e10vq

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KFZaEUBV2LLV5VWiTuMwOlxhP+KwjqQBpJyhVeP//GkdnvnG5wz6SMz6zFi/bEYW vJZma3PNQw5uSK2qQGNs8A== 0000893220-07-003456.txt : 20071026 0000893220-07-003456.hdr.sgml : 20071026 20071025174326 ACCESSION NUMBER: 0000893220-07-003456 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20070930 FILED AS OF DATE: 20071026 DATE AS OF CHANGE: 20071025 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSS INDUSTRIES INC CENTRAL INDEX KEY: 0000020629 STANDARD INDUSTRIAL CLASSIFICATION: GREETING CARDS [2771] IRS NUMBER: 131920657 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02661 FILM NUMBER: 071191717 BUSINESS ADDRESS: STREET 1: 1845 WALNUT ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2155699900 FORMER COMPANY: FORMER CONFORMED NAME: CITY STORES CO DATE OF NAME CHANGE: 19851212 10-Q 1 w41295e10vq.htm CSS INDUSTRIES, INC. e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2007


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

For the transition period from to

Commission file number 1-2661

CSS INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)


Delaware		13-1920657

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1845 Walnut Street, Philadelphia, PA		19103

(Address of principal executive offices)		(Zip Code)

(215) 569-9900

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

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 October 18, 2007, there were 10,788,431 shares of common stock outstanding which excludes shares which may still be issued upon exercise of stock options.

CSS INDUSTRIES, INC. AND SUBSIDIARIES

INDEX


	PAGE NO.
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Consolidated Statements of Operations and Comprehensive Income – Three and six months ended September 30, 2007 and 2006		3

Condensed Consolidated Balance Sheets – September 30, 2007 and March 31, 2007		4

Consolidated Statements of Cash Flows – Six months ended September 30, 2007 and 2006		5

Notes to Consolidated Financial Statements		6-12

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13-17

Item 3. Quantitative and Qualitative Disclosures About Market Risk		17

Item 4. Controls and Procedures		17

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		18

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		18

Item 4. Submission of Matters to a Vote of Security Holders		19

Item 6. Exhibits		20

Signatures		21
By-laws of the Company
Certif. of CEO pursuant to Section 302
Certif. of CFO pursuant to Section 302
Certif. of CEO pursuant to Section 906
Certif. of CFO pursuant to Section 906

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except
per share data)


	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
SALES	$	172,882		$	173,830		$	219,684		$	221,363


COSTS AND EXPENSES
Cost of sales		126,683			129,003			160,202			163,066
Selling, general and administrative expenses		25,158			25,289			45,841			47,493
Interest expense (income), net		284			1,083			(90	)		1,217
Other income, net		(159	)		(66	)		(401	)		(228	)


		151,966			155,309			205,552			211,548


INCOME BEFORE INCOME TAXES		20,916			18,521			14,132			9,815

INCOME TAX EXPENSE		7,381			6,818			5,024			3,619


NET INCOME	$	13,535		$	11,703		$	9,108		$	6,196


NET INCOME PER COMMON SHARE
Basic	$	1.25		$	1.11		$	.84		$	.59

Diluted	$	1.22		$	1.08		$	.82		$	.57


WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		10,857			10,559			10,869			10,528

Diluted		11,129			10,838			11,161			10,831


CASH DIVIDENDS PER SHARE OF COMMON STOCK	$	.14		$	.12		$	.28		$	.24


COMPREHENSIVE INCOME
Net income	$	13,535		$	11,703		$	9,108		$	6,196
Foreign currency translation adjustment		1			3			1			3

Comprehensive income	$	13,536		$	11,706		$	9,109		$	6,199

See notes to consolidated financial statements.

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)


	September 30,		March 31,
	2007		2007
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	6,004	$	100,091
Accounts receivable, net		147,482		37,169
Inventories		140,014		82,138
Deferred income taxes		8,130		8,645
Assets held for sale		2,564		2,564
Other current assets		14,103		13,665


Total current assets		318,297		244,272


PROPERTY, PLANT AND EQUIPMENT, NET		54,753		58,897


OTHER ASSETS
Goodwill		30,952		30,952
Intangible assets, net		4,298		4,328
Other		3,685		4,621


Total other assets		38,935		39,901


Total assets	$	411,985	$	343,070


LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Notes payable	$	20,100	$	—
Current portion of long-term debt		10,210		10,195
Accrued customer programs		11,749		10,290
Other current liabilities		76,304		35,478


Total current liabilities		118,363		55,963


LONG-TERM DEBT, NET OF CURRENT PORTION		20,276		20,392


LONG-TERM OBLIGATIONS		6,308		3,221


DEFERRED INCOME TAXES		1,147		2,384


STOCKHOLDERS’ EQUITY		265,891		261,110


Total liabilities and stockholders’ equity	$	411,985	$	343,070

See notes to consolidated financial statements.

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(In thousands)


	Six Months Ended
	September 30,
	2007			2006
Cash flows from operating activities:
Net income	$	9,108		$	6,196

Adjustments to reconcile net income to net cash used for operating activities:
Depreciation and amortization		6,594			7,096
Provision for doubtful accounts		243			(134	)
Deferred tax (benefit) provision		(722	)		610
Gain on sale of assets		—			(16	)
Share-based compensation expense		1,399			1,412
Changes in assets and liabilities:
Increase in accounts receivable		(110,556	)		(104,734	)
Increase in inventory		(57,876	)		(63,929	)
Decrease in other assets		428			2,126
Increase in other liabilities		38,187			37,075
Increase (decrease) in accrued taxes		7,185			(2,355	)


Total adjustments		(115,118	)		(122,849	)


Net cash used for operating activities		(106,010	)		(116,653	)


Cash flows from investing activities:
Purchase of property, plant and equipment		(2,350	)		(2,971	)
Proceeds from sale of assets		—			16


Net cash used for investing activities		(2,350	)		(2,955	)


Cash flows from financing activities:
Payments on long-term debt		(101	)		(47	)
Borrowings on notes payable		36,400			128,710
Repayments on notes payable		(16,300	)		(55,200	)
Dividends paid		(3,035	)		(2,526	)
Purchase of treasury stock		(5,676	)		—
Proceeds from exercise of stock options		2,639			1,454
Tax benefit realized for stock options exercised		345			740


Net cash provided by financing activities		14,272			73,131


Effect of exchange rate changes on cash		1			3

Net decrease in cash and cash equivalents		(94,087	)		(46,474	)

Cash and cash equivalents at beginning of period		100,091			57,656

Cash and cash equivalents at end of period	$	6,004		$	11,182

See notes to consolidated financial statements.

CSS INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007
(Unaudited)

(1)		SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

		Basis of Presentation -

		CSS Industries, Inc. (collectively with its subsidiaries, “CSS” or the “Company”) has prepared the consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission. The Company has condensed or omitted certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States pursuant to such rules and regulations. In the opinion of management, the statements include all adjustments (which include normal recurring adjustments) required for a fair presentation of financial position, results of operations and cash flows for the interim periods presented. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007. 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, Halloween masks, costumes, make-up and novelties, Easter egg dyes and novelties, and craft and educational products. The seasonal nature of CSS’ business has historically resulted in lower sales levels and operating losses in the first and fourth quarters and comparatively higher sales levels and operating profits in the second and third quarters of the Company’s fiscal year, which ends March 31, thereby causing significant fluctuations in the quarterly results of operations of the Company.

		Foreign Currency Translation and Transactions -

		Translation adjustments are charged or credited to a separate component of stockholders’ equity. Gains and losses on foreign currency transactions are not material and are included in other income, net in the consolidated statements of operations.

		Use of Estimates -

		The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Judgments and assessments of uncertainties are required in applying the Company’s accounting policies in many areas. Such estimates pertain to 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.

		Inventories -

		The Company records inventory at the date of taking title, which occurs upon receipt or prior to receipt dependent on supplier shipping terms. The Company adjusts unsaleable and slow-moving inventory to its estimated net realizable value. Substantially all of the Company’s inventories are stated at the lower of first-in, first-out (FIFO) cost or market. The remaining portion of the inventory is valued at the lower of last-in, first-out (LIFO) cost or market. Inventories consisted of the following (in thousands):


	September 30,		March 31,
	2007		2007
Raw material	$	24,867	$	14,442
Work-in-process		19,043		31,283
Finished goods		96,104		36,413

	$	140,014	$	82,138

Assets Held for Sale -

Assets held for sale in the amount of $2,564,000 represents two former manufacturing facilities which the Company is in the process of selling. The Company expects to sell these facilities within the next 12 months for an amount greater than the current carrying value. The Company ceased depreciating these facilities at the time they were classified as held for sale.

Revenue Recognition -

The Company recognizes revenue from product sales when the goods are shipped, title and risk of loss have been transferred to the customer and collection is reasonably assured. Provisions for returns, allowances, rebates to customers and other adjustments are provided in the same period that the related sales are recorded.

Net Income Per Common Share -

The following table sets forth the computation of basic and diluted net income per common share for the three and six months ended September 30, 2007 and 2006 (in thousands, except per share data):


	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
Numerator:
Net income	$	13,535	$	11,703	$	9,108	$	6,196


Denominator:
Weighted average shares outstanding for basic income per common share		10,857		10,559		10,869		10,528
Effect of dilutive stock options		272		279		292		303

Adjusted weighted average shares outstanding for diluted income per common share		11,129		10,838		11,161		10,831


Basic net income per common share	$	1.25	$	1.11	$	.84	$	.59

Diluted net income per common share	$	1.22	$	1.08	$	.82	$	.57

		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)		SHARE-BASED COMPENSATION:

		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 September 30, 2007 become exercisable at the rate of 25% per year commencing one year after the date of grant. At September 30, 2007, options to acquire 1,219,750 shares were available for grant under the 2004 Plan.

		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 Company’s common stock will be granted automatically to each non-employee director on the last day that the Company’s 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 September 30, 2007, options to acquire 180,000 shares were available for grant under the 2006 Plan.

		Compensation cost related to stock options recognized in operating results (included in selling, general and administrative expenses) was $718,000 and $668,000 in the quarter ended September 30, 2007 and 2006, respectively, and was $1,399,000 and $1,412,000 in the six months ended September 30, 2007 and 2006, respectively.

		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 Six Months
	Ended September 30,
	2007			2006
Expected dividend yield at time of grant		1.59	%		1.61	%
Expected stock price volatility		29	%		24	%
Risk-free interest rate		4.80	%		4.96	%
Expected life of option (in years)		4.2			4.7

Expected volatilities are based on historical volatility of the Company’s common stock. The expected life of the option is estimated using historical data pertaining to option exercises and employee terminations. The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant.

Transactions from April 1, 2007 through September 30, 2007 under the above plans (and their predecessor plans) were as follows:


									Aggregate
						Weighted		Weighted	Intrinsic
	Number of Shares			Option Price per Share		Average Price		Average Life Remaining	Value (in thousands)
Options outstanding at April 1, 2007		1,508,110		$	12.71 – 36.60	$	26.94	3.9 years	$	15,901
Granted		155,000			35.23 – 37.33		35.28
Exercised		(104,593	)		13.21 – 35.98		25.80
Canceled		(30,675	)		23.58 – 34.12		31.18

Options outstanding at September 30, 2007		1,527,842		$	12.71 – 37.33	$	27.77	3.5 years	$	14,782

Options exercisable at September 30, 2007		867,317		$	12.71 – 36.60	$	24.19	3.3 years	$	11,501

		The weighted average fair value of options granted during the six months ended September 30, 2007 and 2006 was $9.44 and $7.64, respectively.

		As of September 30, 2007, there was $5,413,000 of total unrecognized compensation cost related to non-vested stock option awards granted under the Company’s equity incentive plans which is expected to be recognized over a weighted average period of 1.3 years.

(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. As of September 30, 2007, the notional amount of open foreign currency forward contracts was $14,462,000 and the related unrealized loss was $1,219,000. 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 March 31, 2007, the notional amount of open foreign currency forward contracts was $294,000 and the related unrealized gain was immaterial.

(4)		BUSINESS RESTRUCTURING:

		On November 27, 2006, the Board of Directors of the Company approved a restructuring plan to combine the operations of its Cleo Inc (“Cleo”) and Berwick Offray LLC (“Berwick Offray”) subsidiaries, to close Cleo’s Maysville, Kentucky production facility and to exit a non-material, non-core business. This restructuring was undertaken in order to improve profitability and efficiency through the elimination of redundant back office functions, certain senior management positions and excess manufacturing capacity. The Company expects to complete the restructuring plan by December 31, 2007. As part of the restructuring plan, the Company recorded a restructuring reserve of $1,323,000, including severance related to 29 employees. Also, in connection with the restructuring plan, the Company recorded an impairment of property, plant and equipment at the affected facilities of $422,000. Additionally, during fiscal 2007, there was an increase in the restructuring reserve in the amount of $582,000 primarily related to the ratable recognition of retention bonuses for employees providing service until their termination date. In the first six months of fiscal 2008, there was a reduction in the restructuring accrual of $155,000 primarily for costs related to severance that were less than originally estimated. During the quarter and six months ended September 30, 2007, the Company made payments of $454,000 and $807,000, respectively, primarily related to severance. As of September 30, 2007, the remaining liability of $494,000 was classified as a current liability in the accompanying condensed consolidated balance sheet and will be paid during the remainder of fiscal 2008. Restructuring expenses were classified in selling, general and administrative expenses. The Company expects to incur additional charges related to restructuring costs of approximately $427,000 during the remainder of fiscal 2008.

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


	Termination			Other
	Costs			Costs			Total
Restructuring reserve as of March 31, 2007	$	1,353		$	103		$	1,456
Cash paid – fiscal 2008		(770	)		(37	)		(807	)
Non cash reduction – fiscal 2008		(102	)		(53	)		(155	)

Restructuring reserve as of September 30, 2007	$	481		$	13		$	494

(5)		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.

		Included in intangible assets, net in the accompanying condensed consolidated balance sheets are the following acquired intangible assets (in thousands):


	September 30,		March 31,
	2007		2007
Tradenames	$	4,290	$	4,290
Non-compete and other, net		8		38

	$	4,298	$	4,328

		Amortization expense related to intangible assets was $15,000 and $24,000 for the quarters ended September 30, 2007 and 2006, respectively, and was $30,000 and $47,000 for the six months ended September 30, 2007 and 2006, respectively. The aggregate estimated amortization expense for intangible assets remaining as of September 30, 2007 is $8,000 in fiscal 2008.

(6)		COMMITMENTS AND CONTINGENCIES:

		On September 10, 2007, the United States Court of Appeals for the Federal Circuit (“Court of Appeals”) denied the appeal of the Company’s Cleo subsidiary challenging the imposition of antidumping duties on certain tissue paper products imported from China. As described in Item 3 of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007, in the proceedings before the Court of Appeals, Cleo was seeking reversal of the March 2005 final determination of the United States International Trade Commission (“ITC”) that, in part, resulted in the imposition of such duties. In the fiscal year ended March 31, 2005, the Company recognized an expense of approximately $2,300,000 for these duties, which reflected the maximum liability of Cleo for duties related to tissue paper products imported from China during the 2005 fiscal year based on deposit rates that had been established by the United States Department of Commerce (“DOC”). These duties were paid in full prior to fiscal 2008.

		On October 10, 2007, the DOC issued its final determination of the duty rates applicable to tissue paper products imported from China during the period September 21, 2004 through February 28, 2006. As a result of this final determination, Cleo’s actual liability for duties relating to its importation of Chinese tissue paper during the fiscal year ended March 31, 2005 was fixed at approximately $2,000,000, which is approximately $300,000 less than the amount previously recognized as an expense for these duties in the Company’s 2005 fiscal year. Given that the actual duties are less than the amount previously expensed, the Company will recognize a gain of approximately $294,000 in the third quarter of its 2008 fiscal year.

		CSS and its subsidiaries are also 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 lawsuits and claims will not materially affect the consolidated financial position of the Company or its results of operations or cash flows.

(7)		ACCOUNTING PRONOUNCEMENTS:

		In March 2007, the Financial Accounting Standards Board (“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. The Company does not believe that the adoption of EITF 06-10 will have a significant effect on its financial position or results of operations.

		In February 2007, the FASB issued Statement of Financial Accounting Standard (“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. Companies are not allowed to adopt SFAS No. 159 on a retrospective basis unless they choose early adoption. The Company intends to adopt SFAS No. 159 at the beginning of fiscal 2009 and does not believe that the adoption of SFAS No. 159 will have a significant 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. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 (fiscal 2009 for the Company). The Company does not believe that the adoption of SFAS No. 157 will have a significant effect on its financial position or results of operations.

(8)		INCOME TAXES:

		In June 2006, the FASB issued FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation requires that the Company recognize in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based solely on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The Company adopted the provisions of FIN 48 on April 1, 2007. The implementation of FIN 48 did not result in an adjustment to the Company’s April 1, 2007 balance of retained earnings. The implementation resulted in a reclassification to increase both deferred tax assets and long term obligations in the amount of approximately $700,000. The total amount of unrecognized tax benefits as of the date of adoption was $2,900,000. In addition, the Company reclassified $2,100,000 from other current liabilities to long term obligations related to unrecognized tax benefits which are not expected to be settled within 12 months of April 1, 2007.

		Included in the balance of unrecognized tax benefits at April 1, 2007 were $2,000,000 of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of unrecognized tax benefits at April 1, 2007 were $900,000 of tax benefits that, if recognized, would result in an adjustment to deferred taxes.

		Consistent with the Company’s historical financial reporting, the Company recognizes potential accrued interest and/or penalties related to unrecognized tax benefits in income tax expense in the consolidated statements of operations. The Company had accrued $700,000 for the estimated payment of interest and penalties at March 31, 2007. The implementation of FIN 48 did not result in an adjustment to its accrual for interest and penalties which is included as a component of the unrecognized tax benefits noted above. During the six months ended September 30, 2007, the Company accrued an additional $66,000 in potential interest and penalties associated with uncertain tax positions.

		The Company is subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. The Company’s March 31, 2005 federal tax return is currently under examination by the Internal Revenue Service. The Company finalized an examination of its March 31, 2004 federal tax return with the Internal Revenue Service in May of 2006. Although the statute of limitations for the 2004 federal tax return has not yet expired, the Company considers the year to be effectively settled as discussed in FASB Staff Position FIN 48-1. The Company and its subsidiaries are currently not undergoing audits in any state jurisdiction. A subsidiary of the Company is currently under examination by Hong Kong Inland Revenue for the March 31, 2006 period.

		The Company anticipates that total unrecognized tax benefits will decrease by approximately $200,000 over the next 12 months due to the expiration of certain state statute of limitations. The Company has classified this amount as short term income taxes payable on its balance sheet as of September 30, 2007.

CSS INDUSTRIES, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

STRATEGIC OVERVIEW

Approximately 75% of the Company’s sales are attributable to seasonal (Christmas, Valentine’s Day, Easter and Halloween) products, with the remainder being 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 cost pressure as its competitors source certain products from overseas and its customers increase direct sourcing from overseas factories. Increasing customer concentration has augmented their bargaining power, which has also contributed to price pressure.

The Company has taken several measures to respond to cost and price pressures. 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 substantially expanded an office and showroom in Hong Kong to better meet customers’ buying needs and to be able to provide alternatively sourced products at competitive prices. CSS continually evaluates its efficiency and productivity in its North American production and distribution facilities and in its back office operations to maintain its competitiveness domestically. In the last four years, the Company has closed three manufacturing plants and five warehouses totaling 800,000 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 operation. This action enhanced administrative efficiencies and is expected to provide incremental penetration of gift packaging products into broader everyday channels of distribution.

The Company’s everyday craft, trim-a-package and stationery product lines have higher inherent growth potential due to higher market growth rate. Further, the Company’s 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 has established project teams to pursue top line sales growth in these and other areas.

Historically, significant growth at CSS has come through acquisitions. Management anticipates that it will continue to utilize acquisitions to stimulate further growth.

LITIGATION

On September 10, 2007, the United States Court of Appeals for the Federal Circuit (“Court of Appeals”) denied the appeal of the Company’s Cleo subsidiary challenging the imposition of antidumping duties on certain tissue paper products imported from China. As described in Item 3 of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007, in the proceedings before the Court of Appeals, Cleo was seeking reversal of the March 2005 final determination of the United States International Trade Commission (“ITC”) that, in part, resulted in the imposition of such duties. In the fiscal year ended March 31, 2005, the Company recognized an expense of approximately $2,300,000 for these duties, which reflected the maximum liability of Cleo for duties related to tissue paper products imported from China during the 2005 fiscal year based on deposit rates that had been established by the United States Department of Commerce (“DOC”). These duties were paid in full prior to fiscal 2008.

On October 10, 2007, the DOC issued its final determination of the duty rates applicable to tissue paper products imported from China during the period September 21, 2004 through February 28, 2006. As a result of this final determination, Cleo’s actual liability for duties relating to its importation of Chinese tissue paper during the fiscal year ended March 31, 2005 was fixed at approximately $2,000,000, which is approximately $300,000 less than the amount previously recognized as an expense for these duties in the Company’s 2005 fiscal year. Given that the

actual duties are less than the amount previously expensed, the Company will recognize a gain of approximately $294,000 in the third quarter of its 2008 fiscal year.

CSS and its subsidiaries are also 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 lawsuits and claims 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, 2007. Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in many areas. Following are some of the areas requiring significant judgments and estimates: revenue; 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 Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007.

RESULTS OF OPERATIONS

Seasonality

The seasonal nature of CSS’ business has historically resulted in lower sales levels and operating losses in the first and fourth quarters and comparatively higher sales levels and operating profits in the second and third quarters of the Company’s fiscal year which ends March 31, thereby causing significant fluctuations in the quarterly results of operations of the Company.

Six Months Ended September 30, 2007 Compared to Six Months Ended September 30, 2006

Sales for the six months ended September 30, 2007 decreased 1% to $219,684,000 from $221,363,000 in 2006 primarily due to reduced boxed greeting card sales to warehouse clubs and lower sales of educational products, partially offset by the earlier timing of certain Christmas product line shipments, particularly gift wrap, compared to the prior year.

Cost of sales, as a percentage of sales, was 73% in 2007 and 74% in 2006. The decrease in cost of sales was primarily due to efficiencies in the gift wrap, gift bag and tissue product lines resulting from the restructuring program announced in November 2006 and higher margins achieved on ribbons and bows as a result of the mix of products shipped during the period compared to the prior year.

Selling, general and administrative (“SG&A”) expenses, as a percentage of sales, were 21% in 2007 and in 2006. The decrease in SG&A expenses of $1,652,000, or 3%, over the prior year period was primarily due to reduced expenses from the restructuring program announced in November 2006 as well as lower severance costs and professional fees.

Interest income of $90,000 in 2007 improved over interest expense of $1,217,000 in 2006 due to lower borrowing levels during the six months compared to the same period in the prior year as a result of cash generated from operations, net of a lower rate of return on invested cash resulting from the Company’s investment in a tax exempt municipal fund in the current year.

Income taxes, as a percentage of income before taxes, were 36% in 2007 and 37% in 2006. The decrease in the effective tax rate was primarily due to the Company’s investment in a municipal fund during fiscal 2008 that is tax exempt for federal purposes.

Net income for the six months ended September 30, 2007 was $9,108,000, or $.82 per diluted share compared to $6,196,000, or $.57 per diluted share in 2006. The increase in net income was primarily attributable to improved margins and lower SG&A costs as described above, and lower interest expense.

Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006

Sales for the three months ended September 30, 2007 decreased 1% to $172,882,000 from $173,830,000 in 2006 primarily due to reduced boxed greeting card sales to warehouse clubs and lower sales of educational products, partially offset by the earlier timing of certain Christmas product line shipments, particularly gift wrap, compared to the prior year.

SG&A expenses, as a percentage of sales, were 15% in 2007 and 2006. The savings achieved from the restructuring program announced in November 2006 were substantially offset by higher commissions expense as a result of the mix of product shipped during the quarter compared to the same quarter in the prior year.

Interest expense, net of $284,000 in 2007 improved over interest expense, net of $1,083,000 in 2006 due to lower borrowing levels during the quarter compared to the same quarter in the prior year as a result of cash generated from operations, net of a lower rate of return on invested cash resulting from the Company’s investment in a tax exempt municipal fund in the current year.

Income taxes, as a percentage of income before taxes, were 35% in 2007 and 37% in 2006. The decrease in the effective tax rate was primarily due to the Company’s investment in a municipal fund during fiscal 2008 that is tax exempt for federal purposes.

Net income for the three months ended September 30, 2007 was $13,535,000, or $1.22 per diluted share, compared to $11,703,000, or $1.08 per diluted share in 2006. The increase in net income was primarily attributable to improved margins as described above and lower interest expense.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2007, the Company had working capital of $199,934,000 and stockholders’ equity of $265,891,000. The increase in accounts receivable from March 31, 2007 reflected seasonal billings of current year Halloween and Christmas accounts receivables, net of current year collections. The increase in inventories and other current liabilities from March 31, 2007 reflected the normal seasonal inventory build necessary for the fiscal 2008 shipping season. The increase in stockholders’ equity was primarily attributable to year-to-date net income and capital contributed upon exercise of employee stock options, partially offset by treasury share repurchases and payments of cash dividends.

On September 21, 2007, the Board of Directors of the Company approved a systems integration plan designed to standardize the enterprise resource planning (“ERP”) systems, master data and business processes across all CSS businesses. The Company believes this project, which is expected to be implemented in phases over two and one-half years, will provide a sound, cost effective foundation for the future growth of CSS, as well as provide the systems and business process infrastructure for future acquisitions and operating efficiencies. The incremental cash outlay for this initiative over a two and one-half year period is projected to be $8,100,000. During fiscal 2008, the Company expects the cash outlay to be $4,500,000 with no material impact on the income statement.

The Company relies primarily on cash generated from its operations and seasonal borrowings to meet its liquidity requirements. Historically, a significant portion of the Company’s revenues have been seasonal with approximately 80% of sales recognized in the second and third quarters. As payment for sales of Christmas related products is usually not received until just before or just after the holiday selling season in accordance with general industry practice, short-term borrowing needs increase throughout the second and third quarters, peaking prior to Christmas and dropping thereafter. Seasonal financing requirements are met under a $50,000,000 revolving credit facility with five banks and an accounts receivable securitization facility with an issuer of receivables-backed commercial paper. This facility has a funding limit of $100,000,000 during peak seasonal periods and $25,000,000 during off-peak seasonal periods. In addition, the Company has outstanding $30,000,000 of 4.48% senior notes due ratably in annual $10,000,000 installments through December 2009. These financing facilities are available to fund the Company’s seasonal borrowing needs and to provide the Company with sources of capital for general corporate purposes, including acquisitions as permitted under the revolving credit facility. At September 30, 2007, there was $30,000,000 of long-term borrowings outstanding related to the senior notes and $20,100,000 outstanding under the Company’s short-term credit facilities. In addition, the Company has a minor amount 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 September 30, 2007, the Company’s letter of credit commitments are as follows (in thousands):


	Less than 1		1-3		4-5		After 5
	Year		Years		Years		Years		Total
Letters of credit	$	5,583	$	—	$	—	$	—	$	5,583

The Company has letters of credit that guarantee funding of workers compensation claims as well as obligations to certain vendors. The Company has no financial guarantees or other arrangements with any third parties or related parties other than its subsidiaries.

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

LABOR RELATIONS

With the exception of the bargaining units at the gift wrap facilities in Memphis, Tennessee and the ribbon manufacturing facilities in Hagerstown, Maryland, which totaled approximately 640 employees as of September 30, 2007, 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 Cleo’s production and maintenance employees at the Cleo gift wrap plant and warehouses in Memphis, Tennessee remains in effect until December 31, 2007. Cleo is preparing for negotiations with such labor union concerning the provisions of a new agreement to replace the collective bargaining agreement that expires on December 31, 2007, and Cleo expects that such negotiations will commence prior to the end of the Company’s third fiscal quarter. The collective bargaining agreement with the labor union representing the Hagerstown-based production and maintenance employees remains in effect until December 31, 2009.

ACCOUNTING PRONOUNCEMENTS

See Note 7 and Note 8 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 statements regarding the Company’s expectation that it will sell facilities held for

sale within the next 12 months for an amount greater than the current carrying value; improved profitability and efficiency from the Company’s restructuring program to combine its Cleo and Berwick Offray operations; estimated future expenses in connection with such restructuring program; continued use of acquisitions to stimulate further growth; the Company’s expected ultimate liabilities from lawsuits and claims; the expected future impact of changes in accounting principles; the anticipated effects of measures taken by the Company to respond to cost and price pressures; and expected future benefits and costs associated with the project relating to the standardization of the Company’s ERP systems. Forward-looking statements are based on the beliefs of the Company’s management as well as assumptions made by and information currently available to the Company’s management as to future events and financial performance with respect to the Company’s operations. Forward-looking statements speak only as of the date made. The Company undertakes no obligation to update any forward-looking statements to reflect the events or circumstances arising after the date as of which they were made. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including without limitation, general market 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 the combination of the operations of the Company’s Cleo and Berwick Offray subsidiaries, including the risk that the restructuring related savings may not meet the expected amounts previously reported, risks associated with the Company’s ERP 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 Company’s operations and financial performance, risks associated with the expiration on December 31, 2007 of the collective bargaining agreement between the Company’s Cleo subsidiary and the labor union representing certain production and maintenance employees employed at Cleo’s Memphis, Tennessee facility, including the risk that a new collective bargaining agreement may not be reached prior to the expiration of the current collective bargaining agreement, the risk that customers may become insolvent, 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 in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007 and elsewhere in the Company’s SEC filings. 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 does not enter into contracts for trading purposes and does not use leveraged instruments. The market risks associated with debt obligations and other significant instruments as of September 30, 2007 have not materially changed from March 31, 2007 (see Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007).

ITEM 4. CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, the Company’s management, with the participation of the Company’s President and Chief Executive Officer and Vice President – Finance and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures in accordance with Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the President and Chief Executive Officer and Vice President – Finance and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b)

Changes in Internal Controls. There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) as promulgated by the Securities and Exchange Commission under the Exchange Act) during the second quarter of fiscal year 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

CSS INDUSTRIES, INC. AND SUBSIDIARIES

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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

Unregistered Sales of Equity Securities

On July 10, 2007, CSS issued 1,500 shares of its common stock ($.10 par value) to a member of the Board of Directors of CSS, upon such director’s exercise of stock options previously granted to such director pursuant to CSS’ 2000 Stock Option Plan for Non-Employee Directors (the “2000 Plan”). The aggregate purchase price for these 1,500 shares of CSS common stock was $50,040, which was paid in cash.

The options granted pursuant to the 2000 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 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 160,200 shares were repurchased at an average price of $35.63 in the second quarter of fiscal 2008. As of September 30, 2007, there remained an outstanding authorization to repurchase 87,224 shares of outstanding CSS common stock as represented in the table below.


							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⁾
July 1 through July 31, 2007		—	$	—		—		247,424
August 1 through August 31, 2007		160,200		35.63		160,200		87,224
September 1 through September 30, 2007		—		—		—		87,224

Total Second Quarter		160,200	$	35.63		160,200		87,224


(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)		The Company’s Board of Directors authorized on February 18, 1998 the repurchase of up to 1,000,000 shares of the Company’s common stock (the “Repurchase Program”). Thereafter, the Company’s Board of Directors increased the number of shares authorized to be repurchased by the Company pursuant to the Repurchase Program as follows: November 9, 1998 (500,000 additional shares); May 4, 1999 (500,000 additional shares); September 28, 1999 (500,000 additional shares); September 26, 2000 (500,000 additional shares); and February 27, 2003 (400,000 additional shares). As a result of the Company’s three-for-two stock split distributed on July 10, 2003, the number of shares authorized for repurchase pursuant to the Repurchase Program was automatically increased to 5,100,000 shares. The aggregate number of shares repurchased by the Company pursuant to the Repurchase Program as of September 30, 2007 was 5,012,776 on a split-adjusted basis. An expiration date has not been established for the Repurchase Program.

Item 4. Submission of Matters to a Vote of Security Holders

	(a)		The annual meeting of stockholders of the Company was held on August 2, 2007. The only matter voted upon at the annual meeting was the election of directors.

	(b)		The result of the vote of the stockholders for the election of directors was as set forth in the table that follows. The individuals listed in the table below were elected to serve as Directors of the Company until the next annual meeting and until their successors shall be elected and qualify:


	SHARES OF VOTING STOCK
	FOR		WITHHELD
Scott A. Beaumont		10,434,705		60,703
James H. Bromley		10,379,964		115,444
Jack Farber		10,406,352		89,056
Leonard E. Grossman		10,225,671		269,737
James E. Ksansnak		10,382,640		112,768
Rebecca C. Matthias		10,434,362		61,046
Christopher J. Munyan		10,406,665		88,743

Item 6. Exhibits

Exhibit 3.1 By-laws of the Company, as amended to date (as last amended August 2, 2007).

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.

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: October 25, 2007	By:	/s/ Christopher J. Munyan
		Christopher J. Munyan
		President and Chief Executive Officer (principal executive officer)



Date: October 25, 2007	By:	/s/ Clifford E. Pietrafitta
		Clifford E. Pietrafitta
		Vice President – Finance and Chief Financial Officer (principal financial and accounting officer)

EX-3.1 2 w41295exv3w1.htm BY-LAWS OF THE COMPANY exv3w1

Exhibit 3.1

B Y L A W S

CSS INDUSTRIES, INC.
(formerly known as City Stores Company)
(a Delaware Corporation)

(Amended and Restated as of September 23, 1998)
(As further amended on July 27, 1999, February 21, 2001,
January 15, 2004 and August 2, 2007)

ARTICLE I

Offices and Fiscal Year

SECTION 1.01. Registered Office.—The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware until otherwise established by resolution of the board of directors, and a certificate certifying the change is filed in the manner provided by statute.

SECTION 1.02. Other Offices.—The corporation may also have offices and keep its books at such other places within or without the State of Delaware as the board of directors may from time to time determine or the business of the corporation requires.

SECTION 1.03. Fiscal Year.—The fiscal year of the corporation shall end on March 31 in each year, unless declared otherwise by resolution of the Board of Directors.

ARTICLE II

Notice — Waivers — Meetings

SECTION 2.01. Notice, What Constitutes.—Whenever, under the provisions of the Delaware General Corporation Law (“GCL”) or the certificate of incorporation or of these bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail or by telegram (with messenger service specified), telex or TWX (with answerback received) or courier service, charges prepaid, or by facsimile transmission to the address (or to the telex, TWX, facsimile or telephone number) of the person appearing on the books of the corporation, or in the case of directors, supplied to the corporation for the purpose of notice. If the notice is sent by mail, telegraph or courier service, it shall be deemed to be given when deposited in the United States mail or with a telegraph office or courier service for delivery to that person or, in the case of telex or TWX, when dispatched, or in the case of facsimile transmission, when received.

SECTION 2.02. Notice of Meetings of Board of Directors.—Notice of a regular meeting of the board of directors need not be given. Notice of every special meeting of the board of directors shall be given to each director by telephone or in writing at least 24 hours (in the case of notice by telephone, telex, TWX or facsimile transmission) or 48 hours (in the case of notice by telegraph, courier service or express mail) or five days (in the case of notice by first class mail) before the time at which the meeting is to be held. Every such notice shall state the time and place of the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board need be specified in a notice of the meeting.

SECTION 2.03. Notice of Meetings of Stockholders.—Written notice of the place, date and hour of every meeting of the stockholders, whether annual or special, shall be given to each stockholder of record entitled to vote at the meeting not less than ten nor more than sixty days before the date of the meeting. Every notice of a special meeting shall state the purpose or purposes thereof. If the notice is sent by mail, it shall be deemed to have been given when deposited in the United States mail, postage prepaid, directed to the stockholder at the address of the stockholder as it appears on the records of the corporation.

SECTION 2.04. Waivers of Notice.

(a) Written Waiver.—Whenever notice is required to be given under any provisions of the GCL or the certificate of incorporation or these bylaws, a written waiver, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice of such meeting.

(b) Waiver by Attendance.—Attendance of a person at a meeting, either in person or by proxy, shall constitute a waiver of notice of such meeting, except where a person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened.

SECTION 2.05. Exception to Requirements of Notice.

(a) General Rule.—Whenever notice is required to be given, under any provision of the GCL or of the certificate of incorporation or these bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given.

(b) Stockholders Without Forwarding Addresses.—Whenever notice is required to be given, under any provision of the GCL or the certificate of incorporation or these bylaws, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period

between such two consecutive annual meetings, or (ii) all, but not less than two, payments (if sent by first class mail) of dividends or interest on securities during a twelve-month period, have been mailed addressed to such person at his address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth the person’s then current address, the requirement that notice be given to such person shall be reinstated.

SECTION 2.06. Conference Telephone Meetings.—One or more directors may participate in a meeting of the board, or of a committee of the board, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting.

ARTICLE III

Meetings of Stockholders

SECTION 3.01. Place of Meeting.—All meetings of the stockholders of the corporation shall be held at the registered office of the corporation, or at such other place within or without the State of Delaware as shall be designated by the board of directors in the notice of such meeting.

SECTION 3.02. Annual Meeting.—The board of directors may fix and designate the date and time of the annual meeting of the stockholders, and at said meeting the stockholders then entitled to vote shall elect directors and shall transact such other business as may properly be brought before the meeting.

SECTION 3.03. Special Meetings.—Special meetings of the stockholders of the corporation may be called at any time by a majority of the board of directors or by not less than three stockholders entitled to cast at least twenty-five percent (25%) of the votes that all stockholders are entitled to cast at the particular meeting. At any time, upon the written request of any person or persons who have duly called a special meeting, which written request shall state the purpose or purposes of the meeting, it shall be the duty of the secretary to fix the date of the meeting, which shall be held at such date and time as the secretary may fix, and to give due notice thereof. If the secretary shall neglect or refuse to fix the time and date of such meeting and give notice thereof, the person or persons calling the meeting may do so. The business transacted at any special meeting shall be confined to the objects stated in the call.

SECTION 3.04. Quorum, Manner of Acting and Adjournment.

(a) Quorum.—The holders of a majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders except as otherwise provided by the GCL, by the certificate of incorporation or by these bylaws. If a quorum is not present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At any such adjourned meeting at which a quorum is present or represented, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

(b) Manner of Acting.—Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. In all matters other than the election of directors, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote thereon shall be the act of the stockholders, unless the question is one upon which, by express provision of the applicable statute, the certificate of incorporation or these bylaws, a different vote is required in which case such express provision shall govern and control the decision of the question. The stockholders present in person or by proxy at a duly organized meeting can continue to do business until adjournment, notwithstanding withdrawal of enough stockholders to leave less than a quorum.

SECTION 3.05. Organization.—At every meeting of the stockholders, the chairman of the board, if there be one, or in the case of a vacancy in the office or absence of the chairman of the board, one of the following persons present in the order stated: the vice chairman, if one has been appointed, the president, the vice presidents in their order of rank or seniority, a chairman designated by the board of directors or a chairman chosen by the stockholders entitled to cast a majority of the votes which all stockholders present in person or by proxy are entitled to cast, shall act as chairman, and the secretary, or, in the absence of the secretary, an assistant secretary, or in the absence of the secretary and the assistant secretaries, a person appointed by the chairman, shall act as secretary.

SECTION 3.06. Voting.

(a) General Rule.—Unless otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote, in person or by proxy, for each share of capital stock having voting power held by such stockholder.

(b) Voting and Other Action by Proxy.—

(1) A stockholder may execute a writing authorizing another person or persons to act for the stockholder as proxy. Such execution may be accomplished by the stockholder or the authorized officer, director, employee or agent of the stockholder signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature. A stockholder may authorize another person or persons to act for the stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission if such telegram, cablegram or other means of electronic transmission sets forth or is submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder.

(2) No proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period.

(3) A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only so long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally.

SECTION 3.07. Consent of Stockholders in Lieu of Meeting.—Any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of all of the outstanding stock entitled to vote with respect to such action at any annual or special meeting of stockholders of the corporation and shall be delivered to the corporation by delivery to either its registered office in Delaware, its principal place of business, or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required in this section to the corporation, written consents signed by a sufficient number of holders to take action are delivered to the corporation by delivery to either its registered office in Delaware, its principal place of business, or to an

officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested.

SECTION 3.08. Voting Lists.—The officer who has responsibility for the stock ledger of the corporation shall prepare and make or cause to be prepared and made, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting. The list shall be arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

SECTION 3.09. Inspectors of Election.

(a) Appointment.—All elections of directors shall be by written ballot, unless otherwise provided in the certificate of incorporation; the vote upon any other matter need not be by ballot. In advance of or at any meeting of stockholders the board of directors may appoint not less than two inspectors, who need not be stockholders, to act at the meeting and to make a written report thereof. The board of directors may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no such inspectors have been so appointed by the board of directors, or if any inspector or alternate so appointed shall fail to attend or refuse or be unable to serve, inspectors in place of any so failing to attend or refusing or unable to serve shall be appointed by chairman of the board or the person presiding at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the person’s best ability. No person who is a candidate for the office of director shall be an inspector.

(b) Duties.—The inspectors shall ascertain the number of shares outstanding and the voting power of each, shall determine the shares represented at the meeting and the validity of proxies and ballots, shall count all votes and ballots, shall determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and shall certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.

(c) Polls.—The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery of the State of Delaware upon application by a stockholder shall determine otherwise.

(d) Reconciliation of Proxies and Ballots.—In determining the validity and counting of

proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, ballots and the regular books and records of the corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification pursuant to subsection (b) of this Section 3.09 shall specify the precise information considered by them including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.

ARTICLE IV

Board of Directors

SECTION 4.01. Powers.—All powers vested by law in the corporation shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the board of directors.

SECTION 4.02. Number.—The board of directors shall consist of such number of directors, not less than seven (7) nor more than twenty-five (25), as may be determined from time to time by resolution of the board of directors. Should the board of directors fail to fix the number of directors as aforesaid, the number shall be fixed by the stockholders.

SECTION 4.03. Term of Office and Age Limitation.—The board of directors shall be elected at the annual meeting of the stockholders, and each director shall serve until his successor shall be elected and shall qualify or until his earlier resignation or removal. No director, other than a director serving as chairman of the board of directors, shall be qualified to stand for re-election or otherwise continue to serve as a member of the board of directors past the date of the Annual Meeting of Stockholders of the corporation occurring in the calendar year in which such director reaches or has reached his or her seventy-fifth birthday. A director serving as chairman of the board shall not be qualified to stand for re-election or otherwise continue to serve as a member of the board of directors past the date of the Annual Meeting of Stockholders of the corporation occurring in the calendar year in which such director reaches or has reached his or her eightieth birthday.

SECTION 4.04. Vacancies.

(a) Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and a director so chosen shall hold office until the next annual election and until a successor is duly elected and qualified or until the earlier resignation or removal of such person. If there are no directors in office, then an election

of directors may be held in the manner provided by statute.

(b) If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery of the State of Delaware may, upon application of any stockholder or stockholders holding at least ten percent of the total number of shares then outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorship, or to replace the director or directors chosen by the directors then in office.

SECTION 4.05. Resignations.—Any director may resign at any time upon written notice to the corporation. The resignation shall be effective upon receipt thereof by the corporation or at such subsequent time as shall be specified in the notice of resignation and, unless otherwise specified in the notice, the acceptance of the resignation shall not be necessary to make it effective.

SECTION 4.06. Organization.—At every meeting of the board of directors, the chairman of the board, if there be one, or, in the case of a vacancy in the office or absence of the chairman of the board, one of the following officers present in the order stated: the vice chairman of the board, if there be one, the president, the vice presidents in their order of rank and seniority, or a chairman chosen by a majority of the directors present, shall preside, and the secretary, or, in the absence of the secretary, an assistant secretary, or in the absence of the secretary and the assistant secretaries, any person appointed by the chairman of the meeting, shall act as secretary.

SECTION 4.07. Place of Meeting — Special Meeting.—Special meetings of the board of directors shall be held at such place within or without the State of Delaware as shall be designated in the notice of the meeting.

SECTION 4.08. Place of Meeting — Regular Meetings.—Regular meetings of the board of directors shall be held without notice at such time and place as shall be determined by the board of directors.

SECTION 4.09. Special Meetings.—Special meetings of the board of directors shall be held whenever called by the chairman of the board, or the vice chairman of the board, if there be one, or the president, or a vice president or by three or more of the directors, notice thereof being given to each director by the secretary or assistant secretary or officer calling the meeting.

SECTION 4.10. Quorum, Manner of Acting and Adjournment.

(a) General Rule.—At all meetings of the board a majority of the total number of directors shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, except as may be otherwise specifically provided by the GCL or by the certificate of incorporation. If a quorum is not present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.

(b) Unanimous Written Consent.—Unless otherwise restricted by the certificate of incorporation, any action required or permitted to be taken at any meeting of the board of directors may be taken without a meeting, if all members of the board consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board.

SECTION 4.11. Executive Committee.

(a) Establishment.—Subject to the provisions of Section 5.04 of these bylaws, the board of directors shall elect from its members, by resolution adopted by a majority of the whole board, an executive committee of not less than three nor more than nine directors. Any member of the executive committee may be removed by a majority of the entire board of directors and vacancies in such committee shall be filled in like manner. The board may designate one or more directors as alternate members of such committee, who may replace any absent or disqualified member at any meeting of such committee.

(b) Powers.—The executive committee shall have and may exercise all the power and authority of the board of directors in the management of the business and affairs of the corporation during the intervals between the meetings of the board of directors except as otherwise provided by law, and may authorize the seal of the corporation to be affixed to all papers which may require it; but such committee shall not have the power or authority in reference to amending the certificate of incorporation (except that such committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the GCL, fix the designation and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of shares of any series), adopting an agreement of merger or consolidation under Section 251, 252, 254, 255, 256, 257, 258, 263 or 264 of the GCL, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation’s property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the bylaws of the corporation. The executive committee shall have the power and authority to declare a dividend, to authorize the issuance of shares of stock and to adopt a certificate of ownership and merger pursuant to Section 253 of the GCL. The executive committee shall also have such other powers as may be conferred upon it by the board of directors.

(c) Quorum.—A majority of all of the members of the executive committee shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of all of the members of the executive committee shall be necessary for its adoption of any resolution or other action.

(d) Committee Procedures.— The executive committee shall meet at such times as it shall determine or as the board of directors may prescribe and shall keep regular minutes of its proceedings. All action by the executive committee shall be reported to the board of directors at its special or regular meeting next succeeding such action and shall be subject to revision or alteration by the board of directors, provided that no rights or acts of third parties shall be affected by such revision or alteration.

SECTION 4.12. Other Committees.

(a) Establishment.—Subject to the provisions of Section 5.04 of these bylaws, the board of directors may, by resolution adopted by a majority of the whole board, establish one or more other committees, each committee to consist of two or more directors. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee and the alternate or alternates, if any, designated for such member, the member or members of the committee present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member.

(b) Powers.—Such committee or committees, to the extent provided in the resolution establishing such committee, shall have and may exercise all the power and authority of the board of directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the GCL, fix the designation and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of shares of any series), adopting an agreement of merger or consolidation under Section 251, 252, 254, 255, 256, 257, 258, 263 or 264 of the GCL, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation’s property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the bylaws of the corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors.

(c) Committee Procedures.—Unless otherwise provided by resolution of the board of directors, the provisions of these bylaws relating to the organization or procedures of or the manner of taking action by the board of directors shall be applicable to the organization or

procedures of or manner of taking action by any committee formed pursuant to this Section 4.12. For this purpose, the term “board of directors” or “board,” when used in any such provision of these bylaws shall be construed to include and refer to such committee of the board. Each committee so formed shall keep regular minutes of its meetings and report the same to the board of directors when required.

SECTION 4.13. Compensation of Directors.—Unless otherwise restricted by the certificate of incorporation, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors. No such payment or compensation shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees and the executive committee may be allowed like compensation for attending committee meetings.

SECTION 4.14. Qualifications and Election of Directors.

(a) All directors of the corporation shall be natural persons of full age, but need not be residents of Delaware or stockholders in the corporation. Except in the case of vacancies, directors shall be elected by the stockholders. Nominations for the election of directors may be made by the board of directors or by any stockholder entitled to vote for the election of directors.

(b) Nominations for election of directors may be made by any stockholder entitled to vote for the election of directors, provided that written notice (the “Notice”) of such stockholder’s intent to nominate a director at the meeting is given by the stockholder and received by the secretary of the corporation in the manner and within the time specified in this subsection. The Notice shall be delivered to the secretary of the corporation not less than fourteen days nor more than fifty days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than twenty-one days’ notice of the meeting is given to stockholders, the Notice shall be delivered to the secretary of the corporation not later than the earlier of the seventh day following the day on which notice of the meeting was first mailed to the stockholders or the fourth day prior to the meeting. In lieu of delivery to the secretary of the corporation, the Notice may be mailed to the secretary of the corporation by certified mail, return receipt requested, but shall be deemed to have been given only upon actual receipt by the secretary of the corporation. The requirements of this subsection shall not apply to a nomination for directors made to the stockholders by the board of directors.

(1) the name and residence of such stockholder;

(2) a representation that the stockholder is a holder of record of the corporation’s voting stock and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the Notice;

(3) such information regarding each nominee as would have been required to be included in a proxy statement filed pursuant to Regulation 14A of the rules and

regulations established by the Securities and Exchange Commission under the Securities Exchange Act of 1934 (or pursuant to any successor act or regulation) had proxies been solicited with respect to such nominee by the management or board of directors of the corporation;

(4) a description of all arrangements or understandings among the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which such nomination or nominations are to be made by the stockholder; and

(5) the consent of each nominee to serve as a director of the corporation if so elected.

(d) The chairman of the meeting may, if the facts warrant, determine and declare to the meeting that any nomination made at the meeting was not made in accordance with the foregoing procedures and, in such event, the nomination shall be disregarded. Any decision by the chairman of the meeting shall be conclusive and binding upon all stockholders of the corporation for any purpose.

ARTICLE V

Officers

SECTION 5.01. Number, Qualifications and Designation.—The executive officers of the corporation shall be chosen by the board of directors and shall be a president, one or more vice presidents, a secretary and a treasurer. The board of directors may designate from time to time the executive officer who shall be chief executive officer of the corporation. Any number of executive offices may be held by the same person. The executive officers may, but need not, be directors or stockholders of the corporation. The board of directors may elect from among the members of the board a chairman of the board and a vice chairman of the board who shall not be officers of the corporation unless the board of directors determines by resolution that the chairman and/or the vice chairman shall be officers of the corporation, however, if so determined by the board of directors, such designees shall be executive officers of the corporation.

SECTION 5.02. Election and Term of Office.—The officers of the corporation shall be elected annually by the board of directors after its election by the stockholders, and a meeting may be held for this purpose without notice immediately after the annual meeting of the stockholders, and at the same place. Each such officer shall hold office until a successor is elected and qualified, or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice to the corporation. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the whole board of directors.

SECTION 5.03. Delegation. —The board of directors may delegate to any executive officer or committee the power to elect or appoint subordinate officers and to retain or appoint

employees, counsel or other agents, or committees thereof, and to prescribe the authority and duties of such subordinate officers, committees, employees or other agents. In case of the absence of any officer of the corporation, or for any other reasons that the board may deem sufficient, the board may delegate, for the time being, the power or duties, or any of them, of such officer to any other officer, or to any director.

SECTION 5.04. The Chairman and Vice Chairman of the Board.—The chairman of the board, or in the absence of the chairman, the vice chairman of the board, if there be one, shall preside at all meetings of the stockholders and of the board of directors, and the chairman of the board, by virtue of such office, shall be a member of and chairman of the executive committee and a member of all standing committees except the audit committee, human resources committee and nominating and governance committee or of any committee with similar responsibilities to that of the audit committee, human resources committee or nominating and governance committee. The chairman of the board, or in the absence of the chairman, the vice chairman of the board, if there be one, shall supervise all such matters and shall perform such other duties as may from time to time be delegated to him or her by the board of directors or the executive committee.

SECTION 5.05. The President.—The president shall have general supervision over the business and operations of the corporation, subject, however, to the control of the board of directors and the chief executive officer of the corporation if the president has not been designated as such.

SECTION 5.06. The Vice Presidents. — If so designated by the board of directors or the executive committee, one or more vice presidents shall perform the duties of the president in the event of his or her absence or disability, or if there is a vacancy in the office of president. The vice presidents shall perform such other duties as may from time to time be assigned to them by the board of directors or by the chief executive officer of the corporation.

SECTION 5.07. The Secretary and Assistant Secretaries.—The secretary shall attend all meetings of the stockholders and of the board of directors and shall record the proceedings of the stockholders and of the directors and of committees of the board in a book or books to be kept for that purpose; shall see that notices are given and records and reports properly kept and filed by the corporation as required by law; shall be the custodian of the seal of the corporation and see that it is affixed to all documents to be executed on behalf of the corporation under its seal; and, in general, shall perform all duties incident to the office of secretary, and such other duties as may from time to time be assigned by the board of directors or the chief executive officer of the corporation. The assistant secretaries shall perform such duties of the secretary as shall time to time be prescribed by the board of directors, the chief executive officer of the corporation or the secretary.

SECTION 5.08. The Treasurer and Assistant Treasurers.—The treasurer shall have or provide for the custody of the funds or other property of the corporation; shall collect and receive or provide for the collection and receipt of moneys earned by or in any manner due to or received by the corporation; shall deposit all funds in his or her custody as treasurer in such banks or other places of deposit as the board of directors may from time to time designate; shall

disburse funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements; whenever so required by the board of directors, shall render an account showing his or her transactions as treasurer and the financial condition of the corporation; and, in general, shall discharge such other duties as may from time to time be assigned by the board of directors or the chief executive officer of the corporation. The assistant treasurers shall perform such duties of the treasurer as shall time to time be prescribed by the board of directors, the chief executive officer of the corporation or the treasurer.

SECTION 5.09. Officers’ Bonds.—No officer of the corporation need provide a bond to guarantee the faithful discharge of the officer’s duties unless the board of directors shall by resolution so require a bond in which event such officer shall give the corporation a bond (which shall be renewed if and as required) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of office.

SECTION 5.10. Salaries.—The salaries of the officers of the corporation elected by the board of directors shall be fixed from time to time by the board of directors, or a committee thereof.

ARTICLE VI

Certificates of Stock, Transfer, Record Date

SECTION 6.01. Form and Issuance.

(a) Issuance.—The shares of the corporation shall be represented by certificates unless the board of directors shall by resolution provide that some or all of any class or series of stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until the certificate is surrendered to the corporation. Notwithstanding the adoption of any resolution providing for uncertificated shares, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by, the chairman or vice chairman of the board of directors, or the president or a vice president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary, representing the number of shares registered in certificate form.

(b) Form and Records.—Stock certificates of the corporation shall be in such form as approved by the board of directors. The stock record books and the blank stock certificate books shall be kept by the secretary or by any agency designated by the board of directors for that purpose. The stock certificates of the corporation shall be numbered and registered in the stock ledger and transfer books of the corporation as they are issued. The designations, preferences and relative participating option or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificates which the corporation shall issue to represent such class or series of stock.

(c) Signatures.—Any of or all the signatures upon the stock certificates of the corporation may be a facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any share certificate shall have ceased to be such officer, transfer agent or registrar, before the certificate is issued, it may be issued with the same effect as if the signatory were such officer, transfer agent or registrar at the date of its issue.

SECTION 6.02. Transfer.—Transfers of shares shall be made on the share register or transfer books of the corporation only upon surrender of the certificate therefor (if there be one), endorsed by the person named in the certificate or by an attorney lawfully constituted in writing. No transfer shall be made which would be inconsistent with the provisions of Article 8, Title 6 of the Delaware Uniform Commercial Code-Investment Securities.

SECTION 6.03. Lost, Stolen, Destroyed or Mutilated Certificates.—The board of directors may direct a new certificate of stock or uncertificated shares to be issued in place of any certificate theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or the legal representative of the owner, to give the corporation a bond sufficient to indemnify against any claim that may be made against the corporation on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate or uncertificated shares.

SECTION 6.04. Record Holder of Shares.—The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

SECTION 6.05. Determination of Stockholders of Record.

(a) Meetings of Stockholders.—In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the board of directors fixes a new record date for the adjourned meeting.

(b) Consent of Stockholders.—In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by the GCL, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by the GCL, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action.

(c) Dividends.—In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights of the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto.

ARTICLE VII

Indemnification of Directors, Officers and Employees

(a) The corporation shall, subject to the provisions of paragraph (c) below, indemnify each person who is or was a director, officer or employee of the corporation or of any other corporation which such person serves or served as such at the request of the corporation, against any and all liability and reasonable expense that may be incurred by such person in connection with or resulting from any claim, action, suit or other proceeding (whether actual or threatened or brought by or in the right of the corporation or such other corporation or otherwise), civil, criminal, administrative or investigative, including any appeal relating thereto, in which such person may become involved, as a party or otherwise, by reason of such person being or having been a director, officer or employee of the corporation or such other corporation, or by reason of such person serving or having served as a trustee of a trust at the request of the corporation, or by reason of any past or future action taken or not taken in such person’s capacity as such director, officer, trustee or employee, whether or not such person continues to be such at

the time such liability or expense is incurred, provided (i) in the case of a claim, action, suit or other proceeding brought by or in the right of the corporation or such other corporation to procure a judgment in its favor, that such person has not been adjudged to be liable for negligence or misconduct in the performance of such person’s duty to it, (ii) in the case of a claim, action, suit or other proceeding not covered by clause (i), that such person acted in the best interests of the corporation or such other corporation, as the case may be and (iii) in addition, in any criminal action or proceeding, such person had not reasonable cause to believe that his or her conduct was unlawful. Indemnification pursuant to this Article VII of these bylaws, however, shall (i) not include any amount payable by such person to the corporation or to such other corporation in satisfaction of any judgment or settlement, and (ii) be reduced by the amount of other indemnification or reimbursement of such person in respect of the liability and expense with respect to which indemnification is claimed. As used in this Article VII, the term “liability” shall include, but shall not be limited to, amounts of judgments, fines or penalties against, and amounts paid in settlement by, such person; the term “expense” shall include, but shall not be limited to, counsel fees and disbursements; and the term “employee” shall mean an executive (other than an executive who is a director or officer of the corporation) of the corporation, of any operating division of the corporation, of any subsidiary of the corporation in which the corporation owns a majority of the voting control or power, or of any other corporation which such executive serves or served at the request of the corporation, whom the board of directors of the corporation, in its discretion, may determine, in each instance, to be an “employee” for the purpose of this Article VII. The termination of any claim, action, suit or other proceeding, by judgment, order, settlement (whether with or without court approval) or conviction or upon a plea of guilty or of nolo contendere or its equivalent, shall not create a presumption that such person did not meet the standards of conduct as set forth in this Article VII.

(b) Every person referred to in the foregoing paragraph (a) of this Article VII who has been successful, on the merits or otherwise, in defense of any action, suit or other proceeding of the character described in said paragraph, or in defense of any claim, issue or matter therein, shall be entitled to indemnification as of right against reasonable expenses incurred by such person in connection with such successful defense.

(c) Except as provided in the foregoing paragraph (b) of this Article VII, any indemnification under paragraph (a) of this Article VII shall be made solely at the discretion of the corporation, but only upon a determination that the person seeking indemnification has met the standards of conduct set forth in said paragraph (a). Such determination shall be made (i) by the Board of Directors, acting by a majority vote of a quorum consisting of directors who were not parties to such claim, action, suit or other proceeding, or (ii) if such a quorum by such vote so directs, or if such a quorum is not obtainable, by independent legal counsel (who may be counsel regularly retained by the corporation) in a written opinion delivered to the corporation.

(d) Expense incurred in defending any claim, action, suit or other proceeding of the character described in paragraph (a) of this Article VII may be advanced by the corporation prior to the final disposition thereof upon receipt of an undertaking by or on behalf of the recipient to repay such amount unless it shall ultimately be determined that he is entitled to indemnification for such expense under this Article VII.

(e) The provisions for indemnification set forth in this Article VII, (i) shall be in addition to any rights to which any person referred to in paragraph (a) of this Article VII may otherwise be entitled by contract or as a matter of law; (ii) may apply as to any such person who has ceased to be a director, officer or employee; (iii) shall inure to the benefit of the heirs, executors and administrators of any such person referred to in paragraph (a); and (iv) shall be applicable whether or not the claim asserted against such person is based on matters which antedate the adoption of this Article VII.

ARTICLE VIII

General Provisions

SECTION 8.01. Dividends.—Subject to the restrictions contained in the GCL and any restrictions contained in the certificate of incorporation, the board of directors may declare and pay dividends upon the shares of capital stock of the corporation.

SECTION 8.02. Interested Director and Stockholder Contracts. —

(a) In the absence of fraud, no contract or other transaction between the corporation and any other corporation and no act of the corporation shall in any manner be affected or invalidated by the fact that any of the directors of the corporation are pecuniarily or otherwise interested in or are directors or officers of such other corporation. In the absence of fraud, any director individually, or any firm or association of which any director may be a member, may be a party to or may be pecuniarily or otherwise interested in any contract or transaction of the corporation, provided that the fact that he or such firm or association is so interested shall be disclosed or shall have been known to the board of directors or to a majority thereof; and provided that such contract or transaction shall be approved by the affirmative votes of a majority of the disinterested directors of this corporation; and any director of the corporation who is also a director or officer of such other corporation or who is so interested may be counted in determining the existence of a quorum at any meeting of the board of directors of the corporation which shall authorize any such contract or transaction, and may vote thereat to authorize any such contract or transaction or with respect thereto, and such contract or transaction shall not be void or voidable solely because his or their vote is counted for such purposes. Any director and/or officer of this corporation may act as a director and/or officer of any subsidiary or affiliated corporation and may vote or act without restriction or qualification with regard to any transaction between such corporations.

(b) Section 203 of the Delaware General Corporation Law shall not be applicable to the corporation. Notwithstanding any provision contained herein to the contrary, this Section 8.02(b) of the Bylaws may not be altered, modified or repealed by the board of directors.

SECTION 8.03. Corporate Seal.—The corporation shall have a corporate seal, which shall have inscribed thereon the name of the corporation, the year of its organization and the words “Corporate Seal, Delaware”. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

SECTION 8.04. Deposits.—All funds of the corporation shall be deposited from time to time to the credit of the corporation in such banks, trust companies, or other depositories as the board of directors may approve or designate, and all such funds shall be withdrawn only upon checks signed by such one or more officers or employees as the board of directors shall from time to time determine.

SECTION 8.05. Voting Held Stock.— Unless otherwise ordered by the board of directors or by the executive committee, any executive officer of the corporation shall have full power and authority on behalf of the corporation, to attend, to act and to vote at any meetings of the stockholders of any corporation in which the corporation may hold stock, and at any such meeting shall possess and may exercise any and all rights, and powers incident to the ownership of such stock which, as the owner thereof, the corporation might have possessed and exercised if present. The board of directors or the executive committee, by resolution from time to time, may confer like powers upon any other person or persons.

SECTION 8.06. Amendment of Bylaws.—These bylaws may be altered or amended or repealed by either (a) the affirmative vote of the holders of record of a majority of the stock issued and outstanding and entitled to vote thereat, at any regular or annual meeting of the stockholders, or at any special meeting of the stockholders, if notice of the proposed alteration or amendment or repeal be contained in the notice of such annual or special meeting or (b) by the affirmative vote of a majority of the board of directors at any regular meeting of the board, or at any special meeting of the board, if notice of the proposed alteration, amendment or repeal be contained in the notice of such special meeting, provided, however, that no change of the time or place for the election of directors shall be made within sixty days next before the day on which such election is to be held and that in case of any change of such time and place, notice thereof shall be given to each stockholder in person or by letter mailed to his last known post office address at least twenty days before the election is held.

EX-31.1 3 w41295exv31w1.htm CERTIF. OF CEO PURSUANT TO SECTION 302 exv31w1

Exhibit 31.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christopher J. Munyan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CSS Industries, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 25, 2007

/s/ Christopher J. Munyan
Christopher J. Munyan,
President and Chief Executive Officer
(principal executive officer)

EX-31.2 4 w41295exv31w2.htm CERTIF. OF CFO PURSUANT TO SECTION 302 exv31w2

Exhibit 31.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Clifford E. Pietrafitta, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CSS Industries, Inc.;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 25, 2007

/s/ Clifford E. Pietrafitta
Clifford E. Pietrafitta
Vice President — Finance and Chief Financial Officer
(principal financial officer)

EX-32.1 5 w41295exv32w1.htm CERTIF. OF CEO PURSUANT TO SECTION 906 exv32w1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CSS Industries, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher J. Munyan, President and Chief Executive Officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Christopher J. Munyan
Christopher J. Munyan
President and Chief Executive Officer
(principal executive officer)

October 25, 2007

EX-32.2 6 w41295exv32w2.htm CERTIF. OF CFO PURSUANT TO SECTION 906 exv32w2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CSS Industries, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Clifford E. Pietrafitta, Vice President — Finance and Chief Financial Officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Clifford E. Pietrafitta
Clifford E. Pietrafitta
Vice President — Finance and Chief Financial Officer
(principal financial officer)

October 25, 2007

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