(12)  Stock-Based Compensation

Qurate Retail - Incentive Plans

Pursuant to the Qurate Retail, Inc. 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 Qurate Retail common stock.  Awards generally vest over 4-5 years and have a term of 7-10 years. Qurate Retail issues new shares upon exercise of equity awards.

In connection with the HSN acquisition in December 2017 (see note 4), outstanding awards to purchase shares of HSN common stock (an “HSN Award”) were exchanged for awards to purchase shares of Series A Qurate Retail common stock (a “QRTEA Award”).  The exercise prices and number of shares subject to the QRTEA Award were determined based on (1) the exercise prices and number of shares subject to the HSN Award and (2) the acquisition exchange ratio.  The exchange of such awards was considered a modification under ASC 805 – Business Combinations.  A portion of the fair value of the replacement QRTEA 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 Expedia Holdings Split-Off in November 2016, the holder of an outstanding award to purchase shares of Liberty Ventures Series A and Series B common stock (a “Liberty Ventures Award”) received an Award to purchase shares of the corresponding series of Expedia Holdings common stock and an adjustment to the exercise price and number of shares subject to the Liberty Ventures Award (as so adjusted, an “Adjusted Liberty Ventures Award”).  Following the Expedia Holdings Split-Off, employees of Qurate Retail hold Awards in both Liberty Ventures common stock and Expedia Holdings common stock.  The compensation expense relating to employees of Qurate Retail is recorded at Qurate Retail.

In connection with the CommerceHub Spin-Off in July 2016, the holder of an outstanding award to purchase shares of Liberty Ventures Series A and Series B common stock (an “Original Liberty Ventures Award”) received an adjustment to the exercise price and number of shares subject to the Original Liberty Ventures Award (as so adjusted, an “Adjusted Liberty Ventures Award”).  A holder of an Original Liberty Ventures Award who was a member of the board of directors or an officer of Qurate Retail holding the position of Vice President or above also received an Award to purchase shares of the corresponding series of CommerceHub common stock as well as Series C CommerceHub common stock (in each case, a “CommerceHub Award”).  Following the CommerceHub Spin-Off, employees of Qurate Retail may hold Awards in both Liberty Ventures common stock and CommerceHub common stock. The compensation expense relating to employees of Qurate Retail is recorded at Qurate Retail.

Qurate Retail – Grants

The following table presents the number and weighted average grant-date fair value (“GDFV”) of options granted by Qurate Retail during the years ended December 31, 2018,  2017 and 2016:  

In connection with the Option Exchange in 2017 (see below), Qurate Retail granted 5.9 million, 946 thousand and 1.1 million options to purchase shares of Series A Qurate Retail common stock, Series A Liberty Ventures common stock and Series B Liberty Ventures common stock, respectively.  Such options had an incremental weighted average GDFV of $3.49,  $8.53 and $6.94, respectively.

In addition to the stock option grants to the Qurate Retail Chairman of the Board, Qurate Retail granted performance-based restricted stock units ("RSUs") of Series B Qurate Retail common stock in 2018, 2017 and 2016 of 124 thousand, 115 thousand and 53 thousand, respectively.  The RSUs had a fair value of $27.56,  $19.90 and $25.11 per share, respectively, at the time they were granted.  Qurate Retail also granted performance-based RSUs of Series B Liberty Ventures common stock in 2016 of 16 thousand.  The RSUs had a fair value of $38.79 per share at the time they were granted.  The 2018, 2017 and 2016 performance-based RSUs cliff vested in one year, subject to the satisfaction of certain performance objectives and based on an amount determined by the compensation committee.

During the fourth quarter of 2017, the Company entered into a series of transactions with certain officers of Qurate Retail, associated with certain outstanding stock options, in order to recognize tax deductions in 2017 versus future years (the “Option Exchange”).  On December 26, 2017 (the “Grant Date”), pursuant to the approval of the Compensation Committee of its Board of Directors, the Company effected the acceleration of (i) each unvested in-the-money option to acquire shares of LVNTA and (ii) each unvested in-the-money option to acquire shares of LVNTB, in each case, held by certain of its officers (collectively, the “Eligible Optionholders”).  Following this acceleration, also on the Grant Date, each Eligible Optionholder exercised, on a net settled basis, all of his outstanding in-the-money vested and unvested options to acquire QRTEA shares, LVNTA shares and LVNTB shares (the “Eligible Options”), and:

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 was $14 million for LVNTA and LVNTB combined, will be expensed over the vesting period of the Restricted Shares attributable to the exercise of those options; of this amount, $6 million of expense was assumed by GCI Liberty as a result of the GCI Liberty Split-Off.  The grant of new vested options resulted in incremental compensation expense in the fourth quarter of 2017 of $30 million for QRTEA, LVNTA and LVNTB combined.  The grant of Unvested New Options resulted in incremental compensation expense totaling $6 million for LVNTA and LVNTB combined, which will be amortized over the vesting periods of those options; of this amount, $5.8 million of incremental compensation expense was assumed by GCI Liberty as a result of the GCI Liberty Split-Off.

The Company has calculated the GDFV 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 2018,  2017 and 2016, the range of expected terms was 2.0 to 6.4 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 Qurate Retail in the Black-Scholes-Merton Model for the 2018,  2017 and 2016 Qurate Retail and Liberty Ventures grants.

 

Qurate Retail - Outstanding Awards

The following table presents the number and weighted average exercise price ("WAEP") of Awards to purchase Qurate Retail 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.

   

 

 

 

 

As of December 31, 2018, the total unrecognized compensation cost related to unvested Qurate Retail Awards was approximately $71 million. Such amount will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 1.7 years.

As of December 31, 2018, Qurate Retail reserved 30.3 million shares of Series A and Series B common stock for issuance under exercise privileges of outstanding stock Awards.

Qurate Retail - Exercises

The aggregate intrinsic value of all options exercised during the years ended December 31, 2018,  2017 and 2016 was $28 million, $145 million and $44 million, respectively.  The aggregate intrinsic value of options exercised for the year ended December 31, 2017 includes approximately $104 million related to the intrinsic value of options exercised as a result of the Option Exchange.

Qurate Retail - Restricted Stock

The Company had approximately 4.2 million unvested restricted shares of Qurate Retail common stock, held by certain directors, officers and employees of the Company as of December 31, 2018.  These Series A and Series B unvested restricted shares of Qurate Retail had a weighted average GDFV of $24.28 per share.

The aggregate fair value of all restricted shares of Qurate Retail common stock that vested during the years ended December 31, 2018,  2017 and 2016 was $64 million, $23 million and $26 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 Qurate Retail.