Pfizer 2006 Annual Report Download - page 65

64 2006 Financial Report
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
The following table provides data related to all RSU activity:
YEAR ENDED DEC. 31,
____________________________________________________
(MILLIONS OF DOLLARS, EXCEPT PER RSU
AMOUNTS AND YEARS) 2006 2005 2004
Weighted-average grant
date fair value per RSU $26.34 $26.21 $34.06
Total fair value of shares
vested $98 $2 $—
Total compensation cost
related to nonvested RSU
awards not yet recognized,
pre-tax $ 270 $ 180 $ 32
Weighted-average period
in years over which RSU
cost is expected to be
recognized 3.8 4.0 1.8
D. Performance Share Awards (PSAs) and Performance-
Contingent Share Awards (PCSAs)
PSAs in 2006 and PCSAs prior to 2006 entitle the holder to receive,
at the end of a vesting term, a number of shares of our common
stock, within a specified range of shares, calculated using a non-
discretionary formula that measures our performance relative
to an industry peer group. PSAs are accounted for at fair value at
the date of grant in the income statement beginning with grants
in 2006. Further, PSAs are generally amortized on an even basis
over the vesting term into Cost of sales, Selling, informational and
administrative expenses and Research and development expenses,
as appropriate. For grants in 2005 and earlier years, PCSA grants
are accounted for using the intrinsic value method in the income
statement. Senior and other key members of management may
receive PSA and PCSA grants. In most instances, PSA grants vest
after three years and PCSA grants vest after five years of
continuous service from the grant date. In certain instances, PCSA
grants vest over two to four years of continuous service from the
grant date. The vesting terms are equal to the contractual terms.
The 2004 Plan limitations on the maximum amount of share-based
awards apply to all awards, including PCSA and PSA grants. In
2001, our shareholders approved the 2001 Performance-Contingent
Share Award Plan (the 2001 Plan), allowing a maximum of 12.5
million shares to be awarded to all participants. This maximum
was applied to awards for performance periods beginning after
January 1, 2002 through 2004. The 2004 Plan is the only plan under
which share-based awards may be granted in the future.
PSA grants made in 2006 will vest and be paid based on a non-
discretionary formula that measures our performance using
relative total shareholder return over a performance period
relative to an industry peer group. If our minimum performance
in the measure is below the threshold level relative to the peer
group, then no shares will be paid. PCSA grants made prior to 2006
will vest and be paid based on a non-discretionary formula, which
measures our performance using relative total shareholder return
and relative change in diluted earnings per common share (EPS)
over a performance period relative to an industry peer group. If
our minimum performance in the measures is below the threshold
level relative to the peer group, then no shares will be paid.
As of January 1, 2006, we measure PSA grants at fair value, using
a Monte Carlo simulation model, times the target number of
shares. The target number of shares is determined by reference
to the fair value of share-based awards to similar employees in
the industry peer group. We measure PCSA grants at intrinsic value
whereby the probable award was allocated over the term of the
award, then the resultant shares are adjusted to the fair value of
our common stock at each accounting period until the date of
payment.
The following table summarizes all PSA and PCSA activity during
2006, 2005 and 2004, with the shares granted representing the
maximum award that could be achieved:
WEIGHTED-
AVERAGE
GRANT DATE
VALUE PER
(THOUSANDS OF SHARES) SHARES SHARE
Nonvested, January 1, 2004 11,201 $35.33
Granted 4,656 37.15
Vested (696) 37.15
Forfeited
(a)
(2,044) 37.15
Nonvested, December 31, 2004 13,117 26.89
Granted 3,035 26.20
Vested (1,652) 26.20
Forfeited
(a)
(1,134) 26.20
Nonvested, December 31, 2005 13,366 23.32
Granted 1,563 35.77
Vested (1,583) 26.20
Reinvested dividend equivalents 44 25.36
Forfeited
(a)
(2,327) 26.13
Nonvested, December 31, 2006 11,063 26.99
(a)
Forfeited includes 345 thousand shares in 2006, 454 thousand
shares in 2005 and 210 thousand shares in 2004 that were
forfeited by retirees. At the discretion of the Compensation
Committee of our Board of Directors, $9.0 million in 2006, $11.9
million in 2005 and $7.8 million in 2004 was paid in cash to such
retirees, which amounts were equivalent to the fair value of the
forfeited shares pro rated for the portion of the performance
period that was completed prior to retirement.
The following table provides data related to all PSA and PCSA
activity:
YEAR ENDED DEC. 31,
____________________________________________________
(MILLIONS OF DOLLARS, EXCEPT PER PCSA
AMOUNTS AND YEARS) 2006 2005 2004
Weighted-average grant
date fair value per PCSA $25.90 $23.32 $26.89
Total intrinsic value of
vested PCSA shares $51 $56 $34
Total compensation cost
related to nonvested PSA
grants not yet recognized,
pre-tax $10 N/A N/A
Weighted-average period
in years over which PSA
cost is expected to be
recognized 2 N/A N/A
We entered into forward-purchase contracts that partially offset
the potential impact on net income of our obligation under the
pre-2006 PCSAs. At settlement date, we will, at the option of the
counterparty to each of the contracts, either receive our own stock