MoneyGram 2006 Annual Report Download - page 95

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
period in an equal number of shares each year and have a term of ten years. Stock options granted in 2004 under the 2004 Omnibus
Incentive Plan become exercisable in a five-year period in an equal number of shares each year and have a term of seven years. All
outstanding stock options contain certain forfeiture and non-competition provisions.
For purposes of determining the fair value of stock option awards, the Company uses the Black-Scholes single option pricing model and
the assumptions set forth in the following table. Expected volatility is based on the historical volatility of the price of the Company's
common stock since the spin-off on June 30, 2004. The Company uses historical information to estimate the expected term and forfeiture
rates of options. The expected term represents the period of time that options are expected to be outstanding, while the forfeiture rate
represents the number of options that will be forfeited by grantees due primarily to termination of employment. In addition, the Company
considers any expectations regarding future activity which could impact the expected term and forfeiture rate. The risk-free rate for
periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation
cost, net of expected forfeitures, is recognized using a straight-line method over the vesting or service period.
2006 2005 2004
Expected dividend yield 0.6% 0.2% 0.2%
Expected volatility 26.5% 24.1% 25.2%
Risk-free interest rate 4.7% 3.8% 3.2%
Expected life 6.5 years 5 years 5 years
Following is a summary of stock option activity:
Weighted-
Weighted Average Aggregate
Average Remaining Intrinsic
Exercise Contractual Value
Shares Price Term ($000)
Options outstanding at December 31, 2005 4,883,262 $ 18.42
Granted 405,040 27.37
Exercised (1,112,011) 31.46
Forfeited (76,777) 20.24
Options outstanding at December 31, 2006 4,099,514 $ 19.52 5.00 years $ 48,557
Vested or expected to vest at December 31, 2006 4,010,110 $ 19.40 4.93 years $ 47,977
Options exercisable at December 31, 2006 3,150,951 $ 18.52 4.37 years $ 40,466
The weighted-average grant date fair value of an option granted during 2006, 2005 and 2004 was $10.38, $5.95 and $5.49, respectively.
The Company has granted both restricted stock and performance-based restricted stock. The vesting of restricted stock is typically three
years from the date of grant. The vesting of performance-based restricted stock is contingent upon the Company obtaining certain
financial thresholds established on the grant date. Provided the incentive performance targets established in the year of grant are
achieved, the performance-based restricted stock awards granted subsequent to 2002 will vest in a three-year period from the date of
grant in an equal number of shares each year. Vesting could accelerate if performance targets are met at certain achievement levels. Half
of the performance-based restricted stock awards granted in 2002 vested in 2006 and the remainder will vest in 2007. Future vesting in all
cases is subject generally to continued employment with MoneyGram or Viad. Holders of restricted stock and performance-based
restricted stock have the right to receive dividends and vote the shares, but may not sell, assign, transfer, pledge or otherwise encumber
the stock. On the Distribution Date, the Company's former Chairman of the Board was granted a restricted stock award under the 2004
Omnibus Incentive Plan for 50,000 shares of common stock, of which 25,000 shares vested immediately and 25,000 shares that vested on
June 30, 2006. On June 30, 2005, the Company's former Chairman of the Board was granted a restricted stock award under the 2005
Omnibus Incentive Plan for 50,000 shares of common stock, of which 25,000 shares vested immediately and 25,000 shares vested in May
2006.
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