Time Warner Cable 2010 Annual Report Download - page 108

Stock of which 17.7 million shares are available for grant. Upon the exercise of a TWC stock option or the vesting of a
TWC RSU, shares of TWC Common Stock may be issued from authorized but unissued shares or from treasury stock, if
any.
Stock options granted under the 2006 Plan have exercise prices equal to the fair market value of TWC Common
Stock at the date of grant. Generally, TWC stock options vest ratably over a four-year vesting period and expire ten years
from the date of grant. TWC stock option awards provide for accelerated vesting upon the grantee’s termination of
employment after reaching a specified age and years of service. In connection with the payment of the Special Dividend
and the TWC Reverse Stock Split, adjustments were made to the number of shares covered by and exercise prices of
outstanding TWC stock options to maintain the fair value of those awards. These adjustments were made pursuant to
existing antidilution provisions in the 2006 Plan and related award agreements and, therefore, did not result in the
recognition of incremental compensation expense. Refer to “Separation-related Equity Awards” below for further details.
RSUs granted under the 2006 Plan generally vest equally on each of the third and fourth anniversary of the grant date.
TWC RSUs provide for accelerated vesting upon the grantee’s termination of employment after reaching a specified age
and years of service. Shares of TWC Common Stock will generally be issued at the end of the vesting period of a TWC
RSU. TWC RSUs awarded to non-employee directors are not subject to vesting or forfeiture restrictions and the shares
underlying the TWC RSUs will generally be issued in connection with a director’s termination of service as a director.
Pursuant to the directors’ compensation program, certain directors with more than three years of service on the Board of
Directors have elected an in-service vesting period for their RSU awards. Holders of TWC RSUs are generally entitled to
receive cash dividend equivalents or retained distributions related to regular cash dividends or other distributions,
respectively, paid by TWC. Retained distributions are subject to the vesting requirements of the underlying TWC RSUs.
Refer to “Separation-related Equity Awards” below for further details.
Separation-related Equity Awards
In connection with the Special Dividend, holders of TWC RSUs could elect to receive the retained distribution on
their TWC RSUs related to the Special Dividend (the “Special Dividend retained distribution”) in the form of cash
(payable, without interest, upon vesting of the underlying RSUs) or in the form of additional TWC RSUs (with the same
vesting dates as the underlying RSUs). In connection with these elections and in conjunction with the payment of the
Special Dividend, during the first quarter of 2009, the Company (a) granted 1,305,000 TWC RSUs and (b) established a
liability of $46 million in other liabilities and TWC shareholders’ equity in the consolidated balance sheet for the Special
Dividend retained distribution to be paid in cash, taking into account estimated forfeitures. In addition, in connection with
the TWC Reverse Stock Split, pursuant to the 2006 Plan and related award agreements, adjustments were made to reduce
the number of outstanding TWC RSUs. Neither the payment of the Special Dividend retained distribution (in cash or
additional TWC RSUs) nor the adjustment to reflect the TWC Reverse Stock Split results in the recognition of
incremental compensation expense. During the years ended December 31, 2010 and 2009, the Company made cash
payments of $6 million and $1 million, respectively, against the Special Dividend retained distribution liability, which are
included in other financing activities in the consolidated statement of cash flows. Of the remaining $39 million liability,
$12 million is classified as a current liability in other current liabilities in the consolidated balance sheet.
As discussed below, as a result of the Separation, pursuant to their terms, Time Warner equity awards held by TWC
employees were forfeited and/or experienced a reduction in value. During the second quarter of 2009, TWC granted TWC
stock options and TWC RSUs to its employees to offset these forfeitures and/or reduced values (the “Separation-related
‘make-up’ equity awards”). The vesting and expiration dates of such awards were based on the terms of the related Time
Warner award and were expensed over a period of approximately one year beginning in the second quarter of 2009.
During the years ended December 31, 2010 and 2009, TWC recognized compensation expense for Separation-related
“make-up” equity awards of $5 million and $9 million, respectively.
Other information pertaining to TWC stock options and TWC RSUs is discussed below.
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)