Pfizer 2006 Annual Report Download - page 63

2006 Financial Report 61
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
14.
Equity
A. Common Stock
We purchase our common stock via privately negotiated
transactions or in open market purchases as circumstances and
prices warrant. Purchased shares under each of the share-purchase
programs, which are authorized by our Board of Directors, are
available for general corporate purposes.
A summary of common stock purchases follows:
FOR THE YEAR ENDED DECEMBER 31, SHARES OF AVERAGE TOTAL COST OF
(MILLIONS OF SHARES AND COMMON STOCK PER-SHARE COMMON STOCK
DOLLARS, EXCEPT PER-SHARE DATA)
PURCHASED PRICE PAID PURCHASED
2006:
June 2005 program
(a)
266 $26.19 $6,979
2005:
June 2005 program
(a)
22 $22.38 $ 493
October 2004 program
(b)
122 $27.20 3,304
Total 144 $3,797
2004:
October 2004 program
(b)
63 $26.79 $1,696
December 2003 program
(c)
145 $34.14 4,963
Total 208 $6,659
(a)
In June 2005, we announced a $5 billion share-purchase program,
which we increased in June 2006 to $18 billion.
(b)
In October 2004, we announced a $5 billion share-purchase
program, which we completed in June 2005.
(c)
In December 2003, we announced a $5 billion share-purchase
program, which we completed in October 2004.
B. Preferred Stock
The Series A convertible perpetual preferred stock is held by an
Employee Stock Ownership Plan (“Preferred ESOP”) Trust and
provides dividends at the rate of 6.25%, which are accumulated
and paid quarterly. The per-share stated value is $40,300 and
the preferred stock ranks senior to our common stock as to
dividends and liquidation rights. Each share is convertible, at the
holder’s option, into 2,574.87 shares of our common stock with
equal voting rights. The conversion option is indexed to our
common stock and requires share settlement, and therefore, is
reported at the fair value at the date of issuance. We may redeem
the preferred stock, at any time or upon termination of the
Preferred ESOP, at its option, in cash, in shares of common stock
or a combination of both at a price of $40,300 per share.
C. Employee Stock Ownership Plans
We have two employee stock ownership plans (collectively the
“ESOPs”), a Preferred ESOP and another that holds common
stock of the company (“Common ESOP”). A portion of the
matching contributions for legacy Pharmacia U.S. savings plan
participants is funded through the ESOPs.
In June 2006, we paid the outstanding balance of a note relating
to the ESOPs, which had been guaranteed by legacy Pharmacia.
Compensation expense related to the ESOPs totaled approximately
$43 million in 2006, $42 million in 2005 and $45 million in 2004.
The Preferred ESOP has access to up to $95 million in financing
at the rate of 7.0% per annum, of which $22 million was utilized
prior to our acquisition of Pharmacia and $10 million remains
outstanding as of December 31, 2006.
Allocated shares held by the Common ESOP are considered
outstanding for the earnings per share (EPS) calculations and
the eventual conversion of allocated preferred shares held by the
Preferred ESOP is assumed in the diluted EPS calculation. As of
December 31, 2006, the Preferred ESOP held preferred shares with
a stated value of approximately $141 million, convertible into
approximately nine million shares of our common stock. As of
December 31, 2006, the common ESOP did not hold any shares of
our common stock.
D. Employee Benefit Trust
The Pfizer Inc Employee Benefit Trust (EBT) was established in 1999
to fund our employee benefit plans through the use of its holdings
of Pfizer Inc stock. The consolidated balance sheets reflect the fair
value of the shares owned by the EBT as a reduction of Shareholders’
equity.
15. Share-Based Payments
Our compensation programs can include share-based payments.
In 2006, 2005 and 2004, the primary share-based awards and
their general terms and conditions are as follows:
•
Stock options, which entitle the holder to purchase, after the
end of a vesting term, a specified number of shares of Pfizer
common stock at a price per share set equal to the market price
of Pfizer common stock on the date of grant.
•
Restricted stock units (RSUs), which entitle the holder to receive,
at the end of a vesting term, a specified number of shares of
Pfizer common stock, including shares resulting from dividend
equivalents paid on such RSUs.
•
Performance share awards (PSAs) and performance-contingent
share awards (PCSAs), which entitle the holder to receive, at the
end of a vesting term, a number of shares of Pfizer common
stock, within a range of shares from zero to a specified
maximum, calculated using a non-discretionary formula that
measures Pfizer’s performance relative to an industry peer
group. Dividend equivalents are paid on PSA’s.
•
Restricted stock grants, which entitle the holder to receive, at
the end of a vesting term, a specified number of shares of Pfizer
common stock, and which also entitle the holder to receive
dividends paid on such grants.
The Company’s shareholders approved the Pfizer Inc. 2004 Stock
Plan (the 2004 Plan) at the Annual Meeting of Shareholders held
on April 22, 2004 and, effective upon that approval, new stock
option and other share-based awards may be granted only under
the 2004 Plan. The 2004 Plan allows a maximum of 3 million
shares to be awarded to any employee per year and 475 million
shares in total. RSUs, PSAs, PCSAs and restricted stock grants
count as three shares, while stock options count as one share under
the 2004 Plan toward the maximums.
In the past, we had various employee stock and incentive plans
under which stock options and other share-based awards were
granted. Stock options and other share-based awards that were
granted under prior plans and were outstanding on April 22, 2004,
continue in accordance with the terms of the respective plans.
As of December 31, 2006, 319 million shares were available for
award, which include 34 million shares available for award under