NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
(1)
|
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, 2018
. 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
2019
” refers to the fiscal year ending
March 31, 2019
.
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 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 United States. 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.
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, thereby causing significant fluctuations in the quarterly results of operations of the Company.
Foreign Currency Translation and Transactions
The Company's foreign subsidiaries generally use the local currency as the functional currency. The Company translates all assets and liabilities at period end exchange rates and all income and expense accounts at average rates during the period. Translation adjustments are recorded in accumulated other comprehensive income (loss) in stockholders’ equity. Gains and losses on foreign currency transactions (denominated in currencies other than the local currency) are not material and are included in other expense (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 and resolution of litigation and other proceedings. Actual results could differ from these estimates.
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 net realizable value. The remaining portion of the inventory is valued at the lower of last-in, first-out (LIFO) cost or net realizable value. Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
March 31, 2018
|
|
September 30, 2017
|
Raw material
|
$
|
14,212
|
|
|
$
|
11,602
|
|
|
$
|
11,437
|
|
Work-in-process
|
15,616
|
|
|
17,809
|
|
|
15,438
|
|
Finished goods
|
86,522
|
|
|
73,025
|
|
|
80,021
|
|
|
$
|
116,350
|
|
|
$
|
102,436
|
|
|
$
|
106,896
|
|
In connection with the acquisitions of substantially all of the net assets and business of The McCall Pattern Company ("McCall") on December 13, 2016, Simplicity Creative Group ("Simplicity") on November 3, 2017 and Fitlosophy, Inc. ("Fitlosophy") on June 1, 2018, the Company recorded a step-up to fair value of the inventory acquired of $
21,773,000
, $
10,214,000
, and $
312,000
, respectively, at the date of such acquisition. This was a result of the inventory acquired being marked up to an estimated net selling price in purchase accounting and is recognized through cost of sales as the inventory is sold. The amount of step-up to fair value of the acquired inventory remaining as of
September 30, 2018
,
March 31, 2018
and
September 30, 2017
was $
2,076,000
, $
10,683,000
and $
11,295,000
, respectively. The acquired McCall inventory was sold through the second quarter of fiscal 2019, and the Company expects the acquired Simplicity inventory to be sold through the first quarter of fiscal 2020, and the acquired Fitlosophy inventory to be sold through the third quarter of fiscal 2019.
Asset Held for Sale
Asset held for sale of $
2,391,000
at September 30, 2018 represents a distribution facility which the Company is in the process of selling. As further discussed in Note 3, the Company recorded an impairment of this facility in the second quarter of fiscal 2019 to reduce the asset to fair value less costs to sell the facility. The Company expects to sell this facility within the next 12 months. The Company ceased depreciating this facility at the time it was classified as held for sale. There were
no
such assets classified as held for sale as of
March 31, 2018
or
September 30, 2017
.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and include the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
March 31, 2018
|
|
September 30, 2017
|
Land
|
$
|
6,372
|
|
|
$
|
7,100
|
|
|
$
|
5,918
|
|
Buildings, leasehold interests and improvements
|
42,345
|
|
|
45,164
|
|
|
41,014
|
|
Machinery, equipment and other
|
108,595
|
|
|
104,497
|
|
|
89,677
|
|
|
157,312
|
|
|
156,761
|
|
|
136,609
|
|
Less - Accumulated depreciation and amortization
|
(107,655
|
)
|
|
(104,635
|
)
|
|
(101,156
|
)
|
Net property, plant and equipment
|
$
|
49,657
|
|
|
$
|
52,126
|
|
|
$
|
35,453
|
|
Depreciation expense was
$2,124,000
and
$1,280,000
for the quarters ended
September 30, 2018
and
2017
, respectively, and was
$4,154,000
and
$2,565,000
for the
six
months ended
September 30, 2018
and
2017
, 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.
The Company uses a dual approach to determine the fair value of its reporting unit, 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 the reporting unit. The Company assessed its segment and reporting unit structure and determined the Company has a single reporting unit. 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,
an impairment loss would be reported. During the
six
months ended
September 30, 2018
, the Company impaired goodwill of
$1,390,000
associated with the acquisition of Fitlosophy acquired on June 1, 2018. See Note 2 for further discussion.
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. The Company recorded an impairment of property, plant and equipment of $
1,570,000
in the second quarter of fiscal 2019 related to a restructuring plan to combine its operations in the United Kingdom. There were no other such events or circumstances during the
six
months ended
September 30, 2018
. See Note 3 for further discussion of this restructuring and Note 6 for further information on other intangible assets.
Revenue Recognition
Revenue from the sale of the Company's products is recognized when control of the promised goods is transferred to customers, in the amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Revenue is recognized using the five-step model identified in Accounting Standards Codification 606, "Revenue from Contracts with Customers." These steps are: (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue as the performance obligations are satisfied.
The Company's contracts with customers include one performance obligation under the revenue recognition standard. For most product sales, the performance obligation is the delivery of a specified product, and is satisfied at the point in time when control of the product has transferred to the customer, which takes place when title and risk of loss transfer in accordance with the applicable shipping terms, typically either at shipping point or at delivery to a specified destination. The Company has certain limited products, primarily sewing patterns, that are on consignment at mass market retailers. The Company recognizes revenue on these products as they are sold to end consumers as recorded at point-of-sale terminals, which is the point in time when control of the product is transferred to the customer.
Revenue is recognized based on the consideration specified in a contract with the customer, and is measured as the amount of consideration to which the Company expects to be entitled to in exchange for transferring the goods. When applicable, the transaction price includes estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. Variable consideration consists of revenues that are subject to reductions to the transaction price for customer programs, which may include special pricing arrangements for specific customers, volume incentives and other promotions. The Company has significant historical experience with customer programs and estimates the expected consideration considering historical trends. The Company adjusts its estimate of variable consideration at least quarterly or when facts and circumstances used in the estimation process may change. In limited cases, the Company may provide the right to return product to certain customers. The Company also records estimated reductions to revenue, based primarily on known claims, for customer returns and chargebacks that may arise as a result of shipping errors, product damaged in transit or for other reasons that become known subsequent to recognizing the revenue. These provisions are recorded in the period that the related sale is recognized and are reflected as a reduction from gross sales. The related reserves are included in accrued customer programs in the consolidated balance sheets. If the amount of actual customer returns and chargebacks were to increase or decrease from the estimated amount, revisions to the estimated reserve would be recorded.
The Company treats shipping and handling activities that occur after the customer has obtained control of a good as an activity to fulfill the promise to transfer the product. Costs related to shipping of product are recorded as incurred and classified in cost of sales in the consolidated statements of operations and comprehensive income (loss).
Payment terms with customers vary by customer, but generally range from
30
to
90 days
. Certain seasonal revenues have extended payment terms in accordance with general industry practice. Since the term between invoicing and expected payment is less than one year, the Company does not adjust the transaction price for the effects of a financing component.
Sales commissions are earned and are recognized as expense as the related revenue is recognized at a point in time. These costs are recorded in selling, general and administrative expenses. Taxes collected from customers are excluded from revenue and credited directly to obligations to the appropriate governmental agencies.
The Company operates as a single reporting segment, engaged in the creative development, manufacture, procurement, distribution, and sale of seasonal, gift, and craft products, primarily to mass market retailers in the United States. The following represents our net sales disaggregated by product category (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Seasonal
|
$
|
39,815
|
|
|
$
|
49,534
|
|
|
$
|
44,614
|
|
|
$
|
54,170
|
|
Gift
|
30,614
|
|
|
31,679
|
|
|
54,654
|
|
|
56,824
|
|
Craft
|
42,472
|
|
|
20,184
|
|
|
77,760
|
|
|
38,727
|
|
Total
|
$
|
112,901
|
|
|
$
|
101,397
|
|
|
$
|
177,028
|
|
|
$
|
149,721
|
|
Net Income (Loss) Per Common Share
Due to the Company's net losses in the
three- and six
months ended
September 30, 2018
and
six
months ended
September 30, 2017
, potentially dilutive securities of
525,000
shares,
525,000
shares and
553,000
shares, 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. The Company has excluded
553,000
shares, consisting of outstanding stock options and unearned restricted stock units, in computing diluted net income per common share for the
three
months ended
September 30, 2017
because their effects were antidilutive.
On June 1, 2018, a subsidiary of the Company completed the acquisition of substantially all of the business and net assets of Fitlosophy for
$2,500,000
in cash and transaction costs of approximately $
25,000
, which are included in selling, general and administrative expenses in the
six
months ended
September 30, 2018
. In addition to the
$2,500,000
paid at closing, the Company may pay up to an additional
$10,500,000
of contingent earn-out consideration, in cash, if net sales of certain products meet or exceed five different thresholds during the period from the acquisition date through March 31, 2023. The contingent consideration payments will be paid, if at all, generally within
20
days after the end of each rolling twelve-month measurement period (quarterly through March 31, 2023). No such payments of contingent consideration have been earned or paid as of
September 30, 2018
. The estimated fair value of the contingent earn-out consideration is
$1,600,000
, which is included in accrued other liabilities in the consolidated balance sheet as of
September 30, 2018
. The estimated fair value of the contingent earn-out consideration was determined using a Monte Carlo simulation discounted to a present value. The following table summarizes the estimated purchase price at the date of acquisition (in thousands):
|
|
|
|
|
Cash
|
$
|
2,500
|
|
Contingent earn-out consideration
|
1,600
|
|
Estimated purchase price
|
$
|
4,100
|
|
Fitlosophy is devoted to creating, marketing, and distributing innovative products that inspire people to develop healthy habits by focusing on effective goal-setting through journaling. Products include a complete line of fitness and wellness planning products all sold under the fitlosophy
TM
, live life fit
TM
and fitbook
TM
brands. The acquisition was accounted for using the acquisition method and the excess of cost over the fair market value of the net tangible and identifiable intangible assets acquired of $
1,390,000
was recorded as goodwill. This goodwill was deemed impaired as a result of the continued discrepancy between the Company's stockholders' equity balance and its market capitalization, and therefore, was expensed during the first quarter of fiscal 2019.
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):
|
|
|
|
|
Accounts receivable
|
$
|
389
|
|
Inventory
|
452
|
|
Other assets
|
5
|
|
Total current assets
|
846
|
|
Intangible assets
|
2,032
|
|
Goodwill
|
1,390
|
|
Total assets acquired
|
4,268
|
|
Current liabilities
|
(168
|
)
|
Net assets acquired
|
$
|
4,100
|
|
Our consolidated statements of operations include the operating results of Fitlosophy from the acquisition date through
September 30, 2018
. Pro forma results of operations for this acquisition have not been presented as the financial impact to our consolidated results of operations is not material.
|
|
(3)
|
BUSINESS RESTRUCTURING
|
In the first quarter of fiscal 2019, the Company announced a restructuring plan to combine its operations in the United Kingdom and its operations in Australia. This restructuring was undertaken in order to improve profitability and efficiency through the elimination of 1) redundant back office functions; 2) certain staffing positions and 3) excess distribution and warehouse capacity, and was substantially completed in the second quarter of fiscal 2019. As part of the restructuring plan, the Company recorded a restructuring reserve of
$557,000
, including severance related to
31
employees. Also, in connection with the restructuring plan, the Company recorded an impairment of property, plant and equipment at one of the affected facilities in the United Kingdom of
$1,570,000
, which is included in restructuring expenses, and made payments of
$54,000
during the quarter ended September 30, 2018. As of September 30, 2018, the remaining liability of
$503,000
was classified in accrued other liabilities in the accompanying consolidated balance sheet and will be paid in fiscal 2019.
Selected information relating to the aforementioned restructuring follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Costs
|
|
Facility Exit Costs
|
|
Other Costs
|
|
Total
|
Initial accrual
|
$
|
297
|
|
|
$
|
127
|
|
|
$
|
133
|
|
|
$
|
557
|
|
Cash paid
|
—
|
|
|
(13
|
)
|
|
(41
|
)
|
|
(54
|
)
|
Restructuring reserve as of September 30, 2018
|
$
|
297
|
|
|
$
|
114
|
|
|
$
|
92
|
|
|
$
|
503
|
|
|
|
(4)
|
SHARE-BASED COMPENSATION
|
Under the terms of the Company’s 2013 Equity Compensation Plan (“
2013 Plan
”), the Company 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. Under the 2013 Plan, a committee of the Company's Board of Directors (the "Board") approves grants to officers and other employees, and the Board approves grants to 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 Company, but in no event greater than
ten years
from the date of grant, and at the date of grant the Company has discretion to determine the date or dates on which granted options become exercisable. Service-based stock options outstanding as of
September 30, 2018
become exercisable at the rate of
25%
per year commencing
one year
after the date of grant. Market-based stock options outstanding as of
September 30, 2018
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. Outstanding service-based restricted stock units ("RSUs") granted to employees vest at either: 1) the rate of
50%
of the shares underlying the grant at each of the third and fourth anniversaries of the date on which the award was granted or 2) the rate of
25%
of the shares underlying the grant on each of the first four anniversaries of the date on which the award was granted. Service-based RSUs granted to directors and outstanding as of
September 30, 2018
will not vest until July 29, 2019. Market-based and performance-based RSUs outstanding at
September 30, 2018
will vest only if certain market or performance conditions and service requirements have been met, and the date(s) on which they vest will depend on the period in which such market or performance conditions and service requirements are met, if at all, except that vesting and
redemption are accelerated upon a change of control. At
September 30, 2018
, there were
601,455
shares available for grant under the 2013 Plan.
The fair value of each stock option granted under the above plan during the first
six
months of fiscal 2018 was estimated on the date of grant using a Black-Scholes option pricing model with assumptions of a risk-free interest rate of
2.21%
, volatility of
34.45%
, dividend yield of
2.90%
and expected life of
6.25 years
. There were no stock options granted during the first
six
months of fiscal 2019.
The fair value of each performance-based and service-based RSU granted to employees 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. The fair value of each service-based RSU granted to directors, for which dividend equivalents are paid upon vesting of the underlying awards, was estimated on the day of grant based on the closing price of the Company's common stock. There were no market-based RSUs granted during the
six
months ended
September 30, 2018
and
2017
.
During the
six
months ended
September 30, 2017
, the Company granted
119,000
stock options with a weighted average fair value of
$7.42
. During the
six
months ended
September 30, 2018
and
2017
, the Company granted
189,013
and
73,680
RSUs, respectively, with a weighted average fair value of
$14.65
and
$25.63
, respectively. As of
September 30, 2018
, there were
414,975
and
304,373
outstanding stock options and RSUs, respectively.
As of
September 30, 2018
, there was
$994,000
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
2.1 years
. As of
September 30, 2018
, there was
$3,402,000
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
2.2 years
.
On August 11, 2015, the Company granted
10,000
RSUs to the Chair of the Company's Board of Directors. The RSUs vested on August 15, 2017 and were converted into a lump sum cash payment of approximately
$266,000
which represented the fair market value of corresponding shares of common stock of the Company. Prior to vesting, the RSUs were classified as liability awards because they were to be paid in cash upon vesting. The RSU award liability was measured at its fair market value at the end of each reporting period.
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
$586,000
and
$541,000
in the quarters ended
September 30, 2018
and
2017
, respectively, and
$1,057,000
and
$860,000
in the
six
months ended
September 30, 2018
and
2017
, respectively.
|
|
(5)
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
Foreign Currency Forward Contracts
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 expense (income), net as offsets of gains and losses resulting from the underlying hedged transactions. A realized loss of
$10,000
and $
5,000
was recorded in the three- and six months ended
September 30, 2018
, respectively, and a realized loss of $
13,000
and $
32,000
was recorded in the
three- and six
months ended
September 30, 2017
, respectively. As of
September 30, 2018
and
2017
, the notional amount of open foreign currency forward contracts was
$1,132,000
and
$1,105,000
, respectively. The related unrealized loss was
$13,000
and
$46,000
at
September 30, 2018
and
2017
, respectively. The Company believes it does not have significant counterparty credit risks as of
September 30, 2018
and
2017
.
Interest Rate Swap Agreement
On February 1, 2018, the Company entered into an interest rate swap agreement with a term of
five years
to manage its exposure to interest rate movements by effectively converting a portion of its anticipated working capital debt from variable to fixed rates. The notional amount of the interest rate swap contract subject to fixed rates was
$40,000,000
and fixed interest rate payments were at a weighted average rate of
2.575%
during the
three- and six
months ended
September 30, 2018
. Interest rate differentials paid under this agreement were recognized as adjustments to interest expense and were $
55,000
and $
133,000
in the
three- and six
months ended
September 30, 2018
, respectively. There were
no
interest rate swap arrangements in place during the
six
months ended
September 30, 2017
.
The following table shows the fair value of the foreign currency forward contracts and interest rate swap agreement designated as hedging instruments and included in the Company’s consolidated balance sheet (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Instruments
|
|
Balance Sheet Location
|
|
September 30, 2018
|
|
September 30, 2017
|
Foreign currency forward contracts
|
Accrued other liabilities
|
|
$
|
13
|
|
|
$
|
46
|
|
Interest rate swap agreement
|
Other assets
|
|
516
|
|
|
—
|
|
The change in the carrying amount of goodwill during the
six
months ended
September 30, 2018
is as follows (in thousands):
|
|
|
|
|
Balance as of March 31, 2018
|
$
|
—
|
|
Acquisition of Fitlosophy
|
1,390
|
|
Impairment charge
|
(1,390
|
)
|
Balance as of September 30, 2018
|
$
|
—
|
|
The gross carrying amount and accumulated amortization of other intangible assets is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
March 31, 2018
|
|
September 30, 2017
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Tradenames and trademarks
|
$
|
24,353
|
|
|
$
|
—
|
|
|
$
|
24,353
|
|
|
$
|
—
|
|
|
$
|
19,953
|
|
|
$
|
—
|
|
Customer relationships
|
48,657
|
|
|
21,968
|
|
|
48,657
|
|
|
19,976
|
|
|
39,757
|
|
|
18,050
|
|
Favorable lease contracts
|
3,882
|
|
|
657
|
|
|
3,882
|
|
|
299
|
|
|
—
|
|
|
—
|
|
Trademarks
|
2,435
|
|
|
499
|
|
|
403
|
|
|
393
|
|
|
403
|
|
|
378
|
|
Patents
|
1,164
|
|
|
999
|
|
|
1,164
|
|
|
941
|
|
|
1,164
|
|
|
883
|
|
Non-compete
|
530
|
|
|
404
|
|
|
530
|
|
|
351
|
|
|
530
|
|
|
298
|
|
|
$
|
81,021
|
|
|
$
|
24,527
|
|
|
$
|
78,989
|
|
|
$
|
21,960
|
|
|
$
|
61,807
|
|
|
$
|
19,609
|
|
With the acquisition of substantially all of the business and net assets of Fitlosophy on June 1, 2018, the Company recorded intangible assets of $
2,032,000
relating to trademarks which are being amortized over the estimated useful life of
seven years
.
Amortization expense related to intangible assets was
$1,300,000
and
$840,000
for the quarters ended
September 30, 2018
and
2017
, respectively, and was
$2,567,000
and
$1,681,000
for the
six
months ended
September 30, 2018
and
2017
, respectively. Based on the current composition of intangibles, amortization expense for the remainder of fiscal
2019
and each of the succeeding four years is projected to be as follows (in thousands):
|
|
|
|
|
Remainder of fiscal 2019
|
$
|
2,587
|
|
Fiscal 2020
|
5,041
|
|
Fiscal 2021
|
4,554
|
|
Fiscal 2022
|
4,458
|
|
Fiscal 2023
|
3,741
|
|
There was
$61,185,000
and
$40,000,000
outstanding under the Company's revolving credit facility as of
September 30, 2018
and
March 31, 2018
, respectively, and there were
no
amounts outstanding as of
September 30, 2017
. The Company has classified
$40,000,000
of its outstanding debt as long-term because of its intent and ability to maintain the debt outstanding for greater than one year.
On November 2, 2018, the Company and the lenders under the revolving credit facility entered into a waiver and amendment (the “Amendment”) of the underlying credit agreement in which the lenders waived certain events of default
thereunder, and the parties amended certain provisions thereof. The events of default were based on: (A) the Company’s non-compliance as of September 30, 2018 with financial covenants requiring the Company to maintain: (i) a minimum tangible net worth of at least
$170,000,000
, and (ii) an interest coverage ratio of not less than
3.50
to 1.00; and (B) the making by the Company of certain payments otherwise permitted under the credit agreement, but which were not permitted due to the existence of the foregoing events of default.
The Amendment modifies the revolving credit agreement by (i) reducing the maximum credit available to the Company under the facility at any one time (the “Committed Amount”) to
$100,000,000
until January 31, 2019, and to
$50,000,000
from February 1, 2019 until facility expiration; (ii) providing the lenders with a consent right on all acquisitions; (iii) effectively restricting any further repurchases, redemptions or retirements by the Company of the Company’s capital stock; (iv) providing for a borrowing base (the “Borrowing Base”) based on specified percentage amounts of the Company’s domestic accounts receivable and inventory; (v) limiting the aggregate amount that can be used by the Company at any one time for borrowings and letters of credit to the lesser of the Committed Amount and the Borrowing Base; (vi) increasing the marginal per annum interest rate applicable to borrowings from
0.95%
to (a)
2.00%
from November 1, 2018 until December 31, 2018, (b)
3.00%
from January 1, 2019 until January 31, 2019, and (c)
3.50%
from January 31, 2019 until expiration; and (vii) reducing the minimum required interest coverage ratio to
1.05
to 1.00 for the fiscal quarter ending December 31, 2018.
Under the Amendment, the lenders will receive a collateral security interest in all of the Company’s domestic property and assets, including all accounts receivable, inventory, equipment, general intangible assets, and commercial personal property. Further, under the Amendment, the Company has agreed to grant the lenders liens against all its domestic real estate, if requested by the lenders at any time after February 1, 2019.
The Company currently expects to be in compliance with the financial covenants included in the amended credit facility in all future periods.
The Company leases certain equipment under capital leases which is classified in the accompanying balance sheets as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
March 31, 2018
|
|
September 30, 2017
|
Current portion of long-term debt
|
$
|
73
|
|
|
$
|
74
|
|
|
$
|
76
|
|
Long-term debt, net of current portion
|
84
|
|
|
120
|
|
|
156
|
|
|
$
|
157
|
|
|
$
|
194
|
|
|
$
|
232
|
|
The Company also finances certain equipment which is classified in the accompanying balance sheets as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
March 31, 2018
|
|
September 30, 2017
|
Current portion of long-term debt
|
$
|
158
|
|
|
$
|
154
|
|
|
$
|
150
|
|
Long-term debt, net of current portion
|
27
|
|
|
108
|
|
|
186
|
|
|
$
|
185
|
|
|
$
|
262
|
|
|
$
|
336
|
|
|
|
(8)
|
TREASURY STOCK TRANSACTIONS
|
Under a stock repurchase program that had been previously authorized by the Company's Board of Directors, the Company repurchased
249,908
shares of the Company's common stock for approximately $
3,628,000
during the
six
months ended
September 30, 2018
. As payment for stock repurchases occurs upon settlement two business days after the trade transaction,
$235,000
of this amount was paid by the Company subsequent to September 30, 2018. There were
no
such repurchases of the Company's common stock by the Company during the
six
months ended
September 30, 2017
. As of
September 30, 2018
, the Company had
53,258
shares remaining available for repurchase under the Board's authorization.
|
|
(9)
|
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.
|
|
(10)
|
FAIR VALUE MEASUREMENTS
|
Recurring Fair Value Measurements
The Company uses certain derivative financial instruments as part of its risk management strategy to reduce interest rate risk and foreign currency risk. The Company recorded all derivatives on the consolidated balance sheets at fair value based on quotes obtained from financial institutions as of
September 30, 2018
and
March 31, 2018
.
The Company maintains a nonqualified Deferred Compensation Plan ("Deferred Comp Plan") for qualified employees. The Deferred Comp Plan provides eligible key employees with the opportunity to elect to defer up to
50%
of their eligible compensation under the Deferred Comp Plan. The Company may make matching or discretionary contributions, at the discretion of the Board. All compensation deferred under the Deferred Comp Plan is held by the Company. The Company maintains separate accounts for each participant to reflect deferred contribution amounts and the related gains or losses on such deferred amounts. A participant’s account is notionally invested in one or more investment funds and the value of the account is determined with respect to such investment allocations. The related liability is recorded as deferred compensation and included in other long-term obligations in the consolidated balance sheets as of
September 30, 2018
and
March 31, 2018
.
In connection with the above Deferred Comp Plan, the Company has invested in company-owned life insurance policies. The Company also 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 consolidated balance sheets and is based on quotes obtained from the insurance company as of
September 30, 2018
and
March 31, 2018
.
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 consolidated balance sheets 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 consolidated balance sheets as of
September 30, 2018
and
March 31, 2018
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 30, 2018 Using
|
|
September 30, 2018
|
|
Quoted Prices In
Active Markets
for Identical
Assets (Level 1)
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
Assets
|
|
|
|
|
|
|
|
Cash surrender value of life insurance policies
|
$
|
2,872
|
|
|
$
|
—
|
|
|
$
|
2,872
|
|
|
$
|
—
|
|
Interest rate swap agreement
|
516
|
|
|
—
|
|
|
516
|
|
|
—
|
|
Total assets
|
$
|
3,388
|
|
|
$
|
—
|
|
|
$
|
3,388
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
Deferred compensation plans
|
$
|
1,016
|
|
|
$
|
1,016
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign currency forward contracts
|
13
|
|
|
—
|
|
|
13
|
|
|
—
|
|
Total liabilities
|
$
|
1,029
|
|
|
$
|
1,016
|
|
|
$
|
13
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2018 Using
|
|
March 31, 2018
|
|
Quoted Prices In
Active Markets
for Identical
Assets (Level 1)
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
Assets
|
|
|
|
|
|
|
|
Marketable securities
|
$
|
359
|
|
|
$
|
359
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash surrender value of life insurance policies
|
2,007
|
|
|
—
|
|
|
2,007
|
|
|
—
|
|
Total assets
|
$
|
2,366
|
|
|
$
|
359
|
|
|
$
|
2,007
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
Interest rate swap agreement
|
$
|
110
|
|
|
$
|
—
|
|
|
$
|
110
|
|
|
$
|
—
|
|
Deferred compensation plans
|
776
|
|
|
776
|
|
|
—
|
|
|
—
|
|
Total liabilities
|
$
|
886
|
|
|
$
|
776
|
|
|
$
|
110
|
|
|
$
|
—
|
|
Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reflected at carrying value in the consolidated balance sheets and such amounts are a reasonable estimate of their fair values due to the short-term nature of these instruments. The outstanding balance of the Company’s short-term borrowings and long-term debt approximated its fair value based on the current rates available to the Company for debt of the same maturity and represents Level 2 financial instruments.
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. As discussed in Note 3, the Company recorded an impairment of property, plant and equipment of
$1,570,000
in the second quarter of fiscal 2019 related to a restructuring plan to combine its operations in the United Kingdom.
As discussed in Note 2, a subsidiary of the Company acquired substantially all of the business and net assets of Fitlosophy on June 1, 2018 and determined that the aggregate preliminary fair value of acquired intangible assets, consisting of tradenames, was $
2,032,000
. The Company estimated the fair value of the aforementioned acquired intangible assets using discounted cash flow techniques which included an estimate of future cash flows discounted to present value with an appropriate risk-adjusted discount rate (Level 3). The Company determined that the aggregate preliminary fair value of the acquired inventory in the Fitlosophy acquisition was $
452,000
, which was estimated as the selling price less costs of disposal (Level 2). The Company estimated the fair value of the Fitlosophy contingent earn-out consideration of $
1,600,000
using a Monte Carlo simulation discounted to a present value (Level 3).
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. The Company also uses quoted market prices in active markets as the basis for measurement of fair value with consideration given to a control premium (Level 1). 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. In the first quarter of fiscal 2019, the Company recorded a non-cash pre-tax impairment charge of $
1,390,000
due to impairment of goodwill associated with the acquisition of Fitlosophy. See Note 2 for further discussion.
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.
The income tax provision for interim periods is comprised of tax on ordinary income (loss) provided at the most recent estimated annual effective tax rate, adjusted for the tax effect of discrete items. Management estimates the annual effective tax rate quarterly based on the forecasted pretax income (loss) results of its U.S. and non-U.S. jurisdictions. Items unrelated to current year ordinary income (loss) are recognized entirely in the period identified as a discrete item of tax. These discrete items generally relate to changes in tax laws, adjustments to the actual liability determined upon filing tax returns, and adjustments to previously recorded reserves for uncertain tax positions.
New tax legislation in the U.S., commonly referred to as the
Tax Cuts and Jobs Act
, was enacted on December 22, 2017 (the "Tax Act"). The Tax Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on previously unremitted foreign earnings, allows for immediate expensing of qualified property, and provides for the taxation of global intangible low-taxed income ("GILTI"), among other provisions.
Accounting Standards Codification 740, "Accounting for Income Taxes" ("ASC 740") requires companies to recognize the effect of tax law changes in the period of enactment. Though certain key aspects of the new law were effective January 1, 2018 and had an immediate accounting effect in fiscal 2018, other significant provisions were not effective or did not begin to result in accounting effects for the Company until April 1, 2018.
Given the significance of the Tax Act, the Securities and Exchange Commission staff issued Staff Accounting Bulletin 118, "Income Tax Accounting Implications of the Tax Cuts and Jobs Act" ("SAB 118"), which allows registrants to record provisional amounts during a one-year "measurement period" similar to that used when accounting for business combinations. During the measurement period, impacts of the Tax Act should be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed. In the current period, the Company did not revise any provisional income tax adjustments previously recorded related to the Tax Act. Any subsequent adjustments to the provisional amounts will be recorded in the related period that the accounting for the effects of the Tax Act is complete, no later than the one-year measurement period provided by SAB 118. Also, the Company is still evaluating the effect of the GILTI provision of the Tax Act, and has not yet elected a policy as to whether it will recognize deferred taxes for basis differences expected to reverse as GILTI or whether it will account for GILTI as a period cost if and when incurred.
In the
six
months ended
September 30, 2018
, the Company recorded a lower income tax benefit primarily due to a provision in ASC 740 that limits, under certain circumstances, the recognition of an interim period tax benefit to the tax benefit expected to be recognized for the full year. The Company expects to continue to experience volatility in its effective tax rate due to this ASC 740 provision, in conjunction with the seasonal nature of its business.
|
|
(12)
|
RECENT ACCOUNTING PRONOUNCEMENTS
|
In August 2018, the FASB issued Accounting Standards Update ("ASU") 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which is designed to improve the effectiveness of disclosures by removing, modifying and adding disclosures related to fair value measurements. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this standard, but it does not expect that it will have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefits Plans" ("ASU 2018-14"), which is designed to improve the effectiveness of disclosures by removing and adding disclosures related to defined benefit pension or other postretirement plans. ASU 2018-14 is required to be applied on a retrospective basis to all periods presented and is effective for the Company in its fiscal year ending March 31, 2021. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard, but it does not expect that it will have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangements That Is a Service Contract," ("ASU 2018-15"). ASU 2018-15 aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the updated guidance requires an entity to determine the stage of a project that the implementation activity relates to and the nature of the associated costs in order to determine whether those costs should be expensed as incurred or capitalized. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of this standard, but it does not expect that it will have a material impact on the Company's consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"). ASU 2018-02 allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Act. The amount of the reclassification is calculated based on the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts at the date of the enactment of the Tax Act related to items that remained in accumulated other comprehensive income (loss) at that time. ASU 2018-02 requires entities to make new disclosures, regardless of whether they elect to reclassify tax effects. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard, but it does not expect that it will have a material impact on the Company's consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, “Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting,” clarifying when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The new guidance is effective for the Company on a prospective basis beginning on April 1, 2018, with early adoption permitted. The Company adopted the guidance effective April 1, 2018 and it did not have an impact on its consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory" ("ASU 2016-16") which amends the accounting for income taxes. ASU 2016-16 requires the recognition of the income tax consequences of an intra-entity asset transfer, other than transfers of inventory, when the transaction occurs. For intra-entity transfers of inventory, the income tax effects will continue to be deferred until the inventory has been sold to a third party. The standard is effective in annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The new guidance is required to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company adopted the guidance effective April 1, 2018 and it did not have an impact 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. In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases,” to clarify how to apply certain aspects of the new standard. In July 2018, the FASB also issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” to give entities another option for transition and to provide lessors with a practical expedient to reduce the cost and complexity of implementing the new standard. The transition option allows entities to not apply the new standard in the comparative periods they present in their financial statements in the year of adoption. ASU 2016-02 and all subsequently issued amendments, collectively "ASC 842," is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The standard also requires certain quantitative and qualitative disclosures.
A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. We expect to adopt the new standard on April 1, 2019 and use the effective date as our date of initial application. The Company expects this standard to have a material impact on its consolidated balance sheets, but does not believe that it will have a material impact on its consolidated net income. The Company has developed a comprehensive project plan for the adoption of ASC 842 that included representatives from across the Company's domestic and international locations. The project plan includes evaluating the Company's lease portfolio, analyzing the standard’s impact on the Company’s various types of lease contracts and identifying the reporting requirements of the new standard. The Company has selected a software solution to aid in the accounting and disclosure requirements under this new standard. Contract review and software configuration are currently underway in preparation for our adoption of the requirements of Topic 842. Additionally, we are in the process of assessing any potential impacts on our internal controls and processes related to both the implementation and ongoing compliance of the new guidance. The Company is also continuing to evaluate transition considerations such as whether to elect practical expedients, use of hindsight, and comparative reporting periods.
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. 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 FASB has subsequently issued additional, clarifying standards to address issues arising from implementation of the new revenue recognition standard. ASU 2014-09 and all subsequently issued amendments, collectively “ASC 606,” is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The standard permits the use of either a full retrospective or a modified retrospective approach.
The Company adopted ASC 606 on April 1, 2018 using the modified retrospective method. The amount and timing of revenue recognition was not impacted by the new standard, and therefore, no cumulative adjustment was recognized in retained earnings upon adoption. Certain liabilities for estimated product returns were inconsequential and have been reclassified to accrued customer programs from a contra-asset within accounts receivable, net, in the accompanying consolidated balance sheet as of
September 30, 2018
. Prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting methods. See Note 1 for further information.
CSS INDUSTRIES, INC. AND SUBSIDIARIES