NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(Unaudited)
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|
(1)
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation
CSS Industries, Inc. (collectively with its subsidiaries, “CSS” or the “Company”) has prepared the consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission. The Company has condensed or omitted certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States pursuant to such rules and regulations. In the opinion of management, the statements include all adjustments (which include normal recurring adjustments) required for a fair presentation of financial position, results of operations and cash flows for the interim periods presented. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended
March 31, 2016
. The results of operations for the interim periods are not necessarily indicative of the results for the full year.
The Company’s fiscal year ends on March 31. References to a particular fiscal year refer to the fiscal year ending in March of that year. For example, “fiscal
2017
” refers to the fiscal year ending
March 31, 2017
.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation.
Nature of Business
CSS is a consumer products company primarily engaged in the design, manufacture, procurement, distribution and sale of all occasion and seasonal social expression products, principally to mass market retailers. These all occasion and seasonal products include decorative ribbons and bows, classroom exchange Valentines, infant products, journals, buttons, boxed greeting cards, gift tags, gift card holders, gift bags, gift wrap, decorations, floral accessories, craft and educational products, Easter egg dyes and novelties, memory books, scrapbooks, stickers, stationery, and other items that commemorate life’s celebrations. The seasonal nature of CSS’ business has historically resulted in lower sales levels and operating losses in the first and fourth quarters and comparatively higher sales levels and operating profits in the second and third quarters of the Company’s fiscal year, which ends March 31, thereby causing significant fluctuations in the quarterly results of operations of the Company.
The Company's principal operating subsidiaries include Berwick Offray LLC ("Berwick Offray"), Paper Magic Group, Inc. ("Paper Magic") and C.R. Gibson, LLC ("C.R. Gibson").
Reclassification
Certain prior period amounts have been reclassified to conform with the current year classification.
Foreign Currency Translation and Transactions
Translation adjustments are charged or credited to a separate component of stockholders’ equity. Gains and losses on foreign currency transactions are not material and are included in other income, net in the consolidated statements of operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Judgments and assessments of uncertainties are required in applying the Company’s accounting policies in many areas. Such estimates pertain to revenue recognition, the valuation of inventory and accounts receivable, the assessment of the recoverability of goodwill and other intangible and long-lived assets, income tax accounting, the valuation of share-based awards and resolution of litigation and other proceedings. Actual results could differ from these estimates.
Short-Term Investments
The Company categorizes and accounts for its short-term investment holdings as held-to-maturity securities. Held-to-maturity securities are recorded at amortized cost which approximates fair value at
June 30, 2016
,
March 31, 2016
and
June 30, 2015
. This categorization is based upon the Company's positive intent and ability to hold these securities until maturity. Short-term investments at
June 30, 2016
consisted of commercial paper with an amortized cost of
$44,926,000
and mature in the second quarter of fiscal 2017. Short-term investments at
March 31, 2016
consisted of commercial paper with an amortized cost of
$59,806,000
and mature in the first half of fiscal
2017
. Short-term investments at
June 30, 2015
consisted of commercial paper with an amortized cost of
$49,939,000
and matured in fiscal
2016
.
Inventories
The Company records inventory when title is transferred, which occurs upon receipt or prior to receipt dependent on supplier shipping terms. The Company adjusts unsaleable and slow-moving inventory to its estimated net realizable value. Substantially all of the Company’s inventories are stated at the lower of first-in, first-out (FIFO) cost or market. The remaining portion of the inventory is valued at the lower of last-in, first-out (LIFO) cost or market. Inventories consisted of the following (in thousands):
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|
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|
|
|
|
|
|
|
June 30, 2016
|
|
March 31, 2016
|
|
June 30, 2015
|
Raw material
|
$
|
12,509
|
|
|
$
|
11,392
|
|
|
$
|
11,433
|
|
Work-in-process
|
17,835
|
|
|
17,745
|
|
|
16,920
|
|
Finished goods
|
60,765
|
|
|
43,885
|
|
|
53,740
|
|
|
$
|
91,109
|
|
|
$
|
73,022
|
|
|
$
|
82,093
|
|
Property, Plant and Equipment
Property, plant and equipment are stated at cost and include the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
March 31, 2016
|
|
June 30, 2015
|
Land
|
$
|
2,508
|
|
|
$
|
2,508
|
|
|
$
|
2,508
|
|
Buildings, leasehold interests and improvements
|
34,610
|
|
|
34,317
|
|
|
35,879
|
|
Machinery, equipment and other
|
88,667
|
|
|
87,675
|
|
|
89,298
|
|
|
125,785
|
|
|
124,500
|
|
|
127,685
|
|
Less - Accumulated depreciation and amortization
|
(98,696
|
)
|
|
(97,447
|
)
|
|
(102,175
|
)
|
Net property, plant and equipment
|
$
|
27,089
|
|
|
$
|
27,053
|
|
|
$
|
25,510
|
|
Depreciation expense was
$1,357,000
and
$1,382,000
for the quarters ended
June 30, 2016
and
2015
, respectively.
Long-Lived Assets including Goodwill and Other Intangible Assets
The Company performs an annual impairment test of the carrying amount of goodwill and indefinite-lived intangible assets in the fourth quarter of its fiscal year. Additionally, the Company would perform its impairment testing at an interim date if events or circumstances indicate that goodwill or intangibles might be impaired. During the
three
months ended
June 30, 2016
, there were no such events or circumstances.
The Company uses a dual approach to determine the fair value of its reporting units, including both a market approach and an income approach. The Company believes the use of multiple valuation techniques results in a more accurate indicator of the fair value of each reporting unit. The first step of the test compares the fair value of a reporting unit to its carrying amount, including goodwill, as of the date of the test. If the carrying amount of the reporting unit exceeds its fair value, the second step is performed. The second step compares the carrying amount of the goodwill to the implied fair value of the goodwill. If the implied fair value of the goodwill is less than the carrying amount of the goodwill, an impairment loss would be reported.
Other indefinite-lived intangible assets consist primarily of tradenames, which are also required to be tested annually for impairment. The fair value of the Company’s tradenames is calculated using a “relief from royalty payments” methodology. Long-lived assets (including property, plant and equipment), except for goodwill and indefinite-lived intangible assets, are reviewed for impairment when events or circumstances indicate the carrying value of an asset
group may not be recoverable. If such asset group is considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. During the
three
months ended
June 30, 2016
, there were no such events or circumstances. See Note 4 for further information on other intangible assets.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company records a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized.
The Company recognizes the impact of an uncertain tax position if it is more likely than not that such position will be sustained on audit, based solely on the technical merits of the position.
Revenue Recognition
The Company recognizes revenue from product sales when the goods are shipped, title and risk of loss have been transferred to the customer and collection is reasonably assured. Provisions for returns, allowances, rebates to customers and other adjustments are provided in the same period that the related sales are recorded.
Net Loss Per Common Share
Due to the Company's net losses in the first quarter, potentially dilutive securities of
570,000
shares and
265,000
shares as of
June 30, 2016
and
2015
, respectively, consisting of outstanding stock options and unearned restricted stock units, were excluded from the diluted net loss per common share calculation due to their antidilutive effect.
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(2)
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SHARE-BASED COMPENSATION
|
2013 Equity Compensation Plan
Under the terms of the Company’s 2013 Equity Compensation Plan (“
2013 Plan
”), the Human Resources Committee of the Company’s Board of Directors (“Board”), or other committee appointed by the Board (collectively with the Human Resources Committee, the “2013 Equity Plan Committee”), may grant incentive stock options, non-qualified stock options, stock units, restricted stock grants, stock appreciation rights, stock bonus awards and dividend equivalents to officers and other employees and non-employee directors. Grants under the 2013 Plan may be made through July 29, 2023. The term of each grant is at the discretion of the 2013 Equity Plan Committee, but in no event greater than
ten years
from the date of grant. The 2013 Equity Plan Committee has discretion to determine the date or dates on which granted options become exercisable. Service-based options outstanding as of
June 30, 2016
become exercisable at the rate of
25%
per year commencing
one year
after the date of grant. Market-based stock options outstanding as of
June 30, 2016
will become exercisable only if certain market conditions and service requirements are satisfied, and the date(s) on which they become exercisable will depend on the period in which such market conditions and service requirements are met, if at all, except that vesting and exercisability are accelerated upon a change of control. Market-based restricted stock units (“RSUs”) outstanding at
June 30, 2016
will vest only if certain market conditions and service requirements have been met, and the date(s) on which they vest will depend on the period in which such market conditions and service requirements are met, if at all, except that vesting and redemption are accelerated upon a change of control. At
June 30, 2016
, there were
590,115
shares available for grant.
The fair value of each stock option and market-based RSU granted under the above plan was estimated on the date of grant using either a Black-Scholes option pricing model (service-based awards) or a Monte Carlo simulation model (market-based awards) with the following average assumptions:
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Stock Options
|
|
RSUs
|
|
Three Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Risk-free interest rate
|
1.66
|
%
|
|
1.96
|
%
|
|
1.20
|
%
|
|
1.29
|
%
|
Volatility
|
35.12
|
%
|
|
36.90
|
%
|
|
33.08
|
%
|
|
36.86
|
%
|
Dividend yield
|
2.91
|
%
|
|
2.59
|
%
|
|
2.99
|
%
|
|
2.60
|
%
|
Expected life of option (in years)
|
4.75
|
|
|
4.75
|
|
|
|
|
|
The fair value of each service-based RSU granted was estimated on the day of grant based on the closing price of the Company's common stock reduced by the present value of the expected dividend stream during the vesting period using the risk-free interest rate.
During the
three
months ended
June 30, 2016
and
2015
, the Company granted
151,350
and
134,100
stock options, respectively, with a weighted average fair value of
$6.25
and
$7.35
, respectively. During the
three
months ended
June 30, 2016
and
2015
, the Company granted
47,250
and
44,100
RSUs, respectively, with a weighted average fair value of
$19.50
and
$18.46
, respectively. As of
June 30, 2016
, there were
654,675
and
176,660
outstanding stock options and RSUs, respectively.
As of
June 30, 2016
, there was
$2,184,000
of total unrecognized compensation cost related to non-vested stock option awards granted under the Company’s equity incentive plans which is expected to be recognized over a weighted average period of
3.1 years
. As of
June 30, 2016
, there was
$1,940,000
of total unrecognized compensation cost related to non-vested RSUs granted under the Company’s equity incentive plans which is expected to be recognized over a weighted average period of
2.7 years
.
On August 11, 2015, the Company granted
10,000
RSUs to the new Chair of the Company's Board of Directors. On August 15, 2017, the RSUs will become vested and convertible into a lump sum cash payment equal to the then fair market value of corresponding shares of common stock of the Company if, and only to the extent that, certain service-based vesting conditions and other terms and conditions are satisfied, or upon occurrence of a change of control. The RSUs are classified as liability awards because they will be paid in cash upon vesting. The RSU award liability is measured at its fair market value at the end of each reporting period and, therefore, will fluctuate based on the performance of the Company's stock. The total amount accrued related to this grant as of
June 30, 2016
was
$117,000
and is included in long-term obligations in the condensed consolidated balance sheet. There were
no
such liability classified awards as of
June 30, 2015
. During the
three
months ended
June 30, 2016
, dividend equivalents of
$2,000
were paid in cash related to these liability classified awards and were charged to selling, general and administrative expenses.
Compensation cost related to stock options and RSUs (inclusive of the liability classified awards described above) recognized in operating results (included in selling, general and administrative expenses) was
$442,000
and
$457,000
in the three months ended
June 30, 2016
and
2015
, respectively.
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|
(3)
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
The Company enters into foreign currency forward contracts in order to reduce the impact of certain foreign currency fluctuations on sales denominated in a foreign currency. Derivatives are not used for trading or speculative activities. Firmly committed transactions and the related receivables may be hedged with forward exchange contracts. Gains and losses arising from foreign currency forward contracts are recorded in other income, net as offsets of gains and losses resulting from the underlying hedged transactions. A realized gain of
$2,000
was recorded in the
three
months ended
June 30, 2016
. There were
no
realized gains or losses recorded in the
three
months ended
June 30, 2015
. As of
June 30, 2016
and
2015
, the notional amount of open foreign currency forward contracts was
$1,464,000
and
$1,382,000
, respectively. The related unrealized gain was
$8,000
and
$16,000
at
June 30, 2016
and
2015
, respectively. The Company believes it does not have significant counterparty credit risks as of
June 30, 2016
.
The following table shows the fair value of the foreign currency forward contracts designated as hedging instruments and included in the Company’s condensed consolidated balance sheet (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Instruments
|
|
|
|
Fair Value
|
|
Balance Sheet Location
|
|
June 30, 2016
|
|
June 30, 2015
|
Foreign currency forward contracts
|
Other current assets
|
|
$
|
8
|
|
|
$
|
16
|
|
The gross carrying amount and accumulated amortization of other intangible assets is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
March 31, 2016
|
|
June 30, 2015
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Tradenames and trademarks
|
$
|
15,553
|
|
|
$
|
—
|
|
|
$
|
15,553
|
|
|
$
|
—
|
|
|
$
|
12,953
|
|
|
$
|
—
|
|
Customer relationships
|
39,157
|
|
|
14,184
|
|
|
39,157
|
|
|
13,444
|
|
|
29,957
|
|
|
11,608
|
|
Patents
|
1,164
|
|
|
738
|
|
|
1,164
|
|
|
708
|
|
|
1,164
|
|
|
621
|
|
Trademarks
|
403
|
|
|
340
|
|
|
403
|
|
|
333
|
|
|
403
|
|
|
310
|
|
Non-compete
|
530
|
|
|
165
|
|
|
530
|
|
|
139
|
|
|
530
|
|
|
59
|
|
|
$
|
56,807
|
|
|
$
|
15,427
|
|
|
$
|
56,807
|
|
|
$
|
14,624
|
|
|
$
|
45,007
|
|
|
$
|
12,598
|
|
Amortization expense related to intangible assets was
$803,000
and
$639,000
for the quarters ended
June 30, 2016
and
2015
, respectively. Based on the current composition of intangibles, amortization expense for the remainder of fiscal
2017
and each of the succeeding four years is projected to be as follows (in thousands):
|
|
|
|
|
Remainder of fiscal 2017
|
$
|
2,409
|
|
Fiscal 2018
|
3,212
|
|
Fiscal 2019
|
3,188
|
|
Fiscal 2020
|
3,144
|
|
Fiscal 2021
|
2,956
|
|
|
|
(5)
|
TREASURY STOCK TRANSACTIONS
|
Under a stock repurchase program authorized by the Company's Board, the Company repurchased
91,238
shares of the Company’s common stock for approximately
$2,617,000
during the
three
months ended
June 30, 2015
. As payment for stock repurchases occurs upon settlement three business days after the trade transaction,
$15,000
of this amount was paid by the Company subsequent to June 30, 2015. There were
no
repurchases of the Company's common stock by the Company during the
three
months ended
June 30, 2016
. As of
June 30, 2016
, the Company had
303,166
shares remaining available for repurchase under the Board’s authorizations.
|
|
(6)
|
COMMITMENTS AND CONTINGENCIES
|
CSS and its subsidiaries are involved in ordinary, routine legal proceedings that are not considered by management to be material. In the opinion of Company counsel and management, the ultimate liabilities resulting from such legal proceedings will not materially affect the consolidated financial position of the Company or its results of operations or cash flows.
|
|
(7)
|
FAIR VALUE MEASUREMENTS
|
Recurring Fair Value Measurements
The Company uses certain derivative financial instruments as part of its risk management strategy to reduce foreign currency risk. The Company recorded all derivatives on the condensed consolidated balance sheet at fair value based on quotes obtained from financial institutions as of
June 30, 2016
.
The Company maintains a Nonqualified Supplemental Executive Retirement Plan ("SERP") for qualified employees and invests assets to mirror the obligations under this Plan. The invested funds are maintained at a third party financial institution in the name of CSS and are invested in publicly traded mutual funds. There have been no contributions provided under the SERP since fiscal 2007 and there are
four
employees who maintain account balances as of June 30, 2016. The Company maintains separate accounts for each participant to reflect deferred contribution amounts and the related gains or losses on such deferred amounts. The investments are included in other current assets and the related liability is recorded as deferred compensation and included in long-term obligations in the condensed consolidated balance sheet. The fair value of the investments is based on the market price of the mutual funds as of
June 30, 2016
.
The Company maintains
two
life insurance policies in connection with deferred compensation arrangements with
two
former executives. The cash surrender value of the policies is recorded in other long-term assets in the condensed consolidated balance sheets and is based on quotes obtained from the insurance company as of
June 30, 2016
.
To increase consistency and comparability in fair value measurements, the Financial Accounting Standards Board ("FASB") established a fair value hierarchy that prioritizes the inputs to valuation techniques into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial assets and liabilities fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The Company’s recurring assets and liabilities recorded on the condensed consolidated balance sheet are categorized based on the inputs to the valuation techniques as follows:
Level 1 – Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access.
Level 2 – Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Examples of Level 2 inputs include quoted prices for identical or similar assets or liabilities in non-active markets and pricing models whose inputs are observable for substantially the full term of the asset or liability.
Level 3 – Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
The following table presents the Company’s fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis in its condensed consolidated balance sheet as of
June 30, 2016
and
March 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2016 Using
|
|
June 30, 2016
|
|
Quoted Prices In
Active Markets
for Identical
Assets (Level 1)
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
Assets
|
|
|
|
|
|
|
|
Marketable securities
|
$
|
284
|
|
|
$
|
284
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign exchange contracts
|
8
|
|
|
—
|
|
|
8
|
|
|
—
|
|
Cash surrender value of life insurance policies
|
1,159
|
|
|
—
|
|
|
1,159
|
|
|
—
|
|
Total assets
|
$
|
1,451
|
|
|
$
|
284
|
|
|
$
|
1,167
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
Deferred compensation plans
|
$
|
284
|
|
|
$
|
284
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total liabilities
|
$
|
284
|
|
|
$
|
284
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2016 Using
|
|
March 31, 2016
|
|
Quoted Prices In
Active Markets
for Identical
Assets (Level 1)
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
Assets
|
|
|
|
|
|
|
|
Marketable securities
|
$
|
278
|
|
|
$
|
278
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash surrender value of life insurance policies
|
1,153
|
|
|
—
|
|
|
1,153
|
|
|
—
|
|
Total assets
|
$
|
1,431
|
|
|
$
|
278
|
|
|
$
|
1,153
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
Deferred compensation plans
|
$
|
278
|
|
|
$
|
278
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total liabilities
|
$
|
278
|
|
|
$
|
278
|
|
|
$
|
—
|
|
|
$
|
—
|
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Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reflected at carrying value in the condensed consolidated balance sheets as such amounts are a reasonable estimate of their fair values due to the short-term nature of these instruments. Short-term investments include held-to-maturity securities that are recorded at
amortized cost, which approximates fair value (Level 2), because their short-term maturity results in the interest rates on these securities approximating current market interest rates.
Nonrecurring Fair Value Measurements
The Company’s nonfinancial assets which are measured at fair value on a nonrecurring basis include property, plant and equipment, goodwill, intangible assets and certain other assets. These assets are not measured at fair value on a recurring basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence that an impairment may exist. In making the assessment of impairment, recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset group to future net cash flows estimated by the Company to be generated by such assets. If such asset group is considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. Assets to be disposed of are recorded at the lower of their carrying value or estimated net realizable value.
Goodwill and indefinite-lived intangibles are subject to impairment testing on an annual basis, or sooner if events or circumstances indicate a condition of impairment may exist. Impairment testing is conducted through valuation methods that are based on assumptions for matters such as interest and discount rates, growth projections and other future business conditions (Level 3). These valuation methods require a significant degree of management judgment concerning the use of internal and external data. In the event these methods indicate that fair value is less than the carrying value, the asset is recorded at fair value as determined by the valuation models. As of
June 30, 2016
, the Company believes that no impairments exist.
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RECENT ACCOUNTING PRONOUNCEMENTS
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In March 2016, the FASB issued Accounting Standards Update ("ASU") 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"). ASU 2016-09 simplifies several aspects of accounting for share-based payment award transactions, including income tax consequences, classification of awards as either liability or equity, and classification on the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-09 will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). ASU 2016-02 requires lessees to record a right-of-use asset and lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements, with certain practical expedients available. The standard also requires certain quantitative and qualitative disclosures. The Company is currently evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures.
In November 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes" ("ASU 2015-17"), which requires entities to present all deferred tax liabilities and assets as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. The Company adopted ASU 2015-17 on a retrospective basis in the fourth quarter of fiscal 2016. The adoption of ASU 2015-17 resulted in a
$4,430,000
reduction in current deferred tax assets and a
$4,430,000
increase in noncurrent deferred tax assets as of
June 30, 2015
.
In September 2015, the FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments" ("ASU 2015-16"). ASU 2015-16 eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. This guidance was effective for the Company beginning April 1, 2016 and will be applied prospectively to adjustments arising after that date. There was no impact of adopting this standard in the current period.
In July 2015, the FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory" ("ASU 2015-11"). ASU 2015-11 amends the guidelines for the measurement of inventory from lower of cost or market to the lower of cost and net realizable value (NRV). NRV is defined as the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. Under existing standards, inventory is measured at lower of cost or market, which requires the consideration of replacement cost, NRV and NRV less an amount that approximates a normal profit margin. This ASU eliminates the requirement to determine and consider replacement cost or NRV less a normal profit margin for inventory measurement. The new standard is effective prospectively for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the effect that ASU 2015-11 will have on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"). ASU 2014-09 provides a single model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The new standard also requires expanded disclosures regarding the qualitative and quantitative information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted for fiscal years beginning after December 15, 2016. The standard permits the use of either a full retrospective or a modified retrospective approach. The Company is evaluating the method by which it will adopt ASU 2014-09 and the impact it will have on its consolidated financial statements and related disclosures.
CSS INDUSTRIES, INC. AND SUBSIDIARIES