Eli Lilly 2012 Annual Report Download - page 78

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Shareholder Value Award Program
SVAs are granted to officers and management and are payable in shares of common stock at the end of a
three-year period. The number of shares actually issued varies depending on our stock price at the end of the
three-year vesting period compared to pre-established target stock prices. We measure the fair value of the
SVA unit on the grant date using a Monte Carlo simulation model. The Monte Carlo simulation model utilizes
multiple input variables that determine the probability of satisfying the market condition stipulated in the
award grant and calculates the fair value of the award. Expected volatilities utilized in the model are based on
implied volatilities from traded options on our stock, historical volatility of our stock price, and other factors.
Similarly, the dividend yield is based on historical experience and our estimate of future dividend yields. The
risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The
weighted-average fair values of the SVA units granted during the years ended December 31, 2012, 2011, and
2010 were $30.35, $28.33, and $25.97, respectively, determined using the following assumptions:
(Percents) 2012 2011 2010
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.50 4.90 4.50
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10-.36 .20-1.36 .10-1.36
Range of volatilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.40-25.64 27.61-29.10 28.00-28.69
A summary of the SVA activity is presented below:
Units
Attributable to SVAs
(in thousands)
Outstanding at January 1, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,760
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,987
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (365)
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (745)
December 31, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,637
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,830
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (428)
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (740)
December 31, 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,299
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,742
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (973)
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (165)
December 31, 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,903
The maximum number of shares that could ultimately be issued upon vesting of the SVA units outstanding at
December 31, 2012, is 6.9 million. Approximately 2.4 million shares are expected to be issued in 2013. As of
December 31, 2012, the total remaining unrecognized compensation cost related to nonvested SVAs amounted
to $48.2 million, which will be amortized over the weighted-average remaining requisite service period of
20 months.
Restricted Stock Units
RSUs are granted to certain employees and are payable in shares of our common stock. RSU shares are
accounted for at fair value based upon the closing stock price on the date of grant. The corresponding expense
is amortized over the vesting period, typically 3 years. The fair values of RSU awards granted during the years
ended December 31, 2012, 2011, and 2010 were $39.65, $35.80, and $34.78, respectively. The number of
shares ultimately issued for the RSU program remains constant with the exception of forfeitures. Pursuant to
this plan, 1.4 million, 1.5 million, and 1.5 million shares were granted during the years ended December 31,
2012, 2011, and 2010, respectively, and approximately 0.3 million, 0.2 million, and 0.2 million shares were
issued during the years ended December 31, 2012, 2011, and 2010, respectively. Approximately 0.9 million
shares are expected to be issued in 2013. As of December 31, 2012, the total remaining unrecognized
compensation cost related to nonvested RSUs amounted to $54.6 million, which will be amortized over the
weighted-average remaining requisite service period of 21 months.