First Data 2009 Annual Report Download - page 159

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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 Statements of Operations for the period from January 1, 2007 through September 24, 2007 until the
discontinuation of the ESPP plan as of June 30, 2007.
The fair value for FDC stock options granted and ESPP rights for the predecessor period from January 1,
2007 through September 24, 2007 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
Risk-free interest rate ........................... 4.65%
Dividend yield ................................ 0.49%
Volatility ..................................... 23.4%
Expected term (in years) ......................... 5years
Fair value .................................... $ 7
Predecessor
ESPP (a)
Period from January 1
through September 24, 2007
Risk-free interest rate ........................... 4.75%
Dividend yield ................................ 0.47%
Volatility ..................................... 23.9%
Expected term (in years) ......................... 0.25
Fair value .................................... $ 6
(a) The ESPP was terminated as of June 30, 2007.
Expected volatility—The Company used implied volatility to estimate the grant-date fair value of stock
options and ESPP rights. The Company calculated implied volatility on a daily basis using the Black-Scholes
option pricing model. This calculation incorporated the market prices of a variety of traded options, the market
price of the Company’s stock, the exercise price and remaining term of the traded options, the expected
dividends, and the risk-free rate. The traded options used were similar in exercise price to awards granted to
employees, were near-the-money, and typically had a remaining maturity of greater than one year. For each
grant, the Company used the average of the daily implied volatilities for the six months preceding the grant date.
For grants made after the Western Union spin-off, the Company used the average of the daily implied volatility
for the period between the spin-off and the grant date.
Expected dividend yield—The dividend yield was the calculation of a rolling 12 month average stock price
divided by the annualized dividend amount.
159