Pfizer 2007 Annual Report Download - page 66

64 2007 Financial Report
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
15. 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
2007:
June 2005 program(a) 395 $25.27 $9,994
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
(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.
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 our 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 January 2007, we paid the remaining balance of financing,
which was outstanding prior to our acquisition of Pharmacia in
2003, relating to the Preferred ESOP. Compensation expense
related to the ESOPs totaled approximately $35 million in 2007,
$37 million in 2006 and $44 million in 2005.
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, 2007, the Preferred ESOP held preferred shares with
a stated value of approximately $93 million, convertible into
approximately six million shares of our common stock. As of
December 31, 2007, the Common ESOP held approximately 6 million
shares of our common stock. As of December 31, 2007, all preferred
and common shares held by the ESOPs have been allocated to the
Pharmacia U.S. and certain Puerto Rico savings plan participants.
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.
16. Share-Based Payments
Our compensation programs can include share-based payments.
In 2007, 2006 and 2005, 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 PSAs.
•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, 2007, 269 million shares were available for
award, which include 40 million shares available for award under
the legacy Pharmacia Long-Term Incentive Plan, which reflects
award cancellations returned to the pool of available shares for
legacy Pharmacia commitments.