Pfizer 2008 Annual Report Download - page 83

Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
The following table provides data related to all PSA and PCSA activity:
FOR YEAR ENDED DECEMBER 31,
(MILLIONS OF DOLLARS, EXCEPT YEARS) 2008 2007 2006
Total intrinsic value of vested PCSA shares $15 $46 $51
Total compensation cost related to nonvested PSA grants not yet recognized, pre-tax $20 $15 $10
Weighted-average period in years over which PSA cost is expected to be recognized 222
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 would, at the option of the counterparty to each of the contracts, either receive our own
stock or settle the contracts for cash. We had contracts for approximately 3 million shares of our stock at a per-share price of $33.85
outstanding as of December 31, 2006. The contracts matured early in 2007. Changes in the fair value of these contracts were
reported in Other (income)/deductions – net.
E. Stock Appreciation Rights (SARs)
SARs are awarded to senior and key management. SARs entitle the holders to receive, two years after the end of a vesting term, a
number of shares of our common stock with a value equal to the difference between the defined settlement price and the grant price,
plus the dividends accumulated during a five-year term. The settlement price is the average closing price of Pfizer common stock
during the 20 trading days ending on the fifth anniversary of the grant; the grant price is the closing price of Pfizer common stock on
the date of the grant.
The SARs are automatically settled on the fifth anniversary of the grant but vest on the third anniversary of the grant, after which
time there is no longer a risk of forfeiture. SARs are accounted for at fair value at the date of grant in the consolidated income
statement and generally amortized on an even basis over the vesting term into Cost of sales, Selling, informational and
administrative expenses and Research and development expenses, as appropriate.
We calculate the fair value by using a Monte Carlo simulation model, using weighted-average assumptions similar to those used in
the valuation of stock options, except using the risk-free rate of 2.77% and contractual five years as the expected term.
The following summarizes all SARs activity during 2008:
SHARES
(THOUSANDS)
WEIGHTED-AVERAGE
GRANT DATE VALUE
PER SHARE
Nonvested, January 1, 2008 —$—
Granted 3,040 22.50
Vested (35) 22.55
Forfeited (249) 22.55
Nonvested, December 31, 2008 2,756 22.49
The following table provides data related to all SARs activity:
YEAR ENDED
DECEMBER 31,
(MILLIONS OF DOLLARS, EXCEPT PER SARs AMOUNTS AND YEARS) 2008
Weighted-average grant date fair value per SARs $5.54
Total compensation cost related to nonvested SARs grants not yet recognized, pre-tax $9
Weighted-average period in years over which SARs cost is expected to be recognized 2.2
F. Restricted Stock
Restricted stock grants, which entitle the holder to receive, at the end of a vesting term, a specified number of shares of our common
stock, and which also entitle the holder to receive dividends paid on such grants, are accounted for at fair value at the date of grant.
Senior and key members of management received restricted stock awards prior to 2005. In most instances, restricted stock grants
vest after three years of continuous service from the grant date. The vesting terms are equal to the contractual terms. These awards
have not been significant.
2008 Financial Report 81