Kraft 2002 Annual Report Download - page 59

The Company’s employees held options to purchase the
following number of shares of Altria Group, Inc. stock: 46,615,162
shares at an average exercise price of $35.78 per share at
December 31, 2002; 57,349,595 shares at an average exercise price
of $34.66 per share at December 31, 2001; and 56,977,329 shares
at an average exercise price of $30.46 per share at December 31,
2000. Of these amounts, the following were exercisable at each
date: 46,231,629 at an average exercise price of $35.69 per share
at December 31, 2002; 44,930,609 at an average exercise price of
$31.95 per share at December 31, 2001; and 38,444,963 at an
average exercise price of $34.82 per share at December 31, 2000.
Had compensation cost for stock option awards under the Kraft
plans and Altria Group, Inc. plans been determined by using the
fair value at the grant date, the Company’s net earnings and EPS
(basic and diluted) would have been $3,316 million and $1.91 for
the year ended December 31, 2002, respectively; $1,785 million
and $1.11 for the year ended December 31, 2001, respectively; and
$1,947 million and $1.34 for the year ended December 31, 2000,
respectively. The foregoing impact of compensation cost was
determined using a modified Black-Scholes methodology and the
following assumptions:
Weighted
Risk-Free Average Expected Fair Value
Interest Expected Expected Dividend at Grant
Rate Life Volatility Yield Date
2002 Kraft 4.27% 5 years 28.72% 1.41% $10.65
2002 Altria Group, Inc. 3.44 5 33.57 4.96 10.02
2001 Kraft 4.81 5 29.70 1.68 9.13
2001 Altria Group, Inc. 4.86 5 33.88 4.78 10.36
2000 Altria Group, Inc. 6.58 5 31.71 9.00 3.19
In addition, certain of the Company’s employees held shares of
Altria Group, Inc. restricted stock and rights to receive shares of
stock, giving these employees in most instances all of the rights
of shareholders, except that they may not sell, assign, pledge or
otherwise encumber such shares and rights. These shares and
rights are subject to forfeiture if certain employment conditions
are not met. During 2001 and 2000, Altria Group, Inc. granted to
certain of the Company’s U.S. employees restricted stock of
279,120 shares and 2,113,570 shares, respectively. Altria Group,
Inc. also issued to certain of the Company’s non-U.S. employees
rights to receive 31,310 and 683,790 equivalent shares during
2001 and 2000, respectively. At December 31, 2002, restrictions
on the stock, net of forfeitures, lapse as follows: 2003—84,000
shares. The fair value of the restricted shares and rights at the
date of grant is amortized to expense ratably over the restriction
period through a charge from Altria Group, Inc. In 2002, 2001 and
2000, the Company recorded compensation expense related to
restricted stock awards of $4 million, $39 million and $23 million,
respectively.
Note 11. Earnings Per Share:
Basic and diluted EPS were calculated using the following for the
years ended December 31, 2002, 2001 and 2000:
(in millions)
2002 2001 2000
Net earnings $3,394 $1,882 $2,001
Weighted average shares for
basic EPS 1,734 1,610 1,455
Plus: Incremental shares from
assumed conversions of
stock options 2
Weighted average shares for
diluted EPS 1,736 1,610 1,455
During June 2001, the Company completed an IPO of
280,000,000 shares of its Class A common stock. Immediately
following the IPO, the Company had 1,735,000,000 Class A and B
common shares outstanding.
Note 12. Pre-tax Earnings and Provision for Income Taxes:
Pre-tax earnings and provision for income taxes consisted of the
following for the years ended December 31, 2002, 2001 and 2000:
(in millions)
2002 2001 2000
Pre-tax earnings:
United States $3,692 $2,282 $2,188
Outside United States 1,575 1,165 1,227
Total pre-tax earnings $5,267 $3,447 $3,415
Provision for income taxes:
United States federal:
Current $ 825 $ 594 $ 572
Deferred 265 299 218
1,090 893 790
State and local 138 112 120
Total United States 1,228 1,005 910
Outside United States:
Current 628 445 477
Deferred 13 115 27
Total outside United States 641 560 504
Total provision for income taxes $1,869 $1,565 $1,414
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