Western Union 2006 Annual Report Download - page 96

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WESTERN UNION 2006 Annual Report 94
Certain of the Company’s employee stock-based
compensation awards have terms that provide for
vesting to continue after retirement. Prior to the adoption
of SFAS No. 123R, the Company accounted for this type
of arrangement by recognizing pro forma compensation
cost over the stated vesting period for the SFAS No. 123
pro forma disclosures. Upon adoption of SFAS No. 123R,
compensatio n c ost is being recognized over a
shorter period that ends with retirement eligibility.
The impact of applying SFAS No. 123R requirements for
accelerated expense recognition would have impacted pro
forma SFAS No. 123 compensation expense, net of
tax, by a benefit of $1.7 million for the year ended
December 31, 2005 and a charge of $1.0 million for the
year ended December 31, 2004.
As of December 31, 2006, there was $58.0 million of
total unrecognized compensation cost, net of assumed
forfeitures, related to non-vested stock options which is
expected to be recognized over a weighted-average
period of 3.7 years, and there was $27.6 million of total
unrecognized compensation cost, net of assumed
forfeitures, related to non-vested restricted stock awards
and restricted stock units which is expected to be
recognized over a weighted-average period of 2.3 years.
For periods prior to the adoption of SFAS No. 123R, pro forma information regarding the Company’s net income is
required by SFAS No. 123, “Accounting for Stock Based Compensation” (“SFAS No. 123”), as if the Company had
accounted for its employee stock options in First Data stock under the fair value method prescribed by SFAS No. 123.
The Company’s pro forma information for the years ended December 31, 2005 and 2004, which reflects compensation
expense equal to the fair value of the options, restricted stock awards and ESPP rights for Western Union employees
recognized over their vesting periods, is as follows (in millions):
Year Ended December 31, 2005 2004
Reported net income $927.4 $751.6
Restricted stock expense and effect of accelerated vesting
included in reported net income, net of tax 1.9 —
SFAS No. 123 expense, net of tax (37.7) (14.9)
Pro forma net income $891.6 $736.7
Reported earnings per share
—
basic $ 1.21 $ 0.98
Reported earnings per share
—
diluted $ 1.21 $ 0.98
Pro forma earnings per share
—
basic $ 1.17 $ 0.96
Pro forma earnings per share
—
diluted $ 1.17 $ 0.96
The fair value of Western Union options granted subsequent to the spin-off and First Data stock options and ESPP
rights granted to Western Union employees prior to the spin-off for the years ended December 31, 2006, 2005 and 2004
was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:
Year Ended December 31, 2006 2005 2004
STOCK OPTIONS GRANTED (POST-SPIN GRANTS):
Weighted average risk-free interest rate 4.64% — —
Weighted average dividend yield 0.21% — —
Volatility 26.4% — —
Expected term (in years) 6.6 — —
Weighted average fair value $ 7 — —
STOCK OPTIONS GRANTED (PRE-SPIN GRANTS):
Weighted average risk-free interest rate 4.62% 4.14% 3.25%
Weighted average dividend yield 0.58% 0.58% 0.20%
Volatility 23.5% 32.7% 30.5%
Expected term (in years) 5 6 5
Weighted average fair value (pre-spin) $12 $15 $13
ESPP:
Weighted average risk-free interest rate 4.85% 3.12% 1.69%
Weighted average dividend yield 0.56% 0.58% 0.20%
Volatility 23.0% 19.1% 20.5%
Expected term (in years) 0.25 0.25 0.25
Weighted average fair value $ 9 $ 8 $ 8