Kentucky Fried Chicken 2005 Annual Report Download - page 69

A฀summary฀of฀option฀activity฀as฀of฀December฀31,฀2005,฀
and฀changes฀during฀the฀year฀then฀ended฀is฀presented฀below.
฀ ฀ ฀ Weighted-฀฀
฀ ฀ Weighted-฀฀ Average฀ Aggregate฀
฀ ฀ Average฀ Remaining฀ Intrinsic฀
฀ ฀ Exercise฀ Contractual฀ Value฀(in฀฀
฀ Shares฀ Price฀ Term฀ ฀millions)
Outstanding฀at฀the฀฀
฀ beginning฀of฀the฀year฀ ฀37,108฀ $฀21.53
Granted฀ ฀ 4,516฀ ฀46.58
Exercised฀ ฀(8,442)฀ ฀17.46
Forfeited฀or฀expired฀ ฀(1,463)฀ ฀30.88
Outstanding฀at฀the฀end฀฀
฀ of฀the฀year฀ ฀31,719฀ $฀25.75฀ ฀ 5.81฀ $฀670
Exercisable฀at฀the฀end฀฀
฀ of฀the฀year฀ ฀18,960฀ $฀19.79฀ ฀ 4.56฀ $฀514
The฀ weighted-average฀ grant-date฀ fair฀ value฀ of฀ options฀
granted฀ during฀ 2005,฀ 2004,฀ and฀ 2003฀ were฀ $17.78,฀
$15.11,฀and฀$9.43,฀respectively.฀The฀total฀intrinsic฀value฀
of฀options฀exercised฀during฀the฀years฀ended฀December฀31,฀
2005,฀December฀25,฀2004,฀and฀December฀27,฀2003,฀was฀
$271฀million,฀$282฀million฀and฀$90฀million,฀respectively.
As฀of฀December฀31,฀2005,฀there฀was฀$119฀million฀of฀
unrecognized฀compensation฀cost,฀which฀will฀be฀reduced฀by฀
any฀forfeitures฀that฀occur,฀related฀to฀unvested฀stock฀options฀
that฀is฀expected฀to฀be฀recognized฀over฀a฀weighted-average฀
period฀ of฀ 2.7฀ years.฀ The฀ total฀ fair฀ value฀ at฀ grant฀ date฀ of฀
stock฀options฀ vested฀ during฀ 2005,฀2004,฀ and฀ 2003฀ was฀
$57฀million,฀$103฀million,฀and฀$95฀million,฀respectively.
Cash฀received฀from฀options฀exercises฀for฀2005,฀2004฀
and฀2003,฀was฀$148฀million,฀$200฀million฀and฀$110฀million,฀
respectively.฀Tax฀benefits฀realized฀from฀tax฀deductions฀associ-
ated฀with฀options฀exercises฀for฀2005,฀2004฀and฀2003฀totaled฀
$94฀million,฀$102฀million฀and฀$26฀million,฀respectively.
The฀Company฀has฀a฀policy฀of฀repurchasing฀shares฀on฀the฀
open฀market฀to฀satisfy฀share฀option฀exercises฀and฀expects฀
to฀repurchase฀approximately฀8.0฀million฀shares฀during฀2006฀
based฀on฀estimates฀of฀option฀exercises฀for฀that฀period.
16.฀OTHER฀฀
COMPENSATION฀AND฀BENEFIT฀PROGRAMS
Executive฀Income฀Deferral฀Program฀(the฀“EID฀Plan”)฀ The฀
EID฀Plan฀ allows฀participants฀ to฀defer฀ receipt฀of฀a฀portion฀
of฀ their฀ annual฀ salary฀ and฀ all฀ or฀a฀ portion฀ of฀ their฀ incen-
tive฀compensation.฀ As฀defined฀by฀ the฀ EID฀Plan,฀ we฀credit฀
the฀amounts฀deferred฀ with฀earnings฀ based฀on฀the฀ invest-
ment฀ options฀ selected฀ by฀ the฀ participants.฀ In฀ 2004฀ and฀
2003,฀these฀investment฀options฀were฀limited฀to฀cash฀and฀
phantom฀shares฀of฀our฀Common฀Stock.฀In฀2005,฀we฀added฀
two฀new฀phantom฀investment฀options฀to฀the฀plan,฀a฀Stock฀
Index฀Fund฀and฀the฀Bond฀Index฀Fund.฀Additionally,฀the฀EID฀
Plan฀allows฀ participants฀ to฀defer฀incentive฀ compensation฀
to฀ purchase฀ phantom฀ shares฀ of฀ our฀ Common฀ Stock฀ at฀ a฀
25%฀discount฀from฀the฀average฀market฀price฀at฀the฀date฀of฀
deferral฀ (the฀“Discount฀ Stock฀Account”).฀Deferrals฀to฀ the฀
Discount฀Stock฀Account฀are฀similar฀to฀a฀restricted฀stock฀unit฀
award฀in฀that฀participants฀will฀forfeit฀both฀the฀discount฀and฀
incentive฀compensation฀amounts฀deferred฀to฀the฀Discount฀
Stock฀Account฀if฀they฀voluntarily฀separate฀from฀employment฀
during฀the฀two฀year฀vesting฀period.฀We฀expense฀the฀intrinsic฀
value฀of฀the฀discount฀over฀the฀vesting฀period.฀Investments฀
in฀cash,฀the฀Stock฀Index฀fund฀and฀the฀Bond฀Index฀fund฀will฀
be฀distributed฀in฀cash฀at฀a฀date฀as฀elected฀by฀the฀employee฀
and฀therefore฀are฀classified฀as฀a฀liability฀on฀our฀Consolidated฀
Balance฀Sheets.฀We฀recognize฀compensation฀expense฀for฀
the฀appreciation฀or฀depreciation฀of฀these฀investments.฀As฀
investments฀in฀the฀phantom฀shares฀of฀our฀Common฀Stock฀
can฀only฀be฀settled฀in฀shares฀of฀our฀Common฀Stock,฀we฀do฀
not฀recognize฀compensation฀expense฀for฀the฀appreciation฀or฀
the฀depreciation,฀if฀any,฀of฀these฀investments.฀Deferrals฀into฀
the฀phantom฀shares฀of฀our฀Common฀Stock฀are฀credited฀to฀
the฀Common฀Stock฀Account.
As฀of฀December฀31,฀2005฀total฀deferrals฀to฀phantom฀
shares฀ of฀ our฀Common฀Stock฀ within฀ the฀ EID฀ Plan฀ totaled฀
approximately฀3.3฀million฀shares.฀We฀recognized฀compensa-
tion฀expense฀of฀$4฀million฀in฀2005฀and฀2004฀and฀$3฀million฀
in฀2003฀for฀the฀EID฀Plan.
Restricted฀Stock฀ In฀November฀1997,฀we฀granted฀perfor-
mance฀restricted฀stock฀units฀of฀YUM’s฀Common฀Stock฀in฀
the฀ amount฀of฀ $3.6฀million฀ to฀our฀Chief฀ Executive฀ Officer฀
(“CEO”).฀ The฀ award฀ was฀ made฀ under฀ the฀ 1997฀ LTIP฀ and฀
was฀to฀be฀paid฀in฀Common฀Stock฀or฀cash฀at฀the฀discretion฀
of฀the฀Compensation฀Committee฀of฀the฀Board฀of฀Directors.฀
Payment฀of฀the฀award฀was฀made฀in฀cash฀on฀February฀6,฀2006฀
on฀attainment฀of฀certain฀pre-established฀earnings฀thresh-
olds.฀The฀annual฀expense฀related฀to฀this฀award฀included฀in฀
earnings฀was฀$0.4฀million฀for฀2005,฀2004฀and฀2003.
Contributory฀ 401(k)฀ Plan฀ We฀ sponsor฀ a฀ contributory฀
plan฀to฀provide฀retirement฀benefits฀under฀the฀provisions฀of฀
Section฀401(k)฀of฀the฀Internal฀Revenue฀Code฀(the฀“401(k)฀
Plan”)฀ for฀ eligible฀ U.S.฀ salaried฀ and฀ hourly฀ employees.฀
Participants฀ are฀ able฀ to฀elect฀ to฀contribute฀ up฀ to฀25%฀ of฀
eligible฀compensation฀on฀a฀pre-tax฀basis.฀Participants฀may฀
allocate฀their฀contributions฀to฀one฀or฀any฀combination฀of฀10฀
investment฀options฀within฀the฀401(k)฀Plan.฀We฀match฀100%฀
of฀the฀participant’s฀contribution฀to฀the฀401(k)฀Plan฀up฀to฀3%฀
of฀eligible฀compensation฀and฀50%฀of฀the฀participant’s฀contri-
bution฀on฀the฀next฀2%฀of฀eligible฀compensation.฀All฀matching฀
contributions฀are฀made฀to฀the฀YUM฀Common฀Stock฀Fund.฀
We฀recognized฀as฀compensation฀expense฀our฀total฀matching฀
contribution฀of฀$12฀million฀in฀2005,฀$11฀million฀in฀2004฀and฀
$10฀million฀in฀2003.
17.฀SHAREHOLDERS’฀RIGHTS฀PLAN
In฀ July฀ 1998,฀ our฀ Board฀ of฀ Directors฀ declared฀ a฀ dividend฀
distribution฀of฀one฀right฀for฀each฀ share฀of฀Common฀Stock฀
outstanding฀as฀of฀August฀3,฀1998฀(the฀“Record฀Date”).฀As฀
a฀result฀of฀the฀two฀for฀one฀stock฀split฀distributed฀on฀June฀17,฀
2002,฀each฀holder฀of฀Common฀Stock฀is฀entitled฀to฀one฀right฀
Yum!฀Brands,฀Inc.฀ ฀ ฀ |฀ ฀ ฀ 73.