Western Union 2013 Annual Report Download - page 251

2013 FORM 10-K
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
141
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,
2013 2012 2011
Stock options granted:
Weighted-average risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2% 1.2% 2.5%
Weighted-average dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7% 1.8% 1.4%
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.3% 33.2% 31.0%
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09 6.09 5.80
Weighted-average grant date fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.20 $ 4.90 $ 5.99
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.
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.
Expected volatility - For the Company's executives and non-employee directors, the expected volatility for the 2013, 2012
and 2011 grants was 35.3%, 33.2% and 29.7%, respectively. The expected volatility for the Company's non-executive employees
was 35.2%, 33.2% and 31.9% for the 2013, 2012 and 2011 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 of Western Union stock data. Prior to 2012, the Company's historical volatility represented a
blend of Western Union and First Data (prior to the Spin-off) stock data.
Expected term - For 2013 and 2012, Western Union's expected term for all employees was approximately 6 years. For 2011
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,
the vesting term of the Company's options and the options' contractual term of ten years.
The assumptions used to calculate the fair value of options granted are 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 is
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 hold options, expected volatility
and expected term may change which could change the grant-date fair value of future stock option awards and, ultimately, the
recorded compensation expense.