CSS INDUSTRIES INC, 10-K, 2000-03-22

CSS INDUSTRIES INC
10-K, 2000-03-22
GREETING CARDS

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<PAGE>

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, 1999
OR

/ / 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)
<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 $92,921,891. 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 29, 2000 ($19.0625 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 2000 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 29, 2000, there were outstanding 9,293,720 shares of Common
Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's Proxy Statement for its 2000 Annual Meeting of
Stockholders are incorporated by reference in Part III (under Items 10, 11, 12
and 13).

(Page 2 of Cover Page)
<PAGE>

Part I
Item 1. Business
General

CSS Industries, Inc. ("CSS" or the "Company") is a consumer products
company primarily engaged in the 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 and Easter egg dyes and novelties. 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 thirteen 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.

On December 23, 1997, CSS sold Rapidforms, Inc. and its subsidiaries
("Rapidforms"). As a result of the sale, CSS no longer operates in the Direct
Mail Business Products industry.

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, novelties, and the Illusive
Concepts(TM) and Don Post Studios(TM) brands of highly crafted masks. In
addition to seasonal products, CSS also designs and markets decorative products
and 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 thirteen facilities
located in Pennsylvania and Tennessee. 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. 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 65% of

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<PAGE>

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.
Finally, 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 to 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 the retailers meet their objectives.

Competition

CSS competes with various companies in each of its product offerings. In
Christmas boxed cards, CSS competes with the Plus Mark(R) line of American
Greetings Corporation, among others. CSS' gift tag line competes primarily with
Plus Mark(R), CPS Corporation and Jean Marie Creations, Inc. Competition with
regard to classroom exchange Valentines includes American Greetings and Hallmark
Cards, Inc., among others. In the ribbon and bow category there are a variety of
large and small domestic companies, including Plus Mark(R), Hollywood Ribbon,
Inc., CPS Corporation, Equality Specialties, Inc., Delaware Ribbon
Manufacturers, Inc., C. M. Offray and Son, Inc. and Variety Accessories. In
Christmas gift wrap, CSS competes primarily with Plus Mark(R) and CPS
Corporation. CSS' Dudley's(R) brand Easter egg dye products compete with the
PAAS(R) brand of Signature Brands, LLC, among others. Competitors offering
Halloween products include Disguise, Inc., Fun World, Inc. and Rubie's Costume
Co., Inc. Certain of these competitors are larger and have greater resources
than the Company.

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 29, 2000, approximately 2,138 persons were employed by CSS
(increasing to approximately 3,440 as seasonal employees are added).

With the exception of the bargaining unit at the gift wrap facilities in
Memphis, Tennessee, which included 277 employees as of February 29, 2000, 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.

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20

<PAGE>

Item 2. Properties

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

<TABLE>
<CAPTION>
Approximate Square Feet
---------------------------
Location Use Owned Leased
- ------------------- -------------------------------- ------------ ------------
<S> <C> <C> <C>
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 --
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 -- 423,000
Berwick, PA Distribution -- 36,000
Memphis, TN Manufacturing and distribution -- 986,000
Memphis, TN Distribution -- 366,000
------- -------
Total 1,471,000 1,842,000
========= =========

</TABLE>

The Company also utilizes owned and leased space aggregating 94,000 square
feet for various 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.

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<PAGE>

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 1999 and 1998.

High Low
----------- ---------
1999
- ----
First Quarter .......... $ 31 1/16 $ 22 1/4
Second Quarter ......... 28 9/16 22 1/4
Third Quarter .......... 28 3/16 20 3/8
Fourth Quarter ......... 221 5/16 20 1/2

1998
- ----
First Quarter .......... $ 36 $ 26 7/8
Second Quarter ......... 33 7/8 31 7/8
Third Quarter .......... 33 7/16 27 5/8
Fourth Quarter ......... 31 3/4 26 5/8

(b) Holders of Common Stock

At February 29, 2000, there were approximately 1,700 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 29, 2000, there were no shares of preferred stock outstanding.

- -------
22

<PAGE>

Item 6. Selected Financial Data

(In thousands, except per share amounts)

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------
1999 1998(a) 1997 1996(b) 1995(b)
------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales ...................................... $ 392,553 $ 400,691 $ 357,720 $ 323,051 $202,294
Income from continuing operations before
income taxes ............................. 28,442 37,926 30,442 27,499 16,733
Income from continuing operations .......... 18,061 24,276 18,871 17,110 10,084
Income from discontinued operations, net of
income taxes ............................. -- -- 6,348 5,234 5,691
Gain on sale of discontinued operations, net
of income taxes .......................... -- -- 17,871 -- --
Net income ................................. 18,061 24,276 43,090 22,344 15,775
Income from continuing operations per
common share
Basic ...................................... 1.85 2.26 1.74 1.59 .94
Diluted .................................... 1.84 2.21 1.67 1.55 .93

Balance Sheet Data:
Working capital ............................ 130,889 145,165 129,245 71,780 66,395
Total assets ............................... 349,398 376,590 342,362 330,122 356,388
Short-term debt ............................ 63,488 96,198 52,524 99,027 129,618
Long-term debt ............................. 537 2,131 2,580 3,762 16,915
Shareholders' equity ....................... $ 219,477 $ 220,493 $ 221,649 $ 176,752 $153,856

</TABLE>

(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 Conditions and Results of Operations.

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

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<PAGE>

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 designs and markets highly
crafted latex masks, helmets and accessories sold to mass merchandisers, drug
chains, party 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
$6,532,000 was recorded as goodwill in the accompanying balance sheet and is
being amortized over twenty years. The final purchase price is subject to
adjustment based on an audit of the closing balance sheet by an independent
public accounting firm. Subsequent to the acquisition, the operations of Party
Professionals, now known as Don Post Studios, Inc., were consolidated into
existing operations of the Company.

On December 23, 1997, the Company sold its Direct Mail Business Products
Group, composed of Rapidforms and its subsidiaries, for approximately
$84,635,000, resulting in a net gain of $17,521,000 and net cash proceeds of
approximately $60,000,000 after income taxes and the buy out of the minority
interest. Rapidforms designs and sells business forms, business supplies,
in-house retail merchandising products, holiday greeting cards and advertising
specialties to small and medium size businesses primarily through the direct
mailing of catalogs and brochures. On January 8, 1997, Rapidforms sold its
Standard Forms, Ltd. subsidiary for $4,083,000, resulting in a gain of
$350,000. Sales from these discontinued operations were $81,654,000 in 1997.

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 increased slightly the goodwill
recorded on the 1998 balance sheet and had no impact on 1998 or 1999 results of
operations.

Seasonality

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.

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.

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.

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24
<PAGE>

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

<TABLE>
<CAPTION>
Year Ended
December 31, 1998
------------------------
(000's) Effect on
Pre-tax Diluted
Income Earnings
(Expense) Per Share
----------- ----------
<S> <C> <C>
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
======== ======
</TABLE>

The restructuring program was completed in 1998.

Results of Operations

Consolidated sales for 1999 decreased 2% to $392,553,000 from
$400,691,000. The decrease was due primarily to the absence of sales related to
certain everyday product lines discontinued in 1998. Excluding these lines,
sales were relatively flat as increased direct import sales were offset by
reduced sales of certain domestically manufactured product lines. Consolidated
sales for 1998 increased by 12% to $400,691,000 from $357,720,000. The increase
was primarily attributable to volume increases in sales of Christmas products.

As a percentage of sales, cost of sales was 74% in 1999, 73% in 1998 and
71% in 1997. 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. Included in cost of
sales in 1998 is a charge of $1,943,000 to dispose of inventory related to
certain peripheral product lines which the Company has discontinued. Net of
this charge, cost of sales as a percentage of sales increased in 1998 as
competitive conditions did not allow for the complete recovery of increased raw
material costs, particularly raw paper.

Selling, general and administrative expenses, as a percentage of sales,
was 18% in 1999 and 1998 and 19% in 1997. 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. The decrease in 1998 was the result of CSS' increased sales
base as well as the integration of certain management functions.

Interest expense, net was $4,294,000 in 1999, $4,445,000 in 1998 and
$7,178,000 in 1997. Interest expense decreased 3% in 1999 as cash flow from
1998 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. The decrease in 1998
was primarily attributable to lower borrowings due to cash received from the
sale of Rapidforms at the end of 1997. Excluding the impact of the Rapidforms
sale, cash requirements increased due to the repurchase of the Company's stock
and working capital required to fund sales volume increases in 1998.

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.

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<PAGE>

Rental and other income, net was $959,000 in 1999, $1,647,000 in 1998 and
$2,143,000 in 1997. The decrease in 1999 and 1998 resulted from lower income
related to sublease interests.

Income before income taxes was $28,442,000, or 7% of sales in 1999,
$37,926,000, or 9% of sales in 1998 and $30,442,000, or 9% of sales in 1997.
The decrease from 1998 is due to reduced sales and margins.

Net income to common shareholders for the year ended December 31, 1999
decreased 26% in 1999 to $18,061,000 and increased 29% in 1998 to $24,276,000.
Income from continuing operations per diluted share decreased 17% in 1999 to
$1.84 and increased 32% in 1998 to $2.21 per share. Excluding 1998 special
items, income from continuing per diluted share was $1.90 compared to $1.84 in
the current year.

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, 1999, the Company had working capital of $130,889,000 and
shareholders' equity of $219,477,000. The decrease in accounts receivable, net
of reserves, from $182,983,000 in 1998 to $165,033,000 in 1999 reflected
improved collections and lower sales volume compared to 1998. Inventories, net
of reserves, decreased from $81,406,000 to $64,884,000 due to improved
inventory management. Other current assets decreased to $11,272,000 in 1999
from $20,583,000 due primarily to the receipt of proceeds awarded in settlement
of a dispute related to the Company's 1995 acquisition of Cleo Inc. Property,
plant and equipment increased from $49,409,000 in 1998 to $55,916,000 in 1999
due to the expansion of a production facility and incremental investments in
manufacturing equipment. The current portion of notes payable decreased to
$62,370,000 from $95,320,000 as cash generated as a result of net income and
improved balance sheet management substantially outdistanced the cash expended
for the acquisition of Party Professionals and the funding of the Company's
stock repurchase program.

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 76% 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, 1999, there
was $62,370,000 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. 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. On subsequent dates in 1999 and 1998, the Executive Committee of the
Board of Directors authorized additional repurchases of up to 1,500,000 shares
on terms acceptable to management. 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. During 1999 and 1998 the
Company had repurchased 942,451 and 986,400 shares for $21,505,000 and
$28,771,000 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.

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<PAGE>

Year 2000 Readiness Disclosure

The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the Year 2000. This could result in a system
failure or miscalculations. These problems, in an extreme case, could render
the Company unable to process transactions and engage in the normal course of
business.

As of the date of this filing, the Company has not incurred any
significant business disruptions as a result of Year 2000 issues. However,
while no such occurrence has developed as of the date of this filing, Year 2000
issues that may arise related to material third parties may not become apparent
immediately and therefore, there is no assurance that the Company will not be
affected by third party noncompliance in the future. The Company will continue
to monitor the issue vigilantly and work to remediate any issues that may
arise.

Future Accounting Changes

The FASB issued SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" in 1998, which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires an
entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure these instruments at fair value.
SFAS No. 133 was scheduled to be effective for fiscal quarters of all fiscal
years beginning after June 15, 1999; however, in June of 1999 the FASB issued
SFAS No. 137 which deferred the effective date of SFAS No. 133 one year to
years beginning after June 15, 2000. Based on current operations, the Company
does not expect the adoption of this statement to have a material effect on its
financial position and results 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 does not utilize financial instruments for trading purposes
and holds no derivative financial instruments which could expose the Company to
significant 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.

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<PAGE>

CSS INDUSTRIES, INC.
AND SUBSIDIARIES

Item 8. Financial Statements

INDEX

<TABLE>
<CAPTION>
Page
--------
<S> <C>
Report of Independent Public Accountants ..................................... 29
Consolidated Balance Sheets - December 31, 1999 and 1998 ..................... 30-31
Consolidated Statements of Operations - for the years ended December 31, 1999,
1998 and 1997 ............................................................... 32
Consolidated Statements of Cash Flows - for the years ended December 31, 1999,
1998 and 1997 ............................................................... 33
Consolidated Statements of Shareholders' Equity - for the years ended
December 31, 1999, 1998 and 1997 ............................................ 34-35
Notes to Consolidated Financial Statements ................................... 36-44
</TABLE>

- -------
28
<PAGE>
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,
1999 and 1998 and the related consolidated statements of operations, cash flows
and shareholders' equity for each of the three years in the period ended
December 31, 1999. 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 generally accepted auditing
standards. 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, 1999 and 1998 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.

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 18, 2000

--------
29
<PAGE>

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

<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
ASSETS ------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and temporary investments ................................................. $ 3,292 $ 2,214
Accounts receivable, net of allowance for doubtful accounts of 1,647 and $1,772 165,033 182,983
Inventories .................................................................... 64,884 81,406
Deferred income taxes .......................................................... 5,886 3,389
Other current assets ........................................................... 11,272 20,583
--------- ---------
Total current assets ......................................................... 250,367 290,575
--------- ---------

PROPERTY, PLANT AND EQUIPMENT
Land ........................................................................... 524 472
Buildings, leasehold interests and improvements ................................ 30,728 26,149
Machinery, equipment and other ................................................. 72,373 63,424
--------- ---------
103,625 90,045
Less -- Accumulated depreciation and amortization .............................. (47,709) (40,636)
--------- ---------
Net property, plant and equipment ............................................ 55,916 49,409
--------- ---------

OTHER ASSETS
Intangible assets, net of accumulated amortization of 8,483 and $7,249 ......... 39,971 34,508
Other .......................................................................... 3,144 2,098
--------- ---------
Total other assets ........................................................... 43,115 36,606
--------- ---------
$ 349,398 $ 376,590
========= =========

</TABLE>

- -------
30
<PAGE>

<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
LIABILITIES AND SHAREHOLDERS' EQUITY ------------ -----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable ...................................................................... $ 62,370 $ 95,320
Current portion of long-term debt .................................................. 1,118 878
Accounts payable ................................................................... 14,332 13,539
Accrued payroll and other compensation ............................................. 5,349 6,231
Accrued income taxes ............................................................... 7,451 8,217
Accrued expenses ................................................................... 28,858 21,225
--------- ---------
Total current liabilities ........................................................ 119,478 145,410
--------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION .............................................. 537 2,131
--------- ---------
OTHER LONG-TERM OBLIGATIONS ......................................................... 4,770 6,627
--------- ---------
DEFERRED INCOME TAXES ............................................................... 5,136 1,929
--------- ---------
COMMITMENTS AND CONTINGENCIES ....................................................... -- --
SHAREHOLDERS' EQUITY
Preferred stock, Class 2, $.01 par, authorized 1,000,000 shares .................... -- --
Common stock, $.10 par, authorized 20,000,000 shares, issued 12,366,566 shares ..... 1,237 1,237
Additional paid-in capital ......................................................... 29,358 28,866
Retained earnings .................................................................. 253,882 238,432
Common stock in treasury 2,998,381 and 2,234,811 shares, at cost ................... (65,000) (48,042)
--------- ---------
Total shareholders' equity ....................................................... 219,477 220,493
--------- ---------
$ 349,398 $ 376,590
========= =========

</TABLE>

See notes to consolidated financial statements.

--------
31
<PAGE>

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

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
SALES .......................................................... $392,553 $400,691 $357,720
-------- -------- --------
COSTS AND EXPENSES
Cost of sales ................................................. 289,815 294,326 252,687
Selling, general and administrative expenses .................. 70,961 72,893 69,556
Restructuring and other special items ......................... -- (7,252) --
Interest expense, net of interest income of $175, $59
and $152 .................................................... 4,294 4,445 7,178
Rental and other income, net .................................. (959) (1,647) (2,143)
-------- -------- --------
364,111 362,765 327,278
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES .................................................. 28,442 37,926 30,442

INCOME TAXES ................................................... 10,381 13,650 11,571
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS .............................. 18,061 24,276 18,871
DISCONTINUED OPERATIONS
Income from discontinued operations, net of income taxes
of $4,673 in 1997 ........................................... -- -- 6,348
Gain on sale of discontinued operations, net of income taxes of
$13,635 in 1997 ............................................. -- -- 17,871
-------- -------- --------

NET INCOME ..................................................... $ 18,061 $ 24,276 $ 43,090
======== ======== ========
NET INCOME PER COMMON SHARE
Basic
Continuing operations ....................................... $ 1.85 $ 2.26 $ 1.74
Discontinued operations ..................................... -- -- .59
Gain on sale of discontinued operations ..................... -- -- 1.64
-------- -------- --------
$ 1.85 $ 2.26 $ 3.97
======== ======== ========
Diluted
Continuing operations ....................................... $ 1.84 $ 2.21 $ 1.67
Discontinued operations ..................................... -- -- .56
Gain on sale of discontinued operations ..................... -- -- 1.58
-------- -------- --------
$ 1.84 $ 2.21 $ 3.81
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

- -------
32
<PAGE>

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

<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................................... $ 18,061 $ 24,276 $ 43,090
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .......................................... 9,484 9,019 7,665
Write-down of goodwill ................................................. -- 3,530 --
Provision for doubtful accounts ........................................ 1,302 1,406 903
Deferred tax provision (benefit) ....................................... 710 (403) 3,248
Loss (gain) on sale or disposal of assets .............................. 223 (14,774) 95
(Gain) on sale of discontinued operations .............................. -- -- (17,871)
Changes in assets and liabilities of discontinued operations ........... -- -- (9,689)
Changes in assets and liabilities, net of effects from purchases and
disposal of businesses:
Decrease (increase) in accounts receivable ............................ 17,897 (18,628) (14,902)
Decrease (increase) in inventories .................................... 17,616 (15,136) (9,388)
Decrease (increase) in other assets ................................... 8,617 486 (3,464)
(Decrease) in accounts payable ........................................ (135) (1,140) (6,045)
(Decrease) in accrued taxes ........................................... (274) (11,917) (274)
Increase (decrease) in accrued expenses ............................... 4,820 618 (6,007)
--------- --------- ---------
Total adjustments .................................................... 60,260 (46,939) (55,729)
--------- --------- ---------
Net cash provided by (used for) operating activities ................. 78,321 (22,663) (12,639)
--------- --------- ---------

Cash flows from investing activities:
Purchases of businesses, net of cash received of $120, $0 and $976 ....... (7,486) -- (17,564)
Purchase of property, plant and equipment ................................ (14,858) (14,800) (13,682)
Proceeds from sale of businesses ......................................... -- -- 88,718
Proceeds from sale of assets ............................................. 70 21,743 2,422
--------- --------- ---------
Net cash (used for) provided by investing activities ................. (22,274) 6,943 59,894
--------- --------- ---------
Cash flows from financing activities:
Payments on long-term obligations ........................................ (2,450) (1,131) (2,832)
(Repayments) borrowings on notes payable ................................. (32,950) 43,750 (46,805)
Purchase of treasury stock ............................................... (21,505) (28,771) (644)
Proceeds from exercise of stock options .................................. 1,936 2,721 1,701
--------- --------- ---------
Net cash (used for) provided by financing activities ................. (54,969) 16,569 (48,580)
--------- --------- ---------
Net increase (decrease) in cash and temporary investments ................. 1,078 849 (1,325)
Cash and temporary investments at beginning of year ....................... 2,214 1,365 2,690
--------- --------- ---------
Cash and temporary investments at end of year ............................. $ 3,292 $ 2,214 $ 1,365
========= ========= =========
</TABLE>

See notes to consolidated financial statements.

--------
33
<PAGE>

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

Preferred Stock Common Stock Additional
------------------- ----------------------- Paid-in
Shares Amount Shares Amount Capital
-------- -------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 ......................... -- $ -- 12,293,090 $1,229 $ 28,675
Issuance of common stock upon exercise of
stock options ................................. -- -- 73,476 8 573
Increase in treasury shares ..................... -- -- -- -- --
Redemption of outstanding options ............... -- -- -- -- (1,000)
Foreign currency translation adjustment ......... -- -- -- -- --
Net income ...................................... -- -- -- -- --
---- ---- ---------- ------ --------

BALANCE, DECEMBER 31, 1997 ....................... -- -- 12,366,566 1,237 28,248
Tax benefit associated with issuance of stock
options ....................................... -- -- -- -- 618
Issuance of common stock upon exercise of
stock options ................................. -- -- -- -- --
Increase in treasury shares ..................... -- -- -- -- --
Net income ...................................... -- -- -- -- --
---- ---- ---------- ------ --------

BALANCE, DECEMBER 31, 1998 ....................... -- -- 12,366,566 1,237 28,866
Tax benefit associated with issuance of stock
options ....................................... -- -- -- -- 492
Issuance of common stock upon exercise of
stock options ................................. -- -- -- -- --
Increase in treasury shares ..................... -- -- -- -- --
Net income ...................................... -- -- -- -- --
---- ---- ---------- ------ --------

BALANCE, DECEMBER 31, 1999 ....................... -- $ -- 12,366,566 $1,237 $ 29,358
==== ==== ========== ====== ========
</TABLE>

- -------
34
<PAGE>
<TABLE>
<CAPTION>

Cumulative
Foreign Common Stock
Currency in Treasury
Retained Translation ------------------------------
Earnings Adjustment Shares Amount Total
------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
$171,658 $ (188) (1,523,780) $ (24,622) $ 176,752

-- -- 118,642 2,682 3,263
-- -- (24,839) (644) (644)
-- -- -- -- (1,000)
-- 188 -- -- 188
43,090 -- -- -- 43,090
-------- ------ ---------- --------- ---------

214,748 -- (1,429,977) (22,584) 221,649

-- -- -- -- 618

(592) -- 181,566 3,313 2,721
-- -- (986,400) (28,771) (28,771)
24,276 -- -- -- 24,276
-------- ------ ---------- --------- ---------

238,432 -- (2,234,811) (48,042) 220,493

-- -- -- -- 492

(2,611) -- 178,881 4,547 1,936
-- -- (942,451) (21,505) (21,505)
18,061 -- -- -- 18,061
-------- ------ ---------- --------- ---------

$253,882 $ (2,998,381) $ (65,000) $ 219,477
======== ====== ========== ========= =========

</TABLE>

--------
35
<PAGE>

CSS Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999
(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 included in the consolidated
statements of income.

Reclassification

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

Nature of Business

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 $1,204,000 and $1,516,000 at December 31, 1999 and 1998,
respectively. Inventories consisted of the following:

1999 1998
(in thousands) ---------- ----------
Raw material ............. $19,848 $30,636
Work-in-process .......... 15,967 12,992
Finished goods ........... 29,069 37,778
------- -------
$64,884 $81,406
======= =======

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:

<TABLE>
<S> <C>
Buildings, leasehold interests and improvements ......... Lease term to 40 years
Machinery, equipment and other .......................... 3 to 11 years
</TABLE>

- -------
36
<PAGE>

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

The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of its intangible
assets may warrant revision or that the remaining balance of goodwill may not
be recoverable. Intangible assets, including goodwill, are amortized over
periods not to exceed 40 years.

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 net earnings per
share and diluted earnings per share for the years ended December 31, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 (a) 1997
(000's) ------------ ------------ ------------
<S> <C> <C> <C>
Numerator:
Net income
Continuing operations .................. $ 18,061 $ 24,276 $ 18,871
Discontinued operations ................ -- -- 6,348
Gain on sale of discontinued
operations ............................ -- -- 17,871
-------- -------- --------
Total .................................. $ 18,061 $ 24,276 $ 43,090
Denominator:
Weighted average shares outstanding
for basic earnings per share ........... 9,747 10,737 10,850
Effect of dilutive stock options ......... 48 271 442
-------- -------- --------
Adjusted weighted average shares
outstanding for diluted earnings
per share .............................. 9,795 11,008 11,292
======== ======== ========
Basic earnings per share
Continuing operations .................... $ 1.85 $ 2.26 $ 1.74
Discontinued operations .................. -- -- .59
Gain on sale of discontinued operations -- -- 1.64
-------- -------- --------
Total .................................. $ 1.85 $ 2.26 $ 3.97
======== ======== ========
Diluted earnings per share
Continuing operations .................... $ 1.84 $ 2.21 $ 1.67
Discontinued operations .................. -- -- .56
Gain on sale of discontinued operations -- -- 1.58
-------- -------- --------
Total .................................. $ 1.84 $ 2.21 $ 3.81
======== ======== ========
</TABLE>

(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.

--------
37
<PAGE>

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)

<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest .............................. $ 4,533 $ 4,011 $ 7,009
======= ======= =======
Income taxes .......................... $10,258 $24,126 $12,538
======= ======= =======
Details of acquisitions:
Fair value of assets acquired ......... $ 9,739 -- $35,988
Liabilities assumed ................... 2,133 -- 17,448
------- ------- -------
Cash paid ............................. 7,606 -- 18,540
Less cash acquired .................... 120 -- 976
------- ------- -------
Net cash paid for acquisitions .......... $ 7,486 $ -- $17,564
======= ======= =======

</TABLE>

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 designs and markets highly
crafted latex masks, helmets and accessories sold to mass merchandisers, drug
chains, party 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
$6,532,000 was recorded as goodwill in the accompanying balance sheet and is
being amortized over twenty years. The final purchase price is subject to
adjustment based on an audit of the closing balance sheet by an independent
public accounting firm. 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.

On December 23, 1997, the Company sold Rapidforms and its subsidiaries for
approximately $84,635,000, resulting in a net gain of $17,521,000 and net cash
proceeds of approximately $60,000,000 after income taxes and the buy out of the
minority interest. Rapidforms designs and sells business forms, business
supplies, in- house retail merchandising products, holiday greeting cards and
advertising specialties to small and medium size businesses primarily through
the direct mailing of catalogs and brochures. On January 8, 1997, Rapidforms
sold its Standard Forms, Ltd. subsidiary for $4,083,000, resulting in a gain of
$350,000. Sales from these discontinued operations were $81,654,000 in 1997.

On January 17, 1997, the Company acquired all of the outstanding stock of
Color-Clings, Inc. ("Color-Clings") for $7,875,000 and assumed and repaid
$10,665,000 of outstanding debt. Color-Clings is a designer and marketer of
seasonal and everyday vinyl home decorations sold primarily to mass market
retailers in the United States and Canada. The acquisition was accounted for as
a purchase and the excess of cost over fair market value of $15,698,000 was
recorded as goodwill and is being amortized over twenty years. During 1998, the
operations of Color-Clings was consolidated into existing operations of the
Company and the Company discontinued certain of its product lines. Accordingly,
the Company evaluated the goodwill associated with these product lines and
determined that a writedown of $3,530,000 of goodwill associated with the
Color-Clings acquisition was necessary. This amount was reported in
restructuring and other special items in the 1998 Consolidated Statement of
Operations.

(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 the year, the Company also sold an administrative
building for a gain of $270,000. Partially offsetting these gains

- -------
38
<PAGE>

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. On subsequent dates, the Executive Committee of the Board of Directors
authorized additional repurchases of an additional 1,500,000 shares on terms
acceptable to management. 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. As of December 31, 1999 and 1998, the
Company had repurchased 942,451 shares for $21,505,000 and 986,400 shares for
$28,771,000, respectively.

(5) STOCK OPTION PLANS:

Under the terms of the CSS Industries, Inc. 1995 Stock Option Plan for
Non-Employee Directors ("1995 Plan"), non-qualified stock options to purchase
up to 300,000 shares of common stock are available for grant to non-employee
directors at exercise prices of not less than fair market value on the date of
grant. Options to purchase 4,000 shares of the Company's common stock are 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, 1999, options to
acquire 208,000 shares were available for grant under the 1995 Plan.

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. At December 31, 1999, options to acquire 791,384
shares were available for grant under the 1994 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 1999,
1998 and 1997 as follows:

<TABLE>
<CAPTION>
1999 1998 1997
(in thousands, except per share values) ------------ ------------ ------------
<S> <C> <C> <C>
Income from continuing operations -- as reported .......................... $ 18,061 $ 24,276 $ 18,871
Income from continuing operations -- pro forma ............................ 15,705 21,902 16,803
Basic income per share from continuing operations -- as reported .......... $ 1.85 $ 2.26 $ 1.74
Basic income per share from continuing operations -- pro forma ............ $ 1.61 $ 2.04 $ 1.55
Diluted income per share from continuing operations -- as reported ........ $ 1.84 $ 2.21 $ 1.67
Diluted income per share from continuing operations -- pro forma .......... $ 1.60 $ 1.99 $ 1.49
</TABLE>

--------
39
<PAGE>

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:

<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Expected dividend yield .................. 0% 0% 0%
Expected stock price volatility .......... 39% 32% 30%
Risk-free interest rate .................. 5.6% 5.73% 5.84%
Expected life of option .................. 3.6 years 4.7 years 4.8 years

</TABLE>

Transactions from January 1, 1997 through December 31, 1999, under the
above plans were as follows:

<TABLE>
<CAPTION>
Weighted Weighted
Number Option Price Average Average Life
of Shares per Share Price Remaining
------------- -------------------- ---------- -------------
<S> <C> <C> <C> <C>
Options outstanding at January 1, 1997 ........... 1,224,258 $14.38 -- 25.63 $ 18.26 2.95 years
Granted ....................................... 549,500 25.88 -- 33.13 26.49
Exercised ..................................... (216,403) 14.38 -- 25.63 16.31
Canceled ...................................... (121,257) 15.06 -- 31.75 24.15
--------- -------------------- -------

Options outstanding at December 31, 1997 ......... 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
========= ==================== =======
Options exercisable at December 31, 1999 ......... 357,208 $16.00 -- $33.13 $ 23.03
========= ==================== =======
</TABLE>

In 1997 the Company redeemed outstanding stock options granted to the
former owner of a subsidiary. The amount paid of $1,000,000 was charged
directly to additional paid in capital.

(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, 1999. 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, 1999, 1998 and 1997 was $2,230,000,
$2,550,000 and $2,407,000, respectively.

- -------
40
<PAGE>

(7) FEDERAL INCOME TAXES:

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

1999 1998 1997
(in thousands) ----------- ---------- ---------
Current:
Federal ............... $ 8,817 $12,389 $ 6,971
State ................. 56 610 530
Foreign ............... 798 1,054 822
------- ------- -------
9,671 14,053 8,323
------- ------- -------
Deferred:
Federal ............... 723 (271) 3,042
State ................. (13) (132) 206
Foreign ............... -- -- --
------- ------- -------
710 (403) 3,248
------- ------- -------
$10,381 $13,650 $11,571
======= ======= =======

The differences between the statutory and effective federal income tax
rates on income from continuing operations before income taxes were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
U.S. federal statutory rate ....................... 35.0% 35.0% 35.0%
State income taxes, less federal benefit .......... .1 .9 1.6
Non-deductible goodwill ........................... 1.0 .5 1.1
Other ............................................. .4 ( .4) .3
----- ----- -----
36.5% 36.0% 38.0%
===== ===== =====
</TABLE>

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 assets as of December 31, 1999 and 1998:

<TABLE>
<CAPTION>
1999 1998
(in thousands) ----------- -----------
<S> <C> <C>
Deferred income tax assets:
Accounts receivable ................................. $ 1,043 --
Inventory ........................................... 3,258 $ 5,081
Accrued expenses .................................... 2,162 2,764
State net operating loss carryforward ............... 5,232 5,646
Other ............................................... 2,074 2,737
-------- --------
13,769 16,228
Valuation allowance ................................. (5,232) (5,646)
-------- --------
$ 8,537 $ 10,582
======== ========
Deferred income tax liabilities:
Accounts receivable ................................. -- 3,311
Property, plant and equipment ....................... 2,293 437
Unremitted earnings of foreign subsidiaries ......... 1,136 1,180
Other ............................................... 4,358 4,194
-------- --------
7,787 9,122
-------- --------
Net deferred income tax asset ....................... $ 750 $ 1,460
======== ========

</TABLE>
At December 31, 1999 and 1998, the Company had net operating loss
carryforwards for state income tax purposes of $5,232,000 and $5,646,000,
respectively, that expire in various years through 2014. 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.

--------
41
<PAGE>

(8) LONG-TERM DEBT AND CREDIT ARRANGEMENTS:

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
(in thousands) ----------- ---------
<S> <C> <C>
Mortgages, payable monthly through 2001, interest at rates ranging from 6%
to 9.5% ................................................................. $ 201 $ 605
Industrial Development Revenue Bonds, payable periodically through 2005,
interest at rates ranging from 4% to 9.25% .............................. 150 317
Berwick acquisition debt, payable in 2003, interest at 8% ................ 653 1,133
Other .................................................................... 651 954
-------- ------
1,655 3,009
Less -- current portion .................................................. (1,118) (878)
-------- ------
$ 537 $2,131
======== ======
</TABLE>

In conjunction 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, 1999, 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 1999, 1998 and 1997 was 6.24%,
6.36% and 6.71%, respectively.

On August 13, 1996, CSS entered into an interest rate swap agreement to
reduce the impact of changes in interest rates on its floating rate revolving
credit facility. At December 31, 1997, the Company had a swap agreement with a
total notional amount of $20,000,000. This agreement fixed the interest rate on
$20,000,000 of the borrowings under the revolving credit facility at 7.125%.
The interest rate swap agreement matured on February 13, 1998 and was not
replaced. This agreement involved the exchange of fixed-rate and floating-rate
interest payments periodically over the life of the agreement without the
exchange of the underlying principal amounts. The differential to be paid or
received was accrued as interest rates changed and recognized over the life of
the agreement as an adjustment to interest expense. The fair value of this swap
agreement was not material at December 31, 1997, and was not recognized in the
financial statements.

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 mature between 1999 and 2001,
accrue interest at rates ranging from 4% to 9.25% 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 outstanding claims for indemnification
against the primary selling shareholder were resolved and the original term
loan of $3,000,000 was reduced to a principle balance of $653,000. Subsequent
to year end, the note was paid in full.

Long-term debt matures as follows:

(in thousands)
2000 ........................ $1,118
2001 ........................ 316
2002 ........................ 221
2003 ........................ --
2004 ........................ --
Thereafter .................. --
------
Total ....................... $1,655
======

- -------
42
<PAGE>

(9) OPERATING LEASES:

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

(in thousands)
2000 ........................ $ 6,291
2001 ........................ 5,562
2002 ........................ 4,766
2003 ........................ 3,637
2004 ........................ 2,665
Thereafter .................. 4,079
-------
Total ....................... $27,000
=======

Rent expense was $6,971,000, $7,016,000 and $6,144,000 in 1999, 1998 and
1997, respectively.

(10) 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.

(11) SEGMENT DISCLOSURE:

For the year ended December 31, 1998, the Company adopted SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. SFAS No.
131 introduces a new model for segment reporting called the "management
approach". The management approach is based on the way the chief operating
decision maker organizes the business for making operating decisions and
assessing performance. 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:

1999 1998 1997
(in thousands) ----------- ----------- -----------
Christmas ................. $256,122 $253,886 $229,833
Everyday .................. 49,539 58,722 52,421
Halloween ................. 43,675 45,201 40,935
Other ..................... 43,217 42,882 34,531
-------- -------- --------
Total ..................... $392,553 $400,691 $357,720
======== ======== ========

One customer accounted for sales of $82,169,000 or 20.9% of total sales in
1999, $76,650,000, or 19.1% in 1998 and $75,550,000, or 21.1% in 1997.

--------
43
<PAGE>

(12) QUARTERLY FINANCIAL DATA (UNAUDITED):

<TABLE>
<CAPTION>
Quarters
1999 -----------------------------------------------------------
First Second Third Fourth
(In thousands, except per share amounts) ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Sales .................................... $ 26,367 $ 36,761 $ 127,416 $ 202,009
-------- -------- --------- ---------
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
======== ======== ========= =========

</TABLE>

<TABLE>
<CAPTION>
Quarters
1998 (a) -----------------------------------------------------------
First Second Third Fourth
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Sales .................................... $ 27,959 $ 36,200 $ 152,408 $ 184,124
-------- -------- --------- ---------
Gross profit ............................. 9,650 9,170 40,209 47,336
-------- -------- --------- ---------
Net income ............................... $ (5,759) $ (4,950) $ 18,613 $ 16,372
======== ======== ========= =========
Net income per common share:
Basic- .................................. $ (.52) $ (.45) $ 1.73 $ 1.59
======== ======== ========= =========
Diluted- ................................ $ (.52) $ (.45) $ 1.69 $ 1.56
======== ======== ========= =========

</TABLE>

(a) 1998 quarterly results include restructuring and other special items. See
Note 3 for a complete discussion.

(13) FUTURE ACCOUNTING CHANGES:

-------
44
<PAGE>

Part III
Item 10. Directors and Executive Officers of the Registrant
See "ELECTION OF DIRECTORS" and "EXECUTIVE OFFICERS OF CSS" in the Proxy
Statement for the 2000 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 2000 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 2000 Annual
Meeting of Stockholders of the Company, which will be incorporated herein by
reference.

Item 13. Certain Relationships and Related Transactions

See "CERTAIN TRANSACTIONS AND SUBSIDIARY MATTERS" in the Proxy Statement
for the 2000 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, 1999 and 1998

Consolidated Statements of Operations - for the years ended December 31,
1999, 1998 and 1997

Consolidated Statements of Cash Flows - for the years ended December 31,
1999, 1998 and 1997

Consolidated Statements of Shareholders' Equity - for the years ended
December 31, 1999, 1998 and 1997

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 1999

None

(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)

3.5 By-laws of the Company, as amended to date (as last amended July 27,
1999). (10) (Exhibit 3.1)

--------
45
<PAGE>

Material Contracts

10.1 CSS Industries, Inc. 1991 Stock Option Plan for Non-Employee
Directors. (2) (Exhibit 10.1)

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

10.3 Registration Rights Grant dated January 21, 1993, between the Company
and certain former holders of common stock in Philadelphia Industries,
Inc. (2) (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

Executive Compensation Plans and Arrangements

10.7 CSS Industries, Inc. 1985 Incentive Stock Option Plan, as last
amended in 1991. (3) (Exhibit 10.1)

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).

10.12 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)

10.14 The Paper Magic Group, Inc. 1994 Incentive Stock Option Plan. (5)
(Exhibit 10.16)

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.

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

*10.22 Severance Agreement dated as of November 11, 1999 between CSS
Industries, Inc. and John A. Pinti.

Subsidiaries

*21. List of Significant Subsidiaries of the Registrant

- -------
46
<PAGE>

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 Quarterly Report on Form 10-Q (No. 1-2661) for
the fiscal quarter ended September 30, 1999 and incorporated herein by
reference.

The Company agrees to provide the SEC upon request with copies of certain
long-term debt obligations of CSS Industries, Inc., Cleo Inc, Berwick
Industries, Inc.

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.

--------
47
<PAGE>

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

<TABLE>
<CAPTION>
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
----------- ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
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
Year ended December 31, 1997
Doubtful accounts receivable-customers ......... $2,941 $ 903 $280 (b) $1,832 $2,292

</TABLE>

Notes: (a) Balance at acquisition of Don Post Studios
(b) Balance at acquisition of Color-Clings

- -------
48
<PAGE>

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

By /s/ David J. M. Erskine
------------------------------------------------------

David J. M. Erksine, 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 2, 2000 /s/ David J. M. Erskine
-------------------------------------------------------
David J. M. Erskine, President and Chief Executive
Officer (principal executive officer and a director)

Dated: March 2, 2000 /s/ Clifford E. Pietrafitta
-------------------------------------------------------
Clifford E. Pietrafitta, Vice President -- Finance and
Chief Financial Officer (principal financial and
accounting officer)

Dated: March 2, 2000 /s/ Jack Farber
-------------------------------------------------------
Jack Farber, Director

Dated: March 2, 2000 /s/ James H. Bromley
-------------------------------------------------------
James H. Bromley, Director

Dated: March 2, 2000 /s/ John R. Bunting, Jr.
-------------------------------------------------------
John R. Bunting, Jr., Director

Dated: March 2, 2000 /s/ Stephen V. Dubin
-------------------------------------------------------
Stephen V. Dubin, Director

Dated: March 2, 2000 /s/ Richard G. Gilmore
-------------------------------------------------------
Richard G. Gilmore, Director

Dated: March 2, 2000 /s/ Leonard E. Grossman
-------------------------------------------------------
Leonard E. Grossman, Director

Dated: March 2, 2000 /s/ James E. Ksansnak
-------------------------------------------------------
James E. Ksansnak, Director

Dated: March 2, 2000 /s/ Michael L. Sanyour
-------------------------------------------------------
Michael L. Sanyour, Director

--------
49

<PAGE>

JANUARY 1, 2000 SETTLEMENT AGREEMENT
------------------------------------

This Settlement Agreement ("Agreement") is effective as of the 1st day
of January 2000, by and between Berwick Industries LLC, a Pennsylvania limited
liability company, ("Berwick") and a wholly-owned subsidiary of The Paper Magic
Group, Inc., which in turn is a wholly-owned subsidiary of CSS Industries, Inc.,
a Delaware corporation ("CSS"), and Henry T. Doherty ("Doherty").

WHEREAS, Doherty was formerly the principal shareholder of Berwick
Industries, Incorporated, a then Florida corporation, ("Old Berwick").

WHEREAS, on or about April 8, 1993, Doherty and certain minority
shareholders (the latter being "Minority Shareholders") entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement") with Berwick Acquisition
Corp. ("BAC") pursuant to which Doherty and the Minority Shareholders (the
"Stockholders") sold all the shares of Old Berwick to BAC on May 3, 1993;

WHEREAS, as part of the sale of the stock of Old Berwick, BAC delivered
to Doherty a Non-Transferable Promissory Note in the original principal amount
of $3,000,000 dated May 3, 1993 , which Promissory Note Doherty thereafter
represented was lost and was thus replaced pursuant to an Affidavit of Loss and
Indemnity Agreement dated July 6, 1995 (both the original promissory note and
the replacement thereof are herein referred to as the "Note");

WHEREAS, in the Stock Purchase Agreement, the Stockholders made certain
representations, warranties and covenants to BAC and agreed to indemnify BAC
under certain circumstances;

WHEREAS, on or about May 4, 1993, BAC was merged with and into Old
Berwick and thereafter on or about August 27, 1996, Old Berwick was merged with
and into Berwick Industries, Inc., a Pennsylvania corporation ("Berwick PA") and
thereafter on or about August 31, 1999 Berwick PA was merged with and into
Berwick, which in turn succeeded by operation of law to all of the rights of BAC
and its above-named successors in interest under the Stock Purchase Agreement
and the Note; and

WHEREAS, Berwick's predecessor in interest, Berwick PA has made
additional claims under the Stock Purchase Agreement in Claim Notices dated
March 3, 1998, August 13, 1998, December 3, 1998, February 18, 1999, May 12,
1999 and June 10, 1999, which claims were not previously resolved (such claims
being herein jointly and severally referred to as the "Submitted Claims");

WHEREAS, Berwick has additional current claims which have not yet been
submitted, of which Doherty's portion is $2,239.85 and Berwick has also
indicated that it would be willing to settle all future claims against Doherty
relating to reimbursement of the monthly cost to supply drinking water to an
individual whose residence is adjacent to Berwick's so-called Fulton facility in
consideration of Doherty's agreement to make a current payment to Berwick of
$2,804.78 and relating to Berwick's estimated cost in capping certain test wells
at its so-called Main Plant in consideration of Doherty's agreement to make a
current payment to Berwick of $2,804.78 (all such additional claims and
enumerated future potential claims being herein jointly and severally referred
to as "New Claims");

<PAGE>

WHEREAS, Berwick and Doherty desire to avoid the cost and expense of
litigation, and, without any admission of fault or liability by either party,
the parties desire to resolve their outstanding dispute with respect to the
Submitted Claims and the New Claims as provided in paragraph "1" below and for
Berwick to thereafter pay Doherty the then remaining balance due on the Note and
in exchange therefor to have such Note marked "Paid" by Doherty, initialed by
him and returned to Berwick as provided in paragraph "2" below.

NOW, THEREFORE, in consideration of the promises set forth herein,
Berwick and Doherty, for themselves, their employees, agents, servants,
predecessors, successors, assigns, privies, beneficiaries, heirs, executors,
administrators, affiliates, subsidiaries, parents, officers, directors,
shareholders, trustees, divisions, representatives, and any person or entity
acting on their behalf, with intent to be legally bound, agree as follows:

1. Doherty's Payment. Doherty agrees to pay Berwick $475,246.96 in
settlement of the claims made in the Submitted Claims and the New Claims.
Berwick and Doherty, in consideration of good and valuable consideration
received, hereby settle and resolve all such claims covered by such Submitted
Claims and New Claims. The payment from Doherty shall be effected by subtracting
$475,246.96 from the remaining principal balance currently due Doherty on the
Note.

2. Payment of Note Balance and Note Disposition. The remaining
principal balance of the Note following the payment and deduction set forth in
paragraph "1" above is $653,395.60. Berwick shall pay such remaining principal
amount plus $230,455.21 (the sum of an amount mutually agreed upon by the
parties hereto as full payment of all unpaid interest on the Note to November 1,
1999 and $11,912.80 in unpaid interest on the Note from November 1, 1999 to
December 31, 1999) totaling $883,850.81 to Doherty either by check or if Berwick
in fact receives written wire transfer instructions from Doherty simultaneous
with Doherty's delivery to Berwick of both a counterpart of this Agreement
executed by him and his executed and acknowledged "Affidavit of Loss and
Indemnity Agreement" referred to hereafter, then by wire transfer. If such
payment is made by check, then at Doherty's direction, such check shall be made
payable to the order of "Douglas E. Ede, Esq., as attorney for Henry T. Doherty"
(herein referred to as the "Note Payment") and shall be transmitted to Mr. Ede
by reputable overnight carrier. Upon receipt of the Note Payment by either
Doherty or Mr. Ede, Doherty authorizes and directs Douglas E. Ede, Esq. to
either immediately deliver such Note marked "Paid" and initialed by Doherty or
if such Note is then in fact lost and cannot then be located to immediately
deliver an "Affidavit of Loss and Indemnity Agreement" in form and substance as
set forth in Exhibit "A" hereto executed by Doherty before a Notary Public or
other official authorized to take oaths to Berwick to the attention of Stephen
V. Dubin, Esq., by reputable overnight carrier transmitted to the address for
notice to Berwick set forth hereafter.

3. New York City Tax Refund Claim. In response to an objection
heretofore made by Doherty as to a portion of the Submitted Claims relating to
payment by Berwick of an assessment of the City of New York for Commercial Rent
or Occupancy Tax (and interest thereon) pertaining to an apartment located at 5
East 22nd Street, New York, New York, Berwick agrees that to the extent it in
fact receives any refund thereof in response to its refund claim in the amount
of $87,221.06, that it will remit by check Doherty's portion of any such refund
in the manner provided in paragraph "2" above.

<PAGE>

4. No Limitation; No Waiver. Nothing in this Agreement is intended to
limit any party's rights against the Minority Shareholders in connection with
the claims raised in the Submitted Claims and New Claims or otherwise (including
but not limited to any claims that may be raised in any future claim notices).
The parties acknowledge that nothing herein shall be deemed to be a waiver of
the Stockholders' obligations pursuant to Article VI of the Stock Purchase
Agreement except to the extent expressly addressed in this Agreement.

5. Expenses. Each party to this Agreement shall be responsible for the
fees and expenses incurred by it incidental to the negotiation and execution of
this Agreement (including, without limitation, fees and disbursements of its
attorneys and accountants in connection with their respective services on behalf
of each party).

6. Further Assurances. Subject to the terms and conditions herein
provided, each of the parties shall use commercially reasonable efforts to take,
or cause to be taken, such action to execute and deliver, or cause to be
executed and delivered, such additional documents and instruments and to do, or
cause to be done, all things necessary, proper or advisable under the provisions
of this Agreement and under applicable laws to consummate and make effective the
transactions contemplated by this Agreement.

7. Advice of Counsel. Each of the parties confirms that it is entering
into this Agreement based upon legal advise of its attorney, that such party has
been afforded the opportunity to discuss the contents of this Agreement with its
attorney and that each of these terms is fully understood and voluntarily
accepted. The parties agree that any rule of construction to the effect that
ambiguities are resolved against the drafting party shall not apply to the
interpretation of this Agreement.

8. Entire Agreement. This Agreement sets forth the entire understanding
of the parties with respect to the subject matter hereof. No change or
termination hereof shall be effective unless in writing and signed by the
parties. All representations, warranties, covenants and agreements of the
parties contained in this Agreement shall survive the closing hereunder. Any and
all previous agreements and understandings between the parties regarding the
subject matter hereof, whether written or oral, are superseded by this
Agreement.

9. Assignment and Binding Effect. This Agreement may not be assigned by
any party hereto without the prior written consent of the other party; provided,
that no such written assignment shall be required in connection with the sale of
the business or any business unit of CSS or Berwick (whether by sale of assets,
stock or merger) or any assignment by Berwick or CSS by operation of law. All of
the terms and provisions of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective permitted heirs, successors
and assigns of the parties. No such assignment shall release the assigning party
from its obligations hereunder.

10. Waiver. Any term or provision of this Agreement may be waived at
any time by the party entitled to the benefit thereof, but only by a written
instrument executed by such party or a duly authorized officer of any such party
hereto.

<PAGE>

11. Notices. Unless otherwise specifically provided herein, any notice,
request, demand, waiver, consent, approval, or other communication which is
required or permitted hereunder shall be sufficiently given if sent by telecopy
or facsimile transmission (with hard copy to follow), registered or certified
mail, postage prepaid, or Federal Express or similar reputable overnight carrier
addressed in the case of Berwick, to it at:

c/o CSS Industries, Inc.
1845Walnut Street
Suite 800
Philadelphia, PA 19103-4755
Attn: Stephen V. Dubin, Esq.

or, in the case of Doherty, at the following address:

c/o Douglas E. Ede, Esq.
Salas, Ede, Peterson & Lage, L.L.C.
6361 Sunset Drive
South Miami, FL 33143

or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communication will be deemed to have been given as of
the date so delivered in case of personal delivery or by reputable overnight
carrier or otherwise five calendar days after being so transmitted.

12. Governing Law. This Agreement shall be interpreted in accordance
with the laws of the Commonwealth of Pennsylvania.

13. No Benefit to Others. The covenants and agreements contained in
this Agreement are for the sole benefit of the parties and their successors and
assigns, and they shall not be construed as conferring and are not intended to
confer any rights on any other persons.

14. Section Headings and Gender. All section headings and the use of a
particular gender are for convenience only and shall in no way modify or
restrict any of the terms or provisions hereof.

15. Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, and each of the parties may become a
party hereto by executing a counterpart hereof. This Agreement and any
counterpart so executed shall be deemed to be one and the same instrument.

16. Severability. If any provision of this Agreement or application
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision in any other jurisdiction.

17. Reservation of Rights. All parties to this Agreement reserve all
rights not expressly addressed in this Agreement. All parties agree that if any
ambiguity exists in this Agreement, it shall not be construed against Berwick on
the basis that it is the drafter of this Agreement.

<PAGE>

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed this Agreement as of the day and year first written
above.

Berwick Industries LLC

By: /s/ David J. M. Erskine
------------------------
David J. M. Erskine
Chairman

/s/ Henry T. Doherty
------------------------
Henry T. Doherty

The provisions of paragraph "2" of
the aforementioned Agreement to the
extent pertaining to delivery of
the Note to Berwick are agreed to
and accepted:

/s/ Douglas E. Ede
- ------------------------
Douglas E. Ede, Esq.

<PAGE>
Exhibit A

AFFIDAVIT OF LOSS AND INDEMNITY AGREEMENT
-----------------------------------------

STATE OF: NEW YORK
ss:
COUNTY OF: NEW YORK

The undersigned, Henry T. Doherty ("Doherty"), being duly sworn,
deposes and says as follows:

1. Doherty is the holder of a non-transferable promissory note, dated
May 3, 1993 ("Original Note") of Berwick Industries, Inc., formerly known as BAC
Acquisition Corp. (the "Company") originally in the principal amount of
$3,000,000. Doherty has averred that the Original Note was lost or mislaid and
in reliance upon an Affidavit of Loss and Indemnity Agreement dated July 6, 1995
executed by Doherty, a replacement of the Original Note was delivered to Doherty
("Replacement Note"). (The Original Note and the Replacement Note are
hereinafter jointly and severally referred to as the "Note").

2. The Note has been lost of mislaid.

3. Doherty has made a diligent search for the Note and has been unable
to find or recover the same.

4. Doherty has not sold, negotiated, discounted, delivered, assigned,
pledged, transferred, deposited under any agreement or hypothecated the Note, or
any interest therein, signed any power of attorney, endorsement or authorization
with respect thereto, or otherwise disposed of the Note, or any interest
therein. No person, corporation, partnership, firm or association other than
Doherty had or has asserted any right, title, claim or interest in, to or
respecting the Note, or the proceeds thereof. Doherty is entitled to the full
and exclusive possession of the Note.

5. Doherty and a successor in interest to the Company, Berwick
Industries LLC ("Berwick") have entered into a Settlement Agreement effective
January 1, 2000 ("Settlement Agreement") pertaining in pertinent part to
Berwick's payment in full of the then remaining balance of principal and
interest on the Note to Doherty and the concomitant surrender of the Note to
Berwick marked "Paid" and initialed by Doherty. However, since the Note has been
lost or mislaid, Doherty hereby requests, and this Affidavit of Loss and
Indemnity Agreement is made for the purpose of inducing Berwick to make such
payment in full of the then remaining balance of principal and interest on the
Note to Doherty in accordance with the Settlement Agreement even though Doherty
has not presently satisfied the condition of concomitant surrender of the Note
to Berwick. If Doherty at any time recovers the Note, Doherty will immediately
surrender such Note to Berwick, its successors and assigns, marked "Paid" and
initialed by Doherty as provided in the Settlement Agreement without requiring
any consideration or other payment therefor.

<PAGE>

6. In consideration of Berwick making such payment on the Note as
requested by Doherty in "5" above, Doherty will indemnify and hold harmless
Berwick and its successors and assigns (including CSS Industries, Inc. and its
subsidiaries), from and against any and all claims, actions, suits or other
proceedings brought or alleged, whether groundless or otherwise, and from and
against any and all liabilities, losses, damages, judgments, costs, charges,
expenses (including, without limitation, attorneys' fees and disbursements) and
payments of every nature and character suffered or incurred, by reason of any
claim or demand with respect to the Note, the making of payment on or refusing
to honor the Note or any contest or litigation brought by any person seeking
payment on the Note, subject to Berwick providing notice to Doherty of any such
claim or demand of a third party with respect to the Note and with such notice
being transmitted c/o Douglas E. Ede, Esq., 6361 Sunset Drive, South Miami,
Florida 33143.

IN WITNESS WHEREOF, I have duly executed and delivered this Affidavit
of Loss and Indemnity Agreement on January 17, 2000.

/s/ Henry T. Doherty
------------------------------
Henry T. Doherty

Sworn and subscribed before me this 17 day of January, 2000.

------------------------------
Notary Public

My commission expires: (Print, type or stamp Commissioned
Name of Notary Public)

<PAGE>

CSS INDUSTRIES, INC. ANNUAL INCENTIVE COMPENSATION
ADMINISTRATIVE GUIDELINES, DATED AS OF MARCH 15, 1993

(AS UPDATED EFFECTIVE AS OF JANUARY 1, 2000)

<PAGE>

CSS INDUSTRIES, INC.

ANNUAL INCENTIVE COMPENSATION ARRANGEMENT
ADMINISTRATIVE GUIDELINES

MARCH 15, 1993
(as updated effective as of January 1, 2000)

I. Purpose.

The annual incentive compensation arrangement ("AIC Arrangement") is
intended to motivate, encourage and reward achievement and excellence in
performance.

II. Participants.

All corporate level officers and managers are eligible to participate
in the AIC Arrangement.

III. Administration.

The Human Resources Committee of the Board of Directors (the
"Committee") determines the amount of the bonus under the AIC Arrangement to be
paid to the Chairman and the President and Chief Executive Officer and
determines the amount of the bonus under the AIC Arrangement for the Company's
other officers and managers following receipt of the recommendations of the
President and Chief Executive Officer.

IV. Basis Assumptions.

The assumptions to the AIC Arrangement are as follows:

1. Base salary levels are fair and adequate for the position.

2. The AIC Arrangement relates to officers and managerial
personnel only. Staff personnel receive a formulary bonus based on salary
levels.

3. To be effective, bonuses should be meaningful in relation
to salaries.

4. Management has important equity ownership or options
relating thereto.

5. Management has modest profit-sharing-pension contributions
and reasonable but basic and modest perks.

6. The Company is well positioned financially,
organizationally and as to physical assets of subsidiaries, in accordance with
management strategies and goals.

<PAGE>

7. The Company is fully and well staffed.

8. The primary functions of the corporate group relate to the
guidance and direction of the operating companies. The management style allows
operating autonomy with broad discretion with a goal of long-term growth as
opposed to annual short-term maximization of profits.

If any of the foregoing assumptions are not true in a given fiscal
year, the amount of the bonus paid for such year may be modified accordingly.

V. Determination of Bonus Thresholds.

At the beginning of each fiscal year, performance goals are established
by the Committee based upon (1) the attainment of a specific threshold level of
earnings per common share during such year and, (2) for certain individual
officers and managers, specifically defined individual goals and objectives
consistent with such individual's position with the Company.

VI. Determination of Bonus.

Participants should be employed at the time bonuses are paid under the
AIC Arrangement. A participant whose employment is terminated for any reason
prior to the payment date will not be entitled to a bonus under the AIC
Arrangement for the relevant fiscal year, unless otherwise determined by the
Committee. Participants who were hired during the relevant fiscal year may have
their bonus opportunity prorated based on the ratio of days employed divided by
365 days if so determined by the Committee.

Following the end of the fiscal year, annual performance bonuses for
each participant under the AIC Arrangement are determined based upon the
achievement of the threshold target level of earnings per common share and the
attainment of any specifically defined individual goals and objectives.

VII. Payment of Bonus.

Bonuses are paid as soon as practicable following their determination
by the Committee. The Company deducts from all bonus payments made under the AIC
Arrangement all applicable federal, state or other taxes required by law to be
withheld.

VIII. Amendment or Termination.

The Board of Directors of the Company or the Committee may, without
prior notice, amend or terminate the AIC Arrangement at any time.

IX. Employment Not Guaranteed.

Neither the AIC Arrangement nor any action taken in accordance with the
AIC Arrangement shall be construed as giving any participant a right to remain
as an employee of the Company at any time or for any period.

<PAGE>

EMPLOYMENT AGREEMENT
--------------------

EMPLOYMENT AGREEMENT (the "Agreement") dated as of June 1, 1999 between
CSS Industries, Inc., a Delaware corporation ("CSS") and David J. M. Erskine
("Executive").

WHEREAS, CSS and the Executive are desirous of memorializing the terms
and conditions of the Executive's employment by CSS;

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, the parties hereto, intending to be
legally bound, agree as follows:

1. Employment. CSS agrees to employ the Executive and the Executive
accepts such employment and agrees to perform his duties and
responsibilities hereunder, in accordance with the terms and conditions
hereinafter set forth.

1.1 Employment Term. The term of this Agreement (the
"Employment Term") shall commence as of the date hereof and shall continue for a
term of three years, unless terminated prior thereto in accordance with a
provision of Paragraph 7 of this Agreement. If the Executive remains an employee
of CSS beyond the expiration of the Employment Term, the Executive specifically
acknowledges that his status will thereupon be that of an employee-at-will.
However, during such time as the Executive's status is that of an
employee-at-will, or during the last year of the Employment Term, if the
Executive's employment with CSS is terminated for other than cause (as such term
is described in Section 7.3 hereof), the Executive shall thereupon be entitled
to receive severance pay equal to one year's Base Salary less applicable
deductions and payable in installments (all as described in Subsection 1.4(a)
hereof).

1.2. Duties and Responsibilities.
---------------------------

(a) During the Employment Term, the Executive shall
serve as President and Chief Executive Officer of CSS and shall perform all
duties and accept all responsibilities incidental to such position and
designation as provided in the Bylaws of CSS as well as additional duties and
responsibilities consistent with such office and designation as may from time to
time be assigned to him by the board of directors ("Board") of CSS.

(b) The Executive represents to CSS that he is not
subject or a party to any employment agreement, non-competition covenant,
non-disclosure agreement or any other agreement, covenant, understanding or
restriction of any nature whatsoever which would prohibit the Executive from
entering into this Agreement and performing fully his duties and
responsibilities hereunder, or which would in any manner, directly or
indirectly, limit or affect the performance of the duties and responsibilities
of the Executive described in Subsection 1.2(a) above.

<PAGE>

(c) The Executive agrees to at all times comply with
policies and procedures adopted by CSS for its employees, including, without
limitation, procedures and policies relating to conflicts of interest.

(d) The Executive shall not be required to reside
outside the Philadelphia, Pennsylvania SMSA.

1.3 Extent of Service. During the Employment Term, the
Executive agrees to use his best efforts to carry out his duties and
responsibilities described in Section 1.2 hereof and to devote his full time,
attention and energy to such duties and responsibilities. The Executive agrees
not to become engaged in any other business activity other than passive
investments without the prior approval of the Human Resources Committee
("Committee") of the CSS Board.

1.4 Base Compensation.
------------------

(a) For the services rendered by the Executive
pursuant to this Agreement, CSS shall pay the Executive a salary of $360,000
("Base Salary") for each full year of the Employment Term, plus such additional
amounts, if any, as may be approved by the Committee of the CSS Board, less
withholding taxes and other withholdings required by law and other deductions
agreed to by the Executive. Such Base Salary less applicable deductions shall be
payable in installments at such times as CSS customarily pays its other
executive officers.

(b) During the Employment Term: (i) the Executive
shall be entitled to participate in such vacation and other fringe benefit
programs as CSS makes available to its executive officers, including by way of
illustration and not of limitation, participation in the CSS Non-Qualified
Supplemental Executive Retirement Plan Covering Officer - Employees and the Cleo
Inc 401K Profit Sharing Plan, as such fringe benefit programs are from time to
time authorized by the Committee of the CSS Board; and (ii) the Executive shall
be provided with use of a Company leased automobile in accordance with CSS'
policy.

(c) The Executive shall be responsible for the
payment of all federal, state and local taxes in respect of the payments to be
made and benefits to be provided under this Agreement or otherwise to the extent
imposed upon him by applicable law.

1.5 Incentive Compensation. In addition to the Base Salary and
other compensation described in Section 1.4, the Executive shall also be
eligible to participate in the CSS annual bonus program in accordance with
criteria annually established by the Committee of the CSS Board, which criteria
being based, in material part, upon the achievement of certain financial and
qualitative objectives. Anything of the foregoing to the contrary
notwithstanding, the amount of the bonus that the Executive will be eligible to
receive relating to the CSS fiscal year ending December 31, 1999 shall be an
amount equal to seven-twelfths of any such bonus calculated for the entire
fiscal year plus one-half of such seven-twelfths calculated amount. Furthermore,
upon commencement of the Employment Term, the Executive will be granted an
Incentive Stock Option to acquire 150,000 shares of the Company's Common Stock,
which grant shall in all respects be subject to and in accordance with the
provisions of the CSS 1994 Equity Compensation Plan, as amended ("Plan").
Thereafter during the Employment Term, the Executive will be considered for
further Plan option grants by the Committee of the CSS Board on not less than an
annual basis.

<PAGE>

1.6 Reimbursements.
---------------

(a) CSS shall reimburse the Executive for reasonable
out-of-pocket expenses incurred in relocating him and his family from Oakville
Ontario, Canada to the Philadelphia SMSA, upon the Executive's presentation to
CSS of appropriate documentation evidencing such expenses; however, in no event
shall such reimbursement obligation exceed $50,000 in toto.

(b) In addition to the above items, the Executive
shall be reimbursed in an amount not to exceed $30,000 in toto for fees expended
by him on professional services rendered in the negotiation and execution of
this Agreement and the cost of replacement of household fixtures and decorations
such as appliances and drapes.

2. Developments. All developments, including inventions, whether
patentable or otherwise, trade secrets, discoveries, improvements, ideas and
writings which either directly or indirectly relate to or may be useful in the
Business (the "Developments") which the Executive, either by himself or in
conjunction with any other person or persons, shall conceive, make, develop,
acquire or acquire knowledge of during the Employment Term or at any time
thereafter during which he is employed by CSS, shall become the sole and
exclusive property of CSS. The Executive assigns, transfers and conveys, and
agrees to assign, transfer and convey to CSS, all of his right, title and
interest in and to any and all such Developments and to disclose to the extent
practicable all such Developments to the Committee of the CSS Board. At any time
and from time to time, upon the request and at the expense of CSS, the Employee
will execute and deliver any and all instruments, documents and papers, give
evidence and do any and all other acts which, in the opinion of counsel for CSS,
are or may be necessary or desirable to document such transfer or to enable CSS
to file and prosecute applications for and to acquire, maintain and enforce any
and all intellectual property rights with respect to any such Developments or to
obtain any extension, validation, re-issue, continuance or renewal of any such
intellectual property rights. CSS will be responsible for the preparation of any
such instruments, documents and papers and for the prosecution of any such
proceedings and will reimburse the Executive for all reasonable expenses
incurred by him in compliance with the provisions of this Section.

3. Confidential Information. The Executive recognizes and acknowledges
that by reason of his employment by and service to CSS, he has had and will
continue to have (both during the Employment Term and at any time thereafter
during which he is employed by CSS), access to confidential information of CSS
and its affiliates, including, without limitation, information and knowledge
pertaining to products and services offered, inventions, innovations, designs,
ideas, plans, trade secrets, proprietary information, computer systems and
software, packaging, advertising, distribution and sales methods and systems,
sales and profit figures, customer and client lists, and relationships between
CSS and its affiliates and dealers, distributors, wholesalers, customers,
clients, suppliers and others who have business dealings with CSS and its
affiliates ("Confidential Information"). The Executive acknowledges that such
Confidential Information is a valuable and unique asset of CSS and covenants
that he will not, either during or at any time after the Employment Term,
disclose any such Confidential Information to any person for any reason
whatsoever (except as his duties described herein may require) without the prior
written consent of the Committee of the CSS Board, unless such information is in
the public domain through no fault of Executive or except as may be required by
law.

<PAGE>

4. Non-Competition.
---------------

(a) During the Employment Term and for a period of
one year following the date that the Executive's employment with CSS is
terminated by either party, Employee will not, without the prior written consent
of the Committee of the CSS Board, directly or indirectly, own, manage, operate,
join, control, finance or participate in the ownership, management, operation,
control or financing of, or be connected as an officer, director, employee,
partner, principal, agent, representative, consultant or otherwise with or use
or permit his name to be used in connection with, any business or enterprise
engaged within any portion of North America and any other country where CSS may
do business during the Employment Term (collectively, the "Territory") (whether
or not such business is physically located within the Territory) that is engaged
in the creation, design, manufacture, distribution or sale of seasonal social
expression products to mass market retailers or any other business in which CSS
or its affiliates may be engaged during the Employment Term (the "Business"). It
is recognized by the Executive that the Business and the Executive's connection
therewith is or will be involved in activity throughout the Territory, and that
more limited geographical limitations on this non-competition covenant (and the
non-solicitation covenant set forth in Paragraph 5 hereof) are therefore not
appropriate.

(b) The foregoing restriction shall not be construed
to prohibit the ownership by the Executive of not more than five percent (5%) of
any class of securities of any corporation which is engaged in any of the
foregoing businesses having a class of securities registered pursuant to the
Securities Act of 1933, provided that such ownership represents a passive
investment and that neither the Executive nor any group of persons including the
Executive in any way, either directly or indirectly, manages or exercises
control of any such corporation, guarantees any of its financial obligations,
otherwise takes any part in business, other than exercising his rights as a
shareholder, or seeks to do any of the foregoing.

5. No Solicitation. For a period of the later to occur of one year
following the expiration of the Employment Term or one year following the date
that Executive's employment with CSS is terminated by either party, the
Executive agrees not to, either directly or indirectly, (i) call on or solicit
with respect to the Business any person, firm, corporation or other entity who
or which at the time of termination was, or within two years prior thereto had
been, a customer of CSS or any of its affiliates or (ii) solicit the employment
of any person who was employed by CSS or any of its affiliates on a full or
part-time basis at any time during the course of the Executive's employment with
CSS, unless prior to such solicitation of employment, such person's employment
with CSS or any of its affiliates was terminated.

<PAGE>

6. Equitable Relief.
----------------

(a) The Executive acknowledges that the restrictions
contained in Paragraphs 2, 3, 4 and 5 hereof are reasonable and necessary to
protect the legitimate interests of CSS and its affiliates, that CSS would not
have entered into this Agreement, in the absence of such restrictions, and that
any violation of any provision of those Paragraphs will result in irreparable
injury to CSS. The Executive represents that his experience and capabilities are
such that the restrictions contained in Paragraphs 4 and 5 hereof will not
prevent the Executive from obtaining employment or otherwise earning a living at
the same general level of economic benefit as is anticipated by this Agreement.
THE EXECUTIVE FURTHER REPRESENTS AND ACKNOWLEDGES THAT (i) HE HAS BEEN ADVISED
BY CSS TO CONSULT HIS OWN LEGAL COUNSEL IN RESPECT OF THIS AGREEMENT, (ii) THAT
HE HAS HAD FULL OPPORTUNITY, PRIOR TO EXECUTION OF THIS AGREEMENT, TO REVIEW
THOROUGHLY THIS AGREEMENT WITH HIS COUNSEL, AND (iii) HE HAS READ AND FULLY
UNDERSTANDS THE TERMS AND PROVISIONS OF THIS AGREEMENT.

(b) The Executive agrees that CSS shall be entitled
to preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as any other remedies provided by law arising from any
violation of Paragraphs 2, 3, 4 or 5 hereof, which rights shall be cumulative
and in addition to any other rights or remedies to which CSS may be entitled. In
the event that any of the provisions of Paragraphs 2, 3, 4 or 5 hereof should
ever be adjudicated to exceed the time, geographic, product or service, or other
limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic, product or service, or other limitations permitted by applicable
law.

(c) The Executive and CSS irrevocably and
unconditionally (i) agree that any suit, action or other legal proceeding
arising out of Paragraphs 2, 3, 4, or 5 of this Agreement, including without
limitation, any action commenced by CSS for preliminary or permanent injunctive
relief or other equitable relief, may be brought in the United States District
Court for the Eastern District of Pennsylvania, or if such court does not have
jurisdiction or will not accept jurisdiction, in any court of general
jurisdiction in Philadelphia County, Pennsylvania, (ii) consents to the
non-exclusive jurisdiction of any such court in any such suit, action or
proceeding, and (iii) waives any objection to the laying of venue of any such
suit, action or proceeding in any such court. The Executive and CSS also
irrevocably and unconditionally consent to the service of any process,
pleadings, notices or other papers in a manner permitted by the notice
provisions of Paragraph 11 hereof.

(d) The Executive agrees that CSS may provide a copy
of Paragraphs 2, 3, 4, and 5 of this Agreement to any business or enterprise (i)
which he may directly or indirectly own, manage, operate, finance, join,
participate in the ownership, management, operation, financing, control or
control of, or (ii) with which he may be connected with as an officer, director,
employee, partner, principal, agent, representative, consultant or otherwise, or
in connection with which he may use or permit his name to be used.

<PAGE>

7. Termination. This Agreement shall terminate prior to the expiration
of the Employment Term upon the occurrence of any one of the following events:

7.1. Disability. In the event that Executive is unable fully
to perform his duties and responsibilities set forth in Section 1.2 of this
Agreement by reason of illness, injury or incapacity for six consecutive months,
during which time he shall continue to be compensated as provided in Section 1.4
hereof (less any payments due the Executive under disability benefit programs,
including Social Security disability, worker's compensation, and disability
retirement benefits), this Agreement may be terminated by CSS and CSS shall have
no further liability or obligation to the Executive for compensation hereunder;
provided, however, that Executive will be entitled to receive the payments
prescribed under any disability benefit plan which may be in effect for
employees of CSS and in which he participated. The Executive agrees, in the
event of any dispute under this Section 7.1, to submit to a physical examination
by a physician licensed in the State in which the Executive is then residing
selected by the Committee of the CSS Board.

7.2. Death. In the event that the Executive dies during the
Employment Term, CSS shall pay to his executors, legal representatives or
administrators an amount equal to the installment of his Base Salary set forth
in Subsection 1.4 (a) hereof for the month in which he dies and applicable
incentive compensation, if any, referred to in Section 1.5 hereof in respect of
the last fiscal year ended prior to the date of his death to the extent earned,
but not yet paid. Thereafter CSS shall have no further liability or obligation
hereunder to his executors, legal representatives, administrators, heirs or
assigns or any other person claiming under or through him; provided, however
that the Executive's estate or designated beneficiaries shall be entitled to
receive the payments prescribed for such recipients under any death benefit plan
which may be in effect for employees of CSS in which the Executive participated.

7.3. Cause. Nothing in this Agreement shall be construed to
prevent its termination by CSS at any time for "cause". For purposes of this
Agreement, "cause" shall mean the failure of the Executive to perform or observe
any of the terms or provisions of this Agreement (after notice to the Executive
by the Committee of the CSS Board of such failure and the Executive's failure to
cure such act or omission within a reasonable time thereafter), a failure to
comply with a lawful directive of the CSS Board, conviction of a crime involving
moral turpitude or substance abuse or the willful engaging by the Executive in
misconduct injurious to CSS or its affiliates. In the event of termination for
cause, CSS shall pay the Executive an amount equal to the installment of Base
Salary due until the date of termination together with payment of any incentive
compensation described in Section 1.5 to the extent that such incentive
compensation related to CSS' then last fiscal year which had been earned by the
Executive, but not yet paid, and any reimbursable expenses then due the
Executive and shall have no further liability or obligation to the Executive for
compensation hereunder. Such termination shall be effected by notice thereof
transmitted to the Executive in a manner permitted by the notice provisions of
Paragraph 11 hereof and shall be effective as of the date of transmittal of such
notice. CSS' liability, if any, for payments to the Executive by virtue of any
wrongful termination of Executive's employment pursuant to this Agreement shall
be reduced by and to the extent of any earnings received by or accrued for the
benefit of the Executive during any unexpired part of the Employment Term.

<PAGE>

7.4. Without Cause by CSS. CSS may also terminate this
Agreement at and for CSS' sole convenience and in its sole discretion and
without specifying any cause. In such event, and contingent upon (i) receipt by
CSS of a valid and fully effective release (in form and substance reasonably
satisfactory to CSS) of all claims of any nature which the Executive might have
at such time against CSS and its affiliates and their respective officers,
directors and agents excepting therefrom only any payments due the Executive
from CSS pursuant to this Section 7.4, and (ii) the resignation of the Executive
from all positions of any nature which Executive may then have held with CSS and
its affiliates, CSS shall continue to pay Executive until the end of the
Employment Term the Base Salary set forth in Subsection 1.4(a) hereof in the
installments provided therein, together with payment of any incentive
compensation described in Section 1.5 to the extent such incentive compensation
related to CSS' then last fiscal year which had been earned by the Executive,
but not yet paid. CSS' liability, if any, by virtue of the foregoing sentence
shall be reduced by and to the extent of any earnings and other compensation
received by or accrued for the benefit of the Executive for his services
(whether as an employee or as an independent contractor) during any then
remaining portion of the Employment Term. Following termination covered by this
Section 7.4, the Executive shall promptly advise CSS on not less than a monthly
basis of any such earnings and other compensation. However, anything of the
foregoing to the contrary notwithstanding, in no event shall CSS pay the
Executive less than one year's Base Salary.

7.5. Change of Control. If during the Employment Term, the
percentage of equity ownership in CSS of Jack Farber (owned both directly and
beneficially as determined by the rules of the Securities and Exchange
Commission) on the date hereof decreases by more than one-half of such equity
ownership, then, upon the occurrence of such event, the Executive shall have a
period of up to sixty days from such event (time being of the essence) to
terminate both this Agreement and his employment with CSS by notice to CSS. Upon
the exercise of such timely option of termination, the Executive shall be
entitled to receive severance pay equal to one year's Base Salary less
applicable deductions and payable in installments (all as described in
Subsection 1.4(a) hereof).

8. Survival. Notwithstanding the termination of this Agreement by CSS
by reason of either the Executive's disability under Section 7.1, for cause
under Section 7.3, without cause under Section 7.4, or change of control under
Section 7.5, the Executive's obligations under Paragraphs 2, 3, 4 and 5 hereof
shall survive and remain in full force and effect for the periods therein
provided, and the provisions for equitable relief against the Executive in
Paragraph 6 hereof shall continue in force along with the provisions of
Paragraphs 8 through 16 hereof. Any payment obligation of CSS set forth in
Paragraph 7 hereof shall survive the termination of this Agreement and remain in
full force and effect.

<PAGE>

9. Arbitration. Except as otherwise provided in Section 6(c) with
respect to injunctive relief, all disputes between the parties hereto pertaining
to this Agreement shall be settled by arbitration before one arbitrator pursuant
to the Commercial Arbitration Rules of the American Arbitration Association in
Philadelphia, Pennsylvania; provided, however, that any award pursuant to such
arbitration shall be accompanied by a written opinion of the arbitrator giving
the reasons for the award. The award rendered by the arbitrator shall be
conclusive and binding upon the parties hereto. Nothing herein shall prevent the
parties from settling any dispute by mutual agreement at any time. Each party
shall pay his or its own expenses of arbitration and shall equally share the
expenses of the arbitrator.

10. Governing Law. This Agreement shall be governed by and interpreted
under the laws of the Commonwealth of Pennsylvania without giving effect to any
conflict of laws provisions.

11. Notices. All notices and other communications required or permitted
hereunder or necessary or convenient in connection herewith shall be in writing
and shall be deemed to have been given either when hand delivered, or if not
hand delivered, either mailed by registered or certified mail postage prepaid,
or sent by electronic facsimile transmission (with a hard copy sent by a
nationally recognized overnight courier or registered mail), or sent by a
nationally recognized overnight courier, as follows (provided that notice of
change of address shall be deemed given only when received):

If to CSS, to:

CSS Industries, Inc.
1845Walnut Street, Suite 800
Philadelphia, PA 19103
Attention: Jack Farber

Telecopy: 215-569-9979

With a required copy to Stephen V. Dubin, Esquire at the same
address and telecopy number set forth for CSS Industries, Inc.

If to the Executive, to:

David J. M. Erskine
541 Larkin's Bridge Drive
Downingtown, PA 19355

Telecopy: 610-458-8987

<PAGE>

With a required copy to:

William J. Rodgers, Esquire
Collier, Shannon, Rill & Scott, PLLC
3050 K Street, N. W., Suite 400
Washington, D. C. 20007
Telecopy: (202) 342-8451

or to such other names or addresses as CSS or the Executive, as the case may be,
shall designate by notice to each other person entitled to receive notices in
the manner specified in this Paragraph.

12. Entire Agreement; Contents of Agreement.
---------------------------------------

(a) This Agreement supersedes all prior agreements
and sets forth the entire understanding among the parties hereto with respect to
the subject matter hereof and cannot be changed, modified, extended or
terminated except upon written amendment executed by the Executive and approved
by the Committee of the CSS Board and executed on behalf of CSS by a duly
authorized officer. The Executive and CSS acknowledge that the effect of this
provision is that no oral modifications of any nature whatsoever to this
Agreement shall be permitted.

(b) The Executive and CSS acknowledge that from time
to time, CSS may establish, maintain and distribute employee manuals or
handbooks or personnel policy manuals, and representatives of CSS may make
written or oral statements relating to personnel policies and procedures. Such
manuals, handbooks and statements are intended only for general guidance. No
policies, procedures or statements of any nature by or on behalf of CSS (whether
written or oral, and whether or not contained in any employee manual or handbook
or personnel policy manual), and no acts or practices of any nature, shall be
construed to modify this Agreement or to create express or implied obligations
of any nature by CSS to the Executive.

13. Assignment. All of the terms and provisions of this Agreement shall
be binding upon and inure to the benefit of and be enforceable by the respective
heirs, executors, administrators, legal representatives, successors and assigns
of the parties hereto, except that the duties and responsibilities of the
Executive hereunder are of a personal nature and shall not be assignable or
delegated in whole or in part by the Executive.

14. Severability. If any provision of this Agreement or application
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or application of this Agreement which can be given
effect without the invalid or unenforceable provision or application in any
other jurisdiction.

<PAGE>

15. Remedies Cumulative; No Waiver. No remedy conferred upon a party by
this Agreement is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to any other
remedy given hereunder or now or hereafter existing at law or in equity. No
delay or omission by a party in exercising any right, remedy or power hereunder
or existing at law or in equity shall be construed as a waiver thereof, and any
such right, remedy or power may be exercised by a party from time to time and as
often as may be deemed expedient or necessary by such party in its sole
discretion.

16. Miscellaneous. All section headings are for convenience only. This
Agreement may be executed in several counterparts, each of which is an original.
It shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for any of the other counterparts.

IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement as of the date first above written.

CSS Industries, Inc.

By: /s/ Jack Farber
---------------------------
Jack Farber
Chairman of the Board

/s/ David J. M. Erskine
---------------------------
David J. M. Erskine

<PAGE>

- ----- The Paper Magic Group, Inc.
PAPER P.O. Box 977
MAGIC Scranton, PA 18501
GROUP
- ----- Phone 717 o 961 o 3883

June 3, 1999

Mr. Steven Cohen
45 Club Pointe Drive
White Plains, NY

Dear Mr. Cohen:

On behalf of our parent, CSS Industries, Inc. ("CSS"). I am pleased to offer you
the CSS position of Vice President-Licensing. You will be reporting to me and
you are to commence employment effective no later than . Your initial
responsibilities will include licensing activities for all CSS companies except
for the Halloween season for the time period from date of hire through January
2000, at which time your duties will be re-evaluated. You will be compensated at
a bi-weekly base salary (subject to withholding and other applicable deductions)
of $8,461.54 annualized at $220,000. Assuming you are an active employee of CSS
on March 15, 2000, you will receive a $50,000 bonus (subject to withholding and
other applicable deductions) in lieu of any bonus entitlement for fiscal year
1999. Your payroll and benefits will be administered through The Paper Magic
Group, Inc.

In the position of Vice President-Licensing, you will be eligible to participate
in the CSS Bonus Plan starting with the fiscal year ending December 31, 2000.
Your target bonus is 50% of base salary. During the period of your employment
you will receive a car allowance of $575 per month.

In addition, I will recommend to the Human Resources Committee of the Board of
Directors of CSS Industries, Inc. to grant you options to acquire shares of CSS
Industries, Inc. common stock according to the CSS Industries, Inc. 1994 Equity
Compensation Plan.

The following conditions apply to your employment:

1. Your performance will be reviewed annually and any increase in salary,
if warranted, will be determined in December of each year. You will be
eligible for review and salary increase consideration (pro-rated), if
warranted, commencing in December 1999 and in each December thereafter
during the course of your employment.

2. Paper Magic provides certain fringe benefits to its employees as
detailed in written materials which are being sent under separate cover.
These benefits may be modified and specific elements may be terminated
from time to time in Paper Magic's sole and unfettered discretion. Note
that your employee medical insurance coverage will start the first of
the month after your date of hire.

<PAGE>

3. On the date you commence full time employment with CSS, you will be
expected to deliver to me executed copies of the enclosed
certifications.

4. Please understand that your employment with CSS shall at all times be on
a strictly "at-will" basis and may be terminated by either of us at any
time and for any reason in the exercise of our respective discretion.
Your signature on this letter where noted below and its return will
indicate your acknowledgment that your employment is "at-will" and is in
accordance with those conditions herein summarized.

Please confirm the correctness of this understanding and your agreement thereto
by executing the enclosed counterpart of this letter where noted below and
returning this counterpart to me by June 8, 1999.

Sincerely,
The Paper Magic Group, Inc.

By: /s/ John Pinti
-------------------------------------
John Pinti
President and Chief Executive Officer

Acknowledged to and acknowledged as correct:

/s/ Steven Cohen June 4, 1999
- ---------------- -----------------
Steven Cohen Date of Signature

- ---------------------
Start Date

Enclosures: Memo regarding Confidential and Proprietary Information
Memo regarding Conflict of Interest and Code of Business Ethics
Memo regarding Removal of Company Files
Memo regarding Use of Company E-Mail

cc: Jack Farber
David J.M. Erskine

Page 2 of 2

<PAGE>

as of November 12, 1999

CSS INDUSTRIES, INC.

1846 WALNUT STREET

SUITE 800

PHILADELPHIA, PA. 19103-4755

(215) 565-9900

FAX (215) 565-9979

PERSONAL AND CONFIDENTIAL
- -------------------------

Mr. John A. Pinti
480 Euclid Avenue
Haddonfield, NJ 08033

Dear John:

1. This letter supercedes our prior letter to you of even date.

2. Confirming the substance of our conversation, you indicated your desire to
retire from employment with CSS (as defined below) and thus effective the date
hereof, your employment with CSS as an Executive Vice President of CSS
Industries, Inc. and as President and Chief Executive Officer and as a member of
the Board of Directors of its affiliate, The Paper Magic Group, Inc. and as a
Manager and President and Chief Executive of its affiliate, Berwick Industries
LLC (herein CSS Industries, Inc. and its above-named affiliates are referred to
jointly and severally as "CSS") as well as with any other affiliate of CSS are
terminated.

In connection with your retirement and employment termination, it has
been agreed as follows:

A. Your execution of a counterpart of this letter confirms your resignation from
each of the positions you presently hold with CSS as well as from any other
position as an officer, director, trustee or otherwise that you presently hold
with any other subsidiary or affiliate thereof. At CSS' request, from time to
time and to the extent CSS deems the same necessary, you will immediately
execute and deliver separate forms of resignations from each of these positions.

B. In consideration of your execution and delivery to CSS of the General Release
in form and substance attached hereto and your full compliance with the other
undertakings in favor of CSS that you assumed in this letter agreement or in any
other document, subject to and contingent upon the continued efficacy of such
General Release and such undertakings:

(i) CSS will make a severance payment to you totaling $400,000
(subject to requisite tax withholding and other then
applicable deductions). This severance payment will be payable
in bi-weekly installments on the then applicable paydays for
CSS' corporate office employees during the period from the
date hereof to October 31, 2000.

<PAGE>

(ii) As you know, you will be eligible for so-called COBRA coverage
to enable you to continue your current CSS medical insurance
coverage for a period of up to eighteen months from the date
of your separation from employment with CSS. CSS will pay the
applicable costs of such COBRA coverage from the date of your
separation until the earlier to occur of one of the following
events: your employment by another person or entity, or your
obtaining medical insurance coverage elsewhere, or October 31,
2000. In addition, you will be eligible to receive through May
31, 2000, any benefits under the CSS Officers' Medical
Reimbursement Plan ("Plan") that you would have otherwise been
entitled to receive under the Plan if you had remained an
officer of CSS during this period up to a reimbursement cap of
$5000, but only to the extent the same relate to covered
medical expenses incurred on or before May 31, 2000; and

(iii) CSS will make available to you the use of a so-called
outplacement consulting service to assist you in finding other
employment; however, the selection of any such consulting
service shall be in the exercise of CSS' sole, absolute and
unfettered discretion and CSS shall at no time be obligated to
pay such consulting service more than $20,000 for such
services.

The payments described in this paragraph "B" constitute the entire
compensation that will be payable to you by CSS under this understanding or
otherwise. Following the date hereof, except as provided herein, you will not be
entitled to receive any other form of compensation from or on behalf of CSS,
including by way of illustration, but not of limitation, salary, bonus, profit
sharing contribution and accrued vacation pay. It is expressly understood that
notwithstanding anything herein stated to the contrary, you shall not be
entitled to receive any payment or other consideration provided in this letter
agreement unless and until this letter agreement and the attached General
Release are executed by you and delivered to CSS and at the time of each such
payment or entitlement to other consideration provided herein, such General
Release and all of the undertakings in favor of CSS that you have assumed in
this letter agreement and in any ancillary document remain in force and effect.

C. Other Matters. This is to confirm that:
--------------

(i) You covenant and agree to at all times maintain the
confidentiality of and not disclose to any third party, the
terms of this letter agreement;

(ii) You represent, covenant and agree that within two business
days following the date of the termination of your employment
with CSS, you will deliver to me all keys, credit cards,
documents and other property in your possession or control
belonging or otherwise related to CSS or that would otherwise
constitute "Confidential Information" as such term is defined
in the Non-Disclosure and Non-Competition Agreement
("Non-Compete") that you heretofore executed and delivered to
CSS in connection with each grant to you of CSS incentive
stock options;

(iii) You covenant and agree that during such period as the
Non-Compete remains in force and effect that in addition to,
and not in substitution of the obligations undertaken by you
thereunder that you will not employ any current employee of
CSS;

<PAGE>

(iv) Time is of the essence for all purposes of this letter
agreement; and

(v) If at any time any portion of this letter agreement is determined
to be void or otherwise unenforceable, the remainder of this letter agreement
shall continue to remain in force and effect.

We wish to further confirm that this letter agreement reflects our
complete mutual understanding relating to the termination of your employment
with CSS and your resignation from all of the positions you hold with CSS.
Please confirm the same and your acceptance of all of the provisions hereof by
executing the enclosed counterpart of this letter agreement where noted below
and returning this executed counterpart to me. If such executed counterpart is
not received by me by 4PM (local time) within two business days of the date
hereof, any offer contained herein shall be deemed withdrawn prior to acceptance
or to have been rejected.

Very truly yours,

CSS Industries, Inc.
(for itself and its above named affiliates)

By: /s/ David J. M. Erskine
------------------------------
David J. M. Erskine, President

Enclosure

Confirmed as correct and accepted:

/s/ John A. Pinti
- ------------------------
John A. Pinti

<PAGE>

GENERAL RELEASE
---------------

FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT OF ALL OF WHICH IS
ACKNOWLEDGED, I AGREE TO AND HEREBY DO, INTENDING TO BE LEGALLY BOUND, RELEASE
AND FOREVER DISCHARGE CSS INDUSTRIES, INC. AND ITS AFFILIATED ENTITIES, THEIR
PAST, PRESENT AND FUTURE OFFICERS, DIRECTORS, ATTORNEYS, EMPLOYEES, MEMBERS,
STOCKHOLDERS AND AGENTS AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, (JOINTLY
AND SEVERALLY "THE COMPANY") FROM ANY AND ALL ACTIONS, CHARGES, CAUSES OF ACTION
OR CLAIMS OF ANY KIND, KNOWN OR UNKNOWN, WHICH I, MY HEIRS, AGENTS, SUCCESSORS
OR ASSIGNS EVER HAD, NOW HAVE OR HEREAFTER MAY HAVE AGAINST THE COMPANY ARISING
HERETOFORE, NOW OR IN THE FUTURE, OUT OF ANY MATTER, OCCURRENCE OR EVENT
EXISTING OR OCCURRING PRIOR TO THE EXECUTION HEREOF, INCLUDING, WITHOUT
LIMITATION, ANY CLAIM RELATING TO OR ARISING OUT OF MY EMPLOYMENT WITH AND/OR
TERMINATION OF EMPLOYMENT BY THE COMPANY, ANY CLAIM FOR UNPAID OR WITHHELD
WAGES, SEVERANCE, BENEFITS, BONUSES AND/OR OTHER COMPENSATION OF ANY KIND, ANY
CLAIM FOR ATTORNEYS' FEES, COSTS OR EXPENSES, ANY CLAIM OF DISCRIMINATION BASED
ON AGE, SEX, RACE, RELIGION, COLOR, CREED, DISABILITY, CITIZENSHIP, NATIONAL
ORIGIN OR ANY OTHER FACTOR PROHIBITED BY FEDERAL, STATE OR LOCAL LAW (INCLUDING
ANY CLAIMS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT, TITLE VII OF THE
CIVIL RIGHTS ACT OF 1964 AND THE APPLICABLE STATE LAWS); ANY CLAIM FOR BREACH OF
CONTRACT; AND/OR ANY COMMON LAW CLAIM, NOW EXISTING OR HEREINAFTER RECOGNIZED,
SUCH AS LIBEL, SLANDER, FRAUD, PROMISSORY ESTOPPEL, EQUITABLE ESTOPPEL,
MISREPRESENTATION OR WRONGFUL DISCHARGE. EXCLUDED FROM THIS GENERAL RELEASE ARE
ONLY: (I) ANY CLAIM WHICH I MAY HAVE AGAINST THE COMPANY RELATING TO THE
COMPANY'S FAILURE TO COMPLY WITH ITS OBLIGATIONS UNDER THE TERMS OF THE ATTACHED
LETTER AGREEMENT BETWEEN THE COMPANY AND THE UNDERSIGNED; AND (II) ANY CLAIM
WHICH ARISES OUT OF ANY MATTER, OCCURRENCE OR EVENT OCCURRING EXCLUSIVELY AFTER
THE EXECUTION HEREOF.

I AGREE TO THE TERMS SET FORTH ABOVE AND UNDERSTAND THEM. I ACKNOWLEDGE THAT I
HAVE TWENTY-ONE DAYS FROM RECEIPT OF THE ATTACHED LETTER AGREEMENT TO CONSIDER
WHETHER TO SIGN THIS GENERAL RELEASE AND SEVEN DAYS AFTER SIGNING IT TO REVOKE
IT. I ACKNOWLEDGE THAT THE COMPANY HAS ENCOURAGED ME TO CONSULT AN ATTORNEY
CONCERNING THE EFFECT OF THIS GENERAL RELEASE. I ALSO

<PAGE>

ACKNOWLEDGE THAT I HAVE BEEN TOLD BY THE COMPANY THAT I WILL RECEIVE NO PAYMENT
PURSUANT TO THE ATTACHED LETTER AGREEMENT OR ANY OTHER CONSIDERATION IF I DO NOT
EXECUTE THIS GENERAL RELEASE OF ALL CLAIMS AND DELIVER IT TO THE COMPANY OR IF
AT ANY TIME THEREAFTER THIS GENERAL RELEASE DOES NOT REMAIN IN FULL FORCE AND
EFFECT.

/s/ John A. Pinti November 12, 1999
- -------------------- -----------------
John A. Pinti

- --------------------
WITNESS

<PAGE>
Exhibit 21

LIST OF SIGNIFICANT SUBSIDIARIES
OF CSS INDUSTRIES, INC.

Name of Subsidiary State of Incorporation
- ------------------ ----------------------

The Paper Magic Group, Inc. Pennsylvania

Berwick Industries, Inc. Pennsylvania

Cleo Inc. Tennessee

Philadelphia Industries, Inc. Delaware

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,292
<SECURITIES> 0
<RECEIVABLES> 166,680
<ALLOWANCES> 1,647
<INVENTORY> 64,884
<CURRENT-ASSETS> 17,158
<PP&E> 103,625
<DEPRECIATION> 47,709
<TOTAL-ASSETS> 349,398
<CURRENT-LIABILITIES> 119,478
<BONDS> 537
0
0
<COMMON> 1,237
<OTHER-SE> 218,240
<TOTAL-LIABILITY-AND-EQUITY> 349,398
<SALES> 392,553
<TOTAL-REVENUES> 392,553
<CGS> 289,815
<TOTAL-COSTS> 289,815
<OTHER-EXPENSES> 68,700
<LOSS-PROVISION> 1,302
<INTEREST-EXPENSE> 4,294
<INCOME-PRETAX> 28,442
<INCOME-TAX> 10,381
<INCOME-CONTINUING> 18,061
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,061
<EPS-BASIC> 1.85
<EPS-DILUTED> 1.84

</TABLE>