Pizza Hut 2000 Annual Report Download - page 58

56 TRICON GLOBAL RESTAURANTS, INC. AND SUBSIDIARIES
The assumptions used to compute the information above are set forth below:
Postretirement
Pension Benefits Medical Benefits
2000 1999 1998 2000 1999 1998
Discount rate 8.0% 7.8% 6.8% 8.3% 7.6% 7.0%
Long-term rate of return on plan assets 10.0% 10.0% 10.0% –––
Rate of compensation increase 5.0% 5.5% 4.5% 5.0% 5.5% 4.5%
tive stock options, stock appreciation rights, restricted stock
and performance restricted stock units. We have issued only
stock options and performance restricted stock units under
the 1997 LTIP and have issued only stock options under
the 1999 LTIP.
We may grant options to purchase up to 7.5 million shares
of stock under YUMBUCKS at a price equal to or greater than
the average market price of the stock on the date of grant.
YUMBUCKS options granted have a four year vesting period
and expire ten years after grant. We do not anticipate that
any further SharePower grants will be made although options
previously granted could be outstanding through 2006.
At the Spin-off Date, we converted certain of the unvested
options to purchase PepsiCo stock that were held by our
employees to TRICON stock options under either the 1997
LTIP or SharePower. We converted the options at amounts
and exercise prices that maintained the amount of unrealized
stock appreciation that existed immediately prior to the Spin-
off. The vesting dates and exercise periods of the options
were not affected by the conversion. Based on their original
PepsiCo grant date, our converted options vest in periods
ranging from one to ten years and expire ten to fifteen years
after grant.
The following table reflects pro forma net income and
earnings per common share had we elected to adopt the fair
value approach of SFAS 123.
2000 1999 1998
Net Income
As reported $«413 $«627 $«445
Pro forma 379 597 425
Basic Earnings per Common Share
As reported $2.81 $4.09 $2.92
Pro forma 2.58 3.90 2.79
Diluted Earnings per Common Share
As reported $2.77 $3.92 $2.84
Pro forma 2.55 3.73 2.72
The effects of applying SFAS 123 in the pro forma dis-
closures are not likely to be representative of the effects on
pro forma net income for future years because variables such
as the number of option grants, exercises and stock price
volatility included in these disclosures may not be indicative
of future activity.
We have assumed the annual increase in cost of postretire-
ment medical benefits was 8.0% in 2000 and will be 7.5%
in 2001. We are assuming the rate will decrease to an ultimate
rate of 5.5% by 2007 and remain at that level thereafter.
There is a cap on our medical liability for certain retirees, which
is expected to be reached between the years 2001-2004; at
that point our cost for a retiree will not increase.
Assumed health care cost trend rates have a significant
effect on the amounts reported for our postretirement health
care plans. A one percent increase in the assumed
healthcare cost trend rates would have increased our
accumulated postretirement benefit
obligation at December 30, 2000
by $2.7 million. The impact
on our 2000 benefit expense
would not have been significant.
Note 15 Employee Stock-Based
Compensation
At year-end 2000, we had four stock
option plans in effect: the TRICON
Global Restaurants, Inc. Long-Term
Incentive Plan (“1999 LTIP”), the
1997 Long-Term Incentive Plan (“1997
LTIP”), the TRICON Global Restau-
rants, Inc. Restaurant General Manager
Stock Option Plan (“YUMBUCKS”) and
the TRICON Global Restaurants, Inc.
SharePower Plan (“SharePower”).
We may grant options to purchase up to 7.6 million and
22.5 million shares of stock under the 1999 LTIP and 1997
LTIP, respectively, at a price equal to or greater than the average
market price of the stock on the date of grant. New option
grants can have varying vesting provisions and exercise periods.
Previously granted options vest in periods ranging from
immediate to 2006 and expire ten to fifteen years after grant.
Potential awards to employees and non-employee directors
under the 1999 LTIP include stock options, incentive stock
options, stock appreciation rights, restricted stock, stock units,
restricted stock units, performance shares and performance
units. Potential awards to employees and non-employee
directors under the 1997 LTIP include stock options, incen-