STOCK BASED COMPENSATION

The three types of equity awards offered by the Company are stock options (“options”), restricted stock awards (“RSA's”) and restricted stock units (“RSU's”). Compensation related to options is accounted for by applying the valuation technique based on the Black-Scholes model. Compensation related to RSA's and RSU's is based on the fair market value at the time of grant with the application of an estimated forfeiture rate. The Company recognizes the compensation cost related to these awards over the requisite service period as determined by the grant, amortized ratably or on a straight line basis over the life of the grant. The Company utilizes “modified grant-date accounting” for true-ups due to actual forfeitures at the vesting dates. The Company records as additional paid-in capital the tax savings resulting from tax deductions in excess of expense for stock-based compensation or a reduction in paid-in capital from the tax deficiency resulting from stock-based compensation in excess of the related tax deduction, based on the Tax Law Ordering method. In addition, the Company reflects the tax savings (deficiency) resulting from the taxation of stock-based compensation as a financing cash flow in its consolidated statement of cash flows, rather than as operating cash flows.

RSA's have the same cash dividend and voting rights as other common stock and are considered to be currently issued and outstanding shares of common stock. RSU's are not issued nor outstanding until vested and do not have the cash dividend and voting rights of common stock. However, the Company has paid dividend equivalents to the employees with unvested RSU's equal to the dividend they would have received had the shares of common stock underlying the RSU's been actually issued and outstanding. The providing of dividend equivalents on RSU's is subject to the annual review and final determination by the board of directors at their discretion. Payments of dividend equivalents to employees are recorded as compensation expense.

The Company has adopted three stock option and equity participation plans for the benefit of its eligible employees, consultants and non-employee directors, that contain shares available to grant. The 1998, 2001 and 2002 Equity Participation Plans of PriceSmart, Inc., as amended, authorize 2,350,000 shares of the Company’s common stock for issuance. Options granted under these plans typically vest over five years and expire in six years. These plans also allow restricted stock awards and restricted stock units which typically vest between five to ten years. As of August 31, 2012, 2011 and 2010, an aggregate of 194,925, 553,345 and 577,668 shares, respectively, were available for future grants under these plans.

The following table summarizes the components of the stock-based compensation expense for the twelve-month periods ended August 31, 2012, 2011 and 2010 (in thousands), which are included in general and administrative expense and warehouse club operations in the consolidated statements of income:



	Years Ended August 31,
	2012		2011		2010
Options granted to directors	$	107	$	55	$	40
Restricted stock awards	4,834		3,780		3,670
Restricted stock units	528		202		68
Stock-based compensation expense	$	5,469	$	4,037	$	3,778

The following table summarizes various concepts related to stock-based compensation as of and for the twelve-months ended August 31, 2012, 2011 and 2010:



	August 31,
	2012		2011		2010
Remaining unrecognized compensation cost (in thousands)	$	25,543	$	8,319	$	8,598
Weighted average period of time over which this cost will be recognized (years)	7.8		3.2		3.0
Excess tax benefit (deficiency) on stock-based compensation (in thousands)	$	1,438	$	752	$	(57	)

The Company began issuing restricted stock awards in fiscal year 2006 and restricted stock units in fiscal year 2008. The restricted stock awards and units vest over a five to ten year period and the unvested portion of the award is forfeited if the employee or non-employee director leaves the Company before the vesting period is completed. Restricted stock awards and units activity for the twelve-months ended August 31, 2012, 2011 and 2010 was as follows:



	Years Ended August 31,
	2012		2011		2010
Grants outstanding at beginning of period	436,611		558,821		618,250
Granted	399,041		95,700		151,930
Forfeited	(5,230	)	(8,231	)	(4,971	)
Vested	(129,529	)	(209,679	)	(206,388	)
Grants outstanding at end of period	700,893		436,611		558,821

The following table summarizes the fair value for restricted stock awards and units for twelve-months of fiscal years 2012, 2011 and 2010:



	Years Ended August 31,
Weighted Average Grant Date Fair Value	2012		2011		2010
Restricted stock awards and units granted	$	67.26	$	41.25	$	23.36
Restricted stock awards and units vested	$	23.46	$	16.72	$	16.58
Restricted stock awards and units forfeited	$	29.30	$	23.58	$	18.69

The total fair market value of restricted stock awards and units vested during the years ended August 31, 2012, 2011 and 2010 was approximately $8.8 million, $8.3 million and $4.2 million, respectively.

At the vesting dates, the Company repurchases shares at the prior day's closing price per share, with the funds used to pay the employees' minimum statutory tax withholding requirements related to the vesting of restricted stock awards. During the twelve-months ended August 31, 2012, 2011 and 2010, the Company repurchased 46,373 shares, 69,146 and 70,679 shares, respectively, of common stock from employees for approximately $3.2 million, $2.7 million and $1.4 million, respectively, based on the stock repurchase price to cover the employees’ minimum statutory tax withholding requirements related to the vesting of restricted stock awards. The Company expects to continue this practice going forward.

The Company has reissued treasury shares as part of its stock-based compensation programs. During the twelve months ended August 31, 2012 the Company reissued 196,850 treasury shares. No treasury shares were reissued during the twelve-month periods ended August 31, 2011 and 2010.

As of August 31, 2012, 2011 and 2010, the Company had 36,000, 30,800 and 35,200 stock options outstanding under its stock plans, respectively. Stock-based compensation for options represented 2.0%, 1.4% and 1.1% of the total stock-based compensation for fiscal years 2012, 2011 and 2010, respectively. Due to the substantial shift from the use of stock options to restricted stock awards and units, the Company believes stock option activity is no longer significant and that any further disclosure on options is not deemed necessary.