First Data 2007 Annual Report Download - page 133

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Year ended December 31, 2005
Reported income from continuing operations $ 807.5
Restricted stock expense and effect of accelerated vesting included in reported net income, net of tax 11.3
SFAS 123 expense, net of tax (217.8)
Pro forma income from continuing operations $ 601.0
Certain of the Company's employee share-based compensation awards had terms that provided for vesting to continue after retirement. Prior to the
adoption of SFAS 123R, the Company accounted for this type of arrangement by recognizing pro forma compensation cost over the stated vesting period for
the SFAS 123 pro forma disclosures. Upon adoption of SFAS 123R, compensation cost was recognized over a shorter period that ended with retirement
eligibility. The impact of applying the SFAS 123R requirements for accelerated expense recognition would have decreased the December 31, 2005 pro forma
SFAS 123 compensation expense by $12.9 million, net of tax.
Stock Options and Employee Stock Purchase Plan Rights
FDC had two plans in the predecessor period that provided for the granting of stock options to employees and other key individuals who performed
services for the Company. The options had been issued at prices equivalent to or in excess of the common stock's fair market value at the date of grant and
generally had 10-year terms. The requisite service period for stock options was the same as the vesting period, with the exception of retirement eligible
employees who had shorter requisite service periods which ended when the employees became retirement eligible. Compensation expense related to stock
options was recognized over the requisite service period. The vesting of options was accelerated upon closing of the merger as noted above.
In December 2005, the Company accelerated vesting of all outstanding unvested stock options granted by the Company to its officers and employees
under the Company's 2002 Long-Term Incentive Plan. The decision to accelerate the vesting of these stock options was made primarily to reduce share-based
compensation expense that otherwise likely would be recorded in future periods following the Company's adoption of SFAS 123R. The Company recognized
compensation expense of $9.6 million from continuing operations during the fourth quarter of 2005 related to accelerated vesting. During the year ended
December 31, 2006, the Company granted stock option awards under its plans for which the Company recognized compensation expense in accordance with
the provisions of SFAS 123R.
Amounts accumulated for the ESPP through payroll deductions elected by eligible employees were used to make quarterly purchases of FDC 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
compensation expense in the Consolidated Statement of Income for the year ended December 31, 2006 and in 2007 until the discontinuation of the ESPP plan
as of June 30, 2007 in accordance with the provisions of SFAS 123R.
The fair value for FDC stock options granted and ESPP rights for the predecessor periods from January 1, 2007 through September 24, 2007 and the
years ended December 31, 2006 and 2005 were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-
average assumptions:
Predecessor
Stock Options
Period from
January 1
through
September 24,
2007 2006 2005(a)
Risk-free interest rate 4.65% 4.62% 4.16%
Dividend yield 0.49% 0.58% 0.58%
Volatility 23.4% 23.5% 32.6%
Expected term (in years) 5 years 5 years 6 years
Fair value $ 7 $ 7 $ 8
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