SHARE-BASED COMPENSATION

2013 Equity Compensation Plan

Under the terms of the Company’s 2013 Equity Compensation Plan (“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. Grants under the 2013 Plan may be made through July 29, 2023. The term of each grant is at the discretion of the Company, but in no event greater than ten years from the date of grant, and at the date of grant the Company has discretion to determine the date or dates on which granted options become exercisable. Under the 2013 Plan, a committee of the Company's Board of Directors (the "Board") approves grants to officers and other employees, and the Board approves grants to non-employee directors. Service-based stock options outstanding as of September 30, 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 September 30, 2017 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 as of September 30, 2017 vest on July 30, 2018. Market-based RSUs outstanding at September 30, 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 September 30, 2017, there were 536,368 shares available for grant under the 2013 Plan.

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



	Six Months Ended September 30,
	2017		2016
Risk-free interest rate	2.21	%	1.66	%
Volatility	34.45	%	35.12	%
Dividend yield	2.90	%	2.91	%
Expected life of option (in years)	6.25		4.75

The fair value of each market-based RSU granted under the above plan during the six months ended September 30, 2016 was estimated on the date of grant using a Monte Carlo simulation model with assumptions of a risk-free interest rate of 1.20%, volatility of 33.08% and dividend yield of 2.99%. There were no market-based RSUs granted during the six months ended September 30, 2017. 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.

During the six months ended September 30, 2017 and 2016, the Company granted 119,000 and 151,350 stock options, respectively, with a weighted average fair value of $7.42 and $6.25, respectively. During the six months ended September 30, 2017 and 2016, the Company granted 73,680 and 66,602 RSUs, respectively, with a weighted average fair value of $25.63 and $21.47, respectively. As of September 30, 2017, there were 603,200 and 195,205 outstanding stock options and RSUs, respectively.

As of September 30, 2017, there was $1,773,000 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 2.9 years. As of September 30, 2017, there was $2,550,000 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 2.4 years.

On August 11, 2015, the Company granted 10,000 RSUs to the Chair of the Company's Board of Directors. The RSUs vested on August 15, 2017 and were converted into a lump sum cash payment of approximately $266,000 which represented the fair market value of corresponding shares of common stock of the Company. Prior to vesting, the RSUs were classified as liability awards because they were to be paid in cash upon vesting. The RSU award liability was measured at its fair market value at the end of each reporting period. The total amount accrued related to this grant as of September 30, 2016 was $144,000 and is included in accrued payroll and other compensation in the consolidated balance sheet.

Compensation cost related to stock options and RSUs (inclusive of the liability classified awards described above) recognized in operating results (included in selling, general and administrative expenses) was $541,000 and $307,000 in the quarters ended September 30, 2017 and 2016, respectively, and $860,000 and $749,000 in the six months ended September 30, 2017 and 2016, respectively.