##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from
 to
 Commission file number 1-2661
 CSS INDUSTRIES, INC.
  Delaware
    
    13-1920657(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)1845 Walnut Street, Philadelphia, PA
    
    19103(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  o þ




---



##### 



CSS INDUSTRIES, INC. AND SUBSIDIARIES
 INDEX
 PAGE NO.PART I  FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Statements of Operations and Comprehensive Loss  Three months ended June 30, 2010 and 2009
    
    
    3Condensed Consolidated Balance Sheets  June 30, 2010, March 31, 2010 and June 30, 2009
    
    
    4Consolidated Statements of Cash Flows  Three months ended June 30, 2010 and 2009
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-12Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13-16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4. Controls and Procedures
    
    
    17PART II  OTHER INFORMATIONItem 6. Exhibits
    
    
    18Signatures
    
    
    19Exhibit 10.2Exhibit 10.3Exhibit 10.4Exhibit 10.5Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




---



##### Table of Contents



CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
   Three Months EndedJune 30,2010
    
    
    2009SALES
    
    $
    53,288
    
    
    $
    53,677COSTS AND EXPENSESCost of sales
    
    
    39,555
    
    
    
    39,065Selling, general and administrative expenses
    
    
    22,393
    
    
    
    21,361Interest expense, net
    
    
    209
    
    
    
    368Other expense (income), net
    
    
    68
    
    
    
    (113
    )62,225
    
    
    
    60,681LOSS BEFORE INCOME TAXES
    
    
    (8,937
    )
    
    
    (7,004
    )INCOME TAX BENEFIT
    
    
    (3,200
    )
    
    
    (2,514
    )NET LOSS
    
    $
    (5,737
    )
    
    $
    (4,490
    )BASIC AND DILUTED NET LOSS PER COMMON SHARE
    
    $
    (.59
    )
    
    $
    (.47
    )WEIGHTED AVERAGE BASIC AND DILUTED SHARES OUTSTANDING
    
    
    9,683
    
    
    
    9,605CASH DIVIDENDS PER SHARE OF COMMON STOCK
    
    $
    .15
    
    
    $
    .15COMPREHENSIVE LOSSNet loss
    
    $
    (5,737
    )
    
    $
    (4,490
    )Foreign currency translation adjustment
    
    
    
    
    
    
    Comprehensive loss
    
    $
    (5,737
    )
    
    $
    (4,490
    )
   3




---



##### Table of Contents



CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  June 30,
    
    
    March 31,
    
    
    June 30,2010
    
    
    2010
    
    
    2009(Unaudited)
    
    
    (Audited)
    
    
    (Unaudited)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    2,811
    
    
    $
    27,217
    
    
    $
    1,846Accounts receivable, net
    
    
    47,807
    
    
    
    45,711
    
    
    
    46,615Inventories
    
    
    118,291
    
    
    
    78,851
    
    
    
    125,475Deferred income taxes
    
    
    6,153
    
    
    
    6,165
    
    
    
    5,946Assets held for sale
    
    
    1,323
    
    
    
    1,363
    
    
    
    1,363Other current assets
    
    
    19,114
    
    
    
    15,986
    
    
    
    19,846Total current assets
    
    
    195,499
    
    
    
    175,293
    
    
    
    201,091PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    48,686
    
    
    
    47,786
    
    
    
    54,607DEFERRED INCOME TAXES
    
    
    5,184
    
    
    
    5,439
    
    
    
    OTHER ASSETSGoodwill
    
    
    17,233
    
    
    
    17,233
    
    
    
    49,258Intangible assets, net
    
    
    32,839
    
    
    
    32,027
    
    
    
    45,354Other
    
    
    3,945
    
    
    
    3,984
    
    
    
    4,026Total other assets
    
    
    54,017
    
    
    
    53,244
    
    
    
    98,638Total assets
    
    $
    303,386
    
    
    $
    281,762
    
    
    $
    354,336LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESShort-term debt
    
    $
    13,000
    
    
    $
    
    
    
    $
    36,700Current portion of long-term debt
    
    
    384
    
    
    
    481
    
    
    
    10,482Accrued customer programs
    
    
    6,939
    
    
    
    8,380
    
    
    
    7,551Other current liabilities
    
    
    49,101
    
    
    
    35,535
    
    
    
    36,572Total current liabilities
    
    
    69,424
    
    
    
    44,396
    
    
    
    91,305LONG-TERM DEBT, NET OF CURRENT PORTION
    
    
    
    
    
    
    66
    
    
    
    327LONG-TERM OBLIGATIONS
    
    
    7,341
    
    
    
    4,255
    
    
    
    4,482DEFERRED INCOME TAXES
    
    
    
    
    
    
    
    
    
    
    4,310STOCKHOLDERS EQUITY
    
    
    226,621
    
    
    
    233,045
    
    
    
    253,912Total liabilities and stockholders equity
    
    $
    303,386
    
    
    $
    281,762
    
    
    $
    354,336
   4




---



##### Table of Contents



CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Three Months EndedJune 30,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (5,737
    )
    
    $
    (4,490
    )Adjustments to reconcile net loss to net cash used for
operating activities:Depreciation and amortization
    
    
    3,012
    
    
    
    3,126Provision for doubtful accounts
    
    
    23
    
    
    
    (132
    )Deferred tax provision (benefit)
    
    
    267
    
    
    
    (87
    )Gain on sale or disposal of assets
    
    
    
    
    
    
    5Share-based compensation expense
    
    
    461
    
    
    
    589Changes in assets and liabilities, net of effects of acquisitions:Increase in accounts receivable
    
    
    (2,119
    )
    
    
    (2,742
    )Increase in inventory
    
    
    (39,440
    )
    
    
    (25,379
    )Increase in other assets
    
    
    (3,090
    )
    
    
    (4,474
    )Increase in other liabilities
    
    
    11,626
    
    
    
    4,890Total adjustments
    
    
    (29,260
    )
    
    
    (24,204
    )Net cash used for operating activities
    
    
    (34,997
    )
    
    
    (28,694
    )Cash flows from investing activities:Purchase of a business
    
    
    
    
    
    
    (225
    )Purchase of property, plant and equipment
    
    
    (1,098
    )
    
    
    (2,402
    )Proceeds from sale of assets
    
    
    
    
    
    
    1Net cash used for investing activities
    
    
    (1,098
    )
    
    
    (2,626
    )Cash flows from financing activities:Payments on long-term obligations
    
    
    (163
    )
    
    
    (122
    )Borrowings on notes payable
    
    
    37,670
    
    
    
    75,645Repayments on notes payable
    
    
    (24,670
    )
    
    
    (43,095
    )Dividends paid
    
    
    (1,453
    )
    
    
    (1,441
    )Proceeds from exercise of stock options
    
    
    289
    
    
    
    Tax benefit realized for stock options exercised
    
    
    16
    
    
    
    Net cash provided by financing activities
    
    
    11,689
    
    
    
    30,987Effect of exchange rate changes on cash
    
    
    
    
    
    
    Net decrease in cash and cash equivalents
    
    
    (24,406
    )
    
    
    (333
    )Cash and cash equivalents at beginning of period
    
    
    27,217
    
    
    
    2,179Cash and cash equivalents at end of period
    
    $
    2,811
    
    
    $
    1,846
   5




---



##### Table of Contents



CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2010
 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, 2010. 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 2011 refers to the fiscal year
ending March 31, 2011.
 Principles of Consolidation
 The consolidated financial statements include the accounts of the Company and all of its
subsidiaries. All significant intercompany transactions and accounts have been eliminated in
consolidation.
 Nature of Business 
 CSS is a consumer products company primarily engaged in the design, manufacture, procurement,
distribution and sale of seasonal and all occasion social expression products, principally to
mass market retailers. These seasonal and all occasion products include gift wrap, gift bags,
gift boxes, gift card holders, boxed greeting cards, gift tags, decorative tissue paper,
decorations, classroom exchange Valentines, decorative ribbons and bows, floral accessories,
Halloween masks, costumes, make-up and novelties, Easter egg dyes and novelties, craft and
educational products, stickers, memory books, stationery, journals, notecards, infant and
wedding photo albums, scrapbooks, and other gift items that commemorate lifes celebrations.
The seasonal nature of CSS business has historically resulted in lower sales levels and
operating losses in the first and fourth quarters and comparatively higher sales levels and
operating profits in the second and third quarters of the Companys fiscal year, which ends
March 31, thereby causing significant fluctuations in the quarterly results of operations of the
Company.
 Foreign Currency Translation and Transactions 
 Translation adjustments are charged or credited to a separate component of stockholders equity.
Gains and losses on foreign currency transactions are not material and are included in other
expense (income), net in the consolidated statements of operations.
  6




---



##### Table of Contents



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 the
valuation of inventory and accounts receivable, the assessment of the recoverability of goodwill
and other intangible assets, income tax accounting, the valuation of share-based awards and
resolution of litigation and other proceedings. Actual results could differ from these
estimates.
 Impairment of Long-Lived Assets including Goodwill and Other Intangible Assets 
 Goodwill is subject to an assessment for impairment using a two-step fair value-based test, the
first step of which must be performed at least annually, or more frequently if events or
circumstances indicate that goodwill might be impaired. The first step of the test compares the
fair value of a reporting unit to its carrying amount, including goodwill, as of the date of the
test. The Company uses a dual approach to determine the fair value of its reporting units
including both a market approach and an income approach. We believe the use of multiple
valuation techniques results in a more accurate indicator of the fair value of each reporting
unit. If the carrying amount of the reporting unit exceeds its fair value, the second step is
performed. The second step compares the carrying amount of the goodwill to the implied fair
value of the goodwill. If the implied fair value of the goodwill is less than the carrying
amount of the goodwill, an impairment loss would be reported.
 Other indefinite lived intangible assets consist primarily of tradenames which are also required
to be tested annually. The fair value of the Companys tradenames is calculated using a relief
from royalty payments methodology. Long-lived assets, except for goodwill and indefinite lived
intangible assets, are reviewed for impairment when circumstances indicate the carrying value of
an asset may not be recoverable. If such assets are considered to be impaired, the impairment
to be recognized is the amount by which the carrying amount of the assets exceeds the fair value
of the assets.
 Inventories 
 The Company records inventory when title is transferred, which occurs upon receipt or prior to
receipt dependent on supplier shipping terms. The Company adjusts unsaleable and slow-moving
inventory to its estimated net realizable value. Substantially all of the Companys inventories
are stated at the lower of first-in, first-out (FIFO) cost or market. The remaining portion of
the inventory is valued at the lower of last-in, first-out (LIFO) cost or market. Inventories
consisted of the following (in thousands):
 June 30,
    
    
    March 31,
    
    
    June 30,2010
    
    
    2010
    
    
    2009Raw material
    
    $
    15,652
    
    
    $
    12,696
    
    
    $
    16,865Work-in-process
    
    
    24,783
    
    
    
    20,881
    
    
    
    31,402Finished goods
    
    
    77,856
    
    
    
    45,274
    
    
    
    77,208$
    118,291
    
    
    $
    78,851
    
    
    $
    125,475
 Assets Held for Sale 
 Assets held for sale in the amount of $1,323,000 at June 30, 2010 and $1,363,000 as of March 31,
2010 and June 30, 2009, represents a former manufacturing facility which the Company is in the
process of selling. The Company expects to sell this facility within the next 12 months for an
amount greater than the current carrying value. The Company ceased depreciating this facility
at the time it was classified as held for sale.
  7




---



##### Table of Contents



Property, Plant and Equipment 
 Property, plant and equipment are stated at cost and include the following (in thousands):
 June 30,
    
    
    March 31,
    
    
    June 30,2010
    
    
    2010
    
    
    2009Land
    
    $
    2,508
    
    
    $
    2,508
    
    
    $
    2,608Buildings, leasehold interests and improvements
    
    
    46,320
    
    
    
    45,165
    
    
    
    45,389Machinery, equipment and other
    
    
    146,624
    
    
    
    147,305
    
    
    
    146,757195,452
    
    
    
    194,978
    
    
    
    194,754Less  Accumulated depreciation
    
    
    (146,766
    )
    
    
    (147,192
    )
    
    
    (140,147
    )Net property, plant and equipment
    
    $
    48,686
    
    
    $
    47,786
    
    
    $
    54,607
 In conjunction with negotiating certain lease extensions during the first quarter of fiscal
2011, the Company identified a previously unrecognized asset retirement obligation at one of its
leased facilities. The Company believes that this obligation existed since the adoption of
Financial Accounting Standards Board (FASB) No. 143, Asset Retirement Obligations, which was
later codified as ASC 420-20, which became effective for the Company beginning in fiscal 2004.
The Company calculated the historical impact as if it had appropriately adopted the standard in
fiscal 2004, and the impact is not material to any individual period from fiscal 2004 through
fiscal 2010. The impact of recording the asset retirement obligation resulted in an asset and a
liability, each in the amount of $1,704,000, as of April 1, 2003. Additionally, as of April 1,
2010, a reduction in income of $1,326,000 was recorded related to depreciation and accretion
from fiscal 2004 through fiscal 2010 in the amount of $712,000 and $614,000, respectively.
During the first quarter of fiscal 2011, the impact of the asset retirement obligation included
$25,000 of depreciation expense and $26,000 of accretion expense. Accretion expense was
recorded as a component of depreciation and amortization.
 Additionally, during the first quarter of fiscal 2011, the Company determined that the useful
lives used to amortize leasehold improvements at the same leased facility from fiscal 2006 to
fiscal 2010 did not follow the guidance in the codification referenced above. Leasehold
improvements were being amortized through the lease end date without consideration of lease
renewal periods that were reasonably assured. The Company calculated the historical impact as
if it had used the proper useful life of the assets, and such impact was not material to any
individual period from fiscal 2006 through fiscal 2010. The impact of adjusting the leasehold
improvement amortization periods resulted in additional net book value of $1,293,000 as of April
1, 2010 that was recorded as a reduction of depreciation expense in the first quarter of fiscal
2011. Also, during the first quarter of fiscal 2011, depreciation of leasehold improvements for
these assets was $112,000.
 The correction of these items did not have a material impact on the Companys consolidated
statement of cash flows. Management evaluated the quantitative and qualitative impact of the
corrections on previously reported periods as well as the first quarter of fiscal 2011. Based
upon this evaluation, management concluded that these adjustments were not material to the
Companys consolidated financial statements.
 Revenue Recognition 
 The Company recognizes revenue from product sales when the goods are shipped, title and risk of
loss have been transferred to the customer and collection is reasonably assured. Provisions for
returns, allowances, rebates to customers and other adjustments are provided in the same period
that the related sales are recorded.
 Net Loss Per Common Share 
 Due to the Companys net losses, potentially dilutive securities, consisting of outstanding
stock options and non-vested performance-based shares, were excluded from the diluted loss per
share calculation due to their anti-dilutive effect.
  8




---



##### Table of Contents



SHARE-BASED COMPENSATION
 2004 Equity Compensation Plan
 Under the terms of the Companys 2004 Equity Compensation Plan (2004 Plan), the Human
Resources Committee (Committee) of the Board of Directors may grant incentive stock options,
non-qualified stock options, restricted stock grants, stock appreciation rights, stock bonuses
and other awards to officers and other employees. Grants under the 2004 Plan may be made
through August 3, 2014. The term of each grant is at the discretion of the Committee, but in no
event greater than ten years from the date of grant. The Committee has discretion to determine
the date or dates on which granted options become exercisable. All options outstanding as of
June 30, 2010 become exercisable at the rate of 25% per year commencing one year after the date of
grant. Outstanding performance-vested restricted stock units (RSUs) vest on the third
anniversary of the date on which the award was granted, provided that certain performance
metrics have been met during the performance period, and outstanding time-vested RSUs generally
vest at the rate of 50% of the shares underlying the grant on each of the third and fourth
anniversaries of the date on which the award was granted. At June 30, 2010, 1,143,484 shares
were available for grant under the 2004 Plan.
 2006 Stock Option Plan for Non-Employee Directors
 Under the terms of the CSS Industries, Inc. 2006 Stock Option Plan for Non-Employee Directors
(2006 Plan), non-qualified stock options are available for grant to non-employee directors at
exercise prices of not less than fair market value of the underlying common stock on the date of
grant. Under the 2006 Plan, options to purchase 4,000 shares of the Companys common stock are
granted automatically to each non-employee director on the last day that the Companys common
stock is traded in November from 2006 to 2010. Each option will expire five years after the
date the option is granted, and options vest and become exercisable at the rate of 25% per year
on each of the first four anniversaries of the grant date. At June 30, 2010, 108,000 shares
were available for grant under the 2006 Plan.
 The fair value of each stock option granted under the above plans was estimated on the date of
grant using the Black-Scholes option pricing model with the following average assumptions:
 For the Three MonthsEnded June 30,2010
    
    
    2009Expected dividend yield at time of grant
    
    
    3.11
    %
    
    
    2.90
    %Expected stock price volatility
    
    
    55
    %
    
    
    55
    %Risk-free interest rate
    
    
    2.63
    %
    
    
    3.22
    %Expected life of option (in years)
    
    
    4.7
    
    
    
    4.0
 Expected volatilities are based on historical volatility of the Companys common stock. The
expected life of the option is estimated using historical data pertaining to option exercises
and employee terminations. The risk-free interest rate is based on U.S. Treasury yields in
effect at the time of grant.
 The weighted average fair value of stock options granted during the three months ended June 30,
2010 and 2009 was $6.99 and $7.72, respectively. The weighted average fair value of restricted
stock units granted during the three months ended June 30, 2010 and 2009 was $16.94 and $16.64,
respectively.
 As of June 30, 2010, there was $2,111,000 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 2.6 years. As of June 30, 2010,
there was $2,473,000 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 2.9 years.
 Compensation cost related to stock options and RSUs recognized in operating results (included in
selling, general and administrative expenses) was $461,000 and $589,000 in the three months
ended June 30, 2010 and 2009, respectively.
  9




---



##### Table of Contents



DERIVATIVE FINANCIAL INSTRUMENTS
 The Company enters into foreign currency forward contracts in order to reduce the impact of
certain foreign currency fluctuations on sales denominated in a foreign currency. Derivatives
are not used for trading or speculative activities. Firmly committed transactions and the
related receivables may be hedged with forward exchange contracts. Gains and losses arising
from foreign currency forward contracts are recorded in other expense (income), net as offsets
of gains and losses resulting from the underlying hedged transactions. As of June 30, 2010 and
2009, the notional amount of open foreign currency forward contracts was $6,098,000 and
$8,899,000, respectively, and the related unrealized gain was $236,000 and $335,000,
respectively. There were no open foreign currency forward contracts as of March 31, 2010. We
believe we do not have significant counterparty credit risk as of June 30, 2010.
 The following table shows the fair value of the foreign currency forward contracts designated as
hedging instruments and included in the Companys condensed consolidated balance sheet as of
June 30, 2010 and 2009 (in thousands):
 Fair Value of Derivative InstrumentsFair ValueBalance Sheet
    
    June 30,
    
    
    June 30,Location
    
    2010
    
    
    2009Foreign currency forward contracts
    
    Other current assets
    
    $
    236
    
    
    $
    335
 GOODWILL AND INTANGIBLES
 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.
 The gross carrying amount and accumulated amortization of other intangible assets is as follows
(in thousands):
 June 30, 2010
    
    
    March 31, 2010
    
    
    June 30, 2009Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationTradenames and trademarks
    
    $
    12,793
    
    
    $
    
    
    
    $
    12,793
    
    
    $
    
    
    
    $
    25,083
    
    
    $
    Customer relationships
    
    
    22,057
    
    
    
    3,733
    
    
    
    22,057
    
    
    
    3,358
    
    
    
    22,057
    
    
    
    2,233Non-compete
    
    
    200
    
    
    
    129
    
    
    
    200
    
    
    
    117
    
    
    
    200
    
    
    
    79Trademarks
    
    
    403
    
    
    
    160
    
    
    
    403
    
    
    
    153
    
    
    
    403
    
    
    
    131Patents
    
    
    1,492
    
    
    
    84
    
    
    
    250
    
    
    
    48
    
    
    
    89
    
    
    
    35$
    36,945
    
    
    $
    4,106
    
    
    $
    35,703
    
    
    $
    3,676
    
    
    $
    47,832
    
    
    $
    2,478
 During the first quarter of fiscal 2010, there was an increase in patents in the amount of
$1,242,000 related to the Seastone royalty earn out, equal to 5% of the estimated net sales of
certain products through 2014. The Company believes that the obligation related to the earn out
is determinable beyond a reasonable doubt.
 Amortization expense related to intangible assets was $430,000 and $395,000 for the three months
ended June 30, 2010 and 2009, respectively. Based on the current composition of intangibles,
amortization expense for the remainder of fiscal 2011 and each of the succeeding four years is
projected to be as follows (in thousands):
 Remainder of fiscal 2011
    
    $
    1,294Fiscal 2012
    
    
    1,709Fiscal 2013
    
    
    1,676Fiscal 2014
    
    
    1,676Fiscal 2015
    
    
    1,658
  10




---



##### Table of Contents



ACCOUNTS RECEIVABLE SECURITIZATION FACILITY
 On May 7, 2010, the Company entered into an extension of its accounts receivable securitization
facility through July 6, 2010, subject to earlier termination in the event of termination of the
commitments of the facilitys back-up purchasers. The facility continued to be subject to the
off-peak seasonal funding limit of $25,000,000, the funding limit that had been in place since
February 1, 2010.
 On July 6, 2010, the Company entered into another extension of its accounts receivable
securitization facility until July 5, 2011, although this facility may terminate prior to such
date in the event of termination of the commitments of the facilitys back-up purchasers. Prior
to the extension, this facility was due to expire on July 6, 2010, subject to earlier
termination in the event of termination of the commitments of the facilitys back-up purchasers.
This facility has a seasonally-adjusted funding limit of $60,000,000 through January 31, 2011
and $15,000,000 from February 1, 2011 to July 5, 2011. Financing costs for amounts funded under
this facility are equal to a variable commercial paper rate plus 1.25% and commitment fees of
0.5% per annum on the unused commitment.
 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.
 FAIR VALUE MEASUREMENTS
 The Company uses certain derivative financial instruments as part of its risk management
strategy to reduce foreign currency risk. The Company recorded all derivatives on the
consolidated condensed balance sheet at fair value based on quotes obtained from financial
institutions as of June 30, 2010.
 The Company maintains a Nonqualified Supplemental Executive Retirement Plan for highly
compensated employees and invests assets to mirror the obligations under this Plan. The
invested funds are maintained at a third party financial institution in the name of CSS and are
invested in publicly traded mutual funds. The Company maintains separate accounts for each
participant to reflect deferred contribution amounts and the related gains or losses on such
deferred amounts. The investments are included in other current assets and the related
liability is recorded as deferred compensation and included in other long-term obligations in
the consolidated condensed balance sheets. The fair value of the investments is based on the
market price of the mutual funds as of June 30, 2010.
 The Company maintains two life insurance policies in connection with deferred compensation
arrangements with two former executives. The cash surrender value of the policies is recorded
in other long-term assets in the consolidated condensed balance sheets and is based on quotes
obtained from the insurance company as of June 30, 2010.
 To increase consistency and comparability in fair value measurements, the 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.
  11




---



##### Table of Contents



The Companys recurring assets and liabilities recorded on the consolidated condensed balance
sheet are categorized based on the inputs to the valuation techniques as follows:
 Level 1  Financial assets and liabilities whose values are based on unadjusted quoted prices
for identical assets or liabilities in an active market that the Company has the ability to
access.
 Level 2  Financial assets and liabilities whose values are based on quoted prices in markets
that are not active or model inputs that are observable either directly or indirectly for
substantially the full term of the asset or liability. Examples of Level 2 inputs include
quoted prices for identical or similar assets or liabilities in non-active markets and pricing
models whose inputs are observable for substantially the full term of the asset or liability.
 Level 3  Financial assets and liabilities whose values are based on prices or valuation
techniques that require inputs that are both unobservable and significant to the overall fair
value measurement.
 The following table presents the Companys fair value hierarchy for those financial assets and
liabilities measured at fair value on a recurring basis in its consolidated condensed balance
sheet as of June 30, 2010 (in thousands):
 Fair Value Measurements at June 30, 2010 UsingQuoted PricesIn Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableJune 30,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsMarketable securities
    
    $
    650
    
    
    $
    650
    
    
    $
    
    
    
    $
    Cash surrender value of life insurance policies
    
    
    870
    
    
    
    
    
    
    
    870
    
    
    
    Foreign exchange contracts
    
    
    236
    
    
    
    
    
    
    
    236
    
    
    
    Total assets
    
    $
    1,756
    
    
    $
    650
    
    
    $
    1,106
    
    
    $
    LiabilitiesDeferred compensation plans
    
    $
    650
    
    
    $
    650
    
    
    $
    
    
    
    $
    Total liabilities
    
    $
    650
    
    
    $
    650
    
    
    $
    
    
    
    $
    
 Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reflected
at carrying value in the consolidated condensed balance sheets as such amounts are a reasonable
estimate of their fair values due to the short-term nature of these instruments.
 The carrying value of the Companys short-term borrowings is a reasonable estimate of its fair
value as borrowings under the Companys credit facilities have variable rates that reflect
currently available terms and conditions for similar debt.
 The fair value of long-term debt instruments is estimated using a discounted cash flow analysis.
The carrying amount and estimated fair value of long-term debt was $384,000 as of June 30, 2010.
  12




---



##### Table of Contents



CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
 CONDITION AND RESULTS OF OPERATIONS
 STRATEGIC OVERVIEW
     13




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   RESULTS OF OPERATIONS
 Seasonality
  Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009
       14




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
    Less than 1
    
    
    1-3
    
    
    4-5
    
    
    After 5Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalLetters of credit
    
    $
    10,759
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,759
   LABOR RELATIONS
   15




---



##### Table of Contents



FORWARD-LOOKING STATEMENTS
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   16




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 (a)
    
    Evaluation of Disclosure Controls and Procedures.As of the end of the period covered by
this report, the Companys management, with the participation of the Companys President and
Chief Executive Officer and Vice President  Finance and Chief Financial Officer, evaluated
the effectiveness of the Companys disclosure controls and procedures in accordance with Rule
13a-15 of the Securities Exchange Act of 1934 (the Exchange Act). Based upon that
evaluation, the President and Chief Executive Officer and Vice President  Finance and Chief
Financial Officer concluded that the Companys disclosure controls and procedures are
effective in providing reasonable assurance that information required to be disclosed by the
Company in reports that it files under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commissions rules
and forms.
 (b)
    
    Changes in Internal Controls. There was no change in the Companys internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) as promulgated by the
Securities and Exchange Commission under the Exchange Act) during the first quarter of fiscal
year 2011 that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.
  17




---



##### Table of Contents



CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 PART II  OTHER INFORMATION
 
 Exhibits
 Exhibit 10.1 Ninth Amendment dated July 6, 2010 to Receivables Purchase Agreement dated
April 30, 2001 (incorporated by reference to Exhibit 10.1 to the Registrants Current Report
on Form 8-K filed on July 12, 2010).
 *
    Exhibit 10.2 CSS Industries, Inc. FY2010 Management Incentive Program Criteria for CSS
Industries, Inc.
 *
    Exhibit 10.3 CSS Industries, Inc. FY2010 Management Incentive Program Criteria for BOC
Design Group.
 *
    Exhibit 10.4 CSS Industries, Inc. FY 2010 Management Incentive Program Criteria for Paper
Magic Group, Inc.
 *
    Exhibit 10.5 CSS Industries, Inc. FY2010 Management Incentive Program Criteria for C.R.
Gibson, LLC.
 *
    Exhibit 31.1 Certification of the Chief Executive Officer of CSS Industries, Inc. required
by Rule 13a-14(a) under the Securities Exchange Act of 1934.
 *
    Exhibit 31.2 Certification of the Chief Financial Officer of CSS Industries, Inc. required
by Rule 13a-14(a) under the Securities Exchange Act of 1934.
 *
    Exhibit 32.1 Certification of the Chief Executive Officer of CSS Industries, Inc. required
by Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U. S. C. Section 1350.
 *
    Exhibit 32.2 Certification of the Chief Financial Officer of CSS Industries, Inc. required
by Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U. S. C. Section 1350.
 *
    
    Filed or furnished with this Quarterly Report on Form 10-Q.  18




---



##### Table of Contents



SIGNATURES
  CSS INDUSTRIES, INC.
(Registrant)Date: August 6, 2010
    By:
    /s/ Christopher J. MunyanChristopher J. MunyanPresident and Chief
Executive Officer
(principal executive officer)Date:  August 6, 2010
    By:
    /s/ Vincent A. PaccapanicciaVincent A. PaccapanicciaVice President  Finance and
Chief Financial Officer
(principal financial and accounting officer)  19