11 Share-Based Compensation

Stock Incentive Plan

The 2009 Stock Incentive Plan, the 2009 Non-Employee Director Stock Incentive Plan, the 2002 Omnibus Stock Incentive Plan and the 1997 Omnibus Stock Incentive Plan (the Plans) provide for the issuance of 1,888,000; 250,000; 3,400,000; and 2,500,000 shares, respectively, for various forms of stock-based compensation to employees and non-employee directors. Awards under these Plans, either in the form of incentive stock options, nonstatutory options or stock-settled stock appreciation rights (SARs), are granted with an exercise price equal to the fair market value of the Company's stock at the date of award. Nonvested share awards and nonvested share unit awards are also included in these Plans. Outstanding options issued to employees generally vest over a four-year period, outstanding SARs vested over a three-year period and outstanding options issued to non-employee directors vested at the end of six months. Outstanding options and SARs have a 10-year term. Nonvested share awards and nonvested share unit awards generally vest over a two, three or four-year period.

The 2002 Omnibus Stock Incentive Plan was terminated in June 2009 and the 1997 Omnibus Stock Incentive Plan was terminated in January 2006; no new grants may be made under either of these plans, although exercises of SARs and options, and vesting of nonvested share awards previously granted thereunder will still occur in accordance with the terms of the various grants.

In August 2011, the Company granted 450,512 stock options and 155,875 nonvested share awards to its new President and Chief Executive Officer, resulting in an increase in the number of shares issued under stock option and nonvested share awards outstanding. In August 2011, the Company also granted 59,952 vested shares to its new President and Chief Executive Officer that were fully expensed during the second quarter, and are included in stock-based compensation expense noted below. These awards were granted as an "inducement grant" under applicable NASDAQ Stock Market Listing Rules and were made outside of the Company's existing equity plans.

Total stock-based compensation expense under all Plans and the inducement grant included in the results of operations for fiscal 2012, 2011 and 2010 was $4.4 million, $5.2 million and $6.1 million, respectively. At March 3, 2012, there was $1.1 million of total unrecognized compensation cost related to stock option awards, which is expected to be recognized over a weighted average period of approximately 30 months.

Cash proceeds from the exercise of stock options were $1.1 million, $0.3 million and $0.7 million for fiscal 2012, 2011 and 2010, respectively. There were immaterial amounts of tax benefits realized for the tax deductions from option exercises in both fiscal 2012 and 2011. The tax benefit realized for the tax deductions from option exercises totaled $0.1 million for fiscal 2010.

The weighted average fair value per option at the date of grant for options granted in fiscal 2012 was $2.89, which was for the stock option issued under the inducement grant noted above. There were no options or SARs issued in fiscal 2011 or 2010. The aggregate intrinsic value of these securities (the amount by which the stock price on the date of exercise exceeded the stock price of the award on the date of grant) exercised was $0.2 million in each of fiscal 2012 and 2011 and was $0.5 million in fiscal 2010.

The fair value of each award grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in fiscal 2012.


	2012
Dividend yield		3.9	%
Expected stock price volatility		56.1	%
Risk-free interest rate		0.8	%
Expected lives		4.6 years

The expected stock price volatility is based on historical experience. The risk-free rate for periods that coincide with the expected life of the options is based on the U.S. Treasury Department yield curve in effect at the time of grant. The expected life, the average time an option grant is outstanding, and forfeiture rates are estimated based on historical experience.

The following table summarizes the award transactions under the Plans for the year ended March 3, 2012:


	Options/SARs Outstanding
	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at Feb. 26, 2011		1,477,324		$	17.81
Award granted		450,512			8.34
Awards exercised		(86,942	)		11.94
Awards canceled		(25,601	)		19.74

Outstanding at Mar. 3, 2012		1,815,293		$	15.71		5.3 years	$	2,241,378

Vested or expected to vest at Mar. 3, 2012		1,815,293		$	15.71		5.3 years	$	2,241,378

Exercisable at Mar. 3, 2012		1,364,781		$	18.15		3.9 years	$	322,197

Partnership Plan

The Amended and Restated 1987 Partnership Plan (the Partnership Plan), a plan designed to increase the ownership of Apogee stock by key employees, allowed participants selected by the Compensation Committee of the Board of Directors to defer earned incentive compensation through the purchase of Apogee common stock. The purchased stock was then matched by an equal award of nonvested shares, which vested over a predetermined period. The nonvested shares were recorded as unearned compensation in the equity section of the balance sheet. In accordance with accounting standards, the deferred compensation in the form of the Company's stock was recorded at historical cost and classified as common stock held in trust. Since the investments were all in Company stock, an offsetting amount was recorded as deferred compensation obligations in the equity section of the balance sheet. Common shares of 3,400,000 were authorized for issuance under the Partnership Plan. The plan was amended in fiscal 2009 to reduce the authorized shares to 3,345,000. As of March 3, 2012, 3,283,000 shares have been issued or committed under the Partnership Plan. The Company expensed a minimal amount in fiscal 2012, $0.6 million in fiscal 2011, and $0.3 million in fiscal 2010 in conjunction with the Partnership Plan. During fiscal 2011, the Company accelerated vesting of 80,462 nonvested shares in connection with the Partnership Plan to eliminate the cost of administering this legacy compensation plan. Included in the $0.6 million of expense recognized in fiscal 2011 was $0.3 million of additional compensation expense related to the accelerated vesting. There are 62,000 shares available for issuance under the Partnership Plan as of March 3, 2012.

This program was eliminated for fiscal 2006 and beyond, although vesting of remaining nonvested shares will still occur according to the vesting period of the grants.

Executive Compensation Program

In fiscal 2006, the Company implemented an executive compensation program to provide for a greater portion of total compensation to be delivered to key employees selected by the Compensation Committee of the Board of Directors through long-term incentives using performance shares, performance share units, SARs and nonvested shares. From fiscal 2006 through fiscal 2009, performance shares were issued at the beginning of each fiscal year in the form of nonvested share awards. Starting in fiscal 2010, the Company issued performance shares in the form of nonvested share unit awards, which give the recipient the right to receive shares earned at the vesting date. The number of shares or share units issued at grant is equal to the target number of performance shares and allows for the right to receive an additional number of, or fewer, shares based on meeting pre-determined Company three-year performance goals.

The following table summarizes the nonvested share award transactions, including performance shares and performance share units, for fiscal 2010, 2011 and 2012:


	Nonvested Share Awards
	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at February 28, 2009		694,702		$	17.45
Granted⁽¹⁾		457,894			13.61
Vested		(282,948	)		15.16
Canceled		(49,424	)		16.91

Nonvested at February 27, 2010		820,224		$	16.13
Granted⁽²⁾		439,319			13.26
Vested		(328,223	)		16.69
Canceled		(9,755	)		17.97

Nonvested at February 26, 2011		921,565		$	14.54
Granted⁽³⁾		438,967			11.83
Vested		(208,426	)		15.91
Canceled⁽⁴⁾		(170,293	)		16.81

Nonvested at March 3, 2012⁽⁵⁾		981,813		$	12.64

(1)

Includes 196,957 performance share units granted at target for the fiscal 2010-2012 performance period. Also includes 36,200 performance shares which were granted and immediately vested for achievement above target for the fiscal 2007-2009 performance period. Performance shares of 146,679 (at target) were previously granted in fiscal 2007 for this performance period.

(2)

Includes 193,519 performance share units granted for the fiscal 2011-2013 performance period at target.

(3)

Includes 117,765 performance share units granted for the fiscal 2012-2014 performance period at target.

(4)

Includes 63,682 performance shares canceled under the 2009-2011 performance period because Apogee performed below target level for that performance period. Performance shares of 126,429 (at target) were previously granted in fiscal 2009 for this performance period.

(5)

Includes a total of 452,314 of performance share units granted and outstanding at target for fiscal 2010-2012, 2011-2013 and 2012-2014.

At March 3, 2012, there was $5.4 million of total unrecognized compensation cost related to nonvested share awards, which is expected to be recognized over a weighted average period of approximately 21 months. The total fair value of shares vested during fiscal 2012 was $2.9 million.