Amgen 2007 Annual Report Download - page 142

AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
and performance units, SFAS 123(R) also requires us to recognize compensation expense related to the estimated
fair value of stock options. We adopted SFAS 123(R) using the modified-prospective-transition method. Under
that transition method, compensation expense recognized subsequent to adoption includes: (i) compensation cost
for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the values esti-
mated in accordance with the original provisions of SFAS 123 and (ii) compensation cost for all share-based
payments granted subsequent to January 1, 2006, based on the grant-date fair values estimated in accordance
with the provisions of SFAS 123(R). Consistent with the modified-prospective-transition method, our results of
operations for prior periods have not been adjusted to reflect the adoption of SFAS 123(R).
As a result of recognizing compensation expense for stock options pursuant to the provisions of SFAS
123(R), our income before income taxes for the year ended December 31, 2007 and 2006, was lower by $181
million and $233 million, respectively, and our net income was lower by $125 million and $152 million, re-
spectively, than if we had continued to account for stock options under APB 25. In addition, diluted earnings per
share for the year ended December 31, 2007 and 2006 were lower by $0.12 and $0.14, respectively, than if we
had continued to account for stock options under APB 25.
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, 2007, 2006 and 2005 (in millions):
2007 2006 2005
Stock options .................................................. $181 $ 233 $ —
Restricted stock ................................................ 76 58 36
Performance units .............................................. 6 112 70
Total stock-based compensation expense, pre-tax .................... 263 403 106
Tax benefit from stock-based compensation expense ................... (81) (117) (32)
Total stock-based compensation expense, net of tax .................. $182 $ 286 $ 74
During the year ended December 31, 2007, based on revised estimates of our operating performance, we re-
duced the expense associated with our performance units recorded in prior years by approximately $60 million.
The above table does not reflect any stock option compensation for the year ended December 31, 2005 as
we generally did not record stock option expense under APB 25, as previously discussed. The following table il-
lustrates the effect on net income and earnings per share for the year ended December 31, 2005 if we had applied
the fair value recognition provisions to our stock options as provided under SFAS 123 (in millions, except per
share information):
2005
Net income ................................................................. $3,674
Stock-based compensation, net of tax ............................................ (233)
Pro forma net income ......................................................... $3,441
Earnings per share:
Basic .................................................................... $ 2.97
Impact of stock option expense ............................................... (0.19)
Basic — pro forma ......................................................... $ 2.78
Diluted .................................................................. $ 2.93
Impact of stock option expense ............................................... (0.19)
Diluted — pro forma ....................................................... $ 2.74
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