Kraft 2004 Annual Report Download - page 66

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Note 11. Stock Plans:
Under the 2001 Kraft Performance Incentive Plan (the ‘‘2001 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 2001 Plan. In addition, the Company may grant up to 500,000 shares of Class A common stock to
members of the Board of Directors who are not full-time employees of the Company or Altria Group, Inc.,
or their subsidiaries, under the Kraft Directors Plan (the ‘‘2001 Directors Plan’’). Shares available to be
granted under the 2001 Plan and the 2001 Directors Plan at December 31, 2004, were 46,707,241 and
458,633, respectively.
The Company applies the intrinsic value-based methodology in accounting for the various stock
plans. Accordingly, no compensation expense has been recognized other than for restricted stock
awards. In December 2004, the FASB issued SFAS No. 123R, which requires companies to measure
compensation cost for share-based payments at fair value. The Company will adopt this new standard
prospectively on July 1, 2005.
Stock option activity was as follows for the years ended December 31, 2002, 2003 and 2004:
Weighted
Shares Subject Average Options
to Option Exercise Price Exercisable
Balance at January 1, 2002 ..................... 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
Options exercised .......................... (346,868) 31.00
Options canceled ........................... (663,027) 31.00
Balance at December 31, 2003 ................... 18,281,777 31.00 17,032,740
Options exercised .......................... (1,405,312) 31.00
Options canceled ........................... (687,601) 31.00
Balance at December 31, 2004 ................... 16,188,864 31.00 15,190,716
The following table summarizes the status of the Company’s stock options outstanding and
exercisable as of December 31, 2004:
Options Outstanding Options Exercisable
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
$30.54—$39.51 .................. 16,188,864 6 years $31.00 15,190,716 $31.00
Prior to the IPO, certain employees of the Company participated in Altria Group, Inc.’s stock
compensation plans. Altria Group, Inc. does not 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.
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