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CSS INDUSTRIES, INC. REPORTS RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2012

CSS INDUSTRIES, INC. REPORTS RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2012


 

CSS Industries, Inc. (NYSE:CSS) announced today its results of operations for the three and six months ended September 30, 2012. As previously announced, the Company sold the Halloween portion of its Paper Magic Group, Inc. ("PMG") business during the second quarter of fiscal 2013. Under the terms of the Purchase agreement, PMG will remain responsible for the manufacture, sale and distribution of all PMG Halloween products for the Halloween 2012 season.

Sales for the second quarter of fiscal 2013 decreased 4.5% to $133,485,000 from $139,725,000 in the second quarter of fiscal 2012. Income from continuing operations before income taxes for the second quarter of fiscal 2013 was $12,259,000, compared to $16,304,000 in the second quarter of fiscal 2012. Income from continuing operations for the second quarter of fiscal 2013 was $6,840,000, or $0.71 per diluted share, versus $10,314,000, or $1.06 per diluted share, in the second quarter of the prior fiscal year. Net income for the second quarter of fiscal 2013 was $6,921,000, or $0.72 per diluted share, versus $15,485,000, or $1.59 per diluted share, in the second quarter of fiscal 2012. As previously announced, during the second quarter of fiscal 2013, the Company incurred certain charges as a result of the sale of the Halloween portion of PMG that reduced the operating results for the three months ended September 30, 2012 as shown in the table below:

 

 Second Quarter of Fiscal 2013   As Reported   Halloween Charges, net   Non GAAP Results 
 Income from continuing operations before income taxes      12,259,000    6,764,000     19,023,000
 Income tax expense       5,419,000    1,532,000      6,951,000
 Income from continuing operations       6,840,000    5,232,000     12,072,000
 Diluted net income per common share - Continuing Operations   $          0.71  $        0.54  $          1.25

 

Sales for the first six months of fiscal 2013 were flat at $194,552,000 as compared to $194,294,000 in the first six months of fiscal 2012.  Income from continuing operations before income taxes for the first six months of fiscal 2013 was $10,926,000, also flat when compared to the $10,820,000 in the prior year.  Income from continuing operations for the first six months of fiscal 2013 was $5,973,000, or $0.62 per diluted share, versus $6,867,000, or $0.70 per diluted share, in the first six months of fiscal 2012.  Net income for the first six months of fiscal 2013 was $6,017,000, or $0.63 per diluted share, versus $7,916,000, or $0.81 per diluted share, in the first six months of the fiscal 2012.  During the first six months of fiscal 2013, the Company incurred certain charges as a result of the sale of the Halloween portion of PMG that reduced the operating results for the six months ended September 30, 2012 as shown in the table below:

 

First Half of Fiscal 2013  As Reported Results  Halloween Charges, net  Non GAAP Results 
 Income from continuing operations before income taxes     10,926,000    6,764,000     17,690,000
 Income tax expense       4,953,000    1,532,000      6,485,000
 Income from continuing operations       5,973,000    5,232,000     11,205,000
 Diluted net income per common share - Continuing Operations   $          0.62  $        0.54  $          1.16

 

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 in September 2012, the Company sold the Halloween portion of its PMG business to Gemmy Industries (HK) Limited ("Gemmy"). Under the terms of the purchase agreement, Gemmy acquired certain tangible and intangible assets associated with PMG's Halloween business. As part of the transaction, PMG will remain responsible for the manufacture, sale and distribution of all PMG Halloween products (such as Halloween masks, costumes, make-up and novelties) for the Halloween 2012 season.   As a result of this transaction, CSS incurred pre-tax charges, net of proceeds, of $6,764,000 during the second quarter of fiscal 2013, which costs primarily relate to cash expenditures for facility closures of $1,375,000, severance of $1,282,000, professional and other costs of $1,341,000, and non-cash asset write-downs of $2,336,000 (including $966,000 recorded in cost of sales) and goodwill reduction of $2,711,000. The charges were offset by proceeds of $2,281,000.  In connection with the exit of the Halloween product line, a portion of the goodwill associated with the Paper Magic Group reporting unit is required to be allocated to the business being sold. This allocation is made on the basis of the fair value of the assets being sold relative to the overall fair value of the Paper Magic Group reporting unit. During the second quarter of fiscal 2013, we paid $787,000 of cash related to these expenses and we expect to pay the remaining cash expenditures in the third and fourth quarters of fiscal 2013. 

 

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 2013 in connection with its sale of the Halloween portion of its PMG business during the second quarter of fiscal 2013.  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 sale of the Halloween portion of its PMG business during the second quarter of fiscal 2013, 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, 2012 and elsewhere in the Company's filings with the Securities and Exchange Commission.  As a result of these factors, readers are cautioned not to place undue reliance on any forward-looking statements included herein or that may be made elsewhere from time to time by, or on behalf of, the Company.

 

CSS' consolidated results of operations for the three and six months ended September 30, 2012 and 2011 and consolidated condensed balance sheets as of September 30, 2012, March 31, 2012 and September 30, 2011 follow: 

 


 

CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)

 

               
  Three Months Ended   Six Months Ended
  September 30,   September 30,
  2012   2011   2012   2011
               
SALES  $  133,485    $  139,725   $194,552   $194,294
               
COSTS AND EXPENSES              
     Cost of sales        92,654         99,663       136,523        140,096
     Selling, general and administrative expenses        22,854         23,528        41,424         43,087
     Disposition of product line, net          5,798                -            5,798                -  
     Interest (income) expense, net             (14)              111             (67)              154
     Other (income) expense, net             (66)              119             (52)              137
       121,226        123,421       183,626        183,474
               
INCOME FROM CONTINUING OPERATIONS BEFORE              
     INCOME TAXES        12,259         16,304        10,926         10,820
               
INCOME TAX EXPENSE          5,419           5,990          4,953           3,953
               
INCOME FROM CONTINUING OPERATIONS          6,840         10,314          5,973           6,867
               
DISCONTINUED OPERATIONS, NET OF TAXES              81           5,171               44           1,049
               
NET INCOME  $      6,921    $    15,485    $    6,017    $     7,916
               
NET INCOME PER COMMON SHARE              
     Basic:              
     Continuing operations   $        0.71    $       1.06    $      0.62    $       0.71
     Discontinued operations   $        0.01    $       0.53    $         -      $       0.11
     Total  $        0.72    $       1.59    $      0.63    $       0.81
               
     Diluted:              
     Continuing operations  $        0.71    $       1.06    $      0.62    $       0.70
     Discontinued operations  $        0.01    $       0.53    $         -      $       0.11
     Total  $        0.72    $       1.59    $      0.63    $       0.81
               
WEIGHTED AVERAGE SHARES OUTSTANDING              
     Basic          9,592           9,741          9,617           9,738
     Diluted          9,621           9,747          9,620           9,743
               
               

 

CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In Thousands)

 

  September 30,   March 31,   September 30,
  2012   2012   2011
ASSETS          
           
CURRENT ASSETS          
     Cash and cash equivalents  $                9,843    $            66,135    $                  614
     Accounts receivable, net                123,336                  45,026                 117,522
     Inventories                  85,177                  71,671                   91,342
     Deferred income taxes                    3,810   nbsp;                3,595                     3,869
     Other current assets                  14,297                  15,441                   16,775
     Current assets of discontinued operations                       126                       183                   37,861
           
        Total current assets                236,589                202,051                 267,983
           
PROPERTY, PLANT AND EQUIPMENT, NET                  28,281                  29,582                   30,950
           
DEFERRED INCOME TAXES                       219                    1,184                     4,586
           
OTHER ASSETS          
     Goodwill                  14,522                  17,233                   17,233
     Intangible assets, net                  28,860                  29,689                   30,553
     Other                    6,636                    6,825                     9,278
           
        Total other assets                  50,018                  53,747                   57,064
           
         Total assets  $            315,107    $          286,564    $           360,583
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
CURRENT LIABILITIES          
     Short-term debt  $                        -    $                      -    $             44,200
     Accrued customer programs                    7,620                    3,298                     6,801
     Other current liabilities                  57,378                  33,069                   54,055
     Current liabilities of discontinued operations                       724                    2,390                     9,385
           
         Total current liabilities                  65,722                  38,757                 114,441
           
LONG-TERM OBLIGATIONS                    5,138                    4,604                     4,603
           
STOCKHOLDERS' EQUITY                244,247                243,203                 241,539
           
         Total liabilities and stockholders' equity  $            315,107    $          286,564    $           360,583
           
             

 

 

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

 

Reconciliation and computation of income from continuing operations before income taxes, income from continuing operations and diluted income per share:

 

  Three Months Ended September 30, 2012
  Income from Continuing Operations Before Income Taxes   Income Tax Expense   Income from Continuing Operations   Diluted Income Per Share, Continuing Operations
               
As Reported  $        12,259    $         5,419    $         6,840    $           0.71
     Included in cost of sales                966                 354                 612                 0.06
     Included in disposition of product line, net              5,798               1,178               4,620                 0.48
Non-GAAP Measurement            19,023               6,951             12,072   nbsp;             1.25
               
               

 

 

Six Months Ended September 30, 2012
  Income from Continuing Operations Before Income Taxes   Income Tax Expense   Income from Continuing Operations   Diluted Income Per Share, Continuing Operations
               
As Reported  $        10,926    $         4,953    $         5,973    $           0.62
Included in cost of sales                966                 354                 612                 0.06
Included in disposition of product line, net              5,798               1,178               4,620                 0.48
Non-GAAP Measurement            17,690               6,485             11,205                 1.16
               
               

 

Management believes that presentation of results of operations adjusted for the affects of the disposition of the Halloween product line provides useful information to investors with respect to the Company's operating results for the three- and six months ended September 30, 2012 because it enhances comparability between the reporting periods.

  


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