Primerica 2010 Annual Report - Direct Selling News

Non-Employee Share-BasedTransactionsThe following table summarizes non-employeerestricted stock activity during 2010.Weighted-averagemeasurement-date fairvalue per shareShares(Shares in thousands)Unvested non-employee restricted stockand RSUs, December 31, 2009 — —Granted in 2010 2,615 $ 13.27RSUs vested in 2010 (2,427) $12.80Unvested non-employee restricted stockand RSUs, December 31, 2010 188 $19.37All of our non-employee share-basedtransactions relate to the grant of RSUs tomembers of our sales force, which are subject toshort-term vesting provisions, all vesting withinapproximately three months of the initial grant.However, they are subject to long-term salesrestrictions lifting over three years. Because thesale restrictions extend up to three yearsbeyond the vesting period, the awards aresubject to a liquidity discount reflecting the riskassociated with the post-vesting restrictions. Toquantify this discount for each award, we useda series of Black-Scholes models with one-, twoandthree-year tenors to estimate put optioncosts less a nominal transaction cost as amethodology for quantifying the cost ofeliminating the downside risk associated withthe sale restrictions. The most significantassumptions in the Black-Scholes models werethe volatility assumptions. Because our stockand the options on our stock have had a verylimited active trading history, we derivedvolatility assumptions by analyzing other publicinsurance companies’ historical and impliedvolatilities over terms comparable to the salerestriction terms. Our volatility assumptionsranged from 36 to 52. We also utilized dividendassumptions ranging from zero dividends to$0.01 per quarter and risk-free rates less than2%.On April 1, 2010, we granted 1,865,000 RSUs tocertain of our sales force leaders. These RSUsvested immediately but were subject to salesrestrictions that expire annually over thesubsequent three years from the vesting date.The IPO price of our shares was $15.00. Werecognized a discounted fair value of theseawards of $12.00 per RSU, reflecting theliquidity discount described above. Werecognized total expense of approximately$22.4 million, partiallyoffset by a tax benefitof approximately $7.8million, for theseIPO-relatednon-employee awards.Between April 1, 2010and December 31, 2010we granted additionalequity awards in theform of 750,000 RSUsvesting between July 1, 2010 and January 1, 2011to certain sales force leaders. The awards weremeasured based on the market price of ourshares on the respective vesting dates, lessliquidity discounts ranging from 20% to 28%as described above. The measurement date fairvalues of these awards ranged from $15.44 to$19.37. These awards varied with and primarilyrelated to life insurance policy acquisitions. Assuch, we deferred the full $12.3 million cost andrecognized a corresponding increase in DACwhich will be amortized over the life of theunderlying policies. The resulting ongoing DACamortization expense will be partially offset bya concurrent tax benefit totaling approximately$4.0 million over the same periods.As of December 31, 2010, all non-employeeequity awards were fully vested with theexception of 187,500 shares that reached theirfinal vesting on January 1, 2011. As such, anyrelated compensation cost not recognized inour financial statements through December 31,2010 is immaterial. Shares awarded underperformance-based, non-employee grants wereearned by certain of our sales force leadersbased on performance criteria varying with andprimarily relating to acquiring life insurancepolicies, and therefore increasing our DAC.These amounts are then amortized over theterms of the underlying policies acquired.Citi Share-Based TransactionsWe participated in various share-basedcompensation benefit plans sponsored by CitiPrimerica 2010 Annual Report 149