Pizza Hut 2013 Annual Report Download - page 158

YUM! BRANDS, INC.-2013 Form10-K62
Form 10-K
PART II
ITEM 8Financial Statements andSupplementaryData
participants to defer incentive compensation to purchase phantom shares
of our Common Stock and receive a 33% Company match on the amount
deferred. Deferrals receiving a match are similar to a RSU award in that
participants will generally forfeit both the match and incentive compensation
amounts deferred if they voluntarily separate from employment during a
vesting period that is two years from the date of deferral. We expense
the intrinsic value of the match and the incentive compensation over the
requisite service period which includes the vesting period.
Historically, the Company has repurchased shares on the open market in
excess of the amount necessary to satisfy award exercises and expects
to continue to do so in 2014.
Award Valuation
We estimated the fair value of each stock option and SAR award as of the date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
2013 2012 2011
Risk-free interest rate 0.8% 0.8% 2.0%
Expected term (years) 6.2 6.0 5.9
Expected volatility 29.9% 29.0% 28.2%
Expected dividend yield 2.1% 1.8% 2.0%
We believe it is appropriate to group our stock option and SAR awards into
two homogeneous groups when estimating expected term. These groups
consist of grants made primarily to restaurant-level employees under the
RGM Plan, which cliff-vest after four years and expire ten years after grant,
and grants made to executives under our other stock award plans, which
typically have a graded vesting schedule of 25% per year over four years
and expire ten years after grant. We use a single weighted-average term
for our awards that have a graded vesting schedule. Based on analysis
of our historical exercise and post-vesting termination behavior, we have
determined that our restaurant-level employees and our executives
exercised the awards on average after 5 years and 6.25 years, respectively.
When determining expected volatility, we consider both historical volatility
of our stock as well as implied volatility associated with our publicly traded
options. The expected dividend yield is based on the annual dividend
yield at the time of grant.
The fair values of RSU and PSU awards granted prior to 2013 are based on
the closing price of our stock on the date of grant. In 2013, the Company
granted PSU awards with market-based conditions valued using a Monte
Carlo simulation.
Award Activity
Stock Options and SARs
Shares (in thousands)
Weighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
(inmillions)
Outstanding at the beginning of the year 28,612 $ 37.05
Granted 3,767 63.83
Exercised (4,030) 27.15
Forfeited or expired (636) 47.69
OUTSTANDING AT THE END OF THE YEAR 27,713(a) $ 41.77 5.72 $ 890
EXERCISABLE AT THE END OF THE YEAR 17,787 $ 33.58 4.45 $ 717
(a) Outstanding awards include 3,103 options and 24,610 SARs with average exercise prices of $34.58 and $42.68, respectively.
The weighted-average grant-date fair value of stock options and SARs
granted during 2013, 2012 and 2011 was $14.67, $15.00 and $11.78,
respectively. The total intrinsic value of stock options and SARs exercised
during the years ended December 28, 2013, December 29, 2012 and
December 31, 2011, was $176 million, $319 million and $226 million,
respectively.
As of December 28, 2013, there was $85 million of unrecognized
compensation cost related to stock options and SARs, which will be
reduced by any forfeitures that occur, related to unvested awards that is
expected to be recognized over a remaining weighted-average period of
approximately 1.8 years. The total fair value at grant date of awards that
vested during 2013, 2012 and 2011 was $51 million, $48 million and
$43 million, respectively.
RSUs and PSUs
As of December 28, 2013, there was $7 million of unrecognized compensation cost related to 0.9 million unvested RSUs and PSUs.