Western Union 2008 Annual Report Download - page 54

WESTERN UNION
2008 Annual Report
5252
Earnings Per Share
The calculation of basic earnings per share 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 the period 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 sub-
sequent 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, using the treasury stock method.
The treasury stock method assumes proceeds from the
exercise price of stock options, the unamortized com-
pensation expense and assumed tax benefits of options
and restricted stock are available to acquire shares at an
average price throughout the year, and therefore, reduce
the dilutive effect throughout the year.
As of December 31, 2008, 2007 and 2006, there were
8.0 million, 10.4 million and 4.9 million, respectively, out-
standing options to purchase shares of Western Union
stock excluded from the diluted earnings per share calcu-
lation under the treasury stock method as their effect was
anti-dilutive. Prior to the September 29, 2006 spin-off date,
there were no potentially dilutive instruments outstand-
ing. Of the 43.6 million outstanding options to purchase
shares of common stock of the Company, approximately
47% are held by employees of First Data.
Fair Value Measurements
Effective January 1, 2008, the Company determines the
fair market values of its financial assets and liabilities, as
well as non-financial assets and liabilities that are recog-
nized or disclosed at fair value on a recurring basis, based
on the fair value hierarchy established in SFAS No. 157,
“Fair Value Measurements” (“SFAS No. 157”). The stan-
dard describes three levels of inputs that may be used to
measure fair value.
ºLEVEL 1: Quoted prices in active markets for identical
assets or liabilities. Western Union’s financial instru-
ments that base fair value determinations on Level 1
inputs are not material.
º
LEVEL 2: Observable inputs other than Level 1 prices
such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by
observable market data for substantially the full term
of the assets or liabilities. Most of Western Union’s
assets or liabilities fall within Level 2 and include state
and municipal debt instruments, other foreign invest-
ment securities, and derivative assets and liabilities.
Western Union utilizes pricing services to value its
Level 2 financial instruments. For most of these assets,
the Company utilizes pricing services that use multiple
prices as inputs to determine daily market values.
º
LEVEL 3: Unobservable inputs that are supported by
little or no market activity and that are significant to
the fair value of the assets or liabilities. Level 3 assets
and liabilities include items where the determination of
fair value requires significant management judgment
or estimation. The Company currently has no Level 3
assets or liabilities that are measured at fair value on
a recurring basis.
Pursuant to the Financial Accounting Standards Boards
(“FASB”) Staff Position No. 157-2, “Effective Date of FASB
Statement No. 157” (“FSB No. 157-2”), the effective date
of SFAS No. 157 for certain non-financial assets and liabili-
ties that are measured at fair value but are recognized or
disclosed at fair value on a non-recurring basis has been
deferred to fiscal years beginning after November 15,
2008. The Company is primarily impacted by this deferral
as it relates to non-financial assets and liabilities initially
measured at fair value in a business combination (but not
measured at fair value in subsequent periods) and fair value
measurements in impairment testing. The Company will
adopt these remaining provisions of SFAS No. 157 effec-
tive January 1, 2009. The Company does not expect the
impact to be significant on its financial position, results of
operations and cash flows.
Except as it pertains to an investment redemption
discussed in Note 9, carrying amounts for Western Union
financial instruments, including cash and cash equiva-
lents, settlement cash and cash equivalents, settlement
receivables, settlement obligations, borrowings under the
commercial paper program and other short-term notes
payable, approximate fair value due to their short maturi-
ties. Investment securities, included in settlement assets,
and derivative financial instruments are carried at fair value
and included in Note 8, “Fair Value Measurements.” Fixed
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 periods subsequent
to the spin-off date of September 29, 2006 (in millions):
For the Year Ended December 31, 2008 2007 2006
Basic weighted-average shares 730.1 760.2 764.5
Common stock equivalents 8.1 12.7 4.1
Diluted weighted-average shares outstanding 738.2 772.9 768.6