Pizza Hut 2001 Annual Report Download - page 59

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The EID Plan allows participants to defer receipt of a por-
tion of their annual salary and all or a portion of their incentive
compensation. As defined by the EID Plan, we credit the
amounts deferred with earnings based on the investment
options selected by the participants. The EID Plan includes an
investment option that allows participants to defer incentive
compensation to purchase phantom shares of our Common
Stock at a 25% discount from the average market price at the
date of deferral (the “Discount Stock Account”). Participants
bear the risk of forfeiture of both the discount and any amounts
deferred if they voluntarily separate from employment during
the two year vesting period. We expense the intrinsic value of
the discount over the vesting period.
We phased in certain program changes to the EID Plan dur-
ing 1999 and 2000. These changes included limiting investment
options, primarily to cash and phantom shares of our Common
Stock, and requiring the distribution of investments in the
TRICON Common Stock investment options to be paid in shares
of our Common Stock. Due to these changes, in 1998 we
agreed to credit a one time premium to participant accounts on
January 1, 2000. The premium totaled approximately $3 million
and was equal to 10% of the participants’ account balances as
of December 31, 1999, excluding (a) investments in the Discount
Stock Account and (b) deferrals made in 1999.
Subsequent to January 1, 1999, we no longer recognize as
compensation expense the appreciation or depreciation, if any,
attributable to investments in the Discount Stock Account since
these investments can only be settled in shares of our Common
Stock. We also reduced our liabilities by $21 million related to
investments in the Discount Stock Account and increased the
Common Stock Account by the same amount at January 1, 1999.
Subsequent to January 1, 2000, we no longer recognize as
compensation expense the appreciation or depreciation, if any,
attributable to investments in the phantom shares of our
Common Stock, since these investments can only be settled in
shares of our Common Stock. For 1999, we recorded a benefit
of $3 million related to depreciation of investments in phantom
shares of our Common Stock impacted by the January 2000
plan amendment. We also reduced our liabilities by $12 million
related to investments in the phantom shares of our Common
Stock and increased the Common Stock Account by the same
amount at January 1, 2000.
Our cash obligations under the EID Plan as of the end of
2001 and 2000 were $24 million and $27 million, respectively.
We recognized compensation expense of $4 million in 2001 and
$6 million in both 2000 and 1999 for the EID Plan.
We sponsor a contributory plan to provide retirement ben-
efits under the provisions of Section 401(k) of the Internal
Revenue Code (the “401(k) Plan”) for eligible full-time U.S.
salaried and certain hourly employees. Participants may elect to
contribute up to 15% of eligible compensation on a pre-tax
basis. Effective October 1, 2001 the 401(k) Plan was amended
such that the Company matches 100% of the participant’s con-
tribution up to 3% of eligible compensation and 50% of the
participant’s contribution on the next 2% of eligible compen-
sation. Prior to this amendment, we made a discretionary
matching contribution equal to a predetermined percentage of
each participant’s contribution to the TRICON Common Stock
Fund. We determined our percentage match at the beginning
of each year based on the immediate prior year performance of
our Concepts. All matching contributions are made to the
TRICON Common Stock Fund. We recognized as compensation
expense our total matching contribution of $5 million in 2001
and $4 million in both 2000 and 1999.
SHAREHOLDERS’ RIGHTS PLAN
In July 1998, our Board of Directors declared a dividend distri-
bution of one right for each share of Common Stock
outstanding as of August 3, 1998 (the “Record Date”). Each
right initially entitles the registered holder to purchase a unit
consisting of one one-thousandth of a share (a “Unit”) of Series
A Junior Participating Preferred Stock, without par value, at a
purchase price of $130 per Unit, subject to adjustment. The
rights, which do not have voting rights, will become exercisable
for our Common Stock ten business days following a public
announcement that a person or group has acquired, or has
commenced or intends to commence a tender offer for, 15%
or more, or 20% or more if such person or group owned 10%
or more on the adoption date of this plan, of our Common
Stock. In the event the rights become exercisable for Common
Stock, each right will entitle its holder (other than the Acquiring
Person as defined in the Agreement) to purchase, at the right’s
then-current exercise price, TRICON Common Stock having a
value of twice the exercise price of the right. In the event the
rights become exercisable for Common Stock and thereafter we
are acquired in a merger or other business combination, each
right will entitle its holder to purchase, at the right’s then-current
exercise price, common stock of the acquiring company having
a value of twice the exercise price of the right.
We can redeem the rights in their entirety, prior to becom-
ing exercisable, at $0.01 per right under certain specified
conditions. The rights expire on July 21, 2008, unless we extend
that date or we have earlier redeemed or exchanged the rights
as provided in the Agreement.
This description of the rights is qualified in its entirety by
reference to the Rights Agreement between TRICON and
BankBoston, N.A., as Rights Agent, dated as of July 21, 1998
(including the exhibits thereto).
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