AbbVie 2014 Annual Report Download - page 94

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Note 12 Equity
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Stock-Based Compensation
Stock-based compensation expense was $241 million, $212 million and $187 million in 2014, 2013 and
2012, respectively, and is principally classified in SG&A for all periods presented with the remainder
classified in R&D and cost of products sold. The related tax benefit recognized was $73 million, $68 million
and $56 million in 2014, 2013 and 2012, respectively. Stock-based compensation expense for 2012 was
allocated to AbbVie based on the portion of Abbott’s incentive stock program in which AbbVie employees
participated.
Compensation expense for stock-based awards is measured based on the fair value of the awards, as
of the date the stock-based awards are granted and adjusted to the estimated number of awards that are
expected to vest. Forfeitures are estimated based on historical experience at the time of grant and revised
in subsequent periods if actual forfeitures differ from those estimates. Compensation cost for stock-based
awards is amortized over their service period, which could be shorter than the vesting period if an
employee is retirement eligible, with a charge to compensation expense. For stock-based awards granted to
retirement-eligible employees, compensation expense is recognized immediately at the grant date because
the employee is able to retain the award without continuing to provide service.
Prior to separation, AbbVie employees participated in Abbott’s incentive stock program. The AbbVie
2013 Incentive Stock Program, adopted at the time of separation, facilitated the assumption of certain
awards granted under Abbott’s incentive stock program and authorizes the post-separation grant of several
different forms of benefits, including nonqualified stock options, RSAs, RSUs and performance-based RSAs
and RSUs. Under the AbbVie 2013 Incentive Stock Program, 100 million shares of common stock were
reserved for issuance with respect to post-separation awards for participants.
In connection with the separation, outstanding Abbott employee stock options, RSAs and RSUs
previously issued under Abbott’s incentive stock program were adjusted and converted into new Abbott and
AbbVie stock-based awards using a formula designed to preserve the intrinsic value and fair value of the
awards immediately prior to the separation. Upon the separation on January 1, 2013, holders of Abbott
stock options, RSAs and RSUs generally received one AbbVie stock-based award for each Abbott stock-based
award outstanding. These adjusted awards retained the vesting schedule and expiration date of the original
awards. No AbbVie awards have been granted to Abbott employees other than in connection with the
separation.
In 2014 and 2013, realized excess tax benefits associated with stock-based compensation totaled
$56 million and $38 million, respectively, and were presented in the consolidated statements of cash flows
as an outflow within the operating section and an inflow within the financing section.
Stock Options
The exercise price for options granted is at least equal to 100 percent of the market value on the date
of grant. Stock options typically have a contractual term of 10 years and generally vest in one-third
increments over a three-year period.
The fair value of stock options is determined using the Black-Scholes model. The weighted-average
grant-date fair values of the stock options granted were $9.83, $6.87, and $6.80 for 2014, 2013 and 2012,
respectively. Stock-based compensation expense attributable to options during each of the years presented
was not material.
88 2014 Form 10-K