##### 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, 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
    
    (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




---



##### 



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 six months ended September 30, 2009 and 2008
    
    
    3Condensed Consolidated Balance Sheets  September 30, 2009 and March 31, 2009
    
    
    4Consolidated Statements of Cash Flows    Six months ended September 30, 2009 and 2008
    
    
    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
    
    
    18Item 4. Controls and Procedures
    
    
    18PART II  OTHER INFORMATIONItem 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 6. Exhibits
    
    
    19Signatures
    
    
    20Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




---



##### Table of Contents



CSS INDUSTRIES, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008SALES
    
    $
    160,273
    
    
    $
    174,161
    
    
    $
    213,950
    
    
    $
    228,808COSTS AND EXPENSESCost of sales
    
    
    119,630
    
    
    
    129,454
    
    
    
    158,695
    
    
    
    167,167Selling, general and administrative expenses
    
    
    26,238
    
    
    
    27,863
    
    
    
    47,599
    
    
    
    51,413Interest expense, net
    
    
    661
    
    
    
    916
    
    
    
    1,029
    
    
    
    1,200Other (income) expense, net
    
    
    (138
    )
    
    
    36
    
    
    
    (251
    )
    
    
    (30
    )146,391
    
    
    
    158,269
    
    
    
    207,072
    
    
    
    219,750INCOME BEFORE INCOME TAXES
    
    
    13,882
    
    
    
    15,892
    
    
    
    6,878
    
    
    
    9,058INCOME TAX EXPENSE
    
    
    4,990
    
    
    
    5,388
    
    
    
    2,476
    
    
    
    3,050NET INCOME
    
    $
    8,892
    
    
    $
    10,504
    
    
    $
    4,402
    
    
    $
    6,008NET INCOME PER COMMON SHAREBasic
    
    $
    .92
    
    
    $
    1.05
    
    
    $
    .46
    
    
    $
    .59Diluted
    
    $
    .92
    
    
    $
    1.03
    
    
    $
    .46
    
    
    $
    .58WEIGHTED AVERAGE SHARES OUTSTANDINGBasic
    
    
    9,628
    
    
    
    10,043
    
    
    
    9,617
    
    
    
    10,149Diluted
    
    
    9,683
    
    
    
    10,156
    
    
    
    9,666
    
    
    
    10,282CASH DIVIDENDS PER SHARE OF COMMON
STOCK
    
    $
    .15
    
    
    $
    .15
    
    
    $
    .30
    
    
    $
    .30COMPREHENSIVE INCOMENet income
    
    $
    8,892
    
    
    $
    10,504
    
    
    $
    4,402
    
    
    $
    6,008Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Comprehensive income
    
    $
    8,892
    
    
    $
    10,504
    
    
    $
    4,402
    
    
    $
    6,010
   3




---



##### Table of Contents



CSS INDUSTRIES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
  September 30,
    
    
    March 31,2009
    
    
    2009ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    2,830
    
    
    $
    2,179Accounts receivable, net
    
    
    132,212
    
    
    
    43,741Inventories
    
    
    122,422
    
    
    
    99,971Deferred income taxes
    
    
    6,227
    
    
    
    5,758Assets held for sale
    
    
    1,363
    
    
    
    1,363Other current assets
    
    
    16,370
    
    
    
    15,295Total current assets
    
    
    281,424
    
    
    
    168,307PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    52,691
    
    
    
    54,942OTHER ASSETSGoodwill
    
    
    49,258
    
    
    
    49,258Intangible assets, net
    
    
    44,996
    
    
    
    45,649Other
    
    
    3,971
    
    
    
    4,103Total other assets
    
    
    98,225
    
    
    
    99,010Total assets
    
    $
    432,340
    
    
    $
    322,259LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESNotes payable
    
    $
    69,000
    
    
    $
    4,150Current portion of long-term debt
    
    
    10,517
    
    
    
    10,479Accrued customer programs
    
    
    9,655
    
    
    
    9,909Other current liabilities
    
    
    71,405
    
    
    
    29,398Total current liabilities
    
    
    160,577
    
    
    
    53,936LONG-TERM DEBT, NET OF CURRENT PORTION
    
    
    264
    
    
    
    485LONG-TERM OBLIGATIONS
    
    
    4,568
    
    
    
    4,376DEFERRED INCOME TAXES
    
    
    4,399
    
    
    
    4,208STOCKHOLDERS EQUITY
    
    
    262,532
    
    
    
    259,254Total liabilities and stockholders equity
    
    $
    432,340
    
    
    $
    322,259
   4




---



##### Table of Contents



CSS INDUSTRIES, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  Six Months EndedSeptember 30,2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    4,402
    
    
    $
    6,008Adjustments to reconcile net income to net cash used for operating activities:Depreciation and amortization
    
    
    6,264
    
    
    
    6,570Provision for doubtful accounts
    
    
    81
    
    
    
    183Deferred tax (benefit) provision
    
    
    (278
    )
    
    
    356Loss (gain) on sale or disposal of assets
    
    
    5
    
    
    
    (35
    )Share-based compensation expense
    
    
    1,212
    
    
    
    1,390Changes in assets and liabilities, net of effects from purchase of a business:Increase in accounts receivable
    
    
    (88,552
    )
    
    
    (99,313
    )Increase in inventory
    
    
    (22,325
    )
    
    
    (46,706
    )(Increase) decrease in other assets
    
    
    (3,670
    )
    
    
    2,974Increase in other liabilities
    
    
    39,889
    
    
    
    35,823Increase in accrued taxes
    
    
    4,806
    
    
    
    495Total adjustments
    
    
    (62,568
    )
    
    
    (98,263
    )Net cash used for operating activities
    
    
    (58,166
    )
    
    
    (92,255
    )Cash flows from investing activities:Purchase of a business
    
    
    (225
    )
    
    
    (10,614
    )Final payment of purchase price for a business previously acquired
    
    
    
    
    
    
    (2,700
    )Purchase of property, plant and equipment
    
    
    (3,132
    )
    
    
    (7,338
    )Proceeds from sale of assets
    
    
    1
    
    
    
    102Net cash used for investing activities
    
    
    (3,356
    )
    
    
    (20,550
    )Cash flows from financing activities:Payments on long-term obligations
    
    
    (277
    )
    
    
    (131
    )Borrowings on notes payable
    
    
    225,100
    
    
    
    247,280Repayments on notes payable
    
    
    (160,250
    )
    
    
    (144,300
    )Dividends paid
    
    
    (2,886
    )
    
    
    (3,044
    )Purchase of treasury stock
    
    
    
    
    
    
    (9,431
    )Proceeds from exercise of stock options
    
    
    486
    
    
    
    99Tax benefit realized for stock options exercised
    
    
    
    
    
    
    4Net cash provided by financing activities
    
    
    62,173
    
    
    
    90,477Effect of exchange rate changes on cash
    
    
    
    
    
    
    2Net increase (decrease) in cash and cash equivalents
    
    
    651
    
    
    
    (22,326
    )Cash and cash equivalents at beginning of period
    
    
    2,179
    
    
    
    28,109Cash and cash equivalents at end of period
    
    $
    2,830
    
    
    $
    5,783
   5




---



##### Table of Contents



CSS INDUSTRIES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2009
 (1)
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
   Principles of Consolidation
  Nature of Business
  Foreign Currency Translation and Transaction
   6




---



##### Table of Contents



Use of Estimates
  Impairment of Long-Lived Assets including Goodwill and Other Intangible Assets
   Inventories
  September 30,
    
    
    March 31,2009
    
    
    2009Raw material
    
    $
    16,008
    
    
    $
    17,533Work-in-process
    
    
    18,419
    
    
    
    25,437Finished goods
    
    
    87,995
    
    
    
    57,001$
    122,422
    
    
    $
    99,971
 Assets Held for Sale
   7




---



##### Table of Contents



Revenue Recognition
  Net Income Per Common Share
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net income
    
    $
    8,892
    
    
    $
    10,504
    
    
    $
    4,402
    
    
    $
    6,008Denominator:Weighted average shares outstanding for basic
income per common share
    
    
    9,628
    
    
    
    10,043
    
    
    
    9,617
    
    
    
    10,149Effect of dilutive stock options
    
    
    55
    
    
    
    113
    
    
    
    49
    
    
    
    133Adjusted weighted average shares outstanding for
diluted income per common share
    
    
    9,683
    
    
    
    10,156
    
    
    
    9,666
    
    
    
    10,282Basic net income per common share
    
    $
    .92
    
    
    $
    1.05
    
    
    $
    .46
    
    
    $
    .59Diluted net income per common share
    
    $
    .92
    
    
    $
    1.03
    
    
    $
    .46
    
    
    $
    .58
 Statements of Cash Flows
  (2)
    
    RECENT ACCOUNTING PRONOUNCEMENTS
 Accounting Standards Codification
  Subsequent Events
   8




---



##### Table of Contents



Fair Value of Financial Instruments Disclosure
  Business Combinations
   (3)
    
    SHARE-BASED COMPENSATION
 2004 Equity Compensation Plan
  2006 Stock Option Plan for Non-Employee Directors
   9




---



##### Table of Contents



For the Six Months EndedSeptember 30,2009
    
    
    2008Expected dividend yield at time of grant
    
    
    2.90
    %
    
    
    2.18
    %Expected stock price volatility
    
    
    55
    %
    
    
    36
    %Risk-free interest rate
    
    
    3.22
    %
    
    
    3.50
    %Expected life of option (in years)
    
    
    4.0
    
    
    
    4.2
     (4)
    
    DERIVATIVE FINANCIAL INSTRUMENTS
   Fair Value of Derivative InstrumentsBalance SheetLocation
    
    Fair ValueForeign currency forward contracts
    
    Other current liabilities
    
    $
    328
  10




---



##### Table of Contents



(5)
    
    BUSINESS RESTRUCTURING
   Restructuring reserve as of March 31, 2009
    
    $
    55Cash paid  fiscal 2010
    
    
    (55
    )Restructuring reserve as of September 30, 2009
    
    $
    
 (6)
    
    GOODWILL AND INTANGIBLES
   September 30, 2009
    
    
    March 31, 2009Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationTradenames and trademarks
    
    $
    25,083
    
    
    $
    
    
    
    $
    25,083
    
    
    $
    Customer relationships
    
    
    22,057
    
    
    
    2,608
    
    
    
    21,957
    
    
    
    1,860Non-compete
    
    
    200
    
    
    
    92
    
    
    
    500
    
    
    
    367Trademarks
    
    
    403
    
    
    
    138
    
    
    
    403
    
    
    
    123Patents
    
    
    128
    
    
    
    37
    
    
    
    89
    
    
    
    33$
    47,871
    
    
    $
    2,875
    
    
    $
    48,032
    
    
    $
    2,383
  Fiscal 2010
    
    $
    797Fiscal 2011
    
    
    1,592Fiscal 2012
    
    
    1,575Fiscal 2013
    
    
    1,542Fiscal 2014
    
    
    1,530
  11




---



##### Table of Contents



(7)
    
    ACCOUNTS RECEIVABLE SECURITIZATION FACILITY
  (8)
    
    COMMITMENTS AND CONTINGENCIES
  (9)
    
    FAIR VALUE MEASUREMENTS:
        12




---



##### Table of Contents



Fair Value Measurements at September 30, 2009 UsingQuoted PricesIn Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsMarketable securities
    
    $
    779
    
    
    $
    779
    
    
    $
    
    
    
    $
    Cash surrender value of life insurance policies
    
    
    850
    
    
    
    
    
    
    
    850
    
    
    
    Total assets
    
    $
    1,629
    
    
    $
    779
    
    
    $
    850
    
    
    $
    LiabilitiesDeferred compensation plans
    
    $
    779
    
    
    $
    779
    
    
    $
    
    
    
    $
    Foreign exchange contracts
    
    
    328
    
    
    
    
    
    
    
    328
    
    
    
    Total liabilities
    
    $
    1,107
    
    
    $
    779
    
    
    $
    328
    
    
    $
    
 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




---



##### Table of Contents



CSS INDUSTRIES, INC. AND SUBSIDIARIES
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
 CONDITION AND RESULTS OF OPERATIONS
 STRATEGIC OVERVIEW
    
   14




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   RESULTS OF OPERATIONS
 Seasonality
  Six Months Ended September 30, 2009 Compared to Six Months Ended September 30, 2008
       15




---



##### Table of Contents



Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
       LIQUIDITY AND CAPITAL RESOURCES
 
  16




---



##### Table of Contents



Less than 1
    
    
    1-3
    
    
    4-5
    
    
    After 5Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalLetters of credit
    
    $
    5,920
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,920
   LABOR RELATIONS
  ACCOUNTING PRONOUNCEMENTS
 
  17




---



##### Table of Contents



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 second quarter
of fiscal year 2010 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over
financial reporting.
  18




---



##### Table of Contents



CSS INDUSTRIES, INC. AND SUBSIDIARIES
 PART II  OTHER INFORMATION
 
 Submission of Matters to a Vote of Security Holders
  SHARES OF VOTING STOCKFOR
    
    
    WITHHELDScott A. Beaumont
    
    
    8,856,994
    
    
    
    154,656James H. Bromley
    
    
    8,834,795
    
    
    
    176,855Jack Farber
    
    
    8,830,981
    
    
    
    180,670John J. Gavin
    
    
    8,824,614
    
    
    
    187,036Leonard E. Grossman
    
    
    8,767,842
    
    
    
    243,808James E. Ksansnak
    
    
    8,814,280
    
    
    
    197,370Rebecca C. Matthias
    
    
    8,851,782
    
    
    
    159,868Christopher J. Munyan
    
    
    8,809,053
    
    
    
    202,597
 
 Exhibits
      19




---



##### Table of Contents



SIGNATURES
  CSS INDUSTRIES,INC.(Registrant)Date: November 4, 2009
    By:
    /s/Christopher J. MunyanChristopher J. MunyanPresident and Chief Executive Officer
(principal executive officer)Date:  November 4, 2009
    By:
    /s/Clifford E. PietrafittaClifford E. PietrafittaVice President -- Finance and Chief Financial Officer
(principal financial and accounting officer)  20




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    DescriptionExhibit 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.
  21