Change Healthcare Inc.
Notes to Condensed Financial Statements
(unaudited and amounts in thousands, except share and per share amounts)
Effective April 1, 2018, the Joint Venture adopted FASB ASU No. 2017-12, which significantly changed the framework by which hedge accounting is recognized, presented and disclosed in the Joint Ventures financial statements. The adoption of this update by the Joint
Venture resulted in a reclassification between its accumulated other comprehensive income (loss) and accumulated earnings (deficit).
Effective April 1, 2019, the Joint Venture adopted FASB ASU No. 2018-02, which allows a
reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The adoption of this update resulted in a reclassification between accumulative other
comprehensive income (loss) and accumulated earnings (deficit).
As an investor in the Joint Venture, the Company has recognized its
proportionate amount of these reclassifications as presented in the table above.
9. Equity Based Compensation
Effective as of the Companys initial public offering, the Company adopted the Change Healthcare Inc. 2019 Omnibus Incentive Plan (the
Omnibus Incentive Plan) pursuant to which 25.0 million shares of the Companys common stock have been reserved for issuance to employees, directors and consultants of the Company, the Joint Venture and its affiliates.
In connection with the Omnibus Incentive Plan, the Company, during the nine months ended December 31, 2019, granted to the Joint
Ventures employees and directors one or a combination of time-vesting restricted stock units (RSUs), time-vesting deferred stock units, performance stock units, and cash settled restricted stock units under vesting terms that generally vary
from one to four years from the date of grant. Each of these instruments is described below.
Restricted Stock Units
(RSUs)The Company granted 4,436,758 RSUs during the nine months ended December 31, 2019. The RSUs are subject to either a graded vesting schedule over four years, or a one or four year cliff vesting schedule, depending on
the terms of the specific award. Upon vesting, the RSUs are exchanged for shares of the Companys common stock.
Performance Stock
Units (PSUs) The Company granted 1,079,621 PSUs during the nine months ended December 31, 2019. The PSUs consist of two tranches, one for which the quantity of awards expected to vest varies based on the Joint
Ventures compound annual revenue growth rate over a three year period in comparison to a target percentage and one for which the quantity of awards expected to vest varies based on the Joint Ventures compound annual Adjusted EBITDA
growth rate over a three year period in comparison to a target percentage. The awards earned upon satisfaction of the performance conditions become vested on the fourth anniversary of the vesting commencement date of the award (i.e. continued
service is required beyond the satisfaction of the performance condition prior to vesting). The Joint Venture recognizes compensation expense for the PSUs based on the number of awards that are considered probable to vest. Recognition of expense is
based on the probability of achievement of performance targets and is periodically reevaluated.
Cash Settled Restricted Stock Units
(CSRSUs) The Company granted 597,006 CSRSUs during the nine months ended December 31, 2019. The CSRSUs are expected to vest ratably over three years. Upon vesting, however, the Company is required to pay cash in settlement
of such CSRSUs based on their fair value at the date such CSRSUs vest. The Company will be reimbursed by the Joint Venture for any cash settlements, and as of December 31, 2019, the Company has a receivable from the Joint Venture of
approximately $1,312.
Deferred Stock Units (DSUs)The Company granted 45,704 DSUs during the nine months ended
December 31, 2019. The DSUs vest 100% upon the one-year anniversary of the date of grant. Unlike the RSUs, however, the DSUs are exchanged for shares of the Companys common stock only following the
participants separation from service.
During the three and nine months ended December 31, 2019 the Joint Venture recognized
compensation expense related to awards granted under the Omnibus Incentive Plan of $6,161 and $12,257, respectively. At December 31, 2019, aggregate unrecognized compensation expense of the Joint Venture related to awards granted under the
Omnibus Incentive Plan was $78,788.
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