Western Union 2007 Annual Report Download - page 78

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76
WESTERN UNION 2007 Annual Report
As discussed previously, the Company incurred a pre-tax
charge of $22.3 million during the year ended December 31,
2007 upon the completion of the acquisition of First Data on
September 24, 2007 by an affiliate of KKR. Also included in
stock-based compensation expense above for the year ended
December 31, 2006 is $6.8 million of allocated stock-based
compensation related to employees of First Data providing
administrative services to the Company prior to the Spin-off.
There was no stock-based compensation capitalized during the
years ended December 31, 2007 and 2006.
As of December 31, 2007, there was $28.4 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 2.9 years, and
there was $10.6 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 recog-
nized over a weighted-average period of 1.7 years.
Pro Forma SFAS No. 123
Stock-Based Compensation Information
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 year ended December 31, 2005, which refl ects compensa-
tion 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
Reported net income $927.4
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)
Pro forma net income $891.6
Reported earnings per share — basic $ 1.21
Reported earnings per share — diluted $ 1.21
Pro forma earnings per share — basic $ 1.17
Pro forma earnings per share — diluted $ 1.17
In December 2005, First Data accelerated vesting of all outstand-
ing unvested stock options granted by First Data to its offi cers
and employees under First Data’s 2002 Long-Term Incentive
Plan. The Company recognized compensation expense of
$1.8 million during the fourth quarter of 2005 resulting from
accelerated vesting.
Certain of the Company’s employee stock-based compensa-
tion 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,
compensation cost 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 benefi t of $1.7 million for the year ended
December 31, 2005.
Fair Value Assumptions
The Company used the following assumptions for the Black-
Scholes option pricing model to determine the value of First Data
stock options and ESPP rights granted to Western Union employ-
ees before the Spin-off and the value of Western Union options
granted to such employees after the Spin-off.