CSS INDUSTRIES, INC. REPORTS RESULTS OF OPERATIONS FOR THE QUARTER AND YEAR ENDED MARCH 31, 2011; ANNOUNCES CLOSURE OF A MANUFACTURING FACILITY


CSS Industries, Inc. (NYSE:CSS) announced today its results of operations for the quarter and year ended March 31, 2011. Sales for the fourth quarter of fiscal 2011 increased 20% to $62,846,000 from $52,270,000 in fiscal 2010. In the fourth quarter of fiscal 2011, the Company recorded a non-cash pre-tax impairment charge of $11,051,000 primarily due to a full impairment of the tangible assets relating to our Cleo manufacturing facility located in Memphis, Tennessee, as further discussed below. The foregoing impairment charge was partially offset by a $3,965,000 tax benefit. The fourth quarter fiscal 2011 net loss was $9,972,000, or $(1.02) per share. The impact of the impairment charge, net of the associated tax benefit, in the fourth quarter of fiscal 2011 was $(0.73) per share. In the fourth quarter of fiscal 2010, the Company recorded a non-cash pre-tax impairment charge of $44,315,000 due to a full impairment of goodwill in two of its reporting units, C.R. Gibson, LLC and BOC Design Group (consisting of Berwick Offray LLC and Cleo Inc), and partial impairments of tradenames used by such entities. The fiscal 2010 impairment charge was partially offset by an $11,692,000 tax benefit, resulting in a net loss of $40,841,000, or $(4.22) per share. The impact of the impairment charge, net of the associated tax benefit, in the fourth quarter of fiscal 2010 was $(3.37) per share. Excluding the non-cash impairments, net of tax benefit, in each of the fourth quarters of fiscal 2011 and fiscal 2010, net loss per share in the fourth quarter of fiscal 2011 would have been $(0.30) per share versus a net loss of $(0.85) per share in the fourth quarter of fiscal 2010. The Company's highly seasonal orientation has historically resulted in operating losses in the first and fourth quarters of the fiscal year and operating profits in the second and third quarters.

Sales for fiscal year 2011 increased slightly to $450,700,000 from $448,450,000 in fiscal 2010, while fiscal year 2011 net income increased to $5,611,000, or $0.58 per diluted share, compared to a net loss of $(23,739,000), or $(2.46) per diluted share for fiscal year 2010. Excluding the non-cash impairment charges in each of fiscal year 2011 and fiscal 2010, net of tax benefits, discussed above, net income per diluted share would have been $1.31 in fiscal year 2011 versus $0.92 in fiscal year 2010.

Fourth Quarter Results

Sales grew 20% in the fourth quarter of fiscal 2011 as compared to the same period last year, primarily driven by higher craft and all occasion business. Net loss for the fourth quarter of fiscal 2011 was significantly reduced by the strong sales growth compared to the prior year fourth quarter and by lower selling, general and administrative expenses, as well as the lower non-cash impairment charge compared to the prior year impairment charge noted above.

Full Fiscal Year Results

Sales were basically flat for the fiscal year ended March 31, 2011 as compared to fiscal 2010. The increase in net income compared to the prior year was primarily due to better Christmas product manufacturing efficiencies and reduced selling, general and administrative expenses, as well as the lower non-cash impairment charge compared to the prior year impairment charge discussed above.

Management Comments

"Fourth quarter fiscal 2011 sales grew 20% versus prior year and the higher gross profit, combined with selling, general and administrative expense reductions, provided a significant improvement in fourth quarter profitability prior to the impact of the fiscal 2011 impairment charges," commented Christopher J. Munyan, CSS' President and CEO. "Free cash flow (defined as cash flow from operations reduced by purchases of property, plant and equipment) totaled $28,835,000 through cash from operations and effective working capital management, as compared to our previously stated expectation that free cash flow would be at least $25,000,000.

Plant Closure

The Company, as part of a continuing review of its Cleo gift wrap business, approved a plan to close its manufacturing facility located in Memphis, Tennessee, with an exit to be completed by no later than December 31, 2011. As part of such closing, the Company plans to transition the sourcing of all gift wrap products to foreign suppliers. We use the Memphis, Tennessee facility primarily for the manufacture and distribution of gift wrap products. The Company continually evaluates the efficiency and productivity of its production and distribution facilities to maintain its competitiveness, and believes that it will experience better operational efficiencies as a result of this action.

In the fourth quarter of fiscal 2011, the Company recorded a non-cash pre-tax impairment charge of $11,051,000 primarily due to a full impairment of the tangible assets relating to our Cleo manufacturing facility located in Memphis, Tennessee. The foregoing impairment charge was partially offset by a $3,965,000 tax benefit. During our fiscal year ending March 31, 2012, we expect to incur pre-tax expenses of up to $10,300,000 associated with the approved plan, which costs primarily relate to cash expenditures for facility and staff costs (approximately $7.1 million) and non-cash asset write-downs (approximately $3.2 million). Approximately half of these charges are expected to be recognized in the first quarter of fiscal year 2012. Additionally, the Company expects to incur $1.3 million in cash spending during fiscal 2012 which was expensed previously. The Company expects to complete the restructuring plan by the end of fiscal 2012.

"The decision to close our Memphis facility was difficult, in part because of Cleo's historic connection to the Memphis area," said Christopher J. Munyan, CSS' President and Chief Executive Officer. "We recognize the efforts of our Memphis-based personnel to our Cleo business. However, we believe that this action will enable the Company to more effectively respond to the changing requirements of our customers."

CSS is a consumer products company primarily engaged in the design, manufacture, procurement, distribution and sale of seasonal and all occasion social expression products, principally to mass market retailers. These seasonal and all occasion products include decorative ribbons and bows, boxed greeting cards, gift tags, gift wrap, gift bags, gift boxes, gift card holders, decorative tissue paper, decorations, classroom exchange Valentines, floral accessories, Halloween masks, costumes, make-up and novelties, Easter egg dyes and novelties, craft and educational products, stickers, memory books, stationery, journals, note cards, infant and wedding photo albums, scrapbooks, and other gift items that commemorate life's celebrations.

This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 including, among others, statements reflecting the Company's belief that sourcing all of its gift wrap business from foreign suppliers will be more efficient; the amount of costs the Company expects to incur in fiscal 2012 in connection with its plan to close the Memphis manufacturing facility; the Company's expectation that it will complete the restructuring plans during fiscal 2012; the Company's belief that the restructuring plan will position the Company to respond more effectively to the changing requirements of its customers. 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, the risk that sales growth experienced in the fourth quarter of fiscal 2011, will not continue as a trend in fiscal 2012; risks associated with the Company's restructuring plan to close its Memphis manufacturing facility, including the risk that the cost of implementing the plan will exceed expectations, the risk that the expected benefits of the plan will not be realized and the risk that implementation of the plan will interfere with and aversely affect the Company's operations, sales and financial performance; general market and economic conditions; increased competition (including competition from foreign products which may be imported at less than fair value and from foreign products which may benefit from foreign governmental subsidies); increased operating costs, including labor-related and energy costs and costs relating to the imposition or retrospective application of duties on imported products; currency risks and other risks associated with international markets; risks associated with acquisitions, including acquisition integration costs and the risk that the Company may not be able to integrate and derive the expected benefits from such acquisitions; the risk that customers may become insolvent, may delay payments or may impose deductions or penalties on amounts owed to the Company; costs of compliance with governmental regulations and government investigations; liability associated with non-compliance with governmental regulations, including regulations pertaining to the environment, Federal and state employment laws, and import and export controls and customs laws; and other factors described more fully in the Company's annual report on Form 10-K for the fiscal year ended March 31, 2010 and elsewhere in the Company's filings with the Securities and Exchange Commission. As a result of these factors, readers are cautioned not to place undue reliance on any forward-looking statements included herein or that may be made elsewhere from time to time by, or on behalf of, the Company.

CSS' consolidated results of operations for the three months and years ended March 31, 2011 and 2010 and condensed consolidated balance sheets and cash flows as of and for the years ended March 31, 2011 and 2010 follow:

 

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

(In thousands, except
per share amounts)

 

 

 

  Year Ended  

  Three Months Ended  

 

  March 31,  

  March 31,  

 

  2011  

  2010  

  2011  

  2010  

 

  (Unaudited)  

  

  (Unaudited)  

  (Unaudited)  

SALES

  $450,700

  $448,450

  $62,846

  $52,270

 

 

 

 

 

COSTS AND EXPENSES

 

 

 

 

  Cost of sales

  336,446

  337,852

  45,682

  42,496

  Selling, general and administrative expenses

  93,062

  95,667

  21,556

  23,014

  Impairment of tangible assets

  11,051

  -

  11,051

  -

  Impairment of goodwill and intangible assets

  -

  44,315

  -

  44,315

  Restructuring expenses, net

  164

  207

  48

  37

  Interest expense, net

  1,348

  1,885

  330

  211

  Other (income) expense, net

  (122)

  (489)

  (55)

  (152)

 

 

 

 

 

 

  441,949

  479,437

  78,612

  109,921

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

  8,751

  (30,987)

  (15,766)

  (57,651)

 

 

 

 

 

INCOME TAX EXPENSE (BENEFIT)

  3,140

  (7,248)

  (5,794)

  (16,810)

 

 

 

 

 

NET INCOME (LOSS)

  $ 5,611

  $(23,739)

  $(9,972)

  $(40,841)

 

 

 

 

 

NET INCOME (LOSS) PER COMMON SHARE

 

 

 

 

  Basic

  $.58

  $(2.46)

  $(1.02)

  $(4.22)

  Diluted

  $.58

  $(2.46)

  $(1.02)

  $(4.22)

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING

 

 

 

 

  Basic

  9,703

  9,637

  9,730

  9,667

  Diluted

  9,715

  9,637

  9,730

  9,667

 

 

 

 

 

 

 

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In thousands)

 

  

  

March 31,

March 31,

 

 

2011 (Unaudited)

2010

  

 

 

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

  Cash and cash equivalents

  

  $ 50,407

  $ 27,217

  Accounts receivable, net

 

  42,615

  45,711

  Inventories

 

  80,767

  78,851

  Deferred income taxes

 

  4,051

  6,165

  Assets held for sale

 

  1,323

  1,363

  Other current assets

 

  13,151

  15,986

 

 

 

 

    Total current assets

 

  192,314

  175,293

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT, NET

 

  32,345

  47,786

 

 

 

 

DEFERRED INCOME TAXES

 

  8,854

  5,439

 

 

 

 

OTHER ASSETS

 

 

 

  Goodwill

 

  17,233

  17,233

  Intangible assets, net

 

  31,408

  32,027

  Other

 

  4,769

  3,984

 

 

 

 

    Total other assets

 

  53,410

  53,244

 

 

 

 

    Total assets

 

  $286,923

  $281,762

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

  Notes payable

 

  $ -

  $ -

  Current portion of long-term debt

 

  66

  481

  Other current liabilities

 

  45,352

  43,915

 

 

 

 

    Total current liabilities

 

  45,418

  44,396

 

 

 

 

LONG-TERM DEBT

 

  -

  66

 

 

 

 

OTHER LONG-TERM OBLIGATIONS

 

  5,846

  4,255

 

 

 

 

STOCKHOLDERS' EQUITY

 

  235,659

  233,045

 

 

 

 

Total liabilities and stockholders' equity

 

  $286,923

  $281,762

 

 

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(In thousands)

 

 

 

For the Years Ended
March 31,

 

 

2011 (Unaudited)

2010

 

 

 

 

Cash flows from operating activities:

 

 

 

  Net income (loss)

 

  $ 5,611

  $(23,739)

  Adjustments to reconcile net income (loss) to net cash provided by operating activities

 

 

 

    Depreciation and amortization

 

  11,146

  12,560

    Impairment of intangible assets

 

  11,051

  -

    Impairment of goodwill and intangible assets

 

  -

  44,315

    Deferred tax benefit

 

  (1,336)

   (10,054)

    Shared-based compensation expense

 

  1,938

  2,323

    Changes in assets and liabilities, net of effects of acquisitions

 

  3,332

  23,181

    Other

 

  477

  90

        Net cash provided by operating activities

 

  32,219

  48,676

Cash flows from investing activities:

 

 

 

  Purchase of a business

 

  -

  (225)

    Purchase of property, plant and equipment

 

  (3,384)

  (4,447)

    Proceeds from sale of assets

 

  79

  752

      Net cash used for investing activities

 

  (3,305)

  (3,920)

Cash flows from financing activities:

 

 

 

    Payments on long-term debt obligations

 

  (722)

  (10,609)

    Borrowings on notes payable

 

  309,075

  346,405

    Payments on notes payable

 

  (309,075)

  (350,555)

    Dividends paid

 

  (5,823)

  (5,784)

    Proceeds from exercise of stock options

 

  743

  825

    Tax benefit realized for stock options exercised

 

  78

  -

        Net cash used for financing activities

 

  (5,724)

  (19,718)

Effect of exchange rate changes on cash and cash equivalents

 

  -

  -

Net increase in cash and cash equivalents

 

  23,190

  25,038

Cash and cash equivalents at beginning of period

 

  27,217

  2,179

Cash and cash equivalents at end of period

 

  $ 50,407

  $ 27,217

 

 

CSS Industries, Inc.
Reconciliation of Certain Non-GAAP Measures
(Unaudited)
(In thousands, except per share amounts)

Reconciliation and computation of income (loss) before income taxes, net income (loss) and diluted earnings (loss) per share:

 

 

 

Year Ended March 31,2011

 

 

Income Before
Income Taxes

Net Income

Diluted Earnings
Per Share

 

 

 

 

 

As Reported

 

$ 8,751

$ 5,611

$ .58

Impairment of tangible assets

 

11,051

7,085

.73

Non-GAAP Measurement

 

$19,802

$12,696

$1.31

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31,2011

 

 

Loss Before
Income Taxes

Net Loss

Diluted Loss
Per Share

As Reported

 

$(15,766)

$(9,972)

$(1.02)

Impairment of tangible assets

 

11,051

7,085

.73

Non-GAAP Measurement

 

$ (4,715)

$(2,887)

$ (.30)

Diluted loss per share does not add due to rounding.

 

 

Year Ended March 31, 2010

 

 

(Loss)
Income Before
Income Taxes

Net (Loss)
Income

Diluted (Loss)
Earnings Per Share

 

 

 

 

 

As Reported

 

$(30,987)

$(23,739)

$(2.46)

Impairment of goodwill and intangible assets

 

44,315

32,623

3.37

Non-GAAP Measurement

 

$ 13,328

$ 8,884

$ .92

Diluted earnings per share does not add due to rounding.

 

 

Quarter Ended March 31, 2010

 

 

Loss Before
Income Taxes

Net Loss

Diluted Loss
Per Share

 

 

 

 

 

As Reported

 

$(57,651)

$(40,841)

$(4.22)

Impairment of goodwill and intangible assets

 

44,315

32,623

3.37

Non-GAAP Measurement

 

$(13,336)

$ (8,218)

$ (.85)

 

Management believes that presentation of results of operations adjusted for the affects of the charges related to the impairment of tangible assets in fiscal 2011 and the impairment of goodwill and intangible assets in fiscal 2010 provides useful information to investors because it enhances comparability between the reporting periods.

CSS Industries, Inc.
Reconciliation of Certain Non-GAAP Measures
(Unaudited)
(In thousands)

Reconciliation and computation of free cash flow:

 

 

Year Ended March 31,

 

 

2011

2010

 

 

 

 

Net cash provided by operating activities

 

$32,219

$48,676

Less: capital expenditures

 

(3,384)

(4,447)

Free cash flow

 

$28,835

$44,229

Management believes that presentation of free cash flow provides useful information to investors because it provides investors meaningful insight into the Company's ability to generate cash from operations which is available for the execution of our business strategy, including acquisitions, payment of debt, or to support other investing and financing activities.


FOR FURTHER INFORMATION CONTACT:
Vincent A. Paccapaniccia
Chief Financial Officer
(215) 569-9900