Pizza Hut 2005 Annual Report Download - page 68

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
2006฀ $฀ 20฀ ฀ ฀ $฀ 4
2007฀ ฀ 22฀ ฀ ฀ ฀ 5
2008฀ ฀ 26฀ ฀ ฀ ฀ 5
2009฀ ฀ 30฀ ฀ ฀ ฀ 5
2010฀ ฀ 33฀ ฀ ฀ ฀ 6
2011–2015฀ ฀260฀ ฀ ฀ ฀30
Expected฀ benefits฀ are฀ estimated฀ based฀ on฀ the฀ same฀
assumptions฀ used฀ to฀ measure฀ our฀ benefit฀ obligation฀ on฀
our฀measurement฀date฀of฀September฀30,฀2005฀and฀include฀
benefits฀attributable฀to฀estimated฀further฀employee฀service.
15.฀STOCK฀OPTIONS
At฀year-end฀2005,฀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฀appre-
ciation฀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.฀Through฀December฀31,฀
2005,฀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฀average฀
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฀imme-
diate฀to฀2009฀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.฀Certain฀RGM฀
Plan฀options฀are฀granted฀upon฀attainment฀of฀performance฀
conditions฀in฀the฀previous฀year.฀Expense฀for฀such฀options฀
is฀recognized฀over฀a฀period฀that฀includes฀the฀time฀which฀the฀
performance฀condition฀is฀met.
We฀may฀grant฀awards฀of฀up฀to฀ 14.0฀million฀shares฀of฀
stock฀ under฀ SharePower.฀ Potential฀ awards฀ to฀ employees฀
under฀ SharePower฀ include฀ stock฀ options,฀ stock฀ appre-
ciation฀rights,฀restricted฀stock฀and฀restricted฀stock฀units.฀
Awards฀granted฀shall฀have฀ an฀exercise฀price฀equal฀to฀the฀
average฀market฀price฀of฀the฀stock฀on฀the฀date฀of฀grant฀under฀
SharePower.฀SharePower฀awards฀granted฀subsequent฀to฀the฀
Spin-off฀Date฀consist฀only฀of฀stock฀options฀to฀date,฀which฀
vest฀over฀a฀period฀ranging฀from฀one฀to฀four฀years฀and฀expire฀
no฀ longer฀ than฀ ten฀ years฀ after฀ grant.฀ Previously฀ granted฀
SharePower฀options฀have฀expirations฀through฀2015.
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฀2005,฀2004฀and฀2003฀as฀of฀the฀date฀of฀grant฀using฀
the฀Black-Scholes฀option-pricing฀ model฀with฀ the฀following฀
weighted-average฀assumptions:
฀2005฀ 2004฀ 2003
Risk-free฀interest฀rate฀ ฀ 3.8%฀ ฀ 3.2%฀ ฀ 3.0%
Expected฀term฀(years)฀ ฀ 6.0฀ ฀ 6.0฀ ฀ 6.0
Expected฀volatility฀ ฀ 36.6%฀ ฀ 40.0%฀ ฀ 33.6%
Expected฀dividend฀yield฀ ฀ 0.9%฀ ฀ 0.1%฀ ฀ 0.0%
In฀connection฀with฀our฀adoption฀of฀SFAS฀123R,฀we฀determined฀
that฀it฀was฀appropriate฀to฀group฀our฀stock฀option฀grants฀into฀
two฀homogeneous฀groups฀when฀estimating฀expected฀term.฀
These฀groups฀consist฀of฀grants฀made฀primarily฀to฀restaurant-
level฀employees฀under฀the฀RGM฀Plan฀and฀grants฀made฀to฀
executives฀under฀our฀other฀stock฀option฀plans.
We฀have฀traditionally฀used฀six฀years฀as฀the฀expected฀term฀
of฀all฀stock฀option฀grants.฀In฀connection฀with฀our฀adoption฀of฀
SFAS฀123R฀and฀the฀increasing฀amount฀of฀historical฀data฀we฀
now฀possess฀with฀regard฀to฀stock฀option฀exercise฀activity,฀
we฀revaluated฀our฀expected฀term฀assumptions.฀Based฀on฀
historical฀exercise฀and฀post-vesting฀employment฀termination฀
behavior,฀we฀determined฀that฀the฀expected฀life฀for฀options฀
granted฀ under฀ the฀ RGM฀ Plan฀ was฀ five฀ years.฀ For฀ options฀
granted฀to฀our฀above-store฀executives,฀we฀determined฀that฀
an฀expected฀life฀of฀six฀years฀was฀appropriate.฀Prior฀to฀the฀
adoption฀of฀SFAS฀123R฀we฀have฀traditionally฀based฀expected฀
volatility฀on฀Company฀specific฀historical฀stock฀data฀over฀the฀
expected฀term฀of฀the฀option.฀We฀are฀in฀the฀process฀of฀reval-
uating฀ expected฀volatility,฀including฀consideration฀of฀both฀
historical฀volatility฀of฀our฀stock฀as฀well฀as฀implied฀volatility฀
associated฀with฀our฀traded฀options.฀Options฀granted฀subse-
quent฀to฀the฀adoption฀of฀SFAS฀123R฀in฀the฀fourth฀quarter฀of฀
2005฀were฀not฀significant.
72.฀ ฀ ฀ |฀ ฀ ฀ Yum!฀Brands,฀Inc.