Pfizer 2005 Annual Report Download - page 62

We may grant restricted stock units (RSUs) to employees. RSUs
entitle the holders to receive shares of Pfizer stock at the end of
a vesting period, which include dividend equivalents paid on
such units. RSUs generally vest in equal portions each year over
a five-year period. The total number of RSUs granted in 2005 was
11 million shares with a weighted average fair value of $26.20.
We may grant performance-contingent share awards to
employees. The 2004 Plan limitations on the maximum amount of
share-based awards apply to all awards including performance-
contingent share awards. 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. Awards
prior to that date were made under the Performance-Contingent
Award Program (the 1993 Program), allowing a maximum of 120
million shares. The 2004 Plan is the only plan under which any stock
award may be given in the future.
Performance-contingent share awards vest and are paid based on
a non-discretionary formula, which measures our performance
using relative total shareholder return and relative growth in
diluted EPS, over a performance period relative to an industry peer
group. If our minimum performance in both measures is below
the threshold level relative to the peer group, then no
performance-contingent awards will be paid.
The performance period for the 1993 Program and the 2001 Plan
typically covers five years; however, in certain limited circumstances
two, three and four year performance periods were permitted.
The performance period for the 2004 Plan typically covers five
years; however, for new entrants into the program on January 1,
2005, three and four year performance periods were established.
At December 31, 2005, a summary of the performance-contingent
share award balances and activities was as follows:
SHARES
THAT MAY TOTAL
BE ISSUED AWARDED
UNDER SHARES AT AWARDED SHARES IN
OUTSTANDING DEC. 31,
(MILLIONS OF SHARES) AWARDS 2005 2005 2004 2003
The 2004 Plan 2.6 ————
The 2001 Plan 11.0 0.2 0.1 ——
The 1993 Program* 1.8 12.2 1.4 0.6 1.4
*Includes some awards granted under the prior Stock and Incentive
Plan.
Compensation expense relating to the performance-contingent
share awards totaled approximately $37 million in 2005, $42
million in 2004 and $41 million in 2003.
We entered into forward-purchase contracts that partially offset
the potential impact on net income of our liability under the 1993
Program, the 2001 Plan and the 2004 Plan. At settlement date we
will, at the option of the counterparty to each of the contracts,
either receive our own stock or settle the contracts for cash. At
December 31, 2005 and 2004, forward-purchase contracts for 3.0
million shares at $33.84 per share were outstanding and had a
maximum maturity of 0.4 years.
2005 Financial Report 61
Notes to Consolidated Financial Statements
Pfizer Inc and Subsidiary Companies
The financial statements include the following items related to
these contracts:
Prepaid expenses and taxes includes:
•fair value of these contracts
Other (income)/deductions—net includes:
•changes in the fair value of these contracts
Other share-based awards include restricted (unvested) stock,
which include dividend equivalents paid on such stock. Such
awards were not significant.