Kraft 2004 Annual Report Download - page 67

The Company’s employees held options to purchase the following number of shares of Altria
Group, Inc. stock at 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
$21.34—$24.94 .................. 5,703,625 5 years $21.78 5,703,625 $21.78
33.58— 50.15 .................. 23,114,933 4 42.01 22,807,944 41.94
50.43— 60.69 .................. 668,591 4 54.34 521,451 53.92
29,487,149 38.38 29,033,020 38.19
At December 31, 2003 and 2002, the Company’s employees held options to purchase the following
number of shares of Altria Group, Inc. stock: 39,241,651 shares at an average exercise price of $37.25
per share at December 31, 2003; and 46,615,162 shares at an average exercise price of $35.78 per share
at December 31, 2002. Of these amounts, the following were exercisable at each date: 39,025,325 at an
average exercise price of $37.19 per share at December 31, 2003; and 46,231,629 at an average
exercise price of $35.69 per share at December 31, 2002.
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 basic and
diluted EPS would have been $2,658 million, $1.56 and $1.55, respectively, for the year ended
December 31, 2004; $3,464 million, $2.01 and $2.00, respectively, for the year ended December 31,
2003; and $3,316 million, $1.91 and $1.91, respectively, for the year ended December 31, 2002. The
foregoing impact of compensation cost was determined using a modified Black-Scholes methodology
and the following assumptions:
Weighted
Risk-Free Average Expected Expected Fair Value
Interest Rate Expected Life Volatility Dividend Yield at Grant Date
2004 Altria Group, Inc. ......... 2.99% 4 years 36.63% 5.39% $10.30
2003 Altria Group, Inc. ......... 2.68 4 37.61 6.04 8.76
2002 Kraft .................. 4.27 5 28.72 1.41 10.65
2002 Altria Group, Inc. ......... 3.44 5 33.57 4.96 10.02
The Company may grant shares of restricted stock and rights to receive shares of stock to eligible
employees, giving them in most instances all of the rights of stockholders, except that they may not sell,
assign, pledge or otherwise encumber such shares and rights. Such shares and rights are subject to
forfeiture if certain employment conditions are not met. During 2004 and 2003, the Company granted
approximately 4.1 million and 3.7 million restricted Class A shares, respectively, to eligible U.S.-based
employees, and during 2004 and 2003, also issued to eligible non-U.S. employees rights to receive
approximately 1.9 million and 1.6 million Class A equivalent shares, respectively. The market value per
restricted share or right was $32.23 and $36.56 on the dates of the 2004 and 2003 grants, respectively. At
December 31, 2004, restrictions on these shares and rights, net of forfeitures, lapse as follows:
2005—13,719 shares; 2006—4,520,120 shares; 2007—5,532,500 shares; 2009—150,000 shares; and
2012—100,000 shares.
The fair value of the shares of restricted stock and rights to receive shares of stock at the date of
grant is amortized to expense ratably over the restriction period. The Company recorded compensation
expense related to the restricted stock and rights of $106 million and $57 million for the years ended
December 31, 2004 and 2003, respectively. The unamortized portion, which is reported on the
66