CSS Industries, Inc. Reports Sales and Earnings for the Quarter and Six Months Ended September 30, 2009

October 27, 2009 4:14 PM EDT

PHILADELPHIA--(BUSINESS WIRE)-- CSS Industries, Inc. (NYSE: CSS) announced today the results of operations for the second quarter and six months ended September 30, 2009. For the quarter ended September 30, 2009, sales decreased 8% to $160,273,000 from $174,161,000 in 2008. Net income decreased 15% to $8,892,000, or $.92 per diluted share, compared to prior year net income of $10,504,000, or $1.03 per diluted share. For the six months ended September 30, 2009, sales decreased 6% to $213,950,000 from $228,808,000 in 2008. Net income for the six months ended September 30, 2009 decreased 27% to $4,402,000, or $.46 per diluted share in 2009 compared to prior year net income of $6,008,000, or $.58 per diluted share. 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.

Second Quarter Results

The decline in sales for the quarter ended September 30, 2009 was due to lower sales of Christmas products primarily as a result of reduced customer purchases following weak retail sales in the preceding Christmas selling season. Sales of all occasion products have also been negatively impacted by the current economic downturn. Partially offsetting these declines were improved Halloween sales compared to the prior year and sales related to businesses acquired since the beginning of last year's second quarter. Excluding sales of businesses acquired since the beginning of the prior year second quarter, sales declined 9% for the second quarter. The decline in net income was primarily the result of lower sales and lower gross margins on Christmas and all occasion products. These unfavorable factors were partially offset by improved margins on Halloween products and reduced selling, general and administrative costs primarily related to decreased incentive compensation expenses as well as the impact of cost saving initiatives implemented early in fiscal 2010, net of increased depreciation related to a phase of the Company's enterprise resource planning systems standardization project which was implemented in June 2009.

Six Month Results

The decline in sales for the six months ended September 30, 2009 was the result of lower Christmas giftwrap and ribbon and bow sales and reduced all occasion product sales. Partially offsetting these declines were sales of acquired businesses, improved Halloween sales and growth in our baby memory products business. Excluding sales of businesses acquired since the beginning of last fiscal year, sales declined 9%. The decline in net income for the six month period was primarily the result of reduced sales volume and lower margins on Christmas and all occasion products. Partially offsetting these negative factors were improved margins on Halloween products and reduced selling, general and administrative costs primarily related to decreased incentive compensation expenses as well as the impact of cost savings initiatives implemented early in fiscal 2010.

Management Comments

"Weak demand resulting from the economic downturn, which began in the second half of our prior fiscal year, has dampened sales for the current six months as compared to the same period in the prior fiscal year. At this time, we do not believe that a significant economic rebound will occur for the remainder of the fiscal year. As such, we will continue to manage the business by actively pursuing profitable new sales, constraining expenses and improving cash flow," commented Christopher J. Munyan, CSS' President and CEO. "Despite the current economic challenges, we have made significant progress in improving the cash flow of the business and have reduced our net debt position by approximately $40 million compared to September 2008. For the full year, we expect cash flow provided by operating activities to be at least $43 million and capital expenditures to be approximately $7 million. This compares to cash flows provided by operating activities of $28 million and capital expenditures of $14 million in our prior fiscal year, resulting in a net improvement of at least $22 million between years. The improvements over our prior fiscal year are primarily a result of improved inventory management and reduced capital spending."

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 gift wrap, gift bags, gift boxes, gift card holders, boxed greeting cards, gift tags, decorative tissue paper, decorations, classroom exchange Valentines, decorative ribbons and bows, floral accessories, Halloween masks, costumes, make-up and novelties, Easter egg dyes and novelties, craft and educational products, memory books, stationery, journals, notecards, infant and wedding photo albums, scrapbooks, and other gift items that commemorate life's celebrations.

Forward-Looking and Cautionary Statements

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 cash flow, earnings, and benefits from expected future balance sheet management improvements. 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 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; risks associated with the Company's enterprise resource planning systems standardization project, including the risk that the cost of the project will exceed expectations, the risk that the expected benefits of the project will not be realized and the risk that implementation of the project will interfere with and adversely affect the Company's operations and financial performance; 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, 2009 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 quarters and six months ended September 30, 2009 and 2008 and condensed consolidated balance sheets as of September 30, 2009, March 31, 2009 and September 30, 2008 follow:

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED RESULTS OF OPERATIONS

(Unaudited)

(In thousands, except per share
amounts)

                                    Three Months Ended    Six Months Ended

                                    September 30,         September 30,

                                    2009        2008      2009        2008

SALES                               $160,273    $174,161  $213,950    $228,808

COSTS AND EXPENSES

Cost of sales                       119,630     129,454   158,695     167,167

Selling, general and                26,238      27,863    47,599      51,413
administrative expenses

Interest expense, net               661         916       1,029       1,200

Other (income) expense, net         (138     )  36        (251     )  (30      )

                                    146,391     158,269   207,072     219,750

INCOME BEFORE INCOME TAXES          13,882      15,892    6,878       9,058

INCOME TAX EXPENSE                  4,990       5,388     2,476       3,050

NET INCOME                          $ 8,892     $ 10,504  $ 4,402     $ 6,008

NET INCOME PER COMMON SHARE

Basic                               $.92        $1.05     $.46        $.59

Diluted                             $.92        $1.03     $.46        $.58

WEIGHTED AVERAGE SHARES
OUTSTANDING

Basic                               9,628       10,043    9,617       10,149

Diluted                             9,683       10,156    9,666       10,282

CASH DIVIDENDS PER SHARE OF COMMON  $.15        $.15      $.30        $.30
STOCK

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

                                        September 30,  March 31,  September 30,

                                        2009           2009       2008

                                        (Unaudited)    (Audited)  (Unaudited)

ASSETS

CURRENT ASSETS

Cash and cash equivalents               $ 2,830        $ 2,179    $ 5,783

Accounts receivable, net                  132,212        43,741     139,372

Inventories                               122,422        99,971     156,359

Deferred income taxes                     6,227          5,758      6,737

Assets held for sale                      1,363          1,363      3,461

Other current assets                      16,370         15,295     13,353

Total current assets                      281,424        168,307    325,065

PROPERTY, PLANT AND EQUIPMENT, NET        52,691         54,942     52,924

OTHER ASSETS

Goodwill                                  49,258         49,258     50,072

Intangible assets, net                    44,996         45,649     44,987

Other                                     3,971          4,103      3,113

Total other assets                        98,225         99,010     98,172

Total assets                            $ 432,340      $ 322,259  $ 476,161

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Notes payable                           $ 69,000       $ 4,150    $ 102,980

Current portion of long-term debt         10,517         10,479     10,400

Accrued customer programs                 9,655          9,909      10,374

Other current liabilities                 71,405         29,398     77,782

Total current liabilities                 160,577        53,936     201,536

LONG-TERM DEBT, NET OF CURRENT PORTION    264            485        10,065

LONG-TERM OBLIGATIONS                     4,568          4,376      5,439

DEFERRED INCOME TAXES                     4,399          4,208      2,298

STOCKHOLDERS' EQUITY                      262,532        259,254    256,823

Total liabilities and stockholders'     $ 432,340      $ 322,259  $ 476,161
equity

    Source: CSS Industries, Inc.

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