First Data 2007 Annual Report Download - page 132

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The expense associated with this plan will be recorded by FDC. FDC will use the Black-Scholes option pricing model to measure the fair value of
equity-based awards granted to management. Option-pricing models require estimates of a number of key valuation inputs including expected volatility,
expected dividend yield, expected term and risk-free interest rate.
In January 2008, 29.1 million time options and 27.4 million performance options were granted under the new stock plan. Generally, time options and
performance options are granted equally, based on a multiple of the employee's investment in shares of Holdings. Time options will vest equally over a five-
year period and performance options will vest based upon Company EBITDA targets. These EBITDA targets have both annual and cumulative components.
In January 2008, 1.8 million restricted stock units were granted under the new stock plan. Grants were made as incentive awards. All restricted stock
units will vest on September 24, 2012.
Predecessor Equity Plans
As discussed in Note 1 and effective January 1, 2006, the Company adopted SFAS 123R using the modified prospective method. The following table
sets forth total stock-based compensation expense recognized in the noted line items of the Consolidated Statements of Income resulting from stock options,
non-vested restricted stock awards, non-vested restricted stock units as well as the employee stock purchase plan ("ESPP") (in millions):
Predecessor
Period from
January 1
through
September 24,
2007
Year ended
December 31,
2006
Income before income taxes, minority interest, equity earnings in affiliates and discontinued operations $ (247.4) $ (66.5)
Income tax benefit 92.3 24.9
Income from continuing operations $ (155.1) $ (41.6)
The above table includes expense of $73.9 million in the predecessor period from January 1, 2007 through September 24, 2007 and $8.4 million for the
year ended December 31, 2006, net of tax, resulting from restricted stock awards and restricted stock units. Expense related to restricted stock awards and
restricted stock units was also recorded under the provisions of Accounting Principles Board Opinion No. 25 ("APB 25") in prior periods before the adoption
of SFAS 123R. Included in the predecessor period in 2007 is $175.9 million of stock-based compensation expense due to the accelerated vesting of stock
options, restricted stock awards and restricted stock units as the result of change in control provisions upon closing of the merger. There was no stock-based
compensation capitalized during the predecessor period from January 1, 2007 through September 24, 2007 and the year ended December 31, 2006. Stock-
based compensation expense is recognized in the "Cost of services" and "Selling, general and administrative" line items of the Consolidated Statements of
Income.
As discussed in Note 2, vesting of FDC stock options, restricted stock awards and restricted stock units was accelerated upon closing of the merger. As
a result, holders of stock options received cash equal to the intrinsic value of the awards based on a market price of $34.00 per share while holders of
restricted stock awards and restricted stock units received $34.00 per share in cash, without interest, and the associated options and restricted stock were
cancelled. Vesting of Western Union options, restricted stock awards and restricted stock units held by FDC employees was also accelerated upon closing of
the merger. The acceleration of the vesting period resulted in a corresponding acceleration of expense recognition associated with the above noted awards.
As permitted by SFAS 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), during 2005 the Company followed APB 25 under which
share-based payments to employees are accounted for using the intrinsic value method and, as such, generally recognized no compensation cost for employee
stock options or the ESPP. The Company's pro forma information for 2005 under SFAS 123, which reflects compensation expense equal to the fair value of
the options, restricted stock awards and ESPP rights recognized over their vesting period, is as follows (in millions):
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