Wyndham Worldwide (WYN)

 

In accordance with SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”), the Company measures all employee stock-based compensation awards using a fair value method and records the related expense in its Consolidated and Combined Statement of Operations. The Company uses the modified prospective transition method, which requires that compensation cost be recognized in the financial statements for all awards granted after the date of adoption as well as for existing awards for which the requisite service has not been rendered as of the date of adoption and requires that prior periods not be restated. Because the Company was allocated stock-based compensation expense for all outstanding employee stock awards prior to the adoption of SFAS No. 123(R), the adoption of such standard did not have a material impact on the Company’s results of operations.

 

Paragraph 81 of SFAS No. 123(R) requires an entity to calculate the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to adopting SFAS No. 123(R) (“APIC Pool”). Utilizing the calculation method described in FSP No. 123R-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards, the Company calculated its APIC Pool as of January 1, 2006 associated with stock options that were fully vested as of December 31, 2005. The impact on the APIC Pool for stock options that are partially vested at, or granted subsequent to, December 31, 2005 is being determined in accordance with SFAS No. 123(R).

 

In connection with the distribution of the shares of common stock of Wyndham to Cendant stockholders, on July 31, 2006, the Compensation Committee of Cendant’s Board of Directors approved the full vesting of all Cendant equity awards (including Wyndham awards granted as an adjustment to such Cendant equity awards) on August 15, 2006. As a result of the acceleration of the vesting of these awards, the Company recorded non-cash compensation expense of $45 million during the third quarter of 2006. In connection with the acceleration of the equity awards, an APIC Pool detriment of $9 million was created as the tax deduction of the equity awards was lower than the deferred tax asset recognized. As of January 1, 2006, the Company had no APIC Pool. During 2006, the Company created an APIC Pool of approximately $2 million through other vesting activities. As a result of the write off of the $9 million excess deferred tax asset, the Company recorded a tax provision of $7 million on its Consolidated and Combined Statement of Operations during the year ended December 31, 2006 and a reduction to additional paid-in capital of $2 million on its Consolidated Balance Sheet as of December 31, 2006. During 2008 and 2007, the Company’s APIC Pool decreased by $3 million and increased by $7 million, respectively, due to the exercise and vesting of equity awards. As a result of such activity, the Company recorded a corresponding decrease to additional paid-in capital of $3 million and an increase to additional paid-in capital of $7 million on its Consolidated Balance Sheets as of December 31, 2008 and 2007. As of December 31, 2008 and 2007, the Company had an APIC Pool balance of $4 million and $7 million, respectively, on its Consolidated Balance Sheets.

 

 

The Company recorded stock-based compensation expense of $26 million and $13 million during 2007 and 2006, respectively, related to the incentive equity awards granted by the Company. During 2007 and 2006, the Company recognized $10 million of tax benefit and $2 million of tax expense, respectively, for share based compensation arrangements on the Consolidated and Combined Statements of Income.

 

During 2006 (through the date of Separation) and 2005, Cendant allocated pre-tax stock-based compensation expense of $12 million and $16 million, respectively, to the Company. Such compensation expense relates only to the options and RSUs that were granted to Cendant’s employees subsequent to January 1, 2003. The total income tax benefit recognized in the income statement for share based compensation arrangements was $5 million and $6 million during 2006 (through the date of Separation) and 2005. The allocation was based on the estimated number of options and RSUs Cendant believed it would ultimately provide and the underlying vesting period of the awards. As Cendant measured its stock-based compensation expense using intrinsic value method during the periods prior to January 1, 2003, Cendant did not recognize compensation expense upon the issuance of equity awards to its employees.

 

 

 

During 2006 (through the date of Separation), 2005 and 2004, Cendant allocated pre-tax stock-based compensation expense of $12 million, $16 million and $11 million ($7 million, $10 million and $7 million, after tax), respectively, to the Company. Such compensation expense relates only to the options and RSUs that were granted to Cendant’s employees subsequent to January 1, 2003. The allocation was based on the estimated number of options and RSUs Cendant believed it would ultimately provide and the underlying vesting period of the awards. As Cendant measured its stock-based compensation expense using intrinsic value method during the periods prior to January 1, 2003, Cendant did not recognize compensation expense upon the issuance of equity awards to its employees.