Share-based Payments

Share-based Compensation Expense

The following table summarizes share-based compensation expense included within our consolidated statements of income:



	For the Years Ended December 31,
(In millions)	2012			2011			2010
Research and development	$	74.7		$	62.0		$	62.7
Selling, general and administrative	109.6			88.7			123.6
Restructuring charges	—			(0.6		)	6.8
Subtotal	184.3			150.1			193.1
Capitalized share-based compensation costs	(5.4		)	(4.5		)	(3.5		)
Share-based compensation expense included in total cost and expenses	178.9			145.6			189.6
Income tax effect	(53.4		)	(44.6		)	(60.3		)
Share-based compensation expense included in net income attributable to Biogen Idec Inc.	$	125.5		$	101.0		$	129.3

The following table summarizes share-based compensation expense associated with each of our share-based compensation programs:



	For the Years Ended December 31,
(In millions)	2012			2011			2010
Stock options	$	2.3		$	5.9		$	26.1
Market stock units	23.3			14.6			10.0
Time-vested restricted stock units	93.0			89.6			129.4
Performance-vested restricted stock units settled in shares	0.1			1.0			5.3
Cash settled performance shares	60.4			32.7			15.0
Employee stock purchase plan	5.2			6.3			7.3
Subtotal	184.3			150.1			193.1
Capitalized share-based compensation costs	(5.4		)	(4.5		)	(3.5		)
Share-based compensation expense included in total cost and expenses	$	178.9		$	145.6		$	189.6

Windfall tax benefits from vesting of stock awards, exercises of stock options and ESPP participation were $54.7 million, $50.6 million and $13.1 million in 2012, 2011 and 2010, respectively. These amounts have been calculated under the alternative transition method in accordance with U.S. GAAP.

As of December 31, 2012, unrecognized compensation cost related to unvested share-based compensation was approximately $164.4 million, net of estimated forfeitures. We expect to recognize the cost of these unvested awards over a weighted-average period of 1.4 years.

Share-Based Compensation Plans

We have three share-based compensation plans pursuant to which awards are currently being made: (1) the Biogen Idec Inc. 2006 Non-Employee Directors Equity Plan (2006 Directors Plan); (2) the Biogen Idec Inc. 2008 Omnibus Equity Plan (2008 Omnibus Plan); and (3) the Biogen Idec Inc. 1995 Employee Stock Purchase Plan (ESPP). We have five share-based compensation plans under which there are outstanding awards, but from which no further awards can or will be made: (i) the IDEC Pharmaceuticals Corporation 1993 Non-Employee Directors Stock Option Plan; (ii) the IDEC Pharmaceuticals Corporation 1988 Stock Option Plan; (iii) the Biogen, Inc. 1985 Non-Qualified Stock Option Plan; (iv) the Biogen Idec Inc. 2003 Omnibus Equity Plan; and (v) the Biogen Idec Inc. 2005 Omnibus Equity Plan (2005 Omnibus Plan). We have not made any awards pursuant to the 2005 Omnibus Plan since our stockholders approved the 2008 Omnibus Plan and do not intend to make any awards pursuant to the 2005 Omnibus Plan in the future, except that unused shares under the 2005 Omnibus Plan have been carried over for use under the 2008 Omnibus Plan.

Directors Plan

In May 2006, our stockholders approved the 2006 Directors Plan for share-based awards to our directors. Awards granted from the 2006 Directors Plan may include stock options, shares of restricted stock, restricted stock units, stock appreciation rights and other awards in such amounts and with such terms and conditions as may be determined by a committee of our Board of Directors, subject to the provisions of the plan. We have reserved a total of 1.6 million shares of common stock for issuance under the 2006 Directors Plan. The 2006 Directors Plan provides that awards other than stock options and stock appreciation rights will be counted against the total number of shares reserved under the plan in a 1.5-to-1 ratio.

Omnibus Plans

In June 2008, our stockholders approved the 2008 Omnibus Plan for share-based awards to our employees. Awards granted from the 2008 Omnibus Plan may include stock options, shares of restricted stock, restricted stock units, performance shares, shares of phantom stock, stock appreciation rights and other awards in such amounts and with such terms and conditions as may be determined by a committee of our Board of Directors, subject to the provisions of the plan. Shares of common stock available for issuance under the 2008 Omnibus Plan consist of 15.0 million shares reserved for this purpose, plus shares of common stock that remained available for issuance under the 2005 Omnibus Plan on the date that our stockholders approved the 2008 Omnibus Plan, plus shares that are subject to awards under the 2005 Omnibus Plan which remain unissued upon the cancellation, surrender, exchange or termination of such awards. The 2008 Omnibus Equity Plan provides that awards other than stock options and stock appreciation rights will be counted against the total number of shares available under the plan in a 1.5-to-1 ratio.

Stock Options

We no longer grant stock options to our employees or directors. Outstanding stock options previously granted to our employees and directors generally have a ten-year term and vest over a period of between one and four years, provided the individual continues to serve at Biogen Idec through the vesting dates. Options granted under all plans are exercisable at a price per share not less than the fair market value of the underlying common stock on the date of grant. The estimated fair value of options, including the effect of estimated forfeitures, is recognized over the options’ vesting periods. The fair value of the stock options granted in 2010 was estimated as of the date of grant using a Black-Scholes option valuation model that uses the following weighted-average assumptions:



	For the Years Ended December 31,
	2012	2011	2010
Expected option life (in years)	**	**	4.5
Expected stock price volatility	**	**	30.8		%
Risk-free interest rate	**	**	2.0		%
Expected dividend yield	**	**	—		%
Per share grant-date fair value	**	**	$	16.52

** There were no grants of stock options made in 2012 and 2011.

The expected life of options granted is derived using assumed exercise rates based on historical exercise patterns and represents the period of time that options granted are expected to be outstanding. Expected stock price volatility is based upon implied volatility for our exchange-traded options and other factors, including historical volatility. After assessing all available information on either historical volatility, implied volatility, or both, we have concluded that a combination of both historical and implied volatility provides the best estimate of expected volatility. The risk-free interest rate used is determined by the market yield curve based upon risk-free interest rates established by the Federal Reserve, or non-coupon bonds that have maturities equal to the expected term. The dividend yield of zero is based upon the fact that we have not historically granted cash dividends, and do not expect to issue dividends in the foreseeable future. Stock options granted prior to January 1, 2006 were valued based on the grant date fair value of those awards, using the Black-Scholes option pricing model, as previously calculated for pro-forma disclosures.

The following table summarizes our stock option activity:



	Shares		Weighted Average Exercise Price
Outstanding at December 31, 2011	1,691,000		$	52.75
Granted	—		$	—
Exercised	(765,000	)	$	50.72
Cancelled	(19,000	)	$	51.99
Outstanding at December 31, 2012	907,000		$	54.48

The total intrinsic values of options exercised in 2012, 2011 and 2010 totaled $63.0 million, $149.0 million, and $50.5 million, respectively. The aggregate intrinsic values of options outstanding as of December 31, 2012 totaled $83.3 million. The weighted average remaining contractual term for options outstanding as of December 31, 2012 was 4.4 years.

Of the options outstanding, 0.8 million were exercisable as of December 31, 2012. The exercisable options had a weighted-average exercise price of $54.87. The aggregate intrinsic value of options exercisable as of December 31, 2012 was $72.1 million. The weighted average remaining contractual term for options exercisable as of December 31, 2012 was 4.1 years.

A total of 0.9 million vested and expected to vest options were outstanding as of December 31, 2012. These vested and expected to vest options had a weighted average exercise price of $54.48 and an aggregated intrinsic value of $83.1 million. The weighted average remaining contractual term of vested and expected to vest options as of December 31, 2012 was 4.4 years.

The following table summarizes the amount of tax benefit realized for stock options and cash received from the exercise of stock options:



	For the Years Ended December 31,
(In millions)	2012		2011		2010
Tax benefit realized for stock options	$	20.9	$	47.5	$	16.0
Cash received from the exercise of stock options	$	38.8	$	291.9	$	160.0

Market Stock Units (MSUs)

MSUs awarded to employees vest in four equal annual increments beginning on the anniversary of the grant date. The vesting of these awards is subject to the respective employee’s continued employment. The number of MSUs granted represents the target number of units that are eligible to be earned based on the attainment of certain market-based criteria involving our stock price. The number of MSUs earned is calculated at each annual anniversary from the date of grant over the respective vesting periods, resulting in multiple performance periods. Participants may ultimately earn between 0% and 150% of the target number of units granted based on actual stock performance. Accordingly, additional MSUs may be issued or currently outstanding MSUs may be cancelled upon final determination of the number of awards earned. Compensation expense, including the effect of forfeitures, is recognized over the applicable service period.

The following table summarizes our MSU activity:



	Shares		Weighted Average Grant Date Fair Value
Unvested at December 31, 2011	581,000		$	69.49
Granted (a)	319,000		$	134.95
Vested	(244,000	)	$	121.40
Forfeited	(50,000	)	$	75.94
Unvested at December 31, 2012	606,000		$	94.73

(a)

MSUs granted in 2012 include approximately 39,000 and 42,000 MSUs issued in 2012 based upon the attainment of performance criteria set for 2011 and 2010, respectively, in relation to shares granted in those years. The remainder of MSUs granted during 2012 include awards granted in conjunction with our annual awards made in February 2012 and MSUs granted in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned at the time of grant.

We value grants of MSUs using a lattice model with a Monte Carlo simulation. This valuation methodology utilizes several key assumptions, including the 60 calendar day average closing stock price on grant date, expected volatility of our stock price, risk-free rates of return and expected dividend yield. The assumptions used in our valuation are summarized as follows:



	For the Years Ended December 31,
	2012	2011
Expected dividend yield	—%	—%
Range of expected stock price volatility	29.6% - 34.0%	25.7% - 33.4%
Range of risk-free interest rates	0.2% - 0.6%	0.3% - 1.9%
60 calendar day average stock price on grant date	$113.83 - $149.79	$66.78 - $101.16
Weighted-average per share grant date fair value	$134.95	$74.19

Cash Settled Performance Shares (CSPSs)

CSPSs awarded to employees vest in three equal annual increments beginning on the anniversary of the grant date. The vesting of these awards is subject to the respective employee’s continued employment with such awards settled in cash. The number of CSPSs granted represents the target number of units that are eligible to be earned based on the attainment of certain performance measures established at the beginning of the performance period, which ends on December 31^st of each year. Participants may ultimately earn between 0% and 200% of the target number of units granted based on the degree of actual performance metric achievement. Accordingly, additional CSPSs may be issued or currently outstanding CSPSs may be cancelled upon final determination of the number of units earned. CSPSs are settled in cash based on the 60 calendar day average closing stock price through each vesting date once the actual vested and earned number of units is known. Since no shares are issued, these awards will not dilute equity. Compensation expense, including the effect of forfeitures, is recognized over the applicable service period.

The following table summarizes our CSPS activity:



	Shares
Unvested at December 31, 2011	562,000
Granted (a)	327,000
Vested	(280,000	)
Forfeited	(17,000	)
Unvested at December 31, 2012	592,000

(a)

CSPSs granted in 2012 include approximately 68,000 CSPSs issued in 2012 based upon the attainment of performance criteria set for 2011 in relation to shares granted in 2011. The remainder of the CSPSs granted in 2012 include awards granted in conjunction with our annual awards made in February 2012 and CSPSs granted in conjunction with the hiring of employees. These grants reflect the target number of shares eligible to be earned at the time of grant.

During 2012, we paid $28.7 million of cash in settlement of CSPS awards upon vesting.

Time-Vested Restricted Stock Units (RSUs)

RSUs awarded to employees generally vest no sooner than one-third per year over three years on the anniversary of the date of grant, or upon the third anniversary of the date of the grant, provided the employee remains continuously employed with us, except as otherwise provided in the plan. Shares of our common stock will be delivered to the employee upon vesting, subject to payment of applicable withholding taxes. RSUs awarded to directors for service on our Board of Directors vest on the first anniversary of the date of grant, provided in each case that the director continues to serve on our Board of Directors through the vesting date. Shares of our common stock will be delivered to the director upon vesting and are not subject to any withholding taxes. The fair value of all RSUs is based on the market value of our stock on the date of grant. Compensation expense, including the effect of forfeitures, is recognized over the applicable service period.

The following table summarizes our RSU activity:



	Shares		Weighted Average Grant Date Fair Value
Unvested at December 31, 2011	2,924,000		$	60.72
Granted (a)	1,013,000		$	124.54
Vested	(1,540,000	)	$	121.06
Forfeited	(210,000	)	$	79.55
Unvested at December 31, 2012	2,187,000		$	90.37


(a)	RSUs granted in 2012 primarily represent RSUs granted in conjunction with our annual awards made in February 2012 and awards made in conjunction with the hiring of new employees. RSUs granted in 2012 also include approximately 24,000 RSUs granted to our Board of Directors.

RSUs granted in 2011 and 2010 had weighted average grant date fair values of $70.01 and $54.79, respectively.

Performance-Vested Restricted Stock Units (PVRSUs)

The following table summarizes our PVRSU activity:



	Shares		Weighted Average Grant Date Fair Value
Unvested at December 31, 2011	47,000		$	49.34
Granted	—		$	—
Vested	(46,000	)	$	119.03
Forfeited	(70	)	$	49.65
Unvested at December 31, 2012	930		$	53.64

Grant Activity

In 2011 and 2010, approximately 1,000 and 4,000 and PVRSUs were granted with weighted average grant date fair values of $53.64 per share, respectively. The number of PVRSUs reflected as granted represents the target number of shares that are eligible to vest in full or in part and are earned subject to the attainment of certain performance criteria established at the beginning of the performance period, which ended December 31, 2009. Participants may ultimately earn up to 200% of the target number of shares granted in the event that the maximum performance thresholds are attained. Accordingly, additional PVRSUs may be issued upon final determination of the number of awards earned.

Once the earned number of performance-vested awards has been determined, the earned PVRSUs will then vest in three equal increments on (1) the later of the first anniversary of the grant date or the date of results determination; (2) the second anniversary of the grant date; and (3) the third anniversary of the grant date. The vesting of these awards is also subject to the respective employees’ continued employment. Compensation expense associated with these PVRSUs is initially based upon the number of shares expected to vest after assessing the probability that certain performance criteria will be met and the associated targeted payout level that is forecasted will be achieved, net of estimated forfeitures. Cumulative adjustments are recorded quarterly to reflect subsequent changes in the estimated outcome of performance-related conditions until the date results are determined.

Employee Stock Purchase Plan (ESPP)

The following table summarizes our ESPP activity:



	For the Years Ended December 31,
(In millions)	2012		2011		2010
Shares issued under ESPP	0.3		0.4		0.6
Cash received under ESPP	$	28.7	$	22.8	$	23.5

Other

As part of the employee severance and benefits packages offered to employees affected by our workforce reduction made in connection with our 2010 restructuring initiative, we agreed to settle certain existing equity awards in cash, which resulted in an incremental charge of approximately $6.8 million recognized in the fourth quarter of 2010. This charge is reflected within our consolidated statement of income as a component of our total restructuring charge incurred in 2010.

In accordance with the transition agreement entered into with James C. Mullen who retired as our President and Chief Executive Officer on June 8, 2010, we agreed with Mr. Mullen, amongst other provisions, to vest all of Mr. Mullen’s then-unvested equity awards on the date of his retirement and allow Mr. Mullen to exercise his vested stock options until June 8, 2013 or their expiration, whichever is earlier. The modifications to Mr. Mullen’s existing stock options, RSUs and PVRSUs resulted in an incremental charge of approximately $18.6 million, which was recognized evenly over the service period from January 4, 2010 to June 8, 2010 as per the terms of the transition agreement.