012 was $17,019,000 compared to $18,857,000 in 2011 primarily due to the impact of lower sales volume, partially offset by favorable margins and lower SG&A expenses compared to the same quarter in the prior year.

Income taxes, as a percentage of income before taxes, were 32% and 36% in the three months ended December 31, 2012 and 2011, respectively. The decrease in income taxes in the three months ended December 31, 2012 was primarily attributable to the release of a valuation allowance related to state net operating loss carryforwards.

 

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Income from discontinued operations, net of tax for the three months ended December 31, 2012 reflects pre-tax income of $22,000 related to the Cleo Christmas gift wrap business. The loss from discontinued operations, net of tax for the three months ended December 31, 2011 includes pre-tax operating income of the Christmas gift wrap business of $544,000 and pre-tax exit costs of $2,286,000 consisting primarily of facility and staff termination costs.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2012, the Company had working capital of $179,112,000 and stockholders’ equity of $252,465,000. Operating activities of continuing operations used net cash of $343,000 during the nine months ended December 31, 2012 compared to $34,090,000 in the nine months ended December 31, 2011. Net cash used for operating activities from continuing operations during the nine months ended December 31, 2012 reflects our working capital requirements which resulted in an increase in accounts receivable of $53,546,000 due to seasonal billings of current year Christmas accounts receivable, net of current year collections, offset by an increase in other accrued liabilities of $17,270,000 due to increased accruals for income taxes, royalties and sales commissions. Also contributing to the increase in other current liabilities is the reserve of $2,037,000 related to the sale of the Halloween portion of PMG’s business during the second quarter of fiscal 2013. Included in net income for the nine months ended December 31, 2012 were non-cash charges for depreciation and amortization of $5,757,000, a reduction in goodwill of $2,711,000 related to the sale of the Halloween portion of PMG’s business, and share-based compensation of $1,314,000. Net cash used for operating activities from continuing operations during the nine months ended December 31, 2011 reflects our working capital requirements which resulted in an increase in accounts receivable of $69,325,000 due to seasonal billings of prior year Christmas accounts receivable, net of prior year collections, offset by an increase in other accrued liabilities of $11,485,000 due to increased accruals for income taxes, royalties, sales commissions, incentive compensation and freight. Included in net income for the nine months ended December 31, 2011 were non-cash charges for depreciation and amortization of $5,878,000, a pre-tax gain of $5,849,000 related to the sale of the Cleo Christmas gift wrap business and certain of Cleo’s assets to Impact, and share-based compensation of $1,386,000.

Our investing activities of continuing operations used net cash of $1,495,000 in the nine months ended December 31, 2012, consisting primarily of capital expenditures of $3,269,000, partially offset by net proceeds of $1,758,000 from the sale of the Halloween portion of PMG’s business. In the nine months ended December 31, 2011, our investing activities consisted primarily of capital expenditures of $2,489,000.

Our financing activities used net cash of $9,241,000 in the nine months ended December 31, 2012, consisting primarily of payments of cash dividends of $4,310,000 and purchases of treasury stock of $4,864,000. In the nine months ended December 31, 2011, financing activities used net cash of $5,525,000, consisting primarily of payments of cash dividends of $4,378,000 and purchases of treasury stock of $742,000.

The Company relies primarily on cash generated from its operations and seasonal borrowings to meet its liquidity requirements. Historically, a significant portion of the Company’s revenues have been seasonal, primarily Christmas related, with approximately 70% 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, working capital has historically increased in the second and third quarters, peaking prior to Christmas and dropping thereafter. However, the sale of the Christmas gift wrap portion of Cleo’s business has decreased the Company’s seasonal working capital and the sale of the Halloween portion of PMG’s business will decrease the Company’s future seasonal working capital. Seasonal financing requirements are available under a revolving credit facility with two banks. Reflecting the seasonality of the Company’s business, the maximum credit available at any one time under the credit facility (“Commitment Level”) adjusts to $50,000,000 from February to June (“Low Commitment Period”), $100,000,000 from July to October (“Medium Commitment Period”) and $150,000,000 from November to January (“High Commitment Period”) in each respective year over the term of the facility. The Company has the option to increase the Commitment Level during part of any Low Commitment Period from $50,000,000 to an amount not less than $62,500,000 and not in excess of $125,000,000; provided, however, that the Commitment Level must remain at $50,000,000 for at least three consecutive months during each Low Commitment Period. The Company has the option to increase the Commitment Level during all or part of any Medium Commitment Period from $100,000,000 to an amount not in excess $125,000,000. Fifteen days prior written notice is required for the Company to exercise an option to increase the Commitment Level with respect to a particular Low Commitment Period or Medium Commitment Period. The Company may exercise an option to increase the Commitment Level no more than three times each calendar year. This facility is due to expire on March 17, 2016. This financing facility is available to fund the Company’s seasonal working capital 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, 2012, there were no borrowings outstanding under the Company’s revolving credit facility. The Company is in compliance with all financial debt covenants as of December 31, 2012. 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.

 

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As of December 31, 2012, the Company’s letter of credit commitments are as follows (in thousands):

 

     Less than 1
Year
     1-3
Years
     4-5
Years
     After 5
Years
     Total  

Letters of credit

   $ 2,493         0         0         0       $ 2,493   

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, 2012, the Company is committed to purchase approximately $705,000 of electric power from a vendor through December 31, 2013. The Company believes the minimum commodity purchases under this agreement are well within the Company’s annual commodity requirements. The Company is also committed to pay guaranteed minimum royalties attributable to sales of certain licensed products. Reference is made to contractual obligations included in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2012. There have been no significant changes to contractual obligations.

In the ordinary course of business, the Company enters into arrangements with vendors to purchase merchandise in advance of expected delivery. These purchase orders do not contain any significant termination payments or other penalties if cancelled.

LABOR RELATIONS

With the exception of the bargaining unit at the ribbon manufacturing facility in Hagerstown, Maryland, which totaled approximately 103 employees as of December 31, 2012, 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 the Hagerstown-based production and maintenance employees remains in effect until December 31, 2014.

ACCOUNTING PRONOUNCEMENTS

See Note 11 to the consolidated financial statements for information concerning recent accounting pronouncements and the impact of those standards.

 

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FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the Company’s estimated future cash expenditures for restructuring charges; the continued consideration by management of acquisitions and other initiatives to stimulate growth; aggressively pursuing new product initiatives, pursuing sales growth within certain identified product categories, driving sales growth by providing stronger management oversight and by reallocating sales and marketing resources in a more strategic manner; the expected future impact of legal proceedings; the anticipated effects of measures taken by the Company to respond to sales volume, cost and price pressures; the expected reduction of the Company’s seasonal borrowing needs due to the sale of the Cleo Christmas gift wrap business and PMG Halloween business; the expected amount and timing of future amortization expense; and the Company’s belief that its sources of available capital are adequate to meet its future cash needs for at least the next 12 months. Forward-looking statements are based on the beliefs of the Company’s management as well as assumptions made by and information currently available to the Company’s management as to future events and financial performance with respect to the Company’s 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); difficulties entering new markets and/or developing new products that drive incremental sales; 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; difficulties identifying and evaluating suitable acquisition opportunities; 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 combination of the operations of Berwick Offray and PMG; risks associated with the Company’s sale of the Halloween portion of its PMG business during the second quarter of fiscal 2013; risks associated with the Company’s restructuring activities, including the risk that the cost of such activities will exceed expectations, the risk that the expected benefits of such activities will not be realized, and the risk that implementation of such activities will interfere with and adversely affect the Company’s operations, sales 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, customs laws and consumer product safety regulations; and other factors described more fully in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2012 and elsewhere in the Company’s 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’s activities expose it to a variety of market risks, including the effects of changes in interest rates and foreign currency exchange rates. The Company actively monitors these exposures and, where considered appropriate, manages this risk. The Company manages its exposure to foreign currency fluctuations 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, 2012 have not materially changed from March 31, 2012 (see Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2012).

ITEM 4. CONTROLS AND PROCEDURES

 

(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 (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including the President and Chief Executive Officer and Vice President – Finance and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

 

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(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 third quarter of fiscal year 2013 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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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 30, 2012, 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’ 2011 Stock Option Plan for Non-Employee Directors (the “2011 Plan”). The 2011 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 2011 to 2015. In accordance with the automatic grant provisions of the 2011 Plan, each of the options granted on November 30, 2012: (i) has an exercise price of $20.52 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 2011 Plan, and none was received.

The options granted pursuant to the 2011 Plan were not registered under the Securities Act of 1933, as amended (the “Securities Act”). CSS believes that the issuance of the 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.

Share Repurchase Program

A total of 110,997 shares were repurchased at an average price of $19.94 in the third quarter of fiscal 2013. As of December 31, 2012, there remained an outstanding authorization to repurchase 473,610 shares of outstanding CSS common stock as represented in the table below.

 

     Total Number of
Shares Purchased
    Average Price
Paid Per
Share
     Total Number of
Shares Purchased
as Part of  Publicly
Announced
Program (3)
     Maximum Number
of Shares that May
Yet Be Purchased
Under the Program (3)
 

October 1 through October 31, 2012

     3,219 (1)    $ 19.03         3,219         581,388   

November 1 through November 30, 2012

     27,778 (1)      19.89         27,778         553,610   

December 1 through December 31, 2012

     80,000 (2)      20.00         80,000         473,610   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total Third Quarter

     110,997      $ 19.94         110,997         473,610   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

(1) All share repurchases were effected in open-market transactions and in accordance with the safe harbor provisions of Rule 10b-18 of the Exchange Act.
(2) On December 11, 2012, the Company purchased an aggregate 80,000 shares of its common stock from a trust established by a director of the Company. The terms of the purchase were negotiated on behalf of the Company by a Special Committee of the Board of Directors consisting of four independent, disinterested directors. The Special Committee unanimously authorized the purchase. The total amount of this transaction was $1,600,000.
(3) On October 23, 2008 and July 31, 2012, the Company announced that its Board of Directors had authorized the repurchase of up to 500,000 and 500,000 shares, respectively, of the Company’s common stock (the “Repurchase Program”). As of December 31, 2012, the Company repurchased an aggregate of 526,390 shares pursuant to this Repurchase Program. An expiration date has not been established for the Repurchase Program.

 

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Item 6. Exhibits

 

 

 

  Exhibit 3.1      Bylaws of CSS Industries, Inc., amended and restated as of December 4, 2012 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on December 10, 2012).
  Exhibit 10.1      Employment Agreement between Jack Farber and CSS Industries, Inc. dated December 5, 2012 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 10, 2012).
  *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.
  **101.DEF      XBRL Taxonomy Extension Definition Linkbase Document.

 

* Filed with this Quarterly Report on Form 10-Q.
** Furnished with this Quarterly Report on Form 10-Q.

 

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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 6, 2013   By:   /s/ Christopher J. Munyan
   

 

    Christopher J. Munyan
    President and Chief Executive Officer
    (principal executive officer)
Date: February 6, 2013   By:   /s/ Vincent A. Paccapaniccia
   

 

    Vincent A. Paccapaniccia
    Vice President – Finance and Chief Financial Officer
    (principal financial and accounting officer)

 

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