Pfizer 2009 Annual Report Download - page 89

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
The weighted-average assumptions used in the valuation of PSAs are as follows:
YEAR ENDED DECEMBER 31,
2009 2008 2007
Risk-free interest rate 1.95% 2.05% 4.68%
Expected Pfizer stock price volatility 40.40% 27.21% 21.28%
Average peer stock price volatility 36.30% 32.13% 18.85%
Contractual term in years 333
The following table summarizes all PSA and PCSA activity during 2009, with the shares granted representing the maximum award
that could be achieved:
SHARES
(THOUSANDS)
WEIGHTED-
AVERAGE
GRANT
DATE FAIR
VALUE PER
SHARE
Nonvested, December 31, 2008 7,892 $23.52
Granted 2,388 12.43
Vested (2,025) 18.77
Forfeited (2,479) 19.09
Modifications(a) 342 15.05
Nonvested, December 31, 2009 6,118 23.07
(a) Modifications include pro-ration of the awards for service to the date of termination for 13 former employees in 2009. The modifications
were made at the discretion of the Senior Vice President of Worldwide Human Resources, or her designee for 2009. There was no
incremental cost related to the modifications.
The following table provides data related to all PSA and PCSA activity:
YEAR ENDED DECEMBER 31,
(MILLIONS OF DOLLARS, EXCEPT YEARS) 2009 2008 2007
Total intrinsic value of vested PSA/PCSA shares $37 $15 $46
Total compensation cost related to nonvested PSA grants not yet recognized, pre-tax $17 $20 $15
Weighted-average period in years over which PSA cost is expected to be recognized 222
E. Total Shareholder Return Units (TSRUs)
Total Shareholder Return Units (TSRUs) (formerly known as Stock Appreciation Rights (SARs)) are awarded to senior and key
management. TSRUs entitle the holders to receive, two years after the end of a three-year 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 the 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 TSRUs are automatically settled on the fifth anniversary of the grant but vest on the third anniversary of the grant, after which
time there no longer is a risk of forfeiture. TSRUs are accounted for using a fair-value-based method at the date of grant in the
consolidated statements of income and generally are 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.
The fair-value-based method for valuing the TSRUs uses the Monte Carlo simulation model. The model incorporates a number of
valuation assumptions noted in the following table, shown at their weighted-average values:
TSRUs
2009
TSRUs
2008
Expected dividend yield(a) 4.55% 5.54%
Risk-free interest rate(b) 2.35% 2.77%
Expected stock price volatility(c) 36.92% 27.21%
Expected term(d) (years) 5.00 5.00
(a) Determined using a constant dividend yield during the expected term of the TSRU.
(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 the contractual term.
2009 Financial Report 87