Western Union 2006 Annual Report Download - page 72

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WESTERN UNION 2006 Annual Report 70
Earnings Per Share
The calculation of basic earnings per share excludes dilution
and is computed by dividing net income available to common
stockholders by the weighted average number of shares
of common stock outstanding for the period. Prior to
September 29, 2006, all outstanding shares of Western
Union were owned by First Data. Accordingly, for all
periods prior to the completion of the Distribution on
September 29, 2006, basic and diluted earnings per share
are computed using Western Union’s shares outstanding
as of that date. Unvested shares of restricted stock are
excluded from basic shares outstanding. Diluted earnings
per share subsequent to September 29, 2006 reflects the
potential dilution that could occur if outstanding stock
options at the presented date are exercised and shares
of restricted stock have vested and shares have been
transferred in settlement of stock unit awards.
Prior to completion of the Distribution, First Data
converted options, restricted stock awards, and restricted
stock units held by First Data and Western Union employees.
For First Data employees, one replacement First Data
option and one Western Union option was distributed for
every First Data option held prior to the spin-off. For Western
Union employees, outstanding First Data options were
converted to substitute options to purchase Western Union
common stock at a conversion ratio of 2.1955 options to
purchase Western Union common stock for every option
to purchase First Data common stock prior to the spin-off.
The new awards maintained both the pre-conversion
aggregate intrinsic value of each award and the ratio of
the exercise price per share to the fair market value per
share as of the spin-off date. Refer to Note 16, “Stock
Compensation Plans,” for a more detailed discussion of
our stock-based compensation plans.
As of December 31, 2006, there were 4.9 million
outstanding options to purchase shares of Western Union
stock excluded from the diluted earnings per share calculation,
as the exercise price of the options exceeded or was equal
to the Company’s stock price.
The following table provides the calculation of diluted weighted average shares outstanding, and only considers the
potential dilution for stock options, restricted stock awards and restricted stock units for the period subsequent to the
spin-off date of September 29, 2006 (in millions):
For the Year Ended December 31, 2006 2005 2004
Basic weighted-average shares 764.5 763.9 763.9
Common stock equivalents existing after the spin-off 4.1 — —
Diluted weighted-average shares outstanding 768.6 763.9 763.9
Fair Value of Financial Instruments
Carrying amounts for Western Union financial instruments,
including cash and cash equivalents, settlement assets
(other than investment securities), settlement obligations,
borrowings under the commercial paper program, and
revolving and other short-term notes payable, approximate
fair value due to their short maturities. Investment
securities, included in settlement assets, are carried at
fair market value and are considered available for sale
(Note 7). Fixed and floating rate notes are carried at their
discounted notional amounts. The fair market values of
fixed and floating rate notes disclosed in Note 15 are
based on market quotations.
Cash and Cash Equivalents
Highly liquid investments (other than those included in
settlement assets) with maturities of three months or less
at the date of purchase (that are readily convertible to cash)
are considered to be cash equivalents and are stated at
cost, which approximates market value.
Western Union maintains cash and cash equivalent
balances with various financial institutions. Western Union
limits the concentration of its cash and cash equivalents
with any one institution; however, such balances often
exceed United States federal insurance limits. Western
Union periodically evaluates the credit worthiness of these
institutions to minimize risk.