AbbVie 2013 Annual Report Download - page 93

The fair value of stock options is determined using the Black-Scholes model. The weighted-average
assumptions used in estimating the fair value of stock options granted during each year, along with
weighted-average grant-date fair values, were as follows.
years ended December 31 2013 2012 2011
Risk-free interest rate 1.10% 1.20% 2.70%
Average life of options (years) 6.0 6.0 6.0
Volatility 32.63% 21.00% 21.00%
Dividend yield 4.30% 3.60% 4.10%
Fair value per stock option $ 6.87 $ 6.80 $ 6.23
The risk-free interest rate is based on the rates available at the time of the grant for zero-coupon U.S.
government issues with a remaining term equal to the option’s expected life. The average life of an
option for 2013 is based on the simplified method. Prior to 2013, the average life of an option was
based on both historical and projected exercise and lapsing data. For 2013, the expected volatility is
based on an average peer historical volatility over the expected life of the option. Prior to 2013, the
expected volatility was based on the historical volatility of Abbott’s stock over the expected life of the
option. Dividend yield is based on the option’s exercise price and annual dividend rate at the time of
grant.
The following table summarizes AbbVie stock option activity for both AbbVie and Abbott employees
for the year ended December 31, 2013.
Weighted-
Weighted- Average
(options in thousands, aggregate intrinsic average remaining Aggregate
value in millions) Options exercise price life (in years) intrinsic value
Outstanding at December 31, 2012 — $ —
Options converted on January 1, 2013 47,718 27.00
Granted 3,128 37.91
Exercised (14,620) 28.14
Lapsed (232) 28.21
Outstanding at December 31, 2013 35,994 27.48 3.6 $912
Exercisable at December 31, 2013 32,564 $27.04 3.1 $840
The aggregate intrinsic value in the table above represents the difference between the exercise price
and the company’s closing stock price on the last day of trading for the year ended December 31, 2013.
The total intrinsic value of options exercised in 2013 was $229 million. For options issued under
Abbott’s incentive stock programs to AbbVie employees prior to the separation, the total intrinsic value
of options exercises in 2012 and 2011 was $170 million and $31 million, respectively. The total fair
value of options vested during 2013 was $17 million.
The tax benefit realized from option exercises totaled $21 million for 2013. As of December 31, 2013,
$2 million of unrecognized compensation cost related to stock options is expected to be recognized as
expense over approximately the next two years.
RSAs & RSUs
RSAs generally vest over three and five years. For RSAs that vest over five years, no more than
one-third of the award vests in any one year. RSUs vest over three years and, upon vesting, the
recipient receives one share of common stock for each vested RSU. In addition, AbbVie grants selected
executives and other key employees performance-based RSAs and RSUs with vesting contingent upon
meeting various departmental and company-wide performance goals, including AbbVie achieving a
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