Tyson Foods 2012 Annual Report Download - page 62

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NOTE 13: STOCK-BASED COMPENSATION
We issue shares under our stock-based compensation plans by issuing Class A stock from treasury. The total number of shares
available for future grant under the Tyson Foods, Inc. 2000 Stock Incentive Plan (Incentive Plan) was 10,795,188 at September 29,
2012.
Stock Options
Shareholders approved the Incentive Plan in January 2001. The Incentive Plan is administered by the Compensation Committee of the
Board of Directors (Compensation Committee). The Incentive Plan includes provisions for granting incentive stock options for shares
of Class A stock at a price not less than the fair value at the date of grant. Nonqualified stock options may be granted at a price equal
to, less than or more than the fair value of Class A stock on the date the option is granted. Stock options under the Incentive Plan
generally become exercisable ratably over three years from the date of grant and must be exercised within 10 years from the date of
grant. Our policy is to recognize compensation expense on a straight-line basis over the requisite service period for the entire award.
Shares Under
Option
Weighted
Average Exercise
Price Per Share
Weighted Average
Remaining
Contractual Life
(in Years)
Aggregate
Intrinsic Value
(in millions)
Outstanding, October 1, 2011 18,255,221 $ 13.46
Exercised (2,776,130) 12.66
Canceled (365,971) 15.25
Granted 3,954,240 19.63
Outstanding, September 29, 2012 19,067,360 14.82 6.0 $ 38
Exercisable, September 29, 2012 10,540,898 $ 14.00 4.4 $ 22
We generally grant stock options once a year; however, we granted stock options twice during fiscal 2010. The weighted average
grant-date fair value of options granted in fiscal 2012, 2011 and 2010 was $6.99, $6.19 and $4.76, respectively. The fair value of each
option grant is established on the date of grant using a binomial lattice method. We use historical volatility for a period of time
comparable to the expected life of the option to determine volatility assumptions. Expected life is calculated based on the contractual
term of each grant and takes into account the historical exercise and termination behavior of participants. Risk-free interest rates are
based on the five-year Treasury bond rate. Assumptions as of the grant date used in the fair value calculation of each year’s grants are
outlined in the following table.
2012 2011 2010
Expected life (in years) 6.7 6.7 6.5
Risk-free interest rate 0.9% 1.5% 1.2%
Expected volatility 36.6% 38.8% 40.4%
Expected dividend yield 1.0% 1.0% 1.3%
We recognized stock-based compensation expense related to stock options, net of income taxes, of $15 million, $12 million and $11
million for fiscal 2012, 2011 and 2010, respectively. The related tax benefit for fiscal 2012, 2011 and 2010 was $10 million, $7 million
and $7 million, respectively. We had 3.4 million, 3.8 million and 2.2 million options vest in fiscal 2012, 2011 and 2010, respectively,
with a grant date fair value of $17 million, $16 million and $13 million, respectively.
In fiscal 2012, 2011 and 2010, we received cash of $34 million, $51 million and $31 million, respectively, for the exercise of stock
options. Shares are issued from treasury for stock option exercises. The related tax benefit realized from stock options exercised
during fiscal 2012, 2011 and 2010, was $7 million, $10 million and $5 million, respectively. The total intrinsic value of options
exercised in fiscal 2012, 2011 and 2010, was $21 million, $26 million and $12 million, respectively. Cash flows resulting from tax
deductions in excess of the compensation cost of those options (excess tax deductions) are classified as financing cash flows. We
realized $3 million, $5 million and $3 million in excess tax deductions during fiscal 2012, 2011 and 2010, respectively. As of
September 29, 2012, we had $27 million of total unrecognized compensation cost related to stock option plans that will be recognized
over a weighted average period of 1.1 years.