12. EQUITY-BASED COMPENSATION
Equity Plans
The Company has one active equity plan (the “2013 Stock Incentive Plan”), which was approved by the Company's stockholders on May 23, 2013. Under the 2013 Stock Incentive Plan, the Company is authorized to grant equity awards to employees and non-employee directors covering an aggregate of approximately 35 million shares of the Company's common stock. Stock options and 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 in four equal annual installments, and expire ten years from the date of grant. RSUs granted under the 2013 Stock Incentive Plan generally vest in four equal annual installments, while RSUs granted under the Company's prior stock incentive plans generally vest 50% in each of the third and fourth anniversaries of the date of grant. The Company also has a PSU program for executive officers 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 of three years based on the actual performance level achieved by the Company. Stock options and RSUs provide for accelerated vesting upon an election to retire after reaching a specified age and years of service, as well as in certain additional circumstances for non-employee directors.
Holders of RSUs are generally entitled to receive cash dividend equivalents based on the regular quarterly cash dividends declared and paid by the Company during the period that the RSUs are outstanding. Beginning with RSU grants made in 2013, the dividend equivalent payment for holders of RSUs subject to a performance condition will be made in cash following the satisfaction of the performance condition. Holders of PSUs also are entitled to receive dividend equivalents based on the regular quarterly cash dividends declared and paid by the Company during the period that the PSUs are outstanding. The dividend equivalent payment will be made in cash following the vesting of the PSUs (generally following the end of the applicable performance period) and will be based on the number of shares that vest and are paid out. Holders of stock options do not receive dividends or dividend equivalent payments.
Upon the (i) exercise of a stock option award, (ii) vesting of an RSU, (iii) vesting of a PSU or (iv) grant of restricted stock, shares of Time Warner common stock may be issued either from authorized but unissued shares or from treasury stock. Upon the exercise of Time Warner stock options held by Time Warner Cable Inc. (“TWC”) employees, TWC is obligated to reimburse Time Warner for the intrinsic value of the applicable award. This asset is carried at fair value and is $8 million as of December 31, 2013. Changes in the fair value of this asset and the reimbursement received from TWC are recorded in Other loss, net, in the Consolidated Statement of Operations.
Other information pertaining to each category of equity-based compensation appears below.
Stock Options
The table below summarizes the weighted-average assumptions used to value stock options at their grant date and the weighted-average grant date fair value per share:
| Year Ended December 31, | ||||||||||
| 2013 | 2012 | 2011 | ||||||||
| Expected volatility | 29.6% | 31.2% | 29.5% | |||||||
| Expected term to exercise from grant date | 6.27 years | 6.50 years | 6.31 years | |||||||
| Risk-free rate | 1.3% | 1.3% | 2.8% | |||||||
| Expected dividend yield | 2.1% | 2.8% | 2.6% | |||||||
| Weighted average grant date fair value per option | $ | 13.48 | $ | 8.69 | $ | 9.01 | ||||
The following table summarizes information about stock options outstanding as of December 31, 2013:
| Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life | Aggregate Intrinsic Value | ||||||||||
| (thousands) | (in years) | (thousands) | |||||||||||
| Outstanding as of December 31, 2012 | 56,003 | $ | 32.46 | ||||||||||
| Granted | 1,512 | 56.17 | |||||||||||
| Exercised | (20,168) | 32.64 | |||||||||||
| Forfeited or expired | (854) | 29.74 | |||||||||||
| Outstanding as of December 31, 2013 | 36,493 | 33.41 | 4.88 | $ | 1,324,904 | ||||||||
| Exercisable as of December 31, 2013 | 26,517 | 31.75 | 3.88 | $ | 1,006,768 | ||||||||
As of December 31, 2013, the number, weighted-average exercise price, aggregate intrinsic value and weighted-average remaining contractual term of Time Warner stock options vested and expected to vest approximate amounts for options outstanding. As of December 31, 2013, approximately 35 million shares of Time Warner common stock were available for future grants of stock options under the Company's equity plan.
The following table summarizes information about stock options exercised (millions):
| Year Ended December 31, | ||||||||||
| 2013 | 2012 | 2011 | ||||||||
| Total intrinsic value | $ | 491 | $ | 342 | $ | 80 | ||||
| Cash received | 674 | 1,107 | 204 | |||||||
| Tax benefits realized | 178 | 127 | 30 | |||||||
Restricted Stock Units and Target Performance Stock Units
The following table sets forth the weighted-average grant date fair value of RSUs and target PSUs. For certain PSUs, the service inception date proceeds the grant date and requires the Company to apply mark-to-market accounting that is reflected in the grant date fair values presented:
| Year Ended December 31, | ||||||||||
| 2013 | 2012 | 2011 | ||||||||
| RSUs | $ | 54.04 | $ | 37.52 | $ | 36.00 | ||||
| PSUs | 78.85 | 85.13 | 45.89 | |||||||
The following table summarizes information about unvested RSUs and target PSUs as of December 31, 2013:
| Number of Shares/Units | Weighted- Average Grant Date Fair Value | Aggregate Intrinsic Value | ||||||||
| (thousands) | (thousands) | |||||||||
| Unvested as of December 31, 2012 | 17,358 | $ | 31.65 | |||||||
| Granted (a) | 3,645 | 54.51 | ||||||||
| Vested | (5,799) | 24.64 | ||||||||
| Forfeited | (638) | 36.32 | ||||||||
| Unvested as of December 31, 2013 | 14,566 | 40.31 | $ | 1,015,573 | ||||||
| ____________ | ||||||||||
| (a) | Includes 3.3 million RSUs and 0.2 million target PSUs granted during 2013 and a payout adjustment of 0.2 million PSUs due to the actual performance level achieved for PSUs granted in 2010 that vested during 2013. | |||||||||
The following table sets forth the total intrinsic value of RSUs and target PSUs that vested during the following years (millions):
| Year Ended December 31, | ||||||||||
| 2013 | 2012 | 2011 | ||||||||
| RSUs | $ | 291 | $ | 177 | $ | 135 | ||||
| PSUs | 27 | 11 | 11 | |||||||
Equity-Based Compensation Expense
Compensation expense recognized for equity-based compensation plans is as follows (millions):
| Year Ended December 31, | ||||||||||
| 2013 | 2012 | 2011 | ||||||||
| Stock options | $ | 37 | $ | 52 | $ | 70 | ||||
| RSUs and PSUs | 219 | 182 | 155 | |||||||
| Total impact on operating income | $ | 256 | $ | 234 | $ | 225 | ||||
| Tax benefit recognized | $ | 84 | $ | 80 | $ | 82 | ||||
Total unrecognized compensation cost related to unvested Time Warner stock option awards as of December 31, 2013, without taking into account expected forfeitures, is $29 million and is expected to be recognized over a weighted-average period between one and two years. Total unrecognized compensation cost related to unvested RSUs and target PSUs as of December 31, 2013, without taking into account expected forfeitures, is $210 million and is expected to be recognized over a weighted-average period between one and two years.