UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D. C. 20549








**FORM
      10-Q**





(Mark
      One)


T
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





For
      the
      quarterly period ended September 30, 2006


or





£
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





For
      the
      transition period from _________________________________ to
      ________________________________





Commission
      file number 1-2661





CSS
      INDUSTRIES, INC.





(Exact
      name of registrant as specified in its charter)





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








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.


x Yes o 
No





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):





Large
                accelerated filer o
            Accelerated
                filer x
            Non-accelerated
                filer o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act.)


o 
      Yes  x No





As
      of
      October 30, 2006, there were 10,623,105 shares of common stock outstanding
      which
      excludes shares which may still be issued upon exercise of stock
      options.







1


CSS
      INDUSTRIES, INC. AND SUBSIDIARIES





INDEX







PAGE
                NO.PART
                I - FINANCIAL INFORMATIONItem
                1. Financial Statements (Unaudited)Consolidated
                Statements of Operations and Comprehensive
                Income - Three and six months ended September 30, 2006 and
                2005
            
            3Condensed
                Consolidated Balance Sheets - September 30, 2006
                and March 31, 2006
            
            4Consolidated
                Statements of Cash Flows - Six months ended
                September 30, 2006 and 2005
            
            5Notes
                to Consolidated Financial
                Statements
            
            6-12Item
                2. Management's Discussion and Analysis of Financial
                Condition and Results of Operations
            
            13-18Item
                3. Quantitative and Qualitative Disclosures About
                Market Risk
            
            17Item
                4. Controls and Procedures
            
            17PART
                II - OTHER INFORMATIONItem
                1. Legal Proceedings
            
            18Item
                1A. Risk Factors
            
            18Item
                4. Submission of Matters to a Vote of Security
                Holders
            
            18-19Item
                6. Exhibits
            
            19Signatures
            
            20


2
 *Index*


CSS
      INDUSTRIES, INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE
      INCOME


(Unaudited)




(In
      thousands, except per share data)




Three
                  Months Ended
                September
                  30,
              
              Six
                  Months Ended
                September
                  30,2006
              
              2005
              
              2006
              
              2005SALES
              
              $
              173,830
              
              $
              164,043
              
              $
              221,363
              
              $
              221,537COSTS
                  AND EXPENSESCost
                  of sales
              
              
              129,003
              
              
              125,676
              
              
              163,066
              
              
              168,441Selling,
                  general and administrative expenses
              
              
              25,289
              
              
              23,050
              
              
              47,493
              
              
              43,035Interest
                  expense, net
              
              
              1,083
              
              
              1,057
              
              
              1,217
              
              
              1,499Other
                  income, net
              
              
              (66
              )
              
              (130
              )
              
              (228
              )
              
              (135
              )155,309
              
              
              149,653
              
              
              211,548
              
              
              212,840INCOME
                  BEFORE INCOME TAXES
              
              
              18,521
              
              
              14,390
              
              
              9,815
              
              
              8,697INCOME
                  TAX PROVISION
              
              
              6,818
              
              
              5,151
              
              
              3,619
              
              
              3,113NET
                  INCOME
              
              $
              11,703
              
              $
              9,239
              
              $
              6,196
              
              $
              5,584NET
                  INCOME PER COMMON SHAREBasic
              
              $
              1.11
              
              $
              .88
              
              $
              .59
              
              $
              .53Diluted
              
              $
              1.08
              
              $
              .84
              
              $
              .57
              
              $
              .51WEIGHTED
                  AVERAGE SHARES OUTSTANDINGBasic
              
              
              10,559
              
              
              10,496
              
              
              10,528
              
              
              10,455Diluted
              
              
              10,838
              
              
              11,017
              
              
              10,831
              
              
              10,966CASH
                  DIVIDENDS PER SHARE OF COMMON STOCK
              
              $
              .12
              
              $
              .12
              
              $
              .24
              
              $
              .24COMPREHENSIVE
                  INCOMENet
                  income
              
              $
              11,703
              
              $
              9,239
              
              $
              6,196
              
              $
              5,584Foreign
                  currency translation adjustment
              
              
              3
              
              
              3
              
              
              3
              
              
              -Comprehensive
                  income
              
              $
              11,706
              
              $
              9,242
              
              $
              6,199
              
              $
              5,584




See
      notes
      to consolidated financial statements.


3
 *Index*


CSSINDUSTRIES,
      INC. AND SUBSIDIARIES





CONDENSED
      CONSOLIDATED BALANCE SHEETS


(Unaudited)





(In
      thousands)


September
                30,
              2006
            
            March
                31,
              2006ASSETSCURRENT
                ASSETSCash
                and cash equivalents
            
            $
            11,182
            
            $
            57,656Accounts
                receivable, net
            
            
            140,450
            
            
            35,582Inventories
            
            
            167,699
            
            
            103,770Deferred
                income taxes
            
            
            7,328
            
            
            7,898Asset
                held for sale
            
            
            1,599
            
            
            -Other
                current assets
            
            
            16,929
            
            
            18,906Total
                current assets
            
            
            345,187
            
            
            223,812PROPERTY,
                PLANT AND EQUIPMENT, NET
            
            
            65,315
            
            
            70,868OTHER
                ASSETSGoodwill
            
            
            30,952
            
            
            30,952Intangible
                assets, net
            
            
            4,375
            
            
            4,422Other
            
            
            3,873
            
            
            4,095Total
                other assets
            
            
            39,200
            
            
            39,469Total
                assets
            
            $
            449,702
            
            $
            334,149LIABILITIES
                AND STOCKHOLDERS’ EQUITYCURRENT
                LIABILITIESNotes
                payable
            
            $
            73,510
            
            $
            -Current
                portion of long-term debt
            
            
            10,195
            
            
            10,169Accrued
                customer programs
            
            
            11,992
            
            
            10,791Other
                current liabilities
            
            
            75,219
            
            
            41,370Total
                current liabilities
            
            
            170,916
            
            
            62,330LONG-TERM
                DEBT, NET OF CURRENT PORTION
            
            
            30,490
            
            
            30,518LONG-TERM
                OBLIGATIONS
            
            
            3,211
            
            
            3,533DEFERRED
                INCOME TAXES
            
            
            5,298
            
            
            5,258STOCKHOLDERS’
                EQUITY
            
            
            239,787
            
            
            232,510Total
                liabilities and stockholders’ equity
            
            $
            449,702
            
            $
            334,149




See
      notes
      to consolidated financial statements.


4
 *Index*


CSS
      INDUSTRIES, INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(Unaudited)





(In
      thousands)


Six
                Months Ended
              September
                30,2006
            
            2005Cash
                flows from operating activities:Net
                income
            
            $
            6,196
            
            $
            5,584Adjustments
                to reconcile net income to net cash used for operating
                activities:Depreciation
                and amortization
            
            
            7,096
            
            
            6,937Provision
                for doubtful accounts
            
            
            (134
            )
            
            339Deferred
                tax provision (benefit)
            
            
            610
            
            
            (332
            )(Gain)
                loss on sale of assets
            
            
            (16
            )
            
            174Share-based
                compensation expense
            
            
            1,412
            
            
            172Changes
                in assets and liabilities:Increase
                in accounts receivable
            
            
            (104,734
            )
            
            (89,789
            )Increase
                in inventory
            
            
            (63,929
            )
            
            (75,945
            )Decrease
                (increase) in other assets
            
            
            2,126
            
            
            (3,158
            )Increase
                in other liabilities
            
            
            37,075
            
            
            33,223(Decrease)
                increase in accrued taxes
            
            
            (2,355
            )
            
            2,912Total
                adjustments
            
            
            (122,849
            )
            
            (125,467
            )Net
                cash used for operating activities
            
            
            (116,653
            )
            
            (119,883
            )Cash
                flows from investing activities:Purchase
                of property, plant and equipment
            
            
            (2,971
            )
            
            (4,664
            )Proceeds
                from sale of assets
            
            
            16
            
            
            307Net
                cash used for investing activities
            
            
            (2,955
            )
            
            (4,357
            )Cash
                flows from financing activities:Payments
                on long-term obligations
            
            
            (47
            )
            
            (267
            )Borrowings
                on notes payable
            
            
            128,710
            
            
            166,435Repayments
                on notes payable
            
            
            (55,200
            )
            
            (90,035
            )Dividends
                paid
            
            
            (2,526
            )
            
            (2,516
            )Purchase
                of treasury stock
            
            
            -
            
            
            (3,235
            )Proceeds
                from exercise of stock options
            
            
            1,454
            
            
            3,462Tax
                benefit realized for stock options exercised
            
            
            740
            
            
            -Net
                cash provided by financing activities
            
            
            73,131
            
            
            73,844Effect
                of exchange rate changes on cash
            
            
            3
            
            
            -Net
                decrease in cash and cash equivalents
            
            
            (46,474
            )
            
            (50,396
            )Cash
                and cash equivalents at beginning of period
            
            
            57,656
            
            
            57,333Cash
                and cash equivalents at end of period
            
            $
            11,182
            
            $
            6,937




See
      notes
      to consolidated financial statements.


5
 *Index*





CSS
      INDUSTRIES, INC. AND SUBSIDIARIES





NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS





September
      30, 2006


(Unaudited)


(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 consolidated financial statements should be
      read in conjunction with the consolidated financial statements and notes thereto
      included in the Company’s Annual Report on Form 10-K for the fiscal year ended
      March 31, 2006. 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,
      procurement, distribution and sale of seasonal and social expression products,
      principally to mass market retailers. These products include 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-up and novelties, Easter egg dyes and novelties,
      and craft and educational products. The seasonal nature of CSS’ business has
      historically resulted in lower sales levels and operating losses in the first
      and fourth quarters and comparatively higher sales levels and operating profits
      in the second and third quarters of the Company’s fiscal year which ends March
      31, thereby causing significant fluctuations in the quarterly results of
      operations of the Company.





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, net in the consolidated statements of operations.




6
 *Index*


Use
      of
      Estimates -





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





Inventories -





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





September
                30, 2006
            
            March
                31, 2006Raw
                material
            
            $
            28,625
            
            $
            22,881Work-in-process
            
            
            23,719
            
            
            35,741Finished
                goods
            
            
            115,355
            
            
            45,148$
            167,699
            
            $
            103,770




Asset
      Held for Sale -





Asset
      held for sale in the amount of $1,599,000 represents a former warehouse facility
      which the Company is in the process of selling. The Company expects to sell
      this
      facility within the next 12 months for an amount greater than its current
      carrying value. The Company ceased depreciating the facility at the time it
      was
      classified as held for sale.





Revenue
      Recognition -





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




7
 *Index*


Net
      Income Per Common Share -





The
      following table sets forth the computation of basic and diluted net income
      per
      common share for the three and six months ended September 30, 2006 and 2005
      (in
      thousands, except per share data):


Three
                      Months Ended
                    September
                      30,
                  
                  Six
                      Months Ended
                    September
                      30,2006
                  
                  2005
                  
                  2006
                  
                  2005Numerator:Net
                      income
                  
                  $
                  11,703
                  
                  $
                  9,239
                  
                  $
                  6,196
                  
                  $
                  5,584Denominator:Weighted
                      average shares outstanding for basic income per common
                      share
                  
                  
                  10,559
                  
                  
                  10,496
                  
                  
                  10,528
                  
                  
                  10,455Effect
                      of dilutive stock options
                  
                  
                  279
                  
                  
                  521
                  
                  
                  303
                  
                  
                  511Adjusted
                      weighted average shares outstanding for diluted income per
                      common
                      share
                  
                  
                  10,838
                  
                  
                  11,017
                  
                  
                  10,831
                  
                  
                  10,966Basic
                      net income per common share
                  
                  $
                  1.11
                  
                  $
                  .88
                  
                  $
                  .59
                  
                  $
                  .53Diluted
                      net income per common share
                  
                  $
                  1.08
                  
                  $
                  .84
                  
                  $
                  .57
                  
                  $
                  .51




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 three
      months or less to be cash equivalents.





(2)
            SHARE-BASED
                COMPENSATION:





Under
      the
      terms of the 2004 Equity Compensation Plan (“2004 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, stock bonuses and other awards to officers and other
      employees. Grants under the 2004 Plan may be made through August 3, 2014. The
      term of each grant is at the discretion of the Committee, but in no event
      greater than ten years from the date of grant. The Committee has discretion
      to
      determine the date or dates on which granted options become exercisable. All
      options outstanding as of September 30, 2006 become exercisable at the rate
      of
      25% per year commencing one year after the date of grant. At September 30,
      2006,
      options to acquire 1,340,500 shares were available for grant under the 2004
      Plan.


Under
        the
        terms of the CSS Industries, Inc. 2006 Stock Option Plan for Non-Employee
        Directors (“2006 Plan”), non-qualified stock options to purchase up to 200,000
        shares of common stock are available for grant to non-employee directors
        at
        exercise prices of not less than fair market value of the underlying common
        stock on the date of grant. Under the 2006 Plan, options to purchase 4,000
        shares of the Company’s common stock will be granted automatically to each
        non-employee director on the last day that the Company’s common stock is traded
        in November from 2006 to 2010. Each option will expire five years after the
        date
        the option is granted and commencing one year after the date of grant, options
        begin vesting and are exercisable at the rate of 25% per year. At September
        30,
        2006, options to acquire 200,000 shares were available for grant under the
        2006
        Plan.


8
 *Index*


Prior
      to
      April 1, 2006, the Company accounted for its equity incentive plans under the
      recognition and measurement provisions of Accounting Principles Board (“APB”)
      Opinion No. 25, “Accounting for Stock Issued to Employees,” and related
      Interpretations, as permitted by Statement of Financial Accounting Standards
      (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” Effective April 1,
      2006, the Company adopted the fair value recognition provisions of SFAS No.
      123R, “Share-Based Payment,” using the modified prospective transition method.
      Under that transition method, stock compensation cost recognized in fiscal
      2007
      includes: (a) compensation cost for all share-based payments granted prior
      to,
      but not vested as of April 1, 2006, based on the grant date fair value estimated
      in accordance with the original provisions of SFAS No. 123, and (b) compensation
      cost for all share-based payments granted subsequent to April 1, 2006, based
      on
      the grant date fair value estimated in accordance with the provisions of SFAS
      No. 123R. Compensation cost is recognized on a straight-line basis over the
      vesting period during which employees perform related services. In accordance
      with the modified prospective transition method, the consolidated financial
      statements for fiscal 2006 have not been restated to reflect the impact of
      SFAS
      No. 123R.





Prior
      to
      the adoption of SFAS No. 123R, the Company presented all tax benefits of
      deductions resulting from share-based payment arrangements as operating cash
      flows in the Consolidated Statements of Cash Flows. SFAS No. 123R requires
      that
      the cash flows resulting from the tax benefits from tax deductions in excess
      of
      the compensation cost recognized for those share awards (referred to as excess
      tax benefits) to be classified as financing cash flows. The $740,000 excess
      tax
      benefit classified as a financing cash inflow for the six months ended September
      30, 2006 would have been classified as an operating cash inflow if the Company
      had not adopted SFAS No. 123R.





Compensation
      cost related to stock options recognized in operating results (included in
      selling, general and administrative expenses) was $668,000 and $1,412,000 in
      the
      three and six months ended September 30, 2006, respectively. The associated
      future income tax benefit recognized was $157,000 and $325,000 in the three
      and
      six months ended September 30, 2006, respectively. For the three and six months
      ended September 30, 2006, basic and diluted income per share was $.05 and $.10
      lower, respectively, than if the Company had continued to account for
      share-based compensation under APB Opinion No. 25.





The
      following table illustrates the effect on net income and net income per share
      if
      the Company had applied the fair value recognition provisions of SFAS No. 123
      to
      options granted under the Company’s stock option plan for the three and six
      months ended September 30, 2005:




Three
                    Months Ended September 30, 2005
                
                Six
                    Months Ended September 30, 2005(in
                    thousands, except per share data)Net
                    income, as reported
                
                $
                9,239
                
                $
                5,584Add:
                    Total stock-based employee compensation expense included in the
                    determination of net income as reported, net of tax
                    effects
                
                
                172
                
                
                172Deduct:
                    Total stock-based employee compensation expense determined under
                    fair-value based method for all awards, net of related tax
                    effects
                
                
                (755
                )
                
                (1,450
                )Pro
                    forma net income
                
                $
                8,656
                
                $
                4,306Net
                    income per share:Basic
                    - as reported
                
                $
                .88
                
                $
                .53Basic
                    - pro forma
                
                $
                .82
                
                $
                .41Diluted
                    - as reported
                
                $
                .84
                
                $
                .51Diluted
                    - pro forma
                
                $
                .80
                
                $
                .40





Upon
      exercise of stock options, the Company issues shares from treasury stock.
      Expected volatilities are based on historical volatility of the Company’s common
      stock. The expected life of the option is estimated using historical data
      pertaining to option exercises and employee terminations. The risk-free interest
      rate is based on U.S. Treasury yields in effect at the time of grant.





9
 *Index*


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





For
                the Three Months
              Ended
                September 30,
            
            For
                the Six Months
              Ended
                September 30,2006
            
            2005
            
            2006
            
            2005Expected
                dividend yield at time of grant
            
            
            1.51
            %
            
            1.33
            %
            
            1.61
            %
            
            1.44
            %Expected
                stock price volatility
            
            
            26
            %
            
            35
            %
            
            24
            %
            
            34
            %Risk-free
                interest rate
            
            
            4.77
            %
            
            4.01
            %
            
            4.96
            %
            
            3.97
            %Expected
                life of option
            
            
            4.6
                years
            
            
            4.6
                years
            
            
            4.7
                years
            
            
            4.6
                years





Transactions
      from April 1, 2006 through September 30, 2006 under the Company’s stock option
      plans were as


follows:





Number
              of
                Shares
            
            Option
                Price
              per
                Share
            
            Weighted
              Average
              Price
            
            Weighted
              Average
                Life
              Remaining
            
            Aggregate
              Intrinsic
              Value
              (in
                thousands)Options
                outstanding at April 1, 2006
            
            
            1,737,606
            
            $
            12.71
                - 36.60
            
            $
            24.35Granted
            
            
            352,100
            
            
            27.60
                - 32.74
            
            
            29.88Exercised
            
            
            (199,155
            )
            
            14.33
                - 23.83
            
            
            16.64Canceled
            
            
            (111,588
            )
            
            16.70
                - 34.72
            
            
            32.20Options
                outstanding at September 30, 2006
            
            
            1,778,963
            
            $
            12.71
                - 36.60
            
            $
            25.81
            
            
            4.3
                years
            
            $
            9,436Options
                exercisable at September 30, 2006
            
            
            963,646
            
            $
            12.71
                - 36.60
            
            $
            21.21
            
            
            4.0
                years
            
            $
            8,900





The
      weighted average fair value of options granted during the six months ended
      September 30, 2006 and 2005 was $7.64 and $10.36, respectively.





The
      total
      intrinsic value of options exercised during the six months ended September
      30,
      2006 was $2,484,000. As of September 30, 2006, there was $6,412,000 of total
      unrecognized compensation cost related to non-vested stock option awards granted
      under the Company’s equity incentive plans.





(3)
            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, 2006,
      the
      notional amount of open foreign currency forward contracts was $19,432,000
      and
      the related unrealized gain was $13,000.





(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 undertaken in order to gain
      efficiencies within the business unit and was substantially completed by the
      first quarter of fiscal 2006. As part of this restructuring plan, the Company
      accrued $377,000 for termination costs and costs related to the restructuring
      of
      the administrative office. As of the end of fiscal 2005, the Company had
      communicated termination of employment to 33 employees. In fiscal 2005, the
      Company increased the restructuring reserve in the amount of $255,000 related
      to
      the ratable recognition of retention bonuses for employees providing service
      until their termination date. Additionally, during fiscal 2005, there was an
      increase in the restructuring reserve in the amount of $177,000 related to
      unutilized office space and of $398,000 related to other restructuring expenses.
      The Company increased the restructuring reserve by $37,000 during fiscal 2006
      primarily related to the ratable recognition of retention bonuses for employees
      providing service until their termination. Final payments for termination costs
      of $4,000 were made in the first quarter of fiscal 2007.


10
 *Index*





(5)
            GOODWILL
                AND INTANGIBLES:





The
      Company performs the required annual impairment test of the carrying amount
      of
      goodwill and indefinite-lived intangible assets in the fourth quarter of its
      fiscal year.





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





September
                30,
                2006
            
            March
                31,
                2006Tradenames
            
            $
            4,290
            
            $
            4,290Non-compete
                and other, net
            
            
            85
            
            
            132$
            4,375
            
            $
            4,422





Amortization
      expense related to intangible assets was $24,000 for the quarters ended
      September 30, 2006 and 2005 and was $47,000 for the six months ended September
      30, 2006 and 2005. The aggregate estimated amortization expense for intangible
      assets remaining as of September 30, 2006 is as follows (in
      thousands):





Fiscal
                2007
            
            $
            47Fiscal
                2008
            
            
            38Total
            
            $
            85




(6)
            COMMITMENTS
                AND CONTINGENCIES:





On
      August
      31, 2006, the United States Court of International Trade (“CIT”) denied the
      Company’s appeal challenging the imposition of antidumping duties on certain
      tissue paper products imported from China. As described in Part I, Item 3 of
      the
      Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006,
      in the proceedings before the CIT the Company was seeking reversal of the March
      2005 final determination of the United States International Trade Commission
      (“ITC”) that, in part, resulted in the imposition of such duties. The Company is
      now contesting the final determination of the ITC in proceedings before the
      United States Court of Appeals for the Federal Circuit, which proceedings were
      initiated by the Company on October 27, 2006.





In
      the
      fiscal year ended March 31, 2005, the Company recognized an expense of
      approximately $2,300,000 for these duties, reflecting the estimated liability
      of
      the Company’s Cleo subsidiary for duties relating to subject tissue paper
      products imported from China during the 2005 fiscal year based on the applicable
      deposit rates established by the United States Commerce Department. The amount
      of Cleo’s actual liability for tissue duties pertaining to the fiscal year ended
      March 31, 2005, which liability is capped at the deposit rates in effect with
      respect to the period of time that the subject products were imported by Cleo,
      will be determined at the time of “liquidation” of the applicable entries
      by United
      States Customs & Border Protection. Liquidation of the applicable entries
      has been enjoined pending the outcome of the Company’s appeal.


11
 *Index*





CSS
      and
      its subsidiaries are also involved in ordinary, routine legal proceedings that
      are not considered by management to be material. In the opinion of Company
      counsel and management, the ultimate liabilities resulting from such lawsuits
      and claims will not materially affect the financial position of the Company
      or
      its results of operations or cash flows.





(7)
            ACCOUNTING
                PRONOUNCEMENTS:





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 157, “Fair Value Measurements.” SFAS No. 157 establishes a framework for
      measuring fair value in accordance with accounting principles generally accepted
      in the United States, and expands disclosure about such fair value instruments.
      SFAS No. 157 is effective for fiscal years beginning after November 15, 2007
      (fiscal 2009 for the Company). The Company is currently assessing the impact of
      SFAS No. 157 on its financial position and results of operations.





In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin (SAB) No. 108, “Considering the Effects of Prior Year Misstatements
      when Quantifying Misstatements in Current Year Financial Statements.” SAB 108
      requires that public companies utilize a “dual-approach” to assessing the
      quantitative effects of financial misstatements. This dual approach includes
      both an income statement focused assessment and a balance sheet focused
      assessment. The guidance in SAB 108 must be applied to annual financial
      statements for fiscal years ending after November 15, 2006. The Company does
      not
      expect SAB 108 will have a material impact on the Company’s financial position
      or results of operations.





In
      June
      2006, the FASB issued FASB Interpretation No. (“FIN”) 48, “Accounting for
      Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in
      income taxes. FIN 48 prescribes a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return. The interpretation
      requires that the Company recognize in the financial statements the impact
      of a
      tax position, if that position is more likely than not of being sustained on
      audit, based solely on the technical merits of the position. FIN 48 also
      provides guidance on derecognition, classification, interest and penalties,
      accounting in interim periods and disclosure. The provisions of FIN 48 will
      be
      effective for the Company beginning April 1, 2007 with the cumulative effect
      of
      the change in accounting principle recorded as an adjustment to opening retained
      earnings. The Company is currently evaluating the impact of adopting FIN 48
      on
      its consolidated financial statements.





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.”
SFAS No. 154 requires retrospective application to prior periods’ financial
      statements for voluntary changes in accounting principle, unless it is
      impracticable to determine either the period-specific effects or the cumulative
      effect of the change. This statement also requires that retrospective
      application of a change in accounting principle be limited to the direct effects
      of the change. Indirect effects of a change in accounting principle, such as
      a
      change in non-discretionary profit-sharing payments resulting from an accounting
      change, should be recognized in the period of the accounting change. SFAS No.
      154 also requires that a change in depreciation, amortization or depletion
      method for long-lived non-financial assets be accounted for as a change in
      accounting estimate affected by a change in accounting principle. This statement
      is effective for accounting changes and corrections of errors made in fiscal
      years beginning after December 15, 2005. The Company’s financial position,
      results of operations or cash flows will only be impacted by SFAS No. 154 if
      it
      implements changes in accounting principles that are addressed by the standard
      or corrects accounting errors in future periods.





In
      November 2004, the FASB issued SFAS No. 151, “Inventory Costs,” which amends the
      guidance in Accounting Research Bulletin No. 43, Chapter 4, “Inventory Pricing”
to clarify the accounting for abnormal amounts of idle facility expense,
      freight, handling costs and spoilage. SFAS No. 151 now requires that these
      costs
      be expensed as current period charges. In addition, this statement requires
      that
      the allocation of fixed production overhead to the costs of conversion be based
      on the normal capacity of the production facilities. The provisions of this
      statement were effective for the Company beginning April 1, 2006. The adoption
      of this statement did not have a material impact on the Company’s financial
      position or results of operations.




12
 *Index*


CSS
      INDUSTRIES, INC. AND SUBSIDIARIES





ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL





CONDITION
      AND RESULTS OF OPERATIONS








STRATEGIC
      OVERVIEW





Approximately
      75% of the Company’s sales are attributable to seasonal (Christmas, Valentine’s
      Day, Easter and Halloween) products, with the remainder being attributable
      to
      everyday products. Seasonal products are sold primarily to mass market retailers
      and the Company typically has relatively high market shares in many of these
      categories. Most of these markets have shown little or no growth in recent
      years, and the Company continues to confront significant cost pressure as its
      competitors source certain products from overseas and its customers increase
      direct sourcing from overseas factories. Increasing customer concentration
      has
      increased their bargaining power which has also contributed to price
      pressure.





The
      Company has taken several measures to respond to cost and price pressures.
      CSS
      has increased its investment in product and packaging design and product
      knowledge to assure it can continue to provide unique added value to its
      customers. In addition, CSS substantially expanded an office and showroom in
      Hong Kong to better meet customers’ buying needs and to be able to provide
      alternatively sourced products at competitive prices. CSS also increased its
      focus on efficiency and productivity in its North American production and
      distribution facilities to maintain its competitiveness
      domestically.





The
      Company’s everyday craft and floral product lines have higher inherent growth
      potential due to CSS’ relatively low current market share. The Company has
      established project teams to pursue top line sales growth in these and other
      areas.





The
      Company has experienced cost increases in certain key materials, supplies and
      logistics services. These increases will continue to impact fiscal 2007 and
      will
      require that management either obtain price increases from its customers or
      find
      other means of reducing product and delivery costs.





Historically,
      significant growth at CSS has come through acquisitions. Management anticipates
      that it will continue to utilize acquisitions to stimulate further
      growth.





LITIGATION





On
      August
      31, 2006, the United States Court of International Trade (“CIT”) denied the
      Company’s appeal challenging the imposition of antidumping duties on certain
      tissue paper products imported from China. As described in Part I, Item 3 of
      the
      Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006,
      in the proceedings before the CIT the Company was seeking reversal of the March
      2005 final determination of the United States International Trade Commission
      (“ITC”) that, in part, resulted in the imposition of such duties. The Company is
      now contesting the final determination of the ITC in proceedings before the
      United States Court of Appeals for the Federal Circuit, which proceedings were
      initiated by the Company on October 27, 2006.





In
      the
      fiscal year ended March 31, 2005, the Company recognized an expense of
      approximately $2,300,000 for these duties, reflecting the estimated liability
      of
      the Company’s Cleo subsidiary for duties relating to subject tissue paper
      products imported from China during the 2005 fiscal year based on the applicable
      deposit rates established by the United States Commerce Department. The amount
      of Cleo’s actual liability for tissue duties pertaining to the fiscal year ended
      March 31, 2005, which liability is capped at the deposit rates in effect with
      respect to the period of time that the subject products were imported by Cleo,
      will be determined at the time of “liquidation” of the applicable entries by
      United States Customs & Border Protection. Liquidation of the applicable
      entries has been enjoined pending the outcome of the Company’s
      appeal.


13
 *Index*





CSS
      and
      its subsidiaries are also involved in ordinary, routine legal proceedings that
      are not considered by management to be material. In the opinion of Company
      counsel and management, the ultimate liabilities resulting from such lawsuits
      and claims will not materially affect the financial position of the Company
      or
      its results of operations or cash flows.





CRITICAL
      ACCOUNTING POLICIES





The
      consolidated financial statements are prepared in conformity with accounting
      principles generally accepted in the United States. The preparation of these
      financial statements 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.





The
      significant accounting policies of the Company are described in the notes to
      the
      consolidated financial statements included in the Annual Report on Form 10-K
      for
      the fiscal year ended March 31, 2006. Judgments and estimates of uncertainties
      are required in applying the Company’s accounting policies in many areas.
      Following are some of the areas requiring significant judgments and estimates:
      revenue; cash flow and valuation assumptions in performing asset impairment
      tests of long-lived assets and goodwill; valuation reserves for inventory and
      accounts receivable; income tax accounting and the valuation of share-based
      awards. There have been no material changes to the critical accounting policies
      affecting the application of those accounting policies as noted in the Company’s
      Annual Report on Form 10-K for the fiscal year ended March 31, 2006, except
      for
      the accounting for share-based compensation as described below.





Share-Based
      Compensation





Effective
      April 1, 2006, the Company adopted Statement of Financial Accounting Standards
      (“SFAS”) No. 123R, “Share-Based Compensation,” using the modified prospective
      transition method and began accounting for its share-based compensation using
      a
      fair-value based recognition method. Under the provisions of SFAS No. 123R,
      share-based compensation cost is estimated at the grant date based on the
      fair-value of the award and is expensed ratably over the requisite service
      period of the award. Determining the appropriate fair-value model and
      calculating the fair value of share-based awards at the grant date requires
      considerable judgment, including estimating stock price volatility, expected
      option life and forfeiture rates. The Company develops its estimates based
      on
      historical data and market information which can change significantly over
      time.





The
      Company uses the Black-Scholes option valuation model to value employee stock
      awards. The Company estimates stock price volatility based on historical
      volatility of its common stock. Estimated option life and forfeiture rate
      assumptions are also derived from historical data. The Company recognizes
      compensation expense using the straight-line amortization method for share-based
      compensation awards with graded vesting. Had the Company used alternative
      valuation methodologies and assumptions, the amount it expensed for share-based
      payments could be significantly different.





RESULTS
      OF OPERATIONS





Seasonality





The
      seasonal nature of CSS’ business has historically resulted in lower sales levels
      and operating losses in the first and fourth quarters and comparatively higher
      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.


14
 *Index*





Six
      Months Ended September 30, 2006 Compared to Six Months Ended September 30,
      2005





Sales
      for
      the six months ended September 30, 2006 of $221,363,000 were relatively flat
      compared to sales of $221,537,000 in 2005 primarily due to the later timing
      of
      shipments of ribbon and bow products, gift bags and tissue and lower sales
      of
      Halloween products, substantially offset by increased sales of Christmas boxed
      greeting cards, all occasion cards and gift wrap.





Cost
      of
      sales, as a percentage of sales, was 74% in 2006 and 76% in 2005. The
      improvement in cost of sales is primarily due to improved margins achieved
      in
      the gift wrap and tissue product lines, partially offset by lower margins on
      Halloween products.





Selling,
      general and administrative (“SG&A”) expenses, as a percentage of sales, were
      21% in 2006 and 19% in 2005. The increase in SG&A expenses, as a percentage
      of sales, is primarily due to share-based compensation expense related to the
      adoption of SFAS No. 123R and expected increases in severance, incentive
      compensation and consulting costs.





Interest
      expense, net was $1,217,000 in 2006 and $1,499,000 in 2005.  The
      decrease in interest expense was primarily due to lower borrowing levels during
      the six months compared to the same period in the prior year.





Income
      taxes, as a percentage of income before taxes, were 37% in 2006 and 36% in
      2005.
      The increase in the effective tax rate is primarily due to the portion of stock
      option expense recorded as a result of the adoption of SFAS No. 123R which
      is
      not tax deductible.





Net
      income for the six months ended September 30, 2006 was $6,196,000, or $.57
      per
      diluted share compared to $5,584,000, or $.51 per diluted share in 2005. The
      increase in net income is primarily attributable to the impact of improved
      margins, partially offset by the expensing of stock options due to the current
      year adoption of SFAS No. 123R and higher severance, compensation and consulting
      costs.





Three
      Months Ended September 30, 2006 Compared to Three Months Ended September 30,
      2005





Sales
      for
      the three months ended September 30, 2006 increased 6% to $173,830,000 from
      $164,043,000 in 2005 primarily due to a shift of seasonal sales from the first
      quarter to the second quarter compared to the prior year and increased sales
      of
      Christmas boxed greeting cards to a major retailer, which was partially offset
      by lower sales of gift bags and tissue during the quarter compared to the prior
      year.





Cost
      of
      sales, as a percentage of sales, was 74% in 2006 and 77% in 2005. The decrease
      in cost of sales is primarily due to improved margins achieved in the gift
      bag,
      gift wrap and tissue product lines, partially offset by lower margins on
      Halloween products.





SG&A
      expenses, as a percentage of sales, were 15% in 2006 and 14% in 2005. The
      increase in SG&A expenses, as a percentage of sales, is primarily due to
      share-based compensation expense related to the adoption of SFAS No. 123R and
      expected increases in incentive compensation.





Interest
      expense, net of $1,083,000 in 2006 was consistent with interest expense, net
      of
      $1,057,000 in 2005.





Income
      taxes, as a percentage of income before taxes, were 37% in 2006 and 36% in
      2005.
      The increase in the effective tax rate is primarily due to the portion of stock
      option expense recorded as a result of the adoption of SFAS No. 123R which
      is
      not tax deductible.





Net
      income for the three months ended September 30, 2006 was $11,703,000, or $1.08
      per diluted share compared to $9,239,000, or $.84 per diluted share in 2005.
      The
      increase in net income is primarily attributable to the impact of higher sales
      volume and improved margins, partially offset by the expensing of stock options
      due to the current year adoption of SFAS No. 123R and higher incentive
      compensation cost.


15
 *Index*


LIQUIDITY
      AND CAPITAL RESOURCES





At
      September 30, 2006, the Company had working capital of $174,271,000 and
      stockholders' equity of $239,787,000. The increase in accounts receivable from
      March 31, 2006 reflects seasonal billings of current year Halloween and
      Christmas accounts receivables, net of current year collections. The increase
      in
      inventories and other current liabilities from March 31, 2006 reflected the
      normal seasonal inventory build necessary for the fiscal 2007 shipping season.
      The increase in stockholders’ equity was primarily attributable to year-to-date
      net income and capital contributed upon exercise of employee stock options,
      partially offset by payments of cash dividends.





The
      Company relies primarily on cash generated from its operations and seasonal
      borrowings to meet its liquidity requirements. Historically, a significant
      portion of the Company’s revenues are seasonal with approximately 80% of sales
      recognized in the second and third quarters. As payment for sales of Christmas
      related products is usually not received until after the holiday selling season
      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 financing requirements are met under a $50,000,000
      revolving credit facility with five banks and an accounts receivable
      securitization facility with an issuer of receivables-backed commercial paper.
      This facility has a funding limit of $100,000,000 during peak seasonal periods
      and $25,000,000 during off-peak seasonal periods. In addition, the Company
      has
      outstanding $40,000,000 of 4.48% senior notes due ratably in annual $10,000,000
      installments through December 2009. These financing facilities are available
      to
      fund the Company’s seasonal borrowing needs and to provide the Company with
      sources of capital for general corporate purposes, including acquisitions as
      permitted under the revolving credit facility. At September 30, 2006, there
      was
      $40,000,000 of long-term borrowings outstanding related to the senior notes
      and
      $73,510,000 outstanding under the Company’s short-term credit facilities. In
      addition, the Company has a minor amount of capital leases outstanding. Based
      on
      its current operating plan, the Company believes its sources of available
      capital are adequate to meet its future cash needs for at least the next 12
      months.





As
      of
      September 30, 2006, the Company’s letter of credit commitments are as follows
      (in thousands):





Less
                than 1
              Year
            
            1-3
              Years
            
            4-5
              Years
            
            After
                5
              Years
            
            TotalLetters
                of credit
            
            $
            6,383
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            6,383





The
      Company has letters of credit that guarantee funding of workers compensation
      claims as well as obligations to certain vendors. The Company has no financial
      guarantees or other arrangements with any third parties or related parties
      other
      than its subsidiaries.





In
      the
      ordinary course of business, the Company enters into arrangements with vendors
      to purchase merchandise in advance of expected delivery. These purchase orders
      do not contain any significant termination payments or other penalties if
      cancelled.





LABOR
      RELATIONS





With
      the
      exception of the bargaining units at the gift wrap facilities in Memphis,
      Tennessee and the ribbon manufacturing facilities in Hagerstown, Maryland,
      which
      totaled approximately 880 employees as of September 30, 2006, 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 collective bargaining agreement with the labor union representing Cleo’s
      production and maintenance employees at the Cleo gift wrap plant and warehouses
      in Memphis, Tennessee remains in effect until December 31, 2007. The collective
      bargaining agreement with the labor union representing the Hagerstown-based
      production and maintenance employees remains in effect until December 31, 2006.
      The Company is presently in negotiations with the labor union representing
      the
      Hagerstown-based production and maintenance employees regarding the terms of
      a
      new collective bargaining agreement to replace the current agreement. The
      Company believes that it will be able to reach agreement on the terms of a
      new
      collective bargaining agreement prior to the expiration of the existing
      collective bargaining agreement.


16
 *Index*


ACCOUNTING
      PRONOUNCEMENTS





See
      Note
      7 to the Consolidated Financial Statements for information concerning recent
      accounting pronouncements and the impact of those standards.





FORWARD-LOOKING
      STATEMENTS





This
      report includes “forward-looking statements” within the meaning of the Private
      Securities Litigation Reform Act of 1995, including statements regarding the
      expected outcome of ongoing negotiations with the labor union representing
      Hagerstown-based production and maintenance employees regarding the provisions
      of a new collective bargaining agreement; those relating to sources of available
      capital being adequate to meet its future cash needs; those relating to the
      expected future impact of changes in accounting principles; and those relating
      to the anticipated effects of measures taken by the Company to respond to cost
      and price pressures. Forward-looking statements are based on the beliefs of
      the
      Company’s management as well as assumptions made by and information currently
      available to the Company’s management as to future events and financial
      performance with respect to the Company’s operations. Forward-looking statements
      speak only as of the date made. The Company undertakes no obligation to update
      any forward-looking statements to reflect the events or circumstances arising
      after the date as of which they were made. 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, increased operating costs, including labor-related and
      energy costs and costs relating to the imposition or retrospective application
      of duties on imported products, currency risks and other risks associated with
      international markets, risks associated with acquisitions, including acquisition
      integration costs, the risk that customers may become insolvent, costs of
      compliance with governmental regulations and government investigations,
      liability associated with non-compliance with governmental regulations,
      including regulations pertaining to the environment, Federal and state
      employment laws, and import and export controls and customs laws, and other
      factors described more fully in the Company’s Annual Report on Form 10-K for the
      fiscal year ended March 31, 2006 and in the Company’s previous filings with the
      Securities and Exchange Commission. As a result of these factors, readers are
      cautioned not to place undue reliance on any forward-looking statements included
      herein or that may be made elsewhere from time to time by, or on behalf of,
      the
      Company.





ITEM
                3.
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK





The
      Company is exposed to the impact of interest rate changes and manages this
      exposure through the use of variable-rate and fixed-rate debt. The Company
      does
      not enter into contracts for trading purposes and does not use leveraged
      instruments. The market risks associated with debt obligations and other
      significant instruments as of September 30, 2006 has not materially changed
      from
      March 31, 2006 (see Item 7A of the Company’s Annual Report on Form 10-K for the
      fiscal year ended March 31, 2006).





ITEM4.
            CONTROLS
                AND PROCEDURES





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





(b)
            *Changes
                in Internal Controls*.
                There was no change in the Company’s internal control over financial
                reporting (as defined in Rules 13a-15(f) and 15d-15(f) as promulgated
                by
                the Securities and Exchange Commission under the Exchange Act) during
                the
                second quarter of fiscal year 2007 that has materially affected,
                or is
                reasonably likely to materially affect, the Company’s internal control
                over financial reporting.


17
 *Index*




CSS
      INDUSTRIES, INC. AND SUBSIDIARIES





PART
      II - OTHER INFORMATION




Item
                1.
            Legal
                Proceedings





On
      August
      31, 2006, the United States Court of International Trade (“CIT”) denied the
      Company’s appeal challenging the imposition of antidumping duties on certain
      tissue paper products imported from China. As described in Part I, Item 3 of
      the
      Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006,
      in the proceedings before the CIT the Company was seeking reversal of the March
      2005 final determination of the United States International Trade Commission
      (“ITC”) that, in part, resulted in the imposition of such duties. The Company is
      now contesting the final determination of the ITC in proceedings before the
      United States Court of Appeals for the Federal Circuit, which proceedings were
      initiated by the Company on October 27, 2006.





In
      the
      fiscal year ended March 31, 2005, the Company recognized an expense of
      approximately $2,300,000 for these duties, reflecting the estimated liability
      of
      the Company’s Cleo subsidiary for duties relating to subject tissue paper
      products imported from China during the 2005 fiscal year based on the applicable
      deposit rates established by the United States Commerce Department. The amount
      of Cleo’s actual liability for tissue duties pertaining to the fiscal year ended
      March 31, 2005, which liability is capped at the deposit rates in effect with
      respect to the period of time that the subject products were imported by Cleo,
      will be determined at the time of “liquidation” of the applicable entries by
      United States Customs & Border Protection. Liquidation of the applicable
      entries has been enjoined pending the outcome of the Company’s
      appeal.





CSS
      and
      its subsidiaries are also involved in ordinary, routine legal proceedings that
      are not considered by management to be material. 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 or its results of operations or cash flows.




Item
                1A.
            Risk
                Factors





Risks
      associated with our use of foreign suppliers may adversely affect our business,
      results of operations and financial condition.





For
      some
      of our product lines, particularly our Halloween, Easter, Christmas boxed
      greeting cards, gift bags, gift tags and tissue paper product lines, we use
      foreign suppliers to manufacture a portion of our products. Approximately 37%
      of
      our sales in fiscal 2006 were related to products sourced from foreign
      suppliers. Our use of foreign suppliers exposes us to risks inherent in doing
      business outside of the United States, including risks associated with foreign
      currency fluctuations, transportation costs and delays, difficulties in
      maintaining and monitoring quality control, compliance with foreign laws and
      regulations, costs relating to the imposition or retrospective application
      of
      duties on imported products, economic or political instability, international
      public health issues, and restrictions on the repatriation of profits and
      assets.




Item4.
            Submission
                of Matters to a Vote of Security
                Holders





(a)
            The
                annual meeting of stockholders of the Company was held on August
                2, 2006.
                The only matters voted upon at the annual meeting were the election
                of
                directors and a proposal to approve the CSS Industries, Inc. 2006
                Stock
                Option Plan for Non-Employee Directors in the form adopted by the
                Board of
                Directors of the Company on May 31,
                2006.


18
 *Index*





(b)
            The
                result of the vote of the stockholders for the election of directors
                was
                as set forth in the table that follows. The individuals listed in
                the
                table below were elected to serve as Directors of the Company until
                the
                next annual meeting and until their successors shall be elected and
                qualify:





SHARES
                  OF VOTING STOCKFOR
              
              WITHHELDScott
                  A. Beaumont
              9,725,965
              
              104,247James
                  H. Bromley
              9,436,436
              
              393,776Jack
                  Farber
              9,708,987
              
              121,225Leonard
                  E. Grossman
              9,582,123
              
              248,089James
                  E. Ksansnak
              9,436,436
              
              393,776Rebecca
                  C. Matthias
              9,509,707
              
              320,505Christopher
                  J. Munyan
              9,709,244
              
              120,968





(c)
            The
                result of the vote of the stockholders on the proposal to approve
                the CSS
                Industries, Inc. 2006 Stock Option Plan for Non-Employee Directors
                was as
                follows:





For
            6,115,054Against
            2,937,898Abstain
            3,628Broker
                non-votes
            773,632








Item
                6.
            Exhibits





Exhibit
      31.1 Certification of the Chief Executive Officer
      of CSS Industries, Inc. required by Rule 13a-14(a) under the Securities Exchange
      Act of 1934.





Exhibit
      31.2 Certification of the Chief Financial Officer
      of CSS Industries, Inc. required by Rule 13a-14(a) under the Securities Exchange
      Act of 1934.





Exhibit
      32.1 Certification of the Chief Executive Officer
      of CSS Industries, Inc. required by Rule 13a-14(b) under the Securities Exchange
      Act of 1934 and 18 U. S. C. Section 1350.





Exhibit
      32.2 Certification of the Chief Financial Officer
      of CSS Industries, Inc. required by Rule 13a-14(b) under the Securities Exchange
      Act of 1934 and 18 U. S. C. Section 1350.




19
 *Index*




SIGNATURES




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.





CSS
                INDUSTRIES, INC.(Registrant)







Date:
                November 1, 2006
            By:
            /s/Christopher
                J. MunyanChristopher
                J. MunyanPresident
                and ChiefExecutive
                Officer(principal
                executive officer)








Date:
                November 1, 2006
            By:
            /s/Clifford
                E. PietrafittaClifford
                E. PietrafittaVice
                President - Finance andChief
                Financial Officer(principal
                financial and accounting officer)






20