Pizza Hut 2002 Annual Report Download - page 68

The EID Plan allows participants to defer receipt of a portion
of their annual salary and all or a portion of their incentive com-
pensation. As defined by the EID Plan, we credit the amounts
deferred with earnings based on the investment options selected
by the participants. These investment options are limited to cash
and phantom shares of our Common Stock. The EID Plan allows
participants to defer incentive compensation to purchase phan-
tom 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 dis-
count and any amounts deferred to the Discount Stock Account if
they voluntarily separate from employment during the two year
vesting period. We expense the intrinsic value of the discount over
the vesting period. As investments in the phantom shares of our
Common Stock can only be settled in shares of our Common Stock,
we do not recognize compensation expense for the appreciation
or the depreciation, if any, of these investments. Deferrals into the
phantom shares of our Common Stock are credited to the
Common Stock Account.
Our cash obligations under the EID Plan as of the end of both
2002 and 2001 were $24 million. We recognized compensation
expense of $2 million in 2002, $4 million in 2001 and $6 million in
2000 for the EID Plan.
We sponsor a contributory plan to provide retirement bene-
fits under the provisions of Section 401(k) of the Internal Revenue
Code (the “401(k) Plan”) for eligible U.S. salaried and hourly employ-
ees. During 2002, participants were able to elect to contribute up
to 15% of eligible compensation on a pre-tax basis (the maximum
participant contribution increased from 15% to 25% effective
January 1, 2003). Participants may allocate their contributions to
one or any combination of 10 investment options within the 401(k)
Plan. Effective October 1, 2001, the 401(k) Plan was amended such
that the Company matches 100% of the participant’s contribution
up to 3% of eligible compensation and 50% of the participant’s
contribution on the next 2% of eligible compensation. Prior to this
amendment, we made a discretionary matching contribution
equal to a predetermined percentage of each participant’s contri-
bution to the YUM 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 YUM Common Stock Fund. We rec-
ognized as compensation expense our total matching contribution
of $8 million in 2002, $5 million in 2001 and $4 million in 2000.
SHAREHOLDERS’ RIGHTS PLAN
In July 1998, our Board of Directors declared a dividend distribu-
tion of one right for each share of Common Stock outstanding as
of August 3, 1998 (the “Record Date”). As a result of the two-for-one
stock split distributed on June 17, 2002, each holder of Common
Stock is entitled to one right for every two shares of Common Stock
(one-half right per share). 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, with-
out 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 fol-
lowing 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, YUM 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 exer-
cise 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 becoming
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 ref-
erence to the Rights Agreement between YUM and BankBoston,
N.A., as Rights Agent, dated as of July 21, 1998 (including the
exhibits thereto).
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