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CSS INDUSTRIES, INC. REPORTS SALES AND EARNINGS FOR THE NINE MONTHS AND QUARTER ENDED DECEMBER 31, 2006

CSS INDUSTRIES, INC. REPORTS SALES AND EARNINGS FOR THE NINE MONTHS AND QUARTER ENDED DECEMBER 31, 2006


CSS Industries, Inc. (NYSE:CSS) announced today the results of operations for the nine months and third quarter ended December 31, 2006. For the nine months ended December 31, 2006, sales increased by 3% to $485,428,000 from $473,333,000 in 2005. Net income of $29,486,000, or $2.71 per diluted share, was relatively flat compared to prior year net income of $29,508,000, or $2.69 per diluted share. For the quarter ended December 31, 2006, sales increased by 5% to $264,065,000 from $251,796,000 in the prior year, while net income decreased 3% to $23,290,000, or $2.13 per diluted share, compared to prior year net income of $23,924,000, or $2.18 per diluted share. As previously announced, the Company implemented a restructuring plan during the quarter to combine the operations of its Cleo Inc and Berwick Offray LLC subsidiaries, to close Cleo's Maysville, Kentucky production facility and to exit a non-material, non-core business. In connection with this restructuring plan, the Company incurred incremental, non-recurring costs of $1,663,000, net of tax, during the third quarter and nine months ended December 31, 2006, a portion of which is classified as restructuring expenses on the Company's Consolidated Statement of Operations. Excluding costs relating to the restructuring plan and incremental stock option expense related to the Company's adoption of Statement of Financial Accounting Standards ("SFAS") No. 123R, net income increased 11% to $32,780,000, or $3.02 per diluted share, and 7% to $25,503,000, or $2.33 per diluted share, for the nine months and quarter ended December 31, 2006, respectively. The Company's highly seasonal orientation results in operating losses in the first and fourth quarters of the fiscal year and operating profits in the second and third quarters.

 

The increase in sales for the nine months ended December 31, 2006 was primarily due to higher sales of Christmas gift wrap and boxed greeting cards, partially offset by lower sales of all-occasion cards, tissue, gift bags and ribbons and bows. The increase in net income for the nine months ended December 31, 2006, excluding the incremental, non-recurring costs related to the restructuring plan and the incremental costs related to the Company's adoption of SFAS No. 123R, was primarily attributable to improved margins on gift wrap, gift bag and tissue product lines and the impact of higher sales of Christmas boxed greeting cards, partially offset by increased selling, general and administrative expenses, primarily related to increased incentive compensation expense. The increase in sales for the quarter ended December 31, 2006 was primarily the result of increased sales of gift wrap, Christmas boxed greeting cards and ribbons and bows, partially offset by lower sales of all-occasion cards, tissue, gift tags and gift bags. The increase in net income for the quarter ended December 31, 2006, excluding the incremental, non-recurring costs related to the restructuring plan and the incremental costs related to the Company's adoption of SFAS No. 123R, was primarily due to higher margins achieved on tissue, gift wrap and gift bag product lines, partially offset by increased incentive compensation expense.

"We are pleased with the continued improvement in earnings during the quarter and nine months ended December 31, 2006 which improved 7% and 11%, respectively, over the prior year, absent the charges related to the restructuring plan and the new rules regarding the expensing of stock options. This improvement is largely a result of our continued focus on our gift wrap and tissue product lines," said Christopher J. Munyan, President and CEO. "As previously announced, we anticipate that the restructuring plan will reduce earnings per diluted share by approximately $.28 for the full fiscal year. Exclusive of these restructuring costs, we continue to expect earnings to be in line with our previous guidance of $2.40 - $2.55 per diluted share this fiscal year, although probably towards the lower end of such range."

CSS is a consumer products company primarily engaged in the manufacture and sale to mass market retailers of seasonal, social expression products, including gift wrap, gift bags, boxed greeting cards, gift tags, tissue paper, paper and vinyl decorations, classroom exchange Valentines, decorative ribbons and bows, Halloween masks, costumes, make-ups and novelties, educational products and Easter egg dyes and novelties.

This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including, among others, statements relating to expected future earnings and financial performance. 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 and product 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 costs may exceed the expected amounts, 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, 2006 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.

CSS' consolidated statements of operations for the three and nine months ended December 31, 2006 and 2005 and condensed consolidated balance sheets as of December 31, 2006, March 31, 2006 and December 31, 2005 follow:

 

 

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED RESULTS OF OPERATIONS
(Unaudited)

 
(In thousands, except per share amounts) Three Months Ended
December 31,


  Nine Months Ended
December 31,


 
  2006

  2005

  2006

  2005

 
SALES $264,065   $251,796   $485,428   $473,333  
 
 
 
 
 
COSTS AND EXPENSES
Cost of sales 197,695   189,367   360,761   357,808  
Selling, general and administrative expenses 26,424   23,867   73,917   66,868  
Restructuring expenses 1,745   3   1,745   37  
Interest expense, net 1,446   1,483   2,663   2,982  
Other income (130 ) (47 ) (358 ) (182 )
 
 
 
 
  227,180   214,673   438,728   427,513  
 
 
 
 
INCOME BEFORE INCOME TAXES 36,885   37,123   46,700   45,820  
 
INCOME TAX EXPENSE 13,595   13,199   17,214   16,312  
 
 
 
 
NET INCOME $ 23,290   $ 23,924   $ 29,486   $ 29,508  
 
 
 
 
 
NET INCOME PER COMMON SHARE
Basic $2.19   $2.27   $2.79   $2.81  
 
 
 
 
Diluted $2.13   $2.18   $2.71   $2.69  
 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 10,641   10,538   10,565   10,483  
 
 
 
 
Diluted 10,931   10,979   10,863   10,967  
 
 
 
 
 
CASH DIVIDENDS PER SHARE OF COMMON STOCK $.12   $.12   $.36   $.36  
 
 
 
 
 

 
CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
  December 31,
2006

  March 31,
2006

  December 31,
2005

 
 
ASSETS
 
CURRENT ASSETS
Cash and cash equivalents $ 10,303   $ 57,656   $ 18,376  
Accounts receivable, net 223,944   35,582   200,194  
Inventories 66,455   103,770   84,931  
Deferred income taxes 7,718   7,898   8,782  
Assets held for sale 2,796   -   -  
Other current assets 13,234   18,906   13,826  
 
 
 
Total current assets 324,450   223,812   326,109  
 
 
 
PROPERTY, PLANT AND EQUIPMENT, NET 61,307   70,868   71,652  
 
 
 
OTHER ASSETS
Intangible assets, net 35,304   35,374   35,398  
Other 3,806   4,095   4,073  
 
 
 
Total other assets 39,110   39,469   39,471  
 
 
 
Total assets $424,867   $334,149   $437,232  
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS EQUITY
 
CURRENT LIABILITIES
Notes payable $ 42,400   $ -   $ 57,900  
Current portion of long-term debt 10,195   10,169   10,238  
Accrued customer programs 16,516   10,791   17,446  
Accrued restructuring expenses 1,232   4   17  
Other current liabilities 61,498   41,366   68,136  
 
 
 
Total current liabilities 131,841   62,330   153,737  
 
 
 
LONG-TERM DEBT, NET OF CURRENT PORTION 20,441   30,518   30,560  
 
 
 
LONG-TERM OBLIGATIONS 3,300   3,533   3,541  
 
 
 
DEFERRED INCOME TAXES 5,080   5,258   7,430  
 
 
 
STOCKHOLDERS EQUITY 264,205   232,510   241,964  
 
 
 
Total liabilities and stockholders equity $424,867   $334,149   $437,232  
 
 
 
 

 


CSS INDUSTRIES, INC.

RECONCILIATION OF CERTAIN NON-GAAP MEASURES
(Unaudited)
(In thousands, except per share amounts)

Management believes that presentation of results of operations adjusted to eliminate the affects of incremental, non-recurring costs related to a restructuring plan and the impact of the Company's adoption of SFAS No. 123R in fiscal 2007, provides useful information to investors because it enhances comparability between the current year and prior year reporting periods.


  Nine Months Ended December 31, 2006
 
 
 
 
  Income Before
Income Taxes
Net Income Diluted Earnings Per Share
 


 
As Reported $46,700 $29,486 $2.71
- Restructuring Expenses 1,745 1,102 .10
- Inventory Write-Downs Due to Facility Closure 570 360 .03
- Other Incremental Costs Related to Restructuring Plan 319 201 .02
- Expensing Stock Options â€" SFAS No. 123R 2,131 1,631 .15
 


Non-GAAP Measurement $51,465 $32,780 $3.02
 


 

  Three Months Ended December 31, 2006
 
 
 
 
  Income Before
Income Taxes
Net Income Diluted Earnings Per Share
 


 
As Reported $36,885 $23,290 $2.13
- Restructuring Expenses 1,745 1,102 .10
- Inventory Write-Downs Due to Facility Closure 570 360 .03
- Other Incremental Costs Related to Restructuring Plan 319 201 .02
- Expensing Stock Options â€" SFAS No. 123R 719 550 .05
 


Non-GAAP Measurement $40,238 $25,503 $2.33
 


 

Diluted earnings per share for the nine months ending December 31, 2006 does not add due to rounding.

 


FOR FURTHER INFORMATION CONTACT:
Clifford E. Pietrafitta
Chief Financial Officer
(215) 569-9900