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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 December 31, 2009
 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
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  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, 2009 and 2008
    
    
    3Condensed Consolidated Balance Sheets  December 31, 2009 and March 31, 2009
    
    
    4Consolidated Statements of Cash Flows  Nine months ended December 31, 2009 and 2008
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-14Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15-19Item 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
    
    
    20Signatures
    
    
    21EXHIBIT 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 31,2009
    
    
    2008
    
    
    2009
    
    
    2008SALES
    
    $
    182,230
    
    
    $
    197,122
    
    
    $
    396,180
    
    
    $
    425,930COSTS AND EXPENSESCost of sales
    
    
    136,661
    
    
    
    147,967
    
    
    
    295,356
    
    
    
    315,134Selling, general and administrative expenses
    
    
    25,224
    
    
    
    22,530
    
    
    
    72,823
    
    
    
    73,943Interest expense, net
    
    
    645
    
    
    
    1,093
    
    
    
    1,674
    
    
    
    2,293Other (income) expense, net
    
    
    (86
    )
    
    
    225
    
    
    
    (337
    )
    
    
    195162,444
    
    
    
    171,815
    
    
    
    369,516
    
    
    
    391,565INCOME BEFORE INCOME TAXES
    
    
    19,786
    
    
    
    25,307
    
    
    
    26,664
    
    
    
    34,365INCOME TAX EXPENSE
    
    
    7,086
    
    
    
    8,895
    
    
    
    9,562
    
    
    
    11,945NET INCOME
    
    $
    12,700
    
    
    $
    16,412
    
    
    $
    17,102
    
    
    $
    22,420NET INCOME PER COMMON SHAREBasic
    
    $
    1.32
    
    
    $
    1.69
    
    
    $
    1.78
    
    
    $
    2.24Diluted
    
    $
    1.31
    
    
    $
    1.68
    
    
    $
    1.77
    
    
    $
    2.22WEIGHTED AVERAGE SHARES OUTSTANDINGBasic
    
    
    9,646
    
    
    
    9,734
    
    
    
    9,627
    
    
    
    10,010Diluted
    
    
    9,682
    
    
    
    9,796
    
    
    
    9,671
    
    
    
    10,120CASH DIVIDENDS PER SHARE OF COMMON
STOCK
    
    $
    .15
    
    
    $
    .15
    
    
    $
    .45
    
    
    $
    .45COMPREHENSIVE INCOMENet income
    
    $
    12,700
    
    
    $
    16,412
    
    
    $
    17,102
    
    
    $
    22,420Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Comprehensive income
    
    $
    12,700
    
    
    $
    16,412
    
    
    $
    17,102
    
    
    $
    22,422
   3




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
   December 31,
    
    
    March 31,2009
    
    
    2009ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    4,619
    
    
    $
    2,179Accounts receivable, net
    
    
    152,536
    
    
    
    43,741Inventories
    
    
    67,530
    
    
    
    99,971Deferred income taxes
    
    
    6,609
    
    
    
    5,758Assets held for sale
    
    
    1,363
    
    
    
    1,363Other current assets
    
    
    11,986
    
    
    
    15,295Total current assets
    
    
    244,643
    
    
    
    168,307PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    50,657
    
    
    
    54,942OTHER ASSETSGoodwill
    
    
    49,258
    
    
    
    49,258Intangible assets, net
    
    
    44,733
    
    
    
    45,649Other
    
    
    3,936
    
    
    
    4,103Total other assets
    
    
    97,927
    
    
    
    99,010Total assets
    
    $
    393,227
    
    
    $
    322,259LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESNotes payable
    
    $
    46,100
    
    
    $
    4,150Current portion of long-term debt
    
    
    497
    
    
    
    10,479Accrued customer programs
    
    
    13,034
    
    
    
    9,909Other current liabilities
    
    
    48,423
    
    
    
    29,398Total current liabilities
    
    
    108,054
    
    
    
    53,936LONG-TERM DEBT, NET OF CURRENT PORTION
    
    
    166
    
    
    
    485LONG-TERM OBLIGATIONS
    
    
    4,646
    
    
    
    4,376DEFERRED INCOME TAXES
    
    
    5,768
    
    
    
    4,208STOCKHOLDERS EQUITY
    
    
    274,593
    
    
    
    259,254Total liabilities and stockholders equity
    
    $
    393,227
    
    
    $
    322,259
   4




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Nine Months EndedDecember 31,2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    17,102
    
    
    $
    22,420Adjustments to reconcile net income to net cash used for
operating activities:Depreciation and amortization
    
    
    9,160
    
    
    
    10,101Provision for doubtful accounts
    
    
    174
    
    
    
    206Deferred tax provision
    
    
    709
    
    
    
    2,641Loss (gain) on sale or disposal of assets
    
    
    5
    
    
    
    (771
    )Share-based compensation expense
    
    
    1,806
    
    
    
    2,006Changes in assets and liabilities, net of effects of acquisitions:Increase in accounts receivable
    
    
    (108,969
    )
    
    
    (105,465
    )Decrease in inventory
    
    
    32,566
    
    
    
    12,751Decrease in other assets
    
    
    3,301
    
    
    
    3,794Increase in other liabilities
    
    
    16,323
    
    
    
    9,660Increase in accrued taxes
    
    
    6,190
    
    
    
    5,172Total adjustments
    
    
    (38,735
    )
    
    
    (59,905
    )Net cash used for operating activities
    
    
    (21,633
    )
    
    
    (37,485
    )Cash flows from investing activities:Purchase of a business
    
    
    (225
    )
    
    
    (10,599
    )Final payment of purchase price for a business previously acquired
    
    
    
    
    
    
    (2,700
    )Purchase of property, plant and equipment
    
    
    (3,606
    )
    
    
    (10,731
    )Proceeds from sale of assets
    
    
    13
    
    
    
    3,062Net cash used for investing activities
    
    
    (3,818
    )
    
    
    (20,968
    )Cash flows from financing activities:Payments on long-term obligations
    
    
    (10,396
    )
    
    
    (10,198
    )Borrowings on notes payable
    
    
    341,460
    
    
    
    489,290Repayments on notes payable
    
    
    (299,510
    )
    
    
    (421,890
    )Payment of financing transaction costs
    
    
    
    
    
    
    (621
    )Dividends paid
    
    
    (4,334
    )
    
    
    (4,498
    )Purchase of treasury stock
    
    
    
    
    
    
    (16,687
    )Proceeds from exercise of stock options
    
    
    671
    
    
    
    433Tax benefit realized for stock options exercised
    
    
    
    
    
    
    5Net cash provided by financing activities
    
    
    27,891
    
    
    
    35,834Effect of exchange rate changes on cash
    
    
    
    
    
    
    2Net increase (decrease) in cash and cash equivalents
    
    
    2,440
    
    
    
    (22,617
    )Cash and cash equivalents at beginning of period
    
    
    2,179
    
    
    
    28,109Cash and cash equivalents at end of period
    
    $
    4,619
    
    
    $
    5,492
   5




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2009
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
   Principles of Consolidation
  Nature of Business
  Foreign Currency Translation and Transactions
   6




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Use of Estimates
  Impairment of Long-Lived Assets including Goodwill and Other Intangible Assets
     7




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Inventories
  December 31,
    
    
    March 31,2009
    
    
    2009Raw material
    
    $
    11,443
    
    
    $
    17,533Work-in-process
    
    
    10,539
    
    
    
    25,437Finished goods
    
    
    45,548
    
    
    
    57,001$
    67,530
    
    
    $
    99,971
 Assets Held for Sale
  Revenue Recognition
  Net Income Per Common Share
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net income
    
    $
    12,700
    
    
    $
    16,412
    
    
    $
    17,102
    
    
    $
    22,420Denominator:Weighted average shares outstanding for basic
income per common share
    
    
    9,646
    
    
    
    9,734
    
    
    
    9,627
    
    
    
    10,010Effect of dilutive stock options
    
    
    36
    
    
    
    62
    
    
    
    44
    
    
    
    110Adjusted weighted average shares outstanding for
diluted income per common share
    
    
    9,682
    
    
    
    9,796
    
    
    
    9,671
    
    
    
    10,120Basic net income per common share
    
    $
    1.32
    
    
    $
    1.69
    
    
    $
    1.78
    
    
    $
    2.24Diluted net income per common share
    
    $
    1.31
    
    
    $
    1.68
    
    
    $
    1.77
    
    
    $
    2.22
 Statements of Cash Flows
   8




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RECENT ACCOUNTING PRONOUNCEMENTS
 Accounting Standards Codification
  Subsequent Events
  Fair Value of Financial Instruments Disclosure
  Business Combinations
   SHARE-BASED COMPENSATION
 2004 Equity Compensation Plan
   9




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2006 Stock Option Plan for Non-Employee Directors
   For the Nine MonthsEnded December 31,2009
    
    
    2008Expected dividend yield at time of grant
    
    
    2.98
    %
    
    
    2.47
    %Expected stock price volatility
    
    
    54
    %
    
    
    37
    %Risk-free interest rate
    
    
    2.92
    %
    
    
    3.04
    %Expected life of option (in years)
    
    
    4.2
    
    
    
    4.4
     DERIVATIVE FINANCIAL INSTRUMENTS
   10




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Fair Value of Derivative InstrumentsBalance SheetLocation
    
    Fair ValueForeign currency forward contracts
    
    Other current liabilities
    
    $
    5
 BUSINESS RESTRUCTURING
   Restructuring reserve as of March 31, 2009
    
    $
    55Cash paid  fiscal 2010
    
    
    (55
    )Restructuring reserve as of December 31, 2009
    
    $
    
 GOODWILL AND INTANGIBLES
   December 31, 2009
    
    
    March 31, 2009Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationTradenames and trademarks
    
    $
    25,083
    
    
    $
    
    
    
    $
    25,083
    
    
    $
    Customer relationships
    
    
    22,057
    
    
    
    2,983
    
    
    
    21,957
    
    
    
    1,860Non-compete
    
    
    200
    
    
    
    104
    
    
    
    500
    
    
    
    367Trademarks
    
    
    403
    
    
    
    145
    
    
    
    403
    
    
    
    123Patents
    
    
    266
    
    
    
    44
    
    
    
    89
    
    
    
    33$
    48,009
    
    
    $
    3,276
    
    
    $
    48,032
    
    
    $
    2,383
  11




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Fiscal 2010
    
    $
    405Fiscal 2011
    
    
    1,612Fiscal 2012
    
    
    1,595Fiscal 2013
    
    
    1,562Fiscal 2014
    
    
    1,550
 ACCOUNTS RECEIVABLE SECURITIZATION FACILITY
  COMMITMENTS AND CONTINGENCIES
  FAIR VALUE MEASUREMENTS:
      12




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Fair Value Measurements at December 31, 2009 UsingQuoted PricesIn Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsMarketable securities
    
    $
    795
    
    
    $
    795
    
    
    $
    
    
    
    $
    Cash surrender value of
life insurance policies
    
    
    867
    
    
    
    
    
    
    
    867
    
    
    
    Total assets
    
    $
    1,662
    
    
    $
    795
    
    
    $
    867
    
    
    $
    LiabilitiesDeferred compensation plans
    
    $
    795
    
    
    $
    795
    
    
    $
    
    
    
    $
    Foreign exchange contracts
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    Total liabilities
    
    $
    800
    
    
    $
    795
    
    
    $
    5
    
    
    $
    
 Fair Value Measurements at March 31, 2009 UsingQuoted PricesIn Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableMarch 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsMarketable securities
    
    $
    628
    
    
    $
    628
    
    
    $
    
    
    
    $
    Cash surrender value of
life insurance policies
    
    
    837
    
    
    
    
    
    
    
    837
    
    
    
    Total assets
    
    $
    1,465
    
    
    $
    628
    
    
    $
    837
    
    
    $
    LiabilitiesDeferred compensation plans
    
    $
    628
    
    
    $
    628
    
    
    $
    
    
    
    $
    Total liabilities
    
    $
    628
    
    
    $
    628
    
    
    $
    
    
    
    $
    
  13




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14




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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
      15




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CRITICAL ACCOUNTING POLICIES
   RESULTS OF OPERATIONS
 Seasonality
  Nine Months Ended December 31, 2009 Compared to Nine Months Ended December 31, 2008
      16




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Three Months Ended December 31, 2009 Compared to Three Months Ended December 31, 2008
       LIQUIDITY AND CAPITAL RESOURCES
   17




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Less than 1
    
    
    1-3
    
    
    4-5
    
    
    After 5Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalLetters of credit
    
    $
    4,920
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,920
   LABOR RELATIONS
  ACCOUNTING PRONOUNCEMENTS
   18




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FORWARD-LOOKING STATEMENTS
  
 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 2010 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
 
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 Unregistered Sales of Equity Securities
     
 Item 6.
    
    Exhibits
 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.
  20




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SIGNATURES
  CSS INDUSTRIES, INC.
(Registrant)Date:  February 3, 2010
    By:
    /s/ Christopher J. MunyanChristopher J. MunyanPresident and Chief
Executive Officer
(principal executive officer)Date:  February 3, 2010
    By:
    /s/ Clifford E. PietrafittaClifford E. PietrafittaVice President  Finance and
Chief Financial Officer
(principal financial and accounting officer)  21