CSS INDUSTRIES INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549

FORM 10-Q

For the Quarter Ended
September 30, 2004

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 number)

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

(215) 569-9900
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes

As of October 28, 2004, there were 11,943,592 shares of common stock outstanding which excludes shares which may still be issued upon exercise of stock options.

Page 1 of 24

CSS INDUSTRIES, INC. AND SUBSIDIARIES

INDEX

PART I – FINANCIAL INFORMATION

	PAGE NO.


Item 1. Financial Statements

Consolidated Statements of Operations and Comprehensive Income – Three and six months ended September 30, 2004 and 2003	3

Condensed Consolidated Balance Sheets – September 30, 2004 and March 31, 2004	4

Consolidated Statements of Cash Flows – Six months ended September 30, 2004 and 2003	5

Notes to Consolidated Financial Statements	6-14

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	15-18

Item 3. Quantitive and Qualitative Disclosures About Market Risk	19

Item 4. Controls and Procedures	19

PART II – OTHER INFORMATION

Item 1. Legal Proceedings	20

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	20-21

Item 4. Submission of Matters to a Vote of Security Holders	21-22

Item 6. Exhibits	22

Signatures	23

Page 2 of 24

			Three Months Ended September 30,						Six Months Ended September 30,


			2004			2003			2004			2003


SALES		$	181,711		$	179,162		$	231,266		$	237,452


COSTS AND EXPENSES
	Cost of sales		132,553			131,114			168,614			174,275
	Selling, general and administrative expenses		24,588			24,910			44,763			45,988
	Interest expense, net		709			984			1,126			1,689
	Other income		(457	)		(198	)		(692	)		(502	)


			157,393			156,810			213,811			221,450


INCOME BEFORE INCOME TAXES			24,318			22,352			17,455			16,002

INCOME TAX EXPENSE			8,705			8,136			6,249			5,825


NET INCOME		$	15,613		$	14,216		$	11,206		$	10,177


NET INCOME PER COMMON SHARE
	Basic	$	1.31		$	1.21		$	.94		$	.87

	Diluted	$	1.24		$	1.15		$	.89		$	.83


WEIGHTED AVERAGE SHARES OUTSTANDING
	Basic		11,961			11,748			11,919			11,682

	Diluted		12,619			12,366			12,641			12,254


CASH DIVIDENDS PER SHARE OF COMMON STOCK		$	.10		$	.08		$	.20		$	.147

COMPREHENSIVE INCOME
	Net income	$	15,613	$	14,216	$	11,206	$	10,177
	Change in fair value of interest rate swap agreements, net		—		121		—		120
	Foreign currency translation adjustment		3		17		5		17

	Comprehensive income	$	15,616	$	14,354	$	11,211	$	10,314

				September 30, 2004		March 31, 2004

ASSETS

CURRENT ASSETS
	Cash and cash equivalents		$	6,140	$	93,191
	Accounts receivable, net			151,987		40,460
	Inventories			164,536		94,459
	Deferred income taxes			7,341		7,937
	Other current assets			15,782		12,987


		Total current assets		345,786		249,034


PROPERTY, PLANT AND EQUIPMENT, NET				76,975		81,193


OTHER ASSETS
	Intangible assets, net			35,544		35,619
	Other			4,806		4,551


		Total other assets		40,350		40,170


		Total assets	$	463,111	$	370,397


LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
	Notes payable		$	37,880	$	—
	Other current liabilities			109,150		61,221


		Total current liabilities		147,030		61,221


LONG-TERM DEBT, NET OF CURRENT PORTION				50,056		50,251


LONG-TERM OBLIGATIONS				3,513		3,631


DEFERRED INCOME TAXES				6,323		6,142


STOCKHOLDERS’ EQUITY				256,189		249,152


Total liabilities and stockholders’ equity			$	463,111	$	370,397

(1)	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

	Basis of Presentation –

	CSS Industries, Inc. (collectively with its subsidiaries, “CSS” or “the Company”) has prepared the consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission. The Company has condensed or omitted certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States pursuant to such rules and regulations. In the opinion of management, the statements include all adjustments (which include normal recurring adjustments) required for a fair presentation of financial position, results of operations and cash flows for the interim periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto included in the latest Annual Report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results for the full year.

	Principles of Consolidation –

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

	Nature of Business –

	CSS is a consumer products company primarily engaged in the design, manufacture 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, classroom exchange Valentines, decorative ribbons and bows, Halloween masks, costumes, make-ups and novelties, Easter egg dyes and novelties and educational products. The seasonal nature of CSS’ business results in low sales and operating losses in the first and fourth quarters and high shipment levels and operating profits in the second and third quarters of the Company’s fiscal year which ends March 31, thereby causing significant fluctuations in the quarterly results of operations of the Company.


	Reclassification –

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

	Foreign Currency Translation and Transactions –

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

	Use of Estimates –

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

	Inventories –

	The Company records inventory at the date of taking title which generally occurs upon receipt or prior to receipt of in-transit inventory of overseas product. The Company adjusts unsaleable and slow-moving inventory to its net realizable value. Substantially all of the Company’s inventories are stated at the lower of first-in, first-out (FIFO) cost or market. The remaining portion of the inventory is valued at the lower of last-in, first-out (LIFO) cost or market. Inventories consisted of the following (in thousands):

		September 30, 2004		March 31, 2004


Raw material	$	31,879	$	17,878
Work-in-process		17,515		27,363
Finished goods		115,142		49,218

	$	164,536	$	94,459

	Revenue Recognition –

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

	Stock-Based Compensation –

	The Company applies Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock option plans. Accordingly, compensation expense is generally not 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 Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” the Company’s net income and net income per share would have been decreased as follows:

		Three Months Ended September 30,						Six Months Ended September 30,

(in thousands, except per share data)		2004			2003			2004			2003


Net income, as reported	$	15,613		$	14,216		$	11,206		$	10,177
Add: Total stock-based employee compensation expense included in the determination of net income, as reported		—			—			165			—
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(746	)		(589	)		(1,366	)		(1,200	)

Pro forma net income	$	14,867		$	13,627		$	10,005		$	8,977


Net income per share:
Basic – as reported	$	1.31		$	1.21		$	.94		$	.87
Basic – pro forma	$	1.24		$	1.16		$	.84		$	.77

Diluted – as reported	$	1.24		$	1.15		$	.89		$	.83
Diluted – pro forma	$	1.19		$	1.10		$	.80		$	.74

	Net Income Per Common Share –

	The following table sets forth the computation of basic loss per common share and diluted loss per common share for the three and six months ended September 30, 2004 and 2003 (in thousands, except per share data):

	Statements of Cash Flows –

	For purposes of the consolidated statements of cash flows, the Company considers all holdings of highly liquid debt instruments with a purchased maturity of less than three months to be cash equivalents.

(2)	DERIVATIVE FINANCIAL INSTRUMENTS:

	The Company enters into foreign currency forward contracts in order to reduce the impact of certain foreign currency fluctuations. Firmly committed transactions and the related receivables and payables may be hedged with foreign currency forward contracts. Gains and losses arising from foreign currency forward contracts are recognized in income or expense as offsets of gains and losses resulting from the underlying hedged transactions. As of September 30, 2004, the notional amount of open foreign currency forward contracts was $25,472,000 and the related loss was $1,006,000.

	In 2001, the Company entered into interest rate swap agreements, with maturities through January 2004, to manage its exposure to interest rate movements by effectively converting a portion of its anticipated working capital debt from variable to fixed rates. These agreements involved the Company receiving variable rate payments in exchange for fixed rate payments without the effect of leverage and without the exchange of the underlying face amount. Variable rate payments were based on one month U.S. dollar LIBOR. There were no interest rate swap contracts outstanding during the quarter or six months ended September 30, 2004. During the quarter and six months ended September 30, 2003, interest rate differentials paid under these agreements were recognized as adjustments to interest expense and amounted to $189,000 and $200,000, respectively.

(3)	BUSINESS ACQUISITIONS AND DIVESTITURES:

	Crystal Creative Products, Inc.

	On October 18, 2002, a subsidiary of the Company acquired all of the capital stock of Crystal Creative Products, Inc. (“Crystal”) for $22,891,000, including transaction costs, and assumed and repaid $18,828,000 of outstanding debt (primarily seasonal working capital debt). During fiscal 2004, the Company received cash of approximately $2,155,000 in satisfaction of a post closing adjustment to the purchase price. Crystal, headquartered in Middletown, Ohio, was a leading designer, manufacturer and distributor of consumer convenience gift wrap products and competed in the seasonal end of the gift bag and tissue markets with the Company’s existing product lines. At the time of acquisition, its product lines included gift tissue, gift bags, and related packaging products for the consumer market, as well as specialty tissues for in-store packaging of retailers and for industrial applications. A portion of the purchase price is being held in escrow for certain indemnification obligations. The acquisition was accounted for as a purchase and the excess of cost over the fair market value of the net tangible assets acquired of $9,877,000 was recorded as intangible assets in the accompanying consolidated balance sheets. Of the $9,877,000 of acquired intangible assets, $4,290,000 was assigned to tradenames that are not subject to amortization, $5,287,000 was assigned to goodwill and $300,000 was assigned to a covenant not to compete which has a useful life of five years.

	In July 2003, the Company finalized a restructuring plan related to the Crystal acquisition, under which the Company restructured its business to integrate the acquired entity with its current businesses. In connection with this plan, the Company sold assets related to a non-core portion of the Crystal business for $3,525,000 in July 2003, and closed Crystal’s primary manufacturing facility in Maysville, Kentucky. A separate administration building in Middletown, Ohio also closed in March 2004. The Company recorded a restructuring reserve of $1,672,000 as part of purchase accounting, including severance related to approximately 150 employees. Uncommitted restructuring accruals related to the closing of the Maysville facility were reversed against goodwill in the fourth quarter of fiscal 2004. Payments related to contractual obligations and facility exit costs of $150,000 were made in the quarter ended September 30, 2004. Payments of $367,000 (including $143,000 for severance costs) were made in the six months ended September 30, 2004. During the first quarter of fiscal 2005, the subsidiary of the Company reopened the Maysville facility in response to the filing of an anti-dumping petition related to tissue products manufactured in China.

		Severance			Contractual Obligations and Facility Exit Costs			Total


Restructuring reserve as of March 31, 2004	$	143		$	224		$	367
Cash paid – fiscal 2005		(143	)		(224	)		(367	)

Restructuring reserve as of September 30, 2004	$	—		$	—		$	—

	C. M. Offray & Son, Inc.

	On March 15, 2002, a subsidiary of the Company completed the acquisition of substantially all of the business and assets of the portion of C. M. Offray & Son, Inc. (“Offray”) which manufactures and sells decorative ribbon products, floral accessories and narrow fabrics for apparel, craft and packaging applications. Berwick acquired substantially all of the business and assets of Offray for $44,865,000 in cash, including transaction costs. A portion of the purchase price is being held in escrow to cover indemnification obligations. The acquisition was accounted for as a purchase and the cost approximated the fair market value of the net assets acquired. Therefore, no goodwill was recorded in this transaction.

	In conjunction with the acquisition of Offray, the Company’s management approved a restructuring plan. As part of this plan, the Company accrued $2,385,000 for severance and costs related to the closure of certain facilities. As of September 30, 2004, the Company had closed Offray’s distribution facility in Quebec, Canada and its warehouse in Antietam, Maryland and has communicated termination of employment to approximately 125 employees. Payments, mainly for severance, of $106,000 and $308,000 were made in the quarter and in the six months ended September 30, 2004. As of September 30, 2004, the remaining liability of $94,000 was classified as a current liability in the accompanying condensed consolidated balance sheet and will be paid during the remainder of fiscal 2005.

	Selected information relating to the Offray restructuring reserve follows (in thousands):

		Severance			Contractual Obligations and Facility Exit Costs			Total

Restructuring reserve as of March 31, 2004	$	310		$	92		$	402
Cash paid – fiscal 2005		(216	)		(92	)		(308	)

Restructuring reserve as of September 30, 2004	$	94		$	—		$	94

(4)	BUSINESS RESTRUCTURING:

	On May 5, 2004, a subsidiary of the Company announced a restructuring of its business and established a restructuring reserve related to its administrative office located in Minneapolis, Minnesota. This restructuring was established in order to gain efficiencies within the business unit. As part of this restructuring plan, the Company accrued $377,000 for termination costs and costs related to the restructuring of the administrative office expected to be completed in December 2004. As of September 30, 2004, the Company has communicated termination of employment to 33 employees. Payments for termination costs of $43,000 and $55,000 were made in the quarter and six months ended September 30, 2004, respectively. Payments of $60,000 for contractual obligations were made in the quarter and six months ended September 30, 2004. During the second quarter, the Company increased the restructuring reserve related primarily to the ratable recognition of retention bonuses for employees providing service until their termination date in the amount of $204,000. This amount is shown in selling, general and administrative expenses in the accompanying consolidated statement of operations. As of September 30, 2004, the remaining liability of $466,000 was classified as a current liability in the accompanying condensed consolidated balance sheet and will be paid during the remainder of fiscal 2005. The Company anticipates incurring a total of $1,508,000, including $479,000 for termination costs and $1,029,000 for contractual obligations and facility exit costs, with such additional amounts being expensed over the remainder of fiscal 2005.


	Selected information relating to the Minneapolis restructuring reserve follows (in thousands):

		Termination Costs			Contractual Obligations and Facility Exit Costs			Total


Initial accrual – May 2004	$	171		$	206		$	377
Cash paid – fiscal 2005		(55	)		(60	)		(115	)
Charges to expense – fiscal 2005		204			—			204

Restructuring reserve as of September 30, 2004	$	320		$	146		$	466

	On November 1, 2004, a subsidiary of the Company announced the anticipated closure of its plant located in Anniston, Alabama. The Company has communicated termination of employment to 89 employees. Manufacturing operations will be moved to other locations of the Company and is expected to be completed by March 2005. The Company anticipates incurring a total of $1,433,000, including $231,000 for termination costs and $1,202,000 for facility exit costs, with such amounts being expensed over the remainder of fiscal 2005.

(5)	GOODWILL AND INTANGIBLES:

	Effective April 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” Upon adoption of SFAS No. 142, amortization of goodwill and indefinite-lived intangible assets ceased. The Company determined that its tradenames are indefinite-lived assets.

	In the fourth quarter of fiscal 2004, the Company performed the required annual impairment test of the carrying amount of goodwill and indefinite lived intangible assets and determined that no impairment existed.

	Included in intangibles assets, net in the accompanying condensed consolidated balance sheets are the following acquired intangible assets (in thousands):

		September 30, 2004		March 31, 2004


Goodwill	$	30,952	$	30,952
Tradenames		4,290		4,290
Non-compete and other		302		377

	$	35,544	$	35,619


(6)	DEBT ARRANGEMENTS:

	On April 23, 2004, the Company’s expiring $100,000,000 revolving credit facility was replaced with a $50,000,000 revolving credit facility with five banks. This facility expires on April 23, 2009. The loan agreement contains provisions to increase or reduce the interest pricing spread based on the achievement of certain benchmarks related to the ratio of earnings to interest expense. At the Company’s option, interest on the facility currently accrues at (1) the greater of the prime rate minus .5% or the Federal Funds Rate, or (2) LIBOR plus .75%. The revolving credit facility provides for commitment fees of .225% per annum on the daily average of the unused commitment. 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 debt to capitalization and limitations on capital expenditures.

	On April 23, 2004, the Company entered into an extension of its expiring $100,000,000 accounts receivable securitization facility during which time it renewed the facility for a five-year period, expiring on July 25, 2009, although it may terminate prior to such date in the event of termination of the commitments of the facility’s back-up purchasers. The facility limit now has a seasonally-adjusted funding limit of $100,000,000 during peak seasonal periods and $25,000,000 during off-peak seasonal periods. Interest on amounts financed under this facility are based on a variable commercial paper rate plus .375% and provides for commitment fees of .225% per annum on the daily average of the unused commitment.

(7)	COMMITMENTS AND CONTINGENCIES:

	As described in Item 3 of the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2004, a group of six domestic producers of tissue paper products and a labor union filed an anti-dumping duty petition with the U.S. Commerce Department (“Commerce Department”) and the U.S. International Trade Commission (“ITC”) on February 17, 2004. The petitioners are seeking the imposition of duties of 163.36% on certain tissue paper products imported from China. If the petitioners are successful, duties will be imposed on certain tissue paper products that the Company imports from China. See Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional disclosure of the anti-dumping duty proceeding.

(8)	PENSION AND OTHER POSTRETIREMENT OBLIGATIONS:

	The Company’s Cleo subsidiary administers a defined benefit pension plan covering substantially all salaried employees of Crystal. The plan, acquired as part of the Crystal acquisition on October 18, 2002, was frozen on November 2, 2002 and terminated September 30, 2003. Future benefits to Crystal division employees will be provided by participation in an existing defined contribution profit sharing and 401(k) plan. The Company’s Cleo subsidiary also administers a post-retirement medical plan covering certain employees of the former Crystal division. The plan was frozen to new participants prior to Crystal’s acquisition by the Company.

		Six Months Ended September 30,

		2004			2003			2004		2003

		Pension Benefits						Other Benefits

Interest cost	$	32		$	55		$	29	$	43
Expected return on plan assets		(74	)		(167	)		—		—

Benefit cost (credit)	$	(42	)	$	(112	)	$	29	$	43

		Three Months Ended September 30,

		2004			2003			2004		2003

		Pension Benefits						Other Benefits

Interest cost	$	16		$	27		$	14	$	22
Expected return on plan assets		(37	)		(83	)		—		—

Benefit cost (credit)	$	(21	)	$	(56	)	$	14	$	22

	In May 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position 106-2 (FSP 106-2), “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the Act). FSP 106-2 provides guidance on the accounting for the effects of the Act for employers that sponsor postretirement health care plans that provide prescription drug benefits. FSP 106-2 became effective on July 1, 2004 for the Company and, based on management’s review of the benefits provided under its post-retirement plans, the enactment of the Act did not constitute a significant event and the impact of the Act on its post-retirement plan will be recognized on the next measurement date of the plan, which is March 31, 2005. Management does not anticipate that there will be a material impact on its financial condition or results of operations as a result of adopting the provisions of FSP 106-2.

(9)	ACCOUNTING PRONOUNCEMENTS:

	In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities (VIE), an Interpretation of ARB No. 51,” which requires all VIEs to be consolidated by the primary beneficiary. The primary beneficiary is the entity that holds the majority of the beneficial interests in the VIE. In December 2003, the FASB revised FIN 46 (“FIN 46R”), delaying the effective dates for certain entities created before February 1, 2003, and making other amendments to clarify application of the guidance. FIN 46R requires certain disclosures of an entity’s relationship with variable interest entities. FIN 46R was effective for companies with interests in variable interest entities or potential variable interest entities (commonly referred to as special-purpose entities, or SPEs) for periods ending after December 15, 2003. FIN 46R was effective for companies with all other types of entities (i.e. non-SPEs) for periods ending after March 15, 2004. The adoption of FIN 46R had no impact on the Company’s financial position or results of operations.

	In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative and when a derivative contains a financing component. This statement is effective for contracts entered into or modified after June 30, 2003. The adoption of this statement had no impact on the Company’s financial position or results of operations.

	In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” which requires that certain financial instruments that were previously presented as equity or as temporary equity to be presented as liabilities. Such instruments include mandatory redeemable preferred and common stock, and certain options and warrants. SFAS No. 150 was effective for financial instruments entered into or modified after May 31, 2003 and was applied to the Company’s existing financial instruments effective July 1, 2003, the beginning of the first fiscal period after June 15, 2003. The Company adopted SFAS No. 150 for new or modified financial instruments on June 1, 2003. The adoption of this statement had no impact on the Company’s financial position or results of operations.

		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years		Total

Short-term debt	$	37,880	$	—	$	—	$	—	$	37,880
Capital lease obligations		335		56		—		—		391
Operating leases		7,576		7,149		3,250		1,668		19,643
Long-term debt		—		20,000		20,000		10,000		50,000
Other long-term obligations		183		603		86		2,824		3,696

	$	45,974	$	27,808	$	23,336	$	14,492	$	111,610

(a)	Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, with the participation of the Company’s management, the Company’s President and Chief Executive Officer and Vice President – Finance and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures in accordance with Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the President and Chief Executive Officer and Vice President – Finance and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the Commission’s rules and procedures.

(b)	Changes in Internal Controls. The evaluation referred to above did not identify any changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

	Total Number of Shares Purchased		Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Program ^{(1) (2)}	Maximum Number of Shares that May Yet Be Purchased Under the Program

July 1 through July 31, 2004	64,600	$	33.55	64,600	581,224
August 1 through August 31, 2004	37,700	$	30.16	37,700	543,524
September 1 through September 30, 2004	26,100	$	30.41	26,100	517,424

Total Second Quarter	128,400	$	31.67	128,400	517,424

(1)	The Company announced that its Board of Directors had authorized on February 18, 1998 the repurchase of up to 1,000,000 shares of the Company’s common stock (the “Repurchase Program”). Thereafter, the Company announced that its Board of Directors had increased the number of shares authorized to be repurchased by the Company pursuant to the Repurchase Program as follows: November 9, 1998 (500,000 additional shares); May 4, 1999 (500,000 additional shares); September 28, 1999 (500,000 additional shares); September 26, 2000 (500,000 additional shares); and February 27, 2003 (400,000 additional shares). As a result of the Company’s three-for-two stock split distributed on July 10, 2003, the number of shares authorized for repurchase pursuant to the Repurchase Program was automatically increased to 5,100,000 shares. The aggregate number of shares repurchased by the Company pursuant to the Repurchase Program as of September 30, 2004 was 4,582,576 on a split-adjusted basis. An expiration date has not been established for the Repurchase Program.

(2)	All open market share repurchases were effected in accordance with the safe harbor provisions of Rule 10b-18 of the Securities Exchange Act.

	(a)	The annual meeting of stockholders of the registrant was held on August 4, 2004.


	SHARES OF VOTING STOCK (1)

	FOR	WITHHELD

James H. Bromley	9,835,596	1,008,536
Stephen V. Dubin	9,929,682	914,450
David J. M. Erskine	9,955,181	888,951
Jack Farber	9,954,994	889,138
Leonard E. Grossman	10,005,082	839,050
James E. Ksansnak	9,913,691	930,441
Rebecca C. Matthias	9,926,336	917,796
Michael L. Sanyour	9,913,691	930,441


	(d)	The results of the vote of the stockholders as to the proposal to amend the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock to 25,000,000 shares was as follows:

Item 6.	Exhibits


	Exhibit 3.1	Amendment to Restated Certificate of Incorporation filed August 4, 2004.

	Exhibit 3.2	Restated Certificate of Incorporation, as amended to date (as last amended August 4, 2004).

	Exhibit 10.1	Amended and Restated Loan Agreement dated April 23, 2004.

	Exhibit 10.2	Second Amendment to Purchase and Sale Agreement dated as of July 29, 2003.

	Exhibit 10.3	Third Amendment to Purchase and Sale Agreement dated June 1, 2004.

	Exhibit 10.4	Second Amendment to Receivables Purchase Agreement dated as of July 29, 2003.

	Exhibit 10.5	Third Amendment to Receivables Purchase Agreement dated as of April 26, 2004.

	Exhibit 10.6	Fourth Amendment to Receivables Purchase Agreement dated June 1, 2004.

	Exhibit 10.7	CSS Industries, Inc. 2004 Equity Compensation Plan.

	Exhibit 10.8	First Amendment to Note Purchase Agreements dated October 27, 2004.

	Exhibit 31.1	Certification of the Chief Executive Officer of CSS Industries, Inc. Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes – Oxley Act of 2002.

	Exhibit 31.2	Certification of the Chief Financial Officer of CSS Industries, Inc. Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes – Oxley Act of 2002.

	Exhibit 32.1	Certification of the Chief Executive Officer of CSS Industries, Inc. Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes – Oxley Act of 2002.

	Exhibit 32.2	Certification of the Chief Financial Officer of CSS Industries, Inc. Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes – Oxley Act of 2002.

		CSS INDUSTRIES, INC.
		(Registrant)





Date: November 8, 2004	By:	/s/ David J. M. Erskine

		David J. M. Erskine
		President and Chief
		Executive Officer



Date: November 8, 2004	By:	/s/ Clifford E. Pietrafitta

		Clifford E. Pietrafitta
		Vice President – Finance,
		Chief Financial Officer and
		Principal Accounting Officer

Exhibit No.

	3.1	Amendment to Restated Certificate of Incorporation filed August 4, 2004.

	3.2	Restated Certificate of Incorporation, as amended to date (as last amended August 4, 2004).

	10.1	Amended and Restated Loan Agreement dated April 23, 2004.

	10.2	Second Amendment to Purchase and Sale Agreement dated as of July 29, 2003.

	10.3	Third Amendment to Purchase and Sale Agreement dated June 1, 2004.

	10.4	Second Amendment to Receivables Purchase Agreement dated as of July 29, 2003.

	10.5	Third Amendment to Receivables Purchase Agreement dated as of April 26, 2004.

	10.6	Fourth Amendment to Receivables Purchase Agreement dated June 1, 2004.

	10.7	CSS Industries, Inc. 2004 Equity Compensation Plan.

	10.8	First Amendment to Note Purchase Agreements dated October 27, 2004.

	31.1	Certification of the Chief Executive Officer of CSS Industries, Inc. Pursuant to 18 U.S.C.
		Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes – Oxley Act of 2002.

	31.2	Certification of the Chief Financial Officer of CSS Industries, Inc. Pursuant to 18 U.S.C.
		Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes – Oxley Act of 2002.

	32.1	Certification of the Chief Executive Officer of CSS Industries, Inc. Pursuant to 18 U.S.C.
		Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes – Oxley Act of 2002.

	32.2	Certification of the Chief Financial Officer of CSS Industries, Inc. Pursuant to 18 U.S.C.
		Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes – Oxley Act of 2002.