##### 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 September 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
    
    (I.R.S. Employerincorporation or organization)
    
    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  Three and six months
ended September 30, 2010 and 2009
    
    
    3Condensed Consolidated Balance Sheets  September 30, 2010, March
31, 2010 and September 30, 2009
    
    
    4Consolidated Statements of Cash Flows  Six months ended
September 30, 2010 and 2009
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-13Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    14-17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18PART II  OTHER INFORMATIONItem 6. Exhibits
    
    
    19Signatures
    
    
    20Exhibit 10.2Exhibit 10.3Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
   Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009SALES
    
    $
    159,945
    
    
    $
    160,273
    
    
    $
    213,233
    
    
    $
    213,950COSTS AND EXPENSESCost of sales
    
    
    120,731
    
    
    
    119,630
    
    
    
    160,286
    
    
    
    158,695Selling, general and administrative expenses
    
    
    25,629
    
    
    
    26,238
    
    
    
    48,022
    
    
    
    47,599Interest expense, net
    
    
    384
    
    
    
    661
    
    
    
    593
    
    
    
    1,029Other (income) expense, net
    
    
    (19
    )
    
    
    (138
    )
    
    
    49
    
    
    
    (251
    )146,725
    
    
    
    146,391
    
    
    
    208,950
    
    
    
    207,072INCOME BEFORE INCOME TAXES
    
    
    13,220
    
    
    
    13,882
    
    
    
    4,283
    
    
    
    6,878INCOME TAX EXPENSE
    
    
    4,755
    
    
    
    4,990
    
    
    
    1,555
    
    
    
    2,476NET INCOME
    
    $
    8,465
    
    
    $
    8,892
    
    
    $
    2,728
    
    
    $
    4,402NET INCOME PER COMMON SHAREBasic
    
    $
    .87
    
    
    $
    .92
    
    
    $
    .28
    
    
    $
    .46Diluted
    
    $
    .87
    
    
    $
    .92
    
    
    $
    .28
    
    
    $
    .46WEIGHTED AVERAGE SHARES OUTSTANDINGBasic
    
    
    9,696
    
    
    
    9,628
    
    
    
    9,690
    
    
    
    9,617Diluted
    
    
    9,702
    
    
    
    9,683
    
    
    
    9,702
    
    
    
    9,666CASH DIVIDENDS PER SHARE OF COMMON STOCK
    
    $
    .15
    
    
    $
    .15
    
    
    $
    .30
    
    
    $
    .30
   3




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  September 30,
    
    
    March 31,
    
    
    September 30,2010
    
    
    2010
    
    
    2009(Unaudited)
    
    
    (Audited)
    
    
    (Unaudited)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    2,086
    
    
    $
    27,217
    
    
    $
    2,830Accounts receivable, net of
allowances of $3,439, $4,742 and $3,908
    
    
    140,538
    
    
    
    45,711
    
    
    
    132,212Inventories
    
    
    122,095
    
    
    
    78,851
    
    
    
    122,422Deferred income taxes
    
    
    5,890
    
    
    
    6,165
    
    
    
    6,227Assets held for sale
    
    
    1,323
    
    
    
    1,363
    
    
    
    1,363Other current assets
    
    
    13,194
    
    
    
    15,986
    
    
    
    16,370Total current assets
    
    
    285,126
    
    
    
    175,293
    
    
    
    281,424PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    47,575
    
    
    
    47,786
    
    
    
    52,691DEFERRED INCOME TAXES
    
    
    5,000
    
    
    
    5,439
    
    
    
    OTHER ASSETSGoodwill
    
    
    17,233
    
    
    
    17,233
    
    
    
    49,258Intangible assets, net
    
    
    32,394
    
    
    
    32,027
    
    
    
    44,996Other
    
    
    3,913
    
    
    
    3,984
    
    
    
    3,971Total other assets
    
    
    53,540
    
    
    
    53,244
    
    
    
    98,225Total assets
    
    $
    391,241
    
    
    $
    281,762
    
    
    $
    432,340LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESShort-term debt
    
    $
    55,690
    
    
    $
    
    
    
    $
    69,000Current portion of long-term debt
    
    
    264
    
    
    
    481
    
    
    
    10,517Accrued customer programs
    
    
    10,111
    
    
    
    8,380
    
    
    
    9,655Other current liabilities
    
    
    83,799
    
    
    
    35,535
    
    
    
    71,405Total current liabilities
    
    
    149,864
    
    
    
    44,396
    
    
    
    160,577LONG-TERM DEBT, NET OF CURRENT PORTION
    
    
    
    
    
    
    66
    
    
    
    264LONG-TERM OBLIGATIONS
    
    
    7,240
    
    
    
    4,255
    
    
    
    4,568DEFERRED INCOME TAXES
    
    
    
    
    
    
    
    
    
    
    4,399STOCKHOLDERS EQUITY
    
    
    234,137
    
    
    
    233,045
    
    
    
    262,532Total liabilities and stockholders equity
    
    $
    391,241
    
    
    $
    281,762
    
    
    $
    432,340
   4




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Six Months EndedSeptember 30,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    2,728
    
    
    $
    4,402Adjustments to reconcile net income to net cash used for
operating activities:Depreciation and amortization
    
    
    5,832
    
    
    
    6,264Provision for doubtful accounts
    
    
    82
    
    
    
    81Deferred tax provision (benefit)
    
    
    714
    
    
    
    (278
    )Loss on sale or disposal of assets
    
    
    3
    
    
    
    5Share-based compensation expense
    
    
    966
    
    
    
    1,212Changes in assets and liabilities, net of effects of acquisition:Increase in accounts receivable
    
    
    (94,909
    )
    
    
    (88,552
    )Increase in inventory
    
    
    (43,244
    )
    
    
    (22,325
    )Increase in other assets
    
    
    2,865
    
    
    
    (3,670
    )Increase in other accrued liabilities
    
    
    49,405
    
    
    
    44,695Total adjustments
    
    
    (78,286
    )
    
    
    (62,568
    )Net cash used for operating activities
    
    
    (75,558
    )
    
    
    (58,166
    )Cash flows from investing activities:Purchase of a business
    
    
    
    
    
    
    (225
    )Purchase of property, plant and equipment
    
    
    (2,350
    )
    
    
    (3,132
    )Proceeds from sale of assets
    
    
    
    
    
    
    1Net cash used for investing activities
    
    
    (2,350
    )
    
    
    (3,356
    )Cash flows from financing activities:Payments on long-term obligations
    
    
    (311
    )
    
    
    (277
    )Borrowings on notes payable
    
    
    189,955
    
    
    
    225,100Repayments on notes payable
    
    
    (134,265
    )
    
    
    (160,250
    )Dividends paid
    
    
    (2,907
    )
    
    
    (2,886
    )Proceeds from exercise of stock options
    
    
    289
    
    
    
    486Tax benefit realized for stock options exercised
    
    
    16
    
    
    
    Net cash provided by financing activities
    
    
    52,777
    
    
    
    62,173Effect of exchange rate changes on cash
    
    
    
    
    
    
    Net (decrease) increase in cash and cash equivalents
    
    
    (25,131
    )
    
    
    651Cash and cash equivalents at beginning of period
    
    
    27,217
    
    
    
    2,179Cash and cash equivalents at end of period
    
    $
    2,086
    
    
    $
    2,830
   5




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2010
 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
   Inventories
  September 30,
    
    
    March 31,
    
    
    September 30,2010
    
    
    2010
    
    
    2009Raw material
    
    $
    17,128
    
    
    $
    12,696
    
    
    $
    16,008Work-in-process
    
    
    16,763
    
    
    
    20,881
    
    
    
    18,419Finished goods
    
    
    88,204
    
    
    
    45,274
    
    
    
    87,995$
    122,095
    
    
    $
    78,851
    
    
    $
    122,422
 Assets Held for Sale
   7




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Property, Plant and Equipment
  September 30,
    
    
    March 31,
    
    
    September 30,2010
    
    
    2010
    
    
    2009Land
    
    $
    2,508
    
    
    $
    2,508
    
    
    $
    2,608Buildings, leasehold interests and improvements
    
    
    46,656
    
    
    
    45,165
    
    
    
    46,161Machinery, equipment and other
    
    
    147,197
    
    
    
    147,305
    
    
    
    146,420196,361
    
    
    
    194,978
    
    
    
    195,189Less  Accumulated depreciation
    
    
    (148,786
    )
    
    
    (147,192
    )
    
    
    (142,498
    )Net property, plant and equipment
    
    $
    47,575
    
    
    $
    47,786
    
    
    $
    52,691
    Revenue Recognition
   8




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Net Income Per Common Share
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Net income
    
    $
    8,465
    
    
    $
    8,892
    
    
    $
    2,728
    
    
    $
    4,402Denominator:Weighted average shares outstanding for basic
income per common share
    
    
    9,696
    
    
    
    9,628
    
    
    
    9,690
    
    
    
    9,617Effect of dilutive stock options
    
    
    6
    
    
    
    55
    
    
    
    12
    
    
    
    49Adjusted weighted average shares outstanding for
diluted income per common share
    
    
    9,702
    
    
    
    9,683
    
    
    
    9,702
    
    
    
    9,666Basic net income per common share
    
    $
    .87
    
    
    $
    .92
    
    
    $
    .28
    
    
    $
    .46Diluted net income per common share
    
    $
    .87
    
    
    $
    .92
    
    
    $
    .28
    
    
    $
    .46
 SHARE-BASED COMPENSATION
 2004 Equity Compensation Plan
  2006 Stock Option Plan for Non-Employee Directors
   For the Six MonthsEnded September 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
  9




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DERIVATIVE FINANCIAL INSTRUMENTS
   Fair Value of Derivative InstrumentsFair ValueBalance Sheet
    
    September 30,
    
    
    September 30,Location
    
    2010
    
    
    2009Foreign currency forward contracts
    
    Other current assets
    
    $
    3
    
    
    $
    Foreign currency forward contracts
    
    Other current liabilities
    
    
    
    
    
    
    328
 GOODWILL AND INTANGIBLES
   10




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September 30, 2010
    
    
    March 31, 2010
    
    
    September 30, 2009Gross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationTradenames and trademarks
    
    $
    12,793
    
    
    $
    
    
    
    $
    12,793
    
    
    $
    
    
    
    $
    25,083
    
    
    $
    Customer relationships
    
    
    22,057
    
    
    
    4,108
    
    
    
    22,057
    
    
    
    3,358
    
    
    
    22,057
    
    
    
    2,608Non-compete
    
    
    200
    
    
    
    142
    
    
    
    200
    
    
    
    117
    
    
    
    200
    
    
    
    92Trademarks
    
    
    403
    
    
    
    168
    
    
    
    403
    
    
    
    153
    
    
    
    403
    
    
    
    138Patents
    
    
    1,479
    
    
    
    120
    
    
    
    250
    
    
    
    48
    
    
    
    128
    
    
    
    37$
    36,932
    
    
    $
    4,538
    
    
    $
    35,703
    
    
    $
    3,676
    
    
    $
    47,871
    
    
    $
    2,875
   Remainder of fiscal 2011
    
    $
    862Fiscal 2012
    
    
    1,708Fiscal 2013
    
    
    1,675Fiscal 2014
    
    
    1,675Fiscal 2015
    
    
    1,657
 SHORT-TERM DEBT
      11




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COMMITMENTS AND CONTINGENCIES
  FAIR VALUE MEASUREMENTS:
          12




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Fair Value Measurements at September 30, 2010 UsingQuoted PricesIn Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsMarketable securities
    
    $
    658
    
    
    $
    658
    
    
    $
    
    
    
    $
    Cash surrender value of life
insurance policies
    
    
    877
    
    
    
    
    
    
    
    877Foreign exchange contracts
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    Total assets
    
    $
    1,538
    
    
    $
    658
    
    
    $
    880
    
    
    $
    LiabilitiesDeferred compensation plans
    
    $
    658
    
    
    $
    658
    
    
    $
    
    
    
    $
    Total liabilities
    
    $
    658
    
    
    $
    658
    
    
    $
    
    
    
    $
    
     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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CRITICAL ACCOUNTING POLICIES
   RESULTS OF OPERATIONS
 Seasonality
  Six Months Ended September 30, 2010 Compared to Six Months Ended September 30, 2009
        15




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Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009
       LIQUIDITY AND CAPITAL RESOURCES
    16




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Less than 1
    
    
    1-3
    
    
    4-5
    
    
    After 5Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalLetters of credit
    
    $
    6,450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,450
   LABOR RELATIONS
  FORWARD-LOOKING STATEMENTS
   17




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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 second quarter of fiscal
year 2011 that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.
  18




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 PART II  OTHER INFORMATION
 
 Exhibits
        *
    
    Filed or furnished with this Quarterly Report on Form 10-Q.  19




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SIGNATURES
  CSS INDUSTRIES, INC.
(Registrant)Date:  November 4, 2010
    By:
    /s/Christopher J. MunyanChristopher J. MunyanPresident and Chief
Executive Officer
(principal executive officer) Date:  November 4, 2010
    By:
    /s/Vincent A. PaccapanicciaVincent A. PaccapanicciaVice President  Finance and
Chief Financial Officer
(principal financial and accounting officer)  20