Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

v2.4.0.8
Stock-Based Compensation
 6 Months Ended
Jun. 30, 2013
Share-based Compensation [Abstract]  
Stock-Based Compensation
Stock-Based Compensation
Prior to the Split-Off, Liberty Interactive granted, and Liberty has since granted, to certain of its directors, employees and employees of its subsidiaries options and stock appreciation rights ("SARs") to purchase shares of its common stock (collectively, "Awards"). The Company measures the cost of employee services received in exchange for an Award of equity instruments (such as stock options and restricted stock) based on the grant-date fair value of the Award, and recognizes that cost over the period during which the employee is required to provide service (usually the vesting period of the Award). The Company measures the cost of employee services received in exchange for an Award of liability instruments (such as SARs that will be settled in cash) based on the current fair value of the Award, and remeasures the fair value of the Award at each reporting date.
In connection with the Spin-Off in January 2013, all outstanding Awards with respect to Liberty Capital common stock ("Liberty Capital Award") were adjusted pursuant to the anti-dilution provisions of the incentive plans under which the equity awards were granted, such that a holder of a Liberty Capital Award received (other than those held by Starz employees, as discussed below):
i.
an adjustment to the exercise price or base price, as applicable, and number of shares relating to the Liberty Capital Award (as so adjusted, a "Liberty Award") and
ii.
an equity award relating to shares of Starz common stock (a "Starz Award").
The exercise prices and number of shares subject to the Liberty Award and the Starz Award were determined based on 1) the exercise prices and number of shares subject to the Liberty Capital Award, 2) the pre-distribution trading price of Liberty Capital common stock and 3) the post-distribution trading prices of Liberty common stock and Starz common stock, such that (other than those held by Starz employees, as discussed below) all of the pre-distribution intrinsic value of the Liberty Capital Award was allocated between the Liberty Award and the Starz Award for the Company's corporate employees and directors. For employees of Starz, LLC, the pre-distribution intrinsic value of the vested Liberty Capital Award was allocated between a vested Liberty Award and a vested Starz Award, while the pre-distribution intrinsic value of the unvested Liberty Capital Award was maintained solely within an unvested Starz Award.
Following the Spin-Off, employees of Liberty and Starz hold Awards in both Liberty common stock and Starz common stock. The compensation expense relating to the employees of Liberty is recorded at Liberty and the compensation expense relating to employees of Starz is recorded at Starz.
Included in the accompanying condensed consolidated statements of operations are the following amounts of stock-based compensation, a portion of which relates to SIRIUS XM as discussed below:
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
 
(amounts in millions)
Cost of subscriber services:
 
 
 
 
 
 
 
Programming and content
$
4

 
—

 
7

 
—

 Customer service and billing
1

 
—

 
2

 
—

Other
2

 
—

 
3

 
—

Other operating expense
3

 
—

 
6

 
—

Selling, general and administrative
38

 
5

 
71

 
11

 
$
48

 
5

 
89

 
11


During the six months ended June 30, 2013, the Company did not grant any options to purchase shares of Series A common stock.
Liberty Interactive previously calculated, and Liberty calculates, the grant-date fair value for all of its equity classified awards and the subsequent remeasurement of its liability classified awards using the Black-Scholes Model. Liberty estimates the expected term of the Awards based on historical exercise and forfeiture data. The volatility used in the calculation for Awards is based on the historical volatility of Liberty common stock and the implied volatility of publicly traded Liberty options. Liberty uses a zero dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the subject Awards.
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 and certain Awards of employees of Starz.
 
Series A
 
Liberty
 
WAEP
 
numbers of Awards in thousands
Outstanding at January 1, 2013
5,219

 
$
98.77

Granted
—

 
$
—

Exercised
(70
)
 
$
56.30

Forfeited/Cancelled/Exchanged
(4
)
 
$
69.06

Spin-Off adjustment
(1,195
)
 
$
83.25

Outstanding at June 30, 2013
3,950

 
$
91.09

Exercisable at June 30, 2013
1,861

 
$
87.48


The following table provides additional information about outstanding Awards to purchase Liberty common stock at June 30, 2013.
 
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
3,950

 
$
91.09

 
5.9 years
 
$
140,905

 
1,861

 
$
87.48

 
5.4 years
 
$
73,098


As of June 30, 2013, the total unrecognized compensation cost related to unvested Liberty Awards was approximately $87 million, including compensation associated with the option exchange that occurred in December 2012. Such amount will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 2.0 years.
As of June 30, 2013, Liberty reserved 4.0 million Series A common stock for issuance under exercise privileges of outstanding stock Awards.
SIRIUS XM - Stock-based Compensation
During the six months ended June 30, 2013, SIRIUS XM granted stock options and restricted stock units to its employees, consultants and members of its board of directors. As of June 30, 2013, SIRIUS XM has approximately 266 million options outstanding of which approximately 82 million are exercisable, each with a weighted-average exercise price per share of $2.03 and $2.70, respectively. The stock-based compensation related to SIRIUS XM stock options was $33 million and $59 million for the three and six months ended June 30, 2013, respectively. As of June 30, 2013, the total unrecognized compensation cost related to unvested SIRIUS XM stock options was $294 million. The SIRIUS XM unrecognized compensation cost will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 2.5 years.