Pepsi 2011 Annual Report Download - page 68

fair value of PepsiCo stock on the date of grant and is amortized over
the vesting period, generally three years. Each RSU is settled in a
share of our stock after the vesting period.
Our weighted- average Black- Scholes fair value assumptions are
as follows:
2011 2010 2009
Expected life 6 yrs. 5 yrs. 6 yrs.
Risk- free interest rate 2.5% 2.3% 2.8%
Expected volatility 16% 17% 17%
Expected dividend yield 2.9% 2.8% 3.0%
The expected life is the period over which our employee groups
are expected to hold their options. It is based on our historical expe-
rience with similar grants. The risk- free interest rate is based on the
expected U.S. Treasury rate over the expected life. Volatility reects
movements in our stock price over the most recent historical period
equivalent to the expected life. Dividend yield is estimated over the
expected life based on our stated dividend policy and forecasts of
net income, share repurchases and stock price.
A summary of our stock- based compensation activity for the year
ended December31, 2011 is presented below:
Our Stock Option Activity
Options(a)
Average
Price(b)
Average
Life
(years)(c)
Aggregate
Intrinsic
Value(d)
Outstanding at
December25, 2010 106,203 $ 54.03
Granted 7,150 $ 64.31
Exercised (19,980) $ 47.74
Forfeited/expired (2,298) $ 65.73
Outstanding at
December31, 2011 91,075 $ 55.92 5.07 $ 932,748
Exercisable at
December31, 2011 58,708 $ 53.86 4.94 $ 725,781
(a) Options are in thousands and include options previously granted under PBG, PAS and
Quaker legacy plans. No additional options or shares may be granted under the PBG, PAS
and Quaker plans.
(b) Weighted- average exercise price.
(c) Weighted- average contractual life remaining.
(d) In thousands.
Our RSU Activity
RSUs(a)
Average
Intrinsic
Value(b)
Average
Life
(years)(c)
Aggregate
Intrinsic
Value(d)
Outstanding at
December25, 2010 10,662 $ 63.27
Granted 5,333 $ 63.87
Converted (2,610) $ 65.81
Forfeited/expired (1,045) $ 63.71
Outstanding at
December31, 2011 12,340 $ 62.96 1.57 $ 818,776
(a) RSUs are in thousands and include RSUs previously granted under a PBG plan. No
additional RSUs or shares may be granted under the PBG plan.
(b) Weighted- average intrinsic value at grant date.
(c) Weighted- average contractual life remaining.
(d) In thousands.
Other Stock- Based Compensation Data
2011 2010 2009
Stock Options
Weighted- average fair value of options
granted $ 7.79 $ 13.93 $ 7.02
Total intrinsic value of options
exercised(a) $ 385,678 $ 502,354 $ 194,545
RSUs
Total number of RSUs granted(a) 5,333 8,326 2,653
Weighted- average intrinsic value of
RSUs granted $ 63.87 $ 65.01 $ 53.22
Total intrinsic value of RSUs converted(a) $ 173,433 $ 202,717 $ 124,193
(a) In thousands.
As of December31, 2011, there was $436million of total unrec-
ognized compensation cost related to nonvested share- based
compensation grants. This unrecognized compensation is expected
to be recognized over a weighted- average period of two years.
Note 7
Pension, Retiree Medical and Savings Plans
Our pension plans cover certain full- time employees in the U.S. and
certain international employees. Benets are determined based on
either years of service or a combination of years of service and earn-
ings. Certain U.S. and Canada retirees are also eligible for medical
and life insurance benets (retiree medical) if they meet age and
service requirements. Generally, our share of retiree medical costs is
capped at specied dollar amounts, which vary based upon years of
service, with retirees contributing the remainder of the costs.
Gains and losses resulting from actual experience diering from
our assumptions, including the dierence between the actual return
on plan assets and the expected return on plan assets, and from
changes in our assumptions are determined at each measurement
date. If this net accumulated gain or loss exceeds 10% of the greater
of the market- related value of plan assets or plan liabilities, a por-
tionof the net gain or loss is included in expense for the following
year based upon the average remaining service period of active plan
participants, which is approximately 10 years for pension expense
and approximately 8 years for retiree medical expense. The cost or
benet of plan changes that increase or decrease benets for prior
employee service (prior service cost/(credit)) is included in earnings
on a straight- line basis over the average remaining service period of
active plan participants.
In connection with our acquisitions of PBG and PAS, we assumed
sponsorship of pension and retiree medical plans that provide
benets to certain U.S. and international employees. Subsequently,
during the third quarter of 2010, we merged the pension plan assets
of the legacy PBG and PAS U.S. pension plans with those of PepsiCo
into one master trust.
During 2010, the Compensation Committee of PepsiCo’s Board
of Directors approved certain changes to the U.S. pension and
retiree medical plans, eective January1, 2011. Pension plan design
changes included implementing a new employer contribution
PepsiCo, Inc.  Annual Report
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Notes to Consolidated Financial Statements