Pfizer 2013 Annual Report Download - page 101

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
100
2013 Financial Report
Amounts capitalized as part of inventory cost and the impact of modifications under our cost-reduction and productivity initiatives to share-
based awards were not significant for any period presented. Generally, the modifications resulted in an acceleration of vesting, either in
accordance with plan terms or at management’s discretion.
B. Restricted Stock Units (RSUs)
RSUs are awarded to select employees and, when vested, entitle the holder to receive a specified number of shares of Pfizer common stock,
including shares resulting from dividend equivalents paid on such RSUs. For RSUs granted during the periods presented, in virtually all
instances, the units vest after three years of continuous service from the grant date.
We measure the value of RSU grants as of the grant date using the closing price of Pfizer common stock. The values determined through this
fair value methodology generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, informational and
administrative expenses, and Research and development expenses, as appropriate.
The following table summarizes all RSU activity during 2013:
Shares
(Thousands)
Weighted-
Average
Grant Date
Fair Value
Per Share
Nonvested, December 31, 2012 37,860 $19.34
Granted 10,253 27.39
Vested (13,943) 18.16
Reinvested dividend equivalents 1,139 29.14
Forfeited (2,558) 21.98
Nonvested, December 31, 2013 32,751 $22.50
The following table provides data related to all RSU activity:
(MILLIONS OF DOLLARS)
Year Ended December 31,
2013 2012 2011
Total fair value of shares vested $379 $348 $256
Total compensation cost related to nonvested RSU awards not yet recognized, pre-tax $239 $258 $264
Weighted-average period over which RSU cost is expected to be recognized (years) 1.8 1.8 1.8
C. Stock Options
Stock options are awarded to select employees and, when vested, entitle the holder to purchase a specified number of shares of Pfizer
common stock at a price per share equal to the closing market price of Pfizer common stock on the date of grant.
All eligible employees may receive stock option grants. No stock options were awarded to senior and other key management in any period
presented; however, stock options were awarded to certain other employees. In virtually all instances, stock options granted since 2005 vest
after three years of continuous service from the grant date and have a contractual term of 10 years. In most cases, stock options must be held
for at least 1 year from the grant date before any vesting may occur. In the event of a sale or restructuring, options held by employees are
immediately vested and are exercisable for a period from three months to their remaining term, depending on various conditions.
We measure the value of stock option grants as of the grant date using, for virtually all grants, the Black-Scholes-Merton option-pricing model.
The values determined through this fair value methodology generally are amortized on a straight-line basis over the vesting term into Cost of
sales, Selling, informational and administrative expenses, and Research and development expenses, as appropriate.
The following table provides the weighted-average assumptions used in the valuation of stock options:
Year Ended December 31,
2013 2012 2011
Expected dividend yield(a) 3.45%4.10%4.14%
Risk-free interest rate(b) 1.16%1.28%2.59%
Expected stock price volatility(c) 19.68%23.78%25.55%
Expected term(d) (years) 6.50 6.50 6.25
(a) Determined using a constant dividend yield during the expected term of the option.
(b) Determined using the interpolated yield on U.S. Treasury zero-coupon issues.
(c) Determined using implied volatility, after consideration of historical volatility.
(d) Determined using historical exercise and post-vesting termination patterns.