Annual report pursuant to Section 13 and 15(d)

STOCK-BASED COMPENSATION

v2.4.0.8
STOCK-BASED COMPENSATION
 12 Months Ended
Dec. 31, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION
In December 2005, the Company adopted its 2005 Stock Incentive Plan, which has been amended and/or restated on several occasions. In connection with the Merger, the Company adopted the Amended and Restated Ticketmaster 2008 Stock & Annual Incentive Plan. The plans authorize the Company to grant stock option awards, director shares, stock appreciation rights, restricted stock and deferred stock awards, other equity-based awards and performance awards. The Company has granted restricted stock awards and options to purchase its common stock to employees, directors and consultants of the Company and its affiliates under the stock incentive plans at no less than the fair market value of the underlying stock on the date of grant. The stock incentive plans contain anti-dilutive provisions that require the adjustment of the number of shares of the Company’s common stock represented by, and the exercise price of, each option for any stock splits or stock dividends.
In June 2011, the Company registered an additional 10 million shares to service the Live Nation stock incentive plan.
The following is a summary of stock-based compensation expense recorded by the Company during the respective periods:
  
Year Ended December 31,
 
2013
 
2012
 
2011
 
(in thousands)
Selling, general and administrative expenses
$
12,361

 
$
14,297

 
$
40,496

Corporate expenses
16,054

 
22,766

 
20,149

Total
$
28,415

 
$
37,063

 
$
60,645


In December 2012, in connection with the resignation of a former executive, the Company accelerated the vesting of 0.7 million unvested options, 0.3 million shares of unvested restricted stock awards and units and 1.5 million shares of restricted Live Nation common stock held by the Trust. In addition, the former executive forfeited 0.4 million unvested options, 0.2 million unvested restricted stock awards and 0.4 million restricted stock units (“RSUs”). As a result of these accelerations and forfeitures, the Company recognized an additional $0.6 million of stock-based compensation expense for the year ended December 31, 2012 as a component of corporate expenses.
In the first quarter of 2011, the Company acquired the remaining equity interests of Front Line. As a result of this acquisition, the Company recorded $24.4 million of stock-based compensation in selling, general and administrative expenses. See Note 3—Acquisitions for further discussion regarding the 2011 acquisition of the remaining equity interests in Front Line.
The Trust held 1.5 million shares of restricted Live Nation common stock that were issued in connection with an acquisition, which unvested shares at December 31, 2012 were accelerated in connection with the resignation of the former executive. Stock-based compensation expense of $6.3 million and $3.4 million related to this restricted Live Nation common stock was recorded for the years ended December 31, 2012 and 2011, respectively, as a component of corporate expenses. The value of all exchanged awards which related to services already rendered as of the date of the Merger was included as part of the consideration transferred.
As of December 31, 2013, there was $36.2 million of total unrecognized compensation cost related to stock-based compensation arrangements for stock options and restricted stock awards. This cost is expected to be recognized over a weighted-average period of 2.7 years.
Stock Options
Stock options are granted for a term not exceeding ten years and the nonvested options are generally forfeited in the event the employee or director terminates his or her employment or relationship with the Company or one of its affiliates. Any options that have vested at the time of termination are forfeited to the extent they are not exercised within the applicable post-employment exercise period provided in their option agreements. These options vest over two to five years.
The following assumptions were used to calculate the fair value of the Company’s options on the date of grant during the years ended December 31, 2013, 2012 and 2011:
 
 
2013
 
2012
 
2011
Risk-free interest rate
1.06 % - 1.89%

 
0.83% - 1.14%

 
0.99% - 2.16%

Dividend yield
0.0
%
 
0.0
%
 
0.0
%
Volatility factors
48.2% - 48.4%

 
54.6% - 61.3%

 
39.6% - 62.5%

Weighted average expected life (in years)
5.87

 
6.46

 
6.25


The following table presents a summary of the Company’s stock options outstanding at, and stock option activity during, the years ended December 31, 2013, 2012 and 2011 (“Price” reflects the weighted average exercise price per share):
 
 
2013
 
2012
 
2011
 
    Options     
 
 
    Price     
 
 
    Options     
 
 
    Price     
 
 
    Options     
 
 
    Price     
 
 
(in thousands, except per share data)
Outstanding January 1
24,722

 
$
11.68

 
21,429

 
$
12.33

 
20,464

 
$
12.41

Granted
1,269

 
13.30

 
5,495

 
8.80

 
2,512

 
11.22

Exercised
(8,718
)
 
9.76

 
(259
)
 
4.39

 
(529
)
 
5.13

Forfeited or expired
(645
)
 
14.93

 
(1,943
)
 
11.70

 
(1,018
)
 
15.20

Outstanding December 31
16,628

 
$
12.68

 
24,722

 
$
11.68

 
21,429

 
$
12.33

 
 
 
 
 
 
 
 
 
 
 
 
Exercisable December 31
9,443

 
$
14.94

 
15,529

 
$
13.46

 
12,276

 
$
14.71

Weighted average fair value per option granted
 

 
$
6.18

 
 

 
$
3.93

 
 

 
$
5.27


The total intrinsic value of stock options exercised during the years ended December 31, 2013, 2012 and 2011 was $31.6 million, $1.3 million and $3.0 million, respectively. Cash received from stock option exercises for the years ended December 31, 2013, 2012 and 2011 was $85.1 million, $1.1 million and $2.7 million, respectively. Through December 31, 2013, no tax benefits from the exercise of stock options have been recognized. Any future excess tax benefits derived from the exercise of stock options will be recorded prospectively and reported as cash flows from financing activities in accordance with the FASB guidance for stock-based compensation.
There were 7.1 million shares available for future grants under the stock incentive plan at December 31, 2013. Upon share option exercise or vesting of restricted stock and restricted stock units, the Company issues new shares or treasury shares to fulfill these grants. Vesting dates on the stock options range from January 2014 to December 2017, and expiration dates range from January 2014 to December 2023 at exercise prices and average contractual lives as follows:  
Range of
Exercise
Prices
 
Outstanding
as of
12/31/13
 
Weighted
Average
Remaining
Contractual
Life
 
Weighted
Average
Exercise
Price 
 
Exercisable
as  of
12/31/13
(in thousands)
 
Weighted
Average
Remaining
Contractual
Life
(in years)
 
Weighted
Average
Exercise
Price
 
(in thousands) 
 
(in years) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$0.53 - $4.99
 
2,385

 
5.2
 
$
2.91

 
1,985

 
5.2
 
$
2.94

$5.00 - $9.99
 
5,625

 
8.6
 
$
8.82

 
1,357

 
8.2
 
$
8.83

$10.00 - $14.99
 
4,586

 
7.0
 
$
11.39

 
2,369

 
5.9
 
$
11.33

$15.00 - $19.99
 
1,205

 
5.5
 
$
18.72

 
905

 
4.0
 
$
18.79

$20.00 - $24.99
 
1,658

 
3.1
 
$
24.51

 
1,658

 
3.1
 
$
24.51

$25.00 - $29.99
 
754

 
1.4
 
$
29.49

 
754

 
1.4
 
$
29.49

$30.00 - $34.99
 
2

 
0.4
 
$
31.26

 
2

 
0.4
 
$
31.26

$35.00 - $39.99
 
413

 
1.4
 
$
39.95

 
413

 
1.4
 
$
39.95


The total intrinsic value of options outstanding and options exercisable as of December 31, 2013 was $141.4 million and $69.1 million, respectively.
Restricted Stock and Restricted Stock Units
The Company has granted restricted stock awards to its employees and directors under its stock incentive plans. These common shares carry a legend which restricts their transferability for a term of one to five years and are forfeited in the event the recipient’s employment or relationship with the Company is terminated prior to the lapse of the restriction. In addition, certain restricted stock awards require the Company or the recipient to achieve minimum performance targets or market conditions in order for these awards to vest.
RSUs are awards in the form of phantom shares or units, denominated in a hypothetical equivalent number of shares of the Company’s common stock with the value of each RSU equal to the fair value of the Company’s common stock at the date of grant. RSUs may be settled in cash, stock or both, as determined at the time of the grant. The majority of RSUs are settled in stock and are classified as equity. RSU grants to international employees require cash settlement at the end of the vesting term and are therefore classified as liabilities. Each RSU is subject to service-based vesting, where a specific period of continued employment must pass before an award vests.
In 2013, the Company granted 0.1 million shares of restricted stock and 0.4 million shares of performance-based awards under the Company’s stock incentive plans. These awards will all vest over one or four years with the exception of the performance-based awards which will vest within two years if the performance criteria are met.
In 2012, the Company granted 0.2 million shares of restricted stock and 1.0 million shares of market-based or performance-based awards under the Company’s stock incentive plans. These awards all vest over one or four years with the exception of the market-based awards which vest over four years if a specified stock price is achieved over a specified number of consecutive days during the four years and the performance-based awards which vest within one to three years if the performance criteria are met. As of December 31, 2013, the performance or market-based criteria for these awards have been met unless otherwise forfeited.
In 2011, the Company granted 0.4 million shares of restricted stock and 0.8 million shares of market-based or performance-based awards. These awards all vest over four years with the exception of the market-based awards which vest over four years if a specified stock price is achieved over a specified number of consecutive days during the four years and the performance-based awards which vest within two years if the performance criteria are met. As of December 31, 2013, the performance or market-based criteria for these awards have been met unless otherwise forfeited.
The following table presents a summary of the Company’s unvested restricted stock awards and equity-settled RSUs outstanding at December 31, 2013, 2012 and 2011 (“Price” reflects the weighted average share price at the date of grant):
 
 
Restricted Stock 
 
RSUs
 
Awards
 
Price
 
Awards
 
Price
 
(in thousands, except per share data)
Unvested at December 31, 2010
3,025

 
$
11.76

 
1,006

 
10.16

Granted
1,220

 
9.97

 
—

 
—

Forfeited
(35
)
 
11.19

 
(66
)
 
10.51

Vested
(885
)
 
11.68

 
(237
)
 
10.51

Unvested at December 31, 2011
3,325

 
$
10.98

 
703

 
$
10.03

Granted
1,243

 
8.96

 
—

 
—

Forfeited
(151
)
 
7.90

 
(373
)
 
9.61

Vested
(1,215
)
 
10.95

 
(325
)
 
10.51

Unvested at December 31, 2012
3,202

 
$
10.32

 
5

 
$
10.51

Granted
548

 
12.17

 
—

 
—

Forfeited
(141
)
 
9.19

 
—

 
—

Vested
(1,399
)
 
10.54

 
(5
)
 
10.51

Unvested at December 31, 2013
2,210

 
$
10.68

 
—

 
$
—


The total fair market value of the shares issued upon the vesting of restricted stock awards and RSUs during the years ended December 31, 2013, 2012 and 2011 was $18.8 million, $14.7 million and $12.0 million, respectively. As of December 31, 2013, there were 0.8 million restricted stock awards outstanding which require the Company or the recipient to achieve minimum performance targets or market conditions in order for the awards to vest.