Amgen 2009 Annual Report Download - page 135

AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
restricted stock or performance units. If any shares subject to an award granted under our Prior Plans after De-
cember 31, 2008 or any awards granted under the 2009 Plan expire, or are forfeited, terminated or cancelled
without the issuance of shares, the shares subject to such awards will be added back to the pool of available
shares under the 2009 Plan on the same basis that they were removed. As of December 31, 2009, the 2009 Plan
provides for future grants and/or issuances of up to approximately 85 million shares of our common stock. Our
stock-based instruments, more fully described below, principally include stock options, restricted stock units and
performance units. Stock-based awards under our employee compensation plans are made with newly issued
shares reserved for this purpose.
The following table reflects the components of stock-based compensation expense recognized in our Con-
solidated Statements of Income for the years ended December 31, 2009, 2008 and 2007 (in millions):
2009 2008 2007
Stock options .............................................................. $115 $103 $181
Restricted stock units ....................................................... 134 105 76
Performance units .......................................................... 35 54 6
Total stock-based compensation expense, pre-tax ............................... 284 262 263
Tax benefit from stock-based compensation expense ............................... (97) (89) (81)
Total stock-based compensation expense, net of tax ............................. $187 $173 $182
Employee stock option and restricted stock unit grants
Our equity-based compensation plan provides for grants of stock options to employees. The option exercise
price is set at the closing price of our common stock on the date of grant and the related number of shares granted
is fixed at that point in time. This plan also provide for grants of restricted stock units. Grants of these equity in-
struments generally vest over a four year period. In addition, stock option awards expire seven years from the
date of grant. Eligible employees generally receive a grant of stock options and/or restricted stock units annually
with the number of shares and type of instrument generally determined by the employee’s salary grade and per-
formance level. In addition, certain management and professional level employees typically receive stock options
and/or restricted stock unit grants upon commencement of employment. Our stock-based plans provide for accel-
erated or continued vesting of restrictions in certain circumstances as defined in the plans, including upon death,
disability, a change in control, or retirement of employees who meet certain service and/or age requirements. For
stock option and restricted stock unit awards subject to graded vesting, we recognize compensation cost on a
straight-line basis over the service period for the entire award.
We use the Black-Scholes option valuation model to estimate the grant date fair value of our employee stock
options. The weighted-average assumptions used in the Black-Scholes option valuation model and the resulting
weighted-average estimated grant date fair values of our employee stock options were as follows for the years
ended December 31, 2009, 2008 and 2007:
2009 2008 2007
Fair value of our common stock ......................................... $50.65 $ 43.60 $ 62.92
Fair value of stock options granted ...................................... $18.35 $ 14.50 $ 19.06
Expected volatility ................................................... 39.6% 31.6% 24.9%
Expected life (in years) ............................................... 4.6 4.6 4.7
Risk-free interest rate ................................................. 2.1% 2.9% 4.5%
Expected dividend yield ............................................... 0% 0% 0%
The expected volatility reflects the consideration of the implied volatility in publicly traded instruments asso-
ciated with Amgen’s common stock during the period the options were granted. We believe implied volatility in
these instruments is more indicative of expected future volatility than the historical volatility in the price of our
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