RITE AID CORP | 2013 | FY | 3

15. 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 2013, 2012 and 2011 include $17,717, $15,861 and $17,336 of compensation costs related to the Company's stock-based compensation arrangements.

        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.

        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.

        In June 2012, the stockholders of Rite Aid Corporation approved the adoption of the Rite Aid Corporation 2012 Omnibus Equity Plan. Under the plan, 28,500 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 2012 Omnibus Equity Plan became effective on June 21, 2012.

        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 109,764 as of March 2, 2013.

        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 2013, 2012 and 2011:

 
   2013   2012   2011  

Expected stock price volatility(1)

     85 %   79 %   79 %

Expected dividend yield(2)

     0.00 %   0.00 %   0.00 %

Risk-free interest rate(3)

     0.71 %   1.45 %   1.92 %

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 currently pay dividends on its common stock, as such, the dividend rate is assumed to 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 historical exercise behavior.

        The weighted average fair value of options granted during fiscal 2013, 2012, and 2011 was $0.91, $0.82, and $0.71, respectively. Following is a summary of stock option transactions for the fiscal years ended March 2, 2013, March 3, 2012, and February 26, 2011:

 
   Shares   Weighted
Average
Exercise
Price
Per Share		   Weighted
Average
Remaining
Contractual
Term		   Aggregate
Intrinsic
Value		  

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              
                       

Granted

     12,020     1.32              

Exercised

     (1,535 )   1.06              

Cancelled

     (3,283 )   2.08              
                       

Outstanding at March 2, 2013

     81,000   $ 1.48     6.79   $ 38,963  
                   

Vested or expected to vest at March 2, 2013

     72,742   $ 1.51     6.66   $ 35,262  
                   

Exercisable at March 2, 2013

     42,893   $ 1.71     5.75   $ 21,534  
                   

        As of March 2, 2013, there was $18,202 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 2.35 years.

        Cash received from stock option exercises for fiscal 2013, 2012, and 2011 was $1,646, $914, and $226 respectively. There was no income tax benefit from stock options for fiscal 2013, 2012 and 2011. The total intrinsic value of stock options exercised for fiscal 2013, 2012, and 2011 was $714, $255, and $81, 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.

        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. 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. Unvested shares are forfeited upon termination of employment. Following is a summary of restricted stock transactions for the fiscal years ended March 2, 2013, March 3, 2012, and February 26, 2011:

 
   Shares   Weighted
Average
Grant Date
Fair Value		  

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  
           

Granted

     5,450     1.31  

Vested

     (3,917 )   1.18  

Cancelled

     (362 )   1.26  
           

Balance at March 2, 2013

     12,677   $ 1.25  
           

        At March 2, 2013, there was $9,465 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 2.06 years.

        The total fair value of restricted stock vested during fiscal years 2013, 2012, and 2011 was $4,623, $3,724, and $9,819, respectively.

us-gaap:DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock