Company revises net sales, net income and
adjusted EBITDA outlook for fiscal 2019
Third Quarter Summary
- Net sales of $133.2 million increased
2.0 percent over the prior fiscal year quarter, reflecting the
contribution from the Simplicity acquisition, partially offset by
lower base business sales.
- Net loss of $6.8 million included $9.8
million of income tax expense in the quarter primarily related to a
non-cash valuation allowance.
- Adjusted EBITDA of $14.7 million
compared to $19.5 million in the prior year quarter, driven
primarily by the mix of lower base business volume.
CSS Industries, Inc. (NYSE: CSS), a leading consumer products
company serving the craft, gift and seasonal markets, today
announced results for the quarter ended December 31, 2018,
representing the third quarter of the Company’s fiscal 2019.
Net sales in the third quarter of fiscal 2019 were $133.2
million, compared to $130.6 million in the third quarter of fiscal
2018, driven by the November 2017 acquisition of the Simplicity
Creative Group business (“Simplicity”), which contributed net sales
of $22.0 million in the current year quarter, compared to $14.9
million in the prior fiscal year quarter. Excluding Simplicity, net
sales in the third quarter of fiscal 2019 were $111.3 million,
compared to $115.7 million in the prior year quarter. The decline
in base business sales was driven primarily by lower replenishment
sales of craft and gift products, partially offset by higher
seasonal product sales.
Gross profit was $33.5 million in the quarter, compared to $37.5
million in the prior year quarter, and gross margin was 25.1
percent compared to 28.7 percent in the prior year quarter. The
decline in gross profit was driven by the mix impact of lower base
business volume, as well as higher manufacturing costs, freight,
duties and customer fines related to the reshoring of plastic
decorative ribbons from China into our U.S. manufacturing
facilities. Adjusted gross profit was $37.6 million for the quarter
compared to $42.7 million in the prior year quarter. Adjusted gross
margin was 28.1 percent in the quarter compared to 32.7 percent in
the prior year quarter. The decline in adjusted gross margin
percent for the quarter was driven primarily by the mix of lower
volume in our base business replenishment craft and gift products,
higher manufacturing costs primarily related to medical expenses
and higher freight and distribution expenses not offset by selling
price.
Selling, general and administrative (“SG&A”) expenses were
$28.7 million in the quarter, compared to $29.1 million in the
prior year quarter. The decline was primarily attributable to cost
synergies related to the Simplicity acquisition, partially offset
by higher integration spending, mainly related to systems and
higher expenses due to three months of Simplicity expenses in the
current year quarter, versus two months in the prior year quarter,
as a result of the timing of the acquisition in the prior year.
Excluding Simplicity, SG&A expenses were essentially flat.
Restructuring expenses were $1.1 million in the quarter,
primarily attributable to severance expenses resulting from the
Company’s ongoing review of its operating structure, as well as
higher severance costs associated with our Australia consolidation.
The Company had no restructuring expenses in the prior year
quarter.
Operating income for the quarter was $3.7 million compared to
operating income in the prior year quarter of $8.3 million.
Adjusted operating income was $11.2 million compared to $16.7
million in the prior year quarter. Net loss was $6.8 million in the
quarter compared to net income of $6.0 million in the prior year
quarter. Adjusted net income was $6.5 million, compared to adjusted
net income of $11.3 million in the prior year quarter. The diluted
net loss per share was $0.77 per share compared to diluted net
income per share of $0.65 in the prior year quarter. Adjusted
EBITDA was $14.7 million for the current quarter compared to $19.5
million in the prior year quarter.
Strategic Initiatives
Update
The Company’s overall strategy is to grow profitable sales and
improve return on invested capital (ROIC) through five strategic
pillars: defend the base, identify adjacent product categories with
a focus on brands, build an omni-channel business model, improve
ROIC and build a collaborative “One CSS” culture. Third quarter
highlights related to these objectives included:
Debt & Liquidity
- During the quarter, the Company
selected JPMorgan Chase Bank, N.A. (“Chase”) as the administrative
agent to lead a new $125 million syndicated asset-based revolving
credit facility (the “New ABL Facility”). Asset appraisals and
diligence proceedings commenced during the quarter. The Company
recently executed a proposal letter with Chase and is in the
process of marketing the New ABL Facility with other lenders. We
anticipate closing the New ABL Facility during our fiscal fourth
quarter. While working to finalize this New ABL facility, we
continue to aggressively pay down debt. Our outstanding loan
balance at January 31, 2019 was $43.2 million and our cash on hand
was $10.9 million.
Cost Savings Initiatives
- The Company completed the first phase
of its ongoing management project focused on refinements to its
core operating structure. The outcome of the first phase resulted
in action plans implemented in January 2019, which are expected to
drive approximately $1 million of savings to our fiscal fourth
quarter and are expected to generate approximately $4 million in
savings on an annualized basis. Additional efforts are being
undertaken related to this initiative to increase ongoing
annualized savings by approximately $1 million to $2 million as we
conclude our fourth quarter and enter fiscal 2020. The total phase
one savings from this initiative is expected to be in the range of
$4 million to $6 million annually.
- The Company has engaged a second phase
of its management project to further evaluate alignment around our
operating structure and product life cycle management. The goal of
this phase is to simplify processes across the organization, and to
define more clearly the drivers of profitability within our base
business. This project will occur during our fiscal fourth quarter
and upon its completion, it is expected to generate annualized run
rate savings of $8 million to $12 million, as well as approximately
$8 million to $10 million of working capital improvements. It is
expected that the action steps resulting from this project will be
implemented in a phased approach starting in fiscal 2020. Taken
together, the phase one and two cost savings initiatives have the
potential to generate $12 million to $18 million in annualized
savings, as well as to generate $8 million to $10 million of
working capital improvements.
Building Omni-Channel
Capabilities
- To offset declining sales to our brick
and mortar customers, we are aggressively pursuing and investing in
strategies which will expand our direct-to-consumer presence
through our omni-channel initiatives. Key initiatives set to launch
over the next twelve months include:
- A new direct to consumer gift
subscription service called, “Confetti Collection™”, which will
incorporate a broad assortment of CSS products and further
illustrates to consumers the vast array of products designed and
offered by the Company.
- An expected summer 2019 launch of a new
mobile sewing app called, “Sew the Look™”, which is aimed at
driving higher online sales of our vast portfolio of sewing
patterns.
- Expanded investment in downloadable
sewing patterns, allowing consumers to shop our digital catalog
online and provide them with the ability to easily print sewing
patterns in the comfort and convenience of their own home.
- Expanded investment in digitizing our
substantial McCall and Simplicity archives of artwork, fashion and
pattern art, which will drive additional commercialization for new,
exciting product lines, such as our Simplicity Vintage™ line.
“Our business did not perform as expected in our third fiscal
quarter and we are disappointed with our results,” commented
Christopher J. Munyan, President and Chief Executive Officer.
“Though seasonal sales were in-line with expectations, our
replenishment craft and gift businesses did not achieve
expectations. The impact of those lower replenishment volumes along
with higher manufacturing costs, resulted in an overall decline in
adjusted EBITDA. Despite that, we continue to see integration
synergies from our previously announced initiatives related to the
combination of the Simplicity and McCall businesses, and we are
encouraged that our ongoing management projects will drive enhanced
profitability as we move ahead.”
The following is a summary of net sales by product category (not
adjusted) (dollars in thousands):
Quarter Ended December 31, 2018 2017 Change
Craft $ 39,764 $ 36,428 9.2 % Gift 29,543 33,997 (13.1 )% Seasonal
63,924 60,217 6.2 % $ 133,231 $ 130,642
2.0 %
Craft
Our core products within the craft category include sewing
patterns, ribbons, trims, buttons, and kids crafts. These products
are sold to mass market and specialty retailers on a replenishment
basis.
Craft net sales increased 9.2 percent in the quarter compared to
the prior year fiscal quarter, driven by the contribution of the
Simplicity acquisition. Excluding sales from the Simplicity
business, net sales decreased $3.7 million or -17.2 percent in the
quarter, driven by lower button sales as the result of a customer
not repeating a program reset, which occurred in the prior year
quarter, as well as lower replenishment sales of ribbon as compared
to the prior year quarter at a major mass retailer and also a
leading craft chain.
Gift
The Company defines the gift product category as products which
are designed to celebrate certain life events or special occasions,
with a focus on packaging items, such as ribbons, bows, bags and
wrap, as well as stationery, baby gift items, and party and
entertaining products. Products in this category are generally
ordered on a replenishment basis throughout the year.
Gift net sales decreased 13.1 percent versus the prior year
quarter, due to lower replenishment sales of social giftable
products, journals, and, as a result of a program loss with a major
retailer, infant goods. The lower sales of these goods were driven
mainly by sales declines in the mass and specialty channels.
Seasonal
The Company defines the seasonal product category as products
sold to mass-market retailers for holidays and seasonal events,
including Christmas, Valentine’s Day and Easter. Sales and
production forecasts for these products are known well in advance
of shipment. The seasonal nature of this business has historically
resulted in lower sales levels in the first and fourth quarters,
and higher sales levels in the second and third quarters.
Seasonal net sales increased 6.2 percent versus the prior year
quarter, driven primarily by the later timing of Christmas ribbon
and bow shipments and higher sales of school products, driven by
new placement at a major retailer, partially offset by lower sales
of Valentine’s Day products. The later timing of Christmas ribbon
and bow sales relates directly to the re-shoring of production of
certain ribbon and bow products as a result of our currently
pending trade remedy petitions relating to plastic decorative
ribbon imported from China. The lower sales of Valentine’s Day
products are driven by retailer buydowns.
Balance Sheet and Cash
Flow
The Company ended the quarter with $18.9 million of cash and
cash equivalents compared to $30.3 million at the end of the prior
year quarter. The lower balance was primarily due to higher
spending related to acquisition integration efforts and lower
levels of income within our base business. Inventory decreased to
$94.9 million from $110.8 million at the end of the prior year
quarter, primarily related to lower fair value step-up adjustments
related to McCall and Simplicity inventories. Excluding the effect
of the lower stepped-up inventory, inventory levels are essentially
flat. Accounts receivable was in-line to prior year, decreasing
$1.0 million to $119.6 million from $120.6 million in the prior
year quarter. Assets held for sale increased $2.5 million versus
the prior year quarter and represents a facility located in Havant,
England. This asset was placed for sale as a result of the
previously announced Simplicity and McCall UK office consolidation.
Accounts payable increased to $36.7 million compared to $27.6
million in the prior year quarter, driven by improved working
capital management. The Company ended the quarter with $59.0
million in total debt, of which $40.0 million relates to borrowings
associated with the acquisition of Simplicity, $0.3 million related
to McCall capital leases and $18.7 million relates to borrowings
associated with funding our seasonal working capital build.
Cash used for operating activities was $34.5 million for the
nine months compared to $10.4 million in the first nine months of
the prior fiscal year. Cash from operating activities included $6.4
million of pre-tax cash acquisition and integration related costs
compared to $4.0 million in the prior year. Cash used for investing
activities included $2.5 million for our June 2018 acquisition of
the assets of Fitlosophy, Inc. and $2.5 million relating to the
final payment for our Simplicity acquisition. Capital expenditures
for the nine months were $7.8 million, compared to $4.0 million in
the first nine months of the prior fiscal year. The increased
investment is driven by capital spending related to system
enhancements to further streamline and improve our information
technology environment.
Outlook
The Company is adjusting its outlook for fiscal 2019 full year
net sales, net income and adjusted EBITDA to reflect ongoing
erosion within its replenishment craft and gift businesses.
The Company now expects net sales for its fiscal 2019 to be in
the range of $390 million to $400 million, resulting in year over
year growth of 8 percent to 11 percent. The driver of the growth
will be the full year impact of the Simplicity acquisition,
partially offset by a decline in the Company’s base business.
For the full year, we expect an adjusted tax rate of
approximately -40.0 percent, reflective of the effect of our pretax
net loss and the valuation allowance recorded in the third
quarter.
Net loss outlook is revised and is now expected to be in the
range of $29.0 million to $31.4 million compared to a net loss of
$36.5 million in fiscal 2018. The increase from our previously
provided guidance of a net loss of $10.2 million to $12.5 million
is driven mainly by the mix of lower sales volume, higher
manufacturing costs, additional restructuring expenses and the
non-cash tax valuation allowance.
Adjusted EBITDA for fiscal 2019 is now expected to be in the
range of $21 million to $23 million compared to $24.3 million in
fiscal 2018. Our previous fiscal 2019 adjusted EBITDA guidance was
in the range of $26 million to $29 million. The expected decline in
adjusted EBITDA reflects continued erosion in base business sales
and the resulting impact to earnings, partially offset by the full
year contribution of Simplicity sales, acquisition integration
synergies and operating expense reductions within the base
business.
“Our core businesses continue to be adversely affected by the
changing dynamic of retail, especially within brick and mortar
retail stores,” commented Mr. Munyan. “To offset this, we will
continue with additional phases of our management project to
identify operational efficiencies and maximize savings potentials
across our core business, while finalizing the integration efforts
around the Simplicity acquisition. These, coupled with continued
investment within our omni-channel initiatives, will help to stem
the likely continued erosion of our base brick and mortar sales.
The actions identified will drive enhanced profitability in our
fiscal fourth quarter, while also laying the groundwork for success
in fiscal 2020. In the near term, we will focus on cost cutting
efforts, working capital improvements and aggressive debt paydown,
which will strengthen our balance sheet, drive enhanced
profitability and improve free cash flow looking ahead.”
The Company will hold a conference call for investors on
February 8, 2019 at 8:30 a.m. ET. The call can be accessed in the
following ways:
- By telephone: For both “listen-only”
participants and those participants who wish to take part in the
question-and-answer portion of the call, the dial-in number in the
United States is (844) 458-8735, and for international callers, the
dial-in number is (647) 253-8639. The conference ID for all callers
is 2723959.
- By webcast: https://investors.cssindustries.com. The webcast
will be archived for those unable to participate live.
About CSS Industries,
Inc.
CSS is a creative consumer products company, focused on the
craft, gift and seasonal categories. For these design-driven
categories, we engage in the creative development, manufacture,
procurement, distribution and sale of our products with an
omni-channel approach focused primarily on mass market retailers.
Our core products within the craft category include sewing
patterns, ribbons, trims, buttons, and kids crafts. For the gift
category, our core products are designed to celebrate certain life
events or special occasions, with a focus on packaging items, such
as ribbons, bows, bags and wrap, as well as stationery, baby gift
items, and party and entertaining products. For the seasonal
category, we focus on holiday gift packaging items including
ribbons, bows, bags, tags and gift card holders, in addition to
specific holiday-themed decorations and activities, including
Easter egg dyes and Valentine’s Day classroom exchange cards. In
keeping with our corporate mission, all of our products are
designed to help make life memorable.
Forward-looking
Statements
This press release includes “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of
1995, including, among others, statements related to the Company’s:
overall strategy and its five strategic pillars; expectations
regarding the New ABL Facility; expectation to continue paying down
debt; expected future savings and enhanced profitability from the
recently completed and planned future management projects; future
investment in omni-channel and other initiatives and the benefits
expected to be derived therefrom, including an expanded
direct-to-consumer presence and a stemming of expected continued
erosion of base sales to brick and mortar customers; expected
future continuation of integration synergies from the combination
of the Simplicity and McCall businesses; the amount of net sales,
net loss and adjusted EBITDA expected to be generated in fiscal
2019; expected adjusted tax rate for fiscal 2019; expected enhanced
profitability in the Company’s fiscal fourth quarter; expectations
for future cost cutting, working capital improvements and debt
repayment; and expectations regarding future balance sheet
strength, future enhanced profitability, and future improved free
cash flow.
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 overall strategy
and its five strategic pillars, including the risk that the Company
may not successfully execute on its strategy and the risk that
execution of the strategy will not yield favorable results; risks
associated with the New ABL Facility, including the risk that the
Company may not close on such facility within the currently
expected timeframe, or at all; risks associated with management
projects, including the risk that anticipated future savings may
not be realized in the amounts currently expected, or at all; risks
associated with omni-channel and other initiatives, including the
risk that expected the benefits from such initiatives may not be
realized; risks associated with restructuring and integration
initiatives, including the risk that expected future savings and/or
synergies will not be realized in the amounts currently expected,
or at all; inherent uncertainties associated with forecasting
future net sales, net loss, adjusted EBITDA, and adjusted tax rate;
execution risks that may impact the Company’s ability to achieve
the levels of net sales, net loss, adjusted EBITDA currently
forecasted for fiscal 2019; risks associated with the Company’s
previously announced plan to exit a product line and restructure
the specialty gift product line; risks associated with the recent
consolidation of certain operations in the United Kingdom and
Australia; risks associated with the base business, including the
risk that currently forecasted base business sales may not be
achieved; 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); information
technology risks, such as cyber attacks and data breaches;
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 difficulties identifying and evaluating
suitable acquisition opportunities, acquisition integration costs
and the risk that the Company may not be able to integrate and
derive the expected benefits and synergies from 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 noncompliance with
governmental regulations, including regulations pertaining to the
environment, Federal and state employment laws, and import and
export controls and customs laws; uncertainties associated with
projecting the impact on the Company of new tariffs on products
imported from China; and other factors described more fully in the
Company’s annual report on Form 10-K 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, 2018 and 2017, condensed consolidated
balance sheets as of December 31, 2018, March 31, 2018 and December
31, 2017, and condensed consolidated statements of cash flows for
the nine months ended December 31, 2018 and 2017 follow:
CSS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF OPERATIONS Unaudited (in thousands, except per share
data)
Three Months EndedDecember 31,
Nine Months EndedDecember 31,
2018 2017 2018 2017 Net sales $ 133,231 $
130,642 $ 310,259 $ 280,363 Cost of sales 99,768 93,183
240,468 204,417 Gross profit 33,463 37,459
69,791 75,946 Selling, general and administrative expenses 28,718
29,138 85,995 73,116 Restructuring expenses 1,050 — 3,177 —
Impairment of goodwill — — 1,390 —
Operating income (loss) 3,695 8,321 (20,771 ) 2,830 Interest
expense, net 784 344 1,480 337 Other expense (income), net (154 )
99 (437 ) (229 ) Income (loss) before income taxes 3,065
7,878 (21,814 ) 2,722 Income tax expense 9,835 1,926
8,342 821 Net income (loss) $ (6,770 ) $ 5,952
$ (30,156 ) $ 1,901 Weighted average shares
outstanding: Basic 8,845 9,116 9,007 9,105
Diluted 8,845 9,157 9,007 9,142
Net income (loss) per common share: Basic $ (0.77 ) $ 0.65
$ (3.35 ) $ 0.21 Diluted $ (0.77 ) $ 0.65 $
(3.35 ) $ 0.21 CSS INDUSTRIES, INC. AND
SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited (in
thousands) December 31,2018 March 31,2018
December 31,2017
Assets
Current assets: Cash and cash equivalents $ 18,917 $ 58,560 $
30,297 Accounts receivable, net 119,600 63,083 120,613 Inventories
94,902 102,436 110,762 Asset held for sale 2,514 — — Prepaid
expenses and other current assets 12,445 11,962
11,508 Total current assets 248,378 236,041 273,180
Property, plant and equipment, net 49,407 52,126 51,468 Deferred
income taxes — 10,439 — Goodwill — — 26,070 Intangible assets, net
55,200 57,029 63,350 Other assets 10,288 9,553 8,644
Total assets $ 363,273 $ 365,188 $ 422,712
Liabilities and
Stockholders' Equity
Current liabilities: Short-term borrowings $ 58,695 $ — $ 48,431
Current portion of long-term debt 305 228 313 Accounts payable
36,658 20,581 27,618 Accrued payroll and other compensation 8,513
11,496 8,425 Accrued customer programs 16,501 12,284 13,517 Accrued
income taxes — — 805 Accrued other liabilities 19,404 14,751
18,683 Total current liabilities 140,076 59,340
117,792 Long-term debt, net of current portion 16 40,228 285
Deferred income taxes 1,189 1,639 884 Other long-term obligations
7,800 10,286 11,019 Stockholders' equity 214,192 253,695
292,732 Total liabilities and stockholders' equity $ 363,273
$ 365,188 $ 422,712 CSS INDUSTRIES,
INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS Unaudited (in thousands) Nine Months Ended December
31, 2018 2017 Cash flows from operating activities: Net
income (loss) $ (30,156 ) $ 1,901 Adjustments to reconcile net
income (loss) to net cash used for operating activities:
Depreciation and amortization 10,264 7,125 Amortization of
inventory step-up 9,830 12,237 Accretion of asset retirement
obligation 95 20 Accretion of contingent earn-out consideration 44
— Accretion of investment discount — (69 ) Impairment of plant,
property and equipment 1,398 — Impairment of goodwill 1,390 —
Provision for accounts receivable allowances 4,386 2,977 Deferred
tax (benefit) provision 10,050 (3,555 ) Share-based compensation
expense 1,694 1,386 Loss (gain) on sale or disposal of assets 4 (14
) Changes in assets and liabilities, net of effects of purchase of
a business (43,512 ) (32,413 ) Net cash used for operating
activities (34,513 ) (10,405 ) Cash flows from investing
activities: Maturities of investment securities — 20,000 Final
payment of purchase price for a business previously acquired (2,500
) — Purchase of a business (2,500 ) (65,228 ) Purchase of property,
plant and equipment (7,757 ) (3,964 ) Purchase of company owned
life insurance policy (750 ) (750 ) Proceeds from sale of fixed
assets — 14 Net cash used for investing activities
(13,507 ) (49,928 ) Cash flows from financing activities:
Borrowings on notes payable 33,695 78,781 Payments on notes payable
(15,000 ) (30,350 ) Payments on long-term debt (136 ) (200 )
Dividends paid (5,401 ) (5,469 ) Purchase of treasury stock (4,372
) — Proceeds from exercise of stock options, net of tax
withholdings — 201 Payment of financing transaction costs (425 ) —
Net cash provided by financing activities 8,361
42,963 Effect of exchange rate changes on cash 16 (26
) Net decrease in cash and cash equivalents (39,643 ) (17,396 )
Cash and cash equivalents at beginning of period 58,560
47,693 Cash and cash equivalents at end of period $ 18,917
$ 30,297
CSS Industries, Inc.Reconciliation of Certain
Non-GAAP Measures(Unaudited)(in thousands, except per share
amounts)
In addition to the results reported in accordance with
accounting principles generally accepted in the United States
(“U.S. GAAP”) in this release, the Company has provided certain
non-GAAP financial information, specifically adjusted diluted
income (loss) per share, adjusted EBITDA, adjusted net sales,
adjusted gross profit, adjusted gross margin %, adjusted operating
income (loss), adjusted operating income (loss) % and adjusted net
income (loss). These measures are non-GAAP metrics that exclude
various items that are detailed in the accompanying financial
tables reconciling U.S. GAAP results to non-GAAP results that are
included in this release. We also present free cash flow, which we
define as net cash provided by operating activities minus purchases
of property, plant and equipment as shown in the consolidated
statement of cash flows. Management believes that the presentation
of these non-GAAP financial measures provides useful information to
investors because the information may allow investors to better
evaluate ongoing business performance and certain components of the
Company’s results. In addition, the Company believes that the
presentation of these financial measures enhances an investor’s
ability to make period to period comparisons of the Company’s
operating results. The presentation of our non-GAAP measures is not
intended to be considered in isolation or as a substitute for, or
superior to, the financial information prepared and presented in
accordance with U.S. GAAP. The Company has reconciled the non-GAAP
information included in this release to the nearest U.S. GAAP
measures, as required under the rules of the Securities and
Exchange Commission regarding the use of non-GAAP financial
measures.
The following provides a listing of approved adjustments related
to non-GAAP measures, as defined by the CSS Board of Directors:
- Acquisition inventory step-up
amortization
- Adjustments related to contingent
payments associated with an acquisition or disposition
- Asset write-downs or write-ups
- Costs and expenses related to
Board-approved actions
- Gain or loss associated with an
acquisition or divestiture of a business or assets
- Material restructuring costs, plant or
facility closures or consolidations including headcount
reductions
- Post-closing acquisition and
disposition costs and expenses (within 2 years of transaction),
such as systems integration projects, consulting, accounting,
severance or stay bonuses, lease amendments or terminations and
other transaction related non-recurring costs
- Third party acquisition and disposition
transaction costs and expenses, such as investment banker, legal,
accounting and due diligence fees and expenses
- Unusual or extraordinary legal
expenses
Three Months EndedDecember 31,
Nine Months EndedDecember 31,
2018 2017 2018 2017 Diluted income (loss) per share $
(0.77 ) $ 0.65 $ (3.35 ) $ 0.21 Inventory step-up amortization 0.11
0.57 1.09 1.34 Inventory and licensing write-down related to
product line exit (0.02 ) — 0.18 — Goodwill impairment — — 0.15 —
Restructuring expenses 0.12 — 0.35 — Acquisition costs, integration
and other 0.23 0.31 0.71 0.44 Legal settlements — — — (0.01 )
Impact of trade remedy petitions and reshoring certain
manufacturing from China (1) 0.41 0.03 0.45 0.03 Tax impact on
adjustments (2) (0.20 ) (0.33 ) (0.70 ) (0.65 ) Tax impact -
discrete item (3) 0.86 — 0.84 —
Adjusted diluted income (loss) per share $ 0.74 $ 1.23
$ (0.28 ) $ 1.36 CSS Industries,
Inc. Reconciliation of Certain Non-GAAP Measures (Unaudited) (in
thousands)
Three Months EndedDecember 31,
Nine Months EndedDecember 31,
2018 2017 2018 2017 Net income (loss) $ (6,770 ) $
5,952 $ (30,156 ) $ 1,901 Interest expense, net 784 344 1,480 337
Other expense (income), net (154 ) 99 (437 ) (229 ) Income tax
expense 9,835 1,926 8,342 821 Depreciation and amortization 3,543
2,879 10,264 7,125 Inventory step-up amortization 941 5,209 9,830
12,237 Inventory and licensing write-down related to product line
exit (160 ) — 1,612 — Goodwill impairment — — 1,390 — Restructuring
expenses 1,050 — 3,177 — Acquisition costs, integration and other
2,023 2,880 6,413 4,000 Legal settlements — — — (110 ) Impact of
trade remedy petitions and reshoring certain manufacturing from
China (1) 3,646 251 3,987 305 Adjusted
EBITDA $ 14,738 $ 19,540 $ 15,902 $ 26,387
Net sales $ 133,231 $ 130,642 $ 310,259 $ 280,363
Impact of trade remedy petitions and reshoring certain
manufacturing from China (1) 639 — 639 —
Adjusted net sales $ 133,870 $ 130,642 $
310,898 $ 280,363 Gross profit $ 33,463 $
37,459 $ 69,791 $ 75,946 Gross margin % 25.1 % 28.7 % 22.5 % 27.1 %
Inventory step-up amortization 941 5,209 9,830 12,237 Inventory and
licensing write-down related to product line exit (160 ) — 1,612 —
Acquisition costs, integration and other 124 — 1,107 — Impact of
trade remedy petitions and reshoring certain manufacturing from
China (1) 3,183 — 3,183 — Adjusted
gross profit $ 37,551 $ 42,668 $ 85,523 $
88,183 Adjusted gross margin % 28.1 % 32.7 % 27.5 % 31.5 %
Operating income (loss) $ 3,695 $ 8,321 $ (20,771 ) $ 2,830
Operating income (loss) % 2.8 % 6.4 % (6.7 )% 1.0 % Inventory
step-up amortization 941 5,209 9,830 12,237 Inventory and licensing
write-down related to product line exit (160 ) — 1,612 — Goodwill
impairment — — 1,390 — Restructuring expenses 1,050 — 3,177 —
Acquisition costs, integration and other 2,023 2,880 6,413 4,000
Legal settlements — — — (110 ) Impact of trade remedy petitions and
reshoring certain manufacturing from China (1) 3,646 251
3,987 305 Adjusted operating income (loss) $
11,195 $ 16,661 $ 5,638 $ 19,262
Adjusted operating income (loss) % 8.4 % 12.8 % 1.8 % 6.9 %
CSS Industries, Inc. Reconciliation of Certain Non-GAAP
Measures (Unaudited) (in thousands)
Three Months EndedDecember 31,
Nine Months EndedDecember 31,
2018 2017 2018 2017 Net income (loss) $ (6,770 ) $
5,952 $ (30,156 ) $ 1,901 Inventory step-up amortization 941 5,209
9,830 12,237 Inventory and licensing write-down related to product
line exit (160 ) — 1,612 — Goodwill impairment — — 1,390 —
Restructuring expenses 1,050 — 3,177 — Acquisition costs,
integration and other 2,023 2,880 6,413 4,000 Legal settlements — —
— (110 ) Impact of trade remedy petitions and reshoring certain
manufacturing from China (1) 3,646 251 3,987 305 Tax impact on
adjustments (2) (1,800 ) (3,003 ) (6,338 ) (5,916 ) Tax impact -
discrete item (3) 7,573 — 7,573 —
Adjusted net income (loss) $ 6,503 $ 11,289 $ (2,512
) $ 12,417
(1) The Company's results include non-recurring costs related to
the filing of trade remedy petitions with the U.S. International
Trade Commission and the U.S. Department of Commerce and the
strategic decision to reshore plastic decorative ribbon
manufacturing to the U.S. from China in fiscal 2019. These costs
include customer fines and penalties, which are reflected as a
reduction to our net sales; increased freight costs, direct and
indirect labor variances, and duties which are reflected as cost of
goods sold; and professional fees for legal and economist support
in connection with our petitions, which are reflected as selling,
general and administrative expenses.
(2) Tax impact determined using combined federal and state
statutory rates of 24% and 36% for the three- and nine month
periods ended December 31, 2018 and three- and nine month periods
ended December 31, 2017, respectively.
(3) Tax impact of recognizing a full valuation allowance for
U.S. net deferred tax assets in the three month period ended
December 31, 2018.
The following table sets forth a reconciliation of free cash
flow, a non-GAAP financial measure, to net cash used for operating
activities, which we believe to be the most directly comparable
GAAP financial measure.
Three Months EndedDecember 31,
Nine Months EndedDecember 31,
2018 2017 2018 2017 Net cash provided by (used for)
operating activities $ 11,308 $ 23,757 $ (34,513 ) $ (10,405 )
Purchase of property, plant and equipment (1,866 ) (1,943 ) (7,757
) (3,964 ) Free cash flow $ 9,442 $ 21,814 $ (42,270
) $ (14,369 ) CSS Industries, Inc. Adjusted EBITDA
Guidance Non-GAAP Reconciliation (Unaudited) (in millions)
FY 2019 Net (loss) income ($31.4) - ($29.0) Income tax expense 8.6
- 8.2 Interest expense 1.8 Other income (0.6) Depreciation and
amortization 14.0 Inventory step-up amortization 10.7 Inventory and
licensing write-down related to product line exit 1.6 Goodwill
impairment 1.4 Acquisition costs, integration and other 10.9 Impact
of trade remedy petitions and reshoring certain manufacturing from
China (1) 4.0 Adjusted EBITDA $21.0 - $23.0
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version on businesswire.com: https://www.businesswire.com/news/home/20190207005839/en/
KEITH PFEIL - CHIEF FINANCIAL
OFFICER610-729-3947Keith.Pfeil@cssindustries.com
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