Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.6.0.2
Stock-Based Compensation
 12 Months Ended
Dec. 31, 2016
Share-based Compensation [Abstract]  
Stock-Based Compensation

(15)  Stock-Based Compensation

Liberty - Incentive Plans

Pursuant to the Liberty Interactive 2016 Omnibus Incentive Plan (the “2016 Plan”), the Company may grant stock options (“Awards”) to be made in respect of a maximum of 39.9 million shares of Series A and Series B QVC Group common stock and Liberty Ventures 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.

In connection with the Expedia Holdings Split-Off in November 2016, all outstanding Series A and Series B Awards with respect to Liberty Ventures common stock (a “Liberty Ventures 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 Ventures Award received: 

I.

An adjustment to the exercise price and the number of shares subject to the Liberty Ventures Award (as so adjusted, an “Adjusted Liberty Ventures Award”) and

II.

A corresponding equity award relating to shares of the corresponding series of Expedia Holdings common stock (an “Expedia Holdings Award”)

The exercise prices of and number of shares subject to the new Expedia Holdings Award and the Adjusted Liberty Ventures Award were determined based on (1) the exercise price and number of shares subject to the original Liberty Ventures Award, (2) the redemption ratios used in the Expedia Holdings Split-Off, (3) the pre-Expedia Holdings Split-Off trading price of Liberty Ventures common stock and (4) the relative post-Expedia Holdings Split-Off trading prices of Liberty Ventures common stock and Expedia Holdings common stock, such that the pre-Expedia Holdings Split-Off intrinsic value of the original Liberty Ventures Award was allocated between the new Expedia Holdings Award and the Adjusted Liberty Ventures Award. 

Following the Expedia Holdings Split-Off, employees of Liberty hold Awards in both Liberty Ventures common stock and Expedia Holdings common stock.  The compensation expense relating to employees of Liberty is recorded at Liberty.

In connection with the CommerceHub Spin-Off in July 2016, all outstanding Awards with respect to Liberty Ventures common stock (an “Original Liberty Ventures Award”) were adjusted pursuant to the anti-dilution provisions of the incentive plans under which the equity awards were granted, such that:

I.

A holder of an Original Liberty Ventures Award who was a member of the board of directors or an officer of Liberty holding the position of Vice President or above received (i) an adjustment to the exercise price and the number of shares subject to the Original Liberty Ventures Award (as so adjusted, an “Adjusted Liberty Ventures Award”) and (ii) a corresponding equity award relating to shares of the corresponding series of CommerceHub common stock, as well as Series C CommerceHub common stock (in each case, a “CommerceHub Award”); and

II.

Each other holder of an Original Liberty Ventures Award received only an adjustment to the exercise price and the number of shares subject to the Original Liberty Ventures Award (also referred to as an “Adjusted Liberty Ventures Award”).

The exercise prices and number of shares subject to the Adjusted Liberty Ventures Awards and the CommerceHub Awards were determined based on (1) the exercise prices and number of shares subject to the Liberty Ventures Award, (2) the distribution ratios used in the CommerceHub Spin-Off, (3) the pre-CommerceHub Spin-Off trading price of the Liberty Ventures common stock and (4) the post-CommerceHub Spin-Off trading prices of Liberty Ventures common stock and CommerceHub common stock, such that all of the pre-CommerceHub Spin-Off intrinsic value of the Liberty Ventures Award was allocated between the Adjusted Liberty Ventures Award and the CommerceHub Award, or fully to the Adjusted Liberty Ventures Award. Following the CommerceHub Spin-Off, employees of Liberty may hold Awards in both Liberty Ventures common stock and CommerceHub common stock. The compensation expense relating to employees of Liberty is recorded at Liberty.

Except as described above, all other terms of an Adjusted Liberty Ventures Award, a new Expedia Holdings Award and a new CommerceHub Award (including, for example, the vesting terms thereof) are in all material respects, the same as those of the corresponding original Liberty Ventures Award.

The adjustments related to the Expedia Holdings Split-Off and the CommerceHub Spin-Off were considered modifications under ASC 718 – Stock Compensation but did not result in incremental compensation expense.

In connection with the zulily acquisition in October 2015 (see note 5), outstanding awards to purchase shares of zulily Class A and Class B common stock (a “zulily Award”) were exchanged for awards to purchase shares of Series A QVC Group common stock (a “QVCA Award”).  The exercise prices and number of shares subject to the QVCA Award were determined based on (1) the exercise prices and number of shares subject to the zulily Award and (2) a conversion ratio which was calculated using the acquisition exchange ratio, acquisition cash consideration, and pre-distribution trading price of the Series A QVC Group common stock, such that all of the pre-distribution intrinsic value of the zulily Award was allocated to the QVCA Award.  The exchange of such awards was considered a modification under ASC 805 – Business Combinations.  A portion of the fair value of the replacement QVCA Awards was attributed to the consideration paid in the acquisition.  The remaining portion of the fair value will be recognized in the consolidated financial statements over the remaining vesting period of each individual award.

In connection with the TripAdvisor Holdings Spin-Off during 2014, the holder of an outstanding Award to purchase shares of Liberty Ventures Series A and Series B common stock on the record date (a “Previous Liberty Ventures Award”) received an Award to purchase shares of the corresponding series of TripAdvisor Holdings common stock and an adjustment to the exercise price and number of shares subject to the Previous Liberty Ventures Award (as so adjusted, an “Adjusted Liberty Ventures Award”).  Following the TripAdvisor Holdings Spin-Off, employees of Liberty hold Awards in both Liberty Ventures common stock and TripAdvisor Holdings common stock.  The compensation expense relating to employees of Liberty is recorded at Liberty.

Additionally, outstanding stock options, relating to QVC Group common stock, were adjusted, using a similar methodology as described above, in connection with the stock dividend related to the reattribution of the Digital Commerce businesses from the QVC Group to the Ventures Group during October 2014.

Liberty – Grants

During the year ended December 31, 2016, Liberty granted:

·

2.9 million options, to QVC employees, to purchase shares of Series A QVC Group common stock which had a weighted average grant-date fair value of $7.84 per share and vest semi-annually over 4 years.

·

433 thousand options, to zulily employees, to purchase shares of Series A QVC Group common stock which had a weighted average grant-date fair value of $7.57 per share and vest between three to five years.

·

421 thousand options, to Liberty employees, to purchase shares of Series A QVC Group common stock which had a weighted average grant-date fair value of $8.02 per share and mainly vest 50% each on December 31, 2019 and 2020.

·

114 thousand options, to Liberty employees, to purchase shares of Series A Liberty Ventures common stock which had a weighted average grant-date fair value of $12.25 per share and mainly vest 50% each on December 31, 2019 and 2020.

·

730 thousand and 209 thousand options of Series B QVC Group common stock and Series B Liberty Ventures common stock, respectively, to the CEO of Liberty in connection with our CEO’s employment agreement.  Such options had a grant-date fair value of $7.47 per share and $12.48 per share, respectively, at the time they were granted.  Liberty also granted 53 thousand and 16 thousand performance-based restricted stock units of Series B QVC Group common stock and Series B Liberty Ventures common stock, respectively.  The restricted stock units had a fair value of $25.11 per share and $38.79 per share, respectively, at the time they were granted.  The options vested on December 31, 2016, and the restricted stock units cliff vest in one year, subject to satisfaction of certain performance objectives.

During the year ended December 31, 2015, Liberty granted:

·

2.2 million options, primarily to QVC employees, to purchase shares of Series A QVC Group common stock which had a weighted average grant-date fair value of $11.63 per share and mainly vest semi-annually over four years.

·

1.7 million options to QVC’s CEO in connection with a new compensation arrangement, to purchase shares of Series A QVC Group common stock which had a weighted average grant-date fair value of $10.40 per share and vest 50% on each of December 31, 2019 and 2020.

·

2.5 million options, to Liberty employees, to purchase shares of Series A QVC Group common stock which had a weighted average grant-date fair value of $11.63 per share. 652 thousand of the options vest annually over 3 years and 1.7 million of the options vest 50% on each of December 31, 2019 and 2020. 

·

683 thousand options to purchase shares of Series A Liberty Ventures common stock which had a weighted average grant-date fair value of $18.10 per share. Such options primarily vest 50% on each of December 31, 2019 and 2020.

·

132 thousand performance-based options of Series B QVC Group common stock and 135 thousand performance-based options of Series B Liberty Ventures common stock to the CEO of Liberty in connection with our CEO’s employment agreement.  Such options had a grant-date fair value of $10.10 per share and $16.94 per share, respectively, at the time they were granted.  Liberty also granted 182 thousand and 13 thousand performance-based restricted stock units of Series B QVC Group common stock and Series B Liberty Ventures common stock, respectively.  The restricted stock units had a fair value of $29.41 per share and $42.33 per share, respectively, at the time they were granted.  The performance-based options and restricted stock units cliff vested in March 2016 based on an amount determined by the compensation committee.

During the year ended December 31, 2014, Liberty granted:

·

1.9 million options, primarily to QVC employees, to purchase shares of Series A QVC Group common stock which had a weighted average grant-date fair value of $12.04 per share and vest semi-annually over four years.

·

20 thousand options to purchase shares of Series A Liberty Ventures common stock which had a weighted average grant-date fair value of $16.55 per share and vest quarterly over four years.

·

646 thousand options of Series B QVC Group common stock and 1.4 million options of Series B Liberty Ventures common stock to the CEO of Liberty in connection with a new employment agreement (see note 14).  Such options had a weighted average grant-date fair value of $10.50 per share and $15.52 per share, respectively, and vest 50% on each of December 24, 2018 and 2019.

The Company has calculated the grant-date fair value for all of its equity classified awards using the Black-Scholes-Merton Model. The Company estimates the expected term of the Awards based on historical exercise and forfeiture data.  For grants made in 2016, 2015 and 2014, the range of expected terms was 5.8 to 6.7 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 range of volatilities used by Liberty in the Black-Scholes-Merton Model for the 2016, 2015 and 2014 QVC Group and Liberty Ventures grants.

 

 

 

 

 

 

 

 

 

 

Volatility

 

2016 grants

    

    

    

    

    

 

QVC Group options

 
27.4

%  

-
27.4

%  

Liberty Ventures options

 
30.6

%  

-
30.6

%  

2015 grants

    

    

    

    

    

 

QVC Group options

 
27.4

%  

-
39.7

%  

Liberty Ventures options

 
30.6

%  

-
42.4

%  

2014 grants

    

    

    

    

    

 

QVC Group options

 
33.6

%  

-
39.7

%  

Liberty Ventures options

 
41.1

%  

-
43.7

%  

 

Liberty - Outstanding Awards

The following table presents the number and weighted average exercise price ("WAEP") of the Awards to purchase QVC Group and Liberty Ventures 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.

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

QVC Group

 

 

 

Series A

 

Series B

 

 

 

 

 

 

 

 

Weighted

 

Aggregate

 

 

 

 

 

 

Weighted

 

Aggregate

 

 

 

 

 

 

 

 

average

 

 intrinsic

 

 

 

 

 

 

average

 

 intrinsic

 

 

 

Awards

 

 

 

 

remaining

 

value

 

Awards

 

 

 

 

remaining

 

value

 

 

    

(000's)

    

WAEP

    

life

    

(in millions)

    

(000's)

    

WAEP

    

life

    

(in millions)

 

Outstanding at January 1, 2016

 
31,482

 

$
19.57

 

 

 

 

 

 

 
778

 

$
29.79

 

 

 

 

 

 

 

Granted

 
3,714

 

$
26.09

 

 

 

 

 

 

 
730

 

$
25.11

 

 

 

 

 

 

 

Exercised

 
(4,292)

 

$
14.14

 

 

 

 

 

 

 

 —

 

$

 —

 

 

 

 

 

 

 

Forfeited/Cancelled

 
(1,319)

 

$
28.07

 

 

 

 

 

 

 
(19)

 

$
29.41

 

 

 

 

 

 

 

Outstanding at December 31, 2016

 
29,585

 

$
20.80

 
4.4

years

 

$
65

 
1,489

 

$
27.50

 
5.6

years

 

$

 —

 

Exercisable at December 31, 2016

 
18,268

 

$
18.20

 
3.4

years

 

$
56

 
843

 

$
25.68

 
6.1

years

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liberty Ventures

 

 

 

Series A

 

Series B

 

 

 

 

 

 

 

 

Weighted

 

Aggregate

 

 

 

 

 

 

Weighted

 

Aggregate

 

 

 

 

 

 

 

 

average

 

 intrinsic

 

 

 

 

 

 

average

 

 intrinsic

 

 

 

Awards

 

 

 

 

remaining

 

value

 

Awards

 

 

 

 

remaining

 

value

 

 

    

(000's)

    

WAEP

    

life

    

(in millions)

    

(000's)

    

WAEP

    

life

    

(in millions)

 

Outstanding at January 1, 2016

 
3,684

 

$
23.29

 

 

 

 

 

 

 
1,542

 

$
38.04

 

 

 

 

 

 

 

CommerceHub Spin-Off

 
(16)

 

$
24.39

 

 

 

 

 

 

 
(10)

 

$
35.86

 

 

 

 

 

 

 

Expedia Holdings Split-Off

 
(1,483)

 

$
22.12

 

 

 

 

 

 

 
(734)

 

$
35.02

 

 

 

 

 

 

 

Granted

 
114

 

$
37.77

 

 

 

 

 

 

 
209

 

$
38.79

 

 

 

 

 

 

 

Exercised

 
(323)

 

$
19.33

 

 

 

 

 

 

 

 —

 

$

 —

 

 

 

 

 

 

 

Forfeited/Cancelled

 
(2)

 

$
36.39

 

 

 

 

 

 

 
(20)

 

$
42.33

 

 

 

 

 

 

 

Outstanding at December 31, 2016

 
1,974

 

$
22.18

 
3.3

years

 

$
30

 
987

 

$
35.02

 
5.2

years

 

$

 2

 

Exercisable at December 31, 2016

 
1,540

 

$
18.01

 
2.5

years

 

$
29

 
184

 

$
36.82

 
5.9

years

 

$

 0

 

 

As of December 31, 2016, the total unrecognized compensation cost related to unvested Liberty Awards was approximately $118 million. Such amount will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 2.1 years.

 

Liberty - Exercises

 

The aggregate intrinsic value of all options exercised during the years ended December 31, 2016, 2015 and 2014 was $44 million, $115 million and $91 million, respectively. 

 

Liberty - Restricted Stock

 

The Company had approximately 2.8 million and 78 thousand unvested restricted shares of QVC Group and Liberty Ventures common stock, respectively, held by certain directors, officers and employees of the Company as of December 31, 2016.  These Series A and Series B unvested restricted shares of QVC Group and Liberty Ventures had a weighted average grant-date fair value of $25.19 and $25.77 per share, respectively.

The aggregate fair value of all restricted shares of Liberty common stock that vested during the years ended December 31, 2016, 2015 and 2014 was $26 million, $16 million and $19 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 and are typically cash settled and recorded as liability awards.  During the year ended December 31, 2016, approximately $90 million of cash payments were made to settle CommerceHub stock based awards.  The awards and compensation recorded, if any, under the plans at the other subsidiaries are not significant to Liberty.