Quarterly report pursuant to Section 13 or 15(d)

Stock Options and Long Term Incentive Plan

v2.4.0.6
Stock Options and Long Term Incentive Plan
 3 Months Ended
Mar. 31, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Options, Long Term Incentive Plan and Phantom Stock Appreciation Rights
Stock Options and Long Term Incentive Plan
        
Stock Options and Restricted Stock

Prior to the LMC Spin-Off, Old LMC granted, and Starz has since granted to certain of its directors and employees, stock options to purchase Series A common stock and restricted shares of Series A common stock pursuant to Old LMC incentive plans, which are now the Starz incentive plans. As of March 31, 2013, the total unrecognized compensation cost related to the unvested stock options and restricted stock was approximately $89.7 million. Such amount will be recognized in Starz’s condensed consolidated statements of operations over a weighted average period of approximately 3.1 years.

In connection with the LMC Spin-Off, all outstanding stock options and stock appreciation rights with respect to Old LMC’s Series A common stock (the “Liberty Capital Awards”) were adjusted pursuant to the anti-dilution provisions of the incentive plans under which the equity awards were granted, such that a holder of a Liberty Capital Award received i) an adjustment to the exercise price or base price and the number of shares for each Liberty Capital Award (as so adjusted, a “Liberty Media Award”) and ii) an equity award of shares of Series A common stock (a “Starz Award”).

The exercise prices and number of shares subject to the Liberty Media Award and the Starz Award were determined based on 1) the exercise prices and number of shares subject to a Liberty Capital Award, 2) the pre-distribution trading price of Series A common stock and 3) the post-distribution trading prices of Liberty Media common stock and Series A common stock. For employees of Starz, the pre-distribution intrinsic value of the vested Liberty Capital Award was allocated between a vested Liberty Media Award and a vested Starz Award, while the pre-distribution intrinsic value of the unvested Liberty Capital Award was maintained solely within an unvested Starz Award. For Liberty Media’s employees and directors, the pre-distribution intrinsic value of the Liberty Capital Award was allocated between a Liberty Media Award and a Starz Award. 

Following the LMC Spin-Off, employees of Starz and Liberty Media hold awards in both Series A common stock and Liberty Media common stock.  The accompanying condensed consolidated statements of operations include compensation expense related solely to employees of Starz.

Awards granted during the three months ended March 31, 2013 are summarized as follows:
 
Options
Granted
Weighted
Average Grant-Date Fair Value
2013 Awards:
 
 
Stock options
6,030,106
$7.61
Restricted stock
308,409
$18.93


Of the total 2013 stock option awards, 2,666,983 vest quarterly over a 4 year period and have a term of 7 years and 3,363,123 vest 50% on each of December 31, 2015 and 2016 and have a term of 10 years. Starz calculates the grant-date fair value for the stock options using the Black-Scholes Model. The expected term used in the Black-Scholes calculation was a range of 4.70 to 6.92 years. The expected volatility was 41.35%. The expected volatility used in the calculation for the awards is based on the historical volatility of Series A common stock and the implied volatility of Old LMC’s publicly traded options. Starz used a zero dividend rate as Old LMC/Starz has not historically declared dividends and a range of risk-free rates of 0.7% to 1.2%, which was derived from U.S. Treasury Bonds with a term similar to that of the subject options. The grant-date fair value of the 308,409 restricted shares granted in 2013 was based on the market value of Series A common stock at the grant date of $18.93 per share. Of the 308,409 restricted shares granted, 51,840 will vest on March 4, 2014 and 256,569 will vest annually over four years beginning March 4, 2014.

The following table presents the number of options and weighted average exercise price (“WAEP”) for the activity during the three months ended March 31, 2013:
 
Options
 
WAEP
Outstanding at December 31, 2012
1,615,711

 
$
93.14

LMC Spin-Off adjustment to existing stock options
7,589,815

 
*

LMC Spin-Off adjustment for Liberty Media employees
3,527,791

 
$
12.78

Granted
6,030,106

 
$
18.93

Exercised
(139,599
)
 
$
10.21

Forfeited
(175,548
)
 
$
11.00

Expired/cancelled
—

 
$
—

Outstanding at March 31, 2013
18,448,276

 
$
14.25

 
 
 
 
Exercisable at March 31, 2013
2,070,012

 
$
11.64

 
 
 
 
* The adjustment to the existing stock options from the LMC Spin-Off increased the number of existing stock options and reduced the WAEP. After giving effect to the LMC Spin-Off, the WAEP for the existing stock options was $11.62.
 
 
 


At March 31, 2013, the weighted-average remaining contractual terms of the outstanding options is 6.1 years and the exercisable options is 4.0 years.

At March 31, 2013, 3.5 million of the outstanding stock options were held by Liberty Media employees.

Long Term Incentive Plan

Starz granted incentive units to certain officers and key employees (“Plan Participants”) under the 2006 long term incentive plan (“2006 LTIP”). Such grants vested over a period of four years and were fully vested as of June 30, 2011. All amounts accrued under the 2006 LTIP are payable in cash, Series A common stock or a combination thereof at specified dates through 2013. During the three months ended March 31, 2013 and 2012, Starz made payments of $2.4 million and $27.5 million, respectively, to certain Plan Participants under the 2006 LTIP. Starz has accrued $0.8 million as of March 31, 2013 related to the 2006 LTIP, which is included in accrued liabilities in the accompanying condensed consolidated balance sheet.