Western Union 2007 Annual Report Download - page 76

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WESTERN UNION 2007 Annual Report
The Western Union Company 2006
Non-Employee Director Equity Compensation Plan
The Western Union Company 2006 non-employee director equity
compensation plan (“2006 Director Plan”) provides for the grant-
ing of equity-based awards to non-employee directors of the
Company. Options granted under the 2006 Director Plan are
issued at prices equal to the fair market value of Western Union
common stock at the grant date, have 10-year terms, and vest
immediately. Since options and stock units under this plan vest
immediately, compensation expense is recognized on the date
of grant based on the fair market value of the awards when
granted. Awards under the plan may be settled immediately
unless the participant elects to defer the receipt of the common
shares under applicable plan rules. A maximum of 1.5 million
shares of common stock may be awarded under the 2006 Director
Plan. As of December 31, 2007, the Company has issued 0.2
million options and 0.1 million unrestricted stock units to non-
employee directors of the Company.
First Data Stock Options and
Employee Stock Purchase Plan Rights
Prior to the Spin-off, Western Union participated in the First Data
plans that provided for the granting of stock options to employees
and other key individuals who performed services for the
Company. Options granted under the First Data plans were
issued with exercise prices equivalent to the fair market value of
First Data common stock on the dates of grant, substantially all
had 10-year terms and became exercisable in four equal annual
increments beginning 12 months after the dates of grant. The
requisite service period for stock options was the same as the
vesting period, with the exception of retirement eligible employ-
ees who have shorter requisite service periods ending when
the employees become retirement eligible. Compensation
expense related to stock options was recognized over the requisite
service period, except as discussed further under “Stock-Based
Compensation” below for certain options granted prior to the
adoption of SFAS No. 123R.
During the fi rst quarter of 2006, First Data issued restricted
stock awards or restricted stock units to certain employees which
were contingent upon the achievement of certain performance
criterion which were met on the date of Distribution. The awards
had provisions to vest at a rate of 33% per year on the anniversary
date of the grant. The fair value of the awards granted in February
2006 was measured based on the fair market value of the shares
on the date of grant.
Prior to the Spin-off, employees of the Company were able
to participate in a First Data instituted employee stock purchase
plan (“ESPP”). Amounts accumulated through payroll deductions
elected by eligible employees were used to make quarterly
purchases of First Data common stock at a 15% discount from
the lower of the market price at the beginning or end of the
quarter. The fair value of these awards was recognized as com-
pensation expense in the Consolidated Statements of Income
for the year ended December 31, 2006 in accordance with the
provisions of SFAS No. 123R. Western Union has not adopted an
employee stock purchase plan.
First Data received all cash proceeds related to the exercise
of stock options and ESPP shares sold by Western Union employ-
ees during all periods prior to the Spin-off.
Impact of Spin-Off to Stock–Based Awards
Granted Under First Data Plans
At the time of the Spin-off, First Data converted stock options,
restricted stock awards and restricted stock units (collectively,
“Stock-Based Awards”) on First Data stock held by Western Union
and First Data employees. For Western Union employees, out-
standing First Data Stock-Based Awards were converted to new
Western Union Stock-Based Awards at a conversion ratio of
2.1955 Western Union Stock-Based Awards for every First Data
Stock-Based Award held prior to the Spin-off. The conversion
was based on the pre-distribution First Data closing price with
due bills of $42.00 relative to the Western Union when-issued
closing price of $19.13 on September 29, 2006. For First Data
employees, each First Data Stock-Based Award held prior to the
Spin-off was converted into one replacement First Data Stock-
Based Award and one Western Union Stock-Based Award. The
new Western Union and First Data Stock-Based Awards main-
tained their pre-conversion aggregate intrinsic values, and, in
the case of stock options, their ratio of the exercise price per
share to their fair market value per share.
All converted Stock-Based Awards, which had not vested
prior to September 24, 2007, were subject to the terms and
conditions applicable to the original First Data Stock-Based
Awards, including change of control provisions which required
full vesting upon a change of control of First Data. Accordingly,
upon the completion of the acquisition of First Data on Septem-
ber 24, 2007 by an affi liate of Kohlberg Kravis Roberts & Co.’s
(“KKR”), all of these remaining converted unvested Western
Union Stock-Based Awards vested. In connection with this accel-
erated vesting, the Company incurred a non-cash pre-tax charge
of $22.3 million during the year ended December 31, 2007 for
such awards held by Western Union employees. Approximately
one-third of this charge was recorded within “Cost of services”
and two-thirds was recorded within “Selling, general and admin-
istrative expense” in the Consolidated Statements of Income.
As a result of this accelerated vesting, there is no remaining
unamortized compensation expense associated with such con-
verted Stock-Based Awards.
The conversion of each stock option held by Western Union
employees on the date of the Spin-off constituted a modifi cation
of those stock option awards under the provisions of SFAS No.
123R resulting in additional stock based compensation charges
of $1.5 million and $1.9 million during the years ended December
31, 2007 and 2006, respectively.
After the Spin-off, the Company receives all cash proceeds
related to the exercise of all Western Union stock options, and
recognizes all stock compensation expense and retains the result-
ing tax benefi ts relating to Western Union awards held by Western
Union employees. First Data recognizes all stock-based compensa-
tion expense and retains all associated tax benefi ts for Western
Union Stock-Based Awards held by First Data employees.