Sysco 2008 Annual Report Download - page 77

SYSCO provides compensation benefits to employees and non-employee directors under several share-based payment arrangements
including various employee stock option plans, the Employees’ Stock Purchase Plan, the Management Incentive Plan and various non-
employee director plans.
Stock Incentive Plans
SYSCO’s 2007 Stock Incentive Plan was adopted in fiscal 2008 and provides for the issuance of up to 30,000,000 shares of SYSCO
common stock for share-based awards to officers and other employees of the company and its subsidiaries at the fair market value (as
defined in the plan) of SYSCO common stock at the date of grant. Of the 30,000,000 shares authorized under the 2007 Stock Incentive
Plan, up to 25,000,000 shares may be issued as options or stock appreciation rights and up to 5,000,000 shares may be issued as
restricted stock, restricted stock units or other types of stock-based awards.To date, SYSCO has only issued options under this plan.Vesting
requirements for awards under this plan will vary by individual grant and may include either time-based vesting or time-based vesting
subject to acceleration based on performance criteria for fiscal periods of at least one year. The contractual life of all options granted under
this plan will be no greater than seven years. As of June 28, 2008, there were 23,666,732 remaining shares authorized and available for grant
in total under the 2007 Stock Incentive Plan, 18,666,732 shares that may be issued as options or stock appreciation rights and
5,000,000 shares that may be issued as restricted stock, restricted stock units or other types of stock-based awards.
SYSCO has also granted employee options under several previous employee stock option plans for which previously granted options
remain outstanding as of June 28, 2008. No new options will be issued under any of the prior plans, as future grants to employees will be
made through the 2007 Stock Incentive Plan or subsequently adopted plans. Vesting requirements for awards under these plans vary by
individual grant and include either time-based vesting or time-based vesting subject to acceleration based on performance criteria. The
contractual life of all options granted under these plans through July 3, 2004 is 10 years; options granted after July 3, 2004 have a
contractual life of seven years.
SYSCO’s 2005 Non-Employee Directors Stock Plan was adopted in fiscal 2006 and provides for the issuance of up to 550,000 shares
of SYSCO common stock for share-based awards to non-employee directors. Of the 550,000 shares authorized under the 2005 Non-
Employee Directors Stock Plan, up to 220,000 shares may be issued as options, up to 320,000 shares may be issued as stock grants or
restricted stock units and up to 10,000 shares may be issued as dividend equivalents. In addition, options and unvested common shares also
remained outstanding as of June 28, 2008 under previous non-employee director stock plans. No further grants will be made under these
previous plans, as all future grants to non-employee directors will be made through the 2005 Non-Employee Directors Stock Plan or
subsequently adopted plans. Vesting requirements for awards under these plans vary by individual grant and include either time-based
vesting or vesting based on performance criteria. The contractual life of all options granted under these plans through July 3, 2004 is
10 years; options granted after July 3, 2004 have a contractual life of seven years. As of June 28, 2008, there were 337,442 remaining shares
authorized and available for grant in total under the 2005 Non-Employee Directors Stock Plan, 153,500 shares that may be issued as
options, 173,942 shares that may be issued as stock grants or restricted stock units and 10,000 shares that may be issued as dividend
equivalents.
Stock Options
Certain of SYSCO’s option awards are subject to graded vesting over a service period. In those cases, SYSCO recognizes compensation
cost on a straight-line basis over the requisite service period for the entire award. In other cases, certain of SYSCO’s option awards provide
for graded vesting over a service period but include a performance-based provision allowing for accelerated vesting. In these cases, if it is
probable that the performance condition will be met, SYSCO recognizes compensation cost on a straight-line basis over the shorter
performance period; otherwise, it will recognize compensation cost over the longer service period.
In addition, certain of SYSCO’s options provide that the options continue to vest as if the optionee continued to be an employee or
director if the optionee meets certain age and years of service thresholds upon retirement. In these cases, for awards granted through July 2,
2005, SYSCO will recognize the compensation cost for such awards over the service period and accelerate any remaining unrecognized
compensation cost when the employee retires. Due to the adoption of SFAS 123(R), for awards granted subsequent to July 2, 2005, SYSCO
will recognize compensation cost for such awards over the period from the grant date to the date the employee or director first becomes
eligible to retire with the options continuing to vest after retirement. If SYSCO had recognized compensation cost for such awards over the
period from the grant date to the date the employee or the director first became eligible to retire with the options continuing to vest after
retirement for all periods presented, recognized compensation cost would have been $8,307,000, $11,698,000 and $23,907,000 lower for
fiscal 2008, 2007 and 2006, respectively.
The fair value of each option award is estimated as of the date of grant using a Black-Scholes option pricing model. The weighted
average assumptions for the periods indicated are noted in the following table. Expected volatility is based on historical volatility of SYSCO’s
stock, implied volatilities from traded options on SYSCO’s stock and other factors. SYSCO utilizes historical data to estimate option exercise
and employee termination behavior within the valuation model; separate groups of employees that have similar historical exercise behavior
are considered separately for valuation purposes. Expected dividend yield is estimated based on the historical pattern of dividends and the
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