First Data 2009 Annual Report Download - page 156

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
unrecognized compensation cost, net of estimated forfeitures, related to non-vested stock options and restricted
stock which is expected to be recognized over a weighted-average period of 3.5 years.
On July 1, 2008, FDC and its parent, Holdings, purchased the remaining 18.2% and 13.6% of the
outstanding equity of Money Network, respectively, not already owned by the Company. The consideration paid
by Holdings consisted of 6 million shares of its common stock. Due to certain repurchase features associated
with the Holdings shares so issued, FDC recognized $2.4 million in stock compensation expense (included in
total stock based compensation expense noted above) in the year ended December 31, 2008. In the year ended
December 31, 2009, FDC recognized $1.9 million in stock compensation expense, and expects to recognize an
additional $1.7 million, net of estimated forfeitures, on a straight line basis through December 31, 2010. FDC
subsequently purchased Holdings’ interest in Money Network for an amount equivalent to the value of the shares
issued by Holdings as purchase consideration (excess of value of shares issued by Holdings over the stock
compensation expense to be recognized).
In 2008, the Board of Directors approved a deferred compensation plan for non-employee directors that
allows each of these directors to defer their annual compensation. The plan is unfunded. For purposes of
determining the investment return on the deferred compensation, each director’s account will be treated as if
credited with a number of shares of Holdings stock determined by dividing the deferred amount by the first fair
value of the stock approved during the year. The account balance will be paid in cash upon termination of Board
service, certain liquidity events or other certain events at the fair value of the stock at the time of settlement. Due
to the cash settlement provisions, the account balances were recorded as a liability and are adjusted to fair value
quarterly. At December 31, 2009 the balance of this liability was $0.2 million. At December 31, 2008 the deferral
applied only to compensation for the second half of the year and the balance was immaterial.
Stock Options
During the years ended December 31, 2009 and 2008, time options and performance options were granted
under the stock plan. During the successor period from September 25, 2007 through December 31, 2007, no
options were granted. Generally, time options and performance options were granted equally based on a multiple
of the employee’s investment in shares of Holdings and have a contractual term of 10 years, however, in 2009
primarily time options were granted. Time options vest equally over approximately a five-year period from the
date of issuance and performance options vest based upon Company EBITDA targets following the five years
after grant date. These EBITDA targets have both annual and cumulative components. The Company is not
recognizing and will not recognize expense related to the performance options unless or until attainment of
applicable targets is judged to be probable. The options also have certain accelerated vesting provisions upon a
change in control, an initial public offering, and certain termination events.
The fair value of Holdings stock options granted for the years ended December 31, 2009 and 2008 were
estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average
assumptions:
Year ended
December 31,
2009
Year ended
December 31,
2008
Risk-free interest rate ................................. 3.21% 3.39%
Dividend yield ...................................... — —
Volatility .......................................... 53.58% 55.53%
Expected term (in years) .............................. 7 7
Fair value of stock ................................... $ 3 $ 5
Fair value of options ................................. $ 2 $ 3
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