SHARE-BASED PLANS

On July 30, 2013, the Company's stockholders approved the CSS Industries, Inc. 2013 Equity Compensation Plan ("2013 Plan"). Under the terms of the Company's 2013 Plan, the Company may grant incentive stock options, non-qualified stock options, stock units, restricted stock grants, stock appreciation rights, stock bonus awards and dividend equivalents to officers and other employees and non-employee directors. The Human Resources Committee of the Company's Board of Directors ("Board"), or other committee appointed by the Board (collectively with the Human Resources Committee, the "2013 Equity Plan Committee") approves grants to officers and other employees, and the Board approves grants to non-employee directors. Grants under the 2013 Plan may be made through July 29, 2023. The term of each grant is at the discretion of the 2013 Equity Plan Committee, but in no event greater than ten years from the date of grant, and at the date of grant the 2013 Equity Plan Committee has discretion to determine the date or dates on which granted options become exercisable. Service-based options outstanding as of March 31, 2017 become exercisable at the rate of 25% per year commencing one year after the date of grant. Market-based stock options outstanding as of March 31, 2017, will become exercisable only if certain market conditions and service requirements are satisfied, and the date(s) on which they become exercisable will depend on the period in which such market conditions and service requirements are met, if at all, except that vesting and exercisability are accelerated upon a change of control. Outstanding service-based restricted stock units ("RSUs") granted to employees vest at the rate of 50% of the shares underlying the grant at each of the third and fourth anniversaries of the date on which the award was granted. Service-based RSUs granted to directors and outstanding at March 31, 2017 vest on July 31, 2017. Market-based RSUs outstanding at March 31, 2017 will vest only if certain market conditions and service requirements have been met, and the date(s) on which they vest will depend on the period in which such market conditions and service requirements are met, if at all, except that vesting and redemption are accelerated upon a change of control. At March 31, 2017, there were 633,948 shares available for grant.

Compensation cost is recognized over the stated vesting period consistent with the terms of the arrangement (i.e. either on a straight-line or graded-vesting basis).

Stock Options

Activity and related information pertaining to stock options for the year ended March 31, 2017 was as follows:



	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
						(in thousands)
Outstanding at April 1, 2016	508,675		$	25.34
Granted	151,350		27.48
Exercised	(34,850	)	19.38
Forfeited/canceled	(70,600	)	27.27
Outstanding at March 31, 2017	554,575		$	26.05	4.2 years	$	652
Exercisable at March 31, 2017	145,325		$	22.52	2.5 years	$	586
Expected to vest at March 31, 2017	310,440		$	27.36	5.2 years	$	33

The Company issues treasury shares for stock option exercises. 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) are presented as financing cash flows in the consolidated statements of cash flows.

The fair value of each stock option granted was estimated on the date of grant using either the Black-Scholes option valuation model (for service-based awards) or a Monte Carlo simulation model (for performance-based awards) with the following average assumptions:



	For the Years Ended March 31,
	2017		2016		2015
Expected dividend yield at time of grant	2.91	%	2.58	%	2.33	%
Expected stock price volatility	35	%	37	%	48	%
Risk-free interest rate	1.66	%	1.92	%	1.45	%
Expected life of option (in years)	4.8		4.6		4.8

Expected volatilities are based on historical volatility of the Company’s common stock. The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant. The expected option life reflects the average of the contractual term of the options and the weighted-average vesting period for all option tranches.

The weighted average fair value of stock options granted during fiscal 2017, 2016 and 2015 was $6.25, $7.24 and $9.14, per share, respectively. The total intrinsic value of options exercised during the years ended March 31, 2017, 2016 and 2015 was $253,000, $428,000 and $628,000, respectively. The total fair value of stock options vested during fiscal 2017, 2016 and 2015 was $1,048,000, $909,000 and $813,000.

As of March 31, 2017, there was $1,369,000 of total unrecognized compensation cost related to non-vested stock option awards granted under the Company’s equity incentive plans which is expected to be recognized over a weighted average period of 2.5 years.

Compensation cost related to stock options recognized in operating results (included in selling, general and administrative expenses) was $666,000, $872,000, and $1,150,000 in the years ended March 31, 2017, 2016 and 2015, respectively, and the associated future income tax benefit recognized was $256,000, $331,000, and $436,000 in the years ended March 31, 2017, 2016 and 2015, respectively.

Restricted Stock Units

Activity and related information pertaining to RSUs for the year ended March 31, 2017 was as follows:



	Number of RSUs		Weighted Average Fair Value		Weighted Average Remaining Contractual Life
Outstanding at April 1, 2016	188,810		$	17.75
Granted	75,602		21.54
Vested	(59,400	)	14.78
Forfeited/canceled	(19,635	)	18.72
Outstanding at March 31, 2017	185,377		$	20.14	1.8 years

The fair value of each market-based RSU granted during fiscal 2017, 2016 and 2015 was estimated on the date of grant using a Monte Carlo simulation model with the following assumptions:



	For the Years Ended March 31,
	2017		2016		2015
Expected dividend yield at time of grant	2.99	%	2.60	%	2.38	%
Expected stock price volatility	33	%	37	%	39	%
Risk-free interest rate	1.20	%	1.29	%	1.17	%

The fair value of each service-based RSU granted to employees was estimated on the day of grant based on the closing price of the Company's common stock reduced by the present value of the expected dividend stream during the vesting period using the risk-free interest rate. The fair value of each service-based RSU granted to directors, for which dividend equivalents are paid upon vesting of the underlying awards, was estimated on the day of grant based on the closing price of the Company's common stock.

The total fair value of restricted stock units vested during fiscal 2017, 2016 and 2015 was $806,000, $1,053,000 and $975,000, respectively.

As of March 31, 2017, there was $1,546,000 of total unrecognized compensation cost related to non-vested RSUs granted under the Company’s equity incentive plans which is expected to be recognized over a weighted average period of 2.2 years.

On August 11, 2015, the Company granted 10,000 RSUs to the Chair of the Company's Board of Directors. On August 15, 2017, the RSUs will become vested and convertible into a lump sum cash payment equal to the then fair market value of corresponding shares of common stock of the Company if, and only to the extent that, certain service-based vesting conditions and other terms and conditions are satisfied, or upon occurrence of a change of control. The RSUs are classified as liability awards because they will be paid in cash upon vesting. The RSU award liability is measured at its fair market value at the end of each reporting period and, therefore, will fluctuate based on the performance of the Company's stock. The total amount accrued related to this grant as of March 31, 2017 was $210,000 and is included in accrued payroll and other compensation in the consolidated balance sheet. The total amount accrued related to this grant as of March 31, 2016 was $87,000 and is included in other long-term obligations in the consolidated balance sheet. During fiscal 2017 and 2016, dividend equivalents of approximately $8,000 and $6,000, respectively, were paid in cash related to these liability classified awards and were charged to selling, general and administrative expenses.

Compensation cost related to RSUs (inclusive of the liability classified awards described above) recognized in operating results (included in selling, general and administrative expenses) was $1,118,000, $875,000 and $888,000 in the years ended March 31, 2017, 2016 and 2015, respectively, and the associated future income tax benefit recognized was $431,000, $332,000 and $336,000 in the years ended March 31, 2017, 2016 and 2015, respectively.