Stock Option and Stock Award Plans

12 Months Ended

Mar. 03, 2012

Stock Option and Stock Award Plans

Stock Option and Stock Award Plans

13. Stock Option and Stock Award Plans

        The Company recognizes share-based compensation expense in accordance with ASC 718, "Compensation—Stock Compensation." Expense is recognized over the requisite service period of the award, net of an estimate for the impact of forfeitures. Operating results for fiscal 2012, 2011 and 2010 include $15,861, $17,336 and $23,794 of compensation costs related to the Company's stock-based compensation arrangements.

        The Company reserved 22,000 shares of its common stock for the granting of stock options and other incentive awards to officers and key associates under the 1990 Omnibus Stock Incentive Plan (the 1990 Plan), which was approved by the shareholders. Options may be granted, with or without stock appreciation rights ("SAR"), at prices that are not less than the fair market value of a share of common stock on the date of grant. The exercise of either a SAR or option automatically will cancel any related option or SAR. Under the 1990 Plan, the payment for SARs will be made in shares, cash or a combination of cash and shares at the discretion of the Compensation Committee.

        In November 1999, the Company adopted the 1999 Stock Option Plan (the 1999 Plan), under which 10,000 shares of common stock are authorized for the granting of stock options at the discretion of the Board of Directors.

        In December 2000, the Company adopted the 2000 Omnibus Equity Plan (the 2000 Plan) under which 22,000 shares of common stock are reserved for granting of restricted stock, stock options, phantom stock, stock bonus awards and other stock awards at the discretion of the Board of Directors.

        In February 2001, the Company adopted the 2001 Stock Option Plan (the 2001 Plan) which was approved by the shareholders under which 20,000 shares of common stock are authorized for granting of stock options at the discretion of the Board of Directors.

        In April 2004, the Board of Directors adopted the 2004 Omnibus Equity Plan, which was approved by the shareholders. Under the plan, 20,000 shares of common stock are authorized for granting of restricted stock, stock options, phantom stock, stock bonus awards and other equity based awards at the discretion of the Board of Directors.

        In January 2007, the stockholders of Rite Aid Corporation approved the adoption of the Rite Aid Corporation 2006 Omnibus Equity Plan. Under the plan, 50,000 shares of Rite Aid common stock are available for granting of restricted stock, stock options, phantom stock, stock bonus awards and other equity based awards at the discretion of the Board of Directors. The adoption of the 2006 Omnibus Equity Plan became effective upon the closing of the Acquisition.

        In June 2010, the stockholders of Rite Aid Corporation approved the adoption of the Rite Aid Corporation 2010 Omnibus Equity Plan. Under the plan, 35,000 shares of Rite Aid common stock are available for granting of restricted stock, stock options, phantom stock, stock bonus awards and other equity based awards at the discretion of the Board of Directors. The adoption of the 2010 Omnibus Equity Plan became effective on June 23, 2010.

        All of the plans provide for the Board of Directors (or at its election, the Compensation Committee) to determine both when and in what manner options may be exercised; however, it may not be more than 10 years from the date of grant. All of the plans provide that stock options may be granted at prices that are not less than the fair market value of a share of common stock on the date of grant. The aggregate number of shares authorized for issuance for all plans is 89,446 as of March 3, 2012.

Stock Options

        The Company determines the fair value of stock options issued on the date of grant using the Black-Scholes-Merton option-pricing model. The following weighted average assumptions were used for options granted in fiscal 2012, 2011 and 2010:

	2012			2011			2010
Expected stock price volatility(1)		79	%		79	%		76	%
Expected dividend yield(2)		0.00	%		0.00	%		0.00	%
Risk-free interest rate(3)		1.45	%		1.92	%		2.50	%
Expected option life(4)		5.5 years			5.5 years			5.5 years

(1)

The expected volatility is based on the historical volatility of the stock price over the most recent period equal to expected life of the option.

(2)

The dividend rate that will be paid out on the underlying shares during the expected term of the options. The Company does not pay dividends on its common stock, as such, the dividend rate will always be zero percent.

(3)

The risk free interest rate is equal to the rate available on United States Treasury zero-coupon issues as of the grant date of the option with a remaining term equal to the expected term.

(4)

The period of time for which the option is expected to be outstanding. The Company analyzed employees for exercise behavior.

        The weighted average fair value of options granted during fiscal 2012, 2011, and 2010 was $0.82, $0.71, and $0.83, respectively. Following is a summary of stock option transactions for the fiscal years ended March 3, 2012, February 26, 2011, and February 27, 2010:

	Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at February 28, 2009		70,162		$	3.80
Granted		18,367			1.26
Exercised		(75	)		0.89
Cancelled		(12,340	)		4.48
Outstanding at February 27, 2010		76,114			3.08
Granted		17,443			1.07
Exercised		(244	)		0.92
Cancelled		(19,015	)		3.66
Outstanding at February 26, 2011		74,298			2.47
Granted		23,200			1.19
Exercised		(896	)		1.02
Cancelled		(22,804	)		4.31
Outstanding at March 3, 2012		73,798		$	1.52		7.16	$	35,568
Vested or expected to vest at March 3, 2012		65,622		$	1.57		7.04	$	31,206
Exercisable at March 3, 2012		29,544		$	2.08		5.95	$	12,595

        As of March 3, 2012, there was $20,136 of total unrecognized pre-tax compensation costs related to unvested stock options, net of forfeitures. These costs are expected to be recognized over a weighted average period of 2.47 years.

        On March 21, 2011, the Company launched a Stock Option Exchange Program ("Program") for eligible associates only. Under the Program, eligible associates had the opportunity to surrender certain stock options for a lesser number of new stock options with an exercise price that was determined based on the closing market price on April 21, 2011, the day the Program concluded. The number of new options was determined by applying exchange ratios that resulted in providing new stock options with an aggregate fair value that approximated the aggregate fair value of the options they replaced. The new options vest over two years and have a five year life with an exercise price of $1.03. A total of 14.0 million options with an average exercise price in excess of $1.77 were cancelled and 5.3 million new options were granted with an exercise price of $1.03. The Company recognized a minimal incremental compensation expense as a result of the Program.

        Cash received from stock option exercises for fiscal 2012, 2011, and 2010 was $914, $226, and $66 respectively. There was no income tax benefit from stock options for fiscal 2012, 2011 and 2010. The total intrinsic value of stock options exercised for fiscal 2012, 2011, and 2010 was $255, $81, and $44, respectively.

        Typically, stock options granted vest, and are subsequently exercisable in equal annual installments over a four-year period for employees. During fiscal 2012, certain employee stock options and awards were issued that vest 50% in year 3 and 50% in year four. Non-employee director options granted vest, and are subsequently exercisable in equal annual installments over a three-year period. Stock awards granted vest in equal annual installments over a three-year period. Beginning in fiscal 2011, stock awards granted to non-employee directors vest 80% in year one, 10% in year two and 10% in year three.

Restricted Stock

        The Company provides restricted stock grants to associates under plans approved by the stockholders. Shares awarded under the plans vest in installments up to three years and unvested shares are forfeited upon termination of employment. Following is a summary of restricted stock transactions for the fiscal years ended March 3, 2012, February 26, 2011, and February 27, 2010:

	Shares			Weighted Average Grant Date Fair Value
Balance at February 28 , 2009		6,699		$	3.87
Granted		3,289			1.28
Vested		(3,387	)		4.35
Cancelled		(657	)		3.03
Balance at February 27, 2010		5,944			2.26
Granted		4,574			1.07
Vested		(3,055	)		3.21
Cancelled		(385	)		1.65
Balance at February 26, 2011		7,078			1.12
Granted		8,525			1.23
Vested		(3,366	)		1.11
Cancelled		(731	)		1.16
Balance at March 3, 2012		11,506		$	1.20

        At March 3, 2012, there was $9,487 of total unrecognized pre-tax compensation costs related to unvested restricted stock grants, net of forfeitures. These costs are expected to be recognized over a weighted average period of 2.49 years.

        The total fair value of restricted stock vested during fiscal years 2012, 2011, and 2010 was $3,724, $9,819, and $14,726, respectively.