Sysco 2011 Annual Report Download - page 86

15. SHARE-BASED COMPENSATION
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
In November 2009, Sysco’s 2007 Stock Incentive Plan was amended and provides for the issuance of up to 55,000,000 shares of Sysco
common stock for share-based awards to officers and other employees of the company. Of the 55,000,000 authorized shares, the full
55,000,000 shares may be issued as options or stock appreciation rights and up to 10,000,000 shares may be issued as restricted stock,
restricted stock units or other types of stock-based awards. To date, Sysco has issued options, restricted stock and restricted stock units 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 July 2, 2011, there were 24,814,016 remaining shares authorized and available for grant in total
under the amended 2007 Stock Incentive Plan, of which the full 24,814,016 shares may be issued as options or stock appreciation rights, or as a
combination of up to 8,667,189 shares that may be issued as restricted stock, restricted stock units or other types of stock-based awards with the
remainder available for issuance as options or stock appreciation rights.
Sysco has also granted employee options under several previous employee stock option plans for which previously granted options remain
outstanding as of July 2, 2011. No new options will be issued under any of the prior plans, as future grants to employees will be made through the
amended 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.
In November 2009, Sysco’s 2009 Non-Employee Directors Stock Plan was adopted and provides for the issuance of up to 750,000 shares of
Sysco common stock for share-based awards to non-employee directors. The authorized shares may be granted as restricted stock, restricted
stock units, elected shares or additional shares. In addition, options and unvested common shares also remained outstanding as of July 2, 2011
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 2009 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 July 2, 2011, there were 652,097 remaining shares authorized and available for grant in total under the 2009 Non-Employee Directors
Stock Plan.
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 the fair value recognition provisions of the stock compensation accounting guidance, 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 not have been materially different for fiscal
2011 or fiscal 2010. Recognized compensation cost would have been $3.5 million lower for fiscal 2009.
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 average stock price
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