SHARE-BASED PLANS

2013 Equity Compensation Plan

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 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"), 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. 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. The 2013 Equity Plan Committee has discretion to determine the date or dates on which granted options become exercisable. At March 31, 2014, there were 1,132,950 shares available for grant and no awards outstanding under the 2013 Plan.

2004 Equity Compensation Plan

Under the terms of the 2004 Equity Compensation Plan (“2004 Plan”), the Human Resources Committee of the Board previously had the ability to grant incentive stock options, non-qualified stock options, restricted stock grants, stock appreciation rights, stock bonuses and other awards to officers and other employees. Effective upon approval of the 2013 Plan on July 30, 2013, no further grants will be made under the 2004 Plan. Service-based options outstanding as of March 31, 2014 become exercisable at the rate of 25% per year commencing one year after the date of grant. Market-based options outstanding as of such date 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. Market-based restricted stock units (“RSUs”) outstanding at March 31, 2014 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. Subject to limited exceptions, service-based RSUs outstanding as of March 31, 2014 vest at the rate of 50% of the shares underlying the grant on each of the third and fourth anniversaries of the grant date.

2011 Stock Option Plan for Non-Employee Directors

Under the terms of the CSS Industries, Inc. 2011 Stock Option Plan for Non-Employee Directors (“2011 Plan”), non-qualified stock options to purchase up to 150,000 shares of common stock are available for grant to non-employee directors at exercise prices of not less than the fair market value of the underlying common stock on the date of grant. Under the 2011 Plan, options to purchase 4,000 shares of the Company’s common stock are granted automatically to each non-employee director on the last day that the Company’s common stock is traded in November of each year from 2011 to 2015. Each option will expire five years after the date the option is granted and options may be exercised at the rate of 25% per year commencing one year after the date of grant. At March 31, 2014, 101,000 shares were available for grant under the 2011 Plan.

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

Compensation cost related to stock options recognized in operating results (included in selling, general and administrative expenses) was $1,008,000, $857,000, and $869,000 in the years ended March 31, 2014, 2013 and 2012, respectively, and the associated future income tax benefit recognized was $375,000, $310,000, and $313,000 in the years ended March 31, 2014, 2013 and 2012, respectively.

During fiscal year 2013, the Company identified that it had overstated its share-based compensation expense since fiscal 2007. The Company’s share-based compensation cost is estimated at the grant date based on the fair value of the awards and is expensed ratably over the requisite service period of the awards, net of estimated forfeitures. Share-based compensation expense is required to be adjusted periodically based on actual awards forfeited. Since the adoption of ASC 718 in fiscal year 2007, the Company had not adjusted share-based compensation expense for actual forfeitures. Specifically, share-based compensation expense was overstated by $128,000 in fiscal 2012, $184,000 in fiscal 2011, $339,000 in fiscal 2010, $351,000 in fiscal 2009, $337,000 in fiscal 2008 and $388,000 in fiscal 2007.

Accordingly, share-based compensation expense and additional paid-in capital were overstated in fiscal years 2007 to 2012. The Company assessed the materiality of these items, using relevant quantitative and qualitative factors, and determined these items, both individually and in the aggregate, were not material to any previously reported period. As such, the consolidated statements of stockholders’ equity was revised to reflect the cumulative effect of these adjustments resulting in a decrease to additional paid-in capital and an increase to retained earnings of $1,727,000, which is reflected as an adjustment in the fiscal 2013 consolidated statement of stockholders’ equity.

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) were presented as financing cash flows in the consolidated statements of cash flows.

Activity and related information pertaining to stock options for the years ended March 31, 2014, 2013 and 2012 was as follows:



	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
						(in thousands)
Outstanding at April 1, 2011	815,930		$	26.43
Granted	114,000		18.78
Exercised	(42,577	)	16.70
Forfeited/canceled	(290,031	)	28.31
Outstanding at March 31, 2012	597,322		24.75
Granted	132,600		18.79
Exercised	(11,000	)	17.47
Forfeited/canceled	(208,381	)	31.32
Outstanding at March 31, 2013	510,541		20.68
Granted	108,700		29.84
Exercised	(182,378	)	20.03
Forfeited/canceled	(48,800	)	23.87
Outstanding at March 31, 2014	388,063		$	23.14	4.0 years	$	1,737
Exercisable at March 31, 2014	128,037		$	23.17	2.2 years	$	592

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



	For the Years Ended March 31,
	2014		2013		2012
Expected dividend yield at time of grant	2.02	%	2.92	%	3.21	%
Expected stock price volatility	52	%	54	%	54	%
Risk-free interest rate	0.94	%	0.61	%	2.14	%
Expected life of option (in years)	4.8		5.0		5.1

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 weighted average fair value of stock options granted during fiscal 2014, 2013 and 2012 was $11.19, $7.30 and $6.87, per share, respectively. The total intrinsic value of options exercised during the years ended March 31, 2014, 2013 and 2012 was $1,606,000, $25,000 and $174,000, respectively. The total fair value of stock options vested during fiscal 2014, 2013 and 2012 was $667,000, $544,000 and $775,000.

As of March 31, 2014, there was $1,215,000 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 2.2 years.

Restricted Stock Units

Compensation cost related to RSUs recognized in operating results (included in selling, general and administrative expenses) was $835,000, $926,000 and $814,000 in the years ended March 31, 2014, 2013 and 2012, respectively, and the associated future income tax benefit recognized was $311,000, $335,000 and $293,000 in the years ended March 31, 2014, 2013 and 2012, respectively.

Activity and related information pertaining to RSUs for the years ended March 31, 2014, 2013 and 2012 was as follows:



	Number of RSUs		Weighted Average Fair Value		Weighted Average Contractual Life
Outstanding at April 1, 2011	186,000		$	17.80
Granted	79,850		16.33
Vested	(10,825	)	25.29
Forfeited/canceled	(37,015	)	17.27
Outstanding at March 31, 2012	218,010		16.98
Granted	70,800		14.78
Vested	(42,479	)	18.75
Forfeited/canceled	(16,889	)	16.24
Outstanding at March 31, 2013	229,442		16.02
Granted	38,850		20.51
Vested	(59,517	)	16.64
Forfeited/canceled	(15,950	)	15.83
Outstanding at March 31, 2014	192,825		$	16.75	4.7 years

The fair value of each market-based RSU granted during fiscal 2014 and 2013 was estimated on the date of grant using a Monte Carlo simulation model with the following assumptions:



	For the Years Ended March 31,
	2014		2013
Expected dividend yield at time of grant	2.04	%	3.15	%
Expected stock price volatility	40	%	58	%
Risk-free interest rate	0.66	%	0.58	%

The fair value of each RSU granted during fiscal 2012 was estimated on the date 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 total fair value of restricted stock units vested during fiscal 2014, 2013 and 2012 was $990,000, $797,000 and $298,000.

As of March 31, 2014, there was $1,200,000 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 2.0 years.