|12 Months Ended|
Dec. 31, 2019
(13) Stock-Based Compensation
Qurate Retail - Incentive Plans
Pursuant to the Qurate Retail, Inc. 2016 Omnibus Incentive Plan (the “2016 Plan”), as amended, 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.
Qurate Retail – Grants
The following table presents the number and weighted average GDFV of options granted by Qurate Retail during the years ended December 31, 2019, 2018 and 2017:
In addition to the stock option grants to the Qurate Retail Chairman of the Board, and in connection with his employment agreement, Qurate Retail granted time-based and performance-based restricted stock units ("RSUs"). During the year ended December 31, 2019, Qurate Retail granted 19 thousand time-based RSUs of Series B Qurate Retail common stock. Such RSUs had a GDFV of $17.90 per share at the time they were granted and cliff vested on March 11, 2019. During the years ended December 31, 2019, 2018 and 2017, Qurate Retail granted 194 thousand, 124 thousand and 115 thousand performance-based RSUs, respectively, of Series B Qurate Retail common stock. Such RSUs had a fair value of $17.90, $27.56 and $19.90 per share, respectively, at the time they were granted. Also during the year ended December 31, 2019, Qurate Retail granted approximately 191 thousand performance-based RSUs of Series A Qurate Retail common stock to its President and CEO. The Series A RSUs had a GDFV of $17.90 per share at the time they were granted. The 2019, 2018 and 2017 performance-based RSUs cliff vest one year from the month of grant, subject to the satisfaction of certain performance objectives and based on an amount determined by the compensation committee. Performance objectives, which are subjective, are considered in determining the timing and amount of the compensation expense recognized. As the satisfaction of the performance objectives becomes probable, the Company records compensation expense. The value of the grant is remeasured at each reporting period. This grant includes the first upfront option grant related to the Chairman’s new employment agreement. See discussion in note 1 regarding the new compensation agreement with the Company’s Chairman.
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.
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 2019, 2018 and 2017, the range of expected terms was 2.0 to 6.4. The volatility used in the calculation for Awards is based on the historical volatility of the Company'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 following table presents the range of volatilities used by Qurate Retail in the Black-Scholes-Merton Model for the 2019, 2018 and 2017 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, 2019, the total unrecognized compensation cost related to unvested Qurate Retail Awards was approximately $46 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, 2019, Qurate Retail reserved 25.1 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, 2019, 2018 and 2017 was $2 million, $28 million and $145 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 5.4 million unvested restricted shares of Qurate Retail common stock, held by certain directors, officers and employees of the Company as of December 31, 2019. These Series A and Series B unvested restricted shares of Qurate Retail had a weighted average GDFV of $18.58 per share.
The aggregate fair value of all restricted shares of Qurate Retail common stock that vested during the years ended December 31, 2019, 2018 and 2017 was $25 million, $64 million and $23 million, respectively.
The entire disclosure for share-based payment arrangement.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef