Pizza Hut 2006 Annual Report Download - page 68

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A summary of award activity as of December 30, 2006, and
changes during the year then ended is presented below.
Weighted-
Weighted- Average Aggregate
Average Remaining Intrinsic
Exercise Contractual Value
Shares Price Term (in millions)
Outstanding at the
beginning of the year 31,719 $ 25.75
Granted 4,183 49.25
Exercised (6,830) 20.82
Forfeited or expired (1,770) 36.84
Outstanding at the end
of the year 27,302 $ 29.86 5.70 $ 790
Exercisable at the end
of the year 16,454 $ 22.14 4.20 $ 603
The weighted-average grant-date fair value of awards granted dur-
ing 2006, 2005 and 2004 was $17.05, $17.78 and $15.11,
respectively. The total intrinsic value of stock options exercised
during the years ended December 30, 2006, December 31, 2005
and December 25, 2004, was $215 million, $271 million and
$282 million, respectively.
As of December 30, 2006, there was $114 million of unrecog-
nized compensation cost, which will be reduced by any forfeitures
that occur, related to unvested awards that is expected to be rec-
ognized over a weighted-average period of 2.7 years. The total fair
value at grant date of awards vested during 2006, 2005 and 2004
was $57 million, $57 million and $103 million, respectively.
Cash received from stock options exercises for 2006, 2005
and 2004, was $142 million, $148 million and $200 million,
respectively. Tax benefits realized from tax deductions associated
with stock options exercised for 2006, 2005 and 2004 totaled
$68 million, $94 million and $102 million, respectively.
The Company has a policy of repurchasing shares on the
open market to satisfy award exercises and expects to repurchase
approximately 7.7 million shares during 2007 based on estimates
of stock option and SARs exercises for that period.
17.
Other Compensation and Benefit Programs
EXECUTIVE INCOME DEFERRAL PROGRAM (THE “EID PLAN”)
The EID Plan allows participants to defer receipt of a portion of
their annual salary and all or a portion of their incentive compen-
sation. As defined by the EID Plan, we credit the amounts deferred
with earnings based on the investment options selected by the
participants. In 2004, these investment options were limited to
cash and phantom shares of our Common Stock. In 2005, we
added two new phantom investment options to the EID Plan, a
Stock Index Fund and the Bond Index Fund. Additionally, the EID
Plan allows participants to defer incentive compensation to pur-
chase phantom shares of our Common Stock at a 25% discount
from the average market price at the date of deferral (the “Dis-
count Stock Account”). Deferrals to the Discount Stock Account
are similar to a restricted stock unit award in that participants will
forfeit both the discount and incentive compensation amounts
deferred to the Discount Stock Account if they voluntarily sepa-
rate from employment during a vesting period that is generally
two years. We expense the intrinsic value of the discount and,
beginning in 2006, the incentive compensation over the requisite
service period which includes the vesting period. Investments
in cash, the Stock Index fund and the Bond Index fund will be
distributed in cash at a date as elected by the employee and
therefore are classified as a liability on our Consolidated Balance
Sheets. We recognize compensation expense for the apprecia-
tion or depreciation of these investments. 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.
As of December 30, 2006 total deferrals to phantom shares
of our Common Stock within the EID Plan totaled approximately
3.3 million shares. We recognized compensation expense of
$8 million, $4 million and $3 million in 2006, 2005 and 2004,
respectively, for the EID Plan.
CONTRIBUTORY 401(K) PLAN We sponsor a contributory plan
to provide retirement benefits under the provisions of Section
401(k) of the Internal Revenue Code (the “401(k) Plan”) for eli-
gible U.S. salaried and hourly employees. Participants are able
to elect to contribute up to 25% of eligible compensation on a
pre-tax basis. Participants may allocate their contributions to one
or any combination of 10 investment options within the 401(k)
Plan. We match 100% of the participant’s contribution to the
401(k) Plan up to 3% of eligible compensation and 50% of the
participant’s contribution on the next 2% of eligible compensa-
tion. We recognized as compensation expense our total matching
contribution of $12 million in 2006, $12 million in 2005 and
$11 million in 2004.
18.
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 Participat-
ing 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% 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
and thereafter if 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.
This description of the right is qualified in its entirety by
reference to the original Rights Agreement, dated July 21, 1998,
and the Agreement of Substitution and Amendment of Common
Share Rights Agreement, dated August 28, 2003, between YUM
and American Stock Transfer and Trust Company, the Right Agent
(both including the exhibits thereto). On February 9, 2007 our
Board of Directors approved a second Amendment to the original
Rights Agreement which accelerated the expiration of the rights
from July 21, 2008 to March 1, 2007.