Summary of Significant Accounting Policies

6 Months Ended

Sep. 30, 2011

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

CSS Industries, Inc. (collectively with its subsidiaries, “CSS” or the “Company”) has prepared the consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission. On September 9, 2011, the Company and its Cleo Inc (“Cleo”) subsidiary entered into and consummated the transaction contemplated by an agreement for the sale of the Christmas gift wrap portion of Cleo’s business and certain Cleo assets to Impact Innovations, Inc. (“Impact”). Under this agreement, Impact acquired the Christmas gift wrap portion of Cleo’s business and certain of Cleo’s assets relating to such business, including certain equipment, contract rights, customer lists, intellectual property and other intangible assets. Cleo’s remaining assets, including accounts receivable and inventory, were excluded from the sale. Various prior period amounts contained in these unaudited condensed consolidated financial statements include assets, liabilities and cash flows related to Cleo’s Christmas gift wrap business. The results of operations for the three and six-month periods ended September 30, 2011 and 2010, as well as the accompanying notes, reflect the historical operations of Cleo’s Christmas gift wrap business as discontinued operations. The discussions in this quarterly report are presented on the basis of continuing operations, unless otherwise noted.

The Company has condensed or omitted certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States pursuant to such rules and regulations. In the opinion of management, the statements include all adjustments (which include normal recurring adjustments) required for a fair presentation of financial position, results of operations and cash flows for the interim periods presented. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2011 as well as the Company’s Current Report on Form 8-K dated September 9, 2011. The results of operations for the interim periods are not necessarily indicative of the results for the full year.

The Company’s fiscal year ends on March 31. References to a particular fiscal year refer to the fiscal year ending in March of that year. For example, “fiscal 2012” refers to the fiscal year ending March 31, 2012.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.

Nature of Business

CSS is a consumer products company primarily engaged in the design, manufacture, procurement, distribution and sale of seasonal and all occasion social expression products, principally to mass market retailers. These seasonal and all occasion products include decorative ribbons and bows, boxed greeting cards, gift tags, gift bags, gift boxes, gift wrap, gift card holders, decorative tissue paper, decorations, classroom exchange Valentines, floral accessories, Halloween masks, costumes, make-up and novelties, Easter egg dyes and novelties, craft and educational products, stickers, memory books, stationery, journals, notecards, infant and wedding photo albums, scrapbooks, and other gift items that commemorate life’s celebrations. The seasonal nature of CSS’ business has historically resulted in lower sales levels and operating losses in the first and fourth quarters and comparatively higher sales levels and operating profits in the second and third quarters of the Company’s fiscal year, which ends March 31, thereby causing significant fluctuations in the quarterly results of operations of the Company.

Reclassification

Certain prior period amounts have been reclassified to conform with the current year classification.

Foreign Currency Translation and Transactions

Translation adjustments are charged or credited to a separate component of stockholders’ equity. Gains and losses on foreign currency transactions are not material and are included in other expense, net in the consolidated statements of operations.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Judgments and assessments of uncertainties are required in applying the Company’s accounting policies in many areas. Such estimates pertain to the valuation of inventory and accounts receivable, the assessment of the recoverability of goodwill and other intangible and long-lived assets, income tax accounting, the valuation of share-based awards and resolution of litigation and other proceedings. Actual results could differ from these estimates.

Management estimates full year incentive compensation expense primarily based on projected financial performance as compared to the incentive compensation plan targets. In fiscal 2011, the Company allocated expected annual incentive compensation expense on a straight-line basis. Beginning in the first quarter of fiscal 2012, in order to better align the incentive compensation expense to the seasonal nature of its business, the Company began to charge incentive compensation expense to the periods in which profits are generated. As a result of this change in estimate, there was incentive compensation expense of $2,558,000 and $762,000 recorded in the quarters ended September 30, 2011 and 2010, respectively, and $2,558,000 and $2,143,000 recorded in the six months ended September 30, 2011 and 2010, respectively.

Impairment of Long-Lived Assets including Goodwill and Other Intangible Assets

Goodwill is subject to an assessment for impairment using a two-step fair value-based test, the first step of which must be performed at least annually, or more frequently if events or circumstances indicate that goodwill might be impaired. The first step of the test compares the fair value of a reporting unit to its carrying amount, including goodwill, as of the date of the test. The Company uses a dual approach to determine the fair value of its reporting units including both a market approach and an income approach. We believe the use of multiple valuation techniques results in a more accurate indicator of the fair value of each reporting unit. If the carrying amount of the reporting unit exceeds its fair value, the second step is performed. The second step compares the carrying amount of the goodwill to the implied fair value of the goodwill. If the implied fair value of the goodwill is less than the carrying amount of the goodwill, an impairment loss would be reported.

Other indefinite lived intangible assets consist primarily of tradenames which are also required to be tested annually. The fair value of the Company’s tradenames is calculated using a “relief from royalty payments” methodology. Long-lived assets (including property, plant and equipment), except for goodwill and indefinite lived intangible assets, are reviewed for impairment when circumstances indicate the carrying value of an asset group may not be recoverable. If such asset group is considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the asset group exceeds the fair value of the asset group.

Inventories

The Company records inventory when title is transferred, which occurs upon receipt or prior to receipt dependent on supplier shipping terms. The Company adjusts unsaleable and slow-moving inventory to its estimated net realizable value. Substantially all of the Company’s inventories are stated at the lower of first-in, first-out (FIFO) cost or market. The remaining portion of the inventory is valued at the lower of last-in, first-out (LIFO) cost or market. Inventories consisted of the following (in thousands):

	September 30,		March 31,		September 30,
	2011		2011		2010
Raw material	$	10,232	$	8,342	$	11,495
Work-in-process		12,906		14,145		11,719
Finished goods		68,204		46,606		65,749
	$	91,342	$	69,093	$	88,963

Property, Plant and Equipment

Property, plant and equipment are stated at cost and include the following (in thousands):

	September 30,			March 31,			September 30,
	2011			2011			2010
Land	$	2,508		$	2,508		$	2,508
Buildings, leasehold interests and improvements		37,645			37,323			37,697
Machinery, equipment and other		101,525			99,875			124,179
		141,678			139,706			164,384
Less — Accumulated depreciation and amortization		(110,728	)		(107,361	)		(125,495	)
Net property, plant and equipment	$	30,950		$	32,345		$	38,889

In addition, during the fourth quarter of fiscal 2011, the Company identified and wrote off certain property, plant and equipment that was fully depreciated and no longer in use. The net effect was to decrease gross cost and accumulated depreciation by $20,053,000. There was no effect on net property, plant and equipment.

Depreciation expense was $1,576,000 and $1,876,000 for the quarters ended September 30, 2011 and 2010, respectively, and was $3,194,000 and $3,914,000 for the six months ended September 30, 2011 and 2010, respectively.

Revenue Recognition

The Company recognizes revenue from product sales when the goods are shipped, title and risk of loss have been transferred to the customer and collection is reasonably assured. Provisions for returns, allowances, rebates to customers and other adjustments are provided in the same period that the related sales are recorded.

Net Income (Loss) Per Common Share

The following table sets forth the computation of basic and diluted net income (loss) per common share for the three and six months ended September 30, 2011 and 2010 (in thousands, except per share data):

	Three Months Ended					Six Months Ended
	September 30,					September 30,
	2011		2010			2011		2010
Numerator:
Income from continuing operations	$	10,314	$	10,524		$	6,867	$	5,193
Income (loss) from discontinued operations, net of tax		5,171		(2,059	)		1,049		(2,465	)
Net income	$	15,485	$	8,465		$	7,916	$	2,728
Denominator:
Weighted average shares outstanding for basic income per common share		9,741		9,696			9,738		9,690
Effect of dilutive stock options		6		6			5		12
Adjusted weighted average share outstanding for diluted income per common share		9,747		9,702			9,743		9,702
Basic:
Continuing operations	$	1.06	$	1.09		$	0.71	$	0.54
Discontinued operations	$	0.53	$	(0.21	)	$	0.11	$	(0.25	)
Total (1)	$	1.59	$	0.87		$	0.81	$	0.28
Diluted:
Continuing operations	$	1.06	$	1.08		$	0.70	$	0.54
Discontinued operations	$	0.53	$	(0.21	)	$	0.11	$	(0.25	)
Total (1)	$	1.59	$	0.87		$	0.81	$	0.28

(1) Total net income per share for certain periods does not foot due to rounding.