America Online 2010 Annual Report Download - page 102

Table of Contents
AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 date:
Years Ended December 31,
2010 2009
Expected volatility 39.9% 42.5%
Expected term to exercise from grant date 5.38 years 5.38 years
Risk-free rate 2.5% 2.9%
Expected dividend yield 0% 0%
Because AOL's common stock has a limited trading history, the volatility assumption was determined for 2010 and 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 all
AOL equity awards granted.
The following table summarizes information about AOL stock options that were outstanding at December 31, 2010:
Options
Number of
Options
(in millions)
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic Value
(in thousands)
Outstanding at December 31, 2008 —
Converted (a) 0.5 $ 11.90
Granted 3.2 $ 23.28
Outstanding at December 31, 2009 3.7 $ 21.85 9.9 years $ 1,549
Exercised —
Granted 2.9 $ 23.85
Forfeited (0.4) $ 23.33
Outstanding at December 31, 2010 6.2 $ 22.69 9.1 years $ 7,871
Exercisable at December 31, 2009 —
Exercisable at December 31, 2010 1.7 $ 20.25 8.8 years $ 5,940
(a) Represents the Time Warner stock options held by AOL's Chairman and Chief Executive Officer that were converted into AOL stock options.
As of December 31, 2010, 6.7 million shares of AOL common stock were available for future grants of stock options. As of December 31, 2010, there
was $32.8 million of unrecognized compensation cost related to outstanding employee stock options expected to vest. The Company expects to recognize this
amount over a weighted-average period of 2.73 years. To the extent the actual forfeiture rate is different from what the Company has estimated, equity-based
compensation expense related to these awards will be different from the Company's expectations.
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