Time Magazine 2012 Annual Report Download - page 105

TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
11. NET INCOME PER COMMON SHARE
Set forth below is a reconciliation of Basic and Diluted net income per common share attributable to Time
Warner Inc. common shareholders (millions, except per share amounts):
Year Ended December 31,
2012 2011 2010
Net income attributable to Time Warner Inc. shareholders ............. $ 3,019 $ 2,886 $ 2,578
Net income allocated to participating securities ..................... (18) (15) (13)
Net income attributable to Time Warner Inc. common shareholders —
basic ..................................................... $ 3,001 $ 2,871 $ 2,565
Average number of common shares outstanding — basic .............. 954.4 1,046.2 1,128.4
Dilutive effect of equity awards .................................. 21.9 18.3 16.9
Average number of common shares outstanding — diluted ............ 976.3 1,064.5 1,145.3
Net income per common share attributable to Time Warner Inc. common
shareholders:
Basic ..................................................... $ 3.14 $ 2.74 $ 2.27
Diluted ................................................... $ 3.09 $ 2.71 $ 2.25
Diluted income per common share for the years ended December 31, 2012, 2011 and 2010 excludes
approximately 25 million, 72 million and 127 million, respectively, common shares that may be issued under the
Company’s stock compensation plans because they do not have a dilutive effect.
12. EQUITY-BASED COMPENSATION
Equity Plans
The Company has one active equity plan under which it is authorized to grant equity awards to employees
and non-employee directors, covering an aggregate of 70 million shares of common stock. Stock options and
restricted stock units (“RSUs”) have been granted to employees and non-employee directors of the Company.
Generally, stock options are granted with exercise prices equal to the fair market value on the date of grant, vest
ratably over a four-year period, and expire ten years from the date of grant. Generally, RSUs vest between three
to four years from the date of grant. Beginning in 2012, RSUs granted to certain senior level executives also are
subject to a performance condition based on an adjusted net income target for a 1-year period. The Company also
has a performance stock unit (“PSU”) program for certain senior level executives who are awarded a target
number of PSUs that represent the contingent (unfunded) right to receive shares of Company common stock at
the end of a performance period (generally three years) based on the actual performance level achieved by the
Company. PSUs granted in 2012 are considered to have a performance condition for accounting purposes as the
number of PSUs that ultimately vest depends upon the Company’s achievement of certain adjusted earnings per
share (“Adjusted EPS”) targets. Such amounts may be further adjusted depending upon the Company’s total
shareholder return (“TSR”) relative to the other companies in the S&P 500 Index. Because the terms of the PSUs
granted in 2012 provide discretion to make adjustments to the performance calculation, the service inception date
of these awards precedes the grant date. These PSUs also are subject to a performance condition based on an
adjusted net income target for a 1-year period. PSUs granted prior to 2012 are considered to have a market
condition for accounting purposes because the number of PSUs that ultimately vest generally depends upon the
Company’s TSR relative to the other companies in the S&P 500 Index. Such amounts may be further adjusted
depending upon the Company’s growth in Adjusted EPS relative to the growth in Adjusted EPS of the other
companies in the S&P 500 Index. The effect of a market condition is reflected in the grant date fair value of the
award, which is estimated using a Monte Carlo analysis to estimate the total return ranking of Time Warner
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