##### 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, 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 nine months ended
December 31, 2010 and 2009
    
    
    3Condensed Consolidated Balance Sheets  December 31, 2010, March 31,
2010 and December 31, 2009
    
    
    4Consolidated Statements of Cash Flows  Nine months ended December
31, 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
    
    
    17Item 4. Controls and Procedures
    
    
    18PART II  OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 6. Exhibits
    
    
    19Signatures
    
    
    20Exhibit 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
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009SALES
    
    $
    174,621
    
    
    $
    182,230
    
    
    $
    387,854
    
    
    $
    396,180COSTS AND EXPENSESCost of sales
    
    
    130,478
    
    
    
    136,661
    
    
    
    290,764
    
    
    
    295,356Selling, general and administrative expenses
    
    
    23,600
    
    
    
    25,224
    
    
    
    71,622
    
    
    
    72,823Interest expense, net
    
    
    425
    
    
    
    645
    
    
    
    1,018
    
    
    
    1,674Other (income) expense, net
    
    
    (116
    )
    
    
    (86
    )
    
    
    (67
    )
    
    
    (337
    )154,387
    
    
    
    162,444
    
    
    
    363,337
    
    
    
    369,516INCOME BEFORE INCOME TAXES
    
    
    20,234
    
    
    
    19,786
    
    
    
    24,517
    
    
    
    26,664INCOME TAX EXPENSE
    
    
    7,379
    
    
    
    7,086
    
    
    
    8,934
    
    
    
    9,562NET INCOME
    
    $
    12,855
    
    
    $
    12,700
    
    
    $
    15,583
    
    
    $
    17,102NET INCOME PER COMMON SHAREBasic
    
    $
    1.32
    
    
    $
    1.32
    
    
    $
    1.61
    
    
    $
    1.78Diluted
    
    $
    1.32
    
    
    $
    1.31
    
    
    $
    1.61
    
    
    $
    1.77WEIGHTED AVERAGE SHARES OUTSTANDINGBasic
    
    
    9,703
    
    
    
    9,646
    
    
    
    9,694
    
    
    
    9,627Diluted
    
    
    9,714
    
    
    
    9,682
    
    
    
    9,706
    
    
    
    9,671CASH DIVIDENDS PER SHARE OF COMMON
STOCK
    
    $
    .15
    
    
    $
    .15
    
    
    $
    .45
    
    
    $
    .45
   3




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##### Table of Contents



CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  December 31,
    
    
    March 31,
    
    
    December 31,2010
    
    
    2010
    
    
    2009(Unaudited)
    
    
    (Audited)
    
    
    (Unaudited)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    4,221
    
    
    $
    27,217
    
    
    $
    4,619Accounts receivable, net of allowances of $4,388, $4,742 and $4,215
    
    
    145,877
    
    
    
    45,711
    
    
    
    152,536Inventories
    
    
    75,800
    
    
    
    78,851
    
    
    
    67,530Deferred income taxes
    
    
    5,102
    
    
    
    6,165
    
    
    
    6,609Assets held for sale
    
    
    1,323
    
    
    
    1,363
    
    
    
    1,363Other current assets
    
    
    12,358
    
    
    
    15,986
    
    
    
    11,986Total current assets
    
    
    244,681
    
    
    
    175,293
    
    
    
    244,643PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    44,665
    
    
    
    47,786
    
    
    
    50,657DEFERRED INCOME TAXES
    
    
    4,767
    
    
    
    5,439
    
    
    
    OTHER ASSETSGoodwill
    
    
    17,233
    
    
    
    17,233
    
    
    
    49,258Intangible assets, net
    
    
    31,962
    
    
    
    32,027
    
    
    
    44,733Other
    
    
    3,880
    
    
    
    3,984
    
    
    
    3,936Total other assets
    
    
    53,075
    
    
    
    53,244
    
    
    
    97,927Total assets
    
    $
    347,188
    
    
    $
    281,762
    
    
    $
    393,227LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESShort-term debt
    
    $
    33,300
    
    
    $
    
    
    
    $
    46,100Current portion of long-term debt
    
    
    166
    
    
    
    481
    
    
    
    497Accrued customer programs
    
    
    10,288
    
    
    
    8,380
    
    
    
    13,034Other current liabilities
    
    
    50,971
    
    
    
    35,535
    
    
    
    48,423Total current liabilities
    
    
    94,725
    
    
    
    44,396
    
    
    
    108,054LONG-TERM DEBT, NET OF CURRENT PORTION
    
    
    
    
    
    
    66
    
    
    
    166LONG-TERM OBLIGATIONS
    
    
    6,206
    
    
    
    4,255
    
    
    
    4,646DEFERRED INCOME TAXES
    
    
    
    
    
    
    
    
    
    
    5,768STOCKHOLDERS EQUITY
    
    
    246,257
    
    
    
    233,045
    
    
    
    274,593Total liabilities and stockholders equity
    
    $
    347,188
    
    
    $
    281,762
    
    
    $
    393,227
   4




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  Nine Months EndedDecember 31,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    15,583
    
    
    $
    17,102Adjustments to reconcile net income to net cash used for
operating activities:Depreciation and amortization
    
    
    8,395
    
    
    
    9,160Provision for doubtful accounts
    
    
    40
    
    
    
    174Deferred tax provision
    
    
    1,734
    
    
    
    709Loss on sale or disposal of assets
    
    
    37
    
    
    
    5Share-based compensation expense
    
    
    1,473
    
    
    
    1,806Changes in assets and liabilities, net of effects of acquisition:Increase in accounts receivable
    
    
    (100,206
    )
    
    
    (108,969
    )Decrease in inventory
    
    
    3,051
    
    
    
    32,566Decrease in other assets
    
    
    3,733
    
    
    
    3,301Increase in other accrued liabilities
    
    
    10,420
    
    
    
    16,323Increase in accrued taxes
    
    
    6,400
    
    
    
    6,190Total adjustments
    
    
    (64,923
    )
    
    
    (38,735
    )Net cash used for operating activities
    
    
    (49,340
    )
    
    
    (21,633
    )Cash flows from investing activities:Purchase of a business
    
    
    
    
    
    
    (225
    )Purchase of property, plant and equipment
    
    
    (2,703
    )
    
    
    (3,606
    )Proceeds from sale of assets
    
    
    80
    
    
    
    13Net cash used for investing activities
    
    
    (2,623
    )
    
    
    (3,818
    )Cash flows from financing activities:Payments on long-term obligations
    
    
    (489
    )
    
    
    (10,396
    )Borrowings on notes payable
    
    
    308,525
    
    
    
    341,460Repayments on notes payable
    
    
    (275,225
    )
    
    
    (299,510
    )Dividends paid
    
    
    (4,363
    )
    
    
    (4,334
    )Proceeds from exercise of stock options
    
    
    479
    
    
    
    671Tax benefit realized for stock options exercised
    
    
    40
    
    
    
    Net cash provided by financing activities
    
    
    28,967
    
    
    
    27,891Effect of exchange rate changes on cash
    
    
    
    
    
    
    Net (decrease) increase in cash and cash equivalents
    
    
    (22,996
    )
    
    
    2,440Cash and cash equivalents at beginning of period
    
    
    27,217
    
    
    
    2,179Cash and cash equivalents at end of period
    
    $
    4,221
    
    
    $
    4,619
   5




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CSS INDUSTRIES, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2010
 (1)
    
    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
  December 31,
    
    
    March 31,
    
    
    December 31,2010
    
    
    2010
    
    
    2009Raw material
    
    $
    14,313
    
    
    $
    12,696
    
    
    $
    11,443Work-in-process
    
    
    11,060
    
    
    
    20,881
    
    
    
    10,539Finished goods
    
    
    50,427
    
    
    
    45,274
    
    
    
    45,548$
    75,800
    
    
    $
    78,851
    
    
    $
    67,530
 Assets Held for Sale
   7




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Property, Plant and Equipment
  December 31,
    
    
    March 31,
    
    
    December 31,2010
    
    
    2010
    
    
    2009Land
    
    $
    2,508
    
    
    $
    2,508
    
    
    $
    2,608Buildings, leasehold interests and improvements
    
    
    45,570
    
    
    
    45,165
    
    
    
    46,376Machinery, equipment and other
    
    
    147,049
    
    
    
    147,305
    
    
    
    146,679195,127
    
    
    
    194,978
    
    
    
    195,663Less  Accumulated depreciation and amortization
    
    
    (150,462
    )
    
    
    (147,192
    )
    
    
    (145,006
    )Net property, plant and equipment
    
    $
    44,665
    
    
    $
    47,786
    
    
    $
    50,657
    Revenue Recognition
   8




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Net Income Per Common Share
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Net income
    
    $
    12,855
    
    
    $
    12,700
    
    
    $
    15,583
    
    
    $
    17,102Denominator:Weighted average shares outstanding for basic
income per common share
    
    
    9,703
    
    
    
    9,646
    
    
    
    9,694
    
    
    
    9,627Effect of dilutive stock options
    
    
    11
    
    
    
    36
    
    
    
    12
    
    
    
    44Adjusted weighted average shares outstanding for
diluted income per common share
    
    
    9,714
    
    
    
    9,682
    
    
    
    9,706
    
    
    
    9,671Basic net income per common share
    
    $
    1.32
    
    
    $
    1.32
    
    
    $
    1.61
    
    
    $
    1.78Diluted net income per common share
    
    $
    1.32
    
    
    $
    1.31
    
    
    $
    1.61
    
    
    $
    1.77
  (2)
    
    SHARE-BASED COMPENSATION
 2004 Equity Compensation Plan
  2006 Stock Option Plan for Non-Employee Directors
   9




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For the Nine MonthsEnded December 31,2010
    
    
    2009Expected dividend yield at time of grant
    
    
    3.17
    %
    
    
    2.98
    %Expected stock price volatility
    
    
    55
    %
    
    
    54
    %Risk-free interest rate
    
    
    2.39
    %
    
    
    2.92
    %Expected life of option (in years)
    
    
    4.7
    
    
    
    4.2
     (3)
    
    DERIVATIVE FINANCIAL INSTRUMENTS
   Fair Value of Derivative InstrumentsFair ValueBalance Sheet
    
    December 31,
    
    
    December 31,Location
    
    2010
    
    
    2009Foreign currency forward contracts
    
    Other current liabilities
    
    $
    11
    
    
    $
    5
  10




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(4)
    
    GOODWILL AND INTANGIBLES
   December 31, 2010
    
    
    March 31, 2010
    
    
    December 31, 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
    
    
    
    4,483
    
    
    
    22,057
    
    
    
    3,358
    
    
    
    22,057
    
    
    
    2,983Non-compete
    
    
    200
    
    
    
    155
    
    
    
    200
    
    
    
    117
    
    
    
    200
    
    
    
    104Trademarks
    
    
    403
    
    
    
    176
    
    
    
    403
    
    
    
    153
    
    
    
    403
    
    
    
    145Patents
    
    
    1,479
    
    
    
    156
    
    
    
    250
    
    
    
    48
    
    
    
    266
    
    
    
    44$
    36,932
    
    
    $
    4,970
    
    
    $
    35,703
    
    
    $
    3,676
    
    
    $
    48,009
    
    
    $
    3,276
   Remainder of fiscal 2011
    
    $
    430Fiscal 2012
    
    
    1,708Fiscal 2013
    
    
    1,675Fiscal 2014
    
    
    1,675Fiscal 2015
    
    
    1,657
 (5)
    
    SHORT-TERM DEBT
     11




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(6)
    
    COMMITMENTS AND CONTINGENCIES
  (7)
    
    FAIR VALUE MEASUREMENTS:
          12




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Fair Value Measurements at December 31, 2010 UsingQuoted PricesIn Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsMarketable securities
    
    $
    676
    
    
    $
    676
    
    
    $
    
    
    
    $
    Cash
surrender value of life insurance policies
    
    
    883
    
    
    
    
    
    
    
    883
    
    
    
    Total assets
    
    $
    1,559
    
    
    $
    676
    
    
    $
    883
    
    
    $
    LiabilitiesDeferred compensation plans
    
    $
    676
    
    
    $
    676
    
    
    $
    
    
    
    $
    Foreign exchange contracts
    
    
    11
    
    
    
    
    
    
    
    11
    
    
    
    Total liabilities
    
    $
    687
    
    
    $
    676
    
    
    $
    11
    
    
    $
    
     13




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##### Table of Contents



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




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RESULTS OF OPERATIONS
 Seasonality
  Nine Months Ended December 31, 2010 Compared to Nine Months Ended December 31, 2009
       Three Months Ended December 31, 2010 Compared to Three Months Ended December 31, 2009
     15




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LIQUIDITY AND CAPITAL RESOURCES
    Less than 1
    
    
    1-3
    
    
    4-5
    
    
    After 5Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalLetters of credit
    
    $
    3,755
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,755
     16




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LABOR RELATIONS
  FORWARD-LOOKING STATEMENTS
  
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   17




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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 third 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
 
 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.
 *
    
    Filed or furnished with this Quarterly Report on Form 10-Q.  19




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##### Table of Contents



SIGNATURES
  CSS INDUSTRIES, INC.
(Registrant)Date:  February 9, 2011
    By:

/s/ Christopher J. MunyanChristopher J. MunyanPresident and Chief
Executive Officer
(principal executive officer)Date:  February 9, 2011
    By:

/s/ Vincent A. PaccapanicciaVincent A. PaccapanicciaVice President  Finance and
Chief Financial Officer
(principal financial and accounting officer)  20