Market Overview

CSS Industries Reports Fiscal 2019 First Quarter Results

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Company reaffirms outlook for fiscal 2019 net sales and adjusted
EBITDA; revises net income guidance due to goodwill impairment and
inventory write-down costs

First Quarter Summary

  • Net sales of $64.1 million increased 33 percent over the prior fiscal
    year quarter, reflecting the contribution from the Simplicity
    acquisition
  • Net loss of $18.5 million included $7.3 million of acquisition and
    integration-related costs and $1.4 million impairment of goodwill
  • Adjusted EBITDA was ($6.7) million compared to ($3.3) million in the
    prior year quarter
  • Cash used for operations was $15.4 million, compared to $15.3 million
    in the prior year quarter

CSS Industries, Inc. (NYSE:CSS), a leading consumer products company
serving the seasonal, gift and craft markets, today announced results
for the quarter ended June 30, 2018, representing the first quarter of
fiscal 2019.

Net sales in the first quarter of fiscal 2019 were $64.1 million
compared to $48.3 million in the first quarter of fiscal 2018, driven by
the November 2017 acquisition of the Simplicity Creative Group business
("Simplicity"), which contributed net sales of $19.5 million in the
current year quarter. Excluding Simplicity, net sales in the first
quarter of fiscal 2019 were $44.6 million.

Gross profit was $11.6 million in the quarter compared to $11.8 million
in the prior year quarter and gross margin was 18.2 percent compared to
24.4 percent in the prior year quarter. Adjusted gross profit was $17.1
million for the quarter compared to $15.0 million in the prior year
quarter. Adjusted gross margin was 26.7 percent in the quarter compared
to 31.0 percent in the prior year quarter. The decline in adjusted gross
margin percent was due to the mix impact of volume declines due to the
loss of high-margin programs in the craft and gift categories, as well
as manufacturing variances carried in from the prior year as a result of
lower production volume and focused inventory reductions, partially
offset by the acquisition of Simplicity.

Selling, general & administrative ("SG&A") expenses were $28.9 million
in the quarter compared to $20.7 million in the prior year quarter. The
increase was attributable to the addition of Simplicity expenses and
$1.4 million of incremental integration and other costs.

The Company recorded a pre-tax charge of $1.4 million for the impairment
of goodwill in the first quarter of fiscal 2019. The impairment charge
relates to the June 1, 2018 acquisition by a Company affiliate of the
assets and business of Fitlosophy, Inc., a provider of innovative
products that inspire people to develop healthy habits by focusing on
effective goal-setting through journaling. Because of the continued
discrepancy between the Company's stockholders' equity balance and its
market capitalization, goodwill from the foregoing acquisition was
deemed impaired and expensed accordingly.

Operating loss for the quarter was $18.7 million compared to $8.9
million in the prior year quarter. Adjusted operating loss was $10.0
million compared to $5.4 million in the prior year quarter. Net loss was
$18.5 million in the quarter compared to $7.1 million in the prior year
quarter. Adjusted net loss was $11.9 million compared to $4.8 million in
the prior year quarter. The diluted net loss per share was $2.03
compared to $0.78 in the prior year quarter, and the adjusted diluted
net loss per share was $1.31 compared to $0.53 in the prior year
quarter. Adjusted EBITDA was ($6.7) million for the current quarter
compared to ($3.3) million in the prior fiscal 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 business, identify adjacent product categories with a focus on
brands, build an omni-channel business model, improve ROIC and build a
collaborative One CSS culture. First quarter highlights related to these
objectives included:

  • The Company has successfully exited, as planned, the transition
    services agreement associated with the Simplicity acquisition.
  • In aligning with our strategic pillars, the Company initiated a review
    of certain product lines to identify underperforming products, with
    the goal of reducing costs and improving working capital to enhance
    our long-term returns. As a result, in July the Company committed to a
    plan to exit its back-to-school sports licensing product line and also
    restructure its specialty gift product line, while revising its "go to
    market" strategy. This initiative will drive an approximate 75 percent
    reduction in SKUs within this area, allowing the Company to further
    rationalize its facilities footprint moving ahead. In conjunction with
    this change, the Company expects to incur inventory write-down costs
    between $1,000,000 and $1,500,000. These costs will be recorded during
    our second quarter of fiscal 2019.
  • The Company experienced positive results from the implementation of
    its new omni-channel growth strategy. As a result of the new strategy,
    sales attributable to a major on-line retailer grew at a double-digit
    rate in the first quarter.
  • The Company announced its decision to consolidate its Simplicity and
    McCall operations in the United Kingdom. The consolidation is expected
    to be complete by the second quarter of fiscal 2019, improving the
    effectiveness of the combined brands while also delivering lower
    costs. The Company expects to incur approximately $0.3 million of exit
    costs associated with this consolidation, which will be recorded
    during our second quarter.

"Our first quarter is always a slow quarter for us and we expected these
difficult year-over-year comparisons in part because of known program
losses with a major customer and the timing of customer resets and
replenishment orders," said President and Chief Executive Officer
Christopher J. Munyan. "Our adjusted gross margins, as expected, were
impacted by inefficiencies from lower production volumes in earlier
periods, as well as the mix impact of lower sales volumes. We are making
good progress with our strategic initiatives focused on improving
profitability, executing on acquisition synergies and growing our
eCommerce business."

The following is a summary of net sales by product category (dollars in
thousands):

  Quarter Ended June 30,
2018   2017   Change
Seasonal $ 4,799   $ 4,642   3.4 %
Gift 24,040 25,139 (4.4 )%
Craft 35,288     18,543     90.3 %
Total $ 64,127     $ 48,324     32.7 %

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, Easter and back-to-school. 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 3.4 percent in the first quarter of fiscal
2019 compared to the first quarter of fiscal 2018, driven primarily by
the timing of ribbon & bow sales.

Gift

The Company defines the gift product category as products primarily
designed to celebrate certain life events or special occasions such as
weddings, birthdays, anniversaries, graduations or the birth of a child,
as well as stickers, memory books and stationery. These products are
primarily sold into mass and specialty retailers, floral and packaging
wholesalers and distributors. Products in this category are generally
ordered on a replenishment basis throughout the year.

Gift net sales decreased 4.4 percent in the quarter compared to the
prior fiscal year quarter, primarily due to lower sales of social
stationery, infant goods and packaging & wholesale products, partially
offset by higher sales of everyday ribbons & bows, bags and wrap. The
lower sales of social stationery were due to timing of replenishment
shipments. Lower infant sales were due a program loss with a major
retailer and the lower packaging & wholesale products sales reflect
declining demand. The higher sales of everyday ribbons, bows, bags and
wrap resulted from share growth with a major retailer.

Craft

The craft product category reflects products used for craft activities
including ribbons, trims, buttons, sewing patterns, knitting needles,
needle arts and kids crafts. These products are sold to mass market and
specialty retailers on a replenishment basis.

Craft net sales increased 90.3 percent in the quarter compared to the
prior fiscal year quarter, driven by the contribution of the Simplicity
acquisition. Excluding sales attributable to the Simplicity business,
net sales decreased 15.1 percent in the quarter, primarily due to
continued inventory destocking at a major retailer as well as a shift in
the timing of a button program reset.

Income Tax Items

The Company's effective tax rate for the quarter was 1.8 percent
compared to 18.5 percent for the prior fiscal year quarter. In the
current fiscal year quarter, the Company's recognition of a tax benefit
was limited to the amount it expects to recognize for the full fiscal
year. That limitation, combined with a lower U.S. federal corporate tax
rate following U.S. tax reform, were the primary drivers of the decrease
in the effective tax rate.

Balance Sheet and Cash Flow

The Company ended the quarter with $33.1 million of cash and cash
equivalents compared to $49.7 million at the end of the prior fiscal
year quarter. The lower balance was primarily due to the Company's use
of cash to fund the acquisition of Simplicity. Inventory increased to
$117.9 million from $115.3 million at the end of the prior fiscal year
quarter, reflecting the addition of Simplicity inventory, partially
offset by the Company's efforts to reduce inventory. Accounts receivable
increased to $51.9 million from $42.8 million at the end of the prior
fiscal year quarter, primarily due to the Simplicity acquisition.
Accounts payable increased to $25.8 million compared to $14.1 million at
the end of the prior fiscal year quarter, resulting from the Simplicity
acquisition as well as the Company's efforts to extend vendor payment
terms. The Company ended the quarter with $40.4 million in total debt
resulting from borrowings associated with the acquisition of Simplicity.

Cash used for operating activities was $15.4 million for the quarter
compared to $15.3 million in the prior fiscal year quarter. Cash from
operating activities included $1.7 million of after-tax cash acquisition
and integration-related cash costs compared to $0.2 million in the prior
fiscal year period. Cash used for investing activities included the
acquisition of Fitlosophy for $2.5 million and the final payment related
to the Simplicity acquisition for $2.5 million. Capital expenditures
were $3.2 million, compared to $0.9 million in the prior fiscal year
quarter, primarily due to integration-related information technology
investments. Free cash flow was a use of $18.6 million compared to a use
of $16.2 million in the prior fiscal year quarter. The Company returned
$1.8 million to shareholders through cash dividends during the quarter,
consistent with the prior fiscal year quarter.

Outlook

"We are reaffirming our net sales and adjusted EBITDA guidance for
fiscal 2019," said Mr. Munyan. "We continue to expect solid growth in
sales and adjusted EBITDA in fiscal 2019 and strong free cash flow. We
also continue to explore opportunities to reposition our Company through
targeted acquisitions in categories where we can grow while working to
stabilize our base business and capitalize on synergies from recent
acquisitions. Lastly, we continue to monitor the potential for tariffs
on our imported products coming from China. At this point, we do not
consider there to be a material impact on our business this fiscal year."

The Company expects to generate net sales of $398 million to $412
million in its fiscal year ending March 31, 2019, resulting in year over
year growth of 10 percent to 14 percent. The driver of 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 26 percent,
primarily comprised of the new U.S. corporate tax rate, adjusted for the
projected mix between our domestic and foreign income and the impact of
a discrete item related to equity grants. The Company continues to
evaluate the impact of the recent tax reform legislation, and will
adjust its tax rate as appropriate as additional guidance is released in
this area.

Net loss outlook is revised and expected to be in the range of $5
million to $7.5 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 $2 million to $4 million is driven primarily by costs associated
with the goodwill impairment, inventory write-down costs and higher
inventory step-up costs as a result of the Fitlosophy acquisition.

The Company reaffirms its adjusted EBITDA guidance for fiscal 2019 to be
in the range of $26 million to $29 million compared to $24.3 million in
fiscal 2018. The expected growth in adjusted EBITDA primarily reflects
the full year contribution of Simplicity and integration savings related
to Simplicity, partially offset by a decline in the Company's base
business.

The Company will hold a conference call for investors on August 2, 2018
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 9270067.
  • By webcast: http://www.cssindustries.com/investor-relations.
    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. In the seasonal category, we focus on gift
packaging items such as ribbon, bows, greeting cards, wrapping paper,
bags, boxes, tags and gift card holders, in addition to specific
holiday-themed decorations, accessories, and activities, such as Easter
egg dyes and novelties and Valentine's Day classroom exchange cards. For
the gift category, our core products include items designed to celebrate
certain life events or special occasions, such as weddings, birthdays,
anniversaries, graduations, or the birth of a child, as well as
stickers, memory books and stationery. Our core products within the
craft category include ribbons, trims, buttons, sewing patterns,
knitting needles, needle arts and kids crafts. 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 reducing costs and
improving working capital and enhancing returns by exiting a product
line, restructuring the specialty gift product line and revising the
Company's "go to market" strategy; expected SKU reductions, facilities
footprint rationalization and the timing and amount of future costs for
an inventory write-down; expected future lower costs and improved brand
effectiveness from the consolidation of certain United Kingdom
operations and the expected timing and amount of exit costs associated
with such consolidation; strategic initiatives to improve profitability,
execute on acquisition synergies and grow the Company's eCommerce
business; future strong free cash flow; the Company's expected adjusted
tax rate for fiscal 2019; the amount of net sales, net loss and adjusted
EBITDA expected to be generated by the Company in fiscal 2019; and the
expected future impact on the Company of potential new tariffs on
products from China. 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, inherent
uncertainties associated with assumptions used to forecast fiscal 2019
net sales, net income, adjusted EBITDA, free cash flow and adjusted tax
rate; execution risks that may impact the Company's ability to achieve
the levels of net sales, net income, adjusted EBITDA and free cash flow
currently forecasted for fiscal 2019, including the risk that the
Company's planned integration and cost reduction activities may not be
successfully implemented in fiscal 2019; risks associated with the
Simplicity acquisition, including the risk that the Company may not
realize the strategic benefits that are currently expected and the risk
that expected synergies will not be realized in the amounts currently
expected, or at all, and that any such synergies may not be realized
within the timeframe currently expected; risks associated with the plan
to exit a product line and restructure the specialty gift product line;
risks associated with consolidating certain operations in the United
Kingdom; risks associated with the base business, including the risk
that currently forecasted base business sales may not be achieved; risks
associated with restructuring and integration activities, including the
risk that expected synergies, cost savings and improved working capital
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 potential future 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 months ended June
30, 2018 and 2017, condensed consolidated balance sheets as of June 30,
2018, March 31, 2018 and June 30, 2017, and condensed consolidated
statements of cash flows for the three months ended June 30, 2018 and
2017 follow:

 

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

(in thousands, except per share data)

 
Three Months Ended June 30,
2018   2017
 
Net sales $ 64,127 $ 48,324
Cost of sales 52,480   36,512  
Gross profit 11,647 11,812
Selling, general and administrative expenses 28,929 20,696
Impairment of goodwill 1,390    
Operating income (loss) (18,672 ) (8,884 )
Interest expense (income), net 262 (54 )
Other expense (income), net (117 ) (159 )
Income (loss) before income taxes (18,817 ) (8,671 )
Income tax expense (benefit) (341 ) (1,607 )
Net income (loss) $ (18,476 ) $ (7,064 )
 
Weighted average basic and diluted shares outstanding 9,120   9,089  
 
Basic and diluted net income (loss) per common share $ (2.03 ) $ (0.78 )
     

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(in thousands)

 
June 30,
2018
March 31,
2018
June 30,
2017

Assets

Current assets:
Cash and cash equivalents $ 33,103 $ 58,560 $ 49,695
Accounts receivable, net 51,908 63,083 42,753
Inventories 117,944 102,436 115,348
Prepaid expenses and other current assets 12,851   11,962   14,099
Total current assets 215,806   236,041   221,895
Property, plant and equipment, net 53,133 52,126 35,474
Deferred income taxes 10,560 10,439
Goodwill 19,916
Intangible assets, net 57,794 57,029 43,038
Other assets 9,828   9,553   8,172
Total assets $ 347,121   $ 365,188   $ 328,495
 

Liabilities and Stockholders' Equity

Current liabilities:
Current portion of long-term debt $ 229 $ 228 $ 223
Accounts payable 25,751 20,581 14,076
Accrued payroll and other compensation 9,994 11,496 7,107
Accrued customer programs 13,937 12,284 4,934
Accrued other liabilities 11,387   14,751   7,638
Total current liabilities 61,298   59,340   33,978
Long-term debt, net of current portion 40,170 40,228 399
Deferred income taxes 1,500 1,639 4,413
Other long-term obligations 10,745 10,286 3,809
Stockholders' equity 233,408   253,695   285,896
Total liabilities and stockholders' equity $ 347,121   $ 365,188   $ 328,495
 

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

(in thousands)

 
Three Months Ended June 30,
2018   2017
Cash flows from operating activities:
Net income (loss) $ (18,476 ) $ (7,064 )
Adjustments to reconcile net income (loss) to net cash used for
operating activities:
Depreciation and amortization 3,297 2,126
Amortization of inventory step-up 5,043 3,185
Accretion of asset retirement obligation 31
Accretion of investment discount (69 )
Impairment of goodwill 1,390
Provision for accounts receivable allowances 733 526
Deferred tax (benefit) provision (218 ) (56 )
Share-based compensation expense 471 283
Loss on sale or disposal of assets 2
Changes in assets and liabilities, net of effects of purchase of a
business
(7,677 ) (14,255 )
Total adjustments 3,072   (8,260 )
Net cash used for operating activities (15,404 ) (15,324 )
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 )
Purchase of property, plant and equipment (3,159 ) (901 )
Net cash (used for) provided by investing activities (8,159 ) 19,099  
Cash flows from financing activities:
Payments on long-term debt (57 ) (54 )
Dividends paid (1,824 ) (1,819 )
Proceeds from exercise of stock options, net of tax withholdings   37  
Net cash used for financing activities (1,881 ) (1,836 )
Effect of exchange rate changes on cash (13 ) 63  
Net (decrease) increase in cash and cash equivalents (25,457 ) 2,002
Cash and cash equivalents at beginning of period 58,560   47,693  
Cash and cash equivalents at end of period $ 33,103   $ 49,695  
 

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 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 value step-ups
  • 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 Ended June 30,
2018   2017
Diluted income (loss) per share $ (2.03 ) $ (0.78 )
Acquisition costs, integration and other 0.24 0.05
Goodwill impairment 0.15
Inventory step-up amortization 0.55 0.35
Legal settlements (0.01 )
Tax impact (1) (0.23 ) (0.14 )
Adjusted diluted income (loss) per share (2) $ (1.31 ) $ (0.53 )

(1) Tax impact determined using a combined federal and state statutory
rate of 24% and 36%, respectively, for the three months ended June 30,
2018 and June 30, 2017.

(2) Adjusted diluted income (loss) per share may not foot due to
rounding.

 

CSS Industries, Inc.

Reconciliation of Certain Non-GAAP Measures

(Unaudited)

(in thousands)

 
Three Months Ended June 30,
2018   2017
Net income (loss) $ (18,476 ) $ (7,064 )
Interest expense (income) 262 (54 )
Other expense (income) (117 ) (159 )
Income tax expense (benefit) (341 ) (1,607 )
Depreciation and amortization 3,297 2,126
Acquisition costs, integration and other 2,211 429
Goodwill impairment 1,390
Inventory step-up amortization 5,043 3,185
Legal settlements   (110 )
Adjusted EBITDA $ (6,731 ) $ (3,254 )
 
 
Gross profit $ 11,647 $ 11,812
Gross margin % 18.2 % 24.4 %
Acquisition costs, integration and other 430
Inventory step-up amortization 5,043   3,185  
Adjusted gross profit $ 17,120   $ 14,997  
Adjusted gross margin % 26.7 % 31.0 %
 
 
Operating income (loss) $ (18,672 ) $ (8,884 )
Operating income (loss) % (29.1 )% (18.4 )%
Inventory step-up amortization 5,043 3,185
Goodwill impairment 1,390
Acquisition costs, integration and other 2,211 429
Legal settlements   (110 )
Adjusted operating income (loss) $ (10,028 ) $ (5,380 )
Adjusted operating income (loss) % (15.6 )% (11.1 )%
 
 
Net income (loss) $ (18,476 ) $ (7,064 )
Inventory step-up amortization 5,043 3,185
Goodwill impairment 1,390
Acquisition costs, integration and other 2,211 429
Legal settlements (110 )
Tax impact (1) (2,075 ) (1,262 )
Adjusted net income (loss) $ (11,907 ) $ (4,822 )

(1) Tax impact determined using a combined federal and state statutory
rate of 24% and 36%, respectively, for the three months ended June 30,
2018 and June 30, 2017.

CSS Industries, Inc.
Reconciliation of Certain Non-GAAP Measures
(Unaudited)
(in
thousands)

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 Ended June 30,
2018   2017
Net cash used for operating activities $ (15,404 ) $ (15,324 )
Purchase of property, plant and equipment (3,159 ) (901 )
Free cash flow $ (18,563 ) $ (16,225 )
CSS Industries, Inc.
Adjusted EBITDA Guidance
Non-GAAP Reconciliation
Unaudited
(in millions)
  FY 2019
Net (loss) income ($7.5) - ($5.0)
Income tax (benefit) expense (1.1) - (0.6)
Interest expense 1.6
Other income (0.5 )
Depreciation and amortization 14.0
Goodwill impairment 1.4
Inventory write-down 1.2
Inventory step-up amortization 10.7
Acquisition integration and other 6.2  
Adjusted EBITDA $26.0 - $29.0

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