Stock-Based Compensation

6 Months Ended

Jun. 30, 2012

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 11 — Stock-Based Compensation

The MoneyGram International, Inc. 2005 Omnibus Incentive Plan (“2005 Plan”) provides for the granting of equity-based compensation awards, including stock options, stock appreciation rights, restricted stock units and restricted stock awards (collectively, “share-based awards”) to officers, employees and directors. The Company is authorized to issue a total of 5,875,000 of share-based awards. As of June 30, 2012, the Company has remaining authorization to issue future grants of up to 1,672,833 shares.

The calculated fair value of share-based awards is recognized as compensation cost using the straight-line method over the vesting or service period in the Company’s financial statements. Stock-based compensation is recognized only for those options, restricted stock units and stock appreciation rights 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 financial statements of the period in which the change is made.

Following is a summary of stock-based compensation expense for the three and six months ended June 30:

	Three Months Ended June 30,				Six Months Ended June 30,
(Amounts in thousands)	2012		2011		2012		2011
Expense recognized related to stock options	$	1,161	$	2,658	$	4,343	$	7,109
Expense recognized related to restricted stock units		456		174		797		322
Expense related to stock appreciation rights		11		—		20		—
Stock-based compensation expense	$	1,628	$	2,832	$	5,160	$	7,431

Employee stock based compensation included a $1.2 million expense reversal for the three and six months ended June 30, 2012 from forfeitures upon executive employee terminations.

Stock Options — Option awards are generally granted with an exercise price equal to the closing market price of the Company’s common stock on the date of grant. All outstanding stock options contain certain forfeiture and non-compete provisions.

Pursuant to the terms of grants made in 2012, options awarded become exercisable through the passage of time annually over a four-year period in an equal number of shares each year, and have a term of 10 years.

For purposes of determining the fair value of stock options awarded in 2012, the Company uses the Black-Scholes single option pricing model. The following table provides weighted-average grant-date fair value and assumptions utilized to estimate the grant-date fair value of the 2012 options:

Expected dividend yield (1)		0.0%
Expected volatility (2)		71.2% -71.8%
Risk-free interest rate (3)		1.2% -1.5%
Expected life (4)		6.3 years
Weighted-average grant-date fair value per option	$	11.04

⁽¹⁾  Expected dividend yield represents the level of dividends expected to be paid on the Company’s common stock over the expected term of the option. The Company does not anticipate declaring any dividends at this time.

⁽²⁾  Expected volatility is the amount by which the Company’s stock price has fluctuated or will fluctuate during the expected term of the option. The Company’s expected volatility is calculated based on the historical volatility of the price of the Company’s common stock since the spin-off from Viad Corporation on June 30, 2004. The Company also considers any known or anticipated factors that will likely impact future volatility.

⁽³⁾  The risk-free interest rate for the Black-Scholes model is based on the United States Treasury yield curve in effect at the time of grant for periods within the expected term of the option.

⁽⁴⁾  Expected life represents the period of time that options are expected to be outstanding. The expected life was determined using the simplified method as the pattern of changes in the value of the Company’s common stock and exercise activity since late 2007 has been inconsistent and substantially different from historical patterns. Additionally, there have been minimal stock option exercises which would be representative of the Company’s normal exercise activity since 2007. Accordingly, the Company does not believe that historical terms are relevant to the assessment of the expected term of the grant. Based on these factors, the Company does not believe that it has the ability to make a more refined estimate than the use of the simplified method.

A summary of the Company’s stock option activity for the six months ended June 30, 2012 is as follows:

	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
Options outstanding at December 31, 2011		5,365,085		$	23.45
Granted		140,848			16.75
Exercised		(1,250	)		17.36
Forfeited/Expired		(714,409	)		29.83
Options outstanding at June 30, 2012		4,790,274		$	22.30		7.09 years	$	1,698
Vested or expected to vest at June 30, 2012		4,641,553		$	22.35		7.02 years	$	1,698
Options exercisable at June 30, 2012		1,303,523		$	26.48		5.99 years	$	1,037

The following is a summary of the Company’s stock option compensation information:

	Three Months Ended June 30,				Six Months Ended June 30,
(Amounts in thousands)	2012		2011		2012		2011
Intrinsic value of options exercised	$	—	$	73	$	1	$	154
Cash received from option exercises	$	1	$	181	$	22		364
Unrecognized stock option expense	$	16,542
Remaining weighted-average vesting period		1.0 years

Restricted Stock Units — In the first half of 2012, the Company issued grants of performance-based restricted stock units to certain employees, which will vest and become payable in shares of common stock to the extent the Company attains the performance goals applicable to the performance period. The performance goal is based on the degree to which the Company’s average annual adjusted EBITDA, defined as earnings before interest, taxes, depreciation and amortization and less certain non-recurring or other unexpected expenses, meets, exceeds or falls short of the target performance goal of achieving an average annual adjusted EBITDA increase of 10 percent over a three year period. Under the terms of the grant, 50 percent of the target restricted stock units may vest on the second anniversary and 50 percent may vest on the third anniversary if the performance goal is achieved as of that date. The number of restricted stock units that vest is determined on a pro rata basis by the extent to which the performance goal is met within a threshold minimum and maximum. In the event the target performance goal is not met, but the Company achieves a minimum performance goal of an average annual adjusted EBITDA growth of five percent, the participant will be entitled to 50 percent of the target number of restricted stock units. In the event the Company achieves its maximum performance goal of an average annual adjusted EBITDA growth of 20 percent, the participant will be entitled to 200 percent of the target number of restricted stock units.

The fair value of restricted stock units is calculated based on the stock price at the time of grant. For performance-based restricted stock units, expense is recognized if achievement of the performance goal is deemed probable, with the amount of expense recognized based on the Company’s best estimate of the ultimate achievement level. For the 2012 grants of performance-based restricted stock units, the grant date fair value at the minimum, target and maximum thresholds is $0.9 million, $1.7 million and $3.4 million, respectively. As of June 30, 2012, the Company believes it is probable it will achieve the performance goal at the target level on the third anniversary.

In April 2012, the Company granted an aggregate of 48,474 restricted stock units to members of the Board of Directors, excluding the Chairman of Board, as compensation for services to be provided. The restricted stock units vest on the first anniversary of their issuance and may only be settled in the Company’s common stock.

For grants to employees, expense is recognized in the “Compensation and benefits” line and expense for grants to Directors is recorded in the “Transaction and operations support” line in the Consolidated Statements of Income using the straight-line method over the vesting period.

A summary of the Company’s restricted stock unit activity for the six months ended June 30, 2012 is as follows:

	Total Shares			Weighted Average Price
Restricted stock units outstanding at December 31, 2011		337,676		$	17.77
Granted		254,030			16.65
Vested		(20,896	)		28.72
Forfeited		(27,300	)		17.03
Restricted stock units outstanding at June 30, 2012		543,510		$	16.86

The fair value of restricted stock units vested is $0.6 million for both the three and six months ended June 30, 2012 and $0.6 million for both the three and six months ended June 30, 2011. As of June 30, 2012, the Company’s outstanding restricted stock units had unrecognized compensation expense of $3.7 million and a remaining weighted-average vesting period of 2.2 years. Unrecognized restricted stock unit expense and the remaining weighted-average vesting period are presented under the Company’s current estimate of achievement of the target performance goal on the third anniversary. Unrecognized restricted stock unit expense as of June 30, 2012 under the minimum and maximum thresholds is $2.2 million and $6.8 million, respectively.