Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

v2.4.0.6
Stock-Based Compensation
 3 Months Ended
Mar. 31, 2012
Share-based Compensation [Abstract]  
Stock-Based Compensation
Stock-Based Compensation
Prior to the Split-Off, Liberty Interactive granted, and Liberty has since granted to certain of its directors, employees and employees of its subsidiaries options and stock appreciation rights ("SARs") to purchase shares of its common stock (collectively, "Awards"). The Company measures the cost of employee services received in exchange for an Award of equity instruments (such as stock options and restricted stock) based on the grant-date fair value of the Award, and recognizes that cost over the period during which the employee is required to provide service (usually the vesting period of the Award). The Company measures the cost of employee services received in exchange for an Award of liability instruments (such as stock appreciation rights that will be settled in cash) based on the current fair value of the Award, and remeasures the fair value of the Award at each reporting date.
In connection with the Split-Off, awards with respect to Liberty Interactive's Series A and Series B Liberty Starz and Liberty Capital common stock were converted to awards with respect to Liberty's Series A and Series B Liberty Starz and Liberty Capital common stock pursuant to Liberty's Transitional Stock Adjustment Plan (the "Transitional Plan"). Following the Split-Off and the Conversion, the Transitional Plan governs the terms and conditions of such Awards in respect of a maximum of 7.8 million shares of Liberty Capital common stock. No additional grants may be made pursuant to the Transitional Plan. Therefore, the activity associated with such Awards of Liberty Interactive's Starz and Capital common stock, prior to the Split-Off, have been reflected as Awards of Liberty in the condensed consolidated financial statements.
Additionally, as discussed in note 2, the Company effected the Conversion, whereby it exchanged each share of outstanding Liberty Starz common stock for 0.88129 shares of Liberty Capital common stock (with cash paid in lieu of fractional shares). The outstanding Liberty Starz stock options, SARs and restricted stock were also exchanged for Liberty Capital stock options, SARs and restricted stock using the same ratio, and an adjustment was made to the strike price, as applicable, using the same ratio.
Included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations are the following amounts of stock-based compensation (amounts in millions):
Three months ended:
 
March 31, 2012
$
8

March 31, 2011
$
11


In the three months ended March 31, 2012, the Company granted, primarily to Starz employees, 646,000 options to purchase shares of Series A Liberty Capital common stock. Such options had a weighted average grant-date fair value of $39.77 per share. These options vest quarterly over 4 years.
Liberty Interactive previously calculated, and Liberty calculates, the grant-date fair value for all of its equity classified awards and the subsequent remeasurement of its liability classified awards using the Black-Scholes Model. Liberty estimates the expected term of the Awards based on historical exercise and forfeiture data. The volatility used in the calculation for Awards is based on the historical volatility of Liberty Capital common stock and the implied volatility of publicly traded Liberty Capital options. Liberty uses a zero dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the subject Awards.
Liberty—Outstanding Awards
The following table presents the number and weighted average exercise price ("WAEP") of Awards to purchase Liberty Capital common stock granted to certain officers, employees and directors of the Company.
 
Series A
 
Liberty
Capital
 
WAEP
 
numbers of Awards in thousands
Outstanding at January 1, 2012
7,665

 
$
36.57

Granted
646

 
$
89.66

Exercised
(179
)
 
$
23.28

Forfeited/Cancelled/Exchanged
(24
)
 
$
81.57

Outstanding at March 31, 2012
8,108

 
$
40.96

Exercisable at March 31, 2012
2,161

 
$
21.17


The following table provides additional information about outstanding Awards to purchase Liberty Capital common stock at March 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 Capital
8,108

 
$
40.96

 
5.9
 years
 
$
386,005

 
2,161

 
$
21.17

 
2.8
 years
 
$
144,746


As of March 31, 2012, the total unrecognized compensation cost related to unvested Liberty Awards was approximately $88 million. Such amount will be recognized in the Company's condensed consolidated statements of operations over a weighted average period of approximately 2.4 years.
As of March 31, 2012, Liberty reserved 8.1 million Series A Liberty Capital common stock for issuance under exercise privileges of outstanding stock Awards.