18. 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, a non-employee director plan and the Employees’ Stock Purchase Plan.

Stock Incentive Plans

In November 2013, Sysco’s Long-term Incentive Plan (2013 Plan) was adopted and reserved up to 55,600,000 shares of Sysco common stock for share-based awards to employees, non-employee directors and key advisors. Of the 55,600,000 authorized shares, 45,000,000 were new shares approved with the 2013 Plan and 10,600,000 were from remaining shares authorized and available for grant under the amended 2007 Stock Incentive Plan as of the date of the approval of the 2013 Plan. No further grants will be made from the 2007 Plan. Of the 55,600,000 authorized shares, the full 55,600,000 shares may be issued as options or stock appreciation rights and up to 17,500,000 shares may be issued as restricted stock, restricted stock units or other types of stock-based awards. To date, Sysco has issued options 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 ten years. As of June 28, 2014, there were 49,207,002 remaining shares authorized and available for grant in total under the 2013 Plan, of which the full 49,207,002 shares may be issued as options or stock appreciation rights, or as a combination of up to 16,272,900 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 June 28, 2014. No new options will be issued under any of the prior plans, as future grants to employees will be made through the 2013 Plan or subsequently adopted plans. Awards under these plans are subject to time-based vesting with vesting periods that vary by individual grant. The contractual life of all options granted under these plans is 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. Vesting requirements for awards under these plans vary by individual grant and include either time-based vesting or vesting based on performance criteria. As of June 28, 2014, there were a total of 415,412 remaining shares authorized and available for grant under the 2009 Non-Employee Directors Stock Plan.

Stock Options

Sysco’s option awards are subject to graded vesting over a service period. Sysco recognizes compensation cost on a straight-line basis over the requisite service period for the entire award.

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, 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.

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 for the year preceding the option grant. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The following weighted-average assumptions were used for each fiscal year presented:



	2014		2013		2012
Dividend yield	3.5	%	3.7	%	3.7	%
Expected volatility	20.4		20.7		23.4
Risk-free interest rate	2.1		0.7		1.0
Expected life	7.2 years		5.4 years		5.4 years

The following summary presents information regarding outstanding options as of June 28, 2014 and changes during the fiscal year then ended with regard to options under all stock incentive plans:



	Shares Under Option	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of June 29, 2013	31,556,789	$	29.07
Granted	5,575,645		33.31
Exercised	(7,754,053)		29.99
Forfeited	(1,096,146)		28.86
Expired	(812,324)		31.86
Outstanding as of June 28, 2014	27,469,911	$	29.59	4.74	$	226,830
Vested or expected to vest as of June 28, 2014	27,250,629	$	29.58	4.72	$	225,328
Exercisable as of June 28, 2014	9,604,094	$	28.51	2.72	$	89,660

The total number of employee options granted was 5,575,645, 6,212,716 and 7,015,952 in fiscal years 2014, 2013 and 2012, respectively. During fiscal 2014, 2,159,698 options were granted to 11 executive officers and 3,415,947 options were granted to approximately 167 other key employees. During fiscal 2013, 2,351,720 options were granted to 11 executive officers and 3,860,996 options were granted to approximately 152 other key employees. During fiscal 2012, 2,898,854 options were granted to 11 executive officers and 4,117,098 options were granted to approximately 180 other key employees.

The weighted average grant-date fair value of options granted in fiscal 2014, 2013 and 2012 was $4.64, $3.20 and $3.69, respectively. The total intrinsic value of options exercised during fiscal 2014, 2013 and 2012 was $19.1 million, $24.1 million and $8.3 million, respectively.

Restricted Stock Units

During fiscal 2014, 2013 and 2012, 1,322,709, 1,722,835 and 1,528,734 restricted stock units, respectively, were granted to employees, the majority of which will vest ratably over a three-year period. Some of these restricted stock units were granted with dividend equivalents. The fair value of each restricted stock unit award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For restricted stock unit awards granted without dividend equivalents, the fair value was reduced by the present value of expected dividends during the vesting period. The weighted average grant-date fair value per share of restricted stock units granted during fiscal 2014, 2013 and 2012 was $33.39, $29.75 and $27.35, respectively. The total fair value of restricted stock units vested during fiscal 2014, 2013 and 2012 was $39.4 million, $27.6 million and $11.8 million, respectively.

Non-Employee Director Awards

During fiscal 2014, 2013 and 2012, 43,119, 48,069 and 63,657 shares, respectively, of restricted awards were granted to non-employee directors that will vest over a one-year period. Non-employee directors may elect to receive these awards in restricted stock shares that will vest at the end of the award’s stated vesting period or as deferred units which convert into shares of Sysco common stock upon a date selected by the non-employee director that is subsequent to the award’s stated vesting date. The fair value of the restricted awards is based on the company’s stock price as of the date of grant. The weighted average grant-date fair value of the shares granted during fiscal 2014, 2013 and 2012 was $33.40, $29.96 and $27.65, respectively. The total fair value of restricted stock shares vested and deferred units distributed during fiscal 2014, 2013 and 2012 was $1.4 million, $1.9 million and $2.2 million, respectively. Restricted stock shares are valued on their vesting date. Vested deferred units are valued on their subsequent conversion and distribution date.

Non-employee directors may elect to receive up to 100% of their annual directors’ fees in Sysco common stock on either an annual or deferred basis. Sysco provides a matching grant of 50% of the number of shares received for the stock election subject to certain limitations. As a result of such elections, a total of 24,565, 26,702 and 31,397 shares with a weighted-average grant date fair value of $34.59, $30.38 and $28.46 per share were issued in fiscal 2014, 2013 and 2012, respectively, in the form of fully vested common stock or deferred units. The total fair value of common stock issued as a result of election shares and deferred units distributed during fiscal 2014, 2013 and 2012 was $0.8 million, $0.5 million and $0.5 million, respectively. Common stock shares are valued on their vesting date. Vested deferred units are valued on their subsequent conversion and distribution date.

As of June 28, 2014, there were 84,869 fully vested deferred units outstanding that will convert into shares of Sysco common stock upon dates selected by the respective non-employee directors.

Summary of Nonvested Awards

The following summary presents information regarding outstanding nonvested awards as of June 28, 2014 and changes during the fiscal year then ended with regard to these awards under all stock incentive plans. Award types represented include: restricted stock units granted to employees and restricted awards granted to non-employee directors.



	Shares	Weighted Average Grant Date Fair Value Per Share
Nonvested as of June 29, 2013	2,933,807	$	28.90
Granted	1,365,986		33.39
Vested	(1,202,913)		28.67
Forfeited	(178,475)		29.50
Nonvested as of June 29, 2013	2,918,405	$	31.06

Employees’ Stock Purchase Plan

Sysco has an Employees’ Stock Purchase Plan that permits employees to invest in Sysco common stock by means of periodic payroll deductions at a discount of 15% from the closing price on the last business day of each calendar quarter. The total number of shares which may be sold pursuant to the plan may not exceed 79,000,000 shares, of which 2,454,932 remained available as of June 28, 2014.

During fiscal 2014, 1,315,535 shares of Sysco common stock were purchased by the participants, as compared to 1,470,271 shares purchased in fiscal 2013 and 1,661,758 shares purchased in fiscal 2012. The weighted average fair value of employee stock purchase rights issued pursuant to the Employees’ Stock Purchase Plan was $5.17, $4.78 and $4.33 per share during fiscal 2014, 2013 and 2012, respectively. The fair value of the stock purchase rights was calculated as the difference between the stock price at date of issuance and the employee purchase price.

All Share-Based Payment Arrangements

The total share-based compensation cost that has been recognized in results of operations was $74.3 million, $70.1 million and $70.3 million for fiscal 2014, 2013 and 2012, respectively, and is included within operating expenses in the consolidated results of operations. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $28.1 million, $29.9 million and $21.7 million for fiscal 2014, 2013 and 2012, respectively.

As of June 28, 2014, there was $64.9 million of total unrecognized compensation cost related to share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 2.39 years.

Cash received from option exercises and purchases of shares under the Employees’ Stock Purchase Plan was $255.6 million, $628.7 million and $99.4 million during fiscal 2014, 2013 and 2012, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $16.6 million, $24.0 million and $3.0 million during fiscal 2014, 2013 and 2012, respectively.