##### 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 December 31, 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 and Comprehensive Income 
Three and nine months ended December 31, 2007 and 2006
    
    
    3Condensed Consolidated Balance Sheets  December 31, 2007 and March
31, 2007
    
    
    4Consolidated Statements of Cash Flows  Nine months ended December
31, 2007 and 2006
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-13Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    14-18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19PART II  OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 6. Exhibits
    
    
    21Signatures
    
    
    22Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006SALES
    
    $
    222,170
    
    
    $
    264,065
    
    
    $
    441,854
    
    
    $
    485,428COSTS AND EXPENSESCost of sales
    
    
    160,788
    
    
    
    197,695
    
    
    
    320,990
    
    
    
    360,761Selling, general and administrative expenses
    
    
    25,545
    
    
    
    26,424
    
    
    
    71,493
    
    
    
    73,917Restructuring expenses
    
    
    105
    
    
    
    1,745
    
    
    
    (2
    )
    
    
    1,745Interest expense, net
    
    
    810
    
    
    
    1,446
    
    
    
    720
    
    
    
    2,663Other income, net
    
    
    (51
    )
    
    
    (130
    )
    
    
    (452
    )
    
    
    (358
    )187,197
    
    
    
    227,180
    
    
    
    392,749
    
    
    
    438,728INCOME BEFORE INCOME TAXES
    
    
    34,973
    
    
    
    36,885
    
    
    
    49,105
    
    
    
    46,700INCOME TAX EXPENSE
    
    
    12,119
    
    
    
    13,595
    
    
    
    17,143
    
    
    
    17,214NET INCOME
    
    $
    22,854
    
    
    $
    23,290
    
    
    $
    31,962
    
    
    $
    29,486NET INCOME PER COMMON SHAREBasic
    
    $
    2.12
    
    
    $
    2.19
    
    
    $
    2.95
    
    
    $
    2.79Diluted
    
    $
    2.07
    
    
    $
    2.13
    
    
    $
    2.88
    
    
    $
    2.71WEIGHTED AVERAGE SHARES OUTSTANDINGBasic
    
    
    10,759
    
    
    
    10,641
    
    
    
    10,833
    
    
    
    10,565Diluted
    
    
    11,036
    
    
    
    10,931
    
    
    
    11,115
    
    
    
    10,863CASH DIVIDENDS PER SHARE OF COMMON
STOCK
    
    $
    .14
    
    
    $
    .12
    
    
    $
    .42
    
    
    $
    .36COMPREHENSIVE INCOMENet income
    
    $
    22,854
    
    
    $
    23,290
    
    
    $
    31,962
    
    
    $
    29,486Foreign currency translation adjustment
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    3Comprehensive income
    
    $
    22,855
    
    
    $
    23,290
    
    
    $
    31,964
    
    
    $
    29,489
   3




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
  December 31,
    
    
    March 31,2007
    
    
    2007ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    26,892
    
    
    $
    100,091Accounts receivable, net
    
    
    163,350
    
    
    
    37,169Inventories
    
    
    92,017
    
    
    
    82,138Deferred income taxes
    
    
    8,498
    
    
    
    8,645Assets held for sale
    
    
    2,564
    
    
    
    2,564Other current assets
    
    
    13,370
    
    
    
    13,665Total current assets
    
    
    306,691
    
    
    
    244,272PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    54,234
    
    
    
    58,897OTHER ASSETSGoodwill
    
    
    48,434
    
    
    
    30,952Intangible assets, net
    
    
    42,781
    
    
    
    4,328Other
    
    
    3,632
    
    
    
    4,621Total other assets
    
    
    94,847
    
    
    
    39,901Total assets
    
    $
    455,772
    
    
    $
    343,070LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESNotes payable
    
    $
    50,000
    
    
    $
    Current portion of long-term debt
    
    
    10,244
    
    
    
    10,195Accrued customer programs
    
    
    17,419
    
    
    
    10,290Accrued restructuring expenses
    
    
    264
    
    
    
    1,456Other current liabilities
    
    
    74,779
    
    
    
    34,022Total current liabilities
    
    
    152,706
    
    
    
    55,963LONG-TERM DEBT, NET OF CURRENT PORTION
    
    
    10,255
    
    
    
    20,392LONG-TERM OBLIGATIONS
    
    
    6,158
    
    
    
    3,221DEFERRED INCOME TAXES
    
    
    2,521
    
    
    
    2,384STOCKHOLDERS EQUITY
    
    
    284,132
    
    
    
    261,110Total liabilities and stockholders equity
    
    $
    455,772
    
    
    $
    343,070
   4




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  Nine Months EndedDecember 31,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    31,962
    
    
    $
    29,486Adjustments to reconcile net income to net cash used for
operating activities:Depreciation and amortization
    
    
    9,855
    
    
    
    10,564Provision for doubtful accounts
    
    
    20
    
    
    
    202Asset impairments
    
    
    
    
    
    
    422Deferred tax provision
    
    
    1,389
    
    
    
    1Gain on sale of assets
    
    
    (22
    )
    
    
    (16
    )Share-based compensation expense
    
    
    2,110
    
    
    
    2,131Changes in assets and liabilities, net of effects from purchase
of a business:Increase in accounts receivable
    
    
    (114,239
    )
    
    
    (188,564
    )Decrease in inventory
    
    
    3,449
    
    
    
    37,315Decrease in other assets
    
    
    1,707
    
    
    
    5,855Increase in other liabilities
    
    
    33,770
    
    
    
    26,872Total adjustments
    
    
    (61,961
    )
    
    
    (105,218
    )Net cash used for operating activities
    
    
    (29,999
    )
    
    
    (75,732
    )Cash flows from investing activities:Purchase of a business, net of cash received of $2
    
    
    (68,000
    )
    
    
    Purchase of property, plant and equipment
    
    
    (4,039
    )
    
    
    (4,036
    )Proceeds from sale of assets
    
    
    80
    
    
    
    16Net cash used for investing activities
    
    
    (71,959
    )
    
    
    (4,020
    )Cash flows from financing activities:Payments on long-term obligations
    
    
    (10,088
    )
    
    
    (10,080
    )Borrowings on notes payable
    
    
    178,400
    
    
    
    168,560Repayments on notes payable
    
    
    (128,400
    )
    
    
    (126,160
    )Payment of financing transaction costs
    
    
    (103
    )
    
    
    Dividends paid
    
    
    (4,537
    )
    
    
    (3,801
    )Purchase of treasury stock
    
    
    (10,762
    )
    
    
    (303
    )Proceeds from exercise of stock options
    
    
    3,589
    
    
    
    2,987Tax benefit realized for stock options exercised
    
    
    658
    
    
    
    1,193Net cash provided by financing activities
    
    
    28,757
    
    
    
    32,396Effect of exchange rate changes on cash
    
    
    2
    
    
    
    3Net decrease in cash and cash equivalents
    
    
    (73,199
    )
    
    
    (47,353
    )Cash and cash equivalents at beginning of period
    
    
    100,091
    
    
    
    57,656Cash and cash equivalents at end of period
    
    $
    26,892
    
    
    $
    10,303
   5




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 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
  December 31,
    
    
    March 31,2007
    
    
    2007Raw material
    
    $
    24,626
    
    
    $
    14,442Work-in-process
    
    
    19,869
    
    
    
    31,283Finished goods
    
    
    47,522
    
    
    
    36,413$
    92,017
    
    
    $
    82,138
 Assets Held for Sale
  Revenue Recognition
  Net Income Per Common Share
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Net income
    
    $
    22,854
    
    
    $
    23,290
    
    
    $
    31,962
    
    
    $
    29,486Denominator:Weighted average shares outstanding for basic
income per common share
    
    
    10,759
    
    
    
    10,641
    
    
    
    10,833
    
    
    
    10,565Effect of dilutive stock options
    
    
    277
    
    
    
    290
    
    
    
    282
    
    
    
    298Adjusted weighted average shares outstanding for
diluted income per common share
    
    
    11,036
    
    
    
    10,931
    
    
    
    11,115
    
    
    
    10,863Basic net income per common share
    
    $
    2.12
    
    
    $
    2.19
    
    
    $
    2.95
    
    
    $
    2.79Diluted net income per common share
    
    $
    2.07
    
    
    $
    2.13
    
    
    $
    2.88
    
    
    $
    2.71
 Statements of Cash Flows
   7




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(2)
    
    SHARE-BASED COMPENSATION:
     For the Nine MonthsEnded December 31,2007
    
    
    2006Expected dividend yield at time of grant
    
    
    1.56
    %
    
    
    1.60
    %Expected stock price volatility
    
    
    29
    %
    
    
    25
    %Risk-free interest rate
    
    
    4.61
    %
    
    
    4.91
    %Expected life of option (in years)
    
    
    4.3
    
    
    
    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
    
    
    179,000
    
    
    
    35.23  39.58
    
    
    
    35.85Exercised
    
    
    (156,804
    )
    
    
    13.21  35.98
    
    
    
    24.80Canceled
    
    
    (30,675
    )
    
    
    23.58  34.12
    
    
    
    31.18Options outstanding at December 31, 2007
    
    
    1,499,631
    
    
    $
    12.71  39.58
    
    
    $
    28.14
    
    
    3.3 years
    
    $
    14,474Options exercisable at December 31, 2007
    
    
    862,181
    
    
    $
    12.71  36.60
    
    
    $
    24.72
    
    
    3.2 years
    
    $
    11,242
   (3)
    
    DERIVATIVE FINANCIAL INSTRUMENTS:
  (4)
    
    BUSINESS ACQUISITION:
    9




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Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    231,006
    
    
    $
    277,477
    
    
    $
    479,793
    
    
    $
    526,864Net income
    
    
    20,777
    
    
    
    23,892
    
    
    
    30,070
    
    
    
    30,485Income per common share:Basic
    
    $
    1.93
    
    
    $
    2.25
    
    
    $
    2.78
    
    
    $
    2.89Diluted
    
    $
    1.88
    
    
    $
    2.19
    
    
    $
    2.71
    
    
    $
    2.81
  (5)
    
    BUSINESS RESTRUCTURING:
   Termination
    
    
    OtherCosts
    
    
    Costs
    
    
    TotalRestructuring reserve as of March 31, 2007
    
    $
    1,353
    
    
    $
    103
    
    
    $
    1,456Cash paid  fiscal 2008
    
    
    (990
    )
    
    
    (136
    )
    
    
    (1,126
    )Non cash adjustments  fiscal 2008
    
    
    (112)
    
    
    
    46
    
    
    
    (66
    )Restructuring reserve as of December 31, 2007
    
    $
    251
    
    
    $
    13
    
    
    $
    264
 (6)
    
    GOODWILL AND INTANGIBLES:
  Balance as of March 31, 2007
    
    $
    30,952Acquisition of C.R. Gibson
    
    
    17,482Balance as of December 31, 2007
    
    $
    48,434
  10




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December 31,
    
    
    March 31,2007
    
    
    2007Tradenames
    
    $
    23,790
    
    
    $
    4,290Customer relationships, net
    
    
    18,795
    
    
    
    Non-compete, net
    
    
    196
    
    
    
    38$
    42,781
    
    
    $
    4,328
  Fiscal 2008
    
    $
    328Fiscal 2009
    
    
    1,310Fiscal 2010
    
    
    1,310Fiscal 2011
    
    
    1,310Fiscal 2012
    
    
    1,293Total
    
    $
    5,551
 (7)
    
    COMMITMENTS AND CONTINGENCIES:
  (8)
    
    ACCOUNTING PRONOUNCEMENTS:
   11




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(9)
    
    INCOME TAXES:
   12




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(10)
    
    SUBSEQUENT EVENT:
    13




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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
       14




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LITIGATION
   CRITICAL ACCOUNTING POLICIES
   RESULTS OF OPERATIONS
 Seasonality
  Nine Months Ended December 31, 2007 Compared to Nine Months Ended December 31, 2006
    15




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Three Months Ended December 31, 2007 Compared to Three Months Ended December 31, 2006
        16




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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
  17




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LABOR RELATIONS
  ACCOUNTING PRONOUNCEMENTS
  FORWARD-LOOKING STATEMENTS
   18




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 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 third quarter of fiscal year 2008 that has materially affected, or is reasonably likely
to materially affect, the Companys internal control over financial reporting.
  19




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 PART II  OTHER INFORMATION
 
 Unregistered Sales of Equity Securities and Use of Proceeds
 Unregistered Sales of Equity Securities
    Share Repurchase Program
  MaximumTotal Number of
    
    
    Number of SharesTotal Number
    
    
    
    
    
    
    Shares Purchased as
    
    
    that May Yet Beof Shares
    
    
    Average Price
    
    
    Part of Publicly
    
    
    Purchased UnderPurchased (1)
    
    
    Paid Per Share
    
    
    Announced Program (2)
    
    
    the Program (2)October 1 through October 31, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    87,224November 1 through November 30,
2007
    
    
    105,900
    
    
    
    37.78
    
    
    
    105,900
    
    
    
    481,324December 1 through December 31,
2007
    
    
    29,000
    
    
    
    37.65
    
    
    
    29,000
    
    
    
    452,324Total Third Quarter
    
    
    134,900
    
    
    $
    37.73
    
    
    
    134,900
    
    
    
    452,324
 (1)
    
    All share repurchases were effected in open-market transactions and in accordance with the safe harbor
provisions of Rule 10b-18 of the Exchange Act.(2)
    
    The Companys Board of Directors (Board) authorized on February 18, 1998 the repurchase of up to
1,000,000 shares of the Companys common stock (the Repurchase Program). Thereafter, the Companys Board
increased the number of shares authorized to be repurchased by the Company pursuant to the Repurchase Program
as follows: November 9, 1998 (500,000 additional shares); May 4, 1999 (500,000 additional shares); September
28, 1999 (500,000 additional shares); September 26, 2000 (500,000 additional shares); and February 27, 2003
(400,000 additional shares). As a result of the Companys three-for-two stock split distributed on July 10,
2003, the number of shares authorized for repurchase pursuant to the Repurchase Program was automatically
increased to 5,100,000 shares. On November 12, 2007, the Companys Board authorized the repurchase of an
additional 500,000 shares of the Companys common stock for a total of 5,600,000 shares. The aggregate number
of shares repurchased by the Company pursuant to the Repurchase Program as of December 31, 2007 was 5,147,676
on a split-adjusted basis. An expiration date has not been established for the Repurchase Program.
  20




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Exhibits
        *
    
    Incorporated by reference to Exhibits 2.1 and 2.2, respectively, to the Registrants Current
Report on Form 8-K filed on December 7, 2007.
 **
    
    A description of Exhibits A and B to the Fifth Amendment to Receivables Purchase Agreement is
set forth in Section 5 of the Fifth Amendment. The Company hereby undertakes to furnish to the Commission
supplementally upon request a copy of such omitted Exhibits.
  21




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SIGNATURES
  CSS INDUSTRIES, INC.
(Registrant)Date:  January 31, 2008
    By:
    /s/ Christopher J. MunyanChristopher J. MunyanPresident and Chief
Executive Officer
(principal executive officer)Date:  January 31, 2008
    By:
    /s/ Clifford E. PietrafittaClifford E. PietrafittaVice President  Finance and
Chief Financial Officer
(principal financial and accounting officer)  22




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EXHIBIT INDEX
 ExhibitNo.
    
    DescriptionExhibit 2.1
    
    Asset Purchase Agreement dated as of October 31, 2007, among CSS Industries, Inc., Delta
Acquisition, LLC, C. R. Gibson, Inc. and the shareholders of C.R. Gibson, Inc.*Exhibit 2.2
    
    Closing letter dated November 30, 2007 by and among Delta Acquisition, LLC, CSS Industries, Inc.
and C.R. Gibson, Inc., on behalf of itself and its shareholders.*Exhibit 10.1
    
    Fifth Amendment to Receivables Purchase Agreement dated as of August 1, 2007.**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.
 *
    
    Incorporated by reference to Exhibits 2.1 and 2.2, respectively, to the Registrants Current
Report on Form 8-K filed on December 7, 2007.
 **
    
    A description of Exhibits A and B to the Fifth Amendment to Receivables Purchase Agreement is
set forth in Section 5 of the Fifth Amendment. The Company hereby undertakes to furnish to the Commission
supplementally upon request a copy of such omitted Exhibits.
  23