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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, 2007
 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
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  o þ




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##### 



CSS INDUSTRIES, INC. AND SUBSIDIARIES
 INDEX
 PAGE NO.PART I  FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Statements of Operations  Three months ended June 30, 2007 and 2006
    
    
    3Condensed Consolidated Balance Sheets  June 30, 2007 and March 31, 2007
    
    
    4Consolidated Statements of Cash Flows  Three months ended June 30, 2007 and 2006
    
    
    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 10.1Exhibit 10.2Exhibit 10.3Exhibit 10.4Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
  
 Three Months EndedJune 30,2007
    
    
    2006SALES
    
    $
    46,802
    
    
    $
    47,533COSTS AND EXPENSESCost of sales
    
    
    33,519
    
    
    
    34,063Selling, general and administrative expenses
    
    
    20,683
    
    
    
    22,204Interest (income) expense, net
    
    
    (374
    )
    
    
    134Other income, net
    
    
    (242
    )
    
    
    (162
    )53,586
    
    
    
    56,239LOSS BEFORE INCOME TAXES
    
    
    (6,784
    )
    
    
    (8,706
    )INCOME TAX BENEFIT
    
    
    (2,357
    )
    
    
    (3,199
    )NET LOSS
    
    $
    (4,427
    )
    
    $
    (5,507
    )BASIC AND DILUTED NET LOSS PER COMMON SHARE
    
    $
    (.41
    )
    
    $
    (.52
    )WEIGHTED AVERAGE BASIC AND DILUTED SHARES
OUTSTANDING
    
    
    10,882
    
    
    
    10,496CASH DIVIDENDS PER SHARE OF COMMON STOCK
    
    $
    .14
    
    
    $
    .12
   3




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
   June 30,
    
    
    March 31,2007
    
    
    2007ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    53,303
    
    
    $
    100,091Accounts receivable, net
    
    
    37,891
    
    
    
    37,169Inventories
    
    
    125,012
    
    
    
    82,138Deferred income taxes
    
    
    7,973
    
    
    
    8,645Assets held for sale
    
    
    2,564
    
    
    
    2,564Other current assets
    
    
    15,466
    
    
    
    13,665Total current assets
    
    
    242,209
    
    
    
    244,272PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    56,759
    
    
    
    58,897OTHER ASSETSGoodwill
    
    
    30,952
    
    
    
    30,952Intangible assets, net
    
    
    4,313
    
    
    
    4,328Other
    
    
    3,678
    
    
    
    4,621Total other assets
    
    
    38,943
    
    
    
    39,901Total assets
    
    $
    337,911
    
    
    $
    343,070LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESNotes payable
    
    $
    
    
    
    $
    Current portion of long-term debt
    
    
    10,207
    
    
    
    10,195Accrued customer programs
    
    
    7,929
    
    
    
    10,290Other current liabilities
    
    
    34,234
    
    
    
    35,478Total current liabilities
    
    
    52,370
    
    
    
    55,963LONG-TERM DEBT, NET OF CURRENT PORTION
    
    
    20,330
    
    
    
    20,392LONG-TERM OBLIGATIONS
    
    
    6,146
    
    
    
    3,221DEFERRED INCOME TAXES
    
    
    1,238
    
    
    
    2,384STOCKHOLDERS EQUITY
    
    
    257,827
    
    
    
    261,110Total liabilities and stockholders equity
    
    $
    337,911
    
    
    $
    343,070
   4




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Three Months EndedJune 30,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (4,427
    )
    
    $
    (5,507
    )Adjustments to reconcile net loss to net cash used for
operating activities:Depreciation and amortization
    
    
    3,296
    
    
    
    3,651Provision for doubtful accounts
    
    
    240
    
    
    
    (238
    )Deferred tax (benefit) provision
    
    
    (474
    )
    
    
    795Loss on sale of assets
    
    
    
    
    
    
    1Share-based compensation expense
    
    
    681
    
    
    
    744Changes in assets and liabilities:Increase in accounts receivable
    
    
    (962
    )
    
    
    (637
    )Increase in inventory
    
    
    (42,874
    )
    
    
    (45,395
    )(Increase) decrease in other assets
    
    
    (893
    )
    
    
    416Increase in other liabilities
    
    
    1,550
    
    
    
    3,717Decrease in accrued taxes
    
    
    (2,230
    )
    
    
    (8,122
    )Total adjustments
    
    
    (41,666
    )
    
    
    (45,068
    )Net cash used for operating activities
    
    
    (46,093
    )
    
    
    (50,575
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (1,108
    )
    
    
    (1,758
    )Proceeds from sale of assets
    
    
    
    
    
    
    1Net cash used for investing activities
    
    
    (1,108
    )
    
    
    (1,757
    )Cash flows from financing activities:Payments on long-term debt
    
    
    (50
    )
    
    
    (82
    )Dividends paid
    
    
    (1,525
    )
    
    
    (1,258
    )Proceeds from exercise of stock options
    
    
    1,739
    
    
    
    673Tax benefit realized for stock options exercised
    
    
    249
    
    
    
    137Net cash provided by (used for) financing activities
    
    
    413
    
    
    
    (530
    )Net decrease in cash and cash equivalents
    
    
    (46,788
    )
    
    
    (52,862
    )Cash and cash equivalents at beginning of period
    
    
    100,091
    
    
    
    57,656Cash and cash equivalents at end of period
    
    $
    53,303
    
    
    $
    4,794
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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2007
 (1)
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 Basis of Presentation
  Principles of Consolidation
  Nature of Business
  Foreign Currency Translation and Transactions
  Use of Estimates
   6




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Inventories
  June 30,
    
    
    March 31,2007
    
    
    2007Raw material
    
    $
    23,846
    
    
    $
    14,442Work-in-process
    
    
    30,402
    
    
    
    31,283Finished goods
    
    
    70,764
    
    
    
    36,413$
    125,012
    
    
    $
    82,138
 Assets Held for Sale
  Revenue Recognition
  Net Income Per Common Share
  Three Months EndedJune 30,2007
    
    
    2006Numerator:Net loss
    
    $
    (4,427
    )
    
    $
    (5,507
    )Denominator:Weighted average shares outstanding for basic loss per
common share
    
    
    10,882
    
    
    
    10,496Effect of dilutive stock options
    
    
    
    
    
    
    Adjusted weighted average shares outstanding for
diluted loss per common share
    
    
    10,882
    
    
    
    10,496Basic and diluted net loss per common share
    
    $
    (.41
    )
    
    $
    (.52
    )
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Statements of Cash Flows
  (2)
    
    SHARE-BASED COMPENSATION:
     For the Three MonthsEnded June 30,2007
    
    
    2006Expected dividend yield at time of grant
    
    
    1.59
    %
    
    
    1.61
    %Expected stock price volatility
    
    
    29
    %
    
    
    24
    %Risk-free interest rate
    
    
    4.80
    %
    
    
    4.96
    %Expected life of option (in years)
    
    
    4.2
    
    
    
    4.7
   8




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AggregateWeighted
    
    
    Weighted
    
    
    IntrinsicNumber
    
    
    Option Price
    
    
    Average
    
    
    Average Life
    
    
    Valueof Shares
    
    
    per Share
    
    
    Price
    
    
    Remaining
    
    
    (in thousands)Options outstanding at April 1, 2007
    
    
    1,508,110
    
    
    $
    12.71  36.60
    
    
    $
    26.94
    
    
    3.9 years
    
    $
    15,901Granted
    
    
    151,500
    
    
    
    35.23  35.23
    
    
    
    35.23Exercised
    
    
    (65,907
    )
    
    
    13.21  35.98
    
    
    
    26.37Canceled
    
    
    (12,950
    )
    
    
    23.58  34.12
    
    
    
    31.20Options outstanding at June 30, 2007
    
    
    1,580,753
    
    
    $
    12.71  36.60
    
    
    $
    27.72
    
    
    3.8 years
    
    $
    18,795Options exercisable at June 30, 2007
    
    
    892,378
    
    
    $
    12.71  36.60
    
    
    $
    24.09
    
    
    3.6 years
    
    $
    13,847
   (3)
    
    DERIVATIVE FINANCIAL INSTRUMENTS:
  (4)
    
    BUSINESS RESTRUCTURING:
   9




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Termination
    
    
    OtherCosts
    
    
    Costs
    
    
    TotalRestructuring reserve as of March 31, 2007
    
    $
    1,353
    
    
    $
    103
    
    
    $
    1,456Cash paid  fiscal 2008
    
    
    (353
    )
    
    
    
    
    
    
    (353
    )Non cash reduction
    
    
    (196
    )
    
    
    
    
    
    
    (196
    )Restructuring reserve as of June 30, 2007
    
    $
    804
    
    
    $
    103
    
    
    $
    907
 (5)
    
    GOODWILL AND INTANGIBLES:
   June 30,
    
    
    March 31,2007
    
    
    2007Tradenames
    
    $
    4,290
    
    
    $
    4,290Non-compete and other, net
    
    
    23
    
    
    
    38$
    4,313
    
    
    $
    4,328
  (6)
    
    COMMITMENTS AND CONTINGENCIES:
     10




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(7)
    
    ACCOUNTING PRONOUNCEMENTS:
   (8)
    
    INCOME TAXES:
     11




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




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CRITICAL ACCOUNTING POLICIES
   RESULTS OF OPERATIONS
 Seasonality
  Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006
      14




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LIQUIDITY AND CAPITAL RESOURCES
    Less than 1
    
    
    1-3
    
    
    4-5
    
    
    After 5Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalLetters of credit
    
    $
    3,883
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,883
    15




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LABOR RELATIONS
  ACCOUNTING PRONOUNCEMENTS
  FORWARD-LOOKING STATEMENTS
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   16




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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 2008 that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.
  17




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 PART II  OTHER INFORMATION
 
 Exhibits
          18




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SIGNATURES
  CSS INDUSTRIES, INC.
(Registrant)Date:  August 3, 2007
    By:
    /s/Christopher J. MunyanChristopher J. MunyanPresident and Chief
Executive Officer
(principal executive officer)Date:  August 3, 2007
    By:
    /s/Clifford E. PietrafittaClifford E. PietrafittaVice President  Finance and
Chief Financial Officer
(principal financial and accounting officer)  19




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EXHIBIT INDEX
 ExhibitNo.
    
    Description10.1
    
    CSS Industries, Inc. Management Incentive Program.10.2
    
    CSS Industries, Inc. FY2008 Management Incentive Program Criteria for CSS
Industries, Inc.10.3
    
    CSS Industries, Inc. FY2008 Management Incentive Program Criteria for BOC
Design Group.10.4
    
    CSS Industries, Inc. FY2008 Management Incentive Program Criteria for Paper
Magic Group, Inc.31.1
    
    Certification of the Chief Executive Officer of CSS Industries, Inc. required
by Rule 13a-14(a) under the Securities Exchange Act of 1934.31.2
    
    Certification of the Chief Financial Officer of CSS Industries, Inc. required
by Rule 13a-14(a) under the Securities Exchange Act of 1934.32.1
    
    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 1350.32.2
    
    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.
  20