Pizza Hut 2004 Annual Report Download - page 67

Plan฀Assets฀ Our฀pension฀plan฀weighted-average฀asset฀allo-
cations฀ at฀ September฀ 30,฀by฀asset฀ category฀ are฀set฀ forth฀
below:
Asset฀Category฀2004฀ 2003
Equity฀securities฀ 70%฀ 65%
Debt฀securities฀ 28%฀ 30%
Cash฀฀ 2%฀ 5%
฀ Total฀ 100%฀ 100%
Our฀primary฀objectives฀regarding฀the฀pension฀assets฀are฀to฀
optimize฀return฀on฀assets฀subject฀to฀acceptable฀risk฀and฀to฀
maintain฀liquidity,฀meet฀minimum฀funding฀requirements฀and฀
minimize฀plan฀expenses.฀To฀achieve฀these฀objectives,฀we฀have฀
adopted฀a฀passive฀investment฀strategy฀in฀which฀the฀asset฀
performance฀is฀driven฀primarily฀by฀the฀investment฀allocation.฀
Our฀target฀investment฀allocation฀is฀70%฀equity฀securities฀and฀
30%฀debt฀securities,฀consisting฀primarily฀of฀low฀cost฀index฀
mutual฀ funds฀ that฀ track฀ several฀ sub-categories฀ of฀ equity฀
and฀debt฀security฀performance.฀The฀investment฀strategy฀is฀
primarily฀driven฀by฀our฀Plan’s฀participants’฀ages฀and฀reflects฀a฀
long-term฀investment฀horizon฀favoring฀a฀higher฀equity฀compo-
nent฀in฀the฀investment฀allocation.
A฀ mutual฀ fund฀ held฀ as฀ an฀ investment฀ by฀ the฀ Plan฀
includes฀YUM฀stock฀in฀the฀amount฀ of฀$0.2฀million฀at฀both฀
September฀30,฀2004฀and฀2003฀(less฀than฀1%฀of฀total฀plan฀
assets฀in฀each฀instance).
Benefit฀Payments฀ The฀benefits฀expected฀to฀be฀paid฀in฀each฀
of฀the฀next฀five฀years฀and฀in฀the฀aggregate฀for฀the฀five฀years฀
thereafter฀are฀set฀forth฀below:
฀ Pension฀฀ Postretirement฀฀
Year฀ended:฀ Benefits฀ Medical฀Benefits
2005฀ $฀ 17฀ $฀ 5
2006฀ ฀ 22฀ ฀ 5
2007฀ ฀ 25฀ ฀ 6
2008฀ ฀ 28฀ ฀ 6
2009฀ ฀ 32฀ ฀ 6
2010–2014฀ ฀242฀ ฀35
Expected฀ benefits฀ are฀ estimated฀ based฀ on฀ the฀ same฀
assumptions฀ used฀ to฀ measure฀ our฀ benefit฀ obligation฀ on฀
our฀measurement฀date฀of฀September฀30,฀2004฀and฀include฀
benefits฀attributable฀to฀estimated฀further฀employee฀service.
STOCK-BASED฀EMPLOYEE฀COMPENSATION฀
NOTE฀18
At฀year-end฀2004,฀we฀had฀four฀stock฀option฀plans฀in฀effect:฀
the฀YUM!฀Brands,฀Inc.฀Long-Term฀Incentive฀Plan฀(“1999฀LTIP”),฀
the฀1997฀Long-Term฀Incentive฀Plan฀(“1997฀LTIP”),฀the฀YUM!฀
Brands,฀Inc.฀Restaurant฀General฀Manager฀Stock฀Option฀Plan฀
(“RGM฀Plan”)฀and฀the฀YUM!฀Brands,฀Inc.฀ SharePower฀Plan฀
(“SharePower”).฀During฀2003,฀the฀1999฀LTIP฀was฀amended,฀
subsequent฀to฀shareholder฀approval,฀to฀ increase฀ the฀total฀
number฀of฀shares฀available฀for฀issuance฀and฀to฀make฀certain฀
other฀technical฀and฀clarifying฀changes.
We฀ may฀ grant฀ awards฀ of฀ up฀ to฀ 29.8฀million฀ shares฀
and฀ 45.0฀million฀ shares฀ of฀ stock฀under฀ the฀ 1999฀ LTIP,฀as฀
amended,฀and฀1997฀LTIP,฀respectively.฀ Potential฀awards฀to฀
employees฀and฀non-employee฀directors฀under฀the฀1999฀LTIP฀
include฀stock฀options,฀incentive฀stock฀options,฀stock฀apprecia-
tion฀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฀appreciation฀rights,฀restricted฀stock฀and฀
performance-restricted฀stock฀units.฀Prior฀to฀January฀1,฀2002,฀
we฀also฀could฀grant฀stock฀options฀and฀incentive฀stock฀options฀
under฀the฀1997฀LTIP.฀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฀ stock฀ options฀ under฀ the฀ 1999฀ LTIP฀ to฀
purchase฀shares฀at฀a฀price฀equal฀to฀or฀greater฀than฀the฀aver-
age฀market฀price฀of฀the฀stock฀on฀the฀date฀of฀grant.฀New฀option฀
grants฀under฀the฀1999฀LTIP฀can฀have฀varying฀vesting฀provisions฀
and฀exercise฀periods.฀Previously฀granted฀options฀under฀the฀
1997฀LTIP฀and฀1999฀LTIP฀vest฀in฀periods฀ranging฀from฀immedi-
ate฀to฀2008฀and฀expire฀ten฀to฀fifteen฀years฀after฀grant.
We฀may฀grant฀options฀to฀ purchase฀up฀to฀ 15.0฀million฀
shares฀of฀stock฀under฀the฀RGM฀Plan฀at฀a฀price฀equal฀to฀or฀
greater฀than฀the฀average฀market฀price฀of฀the฀stock฀on฀the฀date฀
of฀grant.฀RGM฀Plan฀options฀granted฀have฀a฀four-year฀vesting฀
period฀and฀expire฀ten฀years฀after฀grant.฀We฀may฀grant฀options฀
to฀purchase฀ up฀ to฀ 14.0฀million฀shares฀of฀ stock฀at฀ a฀price฀
equal฀to฀or฀greater฀than฀the฀average฀market฀price฀of฀the฀stock฀
on฀the฀date฀of฀grant฀under฀SharePower.฀Previously฀granted฀
SharePower฀options฀have฀expirations฀through฀2014.
At฀the฀Spin-off฀Date,฀we฀converted฀certain฀of฀the฀unvested฀
options฀ to฀ purchase฀ PepsiCo฀ stock฀ that฀ were฀ held฀ by฀ our฀
employees฀to฀YUM฀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,฀these฀converted฀options฀vest฀in฀periods฀
ranging฀from฀one฀to฀ten฀years฀and฀expire฀ten฀to฀fifteen฀years฀
after฀grant.
We฀estimated฀the฀fair฀value฀of฀each฀option฀grant฀made฀
during฀2004,฀2003฀and฀2002฀as฀of฀the฀date฀of฀grant฀using฀
the฀Black-Scholes฀ option-pricing฀ model฀ with฀the฀ following฀
weighted-average฀assumptions:
฀2004฀ 2003฀ 2002
Risk-free฀interest฀rate฀ 3.2%฀ 3.0%฀ 4.3%
Expected฀life฀(years)฀ 6.0฀ 6.0฀ 6.0
Expected฀volatility฀ 40.0%฀ 33.6%฀ 33.9%
Expected฀dividend฀yield฀ 0.1%(a)฀ 0.0%฀ 0.0%
(a)฀The฀weighted-average฀assumption฀ for฀ the฀expected฀ dividend฀ yield฀reflects฀ an฀
assumption฀of฀0%฀for฀stock฀options฀granted฀prior฀to฀the฀initiation฀of฀our฀quarterly฀
stock฀dividend฀in฀2004฀and฀1%฀thereafter.
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Yum!฀Brands,฀Inc.