Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v2.4.0.6
Stock-Based Compensation
 12 Months Ended
Dec. 31, 2012
Share-based Compensation [Abstract]  
Stock-Based Compensation
Stock-Based Compensation
Liberty - Incentive Plans
 Pursuant to the Liberty Interactive Corporation 2000 Incentive Plan, as amended from time to time (the "2000 Plan"), and the Liberty Interactive Corporation 2007 Incentive Plan, as amended from time to time (the "2007 Plan") the Company has granted to certain of its employees stock options and SARs (collectively, "Awards") to purchase shares of Liberty common stock. The 2000 Plan and 2007 Plan provide for Awards to be issued in respect of a maximum of 7.8 million shares and 7.3 million shares, respectively, of Liberty common stock. No additional grants may be made pursuant to these plans. On June 24, 2010, stockholders of the Company approved the Liberty Interactive Corporation 2010 Incentive Plan, as amended from time to time (the "2010 Plan"). The 2010 Plan provides for Awards to be made in respect of a maximum of 42.9 million shares of Liberty common stock. Additionally, pursuant to the Liberty Interactive Corporation 2012 Incentive Plan (the "2012 Plan"), the Company may grant Awards to be made in respect of a maximum of 50 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.
 Pursuant to the Liberty Interactive Corporation 2002 Nonemployee Director Incentive Plan, as amended from time to time (the "2002 NDIP") and the Liberty Interactive Corporation 2011 Nonemployee Director Incentive Plan, as amended from time to time (the "2011 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.
The 2012 Plan was approved by our board of directors. We expect the shareholders of the Company to ratify such approval at our 2013 Annual Meeting of Shareholders.
Liberty - Grants
During the year ended December 31, 2012, Liberty granted, primarily to QVC employees, 3.4 million options to purchase shares of Series A Liberty Interactive common stock. Such options had a weighted average grant-date fair value of $8.44 per share. Liberty also granted 36 thousand options to purchase shares of Series A Liberty Ventures common stock. Such options had a weighted average grant-date fair value of $27.29 per share.
In connection with the Option Exchange (see below), Liberty granted 20.1 million and 905 thousand options to purchase shares of Series A Liberty Interactive common stock and Series A Liberty Ventures common stock, respectively. Such options had a weighted average grant-date fair value of $7.15 and $26.58 per share, respectively.
During the years ended December 31, 2011 and 2010 the Company granted approximately 6.2 million and 10.6 million options to purchase shares of Series A Liberty Interactive common stock, respectively. Such options had a weighted average grant-date fair value of $7.32 and $7.11 per share, respectively.
During the fourth quarter of 2012, the Company entered into a series of transactions with certain officers of Liberty and its subsidiaries, associated with certain outstanding 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 (i) each unvested in-the-money option to acquire shares of LINTA and (ii) each unvested in-the-money option to acquire shares of LVNTA, in each case, 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 LINTA shares and LVNTA 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, except that the exercise price for the new option is the closing price per LINTA or LVNTA share, as applicable, on The Nasdaq Global Select Market on the Grant Date;
•
and with respect to each unvested Eligible Option:
◦
the Eligible Optionholder sold to the Company the shares of LINTA or LVNTA, as applicable, received upon exercise of such unvested Eligible Option on the Grant Date for cash equal to the closing price per LINTA or LVNTA share, as applicable, on The Nasdaq Global Select Market on the Grant Date;
◦
Each Eligible Optionholder used the proceeds of that sale to purchase from the Company, at that price, an equal number of restricted LINTA or LVNTA shares, as applicable, 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 LINTA or LVNTA share, as applicable, on The Nasdaq Global Select Market on the Grant Date.

This 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 $55 million and $7 million for LINTA and LVNTA, respectively, will be expensed over the vesting periods of the restricted shares attributable to the exercise of those options. The grant of new vested options resulted in incremental compensation expense in the fourth quarter of 2012 of $17 million and $4 million for LINTA and LVNTA, respectively. The grant of new unvested options resulted in incremental compensation expense totaling $54 million and $10 million for LINTA and LVNTA, respectively, which will be amortized over the vesting periods of those options.
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 2012, 2011 and 2010, 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 range of volatilities used by Liberty in the Black-Scholes Model for the 2012, 2011 and 2010 Liberty Interactive and Liberty Ventures grants.
 
 
Volatility
2012 grants
 
 
 
 
Liberty Interactive options
28.2
%
-
47.51
%
 
Liberty Ventures options
47.5
%
-
49.94
%
2011 grants
 
 
 
 
Liberty Interactive options
44.8
%
-
47.51
%
2010 grants
 
 
 
 
Liberty Interactive options
44.8
%
-
46.4
%

Liberty - Outstanding Awards
The following table presents the number and weighted average exercise price ("WAEP") of the Awards to purchase Liberty Interactive and Liberty Ventures common stock granted to certain officers, employees and directors of the Company. In connection with the recapitalization, in August 2012, all outstanding option awards and SARs with respect to the then-existing Series A and Series B Liberty Interactive common stock (each an "original Liberty Interactive 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 an original Liberty Interactive award received (i) an adjustment to the exercise price or base price, as applicable, and number of shares relating to the original Liberty Interactive award (as so adjusted, an "adjusted Liberty Interactive award") and (ii) an equity award relating to shares of the corresponding series of Liberty Ventures common stock (a "new Liberty Ventures award"). The exercise prices and number of shares subject to the new Liberty Ventures award and the adjusted Liberty Interactive award were determined based on 1) the exercises prices and number of shares subject to the original Liberty Interactive award, 2) the distribution ratio of 0.05, 3) the pre-distribution trading price of the Liberty Interactive common stock and 4) the post-distribution trading prices of the Liberty Interactive common stock and Liberty Ventures common stock, such that substantially all of the pre-distribution intrinsic value of the original Liberty Interactive award was allocated between the new Liberty Ventures award and the adjusted Liberty Interactive award for the Company's corporate employees and directors. For employees of subsidiaries attributed to the Liberty Interactive Group, the pre-distribution intrinsic value of the original Liberty Interactive award was maintained solely within the adjusted Liberty Interactive award.
 
Liberty Interactive
 
Series A
 
WAEP
 
Series B
 
WAEP
 
Number of Options in thousands
Outstanding at January 1, 2012
45,223

 
$
12.06

 
450

 
$
19.74

Granted
3,413

 
$
18.85

 
—

 
$
—

Exercised
(9,853
)
 
$
9.64

 
—

 
$
—

Forfeited/Cancelled/Exchanged
(737
)
 
$
14.44

 
—

 
$
—

Liberty Ventures adjustment
413

 
$
8.39

 
(18
)
 
$
17.92

Option Exchange, Exercised
(24,706
)
 
$
10.93

 
—

 
$
—

Option Exchange, Granted
20,086

 
$
19.26

 
—

 
$
—

Outstanding at December 31, 2012
33,839

 
$
16.92

 
432

 
$
17.92

Exercisable at December 31, 2012
12,929

 
$
15.56

 
432

 
$
17.92



 
Liberty Ventures
 
Series A
 
WAEP
 
Series B
 
WAEP
 
Number of Options in thousands
Outstanding at January 1, 2012
—

 
$
—

 
—

 
—

Granted
36

 
$
58.49

 
—

 
—

Exercised
(181
)
 
$
30.91

 
—

 
—

Forfeited/Cancelled/Exchanged
(19
)
 
$
34.05

 
—

 
—

Liberty Ventures adjustment
1,588

 
$
30.69

 
22

 
$
46.69

   Option Exchange, Exercised
(1,174
)
 
$
27.96

 
—

 
—

   Option Exchange, Granted
905

 
$
58.80

 
—

 
—

Outstanding at December 31, 2012
1,155

 
$
56.26

 
22

 
$
46.69

Exercisable at December 31, 2012
449

 
$
52.91

 
22

 
$
46.69



The following table provides additional information about outstanding Awards to purchase Liberty common stock at December 31, 2012.
 
No. of
outstanding
Awards (000's)
 
WAEP of
outstanding
Awards
 
Weighted
average
remaining
life
 
Aggregate
intrinsic
value
(000's)
 
No. of
exercisable
Awards
(000's)
 
WAEP of
exercisable
Awards
 
Weighted
average
remaining
life
 
Aggregate
intrinsic
value
(000's)
Series A Liberty Interactive
33,839

 
$
16.92

 
5.7 years
 
$
97,886

 
12,929

 
$
15.56

 
4.5 years
 
$
57,484

Series B Liberty Interactive
432

 
$
17.92

 
2.7 years
 
$
225

 
432

 
$
17.92

 
2.7 years
 
$
225

Series A Liberty Ventures
1,155

 
$
56.26

 
6.0 years
 
$
13,326

 
449

 
$
52.91

 
4.6 years
 
$
6,710

Series B Liberty Ventures
22

 
$
46.69

 
2.7 years
 
$
58

 
22

 
$
46.69

 
2.7 years
 
$
58



As of December 31, 2012, the total unrecognized compensation cost related to unvested Liberty equity Awards was approximately $170 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 1.7 years.

Liberty - Exercises

The aggregate intrinsic value of all options exercised during the years ended December 31, 2012, 2011 and 2010 was $339 million, $33 million and $23 million, respectively. The aggregate intrinsic value of options exercised for the year ended December 31, 2012 includes approximately $242 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 4.6 million and 0.3 million shares of unvested restricted Liberty Interactive and Liberty Ventures common stock, respectively. These shares generally vest over the next three years and as 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 the total unrecognized compensation costs under the outstanding Awards section above. The Company had approximately 2.2 million shares and 0.1 million shares of unvested restricted Liberty Interactive and Liberty Ventures common stock, respectively, held by certain directors, officers and employees of the Company as of December 31, 2012, not issued under the Option Exchange. These unvested restricted shares of LINTA and LVNTA had a weighted average grant date fair value of $13.13 and $4.82 per share, respectively.
The aggregate fair value of all restricted shares of Liberty common stock that vested during the years ended December 31, 2012, 2011 and 2010 was $12 million, $14 million and $10 million, respectively.
TripAdvisor - Stock-based Compensation

During the year ended December 31, 2012, TripAdvisor issued 3.7 million of primarily service based stock options under their outstanding 2011 Incentive Plan with a weighted average estimated grant-date fair value per option of $20.36. As of December 31, 2012 TripAdvisor has 8.7 million options outstanding of which 3.3 million are exercisable. As of December 31, 2012, the total unrecognized compensation cost related to unvested TripAdvisor stock options was approximately $60 million and will be recognized over a weighted average period of approximately 3.0 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 Liberty.