Kraft 2014 Annual Report Download - page 53

Note 8. Stock Plans
Under the Kraft Foods Group, Inc. 2012 Performance Incentive Plan (the "2012 Plan"), we may grant eligible employees awards of
stock options, stock appreciation rights, restricted stock, and restricted stock units (“RSUs”) as well as performance based long-
term incentive awards (“Performance Shares”). In addition, we may grant shares of our common stock to members of the Board of
Directors who are not our full-time employees under the 2012 Plan. We are authorized to issue a maximum of 72.0 million shares of
our common stock under the 2012 Plan. Stock options and stock appreciation rights granted under the plan reduce the authorized
shares available for issue at a ratio of one share per award granted. All other awards granted, such as restricted stock, RSUs, and
Performance Shares, reduce the authorized shares available for issue at a ratio of three shares per award granted. At
December 27, 2014, there were 32,293,456 shares available to be granted under the 2012 Plan. All stock awards are issued to
employees from authorized shares of common stock.
Stock Options:
Stock options are granted with 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 .
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 grant date. The grant date fair value is amortized to expense over the vesting period. We
recorded compensation expense related to stock options of $18 million in 2014, $18 million in 2013, and $5 million in 2012
subsequent to the Spin-Off. The deferred tax benefit recorded related to this compensation expense was $6 million in 2014, $6
million in 2013, and $2 million in 2012. The unamortized compensation expense related to our outstanding stock options was $15
million at December 27, 2014 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:
The risk-free interest rate represents the constant maturity U.S. government treasuries rate 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. Due to the
lack of historical data, we use the Safe Harbor method which uses the weighted average vesting period and the contractual term of
the options to calculate the expected life. Volatility reflects a blended approach which uses historical movements in our stock price
and in our peer group 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.
The stock option awards granted in 2012 were prior to the Spin-Off. Therefore, we estimated the value of those awards based on
MondelƝz International’s share price and assumptions.
A summary of stock option activity related to our shares for both our and MondelƝz International employees for the year ended
December 27, 2014 is presented below. Stock option activity for the year ended December 27, 2014 was:
48
Risk-Free
Interest Rate Expected Life
Expected
Volatility
Expected
Dividend Yield
Grant Date
Fair Value
Kraft Foods Group grants
2014 1.84 % 6 years 19.33% 3.57% $ 6.16
2013 1.04 % 6 years 19.40% 4.26% $ 4.41
MondelƝz International grants
2012 1.16 % 6 years 20.13% 3.08% $ 4.78
Options
Outstanding
Weighted
Average
Exercise Price
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Balance at December 28, 2013 16,320,655 $35.26
Options granted 2,601,423 55.26
Options exercised (3,610,773) 32.08
Options canceled (441,139 ) 44.39
Balance at December 27, 2014 14,870,166 39.26 7 years $367 million
Exercisable at December 27, 2014 9,666,165 34.02 6 years $ 289 million