Pepsi 2008 Annual Report Download - page 81

Download and view the complete annual report

Please find page 81 of the 2008 Pepsi annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 104

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104

79PepsiCo, Inc. 2008 Annual Report
METHOD OF ACCOUNTING AND OUR ASSUMPTIONS
We account for our employee stock options, which include grants
under our executive program and our broad-based SharePower
program, under the fair value method of accounting using a
Black-Scholes valuation model to measure stock option expense
at the date of grant. All stock option grants have an exercise price
equal to the fair market value of our common stock on the date
of grant and generally have a 10-year term. We do not backdate,
reprice or grant stock-based compensation awards retroactively.
Repricing of awards would require shareholder approval under
the LTIP.
The fair value of stock option grants is amortized to expense
over the vesting period, generally three years. 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 ofcers do not have a
choice and are granted 50% stock options and 50% performance-
based RSUs. Vesting of RSU awards for senior ofcers is contin-
gent upon the achievement of pre-established performance
targets approved by the Compensation Committee of the Board
of Directors. 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.
Our weighted-average Black-Scholes fair value assumptions
are as follows:
2008 2007 2006
Expected life 6 yrs. 6 yrs. 6 yrs.
Risk free interest rate 3.0% 4.8% 4.5%
Expected volatility 16% 15% 18%
Expected dividend yield 1.9% 1.9% 1.9%
The expected life is the period over which our employee
groups are expected to hold their options. It is based on our
historical experience with similar grants. The risk free interest rate
is based on the expected U.S. Treasury rate over the expected
life. Volatility reects movements in our stock price over the most
recent historical period equivalent to the expected life. Dividend
yield is estimated over the expected life based on our stated
dividend policy and forecasts of net income, share repurchases
and stock price.
A summary of our stock-based compensation activity for the
year ended December 27, 2008 is presented below:
Our Stock Option Activity
Options(a)
Average
Price(b)
Average
Life
(years)(c)
Aggregate
Intrinsic
Value(d)
Outstanding at December 29, 2007 108,808 $47.47
Granted 12,512 68.74
Exercised (14,651) 42.19
Forfeited/expired (2,997) 60.13
Outstanding at December 27, 2008 103,672 $50.42 4.93 $736,438
Exercisable at December 27, 2008 61,085 $43.41 3.16 $683,983
(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.
Our RSU Activity
RSUs(a)
Average
Intrinsic
Value(b)
Average
Life
(years)(c)
Aggregate
Intrinsic
Value(d)
Outstanding at December 29, 2007 7,370 $58.63
Granted 2,135 68.73
Converted (2,500) 54.59
Forfeited/expired (854) 62.90
Outstanding at December 27, 2008 6,151 $63.18 1.20 $335,583
(a) RSUs are in thousands.
(b) Weighted-average intrinsic value at grant date.
(c) Weighted-average contractual life remaining.
(d) In thousands.
OTHER STOCK-BASED COMPENSATION DATA
2008 2007 2006
Stock Options
Weighted-average fair value
of options granted $÷÷11.24 $÷÷13.56 $÷÷12.81
Total intrinsic value of options exercised(a) $410,152 $826,913 $686,242
RSUs
Total number of RSUs granted(a) 2,135 2,342 2,992
Weighted-average intrinsic
value of RSUs granted $÷÷68.73 $÷÷65.21 $÷÷58.22
Total intrinsic value of RSUs converted(a) $180,563 $125,514 $÷10,934
(a) In thousands.
At December 27, 2008, there was $243 million of total
unrecognized compensation cost related to nonvested share-
based compensation grants. This unrecognized compensation
is expected to be recognized over a weighted-average period
of 1.7 years.