Time Magazine 2010 Annual Report Download - page 103

Upon the (i) exercise of a stock option award, (ii) the vesting of an RSU, (iii) the vesting of a PSU or (iv) the
grant of restricted stock, shares of Time Warner common stock may be issued either from authorized but unissued
shares or from treasury stock.
In connection with the AOL Separation and the TWC Separation (collectively, the “Separations”) in 2009, and
as provided for in the Company’s equity plans, the number of stock options, RSUs and target PSUs outstanding at
each of the Distribution Date and Distribution Record Date, respectively, and the exercise prices of such stock
options were adjusted to maintain the fair value of those awards (collectively, the “Adjustments”). The Adjustments
were determined by comparing the fair value of such awards immediately prior to each of the Separations (“pre-
Separation”) to the fair value of such awards immediately after each of the Separations. In performing these
analyses, the only assumptions that changed were related to the Time Warner stock price and the stock option’s
exercise price. Accordingly, each equity award outstanding as of the Distribution Date relating to the AOL
Separation was increased by multiplying the size of such award by 1.07, while the per share exercise price of each
stock option was decreased by dividing by 1.07. Each equity award outstanding as of the Distribution Record Date
relating to the TWC Separation was increased by multiplying the size of such award by 1.35, while the per share
exercise price of each stock option was decreased by dividing by 1.35. The Adjustments resulted in an aggregate
increase of approximately 65 million equity awards (comprised of 60 million stock options and 5 million RSUs and
Target PSUs). The modifications to the outstanding equity awards were made pursuant to existing antidilution
provisions in the Company’s equity plans and did not result in any additional compensation expense.
Under the terms of Time Warner’s equity plans and related award agreements, and as a result of the Separations,
AOL and TWC employees who held Time Warner equity awards were treated as if their employment with Time
Warner was terminated without cause at the time of each of the Separations. This treatment resulted in the forfeiture
of unvested stock options, shortened exercise periods for vested stock options and pro rata vesting of the next
installment of (and forfeiture of the remainder of) the RSU awards for those AOL and TWC employees who did not
satisfy retirement-treatment eligibility provisions in the Time Warner equity plans and related award agreements.
Upon the exercise of Time Warner stock options held by TWC employees, TWC is obligated to reimburse Time
Warner for the intrinsic value of the applicable award. The estimated receivable from TWC fluctuates with the fair
value and number of outstanding equity awards and the resulting change is recorded in other income (loss), net, in
the consolidated statement of operations. As of December 31, 2010, the estimated receivable was $19 million. No
such similar arrangement exists with AOL.
Other information pertaining to each category of equity-based compensation appears below.
Stock Options
The assumptions presented in the table below represent the weighted-average value of the applicable
assumption used to value stock options at their grant date.
2010 2009 2008
Years Ended December 31,
Expected volatility................................ 29.5% 35.2% 28.7%
Expected term to exercise from grant date .............. 6.51 years 6.11 years 5.95 years
Risk-free rate ................................... 2.9% 2.5% 3.2%
Expected dividend yield............................ 3.1% 4.4% 1.7%
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TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)