Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v2.4.0.8
Stock-Based Compensation
 12 Months Ended
Dec. 31, 2013
Share-based Compensation [Abstract]  
Stock-Based Compensation

Stock-Based Compensation

Liberty - Incentive Plans

Pursuant to the Liberty Media Corporation 2013 Incentive Plan (the "2013 Plan"), the Company has granted and may grant to certain of its employees stock options and stock appreciation rights ("SARs") (collectively, "Awards") to purchase shares of Series A and Series B Liberty common stock. The 2013 Plan provides for Awards to be made in respect of a maximum of 25 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. 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.

Pursuant to the Liberty Media Corporation 2013 Nonemployee Director Incentive Plan, as amended from time to time (the "2013 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 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.
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 2013, 2012 and 2011 pursuant to the Incentive Plans discussed above are summarized as follows:

 
Years ended December 31,
 
2013
 
2012
 
2011
 
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 common stock
23,000

 
$
55.16

 
834,000

 
$
42.04

 
162,347

 
$
33.95

Series A Liberty Capital from Option Exchange
NA

 
NA

 
3,713,000

 
$
37.25

 
NA

 
NA

Series A Liberty Starz
NA

 
NA

 
NA

 
NA

 
496,000

 
$
21.36


During the year ended December 31, 2013, Liberty granted 23,000 options to purchase shares of Series A Liberty common stock at a weighted average grant-date fair value of $55.16 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;
•
and with respect to each unvested Eligible Option:
◦
the Eligible Optionholder sold to the Company, for cash, the shares of LMCA received upon exercise of such unvested Eligible Option and used the proceeds of that sale to purchase from the Company 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.

The Option Exchange was considered a modification under ASC 718 - Stock Compensation and resulted in incremental compensation expense in 2012 of $18 million. Incremental compensation expense is also being recognized over the remaining vesting periods of the new unvested options and the restricted shares and is included in unrecognized compensation.
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 2013, 2012 and 2011, 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 2013, 2012 and 2011 grants.
 
Volatility
2013 grants
 
 
 
Liberty options
31.3
%
-0.414
41.4
%
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
%

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, as well as the weighted average remaining life and aggregate intrinsic value of the Awards.
 
Series A
 
Liberty
 Awards (000's)
 
WAEP
 
Weighted
average
remaining
life
 
Aggregate
intrinsic
value
(000's)
Outstanding at January 1, 2013
5,219

 
$
98.77

 
 
 
 
Granted
23

 
$
148.81

 
 
 
 
Exercised
(386
)
 
$
82.15

 
 
 
 
Forfeited/Cancelled/Exchanged
(5
)
 
$
72.08

 
 
 
 
Spin-off adjustment
(1,195
)
 
$
83.25

 
 
 
 
Outstanding at December 31, 2013
3,656

 
$
91.74

 
5.2 years
 
$
199,519

Exercisable at December 31, 2013
2,185

 
$
89.22

 
5.0 years
 
$
124,667


There were no grants or exercises of any of the Company's Series B options during 2013.
As of December 31, 2013, the total unrecognized compensation cost related to unvested Liberty Awards was approximately $65 million, including incremental compensation under the Option Exchange. Such amount will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 1.4 years.

Liberty - Exercises
The aggregate intrinsic value of all options exercised during the years ended December 31, 2013, 2012 and 2011 was $23 million, $494 million and $46 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 common stock, of which 685,000 shares vested during the year ended December 31, 2013. These shares continue to vest over the next two years and since 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 79,000 unvested restricted shares of Liberty common stock held by certain directors, officers and employees of the Company as of December 31, 2013, not issued under the Option Exchange, with a weighted average grant-date fair value of $63.40 per share.
The aggregate fair value of all restricted shares of Liberty common stock that vested during the years ended December 31, 2013, 2012 and 2011 was $7 million, $10 million and $14 million, respectively.

SIRIUS XM - Stock-based Compensation

During the year ended December 31, 2013, SIRIUS XM granted stock options and restricted stock units to its employees and members of its board of directors. During the year ended December 31, 2013, SIRIUS XM granted approximately 57.2 million stock options with a weighted-average exercise price of $3.59 per share and a grant date fair value of $1.48 per share. As of December 31, 2013, SIRIUS XM has approximately 264 million options outstanding of which approximately 114 million are exercisable, each with a weighted-average exercise price per share of $2.42 and $2.26, respectively. The aggregate intrinsic value of these outstanding and exercisable options were $327 million and $180 million, respectively. During the year ended December 31, 2013, SIRIUS XM granted approximately 6.9 million restricted stock units with a grant date fair value of $3.59 per share. The stock-based compensation related to SIRIUS XM stock options and restricted stock awards was $133 million for the year ended December 31, 2013. As of December 31, 2013, the total unrecognized compensation cost related to unvested SIRIUS XM stock options was $308 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 3 years.

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.