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CSS INDUSTRIES, INC. REPORTS RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2011

CSS INDUSTRIES, INC. REPORTS RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2011


CSS Industries, Inc. (NYSE:CSS) announced today its results of operations for the three and nine months ended December 31, 2011.  During the second quarter of fiscal 2012, the Company sold its Cleo Christmas gift wrap business and is reporting the results of that business as discontinued operations.

Sales for the third quarter of fiscal 2012 decreased 2.9% to $129,240,000 from $133,089,000 in the third quarter of fiscal 2011, primarily driven by lower sales of Christmas cards which was partially offset by higher sales of all occasion products. Income from continuing operations before income taxes for the third quarter of fiscal 2012 was $18,857,000 compared to $22,759,000 in the third quarter of fiscal 2011.  In the current fiscal year, the Company began to charge incentive compensation expense to the periods in which profits are generated.  Due to this change, pre-tax incentive compensation expense for the third quarter of fiscal 2012 was $1,401,000 higher than the third quarter of fiscal 2011.  Income from continuing operations for the third quarter of fiscal 2012 was $12,109,000, or $1.24 per diluted share, versus $14,499,000, or $1.49 per diluted share, in the third quarter of the prior fiscal year.  Net income for the third quarter of fiscal 2012 was $10,978,000, or $1.13 per diluted share, versus $12,855,000, or $1.32 per diluted share, in the third quarter of fiscal 2011.

Sales for the first nine months of fiscal 2012 increased 0.8% to $323,534,000 from $320,983,000 in the first nine months of fiscal 2011, with this increase primarily driven by higher sales of all occasion products which was partially offset by lower sales of Christmas cards.  Income from continuing operations before income taxes for the first nine months of fiscal 2012 was $29,677,000, which was 3.7% lower than the $30,829,000 in the prior year largely due to $1,816,000 of higher incentive compensation expense in the first nine months of fiscal 2012 compared to the same period in fiscal 2011.  Income from continuing operations for the first nine months of fiscal 2012 was $18,976,000, or $1.95 per diluted share, versus $19,692,000, or $2.03 per diluted share, in the first nine months of fiscal 2011.  Net income for the first nine months of fiscal 2012 was $18,894,000, or $1.94 per diluted share, versus $15,583,000, or $1.61 per diluted share, in the first nine months of the fiscal 2011.  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.

As previously announced, 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.  The Company exited the Memphis facility in December 2011.  The Company incurred pre-tax expenses of $2,503,000 associated with the approved plan during the third quarter of fiscal 2012.  During the Company's fiscal year ending March 31, 2012, the Company expects to incur pre-tax expenses of up to $8,500,000, which costs primarily relate to cash expenditures for facility and staff costs (approximately $6,500,000) and non-cash asset write-downs that have already been recognized (approximately $2,000,000).  During the third quarter of fiscal 2012, we paid $2,408,000 of cash related to these expenses and we expect to pay the remaining cash expenditures through fiscal 2013.  We also paid $883,000 in cash during fiscal 2012 relating to this plan that was expensed in fiscal 2011, and expect to pay approximately $200,000 in cash in the fourth quarter of fiscal 2012.   These amounts remain subject to change due to uncertainty as to the final amount of costs related to the closure of this manufacturing facility.  In our financial statements for fiscal 2012, we expect that a portion of these pre-tax expenses of $8,500,000 will be recorded in continuing operations (approximately $800,000) and the balance within discontinued operations (approximately $7,700,000). In the third quarter, the Company recorded $53,000 of these pre-tax expenses as selling, general and administrative expenses of continuing operations.  The full year projected pre-tax expenses of $8,500,000 includes the $5,540,000 expensed in the first quarter, $364,000 of expense offset by the $825,000 gain on the equipment sale in the second quarter, and the $2,450,000 in discontinued operations and the $53,000 in selling, general and administrative expenses of continuing operations in the third quarter of fiscal 2012.

As previously announced in September 2011, the Company entered into an agreement for the sale of the Christmas gift wrap business and certain Cleo assets to Impact Innovations, Inc. ("Impact"). Under this agreement, Impact acquired the Christmas gift wrap portion of Cleo's business and certain of Cleo's assets relating to such business, including certain equipment, contract rights, customer lists, intellectual property and other intangible assets. Cleo's remaining assets, including accounts receivable and inventory were excluded from the sale. Under this agreement, Cleo retained the right and obligation to fulfill all customer orders for Cleo Christmas gift wrap products for Christmas 2011. The purchase price was $7,500,000, of which $2,000,000 was paid to Cleo in cash at closing. The remainder of the purchase price was paid through the issuance by Impact of an unsecured subordinated promissory note, which provides for quarterly payments of interest at 7% and principal payments as follows: $500,000 on March 1, 2012; $2,500,000 on March 1, 2013; and all remaining principal and interest on March 1, 2014. This transaction resulted in a pre-tax gain to the Company of $5,849,000, which is included in loss from discontinued operations.  During the fourth quarter of fiscal 2011, the Company recorded a noncash impairment charge of $11,051,000 as it determined that the fair value of the Cleo asset group was less than the carrying value.

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

 

 Discontinued Operations   Fiscal Year 2012 
   First   Second   Third   First 
   Quarter   Quarter   Quarter   Nine Months 
 Operating results  $  (799)  $  1,643  $  708 $  1,552
 Exit costs  (5,540) (364)  (2,450) (8,354)
 Exit costs - equipment sale   -   825 -                    825
 Gain on sale of business to Impact   -   5,849 -   5,849
 Discontinued operations, before income taxes  $  (6,339)  $  7,953  $  (1,742)  $  (128)
 Income tax expense (benefit)  (2,217) 2,782 (611)                  (46)
 Discontinued operations, net of taxes   $  (4,122)  $  5,171  $  (1,131)  $  (82)
         
         
 Discontinued Operations   Fiscal Year 2011 
   First   Second   Third   First 
   Quarter   Quarter   Quarter  Nine Months 
 Operating results, before income taxes   $  (624) $  (3,163)  $  (2,525)  $  (6,312)
 Income tax (benefit)  (218) (1,104) (881) (2,203)
 Discontinued operations, net of taxes   $  (406)  $  (2,059)  $  (1,644)  $  (4,109)

 

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 amount of cash expenditures and non-cash expenses the Company expects to incur in fiscal years 2012 and 2013 in connection with its plan to close the Memphis manufacturing facility.  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, 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, 2011 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 and nine months ended December 31, 2011 and 2010 and consolidated condensed balance sheets as of December 31, 2011, March 31, 2011 and December 31, 2010 follow:
 

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

 

 

  Three Months Ended   Nine Months Ended
  December 31,   December 31,
  2011   2010   2011   2010
               
Sales $129,240   $133,089   $323,534   $320,983
               
Costs and expenses              
     Cost of sales 87,662   89,394   227,758   223,748
     Selling, general and administrative expenses 22,446   20,585   65,533   65,471
     Interest expense, net 73   425   227   1,018
     Other expense (income), net 202   (74)   339   (84)
  110,383   110,330   293,857   290,153
               
Income from continuing operations before income taxes 18,857   22,759   29,677   30,829
               
Income tax expense 6,748   8,260   10,701   11,137
               
Income from continuing operations 12,109   14,499   18,976   19,692
               
Loss from discontinued operations, net of tax (1,131)   (1,644)   (82)   (4,109)
               
Net income  $  10,978   $  12,855   $  18,894   $  15,583
                 
Net income (loss) per common share              
     Basic:              
     Continuing operations  $  1.25   $  1.49   $  1.95   $  2.03
     Discontinued operations   $  (0.12)   $  (0.17)   $  (0.01)   $  (0.42)
     Total $  1.13   $  1.32   $  1.94   $  1.61
               
     Diluted:              
     Continuing operations $  1.24   $  1.49   $  1.95   $  2.03
     Discontinued operations  $  (0.12)   $  (0.17)   $  (0.01)   $  (0.42)
     Total $  1.13   $  1.32   $  1.94   $  1.61
               
Weighted average shares outstanding              
     Basic 9,723   9,703   9,733   9,694
     Diluted 9,732   9,714   9,739   9,706
               
Cash dividends per share of common stock $  0.15   $  0.15   0.45   $  0.45

 

 


 

        CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

(In thousands)

 

  December 31,   March 31,   December 31,
  2011   2011   2010
Assets          
           
Current assets          
     Cash and cash equivalents $  10,489   $  48,577   $  4,704
     Accounts receivable, net 107,808   42,411   113,121
     Inventories 74,005   69,093   68,171
     Deferred income taxes 3,751   4,051   5,102
     Other current assets 13,529   13,268   12,580
     Current assets of discontinued operations 13,900   14,914   41,003
           
        Total current assets 223,482   192,314   244,681
           
PROPERTY, PLANT AND EQUIPMENT, NET 30,138   32,345   37,333
           
DEFERRED INCOME TAXES 4,633   8,854   4,767
           
OTHER ASSETS          
     Goodwill 17,233   17,233   17,233
     Intangible assets, net 30,129   31,408   31,962
     Other 9,316   4,769   3,880
     Long-term assets of discontinued operations -   -   7,332
           
        Total other assets 56,678   53,410   60,407
           
         Total assets  $  314,931   $  286,923   $  347,188
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
CURRENT LIABILITIES          
     Short-term debt  $  -   $  -   $  33,300
     Current portion of long-term debt -   66   166
     Accrued customer programs 6,149   4,279   8,558
     Other current liabilities 47,757   38,245   46,422
     Current liabilities of discontinued operations 5,680   3,910   7,515
           
         Total current liabilities 59,586   46,500   95,961
           
LONG-TERM OBLIGATIONS 4,556   4,764   4,970
           
STOCKHOLDERS' EQUITY 250,789   235,659   246,257
           
         Total liabilities and stockholders' equity $  314,931   $  286,923   $  347,188
           

 


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