Stock-based compensation

12 Months Ended

Dec. 31, 2011

Stock-based compensation [Abstract]

Stock-based compensation

3. Stock-based compensation

Our 2009 Equity Incentive Plan (the 2009 Plan) provides for the grant of equity-based awards, including stock options, RSUs and performance units, to employees and consultants of Amgen, its subsidiaries and non-employee members of our Board of Directors. The 2009 Plan, which was approved by our stockholders on May 6, 2009, replaced our prior equity plans (the Prior Plans) and no further awards may be made under these Prior Plans. The 2009 Plan authorizes the issuance of 100 million shares of our common stock. Under the terms of the 2009 Plan, the pool of available shares that may be used for all types of awards, including those issued under our Prior Plans after December 31, 2008, and before May 6, 2009 (the stub period), is reduced by one share for each stock option granted and by 1.9 shares for other types of awards granted, including RSUs and performance units. If any shares subject to an award granted under our Prior Plans during the stub period or any awards granted under the 2009 Plan expire, or are forfeited, terminated or cancelled without the issuance of shares, the shares subject to such awards are added back to the pool of available shares under the 2009 Plan on the same basis that they were removed. As of December 31, 2011, the 2009 Plan provides for future grants and/or issuances of up to approximately 58 million shares of our common stock. Stock-based awards under our employee compensation plans are made with newly issued shares reserved for this purpose.

The following table reflects the components of stock-based compensation expense recognized in our Consolidated Statements of Income for the years ended December 31, 2011, 2010 and 2009 (in millions):

	2011			2010			2009
Stock options	$	85		$	124		$	115
Restricted stock units		188			182			134
Performance units		68			47			35
Total stock-based compensation expense, pre-tax		341			353			284
Tax benefit from stock-based compensation expense		(124	)		(120	)		(97	)
Total stock-based compensation expense, net of tax	$	217		$	233		$	187

Employee stock options and restricted stock units

Eligible employees generally receive a grant of stock options and/or RSUs annually with the size and type of award generally determined by the employee’s salary grade and performance level. In addition, certain management and professional level employees typically receive RSU grants upon commencement of employment. Our stock option and RSU grants provide for accelerated or continued vesting in certain circumstances as defined in the plans and related grant agreements, including upon death, disability, a change in control, termination in connection with a change in control and retirement of employees who meet certain service and/or age requirements. Stock options and RSUs granted prior to April 25, 2011, generally vest in equal amounts on each of the first four anniversaries of the grant date. Stock options and RSUs granted on and after April 25, 2011, generally vest in approximately equal amounts on the second, third and fourth anniversaries of the grant date.

Stock options

The exercise price for stock options is set at the closing price of our common stock on the date of grant and the related number of shares granted is fixed at that point in time. Awards granted to employees on and after April 26, 2010, expire 10 years from the date of grant; options granted to employees prior to that date expire seven years from the date of grant.

We use an option valuation model to estimate the grant date fair value of our employee stock options. The weighted-average assumptions used in the option valuation model and the resulting weighted-average estimated grant date fair values of our employee stock options were as follows for the years ended December 31, 2011, 2010 and 2009:

	2011		2010		2009
Closing price of our common stock on grant date	$	54.66	$	58.32	$	50.65
Expected volatility		23.5%		28.0%		39.6%
Expected life (in years)		5.9		6.6		4.6
Risk-free interest rate		2.5%		3.2%		2.1%
Expected dividend yield		2.0%		0%		0%
Fair value of stock options granted	$	11.39	$	20.97	$	18.35

The expected volatility reflects the consideration of the implied volatility in publicly traded instruments associated with Amgen’s common stock during the period the options were granted. We believe implied volatility in these instruments is more indicative of expected future volatility than the historical volatility in the price of our common stock. We use historical data to estimate the expected life of the options. The risk-free interest rates for periods within the expected life of the option are based on the U.S. Treasury yield curve in effect during the period the options were granted. The expected dividend yield for options granted on and after April 25, 2011, was based on expectations regarding our policy of paying dividends announced in April 2011.

The following summarizes select information regarding our stock options during the year ended December 31, 2011:

	Options (in millions)			Weighted- average exercise price		Weighted- average remaining contractual life (years)		Aggregate intrinsic value (in millions)
Balance unexercised at December 31, 2010		46.8		$	58.66
Granted		2.3		$	54.66
Exercised		(5.0	)	$	50.22
Expired/forfeited		(9.9	)	$	60.43
Balance unexercised at December 31, 2011		34.2		$	59.11		3.8	$	245
Vested or expected to vest at December 31, 2011		33.8		$	59.15		3.7	$	242
Exercisable at December 31, 2011		23.6		$	61.49		2.3	$	135

The total intrinsic value of options exercised during the three years ended December 31, 2011, 2010 and 2009, was $47 million, $15 million and $57 million, respectively.

Restricted stock units

The fair value of an RSU granted prior to April 25, 2011, is equal to the closing price of our common stock on the grant date. The fair values of RSUs granted on and after April 25, 2011, are based on the closing price of our common stock on the grant date reduced by the weighted average expected dividend yield of 1.9% over the weighted-average vesting period, discounted at a weighted-average risk-free interest rate of 1.0%. The weighted-average grant date fair values of RSUs granted in 2011, 2010 and 2009 were $51.83, $58.19 and $51.24, respectively. The following summarizes select information regarding our RSUs during the year ended December 31, 2011:

	Units (in millions)			Weighted-average grant date fair value
Balance nonvested at December 31, 2010		9.3		$	52.67
Granted		4.0		$	51.83
Vested		(3.4	)	$	52.06
Forfeited		(0.9	)	$	52.77
Balance nonvested at December 31, 2011		9.0		$	52.64

The total fair values of shares associated with RSUs that vested during the year ended December 31, 2011, 2010 and 2009, were $176 million, $184 million and $139 million, respectively.

As of December 31, 2011, there was approximately $407 million of unrecognized compensation costs related to nonvested stock option and RSU awards, which is expected to be recognized over a weighted-average period of 1.7 years.

Performance units

Certain management-level employees also receive annual grants of performance units, which give the recipient the right to receive common stock that is contingent upon achievement of specified pre-established performance goals over the performance period, which is generally three years. The performance goals for the units granted in 2011, 2010 and 2009, which are accounted for as equity awards, are based upon Amgen’s annual stockholder return compared with a comparator group of companies, which are considered market conditions and are reflected in the grant date fair value of the units, and for units granted in 2010 and 2009, Amgen’s standalone financial performance, which are considered performance conditions. The expense recognized for the awards granted in 2011 is based on the grant date fair value of a unit multiplied by the number of units granted, net of estimated forfeitures. The expense recognized for the awards granted in 2010 and 2009 was based on the grant date fair value of a unit multiplied by the number of units expected to be earned with respect to the performance conditions, net of estimated forfeitures. Depending on the outcome of these performance goals, a recipient may ultimately earn a number of units greater or less than the number of units granted. Shares of our common stock are issued on a one-for-one basis for each performance unit earned. In general, participants vest in their performance unit awards at the end of the performance period. The performance award program provides for accelerated or continued vesting in certain circumstances as defined in the plan, including upon death, disability, a change in control and retirement of employees who meet certain service and/or age requirements.

We used payout simulation models to estimate the grant date fair value of performance units granted in 2011, 2010 and 2009. The weighted average assumptions used in these models and the resulting weighted average grant date fair values of our performance units were as follows for the years ended December 31, 2011, 2010 and 2009:

	2011		2010		2009
Closing price of our common stock on grant date	$	51.67	$	56.90	$	47.63
Volatility		32.8%		34.7%		34.3%
Risk-free interest rate		1.2%		1.3%		1.2%
Expected dividend yield		0.1%		0%		0%
Fair value of unit	$	49.50	$	62.06	$	48.22

The payout simulation models also assumed correlations of returns of the stock prices of our common stock and the common stocks of the comparator groups of companies and stock price volatilities of the comparator groups of companies.

As of December 31, 2011 and 2010, a total of 4.1 million and 2.7 million performance units were outstanding with weighted-average grant date fair values of $51.92 and $49.49 per unit, respectively. During the year ended December 31, 2011, 2.5 million performance units with a weighted average grant date fair value of $49.50 were granted, 0.4 million performance units with a grant date fair value of $48.22 vested and 0.2 million performance units with a weighted-average grant date fair value of $52.70 were forfeited.

The total fair values of performance units that vested during 2011, 2010 and 2009 were $25 million, $34 million and $29 million, respectively, based upon the number of performance units earned multiplied by the closing stock price of our common stock on the last day of the performance period. Performance unit awards granted for performance periods that ended prior to 2009 were accounted for as liability awards and were paid in the year after the performance period ended. Performance unit liability awards paid in 2009 aggregated $30 million.

As of December 31, 2011, there was approximately $90 million of unrecognized compensation cost related to the 2011 and 2010 performance unit grants that is expected to be recognized over a weighted-average period of approximately 1.1 years.