Pepsi 2006 Annual Report Download - page 68

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Executives who are awarded long-term
incentives based on their performance
are offered the choice of stock options or
RSUs. Executives who elect RSUs receive
one RSU for every four stock options that
would have otherwise been granted.
Senior officers do not have a choice and
are granted 50% stock options and 50%
RSUs. RSU expense is based on the fair
value of PepsiCo stock on the date of
grant and is amortized over the vesting
period, generally three years. Each RSU is
settled in a share of our stock after the
vesting period. Vesting of RSU awards for
senior officers is contingent upon the
achievement of pre-established perfor-
mance targets. There have been no
reductions to the exercise price of previ-
ously issued awards, and any repricing of
awards would require approval of our
shareholders.
On January 1, 2006, we adopted SFAS
123R under the modified prospective
method. Since we had previously
accounted for our stock-based compensa-
tion plans under the fair value provisions
of SFAS 123, our adoption did not signifi-
cantly impact our financial position or
our results of operations. Under SFAS
123R, actual tax benefits recognized in
excess of tax benefits previously estab-
lished upon grant are reported as a
financing cash inflow. Prior to adoption,
such excess tax benefits were reported as
an operating cash inflow.
Our weighted-average Black-Scholes fair value assumptions are as follows:
2006 2005 2004
Expected life 6 yrs. 6 yrs. 6 yrs.
Risk free interest rate 4.5% 3.8% 3.3%
Expected volatility 18% 23% 26%
Expected dividend yield 1.9% 1.8% 1.8%
A summary of our stock-based compensation activity for the year ended December 30, 2006 is presented below:
Average Aggregate
Average Life Intrinsic
Our Stock Option Activity Options (a) Price (b) (years) (c) Value (d)
Outstanding at January 1, 2006 150,149 $42.03
Granted 12,519 57.72
Exercised (31,056) 38.61
Forfeited/expired (3,863) 49.06
Outstanding at December 30, 2006 127,749 $44.24 5.46 $2,339,562
Exercisable at December 30, 2006 91,381 $41.02 4.42 $1,967,843
(a) Options are in thousands and include options previously granted under Quaker plans. No additional options or shares may be granted under the Quaker plans.
(b) Weighted-average exercise price.
(c) Weighted-average contractual life remaining.
(d) In thousands.
Average Average Aggregate
Intrinsic Life Intrinsic
Our RSU Activity RSUs (a) Value (b) (years) (c) Value (d)
Outstanding at January 1, 2006 5,669 $50.70
Granted 2,992 58.22
Converted (183) 50.00
Forfeited/expired (593) 53.17
Outstanding at December 30, 2006 7,885 $53.38 1.38 $493,201
(a) RSUs are in thousands.
(b) Weighted-average intrinsic value at grant date.
(c) Weighted-average contractual life remaining.
(d) In thousands.
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