Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v2.4.0.6
Stock-Based Compensation
 12 Months Ended
Dec. 31, 2012
Share-based Compensation [Abstract]  
Stock-Based Compensation
Stock-Based Compensation

Liberty - Incentive Plans

In connection with the Split-Off, awards with respect to Liberty Interactive's Series A and Series B Liberty Starz and Liberty Capital common stock were converted to awards with respect to Liberty's Series A and Series B Liberty Starz and Liberty Capital common stock pursuant to the Liberty Media Corporation Transitional Stock Adjustment Plan (the "Transitional Plan"). Following the Split-Off and the Conversion, the Transitional Plan governs the terms and conditions of such stock options and SARs (collectively, "Awards"), in respect of a maximum of 1 million shares of Liberty Capital common stock at December 31, 2012, to purchase shares of Series A and Series B Liberty Capital common stock. No additional grants may be made pursuant to the Transitional Plan. Therefore, the activity associated with such Awards of Liberty Interactive's Series A and Series B Liberty Starz and Liberty Capital common stock, prior to the Split-Off, have been reflected as Awards of Liberty in the consolidated financial statements.

Pursuant to the Liberty Media Corporation 2011 Incentive Plan (the "2011 Plan"), the Company may grant Awards to be made in respect of a maximum of 23.8 million shares of Liberty common stock. Awards generally vest over 4-5 years and have a term of 7-10 years. Liberty issues new shares upon exercise of equity awards.

Pursuant to the Liberty Media Corporation 2011 Nonemployee Director Incentive Plan, as amended from time to time (the "2011 NDIP"), the Liberty Board of Directors has the full power and authority to grant eligible nonemployee directors stock options, SARs, stock options with tandem SARs, and restricted stock.
In November 2011, the Company exchanged each share of outstanding Liberty Starz common stock for 0.88129 shares of Liberty Capital common stock (plus cash in lieu of fractional share interests). The outstanding Liberty Starz stock options, SARs and restricted stock were also exchanged for Liberty Capital stock options, SARs and restricted stock using the same ratio, and an adjustment was made to the strike price, as applicable, using the same ratio. The exchange of stock options, SARs and restricted stock was considered a modification of the previous Award. However, the impact to compensation expense was not significant.
Liberty - Grants of stock options
  Awards granted in 2012, 2011 and 2010 pursuant to the Incentive Plans discussed above are summarized as follows:

 
Years ended December 31,
 
2012
 
2011
 
2010
 
Options
granted
 
Weighted
average
grant-date
fair value
 
Options
granted
 
Weighted
average
grant-date
fair value
 
Options
granted
 
Weighted
average
grant-date
fair value
Series A Liberty Capital
834,000

 
$
42.04

 
162,347

 
$
33.95

 
1,135,622

 
$
19.56

Series A Liberty Capital from Option Exchange
3,713,000

 
$
37.25

 
—

 
$
—

 
—

 
$
—

Series A Liberty Starz
NA

 
NA

 
496,000

 
$
21.36

 
887,818

 
$
21.32


During the year ended December 31, 2012, Liberty granted, primarily to Starz employees, 834,000 options to purchase shares of Series A Liberty Capital common stock at a weighted average grant-date fair value of $42.04 per share. These options primarily vest quarterly over a 4 year vesting period.
During the fourth quarter of 2012, the Company entered into a series of transactions with certain officers of Liberty and its subsidiaries, which transactions were associated with stock options, in order to recognize tax deductions in the current year versus future years (the "Option Exchange"). On December 4, 2012 (the "Grant Date"), pursuant to the approval of the Compensation Committee of its Board of Directors, the Company effected the acceleration of each unvested in-the-money option to acquire shares of LMCA held by certain of its and its subsidiaries' officers (collectively, the “ Eligible Optionholders ”). Following this acceleration, also on the Grant Date, each Eligible Optionholder exercised, on a net settled basis, substantially all of his or her outstanding in-the-money vested and unvested options to acquire LMCA shares (the “Eligible Options”), and:
•
with respect to each vested Eligible Option, the Company granted the Eligible Optionholder a vested new option with substantially the same terms and conditions as the exercised vested Eligible Option, except that the exercise price for the new option is the closing price per LMCA share on The Nasdaq Global Select Market on the Grant Date;
•
and with respect to each unvested Eligible Option:
◦
the Eligible Optionholder sold to the Company the shares of LMCA received upon exercise of such unvested Eligible Option on the Grant Date for cash equal to the closing price per LMCA share on The Nasdaq Global Select Market on the Grant Date;
◦
Each Eligible Optionholder used the proceeds of that sale to purchase from the Company at that price an equal number of restricted LMCA shares which have a vesting schedule identical to that of the exercised unvested Eligible Option; and
◦
the Company granted the Eligible Optionholder an unvested new option, with substantially the same terms and conditions as the exercised unvested Eligible Option, except that (a) the number of shares underlying the new option is equal to the number of shares underlying such exercised unvested Eligible Option less the number of restricted shares purchased from the Company as described above and (b) the exercise price of the new option is the closing price per LMCA share on The Nasdaq Global Select Market on the Grant Date.

As a result, the Option Exchange was considered a modification under ASC 718 - Stock Compensation, with the following impacts on compensation expense. The unamortized value of the unvested Eligible Options that were exercised, which is $37 million, will be expensed over the vesting periods of the restricted shares attributable to the exercise of those options. The grant of new vested options resulted in incremental compensation expense in the fourth quarter of 2012 of $24 million. The grant of new unvested options resulted in incremental compensation expense totaling $77 million, which will be amortized over the vesting periods of those options.
The Company has calculated the grant-date fair value for all of its equity classified awards and any subsequent remeasurement of its liability classified awards using the Black-Scholes Model. The Company estimates the expected term of the Awards based on historical exercise and forfeiture data. For grants made in 2012, 2011 and 2010, the range of expected terms was 1.3 to 9.0 years. The volatility used in the calculation for Awards is based on the historical volatility of Liberty's stocks and the implied volatility of publicly traded Liberty options. The Company uses a zero dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the subject options.
The following table presents the volatilities used by the Company in the Black-Scholes Model for the 2012, 2011 and 2010 grants.
 
Volatility
2012 grants
 
 
 
Liberty Capital options
25.1%
-
54.2%
2011 grants
 
 
 
Liberty Capital options
43.9%
-
54.2%
Liberty Starz options
31.9%
-
31.9%
2010 grants
 
 
 
Liberty Capital options
43.9%
-
47.9%
Liberty Starz options
31.9%
-
33.6%

Liberty - Outstanding Awards
The following table presents the number and weighted average exercise price ("WAEP") of Awards to purchase Liberty common stock granted to certain officers, employees and directors of the Company.
 
Series A
 
Liberty
Capital
 
WAEP
 
number of Awards in thousands
Outstanding at January 1, 2012
7,665

 
$
36.57

Granted
834

 
$
93.38

Exercised
(1,712
)
 
$
22.60

Option Exchange, Exercised
(5,199
)
 
$
36.62

Option Exchange, Granted
3,713

 
$
105.56

Forfeited/Cancelled/Exchanged
(82
)
 
$
68.13

Outstanding at December 31, 2012
5,219

 
$
98.77

Exercisable at December 31, 2012
1,588

 
$
94.06


There were no grants or exercises of any of the Company's Series B options during 2012.
The following table provides additional information about outstanding Awards to purchase Liberty Capital common stock at December 31, 2012.
 
No. of
outstanding
Awards
(000's)
 
WAEP of
outstanding
Awards
 
Weighted
average
remaining
life
 
Aggregate
intrinsic
value
(000's)
 
No. of
exercisable
Awards
(000's)
 
WAEP of
exercisable
Awards
 
Weighted
average
remaining
life
 
Aggregate
intrinsic
value
(000's)
Series A Liberty Capital
5,219

 
$
98.77

 
6.5 years
 
$
89,992

 
1,588

 
$
94.06

 
6.2 years
 
$
34,853


As of December 31, 2012, the total unrecognized compensation cost related to unvested Liberty Awards was approximately $150 million. Such amount will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 1.8 years.
Liberty - Exercises
The aggregate intrinsic value of all options exercised during the years ended December 31, 2012, 2011 and 2010 was $494 million, $46 million and $47 million, respectively. The aggregate intrinsic value of options exercised for the year ended December 31, 2012 includes approximately $358 million related to the intrinsic value of options exercised as a result of the Option Exchange.
Liberty - Restricted Stock
Associated with the Option Exchange the Company issued approximately 1.5 million shares of unvested restricted Liberty Capital common stock. These shares generally vest over the next two years and as the Option Exchange was accounted for as a modification the compensation expense associated with these restricted shares was treated as incremental compensation, as discussed above, and is included in unrecognized compensation costs under the outstanding Awards section above. The Company had approximately 124,000 unvested restricted shares of Liberty common stock held by certain directors, officers and employees of the Company as of December 31, 2012, not issued under the Option Exchange, with a weighted average grant-date fair value of $58.50 per share.
The aggregate fair value of all restricted shares of Liberty Capital common stock that vested during the years ended December 31, 2012, 2011 and 2010 was $10 million, $14 million and $10 million, respectively.
Other
 Certain of the Company's other subsidiaries have stock based compensation plans under which employees and non-employees are granted options or similar stock based awards. Awards made under these plans vest and become exercisable over various terms. The awards and compensation recorded, if any, under these plans is not significant to the Company.