Kraft 2009 Annual Report Download - page 218

Stock Plans:
Stock Plans:
(USD $)
12 Months Ended
12/31/2009
Stock Plans:
Note 10. Stock Plans:
At our 2009 annual meeting, our shareholders approved the Kraft Foods Inc. Amended and Restated 2005 Performance Incentive
Plan (the "2005 Plan"). The 2005 Plan includes, among other provisions, a limit on the number of shares that may be granted under
the plan, vesting restrictions and a prohibition on stock option repricing. Under the 2005 Plan, we may grant to eligible employees
awards of stock options, stock appreciation rights, restricted stock, restricted and deferred stock units, and other awards based on
our Common Stock, as well as performance-based annual and long-term incentive awards. We are authorized to issue a maximum
of 168.0 million shares of our Common Stock under the 2005 Plan. As of the effective date of the amendment, there were
92.1 million shares available to be granted under the 2005 Plan, of which no more than 27.5 million shares may be awarded as
restricted or deferred stock. In addition, under the Kraft Foods 2006 Stock Compensation Plan for Non-Employee Directors (the
“2006 Directors Plan”), we may grant up to 500,000 shares of Common Stock to members of the Board of Directors who are not our
full-time employees. At December 31, 2009, there were 93,740,465 shares available to be granted under the 2005 Plan and 372,097
shares available to be granted under the 2006 Directors Plan. Restricted or deferred shares available for grant under the 2005 Plan
at December 31, 2009, were 27,984,072.
In 2008, we changed our annual and long-term incentive compensation programs to further align them with shareholder returns.
Under the annual equity program, we now grant equity in the form of both restricted or deferred stock and stock options. The
restricted or deferred stock continues to vest 100% after three years, and the stock options vest in three annual installments
beginning on the first anniversary of the grant date. Additionally, we changed our long-term incentive plan from a cash-based
program to a share-based program. These shares vest based on varying performance, market and service conditions.
All stock awards are issued to employees from treasury stock. We have no specific policy to repurchase Common Stock to mitigate
the dilutive impact of options; however, we have historically made adequate discretionary purchases, based on cash availability,
market trends and other factors, to satisfy stock option exercise activity.
Stock Options:
Stock options are granted at an exercise price equal to the market value of the underlying stock on the grant date, generally become
exercisable in three annual installments beginning on the first anniversary of the grant date and have a maximum term of ten years.
Prior to 2008, we had not granted stock options through a broad-based program since 2002.
We account for our employee stock options under the fair value method of accounting using a modified Black-Scholes methodology
to measure stock option expense at the date of grant. The fair value of the stock options at the date of grant is amortized to expense
over the vesting period. We recorded compensation expense related to stock options of $31 million in 2009 and $18 million in 2008.
The deferred tax benefit recorded related to this compensation expense was $11 million in 2009 and $6 million in 2008. The
unamortized compensation expense related to our stock options was $48 million at December 31, 2009 and is expected to be
recognized over a weighted-average period of two years. Our weighted-average Black-Scholes fair value assumptions were as
follows:
Risk-Free
Interest Rate Expected Life
Expected
Volatility
Expected
Dividend Yield
Fair Value
at Grant Date
2009
2.46% 6 years 21.36% 4.90% $ 2.68
2008 3.08% 6 years 21.04% 3.66% $ 4.49
The risk-free interest rate represents the rate on zero-coupon U.S. government issues with a remaining term equal to the expected
life of the options. The expected life is the period over which our employees are expected to hold their options. It is based on the
simplified method from the SEC’s safe harbor guidelines. Volatility reflects historical movements in our stock price for a period
commensurate with the expected life of the options. Dividend yield is estimated over the expected life of the options based on our
stated dividend policy.
Stock option activity for the year ended December 31, 2009 was:
Shares Subject
to Option
Weighted-
Average
Exercise Price
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Balance at January 1, 2009 38,485,559 $ 24.74
Options granted 16,310,380 23.64
Options exercised (5,891,471) 14.08
Options cancelled (2,176,771) 27.76
Balance at December 31, 2009 46,727,697 25.56 6 years $ 149 million
Exercisable at December 31, 2009 22,848,549 25.41 2 years $ 91 million
In February 2009, as part of our annual equity program, we granted 16.3 million stock options to eligible employees at an exercise
price of $23.64.
In February 2008, as part of our annual equity program, we granted 13.5 million stock options to eligible employees at an exercise
price of $29.49. We also granted 0.1 million off-cycle stock options during 2008 at an exercise price of $30.78.
Source: KRAFT FOODS INC, 10-K, February 25, 2010 Powered by Morningstar® Document Research℠