Western Union 2011 Annual Report Download - page 146

THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Fair Value Assumptions
The Company used the following assumptions for the Black-Scholes option pricing model to determine the
value of Western Union options granted.
Year Ended December 31,
2011 2010 2009
Stock options granted:
Weighted-average risk-free interest rate ............................... 2.5% 2.7% 2.0%
Weighted-average dividend yield .................................... 1.4% 1.3% 0.2%
Volatility ........................................................ 31.0% 33.9% 46.3%
Expected term (in years) ........................................... 5.8 5.8 5.6
Weighted-average grant date fair value ................................ $ 5.99 $ 5.12 $ 5.41
Expected volatility—For the Company’s executives and non-employee directors, the expected volatility for the
2011, 2010 and 2009 grants was 29.7%, 32.8% and 46.9%, respectively. The expected volatility for the
Company’s non-executive employees was 31.9%, 34.5% and 46.0% for the 2011, 2010 and 2009 grants,
respectively. The Company used a blend of implied and historical volatility. The Company’s implied volatility
was calculated using the market price of traded options on Western Union’s common stock and the historical
volatility represented a blend of Western Union and First Data (prior to the Spin-off) stock data.
Expected dividend yield—The Company’s expected annual dividend yield is the calculation of the annualized
Western Union dividend divided by an average Western Union stock price on each respective grant date. The
2011 grants made prior to May 19, 2011 do not reflect the increase in dividend approved by the Board of
Directors on this date. The 2010 and 2009 grants do not reflect the increase in dividends approved by the Board
of Directors on December 8, 2010 and December 9, 2009, respectively, as all 2010 and 2009 grants were issued
prior to that date.
Expected term—For 2011, 2010 and 2009, Western Union’s expected term was approximately 5 years for
non-executive employees and approximately 7 years for executives and non-employee directors. The Company’s
expected term of options was based upon, among other things, historical exercises (including the exercise history
of First Data’s awards), the vesting term of the Company’s options and the options’ contractual term of ten years.
Risk-free interest rate—The risk-free rate for stock options granted during the period is determined by using a
United States Treasury rate for the period that coincided with the expected terms listed above.
The assumptions used to calculate the fair value of options granted will be evaluated and revised, as necessary,
to reflect market conditions and the Company’s historical experience and future expectations. The calculated fair
value is recognized as compensation cost in the Company’s consolidated financial statements over the requisite
service period of the entire award. Compensation cost is recognized only for those options expected to vest, with
forfeitures estimated at the date of grant and evaluated and adjusted periodically to reflect the Company’s
historical experience and future expectations. Any change in the forfeiture assumption will be accounted for as a
change in estimate, with the cumulative effect of the change on periods previously reported being reflected in the
consolidated financial statements of the period in which the change is made. In the future, as more historical data
is available to calculate the volatility of Western Union stock and the actual terms Western Union employees
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