America Online 2009 Annual Report Download - page 94

Table of Contents
plans or after reaching a specified age and years of service. Holders of restricted stock and RSU awards were generally entitled to receive regular cash
dividends or dividend equivalents, respectively, paid by Time Warner during the period of time that the restricted stock or RSU awards were unvested.
Equity-Based Compensation Expense
Compensation expense recognized by AOL related to its equity-based compensation plan and for its participation in Time Warner's equity-based
compensation plans is as follows (in millions):
Years Ended December 31,
2009 2008 2007
Stock options $ 4.3 $ 8.7 $ 20.1
RSUs and performance stock units (PSUs) (a) 8.2 10.9 12.2
Total equity-based compensation expense (b) $ 12.5 $ 19.6 $ 32.3
Tax benefit recognized $ 5.0 $ 8.3 $ 11.9
(a) AOL has only granted RSUs to employees. Prior to the spin-off, Time Warner granted restricted stock units and performance stock units to AOL
employees. However, none of the performance stock units granted to AOL employees vested, and accordingly, compensation expense related to the
performance stock units was zero on a cumulative basis.
(b) Equity-based compensation expense in 2009 included a reduction to expense driven by a change in the estimated forfeiture rate for Time Warner equity
awards held by AOL employees, as fewer Time Warner equity awards were expected to vest as a result of the spin-off. Also included in the total equity-
based compensation expense for the year ended December 31, 2009 is $0.6 million attributable to AOL's equity awards.
AOL Stock Options
The assumptions presented in the table below represent the weighted-average value of the applicable assumption used to value AOL stock options at
their grant dates:
Year Ended
December 31,
2009
Expected volatility 42.5%
Expected term to exercise from grant date 5.38 years
Risk-free rate 2.9%
Expected dividend yield 0%
The valuation of, as well as the expense recognition for, AOL awards is generally consistent with the treatment of Time Warner awards granted to AOL
employees as described above. However, because AOL's common stock has a limited trading history, the volatility assumption was determined for 2009
awards based on a blend of AOL's implied volatility and the historical and implied volatilities of a comparable peer group of publicly traded companies. The
expected term, which represents the period of time that options granted are expected to be outstanding, is estimated based on the historical exercise experience
of AOL employees that held similar options to acquire Time Warner common stock. The risk-free rate assumed in valuing the options is based on the U.S.
Treasury yield curve in effect at the time of grant for the expected term of the option. As the Company does not currently intend to pay dividends, the
dividend yield is zero for AOL equity awards granted in 2009.
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