UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the quarterly period ended
December 31, 2008
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the transition period from
to
Commission file number 1-2661
CSS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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13-1920657
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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1845 Walnut Street, Philadelphia, PA
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19103
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(Address of principal executive offices)
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(Zip Code)
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(215) 569-9900
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ
Yes
o
No
Indicate by check mark whether the registrant 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.
(Check one):
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.)
o
Yes
þ
No
As of February 2, 2009, there were 9,605,331 shares of common stock outstanding which excludes
shares which may still be issued upon exercise of stock options or upon vesting of restricted stock
unit grants.
CSS INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
2
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended
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Nine Months Ended
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December 31,
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December 31,
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(In thousands, except per share data)
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2008
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2007
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2008
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2007
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SALES
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$
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197,122
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$
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222,170
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$
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425,930
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$
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441,854
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COSTS AND EXPENSES
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Cost of sales
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147,967
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160,788
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315,134
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320,990
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Selling, general and administrative expenses
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23,104
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25,545
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74,218
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71,493
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Restructuring (income) expense, net
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(574
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)
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105
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(275
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)
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(2
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)
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Interest expense, net
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1,093
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810
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2,293
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720
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Other expense (income), net
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225
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(51
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)
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195
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(452
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)
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171,815
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187,197
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391,565
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392,749
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INCOME BEFORE INCOME TAXES
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25,307
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34,973
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34,365
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49,105
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INCOME TAX EXPENSE
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8,895
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12,119
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11,945
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17,143
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NET INCOME
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$
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16,412
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$
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22,854
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$
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22,420
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$
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31,962
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NET INCOME PER COMMON SHARE
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Basic
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$
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1.69
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$
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2.12
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$
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2.24
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$
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2.95
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Diluted
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$
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1.68
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$
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2.07
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$
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2.22
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$
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2.88
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WEIGHTED AVERAGE SHARES OUTSTANDING
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Basic
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9,734
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10,759
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10,010
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10,833
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Diluted
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9,796
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11,036
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10,120
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11,115
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CASH DIVIDENDS PER SHARE OF COMMON STOCK
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$
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.15
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$
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.14
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$
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.45
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$
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.42
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COMPREHENSIVE INCOME
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Net income
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$
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16,412
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$
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22,854
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$
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22,420
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$
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31,962
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Foreign currency translation adjustment
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1
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2
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2
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Comprehensive income
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$
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16,412
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$
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22,855
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$
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22,422
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$
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31,964
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See notes to consolidated financial statements.
3
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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December 31,
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March 31,
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(In thousands)
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2008
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2008
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ASSETS
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CURRENT ASSETS
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Cash and cash equivalents
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$
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5,492
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$
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28,109
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Accounts receivable, net
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145,513
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39,144
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Inventories
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96,303
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105,532
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Deferred income taxes
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5,457
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7,276
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Assets held for sale
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1,363
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3,590
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Other current assets
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12,732
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16,242
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Total current assets
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266,860
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199,893
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PROPERTY, PLANT AND EQUIPMENT, NET
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53,557
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50,632
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OTHER ASSETS
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Goodwill
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49,258
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48,361
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Intangible assets, net
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45,011
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42,454
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Other
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4,023
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3,701
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Total other assets
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98,292
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94,516
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Total assets
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$
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418,709
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$
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345,041
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LIABILITIES AND STOCKHOLDERS EQUITY
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CURRENT LIABILITIES
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Notes payable
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$
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67,400
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$
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Current portion of long-term debt
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10,417
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10,246
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Accrued customer programs
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13,061
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9,438
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Other current liabilities
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54,060
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44,209
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Total current liabilities
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144,938
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63,893
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LONG-TERM DEBT, NET OF CURRENT PORTION
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10,192
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LONG-TERM OBLIGATIONS
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4,974
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6,121
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DEFERRED INCOME TAXES
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3,304
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2,482
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STOCKHOLDERS EQUITY
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265,493
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262,353
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Total liabilities and stockholders equity
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$
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418,709
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$
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345,041
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See notes to consolidated financial statements.
4
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended
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December 31,
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(In thousands)
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2008
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|
2007
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Cash flows from operating activities:
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Net income
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$
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22,420
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$
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31,962
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Adjustments to reconcile net income to net cash used for
operating activities:
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Depreciation and amortization
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10,101
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9,855
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Provision for doubtful accounts
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206
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20
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Deferred tax provision
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2,641
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1,389
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Gain on sale of assets
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(771
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)
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(22
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)
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Compensation expense related to stock options
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2,006
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2,110
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Changes in assets and liabilities, net of effects from purchase
of a business:
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Increase in accounts receivable
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(105,465
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)
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(114,239
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)
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Decrease in inventory
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12,751
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3,449
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Decrease in other assets
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3,794
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1,707
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Increase in other liabilities
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14,832
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33,770
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Total adjustments
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(59,905
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)
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(61,961
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)
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Net cash used for operating activities
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(37,485
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)
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(29,999
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)
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Cash flows from investing activities:
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Purchase of a business
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(10,599
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)
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(68,000
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)
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Final payment of purchase price for a business previously acquired
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(2,700
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)
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Purchase of property, plant and equipment
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|
(10,731
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)
|
|
|
(4,039
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)
|
Proceeds from sale of assets
|
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|
3,062
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|
|
|
80
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net cash used for investing activities
|
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|
(20,968
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)
|
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(71,959
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)
|
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|
|
|
|
|
|
|
|
|
|
|
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Cash flows from financing activities:
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|
|
|
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Payments on long-term obligations
|
|
|
(10,198
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)
|
|
|
(10,088
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)
|
Borrowings on notes payable
|
|
|
489,290
|
|
|
|
178,400
|
|
Repayments on notes payable
|
|
|
(421,890
|
)
|
|
|
(128,400
|
)
|
Payment of financing transaction costs
|
|
|
(621
|
)
|
|
|
(103
|
)
|
Dividends paid
|
|
|
(4,498
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)
|
|
|
(4,537
|
)
|
Purchase of treasury stock
|
|
|
(16,687
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)
|
|
|
(10,762
|
)
|
Proceeds from exercise of stock options
|
|
|
433
|
|
|
|
3,589
|
|
Tax benefit realized for stock options exercised
|
|
|
5
|
|
|
|
658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
35,834
|
|
|
|
28,757
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(22,617
|
)
|
|
|
(73,199
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
28,109
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|
|
|
100,091
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|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
5,492
|
|
|
$
|
26,892
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
5
CSS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
(Unaudited)
(1)
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
|
Basis of Presentation
-
CSS Industries, Inc. (collectively with its subsidiaries, CSS or the Company) has prepared
the consolidated financial statements included herein pursuant to the rules and regulations of
the Securities and Exchange Commission. The Company has condensed or omitted certain
information and footnote disclosures normally included in consolidated financial statements
prepared in accordance with accounting principles generally accepted in the United States
pursuant to such rules and regulations. In the opinion of management, the statements include
all adjustments (which include normal recurring adjustments) required for a fair presentation of
financial position, results of operations and cash flows for the interim periods presented.
These consolidated financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Companys Annual Report on Form 10-K for
the fiscal year ended March 31, 2008. The results of operations for the interim periods are not
necessarily indicative of the results for the full year.
Principles of Consolidation
-
The consolidated financial statements include the accounts of the Company and all of its
subsidiaries. All significant intercompany transactions and accounts have been eliminated in
consolidation.
Nature of Business
-
CSS is a consumer products company primarily engaged in the design, manufacture, procurement,
distribution and sale of seasonal and all occasion products, principally to mass market
retailers. These products include gift wrap, gift bags, gift boxes, boxed greeting cards, gift
tags, decorative tissue paper, decorations, classroom exchange Valentines, decorative ribbons
and bows, floral accessories, Halloween masks, costumes, make-up and novelties, Easter egg dyes
and novelties, craft and educational products, memory books, stationery, journals, notecards,
infant and wedding photo albums and scrapbooks, and other gift items that commemorate lifes
celebrations. The seasonal nature of CSS business has historically resulted in lower sales
levels and operating losses in the first and fourth quarters and comparatively higher sales
levels and operating profits in the second and third quarters of the Companys fiscal year,
which ends March 31, thereby causing significant fluctuations in the quarterly results of
operations of the Company.
Foreign Currency Translation and Transactions
-
Translation adjustments are charged or credited to a separate component of stockholders equity.
Gains and losses on foreign currency transactions are not material and are included in other
expense (income), 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 Companys accounting policies in many areas. Such estimates pertain to the
valuation of inventory and accounts receivable, the assessment of the recoverability of goodwill
and other intangible assets, income tax accounting, the valuation of share-based awards and
resolution of litigation and other proceedings. Actual results could differ from these
estimates.
6
Goodwill
-
Goodwill is subject to an assessment for impairment using a two-step fair value-based test, the
first step of which must be performed at least annually, or more frequently if events or
circumstances indicate that goodwill might be impaired. The first step compares the fair value
of a reporting unit to its carrying amount, including goodwill. For each of the reporting
units, the estimated fair value is determined utilizing a multiple of earnings before interest,
income taxes, depreciation and amortization. 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
goodwill is less than the carrying amount of the goodwill, an impairment loss would be recorded.
Inventories
-
The Company records inventory when title is transferred, which occurs upon receipt or prior to
receipt dependent on supplier shipping terms. The Company adjusts unsaleable and slow-moving
inventory to its estimated net realizable value. Substantially all of the Companys inventories
are stated at the lower of first-in, first-out (FIFO) cost or market. The remaining portion of
the inventory is valued at the lower of last-in, first-out (LIFO) cost or market. Inventories
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Raw material
|
|
$
|
14,550
|
|
|
$
|
22,836
|
|
Work-in-process
|
|
|
20,457
|
|
|
|
29,827
|
|
Finished goods
|
|
|
61,296
|
|
|
|
52,869
|
|
|
|
|
|
|
|
|
|
|
$
|
96,303
|
|
|
$
|
105,532
|
|
|
|
|
|
|
|
|
Assets Held for Sale
-
Assets held for sale in the amount of $1,363,000 as of December 31, 2008 represents a former
manufacturing facility which the Company is in the process of selling. The Company expects to
sell this facility within the next 12 months for an amount greater than the current carrying
value. The Company ceased depreciating this facility at the time it was classified as held for
sale. Assets held for sale in the amount of $3,590,000 as of March 31, 2008 also included a
former manufacturing facility and a distribution facility which the Company sold in the third
quarter of fiscal 2009 resulting in a pre-tax gain of approximately $766,000, which is included
in restructuring (income) expense, net in the accompanying consolidated statement of operations.
Revenue Recognition
-
The Company recognizes revenue from product sales when the goods are shipped, title and risk of
loss have been transferred to the customer and collection is reasonably assured. Provisions for
returns, allowances, rebates to customers and other adjustments are provided in the same period
that the related sales are recorded.
7
Net 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, 2008 and 2007 (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,412
|
|
|
$
|
22,854
|
|
|
$
|
22,420
|
|
|
$
|
31,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic
income per common share
|
|
|
9,734
|
|
|
|
10,759
|
|
|
|
10,010
|
|
|
|
10,833
|
|
Effect of dilutive stock options
|
|
|
62
|
|
|
|
277
|
|
|
|
110
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average shares outstanding for
diluted income per common share
|
|
|
9,796
|
|
|
|
11,036
|
|
|
|
10,120
|
|
|
|
11,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$
|
1.69
|
|
|
$
|
2.12
|
|
|
$
|
2.24
|
|
|
$
|
2.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share
|
|
$
|
1.68
|
|
|
$
|
2.07
|
|
|
$
|
2.22
|
|
|
$
|
2.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Cash Flows
-
For purposes of the consolidated statements of cash flows, the Company considers all holdings of
highly liquid debt instruments with a maturity at time of purchase of three months or less to be
cash equivalents.
(2)
|
|
STOCK-BASED COMPENSATION:
|
2004 Equity Compensation Plan
Under the terms of the 2004 Equity Compensation Plan (2004 Plan), the Human Resources
Committee (Committee) of the Board of Directors may grant incentive stock options,
non-qualified stock options, restricted stock grants, stock appreciation rights, stock bonuses
and other awards to officers and other employees. Grants under the 2004 Plan may be made
through August 3, 2014. The term of each grant is at the discretion of the Committee, but in no
event greater than ten years from the date of grant. The Committee has discretion to determine
the date or dates on which granted options become exercisable. All options outstanding as of
December 31, 2008 become exercisable at the rate of 25% per year commencing one year after the
date of grant. Performance-vested restricted stock units (RSUs) vest on the third anniversary
of the date on which the award was granted, provided that certain performance metrics have been
met during the performance period, and time-vested RSUs vest at the rate of 50% of the shares
underlying the grant on each of the third and fourth anniversaries of the date on which the
award was granted. At December 31, 2008, there were 1,149,575 shares available for grant under
the 2004 Plan.
2006 Stock Option Plan for Non-Employee Directors
Under the terms of the CSS Industries, Inc. 2006 Stock Option Plan for Non-Employee Directors
(2006 Plan), non-qualified stock options to purchase up to 200,000 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 2006 Plan, options to
purchase 4,000 shares of the Companys common stock will be granted automatically to each
non-employee director on the last day that the Companys common stock is traded in each November
until 2010. Each option will expire five years after the date the option is granted and
commencing one year after the date of grant, options begin vesting and are exercisable at the
rate of 25% per year. At December 31, 2008, there were 132,000 shares available for grant under
the 2006 Plan.
8
The fair value of each stock option granted 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,
|
|
|
|
2008
|
|
|
2007
|
|
Expected dividend yield at time of grant
|
|
|
2.47
|
%
|
|
|
1.56
|
%
|
Expected stock price volatility
|
|
|
37
|
%
|
|
|
29
|
%
|
Risk-free interest rate
|
|
|
3.04
|
%
|
|
|
4.61
|
%
|
Expected life of option (in years)
|
|
|
4.4
|
|
|
|
4.3
|
|
Expected volatilities are based on historical volatility of the Companys common stock. The
expected life of the option is estimated using historical data pertaining to option exercises
and employee terminations. The risk-free interest rate is based on U.S. Treasury yields in
effect at the time of grant.
The weighted average fair value of stock options granted during the nine months ended December
31, 2008 and 2007 was $7.08 and $9.76, respectively. The weighted average fair value of
restricted stock units granted during the nine months ended December 31, 2008 was $27.28.
As of December 31, 2008, there was $3,386,000 of total unrecognized compensation cost related to
non-vested stock option awards granted under the Companys equity incentive plans which is
expected to be recognized over a weighted average period of 2.1 years. As of December 31, 2008,
there was $685,000 of total unrecognized compensation cost related to non-vested RSUs granted
under the Companys equity incentive plans which is expected to be recognized over a weighted
average period of three years.
Compensation cost related to stock options and RSUs recognized in operating results (included in
selling, general and administrative expenses) was $616,000 and $711,000 in the quarters ended
December 31, 2008 and 2007, respectively, and was $2,006,000 and $2,110,000 for the nine months
ended December 31, 2008 and 2007, respectively.
(3)
|
|
DERIVATIVE FINANCIAL INSTRUMENTS:
|
The Company enters into foreign currency forward contracts in order to reduce the impact of
certain foreign currency fluctuations. Firmly committed transactions and the related
receivables and payables may be hedged with forward exchange contracts. Gains and losses
arising from foreign currency forward contracts are recognized in income or expense as offsets
of gains and losses resulting from the underlying hedged transactions. As of December 31, 2008,
the notional amount of open foreign currency forward contracts was $7,864,000 and the related
unrealized gain was $1,312,000. There were no open foreign currency forward contracts as of
March 31, 2008.
(4)
|
|
BUSINESS ACQUISITIONS:
|
On August 5, 2008, a subsidiary of the Company completed the acquisition of substantially all of
the business and assets of Hampshire Paper Corp. (Hampshire Paper) for approximately
$10,250,000 in cash. During the third quarter of fiscal 2009, the Company received cash of
approximately $574,000 in satisfaction of a post closing adjustment to the purchase price.
Hampshire Paper is a manufacturer and supplier of waxed tissue, paper, foil, and foil decorative
packaging to the wholesale floral and horticultural industries. A portion of the purchase price
is being held in escrow for certain indemnification obligations. The acquisition was accounted
for as a purchase and the excess of cost over fair market value of the net tangible and
identifiable intangible assets acquired of $897,000 was recorded as goodwill in the accompanying
condensed consolidated balance sheet. For tax purposes, goodwill resulting from this
acquisition is deductible.
9
On December 3, 2007, the Company completed the acquisition of substantially all of the business
and assets of C.R. Gibson, Inc. (C.R. Gibson), through a newly-formed subsidiary, C.R. Gibson,
LLC, for approximately $73,847,000 in cash, including transaction costs of approximately
$200,000. In the first quarter of fiscal 2009, $2,700,000 of the purchase price was paid as
settlement of an obligation assumed as contemplated in the Asset Purchase Agreement. C.R.
Gibson, headquartered in Nashville, Tennessee, is a designer, marketer and distributor of memory
books, stationery, journals, notecards, infant and wedding photo albums and scrapbooks, and
other gift items that commemorate lifes celebrations. As of December 31, 2008, a portion of
the purchase price is being held in escrow for certain indemnification obligations. The
acquisition was accounted for as a purchase and the excess of cost over the fair market value of
the net tangible and identifiable intangible assets acquired of $17,409,000 was recorded as
goodwill in the accompanying condensed consolidated balance sheet. For tax purposes, goodwill
resulting from this acquisition is deductible.
(5)
|
|
BUSINESS RESTRUCTURING:
|
On January 4, 2008, the Company announced a restructuring plan to close the Companys Elysburg,
Pennsylvania production facilities and its Troy, Pennsylvania distribution facility. This
restructuring was undertaken as the Company has increasingly shifted from domestically
manufactured to foreign sourced boxed greeting cards and gift tags. Under the restructuring
plan, both facilities were closed as of March 31, 2008. As part of the restructuring plan, the
Company recorded a restructuring reserve of $628,000, including severance related to 75
employees. Also, in connection with the restructuring plan, the Company recorded an impairment
of property, plant and equipment at the affected facilities of $1,222,000, which was included in
restructuring expenses in the fourth quarter of fiscal 2008. During the quarter ended December
31, 2008, the Company sold two facilities associated with this restructuring program and
recognized a gain of $766,000 related to this sale of assets. During the quarter and nine
months ended December 31, 2008, the Company made payments of $348,000 and $654,000,
respectively, primarily for costs related to severance. The Company increased the restructuring
reserve by $385,000 during the nine months ended December 31, 2008 primarily related to the
ratable recognition of retention bonuses for employees providing service until their
termination. As of December 31, 2008, the remaining liability of $50,000 was classified as a
current liability in the accompanying consolidated balance sheet and will be paid through the
first quarter of fiscal 2010. The Company expects to incur additional period expenses related
to this restructuring program of approximately $240,000 during the remainder of fiscal 2009 and
fiscal 2010.
Selected information relating to the aforementioned restructuring follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
Other
|
|
|
|
|
|
|
Costs
|
|
|
Costs
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserve as of March 31, 2008
|
|
$
|
309
|
|
|
$
|
10
|
|
|
$
|
319
|
|
Cash paid fiscal 2009
|
|
|
(654
|
)
|
|
|
|
|
|
|
(654
|
)
|
Charges to expense fiscal 2009
|
|
|
395
|
|
|
|
(10
|
)
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring reserve as of December 31, 2008
|
|
$
|
50
|
|
|
$
|
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
|
GOODWILL AND INTANGIBLES:
|
The Company performs the required annual impairment test of the carrying amount of goodwill and
indefinite-lived intangible assets in the fourth quarter of its fiscal year. As a result of the
decrease in the Companys market capitalization in the third quarter of fiscal 2009, the Company
performed an impairment test in the third quarter. Based on this test, the Company concluded
that there was no impairment. The Company will continue to monitor compliance with Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, and
will perform the required annual test in the fourth quarter.
10
The change in the carrying amount of goodwill for the nine months ended December 31, 2008 is as
follows (in thousands):
|
|
|
|
|
Balance as of March 31, 2008
|
|
$
|
48,361
|
|
Acquisition of Hampshire Paper
|
|
|
897
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
49,258
|
|
|
|
|
|
The Company recorded intangible assets with the acquisition of the Hampshire Paper business and
finalization of the purchase price. Such intangible assets recorded as of December 31, 2008
include trademarks that are not subject to amortization in the amount of $500,000.
Additionally, the Company recorded $2,500,000 relating to customer lists which are being
amortized over 14 years, $300,000 relating to trademarks that are being amortized over a
weighted-average period of ten years and $60,000 relating to patents that are being amortized
over ten years.
Included in intangible assets, net in the accompanying condensed consolidated balance sheets are
the following acquired intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Tradenames
|
|
$
|
23,790
|
|
|
$
|
23,790
|
|
Trademarks, net
|
|
|
1,057
|
|
|
|
|
|
Customer relationships, net
|
|
|
19,961
|
|
|
|
18,480
|
|
Non-compete, net
|
|
|
146
|
|
|
|
184
|
|
Patent, net
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,011
|
|
|
$
|
42,454
|
|
|
|
|
|
|
|
|
Amortization expense related to intangible assets was $386,000 and $117,000 for the quarters
ended December 31, 2008 and 2007, respectively, and was $1,077,000 and $147,000 for the nine
months ended December 31, 2008 and 2007, respectively. Based on the current composition of
intangibles, amortization expense for the remainder of fiscal 2009 and each of the succeeding
four years is projected to be as follows (in thousands):
|
|
|
|
|
Fiscal 2009
|
|
$
|
381
|
|
Fiscal 2010
|
|
|
1,525
|
|
Fiscal 2011
|
|
|
1,525
|
|
Fiscal 2012
|
|
|
1,508
|
|
Fiscal 2013
|
|
|
1,475
|
|
|
|
|
|
Total
|
|
$
|
6,414
|
|
|
|
|
|
(7)
|
|
SHORT TERM CREDIT FACILITIES:
|
On November 21, 2008, the Company replaced its $50,000,000 revolving credit facility, which was
due to expire on April 23, 2009, with a new $110,000,000 revolving credit facility with four
banks. This facility expires on November 20, 2011. The loan agreement contains provisions to
increase or reduce the interest pricing spread based on a measure of the Companys leverage. At
the Companys option, interest on the facility currently accrues at the greater of (1) the prime
rate (2) the federal funds open rate plus .5%, or (3) LIBOR plus 1.25%. The revolving credit
facility provides for commitment fees of .3% per annum on the daily average of the unused
commitment, subject to adjustment based on a measure of the Companys leverage. The loan
agreement also contains covenants, the most restrictive of which pertain to the ratio of
operating cash flow to fixed charges, the ratio of debt to operating cash flow and limitations
on capital expenditures.
11
On November 21, 2008, the Company also entered into an amendment to decrease its existing
$100,000,000 accounts receivable securitization facility to $75,000,000. The funding limit
under this facility is $75,000,000 during peak seasonal periods and $25,000,000 during off-peak
seasonal periods. This facility is accounted for as a financing transaction on the Companys
consolidated balance sheet, expires on July 25, 2009 and is subject to annual renewal.
(8)
|
|
COMMITMENTS AND CONTINGENCIES:
|
CSS and its subsidiaries are involved in ordinary, routine legal proceedings that are not
considered by management to be material. In the opinion of Company counsel and management, the
ultimate liabilities resulting from such legal proceedings will not materially affect the
consolidated financial position of the Company or its results of operations or cash flows.
(9)
|
|
ACCOUNTING PRONOUNCEMENTS:
|
In October 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
Financial Accounting Standard No. 157-3, Determining the Fair Value of a Financial Asset When
the Market for That Asset is Not Active (FSP FAS 157-3), which clarifies application of SFAS
No. 157 in a market that is not active. FSP FAS 157-3 was effective upon issuance, including
prior periods for which financial statements have not been issued. The adoption of FSP FAS
157-3 had no impact on the Companys financial position or results of operations.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles. SFAS No. 162 identifies, within the accounting literature established by the FASB,
the sources and hierarchy of the accounting principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in conformity with generally
accepted accounting principles. SFAS No. 162 is effective 60 days following the Securities and
Exchange Commissions approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles. The Company does not believe that the adoption of SFAS No. 162 will have a
significant effect on its financial position or results of operations.
In April 2008, the FASB issued FASB Staff Position (FSP) No. 142-3, Determination of the
Useful Life of Intangible Assets. FSP No. 142-3 amends the factors an entity should consider
in developing renewal or extension assumptions used in determining the useful life of recognized
intangible assets under FASB Statement No. 142, Goodwill and Other Intangible Assets. This
new guidance applies prospectively to intangible assets that are acquired individually or with a
group of other assets in business combinations and asset acquisitions. FSP No. 142-3 is
effective for financial statements issued for fiscal years and interim periods beginning after
December 15, 2008. Early adoption is prohibited. The Company does not believe that the
adoption of FSP No. 142-3 will have a significant effect on its financial position or results of
operations.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities. SFAS No. 161 requires companies with derivative instruments to disclose
information that should enable financial-statement users to understand how and why a company
uses derivative instruments, how derivative instruments and related hedged items are accounted
for under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, and how derivative instruments and related hedged items affect a companys
financial position, financial performance and cash flows. SFAS No. 161 is effective for
financial statements issued for fiscal years and interim periods beginning after November 15,
2008. The Company will adopt SFAS No. 161 beginning in the fourth quarter of fiscal 2009. The
Company does not believe that the adoption of SFAS No. 161 will have a significant effect on its
financial position or results of operations.
12
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
No. 141R), which replaces SFAS No. 141. The statement retains the purchase method of
accounting for acquisitions, but requires a number of changes, including changes in the way
assets and liabilities are recognized in the purchase accounting. It also changes the
recognition of assets acquired and liabilities assumed arising from contingencies, requires the
capitalization of in-process research and development at fair
value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141R is
effective for fiscal year beginning after December 15, 2008 (fiscal 2010 for the Company) and
will apply prospectively to business combinations completed on or after April 1, 2009.
In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10 Accounting for
Collateral Assignment Split-Dollar Life Insurance Agreements (EITF 06-10). EITF 06-10 provides
guidance for determining a liability for the postretirement benefit obligation as well as
recognition and measurement of the associated asset on the basis of the terms of the collateral
assignment agreement. EITF 06-10 is effective for fiscal years beginning after December 15,
2007. As previously disclosed in the Companys Annual Report on Form 10-K for the fiscal year
ended March 31, 2008, the Company adopted EITF 06-10 on April 1, 2008 through a cumulative
effect of an accounting change which resulted in a reduction to equity of $566,000. The Company
does not expect that EITF 06-10 will have a significant impact on future results.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. SFAS No. 159 permits companies to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve financial
reporting by providing companies with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. The Company adopted SFAS No. 159 on April 1, 2008 and it did not have an
effect on its consolidated financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
establishes a framework for measuring fair value in accordance with accounting principles
generally accepted in the United States, and expands disclosure about such fair value
measurements. In February 2008, the FASB issued SFAS No. 157-2, Effective Date of FASB
Statement No. 157, which amends SFAS No. 157 by delaying its effective date by one year (until
April 1, 2009 for the Company) for non-financial assets and non-financial liabilities, except
for items that are recognized or disclosed at fair value in the financial statements on a
recurring basis. The Company adopted SFAS No. 157 for financial assets and liabilities on April
1, 2008. There was no impact to the Companys consolidated financial statements upon adoption
of SFAS No. 157. See Note 10 for further discussion of the adoption of this Statement. The
Company is currently evaluating the impact of adopting the provisions of SFAS No. 157 for
non-financial assets and non-financial liabilities.
(10)
|
|
FAIR VALUE MEASUREMENTS:
|
The Company adopted the provisions of SFAS No. 157 on April 1, 2008. SFAS No. 157 defines fair
value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. Market participants
are defined as buyers or sellers in the principle or most advantageous market for the asset or
liability that are independent of the reporting entity, knowledgeable and able and willing to
transact for the asset or liability. There was no impact to the Companys condensed
consolidated financial statements upon adoption of SFAS No. 157.
In accordance with SFAS No. 157, the Company has categorized its financial assets and
liabilities, based on the priority of the inputs to the valuation technique, into a three-level
fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in
active markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). If the inputs used to measure the financial assets and
liabilities fall within different levels of the hierarchy, the categorization is based on the
lowest level input that is significant to the fair value measurement of the instrument.
13
The Companys 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 Companys 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, 2008.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(in thousands)
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
691
|
|
|
$
|
691
|
|
|
$
|
|
|
|
$
|
|
|
Cash surrender value of
life insurance policies
|
|
|
839
|
|
|
|
|
|
|
|
839
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
20
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,550
|
|
|
$
|
691
|
|
|
$
|
859
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plans
|
|
$
|
691
|
|
|
$
|
691
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
691
|
|
|
$
|
691
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
CSS INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
STRATEGIC OVERVIEW
Approximately 70% of the Companys sales are attributable to seasonal (Christmas, Valentines Day,
Easter and Halloween) products, with the remainder attributable to everyday products. Seasonal
products are sold primarily to mass market retailers, and the Company has relatively high market
shares in many of these categories. Most of these markets have shown little or no growth in recent
years, and the Company continues to confront significant price pressure as its competitors source
certain products from overseas and its customers increase direct sourcing from overseas factories.
Increasing customer concentration has augmented their bargaining power, which has also contributed
to price pressure. In the Companys current fiscal year, the Company experienced lower sales in its gift
wrap, gift tissue and gift bag lines. In addition, many of our mass market customers reduced
purchases for Christmas 2008 due to poor sales of seasonal products at store level in the prior
calendar year. Both seasonal and all occasion sales declines were further exacerbated as the
current economic downturn deepened in the fall of calendar 2008.
The Company has taken several measures to respond to sales volume, cost and price pressures. The
Company believes it has strengthened its core Christmas product offerings for the upcoming 2009
Christmas selling season with new and innovative designs and
licenses. In addition, we are pursuing new product initiatives related to seasonal, craft and everyday products,
including new licensed and non-licensed product offerings. CSS continually invests in product and
packaging design and product knowledge to assure it can continue to provide unique added value to
its customers. In addition, CSS maintains an office and showroom in Hong Kong to be able to
provide alternatively sourced products at competitive prices. CSS continually evaluates the
efficiency and productivity in its North American production and distribution facilities and of its
back office operations to maintain its competitiveness domestically. In the last five fiscal
years, the Company has closed five manufacturing plants and five warehouses totaling 1,209,000
square feet. Additionally, in fiscal 2007 the Company combined the management and back office
support for its Memphis, Tennessee based Cleo gift wrap operation into its Berwick Offray ribbon
and bow subsidiary. This action enhanced administrative efficiencies and provided incremental
penetration of gift packaging products into broader everyday channels of distribution.
The Companys everyday craft, trim-a-package, stationery and memory product lines have higher
inherent growth potential due to higher market growth rates. Further, the Companys everyday
craft, trim-a-package, 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, growth at CSS has come through acquisitions. Management anticipates that it will
continue to utilize acquisitions to stimulate further growth.
On August 5, 2008, a subsidiary of the Company completed the acquisition of substantially all of
the business and assets of Hampshire Paper Corp. (Hampshire Paper) for approximately $10,250,000
in cash. During the third quarter of fiscal 2009, the Company received cash of approximately
$574,000 in satisfaction of a post closing adjustment to the purchase price. Hampshire Paper is a
manufacturer and supplier of waxed tissue, paper, foil, and foil decorative packaging to the
wholesale floral and horticultural industries. A portion of the purchase price is being held in
escrow for certain indemnification obligations. The acquisition was accounted for as a purchase
and the excess of cost over fair market value of the net tangible and identifiable intangible
assets acquired of $897,000 was recorded as goodwill in the accompanying condensed consolidated
balance sheet.
15
On December 3, 2007, the Company completed the acquisition of substantially all of the business and
assets of C.R. Gibson, which is a designer, marketer and distributor of memory books, stationery,
journals and notecards, infant and wedding photo albums and scrapbooks, and other gift items that
commemorate lifes
celebrations. In consideration, the Company paid approximately $73,847,000 in cash, including
transaction costs of approximately $200,000. A portion of the purchase price is being held in
escrow for certain indemnification obligations. The acquisition was accounted for as a purchase
and the excess of cost over the fair market value of the net tangible and identifiable intangible
assets acquired of $17,409,000 was recorded as goodwill in the accompanying condensed consolidated
balance sheet.
LITIGATION
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.
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,
2008. Judgments and estimates of uncertainties are required in applying the Companys accounting
policies in many areas. Following are some of the areas requiring significant judgments and
estimates: revenue; cash flow and valuation assumptions in performing asset impairment tests of
long-lived assets and goodwill; valuation reserves for inventory and accounts receivable; income
tax accounting; the valuation of share-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 Companys Annual Report on Form 10-K for
the fiscal year ended March 31, 2008.
RESULTS OF OPERATIONS
Seasonality
The seasonal nature of CSS business has historically resulted in lower sales levels and operating
losses in the first and fourth quarters and comparatively higher sales levels and operating profits
in the second and third quarters of the Companys fiscal year, which ends March 31, thereby causing
significant fluctuations in the quarterly results of operations of the Company.
Nine Months Ended December 31, 2008 Compared to Nine Months Ended December 31, 2007
Sales for the nine months ended December 31, 2008 decreased 4% to $425,930,000 from $441,854,000 in
2007 primarily due to reduced sales of Christmas gift wrap, gift tissue and gift bags. In
addition, the current poor economic environment has resulted in reduced buying patterns, product
returns and order cancellations of both the Companys seasonal and all occasion products.
Partially offsetting the sales decline were sales of acquired businesses, primarily C.R. Gibson,
which was acquired on December 3, 2007.
Cost of sales, as a percentage of sales, was 74% in 2008 and 73% in 2007 as higher margin sales of
C.R Gibson in the current year were substantially offset by higher material costs and plant
inefficiencies compared to the same period in the prior year.
Selling, general and administrative (SG&A) expenses increased $2,725,000, or 4%, over the prior
year period. The increase was primarily due to incremental costs of C.R. Gibson, partially offset
by lower incentive compensation and employee benefit expenses.
16
Restructuring income of $275,000 in 2008 was favorable compared to restructuring income of $2,000
in 2007 due to the gain on the sale of a manufacturing facility and a distribution facility in
fiscal 2009 which were part of the restructuring program related to the closure of three
Pennsylvania-based facilities announced in January 2008, partially offset by restructuring expenses
incurred during fiscal 2009 related to this same program.
Interest expense, net was $2,293,000 in 2008 and $720,000 in 2007. The increase in interest
expense was substantially due to increased borrowings during the nine months ended December 31,
2008 compared to the same period in the prior year, primarily as a result of cash utilized to
purchase C.R. Gibson on December 3, 2007 and Hampshire Paper on August 5, 2008, and repurchases of
the Companys common stock, net of cash generated from operations.
Income taxes, as a percentage of income before taxes, were 35% in 2008 and 2007.
Net income for the nine months ended December 31, 2008 was $22,420,000, or $2.22 per diluted share
compared to $31,962,000, or $2.88 per diluted share in 2007. The reduction in net income was
primarily the result of reduced sales volume, higher material costs, plant inefficiencies and
higher interest expense, net of income contributed by acquired businesses. The decline in diluted
earnings per share of 23% for the nine months ended December 31, 2008 was more favorable than the
decline in net income due to the repurchase of stock during fiscal 2009.
Three Months Ended December 31, 2008 Compared to Three Months Ended December 31, 2007
Sales for the three months ended December 31, 2008 decreased 11% to $197,122,000 from $222,170,000
in 2007 primarily due to reduced sales of Christmas gift wrap, gift tissue and gift bags. In
addition, the current poor economic environment has resulted in reduced buying patterns, product
returns and order cancellations of both the Companys seasonal and all occasion products.
Partially offsetting the sales decline were sales of acquired businesses, primarily C.R. Gibson,
which was acquired on December 3, 2007.
Cost of sales, as a percentage of sales, was 75% in 2008 and 72% in 2007. The increase in cost of
sales was primarily due to higher material costs and plant inefficiencies compared to the same
quarter in the prior year.
SG&A expenses decreased $2,441,000, or 10%, over the prior year period. The decrease was primarily
due to lower incentive compensation and employee benefit expenses, partially offset by incremental
costs of C.R. Gibson.
Restructuring income of $574,000 in 2008 was favorable compared to restructuring expense of
$105,000 in 2007 due to the gain on the sale of a manufacturing facility and a distribution
facility in the third quarter of fiscal 2009 which were part of the restructuring program related
to the closure of three Pennsylvania-based facilities announced in January 2008, partially offset
by restructuring expenses incurred during fiscal 2009 related to this same program.
Interest expense, net of $1,093,000 in 2008 increased over interest expense, net of $810,000 in
2007 due to higher borrowing levels during the quarter compared to the same quarter in the prior
year, primarily as a result of cash utilized to purchase C.R. Gibson on December 3, 2007 and
Hampshire Paper on August 5, 2008, and repurchases of the Companys common stock, net of cash
generated from operations.
Income taxes, as a percentage of income before taxes, were 35% in 2008 and 2007.
Net income for the three months ended December 31, 2008 was $16,412,000, or $1.68 per diluted
share, compared to $22,854,000, or $2.07 per diluted share in 2007. The reduction in net income
was primarily the result of reduced sales volume, higher material costs, plant inefficiencies and
higher interest expense, net of income contributed by acquired businesses. The decline in diluted
earnings per share of 19% for the quarter ended December 31, 2008 was more favorable than the
decline in net income due to the repurchase of stock during fiscal 2009.
17
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2008, the Company had working capital of $121,922,000 and stockholders equity of
$265,493,000. The increase in accounts receivable from March 31, 2008 primarily reflected seasonal
billings of current year Halloween and Christmas accounts receivables, net of current year
collections. The decrease in inventories reflects the normal seasonal shipments during the fiscal
2009 shipping season. The decrease in assets held for sale was attributable to the sale of a
manufacturing facility and a distribution facility in the third quarter of fiscal 2009. The
increase in property, plant and equipment, net was primarily due to costs incurred for the
enterprise resource planning system integration project announced in October 2007. The increase in
goodwill and intangibles, net was due to the acquisition of the Hampshire Paper business as more
fully described in Note 4. The increase in other current liabilities was primarily due to higher
accounts payable and increased accruals for income taxes, sales commissions and royalties,
partially offset by lower accrued employee benefits. The increase in stockholders equity was
primarily attributable to year-to-date net income, partially offset by treasury share repurchases
and payments of cash dividends.
The Company relies primarily on cash generated from its operations and seasonal borrowings to meet
its liquidity requirements. Historically, a significant portion of the Companys revenues have
been seasonal with approximately 80% of sales recognized in the second and third quarters. As
payment for sales of Christmas related products is usually not received until just before or just
after the holiday selling season in accordance with general industry practice, short-term borrowing
needs increase throughout the second and third quarters, peaking prior to Christmas and dropping
thereafter. As further described in Note 7, seasonal financing requirements are met under a
$110,000,000 revolving credit facility with four banks and an accounts receivable securitization
facility with an issuer of receivables-backed commercial paper. This facility has a funding limit
of $75,000,000 during peak seasonal periods and $25,000,000 during off-peak seasonal periods. In
addition, the Company has outstanding $10,000,000 of 4.48% senior notes due in December 2009.
These financing facilities are available to fund the Companys seasonal borrowing needs and to
provide the Company with sources of capital for general corporate purposes, including acquisitions
as permitted under the revolving credit facility. At December 31, 2008, there was $10,000,000 of
borrowings outstanding related to the senior notes and $67,400,000 outstanding under the Companys
short-term credit facilities. In addition, the Company has less than $500,000 of capital leases
outstanding. Based on its current operating plan, the Company believes its sources of available
capital are adequate to meet its future cash needs for at least the next 12 months.
As of December 31, 2008, the Companys letter of credit commitments are as follows (in thousands):
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1
|
|
|
1-3
|
|
|
4-5
|
|
|
After 5
|
|
|
|
|
|
|
Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Total
|
|
Letters of credit
|
|
$
|
4,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,523
|
|
The Company has a reimbursement obligation with respect to stand-by letters of credit that
guarantee the funding of workers compensation claims and guarantee the funding of obligations to
certain vendors. The Company has no financial guarantees with any third parties or related parties
other than its subsidiaries.
As of December 31, 2008, the Company is committed to purchase approximately $1,200,000 of certain
paper raw material products from a vendor over a one year term. The Company believes the minimum
product purchases under this agreement are well within the Companys annual product requirements.
In the ordinary course of business, the Company enters into arrangements with vendors to purchase
merchandise in advance of expected delivery. These purchase orders do not contain any significant
termination payments or other penalties if cancelled.
LABOR RELATIONS
With the exception of the bargaining units at the gift wrap facilities in Memphis, Tennessee and
the ribbon manufacturing facilities in Hagerstown, Maryland, which totaled approximately 700
employees as of December 31, 2008, CSS employees are not represented by labor unions. Because of
the seasonal nature of certain of its businesses, the number of production employees fluctuates
during the year. The collective
bargaining agreement with the labor union representing Cleos production and maintenance employees
at the Cleo gift wrap plant and warehouses in Memphis, Tennessee remains in effect until December
31, 2010. The collective bargaining agreement with the labor union representing the
Hagerstown-based production and maintenance employees remains in effect until December 31, 2009.
18
ACCOUNTING PRONOUNCEMENTS
See Note 9 to the Condensed Consolidated Financial Statements for information concerning recent
accounting pronouncements and the impact of those standards.
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, including, among others, statements relating to expected future
costs of the Companys restructuring plan involving the closure of its facilities in Elysburg,
Pennsylvania and Troy, Pennsylvania; continued use of acquisitions to stimulate further growth; the
expected future impact of legal proceedings and changes in accounting principles; and the
anticipated effects of measures taken by the Company to respond to cost and price pressures.
Forward-looking statements are based on the beliefs of the Companys management as well as
assumptions made by and information currently available to the Companys management as to future
events and financial performance with respect to the Companys operations. Forward-looking
statements speak only as of the date made. The Company undertakes no obligation to update any
forward-looking statements to reflect the events or circumstances arising after the date as of
which they were made. Actual events or results may differ materially from those discussed in
forward-looking statements as a result of various factors, including without limitation, general
market and economic conditions; increased competition; increased operating costs, including
labor-related and energy costs and costs relating to the imposition or retrospective application of
duties on imported products; currency risks and other risks associated with international markets;
risks associated with acquisitions, including acquisition integration costs and the risk that the
Company may not be able to integrate and derive the expected benefits from such acquisitions; risks
associated with the restructuring plan to close the Companys facilities in Elysburg, Pennsylvania
and Troy, Pennsylvania, including the risk that the restructuring related savings may be less than
and/or costs may exceed the presently expected amounts and the risk that the closures will
adversely affect the Companys ability to fulfill its customers orders on time; risks associated
with the Companys enterprise resource planning systems standardization project, including the risk
that the cost of the project will exceed expectations, the risk that the expected benefits of the
project will not be realized and the risk that implementation of the project will interfere with
and adversely affect the Companys operations and financial performance; the risk that customers
may become insolvent, may delay payments or may impose deductions or penalties on amounts owed to
the Company; costs of compliance with governmental regulations and government investigations;
liability associated with non-compliance with governmental regulations, including regulations
pertaining to the environment, Federal and state employment laws, and import and export controls
and customs laws; and other factors described more fully in the Companys annual report on Form
10-K for the fiscal year ended March 31, 2008 and elsewhere in the Companys filings with the
Securities and Exchange Commission. As a result of these factors, readers are cautioned not to
place undue reliance on any forward-looking statements included herein or that may be made
elsewhere from time to time by, or on behalf of, the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of interest rate changes and manages this exposure through the
use of variable-rate and fixed-rate debt. The Company is also exposed to foreign currency
fluctuations which it manages by entering into foreign currency forward contracts to hedge the
majority of firmly committed transactions and related receivables that are denominated in a foreign
currency. The Company does not enter into contracts for trading purposes and does not use
leveraged instruments. The market risks associated with debt obligations and other significant
instruments as of December 31, 2008 have not materially changed from March 31, 2008 (see Item 7A of
the Companys Annual Report on Form 10-K for the fiscal year ended March 31, 2008).
ITEM 4. CONTROLS AND PROCEDURES
(a)
|
|
Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by
this report, the Companys management, with the participation of the Companys President and
Chief Executive Officer and Vice President Finance and Chief Financial Officer, evaluated
the effectiveness of the Companys disclosure controls and procedures in accordance with Rule
13a-15 of the Securities Exchange
Act of 1934 (the Exchange Act). Based upon that evaluation, the President and Chief Executive
Officer and Vice President Finance and Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective in providing reasonable assurance that
information required to be disclosed by the Company in reports that it files under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms.
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(b)
|
|
Changes in Internal Controls
. There was no change in the Companys internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) as promulgated by the
Securities and Exchange Commission under the Exchange Act) during the third quarter of fiscal
year 2009 that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.
|
19
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 21, 2008, CSS issued 6,000 shares of its common stock ($.10 par value) to a member of
the Board of Directors of CSS, upon such directors exercise of stock options previously granted to
such director pursuant to CSS 1995 Stock Option Plan for Non-Employee Directors (the 1995 Plan).
The aggregate purchase price for these 6,000 shares of CSS common stock was $118,260, which was
paid in cash.
On November 30, 2008, CSS issued options to purchase 24,000 shares of its common stock ($.10 par
value) to the non-employee members of the Board of Directors of CSS pursuant to CSS 2006 Stock
Option Plan for Non-Employee Directors (the 2006 Plan). The 2006 Plan provides for the automatic
issuance of an option to purchase 4,000 shares of CSS common stock to each non-employee director of
CSS on the last trading day of November of each year from 2006 to 2010. In accordance with the
automatic grant provisions of the 2006 Plan, each of the options granted on November 30, 2008: (i)
has an exercise price of $22.80 per share, the closing price for shares of CSS common stock on the
date of the grant; (ii) becomes exercisable in four equal installments, commencing on the first
anniversary of the date of grant and annually thereafter; and (iii) expires five years after the
date of grant. No consideration is required to be paid to the Company in connection with the
issuance of options under the 2006 Plan, and none was received.
The options granted pursuant to the 1995 Plan and the 2006 Plan were not registered under the
Securities Act of 1933, as amended (the Securities Act), and the shares of CSS common stock
issued upon exercise of the aforementioned options issued under the 1995 Plan were not registered
under the Securities Act. CSS believes that the issuance of the options, and the issuance of the
aforementioned shares of CSS common stock in connection with the exercise of options, was exempt
from registration under (a) Section 4(2) of the Securities Act as transactions not involving any
public offering and such securities having been acquired for investment and not with a view to
distribution, or (b) Rule 701 under the Securities Act as transactions made pursuant to a written
compensatory benefit plan or pursuant to a written contract relating to compensation. All
recipients had adequate access to information about CSS. CSS did not engage an underwriter in
connection with the foregoing stock option grants and stock issuances.
Share Repurchase Program
A total of 321,400 shares were repurchased at an average price of $22.52 in the third quarter of
fiscal 2009. As of December 31, 2008, there remained an outstanding authorization to repurchase
313,000 shares of outstanding CSS common stock as represented in the table below.
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|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Number of Shares
|
|
|
|
Total Number
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
that May Yet Be
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
Part of Publicly
|
|
|
Purchased Under
|
|
|
|
Purchased
(1)
|
|
|
Paid Per Share
|
|
|
Announced Program
(2)
|
|
|
the Program
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1 through October 31, 2008
|
|
|
152,000
|
|
|
$
|
22.85
|
|
|
|
152,000
|
|
|
|
482,400
|
|
November 1 through November 30, 2008
|
|
|
77,400
|
|
|
|
21.90
|
|
|
|
77,400
|
|
|
|
405,000
|
|
December 1 through December 31, 2008
|
|
|
92,000
|
|
|
|
21.53
|
|
|
|
92,000
|
|
|
|
313,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Third Quarter
|
|
|
321,400
|
|
|
$
|
22.52
|
|
|
|
321,400
|
|
|
|
313,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 May 29, 2008, the Company announced that its Board of Directors had authorized the
repurchase of up to 500,000 shares of the Companys common stock (the Repurchase
Program). As of October 23, 2008, the Company had repurchased the available shares
remaining under the Repurchase Program and on that date the Company announced that its
Board of Directors had authorized the repurchase of up to an additional 500,000 shares of
the Companys common stock. As of December 31, 2008, the Company repurchased an aggregate
of 687,000 shares pursuant to these Repurchase Programs. An expiration date has not been
established for the Repurchase Program.
|
20
Item 6.
Exhibits
|
|
|
Exhibit 10.1
|
|
Second Amended and Restated Loan Agreement dated November 21, 2008 among CSS
Industries, Inc., the lenders party thereto and PNC Bank, National Association, as
Administrative agent for the lenders party thereto (incorporated by reference to Exhibit
10.1 to the Registrants Current Report on Form 8-K dated November 21, 2008).
|
|
|
|
Exhibit 10.2
|
|
Sixth Amendment to Receivables Purchase Agreement dated November 21, 2008.
|
|
|
|
Exhibit 10.3
|
|
Amendment dated December 26, 2008 to Employment Agreement between CSS Industries, Inc.
and Christopher J. Munyan.
|
|
|
|
Exhibit 10.4
|
|
CSS Industries, Inc. Severance Pay Plan for Senior Management and Summary Plan
Description (Amended and Restated as of December 29, 2008).
|
|
|
|
Exhibit 10.5
|
|
Nonqualified Supplemental Executive Retirement Plan Covering Officer-Employees of CSS
Industries, Inc. and its Subsidiaries (Amended and Restated, Effective as of January 1, 2009).
|
|
|
|
Exhibit 31.1
|
|
Certification of the Chief Executive Officer of CSS Industries, Inc. required by Rule
13a-14(a) under the Securities Exchange Act of 1934.
|
|
|
|
Exhibit 31.2
|
|
Certification of the Chief Financial Officer of CSS Industries, Inc. required by Rule
13a-14(a) under the Securities Exchange Act of 1934.
|
|
|
|
Exhibit 32.1
|
|
Certification of the Chief Executive Officer of CSS Industries, Inc. required by Rule
13a-14(b) under the Securities Exchange Act of 1934 and 18 U. S. C. Section 1350.
|
|
|
|
Exhibit 32.2
|
|
Certification of the Chief Financial Officer of CSS Industries, Inc. required by Rule
13a-14(b) under the Securities Exchange Act of 1934 and 18 U. S. C. Section 1350.
|
21
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 5, 2009
|
By:
|
/s/ Christopher J. Munyan
|
|
|
|
Christopher J. Munyan
|
|
|
|
President and Chief
Executive Officer
(principal executive officer)
|
|
|
|
|
Date: February 5, 2009
|
By:
|
/s/ Clifford E. Pietrafitta
|
|
|
|
Clifford E. Pietrafitta
|
|
|
|
Vice President Finance and
Chief Financial Officer
(principal financial and accounting officer)
|
|
22
EXHIBIT INDEX
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
Exhibit 10.2
|
|
Sixth Amendment to Receivables Purchase Agreement dated November 21, 2008.
|
|
|
|
Exhibit 10.3
|
|
Amendment dated December 26, 2008 to Employment Agreement between CSS Industries, Inc.
and Christopher J. Munyan.
|
|
|
|
Exhibit 10.4
|
|
CSS Industries, Inc. Severance Pay Plan for Senior Management and Summary Plan
Description (Amended and Restated as of December 29, 2008).
|
|
|
|
Exhibit 10.5
|
|
Nonqualified Supplemental Executive Retirement Plan Covering Officer-Employees of CSS
Industries, Inc. and its Subsidiaries (Amended and Restated, Effective as of January 1, 2009).
|
|
|
|
Exhibit 31.1
|
|
Certification of the Chief Executive Officer of CSS Industries, Inc. required by Rule
13a-14(a) under the Securities Exchange Act of 1934.
|
|
|
|
Exhibit 31.2
|
|
Certification of the Chief Financial Officer of CSS Industries, Inc. required by Rule
13a-14(a) under the Securities Exchange Act of 1934.
|
|
|
|
Exhibit 32.1
|
|
Certification of the Chief Executive Officer of CSS Industries, Inc. required by Rule
13a-14(b) under the Securities Exchange Act of 1934 and 18 U. S. C. Section 1350.
|
|
|
|
Exhibit 32.2
|
|
Certification of the Chief Financial Officer of CSS Industries, Inc. required by Rule
13a-14(b) under the Securities Exchange Act of 1934 and 18 U. S. C. Section 1350.
|
23
Exhibit 10.4
Revised:
12/29/2008
CSS INDUSTRIES, INC.
SEVERANCE PAY PLAN
FOR SENIOR MANAGEMENT
AND
SUMMARY PLAN DESCRIPTION
Amended and Restated Effective December 29, 2008
INTRODUCTION
The purpose of the CSS Industries, Inc. Severance Pay Plan for Senior Management (the Plan)
is to provide payments on a discretionary basis to certain key employees of CSS Industries, Inc.
(CSS) and its subsidiaries whose employment is terminated for a reason covered by the Plan. This
document is designed to serve as both the Plan document and the summary plan description for the
Plan. The legal rights and obligations of any person having an interest in the Plan are determined
solely by the provisions of the Plan.
The Plan is intended to alleviate some of the financial hardship that eligible employees may
experience when their employment is terminated. In essence, benefits under the Plan are intended
to be supplemental unemployment benefits. The benefits under the Plan are not intended as deferred
compensation and no individual shall have a vested right in such benefits.
CSS, as the Plan sponsor, has the sole discretion to determine whether an employee may be
considered eligible for benefits under the Plan. All actions taken by CSS shall be in its role as
the sponsor of the Plan, and not as a fiduciary. Nothing in the Plan will be construed to give any
employee the right to receive severance payments or to continue in the employment of CSS and any of
its subsidiaries. The Plan is unfunded, has no trustee, and is administered by the Plan
Administrator. The Plan is intended to be an employee welfare benefit plan within the meaning of
section 3(1) of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and 29
C.F.R. § 2510.3-2(b) and is to be administered as a top hat welfare plan exempt from the
substantive requirements of ERISA. Please review the section entitled Amendment and Termination
of the Plan regarding CSS reservation of future rights.
The Plan was originally effective as of October 9, 2006 with respect to terminations occurring
on or after October 9, 2006. The Plan is amended and restated effective as of December 29, 2008,
in order to comply with the requirements of Section 409A of the Code and the final regulations
promulgated thereunder, and applies with respect to terminations occurring on or after December 29,
2008. The Plan, in the form set forth herein, supersedes all prior severance pay plans, policies,
agreements or practices, whether formal or informal, written or unwritten, of CSS and its
subsidiaries under which CSS or any of its subsidiaries provided severance benefits prior to the
effective date of this Plan, with the exception of any individual employment contract that contains
a severance pay provision that provides severance in excess of the amount an employee would be
eligible to receive under this Plan. The Plan will continue until terminated as provided herein.
GENERAL INFORMATION
1.
|
|
Plan Name:
CSS Industries, Inc. Severance Pay Plan for Senior Management
|
|
2.
|
|
Plan Number:
506
|
|
|
|
|
|
3.
|
|
Plan Sponsor:
|
|
CSS Industries, Inc.
|
|
|
|
|
1845 Walnut Street, Suite 800
|
|
|
|
|
Philadelphia, PA 19103
|
1
4.
|
|
Employer Identification Number:
13-1920657
|
5.
|
|
Type of Plan:
Welfare Benefit Severance Pay Plan
|
|
|
|
|
|
6.
|
|
Plan Administrator:
|
|
Severance Plan Administrative Committee
|
|
|
|
|
CSS Industries, Inc.
|
|
|
|
|
1845 Walnut Street, Suite 800
|
|
|
|
|
Philadelphia, PA 19103
|
7.
|
|
Agent for Service of Legal Process:
The Plan Administrator at the address above.
|
8.
|
|
Sources of Contributions:
The Plan is unfunded and CSS and the Participating Subsidiaries pay
the cost of coverage from their assets.
|
9.
|
|
Type of Administration:
The Plan is administered by the Plan Administrator with benefits
provided in accordance with the provisions of this Plan document.
|
10.
|
|
Recordkeeping:
The Plan and its records are kept on a fiscal year basis, April 1 through
March 31.
|
11.
|
|
Participating Subsidiaries:
The subsidiaries and affiliates of CSS that participate in the
Plan are identified in the attached
Exhibit B
.
|
DEFINITIONS
Cause
: Except to the extent otherwise specified by CSS, a finding by the Employer that
you have: (i) violated your Employers Code of Ethics Policy; (ii) violated the CSS Anti-Harassment
Policy; (iii) violated your Employers Drug-Free Workplace Act Policy; (iv) committed
insubordination; (v) abused other employees; (vi) engaged in theft; (vii) engaged in dishonesty;
(viii) engaged in actions of a criminal nature; (ix) willfully neglected job responsibilities; (x)
violated any other CSS or Employer policy; (xi) demonstrated significantly deficient job
performance that is a willful failure by you to improve your performance despite communication(s)
by your Employer regarding the performance improvement required by the otherwise eligible
employees; (xii) committed other act(s) detrimental to your Employer, its parent or subsidiaries,
its employees, and/or its customers; or (xiii) engage in or become concerned with, either on your
own behalf or on behalf of any other person, firm, or corporation, any business or activity which
is the same, similar to, or competitive with that conducted by, engaged in, or developed for later
implementation by the Employer.
Code
: Internal Revenue Code of 1986, as amended.
Committee
: The Human Resources Committee of the Board of Directors of CSS.
2
Comparable Job
: A job with no decrease in total annual compensation (base salary plus
target bonus, if applicable), and which would require the affected individual to report to a
principal business location that is less than 50 miles from the affected individuals current
principal business location. The Plan Administrator will have the sole discretion to determine
whether a job is a Comparable Job for purposes of the Plan.
CSS
: CSS Industries, Inc.
Employer
: CSS and any Subsidiary.
Employment Termination Date
: The date on which your employment relationship with the
Employer is involuntarily terminated by the Employer.
Plan Administrator
: The Severance Plan Administrative Committee as designated by CSS
to administer the Plan in accordance with its terms, or its delegate.
Release
: The release and discharge of the Employer and all affiliated persons and
entities from any and all claims, demands and causes of action relating to your employment with the
Employer, other than as to any vested benefits to which you may be entitled under any Employer
benefit plan, which will be in such form as may be proscribed by the Employer, acting as plan
sponsor and as a fiduciary, from time to time and with such modifications as the Employer deems
appropriate for your individual situation.
Senior Management Employee
: For purposes of this Plan, (A) any employee of CSS who
either (i) has the officer title of President, Vice President, Treasurer or Secretary with such
entity, or (ii) serves as the Managing Director of CSS Pacific Rim Limited; and (B) any employee of
Cleo Inc, Berwick Offray LLC, C.R. Gibson, LLC or Paper Magic Group, Inc. who either (i) has the
officer title of President of such entity or (ii) has the officer title of Vice President with, and
directly reports to the President of, such entity (but excludes any such individual who directly
reports to the President of such entity on an interim basis as a result of a vacancy in an officer
level position reporting directly to such President).
Severance Pay
: The severance benefits that will be offered to you if you incur a
termination of employment with the Employer for a reason set forth in the Plan.
Subsidiary
: Any subsidiary of CSS that is designated by the Committee as a
participating employer in the Plan and is listed on the attached
Exhibit B
.
COVERAGE
You will be eligible to participate in this Plan if you are a Senior Management Employee at
the time of your termination of employment. You will not be eligible to participate in this Plan
if you are not a Senior Management Employee at the time of your termination of employment and you
are covered by an employment agreement or other agreement that provides severance benefits on
account of an involuntary termination of employment that is greater than the amount that would be
payable to you under the Plan.
3
ELIGIBILITY
A.
When You Are Eligible
You are
eligible
for Severance Pay if (i) your employment with your Employer has been
terminated by the Employer for any reason other than on account of Cause, your death or you become
disabled and you are not otherwise ineligible for severance pay as set forth in section B. below;
and (ii) you sign and do not revoke the Employers standard Release.
The foregoing in no way limits the right of the Employer to (i) terminate your employment and
(ii) provide severance under other circumstances, in each case, as determined by the Employer in
its sole and absolute discretion.
B.
When You Are Not Eligible
You are
not eligible
for Severance Pay in any of the following circumstances:
|
1.
|
|
You voluntary resign, including retirement, for any reason or
no reason.
|
|
|
2.
|
|
You are discharged involuntarily for violation of Employer
rules, or for Cause, or the Employer discovers following your Employment
Termination Date that you engaged in conduct that constitutes Cause during or
after your employment with the Employer.
|
|
|
3.
|
|
You are terminated by your Employer after you are offered a
Comparable Job and you refuse to accept the Comparable Job.
|
|
|
4.
|
|
You are covered by an individual employment agreement or other
agreement that provides severance in excess of the amount you would be eligible
to receive under the Plan.
|
|
|
5.
|
|
Prior to or on your last day of scheduled employment, you die
or prior to notification of an Employment Termination Date, you experience a
physical or mental condition entitling you to any sick pay, disability or
workers compensation.
|
Notwithstanding any provision of the Plan to the contrary, the Committee, in its sole
discretion and acting on behalf of the Employer as the Plan sponsor and not as a fiduciary,
reserves the right (a) to determine whether an employee satisfies the eligibility requirements for
Severance Pay, (b) to award Severance Pay to a terminated employee not otherwise eligible, (c) to
deny benefits to an employee otherwise eligible under the terms of the Plan, (d) to award benefits
to any terminated employee in a greater or lesser amount than provided for in the Plan, and/or (e)
to pay out benefits in a manner or on a schedule other than provided for in the Plan.
4
PLAN BENEFITS
Severance Pay
If you are selected to receive Severance Pay under the Plan, as determined by the Committee,
the benefit for which you may be eligible may be based upon your years of service, compensation, or
any other factors determined to be relevant by the Committee. For example, your past contributions
to the Employers business, the conditions in the employment market, and other equitable
considerations may be relevant factors. However, the Committee may provide a fixed level or
schedule of benefits in connection with any special termination program designated by the
Committee; provided, that such program shall not provide less benefits than that provided under
this Plan. In the absence of any other determination, if your employment is terminated for a
reason described above under When you are Eligible, your Severance Pay will be equal to your
weekly base pay for the period determined in accordance with the chart set forth on the attached
Exhibit A
.
Years of service for purposes of the chart in
Exhibit A
shall be full calendar years
measured from your employment commencement date with your Employer (and each anniversary thereof).
For purposes of determining your total number of calendar years, you will be provided with credit
for all of your years of service with any Employer that participates in this Plan. Therefore, if
you transfer between Employers, your service with all such Employers will be counted. For purposes
of determining your employment commencement date, the date you first worked for an Employer will be
used. If you worked for an entity whose business or assets have been acquired by an Employer, your
service with such entity prior to the acquisition will only be counted if determined by the
Employer. No partial years of service will be counted. Therefore, if your total years of service
includes a period of months that is less than 12, your total years of service will be rounded down
to the nearest whole year.
Weekly base pay is your weekly rate of wages or salary in effect on your Employment
Termination Date, excluding all extra pay, including, but not limited to, incentive bonuses,
overtime pay, commissions, car allowances or other allowances, Employer contributions to the
Employers 401(k) plan and other deferred compensation arrangements and other Employer paid
benefits.
Severance Pay will be paid from the general assets of the Employer and will be paid to you in
equal installments according to your Employers normal payroll schedule over a period of time that
is equivalent to the severance period determined in accordance with the chart set forth on the
attached
Exhibit A
, commencing within sixty (60) days after your Employment Termination
Date, unless delay is required as described below. Your entitlement to Severance Pay under this
Plan is expressly conditioned on your execution and non-revocation of the Release. If you do not
execute the Release or you revoke the Release you will not be entitled to Severance Pay under this
Plan. Severance Pay will be subject to all applicable federal, state and local tax withholding
requirements.
All fringe benefits, including health and welfare, pension, life insurance, vacation and
personal days, will cease on your Employment Termination Date, regardless of whether Severance Pay
is made after that date.
5
If you receive Severance Pay under this Plan and elect health care continuation coverage under
the Consolidated Omnibus Reconciliation Act (COBRA) following termination of your employment, the
Employer will pay for a portion of the monthly COBRA premium, on the same basis as the Employer
pays for a portion of such coverage for active employees, for the severance period; provided, that
in order to receive such continued coverage, you must pay to your Employer, at the same time that
premium payments are due for the month, an amount equal to the full monthly premium payments
required for such monthly coverage and your Employer will reimburse to you the amount of such
monthly premium, less the amount that you would have been required to pay for such coverage if you
were employed by your Employer at such time (the Health Payment), within ten (10) days following
the due date of such premiums. In addition, unless delay is required as described below, on each
date on which the monthly Health Payment is paid to you, your Employer will pay to you an
additional amount equal to the federal, state and local income and payroll taxes that you incur on
each monthly Health Payment (the Health Gross-Up Payment). Your entitlement to the Health
Payment and Health Gross-Up Payment will continue until the earlier to occur of (i) the end of the
severance period, (ii) you cease to receive Severance Pay, or (iii) you do not pay the full monthly
premium for COBRA coverage.
If you die before you have received Severance Pay to which you are entitled under the Plan,
your Severance Pay will be paid to your estate within sixty (60) days from the date of your death.
When Benefits End
Severance Pay and any other benefits will be discontinued immediately if:
|
1.
|
|
The Employer determines that you engaged in any of the actions defined above as
Cause, even if such determination is made following your Employment Termination Date.
|
|
|
2.
|
|
You breach any term of your Release, post-employment agreement, or other
agreement relating to your employment.
|
CLAIMS PROCEDURE
Any request or claim for Severance Pay shall be deemed to be filed when a written request is made
by the claimant or the claimants authorized representative which is reasonably calculated to bring
the claim to the attention of the Plan Administrator.
6
The Plan Administrator, or its designee, shall advise the claimant or such claimants
representative, in writing or in electronic form, of its decision within ninety (90) days of
receipt of the claim for Severance Pay, unless special circumstances require an extension of such
ninety (90)-day period for not more than an additional ninety (90) days. Where such extension is
necessary, the claimant shall be given written notice of the delay before the expiration of the
initial ninety (90)-day period, which notice shall set forth the reasons for the delay and the date
the Plan Administrator expects to render its decision. If the extension is necessary because the
claimant has failed to submit the information necessary to decide the claim, the Plan
Administrators period for responding to such claim shall be tolled until the date the claimant
responds to the request for additional information. The response shall:
|
1.
|
|
be in writing or in electronic form,
|
|
|
2.
|
|
be written in a manner calculated to be understood by the claimant, and
|
|
|
3.
|
|
in the case of an adverse benefit determination:
|
|
a.
|
|
set forth the specific reason(s) for the denial of benefits;
|
|
|
b.
|
|
contain specific references to Plan provisions on which the denial is
based;
|
|
|
c.
|
|
describe any additional material and information, if any, necessary for
the claim for benefits to be perfected, and an explanation of why such material or
information is necessary; and
|
|
|
d.
|
|
describe the Plans review procedures and the time limits applicable to
such procedures, and include a statement of the claimants right to bring a civil
action under section 502(a) of the ERISA following an adverse benefit determination
on review.
|
If the claimant fails to appeal the Plan Administrators adverse benefit determination, in
writing, within sixty (60) days after its receipt by the claimant, the Plan Administrators
determination shall become final and conclusive.
If the claimant appeals the Plan Administrators adverse benefit determination in a timely
fashion, the Plan Administrator shall reexamine all issues relevant to the original denial of
benefits. Any such claimant or his or her duly authorized representative may review any relevant
documents and records, free of charge, including documents and records that were relied upon in
making the benefit determination, documents submitted, considered or generated in the course of
making the benefit determination (even if such documents were not relied upon in making the benefit
determination), and documents that demonstrate compliance, in making the benefit determination,
with the Plans required administrative processes and safeguards. In addition, the claimant or his
duly authorized representative may submit, in writing, any documents, records, comments or other
information relating to such claim for benefits. In the course of the review, the Plan
Administrator shall take into account all comments, documents, records and other information
submitted by the claimant or his duly authorized representative relating to such claim, regardless
of whether it was submitted or considered as part of the initial benefit determination.
7
The Plan Administrator shall advise the claimant or such claimants representative, in writing
or in electronic form, of its decision within sixty (60) days of receipt of the written appeal,
unless special circumstances require an extension of such sixty (60)-day period for not more than
an additional sixty (60) days. Where such extension is necessary, the claimant shall be given
written notice of the delay before the expiration of the initial sixty (60)-day period,
which notice shall set forth the reasons for the delay and the date the Plan Administrator expects
to render its decision. In the event of an adverse benefit determination on appeal, the Plan
Administrator shall advise the claimant, in a manner calculated to be understood by the claimant
of:
|
1.
|
|
the specific reason(s) for the adverse benefit determination;
|
|
|
2.
|
|
the specific Plan provisions on which the decision was based;
|
|
|
3.
|
|
the claimants right to receive, upon request and free of charge, and
reasonable access to, copies of all documents, records and other information relevant
to such claim; and
|
|
|
4.
|
|
a statement describing any voluntary appeals procedures offered by the Plan,
the claimants right to obtain information about such procedures, and a statement of
the claimants right to bring an action under section 502(a) of ERISA.
|
No person may bring an action for any alleged wrongful denial of Plan benefits in a court of
law unless the claims procedures set forth above are exhausted and a final determination is made by
the Plan Administrator. If you or other interested person challenges a decision of the Plan
Administrator, a review by the court of law will be limited to the facts, evidence and issues
presented to the Plan Administrator during the claims procedure set forth above. Facts and
evidence that become known to you or other interested person after having exhausted the claims
procedure must be brought to the attention of the Plan Administrator for reconsideration of the
claims determination. Issues not raised with the Plan Administrator will be deemed waived.
PLAN ADMINISTRATION
The Severance Plan Administrative Committee will be the Plan Administrator of the Plan and the
named fiduciary of the Plan for purposes of ERISA. The Severance Plan Administrative Committee
shall consist of one or more persons appointed by CSS. The Severance Plan Administrative Committee
may, however, delegate to any person, committee or entity any of its power or duties under the
Plan.
The Plan Administrator will be the sole judge of the application and interpretation of the
Plan, and will have the discretionary authority to construe the provisions of the Plan, to resolve
disputed issues of fact, and to make determinations regarding eligibility for benefits (other than
determinations under Eligibility that are reserved for Employers). The decisions of the Plan
Administrator and the Committee in all matters relating to the Plan that are within the scope of
its authority (including, but not limited to, eligibility for benefits, Plan interpretations, and
disputed issues of fact) will be final and binding on all parties.
8
SECTION 409A
Notwithstanding the other provisions hereof, this Plan is intended to comply with the
requirements of section 409A of the Code, to the extent applicable, and this Plan shall be
interpreted to avoid any penalty sanctions under section 409A of the Code. Accordingly, all
provisions herein, or incorporated by reference, shall be construed and interpreted to comply with
section 409A of the Code and, if necessary, any such provision shall be deemed amended to comply
with section 409A of the Code and regulations thereunder. If any payment or benefit cannot be
provided or made at the time specified herein without incurring sanctions under section 409A of the
Code, then such benefit or payment shall be provided in full at the earliest time thereafter when
such sanctions will not be imposed. All payments to be made upon a termination of employment under
this Plan may only be made upon a separation from service under section 409A of the Code. For
purposes of section 409A of the Code, each payment made under this Plan shall be treated as a
separate payment and all installment payments shall be treated as a separate payment. In no event
may you, directly or indirectly, designate the calendar year of payment.
To the maximum extent permitted under section 409A of the Code, the cash severance payments
payable under this Plan are intended to comply with the short-term deferral exception under
Treas. Reg. §1.409A-1(b)(4), and any remaining amount is intended to comply with the separation
pay exception under Treas. Reg. §1.409A-1(b)(9)(iii); provided, however, any amount payable to you
during the six (6) month period following you Employment Termination Date that does not qualify
within either of the foregoing exceptions and is deemed as deferred compensation subject to the
requirements of section 409A of the Code, then such amount shall hereinafter be referred to as the
Excess Amount. If at the time of your Employment Termination Date, your Employers (or any
entity required to be aggregated with the Employer under section 409A of the Code) stock is
publicly-traded on an established securities market or otherwise and you are a specified employee
(as defined in section 409A of the Code and determined in the sole discretion of the Employer (or
any successor thereto) in accordance with the Employers (or any successor thereto) specified
employee determination policy), then the Employer shall postpone the commencement of the payment
of the portion of the Excess Amount that is payable within the six (6) month period following your
Employment Termination Date with the Employer (or any successor thereto) for six (6) months
following your Employment Termination Date. The delayed Excess Amount shall be paid in a lump sum
to you within thirty (30) days following the date that is six (6) months following your Employment
Termination Date (or any successor thereto) and any installments payable to you after such six (6)
month period shall continue in accordance with their original schedule. If you die during such six
(6) month period and prior to the payment of the portion of the Excess Amount that is required to
be delayed on account of section 409A of the Code, such Excess Amount shall be paid to the personal
representative of your estate within sixty (60) days after your death.
The payment by the Employer of a portion of the applicable COBRA premium during the severance
period is intended to qualify for the exception for deferred compensation as a medical benefit
provided in accordance with the requirements of Treas. Reg. §1.409A-1(b)(9)(v)(B).
AMENDMENT AND TERMINATION OF THE PLAN
CSS reserves the right to amend or terminate the Plan, in whole or in part, at any time and
for any reason. An amendment to the Plan may not discontinue or change any payments to a
terminated employee who commenced receiving Severance Pay under the Plan prior to the effective
date of the amendment of the Plan. If the Plan is terminated, no further benefits will be
payable under the Plan to any employee who has not commenced receiving Severance Pay prior to the
effective date of such termination.
9
NONALIENATION OF BENEFITS
You do not have the power to transfer, assign, anticipate, mortgage or otherwise encumber any
rights or any amounts payable under this Plan; nor will any such rights or amounts payable under
this Plan be subject to seizure, attachment, execution, garnishment or other legal or equitable
process, or for the payment of any debts, judgments, alimony, or separate maintenance, or be
transferable by operation of law in the event of bankruptcy, insolvency, or otherwise. In the
event you attempt to assign, transfer or dispose of such right, or if an attempt is made to subject
such right to such process, such assignment, transfer or disposition will be null and void.
ERISA RIGHTS STATEMENT
As a participant in the Plan, you are entitled to certain rights and protections under ERISA.
ERISA provides that all Plan participants will be entitled to:
Receive Information about the Plan and Benefits
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Examine, without charge, at the Plan Administrators office and at other specified
locations, such as worksites, all documents governing the Plan, including a copy of the latest
annual report (Form 5500 Series) filed by the Plan with the U.S. Department of Labor and
available at the Public Disclosure Room of the Employee Benefits Security Administration.
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Obtain, upon written request to the Plan Administrator, copies of documents governing the
operation of the Plan, including copies of the latest annual report (Form 5500 Series) and
updated summary plan description. The Plan Administrator may make a reasonable charge for the
copies.
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Prudent Actions by Plan Fiduciaries
In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are
responsible for the operation of the employee benefit plan. The people who operate the Plan,
called fiduciaries of the Plan, have a duty to do so prudently and in the interest of employees
and other Plan participants and beneficiaries. No one, including your Employer, or any other
person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining
a welfare benefit or exercising your rights under ERISA.
Enforcing Your Rights
If your claim for a benefit is denied or ignored, in whole or in part, you have a right to know why
this was done, to obtain copies of documents relating to the decision without charge, and to appeal
any denial, all within certain time schedules.
10
Under ERISA, there are steps you can take to enforce the above rights. For instance, if you
request materials from the Plan and you do not receive them within thirty (30) days, you may file
suit in a federal court. In such a case, the court may require the Plan Administrator to provide
the materials and pay you up to $110 a day until you receive the materials, unless the materials
were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim
for benefits that is denied or ignored, in whole or in part, you may file suit in a state or
federal court. If it should happen that the Plan fiduciaries misuse the Plans money or if you are
discriminated against for asserting your rights, you may seek assistance from the U.S. Department
of Labor, or you may file suit in a federal court. The court will decide who should pay court
costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if
it finds your claim is frivolous.
Assistance with Your Questions
If you have any questions about the Plan, you should contact the Plan Administrator. If you have
any questions about this statement or about your rights under ERISA, you should contact the nearest
office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in the
telephone directory or the Division of Technical Assistance and Inquires, Employee Benefits
Security Administration, U.S. Department of Labor, 200 Constitution Avenue NW, Washington, D.C.
20210 (web address:
www.dol.gov/dol/pwba
). You may also obtain certain publications about your
rights and responsibilities under ERISA by calling the publication hotline of the Employee Benefits
Security Administration.
11
EXHIBIT A
SEVERANCE PAY FORMULA
1. CSS President and Chief Executive Officer; CSS Officers Reporting to CSS President
(excluding any individual who directly reports to CSS President on an interim basis as a result of
a vacancy in an officer level position reporting directly to CSS President); and Presidents of
Cleo Inc, Berwick Offray LLC, C.R. Gibson, LLC and Paper Magic Group, Inc.:
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Years of Continuous Service
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Number of Weeks of Severance Pay
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0 up to 2 years
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26
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Over 2 years up to 5 years
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39
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Over 5 years
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52 (The maximum allowance)
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2. All other Senior Management Employees:
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Years of Continuous Service
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Number of Weeks of Severance Pay
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0 up to 2 years
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12
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Over 2 years up to 5 years
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26
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Over 5 years up to 10 years
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39
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Over 10 years
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52 (The maximum allowance)
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EXHIBIT B
PARTICIPATING EMPLOYERS
Cleo Inc
Berwick Offray LLC
Paper Magic Group, Inc.
C.R. Gibson, LLC
Exhibit 10.5
NONQUALIFIED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
COVERING OFFICER-EMPLOYEES OF
CSS INDUSTRIES, INC. AND ITS AFFILIATES
(Amended and Restated, Effective as of January 1, 2009)
TABLE OF CONTENTS
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Page
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ARTICLE I HISTORY AND PURPOSE OF THE PLAN
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1
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Section 1.01 History
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1
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Section 1.02 Purpose
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1
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Section 1.03 Employer Contributions Covered by the Plan
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1
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Section 1.04 Definitions
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1
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ARTICLE II DEFINITIONS
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2
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Section 2.01 Account(s)
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2
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Section 2.02 Beneficiary
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2
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Section 2.03 Beneficiary Designation Agreement
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2
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Section 2.04 Board
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2
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Section 2.05 Code
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2
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Section 2.06 Committee
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2
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Section 2.07 Compensation
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2
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Section 2.08 CSS
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2
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Section 2.09 Discretionary Contribution
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2
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Section 2.10 Discretionary Contribution Account
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2
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Section 2.11 Effective Date
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2
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Section 2.12 Eligible Employee
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3
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Section 2.13 Employee
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3
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Section 2.14 Employer
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3
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Section 2.15 Employer Contribution
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3
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Section 2.16 Employer Contribution Account
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3
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Section 2.17 ERISA
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3
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Section 2.18 Investment Funds
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3
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Section 2.19 Participant
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3
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Section 2.20 Plan
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3
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Section 2.21 Plan Year
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4
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Section 2.22 Prior CSS Contribution Account
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4
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Section 2.23 Prior CSS Contributions
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4
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Section 2.24 Prior Grandfathered CSS Contribution Account
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4
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Section 2.25 Prior Grandfathered CSS Contributions
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4
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Section 2.26 Prior CSS Plan
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4
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i
TABLE OF CONTENTS
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Page
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Section 2.27 Prior Subsidiary Contribution Account
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4
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Section 2.28 Prior Subsidiary Contributions
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4
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Section 2.29 Prior Grandfathered Subsidiary Contribution Account
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4
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Section 2.30 Prior Grandfathered Subsidiary Contributions
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4
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Section 2.31 Prior Subsidiary Plan
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4
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Section 2.32 Qualified Plan
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5
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Section 2.33 Qualified Plan Contribution
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5
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Section 2.34 Qualified Plan Contribution Percentage
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5
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Section 2.35 Release
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5
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Section 2.36 Separation Date
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5
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Section 2.37 Separation From Service
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5
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Section 2.38 Specified Employee
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5
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Section 2.39 Subsidiary
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5
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ARTICLE III ADMINISTRATION OF THE PLAN AND DISCRETION
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6
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Section 3.01 Committee Authority
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6
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Section 3.02 Compensation and Expenses
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6
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Section 3.03 Indemnification
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6
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Section 3.04 Decisions of the Committee
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6
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ARTICLE IV PARTICIPATION
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6
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Section 4.01 Eligibility to Participate
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6
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Section 4.02 Procedure for and Effect of Admission
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7
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Section 4.03 Change in Status
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7
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ARTICLE V CONTRIBUTIONS
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7
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Section 5.01 Employer Contributions
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7
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Section 5.02 Discretionary Contributions
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7
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Section 5.03 Timing of Employer Contributions and Discretionary Contributions
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8
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ARTICLE VI ACCOUNTS
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8
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Section 6.01 Accounts
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8
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Section 6.02 Earnings (or Losses) on Accounts
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8
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Section 6.03 Investment Funds
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8
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Section 6.04 Change in Investment Funds
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8
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Section 6.05 Valuation of Account(s)
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9
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ii
TABLE OF CONTENTS
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Page
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Section 6.06 Statement of Accounts
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9
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ARTICLE VII VESTING
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9
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Section 7.01 Vesting of Employer Contributions
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9
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Section 7.02 Vesting of Discretionary Contributions
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9
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Section 7.03 Vesting of Prior CSS Contributions and Prior Subsidiary Contributions
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9
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Section 7.04 Vesting of Prior Grandfathered CSS Contributions and Prior
Grandfathered Subsidiary Contributions
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9
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ARTICLE VIII DISTRIBUTIONS
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10
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Section 8.01 Distribution from Employer Contribution Account, Discretionary
Contribution Account, Prior CSS Contribution Account and Prior Subsidiary
Account for Participants Who Are Not Deemed Specified Employees
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10
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Section 8.02 Distribution for Participants from Employer Contribution Account,
Discretionary Contribution Account, Prior CSS Contribution Account and Prior
Subsidiary Account Who Are Deemed Specified Employees
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10
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Section 8.03 Distribution for Participants from Prior Grandfathered CSS Contribution
Account and Prior Grandfathered Subsidiary Contribution Account
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10
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Section 8.04 Other Distribution Forms or Time
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10
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ARTICLE IX MISCELLANEOUS
|
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11
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Section 9.01 Amendment and Termination
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11
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Section 9.02 Claims Procedures
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11
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Section 9.03 Designation of Beneficiary
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12
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Section 9.04 Limitation of Participants Right
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12
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Section 9.05 No Limitation on Employer Actions
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12
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Section 9.06 Obligations to Employer
|
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13
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Section 9.07 Nonalienation of Benefits
|
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13
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Section 9.08 Protective Provisions
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13
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Section 9.09 Withholding Taxes
|
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13
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Section 9.10 Unfunded Status of Plan
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13
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Section 9.11 Trust Fund
|
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13
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Section 9.12 Severability
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14
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Section 9.13 Successors
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14
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iii
TABLE OF CONTENTS
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Page
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Section 9.14 Governing Law
|
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14
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Section 9.15 Headings
|
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14
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Section 9.16 Gender, Singular and Plural
|
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14
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Section 9.17 Notice
|
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14
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Section 9.18 Incapacity
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14
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Section 9.19 Section 409A
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14
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EXHIBIT A ELIGIBLE EMPLOYEES
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A-1
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EXHIBIT B PRIOR PLANS
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B-1
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iv
NONQUALIFIED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
COVERING OFFICER-EMPLOYEES OF
CSS INDUSTRIES, INC. AND ITS SUBSIDIARIES
ARTICLE I
HISTORY AND PURPOSE OF THE PLAN
Section 1.01
History
. CSS previously adopted the Prior CSS Plan. In addition,
certain Subsidiaries of CSS previously adopted the Prior Subsidiary Plans. CSS has determined to
merge the Prior Subsidiary Plans with and into the Prior CSS Plan, effective as of January 1, 2009,
so that CSS sponsors one plan for itself and its participating Subsidiaries. The Prior CSS Plan
will be the surviving plan. In addition, CSS has determined to amend and restate the surviving
Prior CSS Plan, as merged with the Prior Subsidiary Plans, to incorporate the requirements of
section 409A of the Code and its corresponding regulations with respect to that portion of each
Participants Account that is subject to the requirements of section 409A of the Code, as well as
to make certain design changes that will be reflected in the surviving CSS Plan. This Plan
document shall reflect the terms and conditions of the surviving Prior CSS Plan, as amended and
restated, effective as of January 1, 2009. This Plan document covers any Participant who was
entitled to receive a benefit from the Prior CSS Plan or a Prior Subsidiary Plan as of December 31,
2008, but did not receive payment of his benefit under such plans as of such date, as well as any
individual who becomes a Participant in the Plan on or after January 1, 2009. Benefit payments
commencing prior to January 1, 2009 are governed by the terms of the Prior CSS Plan or Prior
Subsidiary Plans as they existed prior to January 1, 2009 and are either grandfathered from the
requirements of section 409A of the Code or payable pursuant to a fixed scheduled as required by,
and in compliance with, section 409A of the Code, with payments made between January 1, 2005 and
December 31, 2008 that are subject to the requirements of section 409A of the Code, such plans have
been operated in accordance with the transition relief established by the Treasury Department and
Internal Revenue Service pursuant to section 409A of the Code.
Section 1.02
Purpose
. The purpose of the Plan, as amended and restated effective as
of the Effective Date, is to recognize the services provided by certain key employees and officers
of CSS and its Subsidiaries. The Plan is intended to make additional retirement benefits and
increased financial security available to the Participants on a tax-favored basis by providing
additional Employer contributions that cannot be made under the Qualified Plans of CSS and its
Subsidiaries due to certain restrictions applicable under the Code. CSS intends that the Plan
shall at all times be maintained on an unfunded basis for federal income tax purposes under the
Code and administered as a non-qualified top-hat plan exempt from the substantive requirements of
ERISA. CSS also intends that the Plan shall be maintained and operated in accordance with the
requirements of section 409A of the Code and its corresponding regulations, with respect to amounts
subject to such requirements.
Section 1.03
Employer Contributions Covered by the Plan
. The Plan covers amounts
credited to Accounts on behalf of Participants that have not been fully distributed to Participants
prior to January 1, 2009.
Section 1.04
Definitions
. All capitalized terms in this Article I shall have the
meanings ascribed to them in Article II below.
1
ARTICLE II
DEFINITIONS
For the purpose of this Plan, the following terms shall have the meanings indicated, unless the
context clearly indicates otherwise:
Section 2.01
Account(s)
means the Employer Contribution Account, the Discretionary
Contribution Account, the Prior CSS Contribution Account, the Prior Subsidiary Contribution
Account, the Prior Grandfathered CSS Contribution Account and the Prior Grandfathered Subsidiary
Contribution Account, as applicable, maintained for a Participant pursuant to Article VI.
Section 2.02
Beneficiary
means the person or persons designated as such in
accordance with Section 9.03.
Section 2.03
Beneficiary Designation Agreement
means the agreement that the
Participant completes to designate his Beneficiary.
Section 2.04
Board
means the Board of Directors of CSS.
Section 2.05
Code
means the Internal Revenue Code of 1986, as amended from time to
time (or a successor law of comparable intent).
Section 2.06
Committee
means the Human Resources Committee of the Board or its
delegate, or such other committee appointed by the Board to administer the Plan.
Section 2.07
Compensation
means, for each Participant, compensation as defined by
the Qualified Plan to which such Participant participates and for which the Participants Qualified
Plan Contribution under such Qualified Plan is based, without regard to the compensation limitation
under section 401(a)(17)(A) of the Code, as adjusted in accordance with section 401(a)(17)(B) of
the Code.
Section 2.08
CSS
means CSS Industries, Inc.
Section 2.09
Discretionary Contribution
means an amount credited to a Participants
Discretionary Contribution Account in accordance with Section 5.02.
Section 2.10
Discretionary Contribution Account
means the Account maintained for a
Participant to which Discretionary Contributions are credited pursuant to Section 5.02 for each
Plan Year on and after the Effective Date.
Section 2.11
Effective Date
means January 1, 2009, the effective date of this
amendment and restatement of the Plan.
2
Section 2.12
Eligible Employee
means an Employee who is a member of a group of key
management or other highly compensated employees of the Employer within the meaning of sections
201, 301 and 401 of ERISA, and who is designated by the Committee, based on recommendations from
the respective Employer, as eligible to participate in the Plan. Exhibit A lists those Employees
who are Eligible Employees as of the Effective Date and will be updated by the Committee to reflect
those Employees who become Eligible Employees after the Effective Date. The Committee may
prospectively determine that an Eligible Employee is no longer eligible to participate.
Section 2.13
Employee
means any individual employed by the Employer on a full-time
basis as an employee.
Section 2.14
Employer
means CSS and any Subsidiary which is authorized by the Board
to adopt the Plan as a participating employer and cover its Eligible Employees and whose
designation as such has become effective upon acceptance of such status by the Subsidiary. A
Subsidiary may revoke its acceptance as a participating employer in the Plan at any time, but until
such acceptance has been revoked, all of the provisions of the Plan and amendments thereto shall
apply to the Eligible Employees of the Subsidiary. In the event the designation is revoked by a
Subsidiary, the Plan shall be deemed terminated only with respect to such Subsidiary. The duties
and responsibilities of the Employer as they relate to a particular Participant shall be
satisfied by the Employer in the manner determined by CSS in accordance with the terms of the Plan.
Section 2.15
Employer Contribution
means an amount credited to a Participants
Employer Contribution Account in accordance with Section 5.01.
Section 2.16
Employer Contribution Account
means the Account maintained for a
Participant to which Employer Contributions are credited pursuant to Section 5.01 for each Plan
Year on and after the Effective Date.
Section 2.17
ERISA
means the Employee Retirement Income Security Act of 1974, as
amended from time to time (or a successor law of comparable intent).
Section 2.18
Investment Funds
means the deemed investment options designated by the
Committee. Each Participant shall designate the Investment Funds pursuant to which deemed earnings
(losses) shall be credited to the Participants Account(s) in accordance with Article VI.
Section 2.19
Participant
means each Eligible Employee who is designated as
participating in the Plan by the Committee or its designee and is participating in the Plan in
accordance with the provisions of Article IV. In the event of the death or incompetency of a
Participant, the term shall mean his Beneficiary, personal representative or guardian, as
applicable. An individual shall remain a Participant until that individual has received full
distribution of any amount credited to the Participants Account(s) under the Plan.
Section 2.20
Plan
means this Nonqualified Supplemental Executive Retirement Plan
Covering Officer-Employees of CSS Industries, Inc. and Its Affiliates, as may be amended from time
to time.
3
Section 2.21
Plan Year
means the twelve month period beginning on each January 1 and
ending on the following December 31.
Section 2.22
Prior CSS Contribution Account
means the Account maintained for a
Participant to which were credited Prior CSS Contributions under the Prior CSS Plan.
Section 2.23
Prior CSS Contributions
means any CSS contributions, plus deemed
earnings (and losses), credited pursuant to the Prior CSS Plan to a Participants account under
such plan that were not earned and vested as of December 31, 2004, and are now subject to this
Plan.
Section 2.24
Prior Grandfathered CSS Contribution Account
means the Account
maintained for a Participant to which were credited Prior Grandfathered CSS Contributions under the
Prior CSS Plan.
Section 2.25
Prior Grandfathered CSS Contributions
means any CSS contributions, plus
deemed earnings (and losses), credited pursuant to the Prior CSS Plan to a Participants account
under such plan that were earned and vested as of December 31, 2004, and are now subject to this
Plan.
Section 2.26
Prior CSS Plan
means the Non-qualified Supplemental Executive
Retirement Plan covering Officers-Employees of CSS Industries, Inc. adopted pursuant to the prior
Policy Memorandum, as amended from time to time, and for which Prior CSS Contributions and Prior
Grandfathered CSS Contributions were made prior to the Effective Date.
Section 2.27
Prior Subsidiary Contribution Account
means the Account maintained for
a Participant to which were credited Prior Subsidiary Contributions under the Prior Subsidiary
Plan.
Section 2.28
Prior Subsidiary Contributions
means any Subsidiary contributions, plus
deemed earnings (and losses), credited pursuant to a Prior Subsidiary Plan to a Participants
account under such plan that were not earned and vested as of December 31, 2004, and are now
subject to this Plan.
Section 2.29
Prior Grandfathered Subsidiary Contribution Account
means the Account
maintained for a Participant to which were credited Prior Grandfathered Subsidiary Contributions
under the Prior Subsidiary Plan.
Section 2.30
Prior Grandfathered Subsidiary Contributions
means any CSS
contributions, plus deemed earnings (and losses), credited pursuant to a Prior Subsidiary Plan to a
Participants account under such plan that were earned and vested as of December 31, 2004, and are
now subject to this Plan.
Section 2.31
Prior Subsidiary Plan
means each nonqualified deferred compensation
plan maintained by a Subsidiary pursuant to a Policy Memorandum, as amended from time to time, that
is listed on the attached Exhibit B and for which Prior Subsidiary Contributions and Prior
Grandfathered Subsidiary Contributions were made prior to the Effective Date.
4
Section 2.32
Qualified Plan
means the qualified plan maintained by an Employer that
is intended to meet the requirements of section 401(k) of the Code and provides for discretionary
Employer contributions.
Section 2.33
Qualified Plan Contribution
means the Employers discretionary
contribution to a Qualified Plan that is based solely on a percentage of the Participants eligible
compensation for purposes of the Qualified Plan and is not intended as either a matching
contribution or a qualified non-elective contribution under such Qualified Plan. For each Plan
Year, the Qualified Plan Contribution shall be equal to the percentage then used in deriving the
dollar amount approved by the Employers Board of Directors as the Employers Qualified Plan
Contribution to the Qualified Plan for such Plan Year.
Section 2.34
Qualified Plan Contribution Percentage
means the percentage of the
Qualified Plan Contribution made by the Employer to the Qualified Plan for the Plan Year.
Section 2.35
Release
means the release and discharge of the Employer and all
affiliated persons and entities from any and all claims, demands and causes of action relating to
the Participants employment with the Employer, other than as to any vested benefits to which the
Participant may be entitled under any Employer benefit plan, which will be in such form as may be
proscribed by the Employer, acting as plan sponsor and as a fiduciary, from time to time and with
such modifications as the Employer deems appropriate for a Participants individual situation.
Section 2.36
Separation Date
means the date on which a Participant incurs a
Separation From Service.
Section 2.37
Separation From Service
means a Participants separation from service
with the Employer within the meaning of section 409A of the Code and the regulations issued
thereunder.
Section 2.38
Specified Employee
means any Participant who, at any time during the
twelve month period ending on the identification date (as determined by CSS or its delegate), is a
specified employee under section 409A of the Code, as determined by CSS (or its delegate). The
determination of specified employees, including the number and identity of persons considered
specified employees and identification date, shall be made by CSS (or its delegate) in accordance
with the provisions of sections 416(i) and 409A of the Code and the regulations issued thereunder.
Section 2.39
Subsidiary
means any directly or indirectly affiliated subsidiary
corporation of CSS.
5
ARTICLE III
ADMINISTRATION OF THE PLAN AND DISCRETION
Section 3.01
Committee Authority
. The Committee shall have full power and authority
to interpret the Plan, to prescribe, amend and rescind any rules, forms and procedures as it deems
necessary or appropriate for the proper administration of the Plan and to make any other
determinations, including factual determinations, and to take any other such actions as it deems
necessary or advisable in carrying out its duties under the Plan. All actions taken by the
Committee arising out of, or in connection with, the administration of the Plan or any rules
adopted thereunder, shall, in each case, lie within its sole discretion, and shall be final,
conclusive and binding upon the Employers, the Employees, the Participants, the Beneficiaries and
all other persons and entities having an interest therein.
Section 3.02
Compensation and Expenses
. Members of the Committee shall serve without
compensation for their services unless otherwise determined by CSS. All expenses of administering
the Plan shall be paid by the Employer.
Section 3.03
Indemnification
. CSS shall indemnify and hold harmless each member of
the Committee from any and all claims, losses, damages, expenses (including counsel fees) and
liability (including any amounts paid in settlement of any claim or any other matter with the
consent of CSS) arising from any act or omission of such member, except when the same is due to
gross negligence or willful misconduct.
Section 3.04
Decisions of the Committee
. Any decisions, actions or interpretations to
be made under the Plan by the Committee acting on behalf of an Employer shall be made in its sole
discretion, not as a fiduciary and need not be uniformly applied to similarly situated individuals
and shall be final, binding and conclusive on all persons interested in the Plan. As a condition
of participating in the Plan, each Participant expressly acknowledges, through his participation in
the Plan, that all decisions and determinations of the Committee shall be final and binding on the
Participant, his Beneficiaries and any other person having or claiming an interest on behalf of a
Participant under the Plan.
ARTICLE IV
PARTICIPATION
Section 4.01
Eligibility to Participate
. The rights of a Participant whose
participation in the Plan commenced prior to the Effective Date and who is entitled to receive a
benefit under the Prior CSS Plan and/or Prior Subsidiary Plan on December 31, 2008, but did not
receive payment of his benefit prior to the Effective Date, shall be a Participant in the Plan as
of the Effective Date and such Participants benefit shall be governed by the terms of the Plan as
set forth herein. Each other Employee shall become an Eligible Employee and therefore a
Participant on the date the Committee determines such Employee shall be an Eligible Employee for
purposes of the Plan; provided, however, that the effective date on which such Employee shall
become an Eligible Employee shall be the first Plan Year that follows the date on which the
individual is designated as an Eligible Employee for purposes of the Plan.
6
Section 4.02
Procedure for and Effect of Admission
. Each Eligible Employee who
becomes eligible for admission to participation in the Plan shall be notified by the Committee as
soon as administratively practicable following the date the Committee has determined that the
Employee shall become an Eligible Employee but, in any event, prior to the Plan Year in which such
individual may first participate in the Plan. By becoming a Participant, each Eligible Employee
shall for all purposes be deemed conclusively to have assented to the terms of the Plan and to all
amendments thereto.
Section 4.03
Change in Status
. A Participant who ceases to be employed as an Eligible
Employee (whether or not he is still employed in another capacity by the Employer or a
non-participating Subsidiary) shall no longer be eligible to participate in the Plan as an active
Participant for purposes of eligibility to receive Employer Contributions and Discretionary
Contributions until he again becomes an Eligible Employee, at which time he will again become an
active Participant for purposes of eligibility to receive Employer Contributions and Discretionary
Contributions, commencing with the first Plan Year that follows the date on which he again becomes
an Eligible Employee.
Section 4.04
Employer Contributions
. Each Plan Year in which an Employer makes a
Qualified Plan Contribution to a Qualified Plan on behalf of a Participant, CSS shall credit to
such Participants Employer Contribution Account an amount that is equal to the product of (x) and
(y), where (x) is the sum of (i) Qualified Plan Contribution Percentage and (ii) the lesser of
(A) the Qualified Plan Contribution Percentage or (B) the greater of (I) 6.2% or (II) the old-age
insurance portion of the employer OASDI tax rate in effect at the beginning of the Plan Year
pursuant to section 3111(a) of the Code; and (y) is the difference between (a) such Participants
total Compensation for such Plan Year and (b) the compensation limit under section 401(a)(17)(A) of
the Code (for 2009, the limit is $245,000), as adjusted in accordance with section 401(a)(17)(B) of
the Code. Notwithstanding the immediately preceding sentence, if the Participants Compensation
for any Plan Year is equal to or less than the compensation limit under section 401(a)(17)(A) of
the Code, as adjusted in accordance with section 401(a)(17)(B) of the Code, for such Plan Year, no
Employer Contribution shall be made to the Participants Employer Contribution Account for such
Plan Year. For the avoidance of doubt, the amount, if any, that will be contributed to the
Participants Employer Contribution Account for a Plan Year pursuant to this Section will be solely
dependent on the Qualified Plan for which Participant participates in for the relevant Plan Year.
If no Qualified Plan Contribution is made to the Qualified Plan in which the Participant
participates during the Plan Year, the Participant shall not be eligible to receive an Employer
Contribution under this Plan for the Plan Year.
Section 4.05
Discretionary Contributions
. After the end of each Plan Year, CSS may
credit, in its sole discretion, to each Participants Discretionary Contribution Account who CSS
has determined to credit a Discretionary Contribution an amount that will be based on a percentage
of such Participants Compensation that exceeds the contribution limitation (subject to applicable
COLA) imposed by section 401(a)(17) of the Code. An amount credited to a Participants
Discretionary Contribution Account pursuant to this Section 5.02 is purely discretionary and is in
the sole discretion of the Committee and is independent of any Employer Contribution, if any,
credited to a Participant pursuant to Section 5.01. If a Discretionary Contribution will be
credited for a Plan Year, the Committee shall determine, in its sole
discretion, which Participants shall be eligible for such Discretionary Contribution and the
relevant percentage for such Participant, which percentages need not be uniform among Participants.
7
Section 4.06
Timing of Employer Contributions and Discretionary Contributions
.
Employer Contributions shall be credited to the Participants Employer Contribution Account at the
same time as Qualified Plan Contributions are credited to the Participants account under the
Qualified Plan. Discretionary Contributions shall be credited to the Participants Discretionary
Contribution Account at the time determined by the Committee in its sole discretion.
ARTICLE V
ACCOUNTS
Section 5.01
Accounts
. CSS shall establish and maintain on behalf of each Employer
separate Accounts with respect to each Participant. A Participants Account(s) shall consist of
one or more of the following subaccounts: Employer Contribution Account, Discretionary
Contribution Account, Prior CSS Contribution Account, Prior Subsidiary Contribution Account, Prior
Grandfathered CSS Contribution Account and Prior Grandfathered Subsidiary Contribution Account.
The Participants Account(s) shall be reduced by the amount of any payments made by the Employer to
the Participant or the Participants Beneficiary pursuant to this Plan.
Section 5.02
Earnings (or Losses) on Accounts
. A Participants Account(s) shall be
credited with all deemed earnings (or losses) generated by the Investment Funds elected by the
Participant from time to time. Participants may allocate the amounts credited to their Account(s)
among the Investment Funds available under the Plan only in whole percentages. The deemed rate of
return, positive or negative, credited under each Investment Fund is based upon the actual
investment performance of the corresponding investment portfolios that the Committee may designate
from time to time, and shall equal the total return of each such Investment Fund net of asset based
charges, including, without limitation, money management fees and fund expenses. The Committee
may, on a prospective basis, add to or delete any of the Investment Funds.
Section 5.03
Investment Funds
. Notwithstanding that the rates of return credited to
Participants Account(s) are based upon the actual performance of the corresponding Investment
Funds as the Committee may designate, neither CSS nor any other Employer shall be obligated to
actually invest any amounts credited under this Plan in such Investment Funds or any other
Investment Funds.
Section 5.04
Change in Investment Funds
. A Participant may change the Investment
Funds in which the amounts credited to his Account(s) are deemed to be allocated with whatever
frequency is determined by the Committee. Each such change may include (a) reallocation of the
amounts credited to the Participants existing Account(s) in whole percentages, and/or (b) change
in investment allocation of amounts to be credited to the Participants Account(s) in the future,
as the Participant may elect.
8
Section 5.05
Valuation of Account(s)
. The value of a Participants Accounts as of any
date shall equal the amounts theretofore credited to such Account(s), including any earnings
(positive or negative) deemed to be earned on each such Account(s) in accordance with Section
6.02, through the day preceding such date, less the amounts theretofore deducted from such
Accounts.
Section 5.06
Statement of Accounts
. The Committee shall provide to each Participant,
not less frequently than annually, a statement in such form as the Committee deems desirable
setting forth the balance standing to the credit of each Participant in each Account.
ARTICLE VI
VESTING
Section 6.01
Vesting of Employer Contributions
. A Participant shall become vested in
the Employer Contributions credited to his Employer Contribution Account for a Plan Year at the
same time he becomes vested in the Qualified Plan Contributions made to the Qualified Plan on his
behalf for such Plan Year.
Section 6.02
Vesting of Discretionary Contributions
. A Participant shall be fully
vested in the Discretionary Contributions credited to his Discretionary Contribution Account for a
Plan Year.
Section 6.03
Vesting of Prior CSS Contributions and Prior Subsidiary Contributions
. A
Participant shall become vested in the Prior CSS Contributions and the Prior Subsidiary
Contributions credited to his Prior CSS Contribution Account and Prior Subsidiary Contribution
Account for periods prior to the Effective Date at the time(s) such amounts would have become
vested under the terms of the Prior CSS Plan and Prior Subsidiary Plan, as applicable, immediately
prior to the Effective Date.
Section 6.04
Vesting of Prior Grandfathered CSS Contributions and Prior Grandfathered
Subsidiary Contributions
. A Participant is fully vested in the Prior CSS Grandfathered
Contributions and the Prior Grandfathered Subsidiary Contributions credited to his Prior
Grandfathered CSS Contribution Account and Prior Grandfathered Subsidiary Contribution Account.
9
ARTICLE VII
DISTRIBUTIONS
Section 7.01
Distribution from Employer Contribution Account, Discretionary Contribution
Account, Prior CSS Contribution Account and Prior Subsidiary Account for Participants Who Are Not
Deemed Specified Employees
. Any Participant who is not a Specified Employee at the time of his
Separation From Service shall receive a single sum distribution of the entire value of the vested
amounts credited to his Employer Contribution Account, Discretionary Contribution Account, Prior
CSS Contribution Account, and Prior Subsidiary Contribution Account, as applicable, under the Plan
within sixty (60) days following the Participants Separation Date. A distribution paid pursuant
to this Section 8.01 shall be paid by the Participants Employer and shall be made entirely in
cash.
Section 7.02
Distribution for Participants from Employer Contribution Account,
Discretionary Contribution Account, Prior CSS Contribution Account and Prior Subsidiary Account Who
Are Deemed Specified Employees
. Any Participant who is a Specified Employee at the time of his
Separation From Service shall receive a single sum distribution of the entire value of the vested
amounts credited to his Employer Contribution Account, Discretionary Contribution Account, Prior
CSS Contribution Account, and Prior Subsidiary Contribution Account, as applicable, under the Plan
within sixty (60) days following the first day of the seventh month of the Participants Separation
Date. Notwithstanding the immediately preceding sentence, if a Participant has a Separation From
Service on account of his death or dies prior to the date the distribution would otherwise be made
in accordance with the immediately preceding sentence, the Participants Beneficiary shall receive
a single sum distribution of the entire value of the vested amount credited to the Participants
Employer Contribution Account, Discretionary Contribution Account, Prior CSS Contribution Account,
and Prior Subsidiary Contribution Account under the Plan within sixty (60) days following the date
of the Participants death. A distribution paid pursuant to this Section 8.02 shall be paid by the
Participants Employer and shall be made entirely in cash.
Section 7.03
Distribution for Participants from Prior Grandfathered CSS Contribution
Account and Prior Grandfathered Subsidiary Contribution Account
. Any Participant who is
entitled to receive a distribution of the amounts credited to his Prior Grandfathered CSS
Contribution Account and Prior Grandfathered Subsidiary Contribution Account, as applicable, under
the Plan shall receive such distribution at the time(s) and in the form(s) as permitted under the
Prior CSS Plan and Prior Subsidiary Plan, as applicable; provided, however, that if the Participant
elects to receive his benefit in the form of a lump sum, such Participant must execute, and not
revoke, the Release. A distribution paid pursuant to this Section 8.03 shall be paid by the
Participants Employer and shall be made entirely in cash.
Section 7.04
Other Distribution Forms or Time
. Except as provided in Section 8.03, no
other form(s) and/or time(s) of distribution are permitted under this Plan.
10
ARTICLE VIII
MISCELLANEOUS
Section 8.01
Amendment and Termination
. The Plan may be amended, suspended,
discontinued or terminated at any time by the Committee; provided, however, that no such amendment,
suspension, discontinuance or termination shall reduce or in any manner adversely affect the rights
of any Participant with respect to benefits that are payable or may become payable under the Plan
based upon the balance of the Participants Account(s) as of the effective date of such amendment,
suspension, discontinuance or termination. Notwithstanding the foregoing, the Committee may make
all technical, administrative, regulatory and compliance amendments to the Plan that the Committee
deems necessary and appropriate so that the Plan meets the requirements of section 409A of the Code
and its corresponding regulations.
Section 8.02
Claims Procedures
.
(a)
Claim
. A person who believes that he is being denied a benefit to which he is
entitled under the Plan (hereinafter referred to as a
Claimant
) may file a written
request for such benefit with the Committee, setting forth the claim.
(b)
Claim Decision
. Upon receipt of a claim, the Committee shall advise the Claimant
that a reply shall be forthcoming within 90 days and shall, in fact, deliver such reply within such
period. The Committee may, however, extend the reply period for an additional 90 days for
reasonable cause. If the claim is denied in whole or in part, the Claimant shall be provided a
written opinion, using language calculated to be understood by the Claimant, setting forth:
(i) The specific reason or reasons for such denial;
(ii) The specific reference to pertinent provisions of this Plan on which such denial is
based;
(iii) A description of any additional material or information necessary for the Claimant to
perfect his claim and an explanation why such material or such information is necessary;
(iv) Appropriate information as to the steps to be taken if the Claimant wishes to submit the
claim for review, including the time limits for requesting a review under subsection (c) and for
review under subsection (d) hereof; and
(v) The Claimants right to bring a civil action under section 502(a) of ERISA following an
adverse benefit determination on review.
(c)
Request for Review
. Within 60 days after the receipt by the Claimant of the
written opinion described above, the Claimant may request in writing that the Committee review the
determination of the Committee. The Claimant or his duly authorized representative
may, but need not, review the pertinent documents and submit issues and comments in writing
for consideration by the Committee. If the Claimant does not request a review of the initial
determination within such 60-day period, the Claimant shall be barred and stopped from challenging
the determination.
11
(d)
Review of Decision
. Within 60 days after the Committees receipt of a request for
review, it shall review the initial determination. After considering all materials presented by
the Claimant, the Committee shall render a written opinion, written in a manner calculated to be
understood by the Claimant, setting forth (i) the specific reason or reasons for the decision, (ii)
the specific references to the pertinent provisions of this Plan on which the decision is based,
(iii) a statement that the Claimant is entitled to receive upon request and free of charge, access
to and copies of all documents and other information relevant to the claim, and (iv) the Claimants
right to bring a civil action under section 502(a) of ERISA following an adverse benefit
determination on review. If special circumstances require that the 60 day time period be extended,
the Committee shall so notify the Claimant and shall render the decision as soon as possible, but
no later than 120 days after receipt of the request for review.
Section 8.03
Designation of Beneficiary
. In the Beneficiary Designation Agreement,
each Participant may designate a Beneficiary or Beneficiaries to receive any payments that may be
made following the Participants death. Such designation may be changed or canceled by the
Participant at any time without the consent of any such Beneficiary. Any such designation, change
or cancellation must be made in the Beneficiary Designation Agreement, which may be subsequently
changed, and shall not be effective until received by the Committee, or its designee. If no
Beneficiary has been named in the Beneficiary Designation Agreement, or the designated Beneficiary
or Beneficiaries shall have predeceased the Participant, the Beneficiary shall be the Participants
designated Beneficiary under the Qualified Plan in which the Participant last actively
participated, and if no Beneficiary has been designated under such Qualified Plan, the Beneficiary
shall be the Participants estate. If a Participant designates more than one Beneficiary, the
interests of such Beneficiaries shall be paid in equal shares, unless the Participant has
specifically designated otherwise.
Section 8.04
Limitation of Participants Right
. Nothing in this Plan shall be
construed as conferring upon any Participant any right to continue in the employment of the
Employer, nor shall it interfere with the rights of the Employer to terminate the employment of any
Participant and/or to take any personnel action affecting any Participant without regard to the
effect that such action may have upon such Participant as a recipient or prospective recipient of
benefits under the Plan. Any amounts payable hereunder shall not be deemed salary or other
compensation to a Participant for the purposes of computing benefits to which the Participant may
be entitled under any qualified retirement arrangement established by the Employer for the benefit
of its employees.
Section 8.05
No Limitation on Employer Actions
. Nothing contained in the Plan shall
be construed to prevent the Employer from taking any action that is deemed by it to be appropriate
or in its best interest. No Participant, Beneficiary, or other person shall have any claim against
the Employer as a result of such action.
12
Section 8.06
Obligations to Employer
. To the extent permitted under section 409A of
the Code, if the Committee acting on the Employers behalf determines that any Participant has
outstanding any debt, obligation, or other liability representing an amount owing to or guaranteed
by the Employer, that Participants benefits shall be calculated in accordance with all other
applicable provisions of this Plan, then reduced by the amount of such debt, obligation, or other
liability prior to payment of benefits to the Participant pursuant to Article VIII above.
Section 8.07
Nonalienation of Benefits
. Except as expressly provided herein, no
Participant or Beneficiary shall have the power or right to transfer (otherwise than by the laws of
descent and distribution), alienate, or otherwise encumber the Participants interest under the
Plan. The Employers obligations under this Plan are not assignable or transferable except to (a)
any corporation or partnership that acquires all or substantially all of the Employers assets or
(b) any corporation or partnership into which the Employer may be merged or consolidated. The
provisions of the Plan shall inure to the benefit of each Participant and the Participants
Beneficiaries, heirs, executors, administrators or successors in interest.
Section 8.08
Protective Provisions
. Each Participant shall cooperate with the
Employer by furnishing any and all information requested by the Employer in order to facilitate the
payment of benefits hereunder, and taking such other relevant action as may be requested by the
Employer. If a Participant refuses to cooperate, the Employer shall have no further obligation to
the Participant under the Plan, other than payment to such Participant of the then current vested
balance of the Participants Account in accordance with the Plan.
Section 8.09
Withholding Taxes
. The Employer may make such provisions and take such
actions as it may deem necessary or appropriate for the withholding of any taxes that the Employer
is required to withhold by any law or regulation of any governmental authority, whether Federal,
state or local, to withhold in connection with any benefits under the Plan, including, but not
limited to, the withholding of appropriate sums from any amount otherwise payable to the
Participant (or his Beneficiary). Each Participant (or his Beneficiary), however, shall be
responsible for the payment of all individual tax liabilities relating to any such benefits.
Section 8.10
Unfunded Status of Plan
. The Plan is intended to constitute an
unfunded plan of deferred compensation for Participants. Benefits payable hereunder shall be
payable out of the general assets of the Employer, and no segregation of any assets whatsoever for
such benefits shall be made. Notwithstanding any segregation of assets or transfer to a grantor
trust, with respect to any payments not yet made to a Participant, nothing contained herein shall
give any such Participant any rights to assets that are greater than those of a general creditor of
the Employer.
Section 8.11
Trust Fund
. The Employer shall be responsible for the payment of all
benefits provided under the Plan. At its discretion, the Employer may establish one or more
trusts, with such trustees as the Board may approve, for the purpose of assisting in the payment of
such benefits. Although such a trust shall be irrevocable, its assets shall be held for payment to
all of the Employers general creditors in the event of insolvency. To the extent any benefits
provided under the Plan are paid from any such trust, the Employer shall have no further obligation
to pay them. If not paid from the trust, such benefits shall remain the obligation of the
Employer.
13
Section 8.12
Severability
. If any provision of this Plan is held unenforceable, the
remainder of the Plan shall continue in full force and effect without regard to such unenforceable
provision and shall be applied as though the unenforceable provision were not contained in the
Plan.
Section 8.13
Successors
. The provisions of this Plan shall bind and inure to the
benefit of the Employer and its successors and assigns. The term successors as used herein shall
include any corporate or other business entity which shall, whether by merger, consolidation,
purchase or otherwise acquire all or substantially all of the business and assets of the Employer,
and successors of any such corporation or other business entity.
Section 8.14
Governing Law
. The Plan shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania, without reference to the principles of
conflict of laws.
Section 8.15
Headings
. Headings are inserted in this Plan for convenience of
reference only and are to be ignored in the construction of the provisions of the Plan.
Section 8.16
Gender, Singular and Plural
. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person or
persons may require. As the context may require, the singular may read as the plural and the
plural as the singular.
Section 8.17
Notice
. Any notice required or permitted under the Plan shall be
sufficient if in writing and hand delivered or sent by registered or certified mail. Such notice
shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date
shown on the postmark on the receipt for registration or certification. Mailed notice to the
Committee shall be directed to CSS address. Mailed notice to a Participant or Beneficiary shall
be directed to the individuals last known address in the Employers records.
Section 8.18
Incapacity
. In the event that any amount becomes payable under the Plan
to a person who, in the sole judgment of the Committee, is considered by reason of physical or
mental condition to be unable to give a valid receipt therefore, the Committee may direct that such
payment be made to any person found by the Committee, in its sole judgment, to have assumed the
care of such person. Any payment made pursuant to such determination shall constitute a full
release and discharge of the Committee and the Employer.
Section 8.19
Section 409A
.
The Plan is intended to comply with the applicable
requirements of section 409A of the Code and its corresponding regulations and related guidance
with respect to all amounts subject to such requirements, and shall be maintained in accordance
with such requirements with respect to those amounts that are subject to such requirements.
Notwithstanding anything in the Plan to the contrary, distributions from the Plan with respect to
amounts subject to the requirements of section 409A of the Code may only be made in a manner, and
upon an event, permitted by section 409A of the Code. To the extent that any provision of the Plan
would cause a conflict with the requirements of section 409A of the Code, or would cause the
administration of the Plan to fail to satisfy the requirements of Section 409A of the
Code, such provision shall be deemed null and void to the extent permitted by applicable law.
In no event shall a Participant, directly or indirectly, designate the calendar year of payment.
14
EXHIBIT A
ELIGIBLE EMPLOYEES
CSS Industies, Inc.
Jack Farber
Christopher Munyan
Clifford Pietrafitta
John Nucero
Steven Cohen
William Kiesling
Lois Karpinski
Denise Andahazy
Keith Foley
Berwick Offray LLC
Scott Shea
Bruce Kerr
Chris Antonopoulos
Russell Hager
Barry Sokol
Denis Pesante
Lee Boy
Julie Pajic
Steven Lerman
Marla ODell
Carey Edwards
Paper Magic Group, Inc.
Paul Quick
William Brock
Ken VanArtsdalen
John S. Wentworth
Edward Robertson
Robert Kilbourne
Donald Post
Joseph OBrien
C.R. Gibson LLC
Donald French
George Panagiotis
Randy Rock
Steve Wash
A-1
EXHIBIT B
PRIOR PLANS
Policy Memorandum, dated January 25, 1994, from Jack Farber to the file, relating to the establishment of the SERP, as amended by Amendment 1998-1, effective October 1, 1998, and by Amendment 2006-1, effective as of March 31, 2005.
B-1