Stock Options and Other Share-Based Awards Stock Options and Other Share- Based Awards |
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| Stock Options and Other Share-Based Payments | Stock-Based Compensation Certain QVC employees and officers may receive stock options ("Options") and restricted stock units ("RSUs") in Series A Qurate Retail common stock (“QRTEA”) in accordance with Qurate Retail's Incentive Plan (the "Qurate Incentive Plan").
In 2021, holders of QRTEA shares received a special cash dividend ("Special Cash Dividend") in the amount of $1.25 per common share. As a result, the outstanding Options of QRTEA were adjusted pursuant to the anti-dilution provisions of the Qurate Incentive Plans under which the Options were granted. Adjustments to the exercise prices and the numbers of shares subject to the original awards were made to preserve the intrinsic values prior to each Special Cash Dividend. Outstanding RSUs received the Special Cash Dividend which was subject to the same vesting schedules as those applicable to the corresponding original QRTEA RSU.
(a) Stock options
A summary of the activity of the Qurate Incentive Plans with respect to the QRTEA Options granted to QVC employees and officers as of and during the year ended December 31, 2023 is presented below:
Upon employee exercise of the Options, the exercise price is remitted to Qurate Retail in exchange for the shares. The aggregate intrinsic value of all Options exercised was $1 million and $15 million for the years ended December 31, 2022 and 2021, respectively. There were no options exercised during the year ended December 31, 2023.
The weighted average fair value at date of grant of a QRTEA Option granted during the year ended December 31, 2021 was $5.70. There were no options granted during the years ended December 31, 2023 and December 31, 2022.
During the year ended December 31, 2021, the fair value of each QRTEA Option was determined as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
Expected volatility is based on historical and implied volatilities of QRTEA common stock over a period commensurate with the expected term of the options. The Company estimates the expected term of the Options based on historical exercise and forfeiture data. The volatility used in the calculation for the Options is based on the historical volatility of Qurate Retail's stocks and the implied volatility of publicly traded Qurate Retail 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 fair value of the Options is recognized as expense over the requisite service period.
During the years ended December 31, 2023, 2022 and 2021, the Company recorded $4 million, $5 million and $9 million, respectively, of stock-based compensation expense related to the Options. As of December 31, 2023, the total unrecognized compensation cost related to unvested Options was $3 million. Such amount will be recognized in the Company's consolidated statement of operations over a weighted average period of 1.0 year.
(b) Restricted stock units
A summary of the activity of the Qurate Incentive Plans with respect to the QRTEA RSUs granted to QVC employees and officers as of and during the year ended December 31, 2023 is presented below:
During the year ended December 31, 2023, QVC employees and officers were granted 17.3 million performance-based, cash-settled RSUs. These RSUs vest equally over three years, subject to the satisfaction of certain performance objectives. The liability and compensation expense related to such awards is adjusted at the end of each reporting period based on the closing market price of QRTEA on the last trading day of the quarter combined with the probability of satisfying the performance objectives.
For awards that are performance-based, performance objectives, which are subjective, are considered in determining the timing and amount of compensation expense recognized. When the satisfaction of the performance objectives becomes probable, the Company records compensation expense. The probability of satisfying the performance objectives is assessed at the end of each reporting period.
During the years ended December 31, 2023, 2022 and 2021, the Company recorded $32 million, $27 million and $32 million, respectively, of stock-based compensation expense related to these awards. As of December 31, 2023, the total unrecognized compensation cost related to unvested RSUs of common stock was $33 million. Such amount will be recognized in the Company's consolidated statement of operations over a weighted average period of 1.5 years.
Fair value of RSUs is calculated based on the market price on the day the shares are granted. The weighted average grant date fair value of the QRTEA RSUs granted to QVC employees and officers during the years ended December 31, 2023, 2022 and 2021 was $1.27, $3.71, and $11.58, respectively.
The aggregate fair value of all RSUs of common stock that vested during the years ended December 31, 2023, 2022 and 2021 was $31 million, $13 million and $38 million, respectively.
As of December 31, 2023, the Company had approximately 22,000 unvested RSUs of Qurate Retail 8.0% Series A Cumulative Redeemable Preferred Stock held by certain officers and employees of the Company. During the year ended December 31, 2023, the Company recorded an incremental $1 million of stock-based compensation expense related to these shares and the total incremental unrecognized compensation cost related to these awards as of December 31, 2023 was $0.2 million. Such amount will be recognized in the Company’s consolidated statements of operations in 2024.
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