Amgen 2010 Annual Report Download - page 135

following, as defined in the program: (i) Amgen’s standalone financial performance, (ii) Amgen’s annual
stockholder return and (iii) Amgen’s annual stockholder return compared to a comparator group of companies.
Depending on the outcome of these performance goals, a recipient may ultimately earn a number of units greater or
less than the number of units granted. Shares of our common stock are issued on a one-for-one basis for each
performance unit earned. In general, participants vest in their performance unit awards at the end of the performance
period. The performance award program provides for accelerated or continued vesting in certain circumstances as
defined in the plan, including upon death, disability, a change in control, or retirement of employees who meet
certain service and/or age requirements.
The performance units granted in 2010, 2009 and 2008 include stockholder return performance goals, which
are considered market conditions and are reflected in the grant date fair value of the units. The performance units
granted in 2010 and 2009 also included performance goals based on the Company’s standalone financial
performance, which are considered performance conditions. The expense recognized for the awards granted in
2010 and 2009 was based on the grant date fair value of a unit multiplied by the number of units to be earned with
respect to the performance conditions, net of estimated forfeitures. The expense recognized for the awards granted
in 2008 is based on the grant date fair value of a unit multiplied by the number of units granted, net of estimated
forfeitures.
We used a Monte Carlo simulation model to estimate the grant date fair value of performance units granted in
2010 and 2009. We used a lattice model to estimate the grant date fair value of performance units granted in 2008.
The assumptions used in these models and the resulting grant date fair values of our performance units were as
follows for the years ended December 31, 2010, 2009 and 2008:
2010 2009 2008
Closing price of our common stock on grant date ........................ $56.90 $ 47.63 $ 44.62
Fair value of unit ................................................ $62.06 $ 48.22 $ 36.91
Volatility ...................................................... 34.7% 34.3% 32.4%
Risk-free interest rate............................................. 1.3% 1.2% 2.0%
Expected dividend yield ........................................... 0% 0% 0%
The valuation models also use terms based on the length of the performance period and compound annual
growth rate goals for total stockholder return based on the terms of the award. For the years ended December 31,
2010 and 2009, the Monte Carlo simulation model also assumed correlations of returns of the stock prices of our
common stock and the common stocks of a comparator group of companies and stock price volatilities of the
comparator group of companies.
As of December 31, 2010 and 2009, a total of 2.7 million and 2.9 million performance units were outstanding
with weighted-average grant date fair values of $49.49 and $53.46 per unit, respectively. During the year ended
December 31, 2010, 1.0 million performance units with a grant date fair value of $62.06 were granted, 0.6 million
performance units with a grant date fair value of $36.91 vested and 0.1 million performance units with a weighted-
average grant date fair value of $47.97 were forfeited.
The total fair values of performance units that vested during 2010 and 2009 were $34 million and $29 million,
respectively, based upon the number of performance units earned multiplied by the closing stock price of our
common stock on the last day of the performance period. Performance unit awards granted for performance periods
that ended prior to 2009 were accounted for as liability awards and were paid in the year after the performance
period ended. Performance unit liability awards paid in 2009 and 2008 aggregated $30 million and $70 million,
respectively.
As of December 31, 2010, there was approximately $48 million of unrecognized compensation cost related to
the 2010 and 2009 performance unit grants that is expected to be recognized over a weighted-average period of
approximately 1 year.
F-13
AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)