XML 149 R27.htm IDEA: XBRL DOCUMENT
v2.4.0.6

Share-Based Compensation | 12 Months Ended
--- | ---
Dec. 31, 2012
SHARE-BASED COMPENSATION | 18. SHARE-BASED COMPENSATION STOCK OPTIONS—AES grants options to purchase shares of common stock under stock option plans to employees and non-employee d irectors. Under the terms of the plans, the Company may issue options to purchase shares of the Company's common stock at a price equal to 100% of the market price at the date the option is granted. Stock options are generally granted based upon a percentage of an employee's base salary. Stock options issued under these plans in 2012, 2011 and 2010 have a three-year vesting schedule and vest in one-third increments over the three-year period. The stock options have a contractual term of ten years. At December 31, 2012, approximately 16 million shares were remaining for award under the plans. In all circumstances, stock options granted by AES do not entitle the holder the right, or obligate AES, to settle the stock option in cash or other assets of AES. T he following table presents the weighted average fair value of each option grant and the underlying weighted average assumptions, as of the grant date, using the Black-Scholes opti on-pricing model:
|  |  | December 31,
|  |  | 2012 |  | 2011 |  | 2010
| Expected volatility |  | 26% |  | 31% |  | 38%
| Expected annual dividend yield |  | 1% |  | 0% |  | 0%
| Expected option term (years) |  | 6 |  | 6 |  | 6
| Risk-free interest rate |  | 1.08% |  | 2.65% |  | 2.86%
| Fair value at grant date | $ | 3.04 | $ | 4.54 | $ | 5.08
The Company exclusively relies on implied volatility as the expected volatility to determine the fair value using the Black-Scholes option-pricing model. The implied volatility may be exclusively relied upon due to the following factors: The Company utilizes a valuation model that is based on a constant volatility assumption to value its employee share options; The implied volatility is derived from options to purchase AES common stock that are actively traded; The market prices of both the traded options and the underlying share s are measured at a simi lar point in time and on a date reasonably close to the grant date of the employee share options; The traded options have exercise prices that are both near-the-money and close to the exercise price of the employee share options; and The remaining maturities of the traded options on which the estimate is based are at least one year. The Company uses a simplified method to determine the expected term based on the average of the original contractual term and the pro rata vesting period. This simplified method i s used for stock options granted during 2012, 2011 and 2010. This is appropriate given a lack of relevant stock option exercise data. This simplified method may be used as the Company's stock options have the following characteristics: The stock options are granted at-the-money; Exercisability is conditional only on performing service through the vesting date; If an employee terminates service prior to vesting, the employee forfeits the stock options; If an employee terminates service after vesting, the employee has a limited time to exercise the stock option; and The stock option is nonhedgeable and not transferable. The Company does not discount the gr ant date fair values to estimate post-vesting restrictions. Post-vesting restrictions include black-out periods when the employee is not able to exercise stock options based on their potential knowledge of information prior to the release of that information to the public. The following table summarizes the components of stock-based compensation related to employee stock options recognized in the Company's financial statements:
|  | December 31,
|  | 2012 |  | 2011 |  | 2010
|  | (in millions)
Pre-tax compensation expense |  | $ | 2 |  | $ | 7 |  | $ | 9
Tax benefit |  |  | (1) |  |  | (2) |  |  | (2)
Stock options expense, net of tax |  | $ | 1 |  | $ | 5 |  | $ | 7
Total intrinsic value of options exercised |  | $ | 10 |  | $ | 8 |  | $ | 2
Total fair value of options vested |  |  | 5 |  |  | 7 |  |  | 11
Cash received from the exercise of stock options |  |  | 9 |  |  | 4 |  |  | 2
No cash was used to settle stock options or compensation cost capitalized as part of the cost of an asset for the years ended December 31, 2012, 2011 and 2010. As of December 31, 2012, $3 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted average period of 1.8 years. A summary of the option activity for the year ended December 31, 2012 follows (number of options in thousands, dollars in millions except per option amounts):
|  |  |  |  |  | Options |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value
Outstanding at December 31, 2011 |  | 9,458 |  | $ | 13.82 |  |  |  |  |
Exercised |  | (1,596) |  |  | 5.92 |  |  |  |  |
Forfeited and expired |  | (1,123) |  |  | 16.65 |  |  |  |  |
Granted |  | 1,144 |  |  | 13.03 |  |  |  |  |
Outstanding at December 31, 2012 |  | 7,883 |  | $ | 14.91 |  | 4.5 |  | $ | 5
Vested and expected to vest at December 31, 2012 |  | 7,775 |  | $ | 14.94 |  | 4.4 |  | $ | 5
Eligible for exercise at December 31, 2012 |  | 6,100 |  | $ | 15.55 |  | 3.6 |  | $ | 5
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day of 2012 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2012. The amount of the aggregate intrinsic value will change based on the fair market value of the Company's stock. The Company initially recognizes compensation cost on the estimated number of instruments for which the requisite service is expected to be rendered. In 2012, AES has estimated a weighted average forfeiture rate of 13.66% for stock options granted in 2012. This estimate will be revised if subsequent information indicates that the actual number of instruments forfeited is likely to differ from previous estimates. Based o n the estimated forfeiture rate, the Company expects to expense $3 million on a straight-line basis over a three year period (approximately $1 million per year) related to stock options granted during the year ended December 31, 2012. RESTRICTED STOCK Restricted Stock Units —The Company issues restricted stock un its (“RSUs”) under its long-term compensation plan. The RSUs are generally granted based upon a percentage of the participant's base salary. The u nits have a three-year vesting schedule and vest in one-third increments o ver the three-year period. U nits granted prior to 2011 are required to be held for an additional two years before they can be converted into shares, and thus become transferable. There is no such requirem ent for units granted in 2011 and afterwards. In all circumstances, restricted stock units granted by AES do not entitle the holder the right, or obligate AES, to settle the restricted stock unit in cash or other assets of AES. For the years ended December 31, 2012, 2011, and 2010, RSUs is sued had a grant date fair value equal to the closing price of the Company's stock on the grant date. The Company does not discount the grant date fair values to reflect any post-vesting restric tions. RSUs granted to employees during the years ended December 31, 2012, 2011, and 2010 had grant date fair values per RSU of $13.54, $12.65 and $12.18, respectively. The following table summarizes the components of the Company's stock-based compensation related to its employee RSUs recognized in the Company's consolidated financial statements:
|  |  | December 31,
|  |  | 2012 |  | 2011 |  | 2010
|  | (in millions)
| RSU expense before income tax |  | $ | 11 |  | $ | 11 |  | $ | 11
| Tax benefit |  |  | (3) |  |  | (3) |  |  | (2)
| RSU expense, net of tax |  | $ | 8 |  | $ | 8 |  | $ | 9
| Total value of RSUs converted(1) |  | $ | 9 |  | $ | 5 |  | $ | 5
| Total fair value of RSUs vested |  | $ | 12 |  | $ | 10 |  | $ | 12
(1) Amount represents fair market value on the date of conversion. There was no cash used to settle RSUs or compensation cost capitalized as part of the cost of an asset for the years ended December 31, 2012, 2011 and 2010. As of December 31, 2012, $14 million of total unrecognized compensation cost related to RSUs is expected to be recognized over a weighted ave rage period of approximately 1.8 years. There were no modifications to RSU awards during the year ended December 31, 2012. A summary of the activity of RSUs for the year ended December 31, 2012 follows (number of RSUs in thousands):
|  |  |  |  | RSUs |  | Weighted Average Grant Date Fair Values |  | Weighted Average Remaining Vesting Term
Nonvested at December 31, 2011 |  | 2,355 |  | $ | 11.40 |  |
Vested |  | (1,138) |  |  | 10.31 |  |
Forfeited and expired |  | (407) |  |  | 12.88 |  |
Granted |  | 1,282 |  |  | 13.54 |  |
Nonvested at December 31, 2012 |  | 2,092 |  | $ | 13.02 |  | 1.6
Vested at December 31, 2012 |  | 2,685 |  | $ | 10.66 |  |
Vested and expected to vest at December 31, 2012 |  | 4,602 |  | $ | 11.64 |  |
The Company initially recognizes compensation cost on the estimated number of instruments for which the requisite service is expected to be rendered. In 2012, AES has estimated a weighted average forfeiture rate of 18.82% for RSUs granted in 2012. This estimate will be revised if subsequent information indicates that the actual number of instruments forfeited is likely to differ from previous estimates. Based on the estimated forfeiture rate, the Company expects to expense $14 million on a straight-line basis over a three year period related to RSUs granted during the year ended December 31, 2012. The table below summarizes the RSUs that vested and were converted during the years ended December 31, 2012, 2011 and 2010 (number of RSUs in thousands):
|  |  |  | December 31,
|  |  |  | 2012 |  | 2011 |  | 2010
| RSUs vested during the year |  |  | 1,138 |  |  | 982 |  |  | 929
| RSUs converted during the year, net of shares |  |  |  |  |  |  |  |  |
|  | withheld for taxes |  |  | 761 |  |  | 442 |  |  | 386
| Shares withheld for taxes |  |  | 312 |  |  | 150 |  |  | 127
Performance Stock Units —The Company issues performance stock units (“PSUs”) to officers under its long-term compensation plan. PSUs are restricted stock units of which 50% of the units awarded include a market condition and the remaining 50% include a performance condition. Vesting will occur if the applicable continued employment conditions are satisfied and (a) for the units subject to the market condition the Total Stockholder Return (“TSR”) on AES common stock exceeds the TSR of the Standard and Poor's 500 Utilities Sector Index over the three-year measurement period beginning on January 1 st of the grant year and ending on December 31 st of the third year and (b) for the units subject to the performance condition if the Company's actual Adjusted EBITDA meets the performance target over the three-year measurement period beginning on January 1, 201 2 and ending on December 31, 2014. The market and performance condition determines the vesting and final share equivalent per PSU and can result in earning an award payout range of 0% to 200%, depending on the achievement. In all circumstances, PSUs granted by AES do not entitle the holder the right, or obligate AES, to settle the restricted stock unit in cash or other assets of AES. The effect of the market con dition on PSUs issued to officers of the Company during 2012 is reflected in the award's fair value on the grant date. The results of the valuation estimated the fair value at $19.75 per share, equating to 1 44% of the Company's closing stock price on the date of grant. P SUs that included a market condition granted during the year ended December 31, 2012, 2011 and 2010 had a grant date fair value per RSU of $19.75, $17.68 and $11.57, respe ctively. The fair value of the P SUs with a performance condition had a grant date fair v alue of $13.70 equal to the closing price of the Company's stock on the grant date. The Company believes that it is probable that the per formance condition will be met; t his will continue to be evaluated thr oughout the performance period. If the fair value of the market condition was not applied to P SUs issued to officers, the total grant d ate fair value of P SUs granted during the year ended December 31, 2012 would have decreased by $2 million. Restricted stock units with a market condition were awarded to officers of the Company prior to 2011 c ontained only the market condition measuring the TSR on AES common stock. These units were required to be held for an additional two years subsequent to vesting before they could be converted into shares and become transferable. There is no such requirement for the shares granted during 2011 and afterwards. The following table summarizes the components of the Company's stock-bas ed compensation related to its P SUs recognized in the Company's consolidated financial statements:
|  |  | December 31,
|  |  | 2012 |  | 2011 |  | 2010
|  |  | (in millions)
| PSU expense before income tax |  | $ | 5 |  | $ | 5 |  | $ | 4
| Tax benefit |  |  | (1) |  |  | (1) |  |  | (1)
| PSU expense, net of tax |  | $ | 4 |  | $ | 4 |  | $ | 3
| Total value of PSUs converted(1) |  | $ | - |  | $ | - |  | $ | 3
| Total fair value of PSUs vested |  |  | 2 |  |  | - |  |  | -
Amount represents fair market value on the date of conversion. There was no cash used to settle P SUs or compensation cost capitalized as part of the cost of an asset for the years ended December 31, 2012, 2011 and 2010. As o f December 31, 2012, $6 million of total unrecognized compensat ion cost related to P SUs is expected to be recognized over a weighted average period of approximately 1.9 years. There were no modifications to P SU awards during the year ended December 31, 2012. A summ ary of the activity of P SUs for the year ended December 31, 2012 follows (number of P SUs in thousands):
|  |  |  |  | PSUs |  | Weighted Average Grant Date Fair Values |  | Weighted Average Remaining Vesting Term
Nonvested at December 31, 2011 |  | 1,357 |  | $ | 10.78 |  |
Vested |  | (343) |  |  | 6.68 |  |
Forfeited and expired |  | (464) |  |  | 10.90 |  |
Granted |  | 532 |  |  | 16.73 |  |
Nonvested at December 31, 2012 |  | 1,082 |  | $ | 14.96 |  | 1.3
Vested at December 31, 2012 |  | 343 |  | $ | 6.68 |  |
Vested and expected to vest at December 31, 2012 |  | 1,335 |  |  | 12.75 |  |
The Company initially recognizes compensation cost on the estimated number of instruments for which the requisite service is expected to be rendered. In 2012, AES has estimated a forfeiture rate of 13.81% for PSUs granted in 2012. This estimate will be revised if subsequent information indicates that the actual number of instruments forfeited is likely to differ from previous estimates. Based on the estimated forfeiture rate, th e Company expects to expense $8 million on a straight-line basis over a three year period (approximately $2.7 million per year) related to PSUs granted during the year ended December 31, 2012. The table below summarizes the P SUs t hat vested and were converted during the years ended 2012, 2011 and 2010 (number of P SUs in thousands):
|  |  |  | December 31,
|  |  |  | 2012 |  | 2011 |  | 2010
| PSUs vested during the year |  |  | 343 |  |  | - |  |  | -
| PSUs converted during the year, net of shares |  |  |  |  |  |  |  |  |
|  | withheld for taxes |  |  | - |  |  | - |  |  | 245
| Shares withheld for taxes |  |  | - |  |  | - |  |  | 102

X
- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 93-6 -Paragraph 53 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 123R -Paragraph 64, 65, A240 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 + Details
Name: | us-gaap_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration