SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]

For the year ended December 31, 2000

|B) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from_____________________ to ____________________

Commission File Number 1-2661

CSS INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 13-1920657
------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1845 Walnut Street, Philadelphia, PA 19103
-------------------------------------- -----------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (215) 569-9900
--------------
Securities registered pursuant to Section 12(b) of the Act:

Title of each Class Name of each exchange on which registered
- ---------------------------- -----------------------------------------
Common Stock, $.10 par value New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None
----------
(Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X No
--- ---

(Page 1 of Cover Page)

Securities registered pursuant to Section 12(g) of the Act:

None
---------
(Title of class)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this form 10-K. /X/

The aggregate market value of the voting stock held by non-affiliates of the
Registrant is approximately $98,232,618. Such aggregate market value was
computed by reference to the closing price of the Common Stock of the Registrant
on the New York Stock Exchange on February 27, 2001 ($22.00 per share). Such
calculation excludes the shares of Common Stock beneficially owned at such date
by certain directors and officers of the Registrant, by the Farber Foundation
and by the Farber Family Foundation, as described under the section entitled
"CSS SECURITY OWNERSHIP" in the Proxy Statement to be filed by the Registrant
for its 2001 Annual Meeting of Stockholders. In making such calculation,
Registrant does not determine the affiliate or non-affiliate status of any
holders of the shares of Common Stock for any other purpose.

At February 27, 2001, there were outstanding 8,830,520 shares of Common
Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's Proxy Statement for its 2001 Annual Meeting of
Stockholders are incorporated by reference in Part III (under Items 10, 11, 12
and 13).

(Page 2 of Cover Page)

Part I

Item 1. Business
General

CSS Industries, Inc. ("CSS" or the "Company") is a consumer products
company primarily engaged in the design, manufacture and sale to mass market
retailers of seasonal, social expression products, including gift wrap, gift
bags, boxed greeting cards, gift tags, tissue paper, paper and vinyl
decorations, seasonal candles, classroom exchange Valentines, decorative
ribbons and bows, Halloween masks, costumes, make-ups and novelties, Easter egg
dyes and novelties and educational products. CSS provides its retail customers
the opportunity to use a single vendor for much of their seasonal product
requirements. CSS' product breadth, product innovation, creative design,
manufacturing and packaging flexibility, product quality and customer service
are key to sustaining the Company's market leadership position. A substantial
portion of CSS' products are manufactured, packaged and warehoused in fourteen
domestic facilities, with the remainder purchased primarily from Asian
manufacturers. The Company's products are sold to its retail customers by
national and regional account managers and product specialists and by a network
of independent manufacturers' representatives. The Company is comprised of The
Paper Magic Group, Inc. ("Paper Magic"), acquired by the Company in August
1988, Berwick Industries LLC ("Berwick"), acquired in May 1993, and Cleo Inc
("Cleo"), acquired in November 1995.

The Company has experienced growth through a combination of acquisitions
and the expansion of existing operations. The Company's goal is to continue to
expand by developing new or complementary products, by entering new markets, by
acquiring companies that are complementary with its existing operating business
and by acquiring other businesses with leading market positions.

Principal Products

CSS designs, manufactures and distributes a broad range of seasonal
consumer products primarily through the mass market distribution channel.
Christmas products include gift wrap, gift bags, boxed greeting cards, gift
tags, tissue paper, paper and vinyl decorations, candles and decorative ribbons
and bows. CSS' Valentine product offerings include classroom exchange Valentine
cards and other related Valentine products, while its Easter product offerings
include Dudley's(R) brand of Easter egg dyes and related Easter seasonal
products. For Halloween, CSS offers a full line of Halloween merchandise
including make-up, costumes, masks, candles and novelties. In addition to
seasonal products, CSS also designs and markets decorative ribbons and bows to
its mass market and wholesale distribution customers and teachers' aids to the
education market through school supply distributors and direct-to-retail
teachers' stores.

CSS manufactures and warehouses its products in fourteen facilities
located in Pennsylvania, Tennessee and New York. Boxed greeting cards, gift
tags, paper and vinyl decorations and classroom exchange Valentine products are
primarily produced and warehoused in five facilities in central and
northeastern Pennsylvania. Manufacturing processes include a wide range of
finishing, assembly and packaging operations. Halloween make-up and Easter egg
dye products are manufactured to specific proprietary formulae by contract
manufacturers who meet regulatory requirements for the formularization and
packaging of such products and are distributed from one facility in
northeastern Pennsylvania and one facility in New York. Ribbons and bows are
manufactured and warehoused in five facilities located in northeastern
Pennsylvania. The manufacturing process is vertically integrated. Most ribbon
and bow products are made from polypropylene resin, a petroleum-based product,
which is mixed with color pigment, melted and pressed through an extruder.
Large rolls of extruded film go through various combinations of manufacturing
processes before being made into bows or packaged on ribbon spools or reels as
required by various markets and customers. Manufacturing of gift wrap,
including web printing, finishing, rewinding and packaging are performed in one
facility in Memphis, Tennessee. Finished goods are warehoused and shipped from
both the production facility and a separate facility in Memphis. Other
products, designed to the specifications of CSS, are imported from Asian
manufacturers.

Sales and Marketing

Most of CSS' products are sold in the United States and Canada by national
and regional account sales managers, product specialists and by a network of
independent manufacturers' representatives. Products are displayed and presented
in showrooms maintained by these representatives in major cities in the United
States and Canada. Relationships are developed with key retail customers by CSS
sales management personnel and the independent manufacturers' representatives.
Customers are generally mass merchandise retailers, warehouse clubs, drug and
food chains, independent card shops and retail teachers' stores. CSS' revenues
are primarily seasonal with approximately 67% of sales related to the Christmas
season and the remaining sales relating to the Halloween, Easter and Valentine's
Day seasons and all-occasion product sales. Seasonal products are generally
designed and marketed beginning approximately eighteen to twenty months before
the event and manufactured during an eight to ten month production cycle. With
such long lead

time requirements, timely communication with outsourcing factories, retail
customers and independent manufacturers' representatives is critical to the
timely production of seasonal products. Because the products themselves are
primarily seasonal, sales terms do not generally require payment until after the
holiday, in accordance with industry practice. CSS maintains permanent showrooms
in New York City, Memphis, Minneapolis and Hong Kong where major retail buyers
will typically visit for a presentation and review of the new lines. In general,
CSS products are not sold under guaranteed or return privilege terms.
All-occasion ribbon and bow products are also sold through independent
manufacturers representatives to wholesale distributors who serve the floral,
craft and retail packaging trades. The Company also sells custom products to
private label customers, to other social expression companies, and to converters
of the company's bulk gift wrap or ribbon products. Custom products are sold by
both independent manufacturers' representatives and CSS sales managers.

Due to the ever increasing competitive retail environment, CSS plays a
crucial role in helping the retailer develop programs to meet revenue
objectives while appealing to consumers' tastes. These objectives are met
through the development and manufacture of custom configured and designed
products. CSS' years of experience in program development and product quality
are key competitive advantages in helping retailers meet their objectives.

Competition

CSS' principal competitor in Christmas products is Plus Mark, Inc. (a
subsidiary of American Greetings Corporation). CSS also competes with various
companies in each of its other seasonal product offerings. Certain of these
competitors are larger and have greater resources than the Company.
Historically, CSS has not competed directly, except to a limited extent, with
Hallmark Cards, Inc. and other product offerings of American Greetings
Corporation. In recent years, these companies have expanded their promotional
offerings to the mass market retail distribution channel.

CSS believes its products are positioned adequately for continued growth
in their primary markets. Since competition is based primarily on price, timely
delivery, creative design and increasingly, the ability to serve major retail
customers with single, combined product shipments for each holiday event, CSS'
product driven focus combined with consistent service levels allows it to
compete effectively in its core markets.

Employees

At February 27, 2001, approximately 2,255 persons were employed by CSS
(increasing to approximately 3,600 as seasonal employees are added).

With the exception of the bargaining unit at the gift wrap facilities in
Memphis, Tennessee, which included 310 employees as of February 27, 2001, CSS
employees are not represented by labor unions. Because of the seasonal nature
of certain of its businesses, the number of production employees fluctuates
during the year.

The Company believes that relationships with its employees are good.

Item 2. Properties

The following table sets forth the location and approximate square footage
of the Company's major manufacturing and distribution facilities:

Approximate Square Feet
---------------------------
Location Use Owned Leased
-------- --- ----- ------

Elysburg, PA Manufacturing and distribution 253,000 --
Elysburg, PA Manufacturing 68,000 --
Danville, PA Distribution 133,000 --
New Berlin, PA Manufacturing -- 31,000
Troy, PA Manufacturing and distribution 223,000 --
Elmira, NY Distribution -- 31,000
Canton, PA Distribution 135,000 --
Berwick, PA Manufacturing and distribution 213,000 --
Berwick, PA Manufacturing and distribution 220,000 --
Berwick, PA Distribution 226,000 --
Berwick, PA Distribution -- 521,000
Berwick, PA Distribution -- 36,000
Memphis, TN Manufacturing and distribution -- 986,000
Memphis, TN Distribution -- 366,000
--------- ---------
Total 1,471,000 1,971,000
========= =========

The Company also utilizes owned and leased space aggregating 107,000
square feet for various marketing and administrative purposes. The headquarters
and principal executive office of the Company are located in Philadelphia,
Pennsylvania.

The Company is also the lessee of approximately 130,000 square feet of
office and retail space (which was related to former operations) which have
been subleased by the Company, as sublessor, to various sublessees.

Item 3. Legal Proceedings

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Part II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Principal Market for Common Stock

The Common Stock of the Company is listed for trading on the New York
Stock Exchange. The following table sets forth the high and low sales prices
per share of that stock for each of the calendar quarters during 2000 and 1999.

High Low
---- ---
2000
- ----
First Quarter ................................... $ 21.63 $ 18.63
Second Quarter .................................. 20.44 18.50
Third Quarter ................................... 20.94 19.50
Fourth Quarter .................................. 21.75 18.63

1999
- ----
First Quarter ................................... $ 31.06 $ 22.25
Second Quarter .................................. 28.56 22.25
Third Quarter ................................... 28.19 20.38
Fourth Quarter .................................. 22.06 20.50

(b) Holders of Common Stock

At February 27, 2001, there were approximately 1,300 holders of the
Company's Common Stock.

The Company has not declared or paid any dividends on its Common Stock for
more than the past three fiscal years. The ability of the Company to pay any
cash dividends on its Common Stock is dependent on the Company's earnings and
profits and cash requirements and is further limited by the terms of the
Company's revolving line of credit. The Company does not anticipate that it
will declare or pay any cash dividends on its Common Stock for the foreseeable
future.

At February 27, 2001, there were no shares of preferred stock outstanding.

Item 6. Selected Financial Data

(In thousands, except per share amounts)

Years Ended December 31,
-----------------------------------------------------------------------------
2000 1999 1998(a) 1997 1996(b)
------------- ------------- ------------- ------------- -------------

Statement of Operations Data:
Sales ...................................... $ 421,084 $ 408,867 $ 417,526 $ 372,733 $ 335,822
Income from continuing operations before
income taxes ............................. 28,406 28,442 37,926 30,442 27,499
Income from continuing operations .......... 18,231 18,061 24,276 18,871 17,110
Income from discontinued operations, net of
income taxes ............................. -- -- -- 6,348 5,234
Gain on sale of discontinued operations, net
of income taxes .......................... -- -- -- 17,871 --
Net income ................................. 18,231 18,061 24,276 43,090 22,344
Income from continuing operations per
common share
Basic .................................... $ 2.02 $ 1.85 $ 2.26 $ 1.74 $ 1.59
Diluted .................................. $ 2.02 $ 1.84 $ 2.21 $ 1.67 $ 1.55

Balance Sheet Data:
Working capital ............................ 133,397 130,889 145,165 129,245 71,780
Total assets ............................... 349,543 349,398 376,590 342,362 330,122
Short-term debt ............................ 62,961 63,488 96,198 52,524 99,027
Long-term debt ............................. 252 537 2,131 2,580 3,762
Shareholders' equity ....................... $ 227,091 $ 219,477 $ 220,493 $ 221,649 $ 176,752

(a) Results for 1998 include pre-tax income of $5,309, or net income of $3,398,
related to restructuring and other special items. For a complete
description of these items, see Management's Discussion and Analysis of
Financial Condition and Results of Operations.

(b) Restated to reflect the historical results of Rapidforms as a discontinued
operation.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Business Acquisitions and Divestitures

On August 18, 1999, the Company acquired certain assets and the business
of Party Professionals, Inc. Party Professionals designed and marketed highly
crafted latex masks, helmets and accessories sold to mass merchandisers, drug
chains, party stores and gift shops. In consideration, the Company paid
$6,000,000 in cash and assumed and repaid $1,606,000 of outstanding debt. The
acquisition was accounted for as a purchase and the excess of cost over fair
market value of $6,697,000 was recorded as goodwill in the accompanying balance
sheet and is being amortized over twenty years. Subsequent to the acquisition,
the operations of Party Professionals, now known as Don Post Studios, Inc.,
were consolidated into existing operations of the Company.

Litigation

In February 1999, CSS was awarded approximately $11,200,000, including
interest, in settlement of a dispute primarily related to the valuation of
inventory acquired in the 1995 acquisition of Cleo Inc. The funds were
subsequently released from escrow. The award slightly increased the goodwill
recorded on the 1998 balance sheet and had no impact on 1998 or 1999 results of
operations.

Seasonality and Change in Fiscal Year

The seasonal nature of CSS' business currently results in low sales and
operating losses for the first two quarters and high shipment levels and
operating profits for the second half of the year, thereby causing significant
fluctuations in the quarterly results of operations of the Company.

Because of the seasonality and the general industry practice of deferred
payment terms, a material portion of the Company's trade receivables are
collected in December and January, thus enabling the Company to repay the
short-term debt borrowed to fund the inventory and accounts receivable build-up
during the year.

On February 21, 2001, CSS' Board of Directors approved a change in the
Company's fiscal year end from December 31 to March 31. The transition period
will commence January 1, 2001 and end March 31, 2001. The Company's new fiscal
year will begin April 1, 2001 and end March 31, 2002. With this change, the
Company's new fiscal year will coincide with its natural revenue cycle.

Restructuring and Other Special Items

The Company implemented a restructuring program in 1998 consisting of the
sale of underutilized real estate, the integration of certain functions, the
discontinuance of under-performing product lines and the reduction of overhead
costs. As a result of the restructuring, a 1,135,000 square foot warehouse,
two-thirds of which had been previously leased to a third party, was sold
subject to a leaseback of the space required for the Company's gift wrap
operation. The transaction resulted in a gain of $16,596,000. Earlier in the
year, the Company also sold an administrative building for a gain of $270,000.
Partially offsetting these gains were restructuring and special, non-recurring
charges, including (1) severance and other charges totaling $2,530,000 related
to the integration of certain functional responsibilities within the Company,
(2) $3,102,000 of charges associated with the write-off of previously
capitalized systems development costs and contract programming costs incurred
in 1998 to correct deficiencies within a management information system
implemented in 1997, and (3) costs totaling $5,925,000 related to the
discontinuance of certain ancillary, unprofitable products lines, including the
write-off of goodwill and product development costs of $3,982,000 and the
establishment of reserves necessary to liquidate the related inventory of
$1,943,000.

A summary of total restructuring and other special items for the year
ended December 31, 1998 is provided below:

Year Ended
December 31, 1998
---------------------------
(in thousands) Effect on
Pre-tax Diluted
Income Earnings
(Expense) Per Share
----------- ----------

Cost of sales:
Inventory disposition costs of
discontinued product lines $ (1,943) $ (.11)
-------- ------
Restructuring and other special items:
Gain on sale of real estate 16,866 .98
Costs to discontinue product lines,
including goodwill write-off (3,982) (.23)
Integration of operations and
management functions (2,530) (.15)
Write-off of systems development costs (3,102) (.18)
-------- ------
7,252 .42
-------- ------
Total $ 5,309 $ .31
======== ======
The restructuring program was completed in 1998.

Results of Operations

Consolidated sales for 2000 increased 3% to $421,084,000 from
$408,867,000. The increase in 2000 sales was primarily attributable to 4%
growth in CSS' base seasonal businesses as reduced sales of discontinued
products partially offset the overall improvement in volume. Consolidated sales
for 1999 decreased by 2% to $408,867,000 from $417,526,000 in 1998. The
decrease was due primarily to the absence of sales related to certain everyday
product lines discontinued in 1999. Excluding these lines, sales were
relatively flat as increased direct import sales were offset by reduced sales
of certain domestically manufactured product lines.

As a percentage of sales, cost of sales was 74% in 2000 and 75% in 1999
and 1998. The improvement in cost of sales as a percentage of sales in 2000 was
due to improved efficiencies in the Company's manufacturing and distribution
operations. The increase in cost of sales as a percentage of sales in 1999 was
attributable to the increased mix of lower margin direct import sales and
reduced absorption of manufacturing overheads due to lower sales of
manufactured product and inventory reduction strategies.

Selling, general and administrative expenses, as a percentage of sales,
was 18% in 2000 and 17% in 1999 and 1998. The increase in selling, general and
administrative costs in 2000 was primarily due to costs associated with the
decentralization of the Company's management structure. On an absolute basis
selling, general and administrative costs decreased 3% in 1999 primarily due to
improved efficiencies as the benefits of a system implementation completed in
1998 resulted in incremental cost savings at one of the Company's locations.
Partially offsetting these savings were incremental costs associated with
organizational changes. These costs reduced 1999 earnings by $1,191,000, or
$.08 per share.

Interest expense, net was $5,080,000 in 2000, $4,294,000 in 1999 and
$4,445,000 in 1998. Interest expense increased in 2000 primarily due to the
impact of higher interest rates as operating cash flow was largely offset by
incremental borrowings to repurchase the Company's stock. Interest expense
decreased 3% in 1999 as cash flow from operations, the favorable settlement of
an arbitration related to the acquisition of Cleo and reduced working capital
requirements for inventory and accounts receivable were somewhat offset by cash
outlays to repurchase the Company's stock and to acquire Party Professionals,
Inc.

Restructuring and other special items resulted in income of $7,252,000 in
1998 and included the gain of $16,596,000 related to the sale and partial
leaseback of a distribution center. This gain was partially offset by the
write-off of goodwill and product development expenses related to ancillary
product lines which the Company has discontinued, severance and other costs
related to the integration of management functions within the Company and the
write-off of certain systems development costs. The restructuring program was
completed in 1998.

Rental and other income, net was $123,000 in 2000, $959,000 in 1999 and
$1,647,000 in 1998. The current year decrease was due to the absence in 2000 of
income from the 1999 restructuring of a portion of the Company's deferred
compensation liability. The decrease in 1999 resulted from lower income related
to sublease interests, net of income related to the restructuring of a portion
of the Company's deferred compensation liability.

Income before income taxes was $28,406,000, or 7% of sales in 2000,
$28,442,000, or 7% of sales in 1999 and $37,926,000, or 9% of sales in 1998.

Net income for the year ended December 31, 2000 increased 1% to
$18,231,000, and decreased 26% in 1999 to $18,061,000. Net income per diluted
share increased 10% in 2000 to $2.02 and decreased 17% in 1999 to $1.84 per
share. Excluding 1998 special items, income from continuing operations per
diluted share decreased 3% from $1.90 to $1.84 in 1999. Earnings per share in
2000, 1999 and 1998 were benefited by the Company's stock repurchase program.
The cumulative buyback of stock added $.18, $.11 and $.02, respectively to
income from continuing operations per diluted share.

Inflation

The financial statements are presented on a historical cost basis and do
not fully reflect the impact of prior years' inflation. The U.S. inflation rate
has been modest the past several years and the Company conducts the majority of
its business using U.S. currency. The ability to pass on inflationary costs is
uncertain due to general economic conditions and competitive situations. The
Company attempts to alleviate inflationary material and labor pressures by
increasing selling prices to help offset rising costs (subject to competitive
conditions), increasing productivity, and improving design and manufacturing
techniques.

Liquidity and Capital Resources

At December 31, 2000, the Company had working capital of $133,397,000 and
shareholders' equity of $227,091,000. The increase in accounts receivable, net
of reserves, from $165,033,000 in 1999 to $177,087,000 in 2000 was a result of
higher sales volume compared to 1999 and the timing of customer collections
compared to 1999. Inventories, net of reserves, decreased to $54,000,000 from
$64,884,000 due to improved inventory management. Other current assets
decreased to $9,509,000 in 2000 from $11,272,000 due primarily to decreased
product development spending. Property, plant and equipment increased from
$55,916,000 in 1999 to $60,945,000 in 2000 due to capital expenditures related
to the implementation of an enterprise resource planning system at a subsidiary
of the Company and incremental investments in manufacturing equipment. Accounts
payable decreased from $14,332,000 to $11,054,000 as a result of lower
inventory levels and reduced spending. Accrued payroll and other compensation
increased from $5,349,000 in 1999 to $9,342,000 due primarily to increased
bonuses earned in 2000. Short term debt decreased slightly from $63,488,000 to
$62,961,000 as operating cash generated substantially offset the cash expended
for the funding of the Company's stock repurchase program and increased
interest costs.

The Company relies primarily on cash generated from its operations and
seasonal borrowings to meet its liquidity requirements. Most CSS revenues are
seasonal with approximately 78% percent of sales being Christmas and Halloween
related. As payment for sales of Christmas and Halloween related products is
usually not received until after the respective holiday in accordance with
general industry practice, short-term borrowing needs increase throughout the
second and third quarters, peaking prior to Christmas and dropping thereafter.
Seasonal borrowings are made under a $300,000,000 unsecured revolving credit
facility with thirteen banks and financial institutions. The facility is
available to fund the seasonal borrowing needs and to provide the Company with
a source of capital for general corporate purposes. At December 31, 2000, there
was $62,615,000 outstanding under this facility. In January, the Company repaid
all amounts outstanding on the facility by utilizing the proceeds from the
collection of trade accounts receivable. The Company is currently in
negotiation with a financial institution and expects to replace its revolving
credit facility prior to its expiration on April 30, 2001. For information
concerning the revolving credit facility, see Note 8 of Notes to Consolidated
Financial Statements.

On February 19, 1998, the Company announced that its Board of Directors
had authorized the buyback of up to 1,000,000 shares of the Company's Common
Stock. Subsequently, the Executive Committee of the Board of Directors
authorized additional repurchases of shares on terms acceptable to management.
The cumulative authorized repurchase amount is 3,000,000 shares. Any such buy
back is subject to compliance with regulatory requirements and relevant
covenants of the Company's $300,000,000 unsecured revolving credit facility.
The Company repurchased 543,200 shares for $10,861,000 and 942,451 shares for
$21,505,000 in 2000 and 1999, respectively.

Based on its current operating plan, the Company believes its sources of
available capital are adequate to meet its ongoing cash needs for the
foreseeable future.

Accounting Pronouncements

In June 1998 and June 2000, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities,"
respectively. These statements establish accounting and reporting standards
requiring that every derivative instrument be recorded on the balance sheet as
either an asset or liability measured at its fair value. SFAS Nos. 133 and 138
also require that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
Nos. 133 and 138 are effective for fiscal years beginning after June 15, 2000.
The Company adopted SFAS No. 133, as amended by SFAS No. 138, on January 1,
2001, as required. The adoption of SFAS No. 133, as amended by SFAS No. 138,
would not have had a material impact on the consolidated statements of
operations as of December 31, 2000.

In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), which clarifies certain existing accounting principles
for the timing of revenue recognition and its classification in the financial
statements. In October 2000, the SEC issued further guidance on the
interpretations included in SAB 101. This SAB was adopted by the Company with
no significant impact on the consolidated statements of operations.

Forward-Looking and Cautionary Statements

This document contains certain forward-looking statements that are subject
to risks and uncertainties. Forward-looking statements include certain
information related to the Company's capital resources and the costs related to
operational decisions, as well as information contained elsewhere in this
report where statements are preceded by, followed by, or include the words
"believes," "expects," "anticipates" or similar expressions. For such
statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including without limitation, general market conditions, increased competition,
and factors discussed elsewhere in this report and the documents incorporated
herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company's primary market risk exposure with regard to financial
instruments is to changes in interest rates. Pursuant to the Company's line of
credit, a change in either the lender's base rate or LIBOR would affect the
rate at which the Company could borrow funds thereunder. The Company believes
that the effect of any such change would not be material.

CSS INDUSTRIES, INC.
AND SUBSIDIARIES

Item 8. Financial Statements

INDEX

Page
--------

Report of Independent Public Accountants ................................................................. 25

Consolidated Balance Sheets - December 31, 2000 and 1999 ................................................. 26-27

Consolidated Statements of Operations - for the years ended December 31, 2000, 1999 and 1998 ............. 28

Consolidated Statements of Cash Flows - for the years ended December 31, 2000, 1999 and 1998 ............. 29

Consolidated Statements of Shareholders' Equity - for the years ended December 31, 2000, 1999 and 1998 ... 30-31

Notes to Consolidated Financial Statements ............................................................... 32-41

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders
of CSS Industries, Inc.:

We have audited the accompanying consolidated balance sheets of CSS
Industries, Inc. (a Delaware Corporation) and subsidiaries as of December 31,
2000 and 1999 and the related consolidated statements of operations, cash flows
and shareholders' equity for each of the three years in the period ended
December 31, 2000. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CSS
Industries, Inc. and subsidiaries as of December 31, 2000 and 1999 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplemental schedule
listed in Item 14(a) is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Philadelphia, PA
February 21, 2001

CSS Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)

December 31,
---------------------------
2000 1999
ASSETS ------------ ------------

CURRENT ASSETS
Cash and temporary investments .................................................. $ 1,058 $ 3,292
Accounts receivable, net of allowance for doubtful accounts of $1,512 and $1,647 177,087 165,033
Inventories ..................................................................... 54,000 64,884
Deferred income taxes ........................................................... 5,096 5,886
Other current assets ............................................................ 9,509 11,272
--------- ---------
Total current assets .......................................................... 246,750 250,367
--------- ---------

PROPERTY, PLANT AND EQUIPMENT
Land ............................................................................ 524 524
Buildings, leasehold interests and improvements ................................. 33,833 30,728
Machinery, equipment and other .................................................. 81,720 72,373
--------- ---------
116,077 103,625
Less -- Accumulated depreciation ................................................ (55,132) (47,709)
--------- ---------
Net property, plant and equipment ............................................. 60,945 55,916
--------- ---------

OTHER ASSETS
Intangible assets, net of accumulated amortization of $9,747 and $8,483 ......... 38,853 39,971
Other ........................................................................... 2,995 3,144
--------- ---------
Total other assets ............................................................ 41,848 43,115
--------- ---------
$ 349,543 $ 349,398
========= =========

December 31,
--------------------------
2000 1999
LIABILITIES AND SHAREHOLDERS' EQUITY ------------ -----------

CURRENT LIABILITIES
Notes payable ................................................................. $ 62,615 $ 62,370
Current portion of long-term debt ............................................. 346 1,118
Accounts payable .............................................................. 11,054 14,332
Accrued payroll and other compensation ........................................ 9,342 5,349
Accrued income taxes .......................................................... 7,142 7,451
Accrued expenses .............................................................. 22,854 28,858
--------- ---------
Total current liabilities ................................................... 113,353 119,478
--------- ---------

LONG-TERM DEBT, NET OF CURRENT PORTION ......................................... 252 537
--------- ---------
OTHER LONG-TERM OBLIGATIONS .................................................... 2,802 4,770
--------- ---------
DEFERRED INCOME TAXES .......................................................... 6,045 5,136
--------- ---------
COMMITMENTS AND CONTINGENCIES .................................................. -- --
SHAREHOLDERS' EQUITY
Preferred stock, Class 2, $.01 par, 1,000,000 shares authorized ............... -- --
Common stock, $.10 par, 20,000,000 shares authorized
12,366,566 shares issued and 8,830,520 outstanding at December 31, 2000
12,366,566 shares issued and 9,368,185 outstanding at December 31, 1999 ..... 1,237 1,237
Additional paid-in capital .................................................... 29,538 29,358
Retained earnings ............................................................. 272,060 253,882
Common stock in treasury, 3,536,046 and 2,998,381 shares, at cost ............. (75,744) (65,000)
--------- ---------
Total shareholders' equity .................................................. 227,091 219,477
--------- ---------
$ 349,543 $ 349,398
========= =========

See notes to consolidated financial statements.

CSS Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)

Years Ended December 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------

SALES .......................................................... $421,084 $408,867 $417,526
-------- -------- --------
COSTS AND EXPENSES
Cost of sales ................................................. 312,586 306,129 311,161
Selling, general and administrative expenses .................. 75,135 70,961 72,893
Restructuring and other special items ......................... -- -- (7,252)
Interest expense, net of interest income of $123, $175 and $59. 5,080 4,294 4,445
Rental and other income, net .................................. (123) (959) (1,647)
-------- -------- --------
392,678 380,425 379,600
-------- -------- --------
INCOME BEFORE INCOME TAXES ..................................... 28,406 28,442 37,926
INCOME TAXES ................................................... 10,175 10,381 13,650
-------- -------- --------
NET INCOME ..................................................... $ 18,231 $ 18,061 $ 24,276
======== ======== ========
NET INCOME PER COMMON SHARE
Basic ......................................................... $ 2.02 $ 1.85 $ 2.26
======== ======== ========
Diluted ....................................................... $ 2.02 $ 1.84 $ 2.21
======== ======== ========

See notes to consolidated financial statements.

CSS Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)

Years Ended December 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------

Cash flows from operating activities:
Net income ........................................................... $ 18,231 $ 18,061 $ 24,276
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation and amortization ...................................... 10,358 9,484 9,019
Write-down of goodwill ............................................. -- -- 3,530
Provision for doubtful accounts .................................... 1,323 1,302 1,406
Deferred tax provision (benefit) ................................... 1,699 710 (403)
Loss (gain) on sale or disposal of assets .......................... 35 223 (14,774)
Compensation expense on stock option issuance ...................... 93 -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ........................ (13,377) 17,897 (18,628)
Decrease (increase) in inventories ................................ 10,884 17,616 (15,136)
Decrease in other assets .......................................... 1,428 8,617 486
(Decrease) in accounts payable .................................... (3,278) (135) (1,140)
(Decrease) in accrued taxes ....................................... (222) (274) (11,917)
(Decrease) increase in accrued expenses ........................... (2,415) 4,820 618
--------- --------- ---------
Total adjustments ............................................... 6,528 60,260 (46,939)
--------- --------- ---------
Net cash provided by (used for) operating activities ............ 24,759 78,321 (22,663)
--------- --------- ---------
Cash flows from investing activities:
Purchase of business, net of cash received of $120 in 1999............ -- (7,486) --
Purchase of property, plant and equipment ............................ (13,877) (14,858) (14,800)
Proceeds from sale of assets ......................................... 56 70 21,743
--------- --------- ---------
Net cash (used for) provided by investing activities ............ (13,821) (22,274) 6,943
--------- --------- ---------
Cash flows from financing activities:
Payments on long-term obligations .................................... (2,706) (2,450) (1,131)
Borrowings on long-term obligations .................................. 86 -- --
Borrowings (repayments) on notes payable ............................. 245 (32,950) 43,750
Purchase of treasury stock ........................................... (10,861) (21,505) (28,771)
Proceeds from exercise of stock options .............................. 64 1,936 2,721
--------- --------- ---------
Net cash (used for) provided by financing activities ............ (13,172) (54,969) 16,569
--------- --------- ---------
Net (decrease) increase in cash and temporary investments ............. (2,234) 1,078 849
Cash and temporary investments at beginning of year ................... 3,292 2,214 1,365
--------- --------- ---------
Cash and temporary investments at end of year ......................... $ 1,058 $ 3,292 $ 2,214
========= ========= =========

See notes to consolidated financial statements.

CSS Industries, Inc. and Subsidiaries
Consolidated Statements of
Shareholders' Equity
(In thousands, except share amounts)

Preferred Stock Common Stock
------------------- ------------------------
Shares Amount Shares Amount
-------- -------- ------------ ---------

BALANCE, JANUARY 1, 1998 ..................... -- $ -- 12,366,566 $1,237
Tax benefit associated with exercise of stock
options ................................... -- -- -- --
Issuance of common stock upon exercise of
stock options ............................. -- -- -- --
Increase in treasury shares ................. -- -- -- --
Net income .................................. -- -- -- --
---- ----- ---------- ------
BALANCE, DECEMBER 31, 1998 ................... -- -- 12,366,566 1,237
Tax benefit associated with exercise of stock
options ................................... -- -- -- --
Issuance of common stock upon exercise of
stock options ............................. -- -- -- --
Increase in treasury shares ................. -- -- -- --
Net income .................................. -- -- -- --
---- ----- ---------- ------
BALANCE, DECEMBER 31, 1999 ................... -- -- 12,366,566 1,237
Tax benefit associated with exercise of stock
options ................................... -- -- -- --
Issuance of common stock upon exercise of
stock options ............................. -- -- -- --
Compensation expense on stock option issuance -- -- -- --
Increase in treasury shares ................. -- -- -- --
Net income .................................. -- -- -- --
---- ----- ---------- ------
BALANCE, DECEMBER 31, 2000 ................... -- $ -- 12,366,566 $1,237
==== ===== ========== ======

Common Stock
Additional in Treasury
Paid-in Retained -------------------------------
Capital Earnings Shares Amount Total
- ------------ ------------ --------------- ------------- -----------
$28,248 $214,748 (1,429,977) $ (22,584) $ 221,649
618 -- -- -- 618
-- (592) 181,566 3,313 2,721
-- -- (986,400) (28,771) (28,771)
-- 24,276 -- -- 24,276
------- -------- ---------- --------- ---------
28,866 238,432 (2,234,811) (48,042) 220,493
492 -- -- -- 492
-- (2,611) 178,881 4,547 1,936
-- -- (942,451) (21,505) (21,505)
-- 18,061 -- -- 18,061
------- -------- ---------- --------- ---------
29,358 253,882 (2,998,381) (65,000) 219,477
87 -- -- -- 87
-- (53) 5,535 117 64
93 -- -- -- 93
-- -- (543,200) (10,861) (10,861)
-- 18,231 -- -- 18,231
------- -------- ---------- --------- ---------
$29,538 $272,060 (3,536,046) $ (75,744) $ 227,091
======= ======== ========== ========= =========

CSS Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The consolidated financial statements include the accounts of CSS
Industries, Inc. ("Company") and all subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation. Gains and
losses on foreign currency transactions are not material and are included in
selling, general and administrative expenses in the consolidated statements of
operations.

Nature of Business

Reclassification

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

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles 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. Actual results could differ from those estimates.

Inventories

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 cost or market. Had all
inventories been valued at the lower of FIFO cost or market, inventories would
have been greater by $1,394,000 and $1,204,000 at December 31, 2000 and 1999,
respectively. Inventories consisted of the following:

2000 1999
(in thousands) ------- -------
Raw material ............. $13,874 $19,848
Work-in-process .......... 14,349 15,967
Finished goods ........... 25,777 29,069
------- -------
$54,000 $64,884
======= =======

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation and
amortization are provided generally on the straight-line method and are based
on estimated useful lives or terms of leases as follows:

Buildings, leasehold interests and improvements ......... Lease term to 40 years
Machinery, equipment and other .......................... 3 to 12 years

When property is retired or otherwise disposed of, the related cost and
accumulated depreciation and amortization are eliminated from the accounts. Any
gain or loss from the disposition of property, plant and equipment is included
in other income. Maintenance and repairs are expensed as incurred while
improvements are capitalized and depreciated over their estimated useful lives.

Intangible Assets

Intangible assets, including goodwill, are amortized over terms from five
to 40 years.

Long Lived Assets

The Company periodically evaluates the net realizable value of long lived
assets, including goodwill and other intangible assets and property, plant and
equipment, relying on a number of factors including operating results, business
plans, economic projections and anticipated future cash flows. An impairment in
the carrying value of an asset is assessed when the undiscounted, expected
future operating cash flows derived from the asset are less than its carrying
value.

Foreign Currency Contracts

The Company enters into foreign currency contracts in order to reduce the
impact of certain foreign currency fluctuations. Firmly committed transactions
and the related receivables and payables may be hedged with forward exchange
contracts. Gains and losses arising from foreign currency forward contracts are
recognized in income or expense as offsets of gains and losses resulting from
the underlying hedged transactions. As of December 31, 2000 and 1999, the net
value of open forward exchange contracts and the related gains and losses were
not material.

Income Taxes

The Company follows the liability method of accounting for deferred income
taxes. Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and
liabilities. Deferred tax assets or liabilities at the end of each period are
determined using the tax rate expected to be in effect when taxes are actually
paid or recovered.

Revenue Recognition

The Company recognizes revenues in accordance with its shipping terms.
Returns and allowances are reserved for based on specific need or historical
experience.

Net Income Per Common Share

The following table sets forth the computation of basic earnings per share
and diluted earnings per share for the years ended December 31, 2000, 1999 and
1998:

2000 1999 1998 (a)
(in thousands) ------------ ------------ ------------

Numerator:
Net income ............................... $ 18,231 $ 18,061 $ 24,276
Denominator:
Weighted average shares outstanding
for basic earnings per share ........... 9,037 9,747 10,737
Effect of dilutive stock options ......... 4 48 271
-------- -------- --------
Adjusted weighted average shares out-
standing for diluted earnings per
share .................................. 9,041 9,795 11,008
======== ======== ========
Basic earnings per share .................. $ 2.02 $ 1.85 $ 2.26
======== ======== ========
Diluted earnings per share ................ $ 2.02 $ 1.84 $ 2.21
======== ======== ========

(a) Results for 1998 include pre-tax income of $5,309, or net income of $3,398,
related to restructuring and other special items. For a complete
description of these items, see Note 3.

Statements of Cash Flows

For purposes of the statements of cash flows, the Company considers all
holdings of highly liquid debt instruments with original maturity of less than
three months to be temporary investments.

Supplemental Schedule of Cash Flow Information

(In thousands)

2000 1999 1998
--------- ---------- ----------

Cash paid during the year for:
Interest .............................. $5,290 $ 4,533 $ 4,011
====== ======= =======
Income taxes .......................... $9,120 $10,258 $24,126
====== ======= =======
Details of acquisitions:
Fair value of assets acquired ......... -- $ 9,739 --
Liabilities assumed ................... -- 2,133 --
------ ------- -------
Cash paid ............................. -- 7,606 --
Less cash acquired .................... -- 120 --
------ ------- -------
Net cash paid for acquisitions .......... $ -- $ 7,486 $ --
====== ======= =======

See Note 2 for supplemental disclosure of non-cash investing activities.

(2) BUSINESS ACQUISITIONS AND DIVESTITURES:
On August 18, 1999, the Company acquired certain assets and the business
of Party Professionals, Inc. Party Professionals designed and marketed highly
crafted latex masks, helmets and accessories sold to mass merchandisers, drug
chains, party stores and gift shops. In consideration, the Company paid
$6,000,000 in cash and assumed and repaid $1,606,000 of outstanding debt. The
acquisition was accounted for as a purchase and the excess of cost over fair
market value of $6,697,000 was recorded as goodwill in the accompanying balance
sheet and is being amortized over twenty years. As of December 31, 1999, the
operations of Party Professionals, now known as Don Post Studios, Inc., were
consolidated into existing operations of the Company.

(3) RESTRUCTURING AND OTHER SPECIAL ITEMS:
On July 7, 1998, a subsidiary of the Company sold a distribution facility
for $21,500,000 resulting in a gain of $16,596,000. Pursuant to the sale
agreement, the Company has entered into a five year agreement to lease back a
portion of the facility from the purchaser. The present value of the future
lease payments of $4,192,000 was recorded at the inception of the lease as
deferred revenue on the balance sheet and will offset rental expense over the
term of the lease. Earlier in 1998, the Company also sold an administrative
building for a gain of $270,000. Partially offsetting these gains were
restructuring and special, non-recurring charges, including (1) severance and
other charges totaling $2,530,000 related to the integration of certain
functional responsibilities within the Company, (2) $3,102,000 of charges
associated with the write-off of previously capitalized systems development
costs and contract programming costs incurred in 1998 to correct deficiencies
within a management information system implemented in 1997, and (3) costs
totaling $3,982,000 related to the discontinuance of certain ancillary,
unprofitable product lines, including the write-off of goodwill and product
development costs. The Company also recorded $1,943,000 in Cost of Sales to
reserve for the liquidation of inventory related to discontinued product lines.
The restructuring program was completed in 1998.

(4) TREASURY STOCK TRANSACTIONS:
On February 19, 1998, the Company announced that its Board of Directors
had authorized the buyback of up to 1,000,000 shares of the Company's Common
Stock. Subsequently, the Board of Directors authorized repurchases of an
additional 2,000,000 shares on terms acceptable to management. Any such buyback
is subject to compliance with regulatory requirements and relevant covenants of
the Company's $300,000,000 unsecured revolving credit facility. The Company
repurchased 543,200 shares for $10,861,000 and 942,451 shares for $21,505,000
in 2000 and 1999, respectively.

(5) STOCK OPTION PLANS:
Under the terms of the 1994 Equity Compensation Plan ("1994 Plan"), the
Human Resources Committee ("Committee") of the Board of Directors may grant
incentive stock options, non-qualified stock options, restricted stock grants,
stock appreciation rights or combinations thereof to officers and other key
employees. Grants under the 1994 Plan may be made through November 2004 and are
exercisable at the discretion of the Committee but in no event greater than ten
years from the date of grant. Options may be exercised at the rate of 25% per
year commencing one year after the date of grant. At December 31, 2000, options
to acquire 515,684 shares were available for grant under the 1994 Plan.

On May 17, 2000 the Committee authorized the amendment of the option
exercise period of each grant that would have otherwise expired on or before
January 31, 2001 to extend such period for two years, and on November 3, 2000
further authorized the amendment of the option exercise period of each grant
(including those option exercise periods extended on May 17, 2000) to ten years
from the respective date of each such grant. The Company recorded compensation
expense of $93,000 as a result of these amendments which represented the
difference between the market value of the shares and the exercise price on the
date of the amendments.

The Board of Directors of the Company adopted the CSS Industries, Inc.
2000 Stock Option Plan for Non-Employee Directors ("2000 Plan"), subject to
stockholder approval. If approved by the Stockholders, non-qualified stock
options to purchase up to 200,000 shares of common stock would be available for
grant to non-employee directors at exercise prices of not less than fair market
value on the date of grant. Under the 2000 Plan, options to purchase 4,000
shares of the Company's common stock would be granted automatically to each
non-employee director on the last day that the Company's common stock is traded
in November from 2001 to 2005. Each option will expire ten years after the date
the option is granted and options may be exercised at the rate of 25% per year
commencing one year after the date of grant.

The CSS Industries, Inc. 1995 Stock Option Plan for Non-Employee Directors
("1995 Plan"), under which non-qualified stock options to purchase up to
300,000 shares of common stock were available for grant to non-employee
directors at exercise prices of not less than fair market value on the date of
grant, expired on December 31, 2000. Options to purchase 4,000 shares of the
Company's common stock were to be granted automatically to each non-employee
director on the last day of November through the year 2000. Options may be
exercised at the rate of 25% per year commencing one year after the date of
grant. At December 31, 2000, options to acquire 204,000 shares expired under
the 1995 Plan.

The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans. Had compensation expense for
the Company's stock option plans been determined based upon the fair value at
the grant date for awards under these plans consistent with the methodology
prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company's net income and earnings per share would have been reduced in 2000,
1999 and 1998 as follows:

2000 1999 1998
(in thousands, except per share values) ------------ ------------ ------------

Net income - as reported ............................ $ 18,231 $ 18,061 $ 24,276
Net income - pro forma .............................. 15,863 15,705 21,902
Basic net income per share - as reported ............ $ 2.02 $ 1.85 $ 2.26
Basic net income per share - pro forma .............. $ 1.76 $ 1.61 $ 2.04
Diluted net income per share - as reported .......... $ 2.02 $ 1.84 $ 2.21
Diluted net income per share - pro forma ............ $ 1.75 $ 1.60 $ 1.99

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:

2000 1999 1998
----------- ----------- ----------

Expected dividend yield .................. 0% 0% 0%
Expected stock price volatility .......... 42% 39% 32%
Risk-free interest rate .................. 5.66% 5.60% 5.73%
Expected life of option .................. 6.7 years 3.6 years 4.7 years

Transactions from January 1, 1998 through December 31, 2000, under the
above plans were as follows:

Weighted Weighted
Number Option Price Average Average Life
of Shares per Share Price Remaining
------------- ----------------- ---------- -------------

Options outstanding at January 1, 1998 ........... 1,436,098 $15.38 - 33.13 $ 21.31 2.80 years
Granted ....................................... 233,400 27.31 - 33.94 28.13
Exercised ..................................... (229,098) 15.38 - 25.88 17.69
Canceled ...................................... (193,825) 15.38 - 33.44 23.57
--------- ----------------- -------
Options outstanding at December 31, 1998 ......... 1,246,575 16.00 - 33.94 22.90 2.20 years
Granted ....................................... 423,100 21.38 - 28.63 26.97
Exercised ..................................... (315,380) 16.00 - 25.88 18.06
Canceled ...................................... (346,911) 16.00 - 33.94 27.83
--------- ----------------- -------
Options outstanding at December 31, 1999 ......... 1,007,384 16.00 - 33.13 25.26 2.80 years
Granted ....................................... 373,900 19.06 - 21.50 21.20
Exercised ..................................... (10,000) 16.00 - 16.00 16.00
Canceled ...................................... (114,200) 20.13 - 33.00 23.77
--------- ----------------- -------
Options outstanding at December 31, 2000 ......... 1,257,084 $17.13 - $33.13 $ 24.26 7.10 years
========= ================= =======
Options exercisable at December 31, 2000 ......... 532,335 $17.13 - $33.13 $ 24.25
========= ================= =======

(6) PROFIT SHARING PLANS:
The Company maintains defined contribution profit sharing and 401(k) plans
covering substantially all of its employees as of December 31, 2000. Annual
contributions under the plans are determined by the Board of Directors of the
Company or each subsidiary, as appropriate. Consolidated expense related to the
plans for the years ended December 31, 2000, 1999 and 1998 was $2,145,000,
$2,230,000 and $2,550,000, respectively.

(7) FEDERAL INCOME TAXES:

The following table summarizes the provision for U.S. federal, state and
foreign taxes on income:

2000 1999 1998
(in thousands) ------- ------- -------
Current:
Federal ............................... $ 7,412 $ 8,817 $12,389
State ................................. 130 56 610
Foreign ............................... 934 798 1,054
------- ------- -------
8,476 9,671 14,053
------- ------- -------
Deferred:
Federal ............................... 1,699 723 (271)
State ................................. -- (13) (132)
Foreign ............................... -- -- --
------- ------- -------
1,699 710 (403)
------- ------- -------
$10,175 $10,381 $13,650
======= ======= =======

The differences between the statutory and effective federal income tax
rates on income before income taxes were as follows:

2000 1999 1998
-------- -------- --------
U.S. federal statutory rate ................ 35.0% 35.0% 35.0%
State income taxes, less federal benefit ... .3 .1 .9
Non-deductible goodwill .................... 1.0 1.0 .5
Other ...................................... (.5) .4 (.4)
----- ----- -----
35.8% 36.5% 36.0%
===== ===== =====

Deferred taxes are recorded based upon differences between the financial
statement and tax basis of assets and liabilities and available tax credit
carryforwards. The following temporary differences gave rise to net deferred
income tax (liabilities)/assets as of December 31, 2000 and 1999:

2000 1999
(in thousands) -------- --------
Deferred income tax assets:
Accounts receivable .......................... $ 983 $ 1,043
Inventory .................................... 2,437 3,258
Accrued expenses ............................. 2,303 2,162
State net operating loss carryforward ........ 5,385 5,232
Other ........................................ 1,428 2,074
-------- --------
12,536 13,769
Valuation allowance .......................... (5,385) (5,232)
-------- --------
7,151 8,537
-------- --------
Deferred income tax liabilities:
Property, plant and equipment ................ 2,897 2,293
Unremitted earnings of foreign subsidiaries .. 1,032 1,136
Other ........................................ 4,171 4,358
-------- --------
8,100 7,787
-------- --------
Net deferred income tax (liability)/asset .... $ (949) $ 750
======== ========

At December 31, 2000 and 1999, the Company had net operating loss
carryforwards for state income tax purposes of $80,035,000 and $78,764,000,
respectively, that expire in various years through 2015. For financial
reporting purposes, valuation allowances have been established to offset these
deferred tax assets as it is more likely than not that the net operating loss
carryforwards will not be realized prior to expiration.

(8) LONG-TERM DEBT AND CREDIT ARRANGEMENTS:

Long-term debt consisted of the following:

December 31,
-----------------------
2000 1999
(in thousands) --------- -----------

Mortgages, payable monthly through 2001, interest at rates ranging from 6%
to 10.5% ................................................................ $ 73 $ 201
Industrial Development Revenue Bonds, payable periodically through 2001,
interest at rates ranging from 4% to 4.5% ............................... 36 150
Berwick acquisition debt, payable in 2003, interest at 8% ................ -- 653
Other .................................................................... 489 651
------ --------
598 1,655
Less - current portion ................................................... (346) (1,118)
------ --------
$ 252 $ 537
====== ========

In connection with the acquisition of Cleo and the consolidation of other
credit facilities, the Company entered into a $195,000,000 unsecured revolving
credit facility with thirteen banks and financial institutions on November 15,
1995. This facility was amended on July 21, 1997 to provide CSS with an
unsecured revolving credit facility with thirteen banks and financial
institutions. The amended facility allows for borrowings up to $300,000,000,
expires on April 30, 2001 and provides that borrowings are limited during a
consecutive 30 day period during each year of the agreement. The loan agreement
contains provisions to increase or reduce the interest pricing spread over
LIBOR based upon the achievement of certain benchmarks related to the ratio of
earnings to interest expense. As of December 31, 2000, at the Company's option,
interest on the facility accrues at (1) the greater of the prime rate or 1/2%
in excess of the Federal Funds Rate, or (2) LIBOR plus 1/2%. The loan agreement
also contains covenants, the most restrictive of which pertain to net worth;
the ratio of operating cash flow to fixed charges; the ratio of earnings to
interest expense and the ratio of debt to capitalization. The weighted average
interest rate under these loan agreements for 2000, 1999 and 1998 was 7.37%,
6.24% and 6.36%, respectively. Outstanding letters of credit totaled $3,938,000
and $3,883,000 at December 31, 2000 and 1999, respectively. The Company has a
letter of credit that guarantees funding of workers compensation claims. The
Company is currently in negotiation with a financial institution and expects to
replace its revolving credit facility prior to its expiration on April 30,
2001.

The Company maintains various notes relating to the financing of
manufacturing facilities which are secured by mortgages on the facilities. The
Company also maintains second mortgages on several facilities financed with
Industrial Development Revenue Bonds. The bonds outstanding at December 31,
2000 mature in 2001, accrue interest at rates ranging from 4% to 4.5% and are
secured by mortgages on the facilities.

In connection with the acquisition of Berwick in 1993, the Company entered
into a term loan with the primary selling shareholder. In accordance with the
January 2000 Settlement Agreement, all then outstanding claims for
indemnification against the primary selling shareholder were resolved and the
original term loan of $3,000,000 was reduced to a principal balance of
$653,000. The note was paid in full in 2000.

Long-term debt matures as follows:

(in thousands)
2001 .................................. $346
2002 .................................. 252
----
Total .............................. $598
====

(9) OPERATING LEASES:

The future minimum rental payments associated with all noncancelable lease
obligations are as follows:

(in thousands)
2001 ........................................ $ 6,880
2002 ........................................ 5,807
2003 ........................................ 3,714
2004 ........................................ 2,368
2005 ........................................ 2,100
Thereafter .................................. 328
-------
Total .................................. $21,197
=======

Rent expense was $7,368,000, $6,971,000 and $7,016,000 in 2000, 1999 and
1998, respectively.

(10) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate methodologies.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Company could realize in a current market exchange.
Certain of these financial instruments are with major financial institutions
and expose the Company to market and credit risks and may at times be
concentrated with certain counterparties or groups of counterparties. The
creditworthiness of counterparties is continually reviewed, and full
performance is anticipated.

The methods and assumptions used to estimate the fair value of each class
of financial instruments are set forth below:

o Cash and temporary investments, accounts receivable and accounts
payable - The carrying amounts of these items are a reasonable estimate
of their fair values at December 31, 2000 and 1999.

o Short-term borrowings - Borrowings under the revolving credit facility
have variable rates that reflect currently available terms and
conditions for similar debt. The carrying amount of this debt is a
reasonable estimate of its fair value.

o Other long-term obligations - The carrying amounts of these items are a
reasonable estimate of their fair value.

o Foreign currency contracts - The fair value is based on quotes obtained
from financial institutions. As of December 31, 2000 and 1999, the fair
value of foreign currency contracts approximated contract value.

(11) COMMITMENTS AND CONTINGENCIES:
The Company is subject to various lawsuits and claims arising out of the
normal course of business. In the opinion of Company counsel and management,
the ultimate liabilities resulting from such lawsuits and claims will not
materially affect the consolidated financial position of the Company.

In February 1999, CSS was awarded and received approximately $11,200,000,
including interest, in settlement of a dispute primarily related to the
valuation of inventory acquired in the 1995 acquisition of Cleo Inc. The award
increased slightly the goodwill recorded on the 1998 balance sheet and had no
impact on 1998 or 1999 results of operations.

(12) SEGMENT DISCLOSURE:
The Company operates in a single segment, the manufacture, distribution
and sale of non-durable seasonal consumer goods, primarily to mass market
retailers. CSS conducts substantially all of its business in the United States.

The Company's detail of revenues from its various products is as follows:

2000 1999 1998
---- ---- ----
(in thousands)
Christmas ................. $280,587 $266,766 $264,553
Everyday .................. 51,223 51,598 61,189
Halloween ................. 47,666 45,490 47,101
Other ..................... 41,608 45,013 44,683
-------- -------- --------
Total ..................... $421,084 $408,867 $417,526
======== ======== ========

One customer accounted for sales of $92,141,000, or 21.9% of total sales
in 2000, $85,591,000 or 20.9% in 1999 and $79,872,000, or 19.1% in 1998.

(13) QUARTERLY FINANCIAL DATA (UNAUDITED):

Quarters
2000 -----------------------------------------------------------
First Second Third Fourth
(In thousands, except per share amounts) ------------ ------------ ------------- -------------

Sales .................................... $ 25,715 $ 38,194 $ 148,261 $ 208,914
-------- -------- --------- ---------
Gross profit ............................. 6,950 9,837 34,710 57,001
-------- -------- --------- ---------
Net income ............................... $ (6,147) $ (4,057) $ 7,296 $ 21,139
======== ======== ========= =========
Net income per common share:
Basic- .................................. $ (.66) $ (.45) $ .81 $ 2.39
======== ======== ========= =========
Diluted- ................................ $ (.66) $ (.45) $ .81 $ 2.39
======== ======== ========= =========

Quarters
1999 -----------------------------------------------------------
First Second Third Fourth
------------ ------------ ------------- -------------

Sales .................................... $ 27,438 $ 37,680 $ 132,367 $ 211,382
-------- -------- --------- ---------
Gross profit ............................. 7,011 8,404 31,493 55,830
-------- -------- --------- ---------
Net income ............................... $ (4,835) $ (3,627) $ 6,806 $ 19,717
======== ======== ========= =========
Net income per common share:
Basic- .................................. $ (.48) $ (.37) $ .71 $ 2.09
======== ======== ========= =========
Diluted- ................................ $ (.48) $ (.37) $ .70 $ 2.09
======== ======== ========= =========

The seasonal nature of CSS' business results in low sales and operating
losses for the first two quarters and high shipment levels and operating
profits for the second half of the year, thereby causing significant
fluctuations in the quarterly results of operations of the Company.

(14) ACCOUNTING PRONOUNCEMENTS:
In June 1998 and June 2000, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities." These
statements establish accounting and reporting standards requiring that every
derivative instrument be recorded on the balance sheet as either an asset or
liability measured at its fair value. SFAS Nos. 133 and 138 also require that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. SFAS Nos. 133 and 138 are
effective for fiscal years beginning after June 15, 2000. The Company adopted
SFAS No. 133, as amended by SFAS No. 138, on January 1, 2001, as required. The
adoption of SFAS No. 133, as amended by SFAS No. 138, would not have had a
material impact on the consolidated statements of operations as of December 31,
2000.

In September 2000, the Emerging Issues Task Force ("EITF") reached a final
consensus on Issue No. 00-10, "Accounting for Shipping and Handling Revenues
and Costs," which requires that freight expense incurred from shipping product
to customers be recorded in cost of sales. This Issue was adopted by the
Company and sales and cost of sales for all periods reflect a change in
accounting for freight expense required by EITF Issue No. 00-10. Absent
adoption of EITF Issue No. 00-10, sales and cost of sales would have been
$403,555,000 and $295,057,000 in 2000, $392,553,000 and $289,815,000 in 1999,
and $400,691,000 and $294,326,000 in 1998, respectively.

(15) SUBSEQUENT EVENT:
On February 21, 2001, CSS' Board of Directors approved a change in the
Company's fiscal year end from December 31 to March 31. The transition period
will commence January 1, 2001 and end March 31, 2001. The Company's new fiscal
year will begin April 1, 2001 and end March 31, 2002. With this change, the
Company's new fiscal year will coincide with its natural revenue cycle.

Part III

Item 10. Directors and Executive Officers of the Registrant

See "ELECTION OF DIRECTORS" and "OUR EXECUTIVE OFFICERS" in the Proxy
Statement for the 2001 Annual Meeting of Stockholders of the Company, which
will be incorporated herein by reference.

Item 11. Executive Compensation

See "EXECUTIVE COMPENSATION" in the Proxy Statement for the 2001 Annual
Meeting of Stockholders of the Company, which will be incorporated herein by
reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

See "CSS SECURITY OWNERSHIP" in the Proxy Statement for the 2001 Annual
Meeting of Stockholders of the Company, which will be incorporated herein by
reference.

Item 13. Certain Relationships and Related Transactions

See "CERTAIN TRANSACTIONS" in the Proxy Statement for the 2001 Annual
Meeting of Stockholders of the Company, which will be incorporated herein by
reference.

Part IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Attached hereto and filed as part of this report are the financial
statement schedules and the exhibits listed below:

1. Financial Statements

Report of Independent Public Accountants

Consolidated Balance Sheets - December 31, 2000 and 1999

Consolidated Statements of Operations - for the years ended December
31, 2000, 1999 and 1998

Consolidated Statements of Cash Flows - for the years ended December
31, 2000, 1999 and 1998

Consolidated Statements of Shareholders' Equity - for the years ended
December 31, 2000, 1999 and 1998

Notes to Consolidated Financial Statements

2. Financial Statement Schedules

Schedule II - Valuation and Qualifying Accounts

(b) Reports on Form 8-K filed during the last quarter of 2000

The Company filed a report on Form 8-K on November 13, 2000 with
respect to entering into a license agreement with Warner Bros. Consumer
Products, a Division of Time Warner Entertainment Company, L.P.

(c) Exhibits, Including Those Incorporated by Reference The following is a
list of exhibits filed as part of this annual report on Form 10-K.
Where so indicated by footnote, exhibits which were previously filed
are incorporated by reference. For exhibits incorporated by reference,
the location of the exhibit in the previous filing is indicated in
parentheses.

Articles of Incorporation and By-laws

3.1 Restated Certificate of Incorporation filed December 5, 1990. (1)
(Exhibit 3.1)

3.2 Amendment to Restated Certificate of Incorporation filed May 8, 1992.
(2) (Exhibit 3.2)

3.3 Certificate eliminating Class 2, Series A, $1.35 Preferred stock
filed September 27, 1991. (3) (Exhibit 3.2)

3.4 Certificate eliminating Class 1, Series B, Convertible Preferred
Stock filed January 28, 1993. (2) (Exhibit 3.5)

*3.6 By-laws of the Company, as amended to date (as last amended February
21, 2001).

Material Contracts

10.2 CSS Industries, Inc. 1995 Stock Option Plan for Non-Employee
Directors. (7) (Exhibit 10.2)

10.4 Loan Agreement among CSS Industries, Inc., the Lending Institutions
listed therein, CoreStates Bank, N.A. as the Administrative Agent, and
Merrill Lynch & Co. as the Syndication Agent, dated as of July 21,
1997. (8) (Exhibit 10.4)

10.5 Interest Rate Swap Master Agreement dated as of August 9, 1996 between
CoreStates Bank, N.A. and CSS Industries, Inc. (7) (Exhibit 10.8)

10.6 Settlement Agreement dated January 1, 2000 between Berwick Industries
LLC and Henry T. Doherty (10) (Exhibit 10.6)

Management Contracts, Compensatory Plans or Arrangements

10.8 CSS Industries, Inc. 1994 Equity Compensation Plan (as last amended
January 23, 1996). (8) (Exhibit 10.10)

10.9 CSS Industries, Inc. Non-Qualified Supplemental Executive Retirement
Agreements, dated March 3, 1993, with certain executive officers of
the Company. (2) (Exhibit 10.15)

10.10 CSS Industries, Inc. Non-Qualified Supplemental Executive Retirement
Plan Guidelines, dated January 25, 1994. (4) (Exhibit 10.14)

10.11 CSS Industries, Inc. Annual Incentive Compensation Arrangement,
Administrative Guidelines, dated March 15, 1993 (as amended January 1,
2000). (10) (Exhibit 10.11)

10.12 The Paper Magic Group, Inc. Management Incentive Bonus Program,
Administrative Guidelines, dated March 15, 1993. (2) (Exhibit 10.28)

10.13 1994 Amendment to The Paper Magic Group, Inc. Management Incentive
Bonus Program, Administrative Guidelines, dated March 2, 1994. (4)
(Exhibit 10.26)

10.15 Berwick Industries, Inc. Incentive Bonus Plan, dated January 1, 1994.
(4) (Exhibit 10.27)

10.16 Cleo Inc Management Incentive Plan, dated March 7, 1996. (6) (Exhibit
10.23)

10.17 Berwick Industries, Inc. Non-Qualified Supplemental Executive
Retirement Plan, dated November 18, 1996. (7) (Exhibit 10.26)

10.18 The Paper Magic Group, Inc. Non-Qualified Supplemental Executive
Retirement Plan, dated December 5, 1996. (7) (Exhibit 10.27)

10.19 Cleo Inc Non-Qualified Supplemental Executive Retirement Plan dated
November 26, 1996. (9) (Exhibit 10.18)

10.20 Employment Agreement dated as of June 1, 1999 between CSS Industries,
Inc. and David J. M. Erskine. (10) (Exhibit 10.20)

10.21 Employment Offer Letter dated as of June 3, 1999 between The Paper
Magic Group, Inc. and Steven A. Cohen. (10) (Exhibit 10.21)

10.22 Severance Agreement dated as of November 11, 1999 between CSS
Industries, Inc. and John A. Pinti. (10) (Exhibit 10.22)

Subsidiaries

*21. List of Significant Subsidiaries of the Registrant.

Footnotes to List of Exhibits

- -----------
* Filed with this Annual Report on Form 10-K.

(1) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1990 and incorporated herein by reference.

(2) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1992 and incorporated herein by reference.

(3) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1991 and incorporated herein by reference.

(4) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1993 and incorporated herein by reference.

(5) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1994 and incorporated herein by reference.

(6) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1995 and incorporated herein by reference.

(7) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1996 and incorporated herein by reference.

(8) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1997 and incorporated herein by reference.

(9) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1998 and incorporated herein by reference.

(10) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the
fiscal year ended December 31, 1999 and incorporated herein by reference.

The Company agrees to furnish supplementally a copy of omitted Schedules
and Exhibits, if any, with respect to Exhibits listed above upon request.

Stockholders who have been furnished a copy of this Report may obtain
copies of any Exhibit listed above on payment of $.50 per page for reproduction
and mailing charges by writing to the Secretary, CSS Industries, Inc., 1845
Walnut Street, Philadelphia, Pennsylvania 19103.

CSS Industries, Inc. and Subsidiaries
Schedule II
Valuation and Qualifying Accounts
(In thousands)

Column A Column B Column C Column D Column E
- ------------------------------------------------- ----------- ---------- ------------- ------------
Additions
--------------------------
Balance Charged
at to Costs Charged Balance
Beginning and to Other at End of
of Period Expenses Accounts Deductions Period
----------- ---------- ------------- ------------ ----------

Year ended December 31, 2000
Doubtful accounts receivable-customers ......... $1,647 $1,323 $ -- $1,458 $1,512
Year ended December 31, 1999
Doubtful accounts receivable-customers ......... $1,772 $1,302 $ 67(a) $1,494 $1,647
Year ended December 31, 1998
Doubtful accounts receivable-customers ......... $2,292 $1,406 $ -- $1,926 $1,772

Notes: (a) Balance at acquisition of Don Post Studios

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on behalf of the undersigned hereunto duly authorized.

CSS INDUSTRIES, INC.
---------------------------------------------------------
Registrant

Dated: March 1, 2001 By /s/ David J. M. Erskine
---------------------------------------------------------
David J. M. Erskine, President and Chief Executive
Officer (principal executive officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities on the date indicated.

Dated: March 1, 2001 /s/ David J. M. Erskine
-------------------------------------------------------
David J. M. Erskine, President and Chief Executive
Officer (principal executive officer and a director)

Dated: March 1, 2001 /s/ Clifford E. Pietrafitta
-------------------------------------------------------
Clifford E. Pietrafitta, Vice President -- Finance and
Chief Financial Officer (principal financial and
accounting officer)

Dated: March 1, 2001 /s/ Jack Farber
-------------------------------------------------------
Jack Farber, Director

Dated: March 1, 2001 /s/ James H. Bromley
-------------------------------------------------------
James H. Bromley, Director

Dated: March 1, 2001 /s/ Stephen V. Dubin
-------------------------------------------------------
Stephen V. Dubin, Director

Dated: March 1, 2001 /s/ Richard G. Gilmore
-------------------------------------------------------
Richard G. Gilmore, Director

Dated: March 1, 2001 /s/ Leonard E. Grossman
-------------------------------------------------------
Leonard E. Grossman, Director

Dated: March 1, 2001 /s/ James E. Ksansnak
-------------------------------------------------------
James E. Ksansnak, Director

Dated: March 1, 2001 /s/ Michael L. Sanyour
-------------------------------------------------------
Michael L. Sanyour, Director