Back

CSS INDUSTRIES, INC. REPORTS RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2012

CSS INDUSTRIES, INC. REPORTS RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2012


CSS Industries, Inc. (NYSE:CSS) announced today its results of operations for the three and nine months ended December 31, 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 retained responsibility for the manufacture, sale and distribution of all PMG Halloween products for the Halloween 2012 season. Net sales of the Halloween business were $1,415,000 and $1,046,000 in the three months ended December 31, 2012 and 2011, respectively, and were $29,345,000 and $28,718,000 in the nine months ended December 31, 2012 and 2011, respectively. Operating results for the three and nine months ended December 31, 2012 reflect higher profitability compared to the same periods in 2011 from the Halloween portion of the PMG business because costs were reduced as a result of the sale.

Sales for the third quarter of fiscal 2013 decreased 10.2% to $116,020,000 from $129,240,000 in the third quarter of fiscal 2012. Income from continuing operations before income taxes for the third quarter of fiscal 2013 was $17,020,000, compared to $18,857,000 in the third quarter of fiscal 2012. Income from continuing operations for the third quarter of fiscal 2013 was $11,601,000, or $1.21 per diluted share, versus $12,109,000, or $1.24 per diluted share, in the third quarter of the prior fiscal year. Net income for the third quarter of fiscal 2013 was $11,611,000, or $1.22 per diluted share, versus $10,978,000, or $1.13 per diluted share, in the third quarter of fiscal 2012.

Sales for the first nine months of fiscal 2013 decreased 4.0% to $310,572,000 from $323,534,000 in the first nine months of fiscal 2012. Income from continuing operations before income taxes for the first nine months of fiscal 2013 was $27,945,000, compared to $29,677,000 in the prior year. Income from continuing operations for the first nine months of fiscal 2013 was $17,573,000, or $1.83 per diluted share, versus $18,976,000, or $1.95 per diluted share, in the first nine months of fiscal 2012. Net income for the first nine months of fiscal 2013 was $17,628,000, or $1.84 per diluted share, versus $18,894,000, or $1.94 per diluted share, in the first nine months of the fiscal 2012. During the first nine 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 nine months ended December 31, 2012 as shown in the table below:

 

 

 

First Nine Months of Fiscal 2013 As Reported Results Halloween Charges, net Non-GAAP Results
Income from continuing operations before income taxes 27,945,000 6,764,000 34,709,000
Income tax expense 10,372,000 1,532,000 11,904,000
Income from continuing operations 17,573,000 5,232,000 22,805,000
Diluted net income per common share - Continuing Operations $1.83 $0.55 $2.38

 

 

 

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 retained responsibility 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 third quarter and first nine months of fiscal 2013, we paid $630,000 and $1,417,000, respectively, of cash related to these expenses and we expect to pay the remaining cash expenditures through fiscal 2016.

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, 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 timing and amount of cash expenditures and the Company expects to pay through fiscal 2016 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 Company's future expenditures in connection with such sale may exceed management's current estimate of such expenditures; 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, customs laws and consumer product safety regulations; 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 nine months ended December 31, 2012 and 2011 and consolidated condensed balance sheets as of December 31, 2012, March 31, 2012 and December 31, 2011 follow:

 

 

CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)
  December 31,   December 31,
  2012   2011   2012   2011
 
SALES $116,020   $129,240   $310,572   $323,534
 
COSTS AND EXPENSES  
          Cost of sales 78,407   87,662   214,930   227,758
          Selling, general and administrative expenses 20,509   22,446   61,934   65,533
          Disposition of product line, net -   -   5,798   -
          Interest (income) expense, net (1)   73   (68)   227
          Other expense, net 85   202   33   339
  99,000   110,383   282,627   293,857
 
Income from continuing operations before income taxes 17,020   18,857   27,945   29,677
 
Income tax expense 5,419   6,748   10,372   10,701
 
INCOME FROM CONTINUING OPERATIONS 11,601   12,109   17,573   18,976
 
Income (loss) from discontinued operations, net of tax 10   (1,131)   55   (82)
 
Net income $11,611   $10,978   $17,628   $18,894
 
NET INCOME PER COMMON SHARE  
     Basic:  
     Continuing operations $1.22   $1.25   $1.83   $1.95
     Discontinued operations $0.00   $(0.12)   $0.01   $(0.01)
     Total $1.22   $1.13   $1.84   $1.94
 
     Diluted:  
     Continuing operations $1.21   $1.24   $1.83   $1.95
     Discontinued operations $0.00   $(0.12)   $0.01   $(0.01)
     Total (1) $1.22   $1.13   $1.84   $1.94
 
Weighted average shares outstanding  
     Basic: 9,548   9,723   9,594   9,733
     Diluted: 9,554   9,732   9,597   9,739
Cash dividends per share of common stock $0.15   $0.15   $0.45   $0.45


 

(1) Total net income per share for certain periods does not foot due to rounding.

 

 

CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)
(In thousands)
 
 
  December 31,   March 31,   December 31,  
  2012

  2012

  2011

 
ASSETS  
 
Current assets    
          Cash and cash equivalents $53,347   $66,135   $10,489  
          Accounts receivable, net 94,445   45,026   107,808  
          Inventories 66,087   71,671   74,005  
          Deferred income taxes 4,834   3,595   3,751  
          Other current assets 13,704   15,441   13,529  
          Current assets of discontinued operations -   183   13,900  
 
               Total current assets 232,417   202,051   223,482  
 
PROPERTY, PLANT AND EQUIPMENT, NET 28,164   29,582   30,138  
 
DEFERRED INCOME TAXES 195   1,184   4,633  
 
OTHER ASSETS  
               Goodwill 14,522   17,233   17,233  
               Intangible assets, net 28,446   29,689   30,129  
               Other 7,046   6,825   9,316  
 
                  Total other assets 50,014   53,747   56,678  
 
                  Total assets $310,790   $286,564   $314,931  
 
         LIABILITIES AND STOCKHOLDERS' EQUITY  
 
CURRENT LIABILITIES  
               Accrued customer programs $7,089   $3,298   $6,149  
               Other current liabilities 45,717   33,069   47,757  
               Current liabilities of discontinued operations 499   2,390   5,680  
 
                   Total current liabilities 53,305   38,757   59,586  
 
LONG-TERM OBLIGATIONS 5,020   4,604   4,556  
 
STOCKHOLDERS' EQUITY 252,465   243,203   250,789  
 
                   Total liabilities and stockholders' equity $310,790   $286,564   $314,931  


 

 

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 tax expense, income from continuing operations and diluted income per share:

 

 

  Nine Months Ended December 31, 2012
  Income from
Continuing
Operations
Before
Income Taxes
  Income Tax
Expense
  Income from
Continuing
Operations
  Diluted
Income Per
Share,
Continuing
Operations (1)
 
As Reported $27,945   $10,372   $17,573   $1.83
  Related to cost of sales 966   354   612   0.06
  Related to disposition of product line, net 5,798   1,178   4,620   0.48
Non-GAAP Measurement $34,709   $11,904   $22,805   $2.38

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 nine months ended December 31, 2012 because it enhances comparability between the reporting periods.

(1) Diluted Income Per Share, Continuing Operations does not foot due to rounding.

 


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