Share-Based Compensation

9 Months Ended

Jul. 01, 2011

Share-Based Compensation

Share-Based Compensation

(9) SHARE-BASED COMPENSATION:

The Parent Company adopted an amended and restated ARAMARK Holdings Corporation 2007 Management Stock Incentive Plan (the Amended Stock Incentive Plan) on June 21, 2011. The Amended Stock Incentive Plan incorporates certain changes from prior amendments to the ARAMARK Holdings Corporation 2007 Management Stock Incentive Plan and provides for the grant of Installment Stock Purchase Opportunities, which is a new type of share-based award. The Amended Stock Incentive Plan also provides that shares purchased by the Parent Company from former employees will become eligible for issuances as stock options or purchased stock.

During the three and nine months ended July 1, 2011, share-based compensation expense was approximately $5.4 million, before taxes of $2.1 million, and approximately $11.8 million, before taxes of $4.6 million, respectively. During the three and nine months ended July 2, 2010, share-based compensation expense was approximately $0.3 million, before taxes of $0.1 million, and approximately $17.3 million, before taxes of $6.8 million, respectively.

Stock Options

Time-Based Options

The compensation cost charged to expense during the three and nine months ended July 1, 2011 for Time-Based Options was approximately $2.7 million and $8.6 million, respectively. The compensation cost charged to expense during the three and nine months ended July 2, 2010 for Time-Based Options was approximately $3.6 million and $10.4 million, respectively. As of July 1, 2011, there was approximately $19.5 million of unrecognized compensation expense related to nonvested Time-Based Options, which is expected to be recognized over a weighted-average period of approximately 3.00 years.

A summary of Time-Based Options activity is presented below:

Options	Shares (000s)			Weighted- Average Exercise Price
Outstanding at October 1, 2010		16,206		$	8.06
Granted		2,007		$	12.64
Exercised		(694	)	$	6.82
Forfeited and expired		(588	)	$	9.36
Outstanding at July 1, 2011		16,931		$	8.61

The weighted-average exercise price of share-based awards granted prior to April 18, 2011 were adjusted due to the $3.50 per share dividend paid to the Parent Company shareholders (see Note 17).

Performance-Based Options

On June 21, 2011, the Parent Company Board approved new annual and cumulative EBIT targets for fiscal 2011 and beyond. Approximately 3.7 million options were affected by these modifications. The fair values of these Performance-Based Options were revalued at the award modification date in accordance with authoritative accounting guidance. The fair value of the Performance-Based Options modified during the nine months ended July 1, 2011 was estimated using the Black-Scholes option pricing model and the following weighted-average assumptions noted in the table below:

	Nine Months Ended July 1, 2011
Expected volatility	30%
Expected dividend yield	0%
Expected life (in years)	3.5-6.8
Risk-free interest rate	0.69% - 2.27%

The weighted-average fair value of the Performance-Based Options modified during the nine months ended July 1, 2011 was $4.66 per option.

On June 21, 2011, the Parent Company Board also agreed that for awards granted on or after June 21, 2011, annual and cumulative EBIT targets for future fiscal years beginning after fiscal 2011 will be set within 90 days of the beginning of each fiscal year. The Amended Stock Incentive Plan also provides that if an annual EBIT target is established for fiscal 2012 or later years for options granted after June 21, 2011 that is less than the annual EBIT target for such fiscal year for outstanding stock options, the EBIT target for such outstanding options will be reduced to the lower EBIT target. There are approximately 1.2 million options where the grant date for the awards has not been established under applicable accounting guidance as the annual and cumulative EBIT targets have not been set. Accordingly, no share-based compensation expense has been recorded to date for these options.

During the three and nine months ended July 1, 2011, approximately $1.5 million was charged to expense for Performance-Based Options in both periods. The Company recognized a credit to expense of approximately ($3.4) million during the three months ended July 2, 2010 and a charge to expense of $6.4 million for the nine months ended July 2, 2010 for Performance-Based Options. During the third quarter of fiscal 2010, the Company reversed approximately $3.6 million of compensation expense related to expense previously recognized for the Performance-Based Options tied to fiscal 2010 through fiscal 2012. As of July 1, 2011, there was approximately $11.1 million of unrecognized compensation expense related to nonvested Performance-Based Options, which is expected to be recognized over a weighted-average period of approximately 1.14 years.

A summary of Performance-Based Options activity is presented below:

Options	Shares (000s)			Weighted- Average Exercise Price
Outstanding at October 1, 2010		16,208		$	8.06
Granted		2,007		$	12.64
Exercised		(440	)	$	6.71
Forfeited and expired		(1,246	)	$	8.00
Outstanding at July 1, 2011		16,529		$	8.65

The weighted-average exercise price of share-based awards granted prior to April 18, 2011 were adjusted due to the $3.50 per share dividend paid to the Parent Company shareholders (see Note 17).

Installment Stock Purchase Opportunities

Installment Stock Purchase Opportunities ("ISPOs") provide the grantee the option to purchase shares of the Parent Company's common stock. ISPO awards are divided into five equal installments. The first installment, which represents 20% of the total award, vests immediately upon grant and will be exercisable until the first anniversary of the grant date. At least 25% of the first installment must be exercised or the entire grant (including the remaining four installments) will expire and any part of the first installment that is not exercised during the exercise period will also expire, in each case on the first anniversary of the grant date. If the exercise conditions of the first installment are met, the remaining four installments will vest on December 15th of the first calendar year following the year in which the ISPO is granted, and on each of the three anniversaries of such date, respectively, and will be exercisable for 30 days thereafter. Any of these remaining four installments that becomes vested but is not exercised during its respective exercise period will expire at the end of its exercise period, but the holder may still exercise any subsequent installments when they vest in future years. During the third quarter of fiscal 2011, the Company granted 920,000 ISPOs at an exercise price of $12.69.

The fair value of the ISPOs granted during the nine months ended July 1, 2011 was estimated using the Black-Scholes option pricing model and the following weighted-average assumptions noted in the table below:

	Nine  Months Ended July 1, 2011
Expected volatility	30%
Expected dividend yield	0%
Expected life (in years)	2.5
Risk-free interest rate	0.68%

The Company recorded approximately $0.7 million of compensation expense related to these awards during the three and nine months ended July 1, 2011. As of July 1, 2011, there was approximately $1.3 million of unrecognized compensation expense related to nonvested ISPOs, which is expected to be recognized over a weighted-average period of approximately 4.44 years.

Deferred Stock Units

The Company granted 71,594 deferred stock units during the nine months ended July 1, 2011. The compensation cost charged to expense during the three and nine months ended July 1, 2011 for deferred stock units was approximately $0.5 million and $1.0 million, respectively. The Company granted 32,015 deferred stock units during the nine months ended July 2, 2010. The compensation cost charged to expense during the three and nine months ended July 2, 2010 for deferred stock units was approximately $0.1 million and $0.5 million, respectively.