Kraft 2002 Annual Report Download - page 58

54
kraft foods inc. notes to consolidated financial statements
Shares of Class A common stock issued, repurchased and
outstanding were as follows:
Shares Net Shares
Shares Issued Repurchased Outstanding
Balance at
January 1, 2002 555,000,000 — 555,000,000
Repurchase of
shares (4,383,150) (4,383,150)
Exercise of stock
options 2,000 2,000
Balance at
December 31, 2002 555,000,000 (4,381,150) 550,618,850
In addition, 1.18 billion Class B common shares were issued and
outstanding at December 31, 2002 and 2001. Altria Group, Inc.
holds 276.6 million Class A common shares and all of the Class B
common shares at December 31, 2002. There are no preferred
shares issued and outstanding. Class A common shares are
entitled to one vote each, while Class B common shares are
entitled to ten votes each. Therefore, Altria Group, Inc. holds
97.8% of the combined voting power of the Company’s
outstanding capital stock at December 31, 2002.
At December 31, 2002, 75,911,430 shares of common stock
were reserved for stock options and other stock awards.
Concurrent with the IPO, certain employees of Altria Group, Inc.
and its subsidiaries received a one-time grant of options to
purchase shares of the Company’s Class A common stock held
by Altria Group, Inc. at the IPO price of $31.00 per share. In order
to completely satisfy this obligation and maintain its current
percentage ownership of the Company, Altria Group, Inc.
purchased 1.6 million shares of the Company’s Class A common
stock in open market transactions during 2002.
Note 10. Stock Plans:
The Company’s Board of Directors adopted the 2001 Kraft
Performance Incentive Plan (the “Plan”), which was established
concurrently with the IPO. Under the Plan, the Company may
grant stock options, stock appreciation rights, restricted stock,
reload options and other awards based on the Company’s Class
A common stock, as well as performance-based annual and long-
term incentive awards. A maximum of 75 million shares of the
Company’s Class A common stock may be issued under the Plan.
The Company’s Board of Directors granted options for 21,029,777
shares of Class A common stock concurrent with the closing date
of the IPO (June 13, 2001) at an exercise price equal to the IPO
price of $31.00 per share. A portion of the shares granted
(18,904,637) becomes exercisable on January 31, 2003, and will
expire ten years from the date of the grant. The remainder of the
shares granted (2,125,140) may become exercisable on a schedule
based on total shareholder return for the Company’s Class A
common stock during the three years following the date of the
grant, or will become exercisable five years from the date of the
grant. These options will also expire ten years from the date of the
grant. Shares available to be granted under the Plan at December
31, 2002 were 56,135,543.
The Company’s Board of Directors has also adopted the Kraft
Director Plan. Under the Kraft Director Plan, awards are granted
only to members of the Board of Directors who are not full-time
employees of the Company or Altria Group, Inc., or their
subsidiaries. Up to 500,000 shares of Class A common stock may
be awarded under the Kraft Director Plan. During 2002 and 2001,
6,840 and 8,945 stock options were granted under the Kraft
Director Plan, respectively. Shares available to be granted under
the Kraft Director Plan at December 31, 2002 were 484,215.
The Company accounts for the plans in accordance with the
intrinsic value-based method permitted by SFAS No. 123,
“Accounting for Stock-Based Compensation,” which did not
result in compensation cost for stock options.
Option activity was as follows for the years ended December 31,
2001 and 2002:
Shares Subject Weighted Average Options
to Option Exercise Price Exercisable
Balance at
January 1, 2001 — $ ——
Options granted 21,038,722 31.00
Options canceled (268,420) 31.00
Balance at
December 31, 2001 20,770,302 31.00 —
Options granted 14,030 37.10
Options exercised (2,000) 31.00
Options canceled (1,490,660) 31.00
Balance at
December 31, 2002 19,291,672 31.00 696,615
The following table summarizes the status of the Company’s stock
options outstanding and exercisable as of December 31, 2002:
Options Outstanding Options Exercisable
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$30.54 – $39.51 19,291,672 8 years $31.00 696,615 $31.08
Prior to the IPO, certain employees of the Company participated
in Altria Group, Inc.’s stock compensation plans. Altria Group, Inc.
does not currently intend to issue additional Altria Group, Inc.
stock compensation to the Company’s employees, except for
reloads of previously issued options. Altria Group, Inc. accounts
for its plans in accordance with the intrinsic value-based method
permitted by SFAS No. 123, “Accounting for Stock-Based
Compensation,” which did not result in compensation cost for
stock options.