Pfizer 2012 Annual Report Download - page 98

Notes to Consolidated Financial Statements
Pfizer Inc. and Subsidiary Companies
2012 Financial Report 97
The following table summarizes all stock option activity during 2012:
Shares
(Thousands)
Weighted-
Average
Exercise Price
Per Share
Weighted-Average
Remaining
Contractual Term
(Years)
Aggregate
Intrinsic
Value(a)
(Millions)
Outstanding, December 31, 2011 429,553 $ 25.31
Granted 57,919 21.04
Exercised (37,160) 15.98
Forfeited (6,881) 19.12
Canceled (60,476) 35.96
Outstanding, December 31, 2012 382,955 $ 24.00 5.0 $ 1,230
Vested and expected to vest(b), December 31, 2012 375,102 24.10 4.9 $ 1,183
Exercisable, December 31, 2012 225,829 $ 27.32 2.8 $ 308
(a) Market price of underlying Pfizer common stock less exercise price.
(b) The number of options expected to vest takes into account an estimate of expected forfeitures.
The following table summarizes data related to all stock option activity:
Year Ended/As of
December 31,
(MILLIONS OF DOLLARS, EXCEPT PER STOCK OPTION AMOUNTS) 2012 2011 2010
Weighted-average grant date fair value per stock option $2.79 $3.15 $3.25
Aggregate intrinsic value on exercise $263 $32$ 5
Cash received upon exercise $568 $153 $16
Tax benefits realized related to exercise $81$10$ 1
Total compensation cost related to nonvested stock options not yet recognized, pre-tax $148 $177 $178
Weighted-average period over which stock option compensation cost is expected to be recognized
(years) 1.2 1.3 1.3
D. Total Shareholder Return Units (TSRUs)
TSRUs are awarded to senior and other key management. The contractual terms for TSRUs were for 5 years for certain awards and for 7 years
for the balance of the awards in 2012 and 2011, and for 5 years for all awards in 2010. The target number of shares is determined by reference
to the fair value of share-based awards to similar employees in the industry peer group.
We measure the value of TSRU grants as of the grant date using a Monte Carlo simulation 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 weighted-average assumptions used in the valuation of TSRUs follow:
Year Ended December 31,
2012 2011 2010
Expected dividend yield(a) 4.10%4.15%3.99%
Risk-free interest rate(b) 1.15%2.51%2.34%
Expected stock price volatility(c) 23.80%25.55%26.76%
Contractual term (years) 5.97 5.95 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.
E. Performance Share Awards (PSAs)
PSAs are awarded to senior and other key management. PSAs vest after three years of continuous service from the grant date. The number of
shares paid, if any, including shares resulting from dividend equivalents, depends upon the achievement of predetermined goals related to
Pfizer's total share return as compared to an industry peer group, for the three-year performance period from the year of the grant date. The
target number of shares is determined by reference to the value of share-based awards to similar employees in the industry peer group.
We measure the value of PSA grants as of the grant date using the intrinsic value method, for which we use the closing price of Pfizer common
stock. The values are amortized on a straight-line basis over the probable vesting term into Cost of sales, Selling, informational and