Amgen 2007 Annual Report Download - page 145

AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2007, there was $479 million of total unrecognized compensation cost related to non-
vested awards of both stock options and shares of restricted stock. That cost is expected to be recognized over a
weighted-average period of 1.4 years. For stock option and restricted stock awards subject to graded vesting that
were issued after January 1, 2006, we recognize compensation cost on a straight-line basis over the service period
for the entire award.
Performance award program
In 2004, 2005 and 2006 certain management-level employees received annual grants of performance units.
These performance units gave the recipient the right to receive common stock that is contingent upon achieve-
ment of specified pre-established performance goals over a three-year performance period. The performance
goals are based upon both Amgen’s standalone performance and its performance compared to other benchmark
companies, in each case with respect to compound annual growth rates for revenue and earnings per share, as de-
fined in the program. Performance units are assigned a unit value based on the fair market value of our common
stock on the grant date. The ultimate level of performance goals achieved is determined at the end of the
performance period and expressed as a percentage (within a range of 0% to 225%). This percentage is multiplied
by the number of performance units initially granted and by the initial value per unit to determine the aggregate
dollar value of the award. The aggregate dollar value is then divided by the average closing price of our common
stock during a specified period following the performance period to determine the number of shares of common
stock payable to the recipient. The performance award program provides for accelerated or continued vesting in
certain circumstances, including upon death, disability, a change in control as defined in the plans, or retirement
of employees who meet certain service and/or age requirements. The number of outstanding grants affected by
these provisions varies based upon the circumstances.
Certain changes were made to our performance units granted in 2007. In determining the number of units
earned, Amgen’s total compounded annual stockholder return over the performance period will now be used in
combination with our standalone performance with regard to compounded annual revenue and earnings per share
growth. The number of units earned will be determined at the end of the performance period, which has been
shortened to two and one-half years commencing July 1, 2007, and will range from 0% to 225% of the number of
units granted. The number of shares of Amgen’s common stock payable to the recipient will equal the number of
performance units earned. As a result of certain of these changes, the 2007 grants are accounted for as equity
awards. The grant date fair value of these performance units, $71.41 per unit, was calculated using a lattice valu-
ation model with the following assumptions: risk-free interest rate of 4.0%, contractual term of 2.5 years,
expected volatility of 28%, dividend yield of 0%, the grant date fair value of our stock of $56.56 and com-
pounded annual stockholder returns based on contractual terms. The assumptions with respect to the risk-free
interest rate, expected volatility and dividend yield are computed in a similar manner as discussed above for
stock options.
The performance period for those instruments granted in 2004 ended on December 31, 2006 and the related
liability was paid by the issuance of approximately one million shares of our common stock to the participants in
May 2007, net of shares withheld for taxes.
As of December 31, 2007, there was $72 million of total estimated unrecognized compensation cost related
to the 2006 and 2007 performance unit grants that is expected to be recognized over a weighted-average period
of 1.2 years.
Under APB 25, the estimated amounts owed for performance units granted in 2004 and 2005 were classified
in stockholders’ equity, but upon adoption of SFAS 123(R), these amounts were required to be classified as li-
abilities based upon the terms of these plans. Accordingly, on January 1, 2006, a reclassification was made from
stockholders’ equity to liabilities (current and non-current) totaling $104 million.
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