Kraft 2009 Annual Report Download - page 219

On May 3, 2007, our Board of Directors approved a stock option grant to our CEO to recognize her election as our Chairman. She
received 300,000 stock options, which vest under varying market and service conditions and expire ten years after the grant date.
The grant had an insignificant impact on earnings in 2007.
The total intrinsic value of options exercised was $72 million in 2009, $76 million in 2008 and $90 million in 2007. Cash received
from options exercised was $79 million in 2009, $80 million in 2008 and $124 million in 2007. The actual tax benefit realized for the
tax deductions from the option exercises totaled $52 million in 2009, $44 million in 2008 and $35 million in 2007.
Restricted and Deferred Stock:
We may grant shares of restricted or deferred stock to eligible employees, giving them in most instances all of the rights of
shareholders, except that they may not sell, assign, pledge or otherwise encumber the shares. Shares of restricted and deferred
stock are subject to forfeiture if certain employment conditions are not met. Restricted and deferred stock generally vest on the third
anniversary of the grant date.
Shares granted in connection with our long-term incentive plan vest based on varying performance, market and service conditions.
The unvested shares have no voting rights and do not pay dividends.
The fair value of the restricted and deferred shares at the date of grant is amortized to earnings over the restriction period. We
recorded compensation expense related to restricted and deferred stock of $133 million in 2009, $160 million in 2008 and
$136 million in 2007. The deferred tax benefit recorded related to this compensation expense was $44 million in 2009, $53 million in
2008 and $47 million in 2007. The unamortized compensation expense related to our restricted and deferred stock was $149 million
at December 31, 2009 and is expected to be recognized over a weighted-average period of two years.
Our restricted and deferred stock activity for the year ended December 31, 2009 was:
Number
of Shares
Weighted-Average
Grant Date Fair
Value Per Share
Balance at January 1, 2009
15,250,805 $ 31.46
Granted 5,778,201 24.68
Vested (6,071,661) 30.12
Forfeited (1,102,392) 30.57
Balance at December 31, 2009 13,854,953 29.30
In January 2009, we granted 1.5 million shares of stock in connection with our long-term incentive plan, and the market value per
share was $27.00 on the date of grant. In February 2009, as part of our annual equity program, we issued 4.1 million shares of
restricted and deferred stock to eligible employees, and the market value per restricted or deferred share was $23.64 on the date of
grant. We also issued 0.2 million off-cycle shares of restricted and deferred stock during 2009, and the weighted-average market
value per restricted or deferred share was $25.55 on the date of grant.
In January 2008, we granted 1.4 million shares of stock in connection with our long-term incentive plan, and the market value per
share was $32.26 on the date of grant. In February 2008, as part of our annual equity program, we issued 3.4 million shares of
restricted and deferred stock to eligible employees, and the market value per restricted or deferred share was $29.49 on the date of
grant. We also issued 0.2 million off-cycle shares of restricted and deferred stock during 2008, and the weighted-average market
value per restricted or deferred share was $30.38 on the date of grant. The total number of restricted and deferred shares issued in
2008 was 5.0 million.
In January 2007, we issued 5.2 million shares of restricted and deferred stock to eligible employees as part of our annual equity
program, and the market value per restricted or deferred share was $34.655 on the date of grant. Additionally, we issued 1.0 million
off-cycle shares of restricted and deferred stock during 2007, and the weighted-average market value per restricted or deferred
share was $34.085 on the date of grant. The total number of restricted and deferred shares issued in 2007 was 9.2 million, including
those issued as a result of our spin-off from Altria (discussed below).
The weighted-average grant date fair value of restricted and deferred stock granted was $143 million, or $24.68 per restricted or
deferred share, in 2009, $151 million, or $30.38 per restricted or deferred share, in 2008 and $310 million, or $33.63 per restricted or
deferred share, in 2007. The vesting date fair value of restricted and deferred stock was $153 million in 2009, $196 million in 2008,
and $153 million in 2007.
Bifurcation of Stock Awards Upon Spin-Off from Altria:
Effective on the date of our spin-off, Altria stock awards were modified through the issuance of Kraft Foods stock awards, and
accordingly, the Altria stock awards were split into two instruments. Holders of Altria stock options received: 1) a new Kraft Foods
option to acquire shares of Kraft Foods Common Stock; and 2) an adjusted Altria stock option for the same number of shares of
Altria common stock previously held, but with a proportionally reduced exercise price. For each employee stock option outstanding,
the aggregate intrinsic value immediately after our spin-off from Altria was not greater than the aggregate intrinsic value immediately
prior to it. Holders of Altria restricted stock or stock rights awarded before January 31, 2007 retained their existing awards and
received restricted stock or stock rights in Kraft Foods Common Stock. Recipients of Altria restricted stock or stock rights awarded
on or after January 31, 2007 did not receive Kraft Foods restricted stock or stock rights because Altria had announced the spin-off at
that time. We reimbursed Altria $179 million for net settlement of the employee stock awards. We determined the fair value of the
stock options using the Black-Scholes option valuation model, and adjusted the fair value of the restricted stock and stock rights by
the value of projected forfeitures.
Based upon the number of Altria stock awards outstanding upon our spin-off, we granted stock options for 24.2 million shares of
Kraft Foods Common Stock at a weighted-average price of $15.75. The options expire between 2007 and 2012. In addition, we
issued 3.0 million shares of restricted stock and stock rights. The market value per restricted share or right was $31.66 on the date
of grant. Restrictions on the majority of these restricted shares and stock rights lapsed in the first quarter of either 2008 or 2009.
Source: KRAFT FOODS INC, 10-K, February 25, 2010 Powered by Morningstar® Document Research℠