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A summary of the status of the outstanding stock options and SARs as of December 31, 2012 is as follows:
The aggregate intrinsic value in the table above represents the pre-tax difference between the closing price of HSNi’s common stock on
December 31, 2012 of $55.08 and the exercise price for all “in the money”
awards at December 31, 2012. This amount changes based on the fair
market value of HSNi’s common stock. The intrinsic value of the stock options and SARs exercised during the years ended December 31, 2012,
2011 and 2010 was approximately $45.7 million , $20.5 million , and $13.0 million , respectively. Cash received from stock option exercises for
the years ended December 31, 2012, 2011 and 2010 was $19.1 million , $7.5 million , and $17.4 million , respectively. The tax benefit realized
from stock option exercises for the years ended December 31, 2012, 2011 and 2010 was $11.7 million , $7.4 million , and less than $3.7 million
,
respectively.
The fair value of each stock option and SAR award, which HSNi intends to settle in stock, is estimated on the grant date using the Black-
Scholes option pricing model. The Black-Scholes option pricing model incorporates various assumptions, including expected volatility and
expected term. Expected stock price volatilities are estimated based on HSNi's historical volatility and the historical and implied volatilities of
comparable publicly-traded companies. The risk-free interest rates are based on U.S. Treasury yields for notes with comparable terms as the
awards in effect at the grant date. The expected term of options and SARs granted is based on an analysis of historical employee termination
rates and option exercise patterns, giving consideration to expectations of future employee behavior. Dividends yields are estimated based on
HSNi's historical and anticipated dividend payments.
The weighted average assumptions used in the Black-Scholes option pricing model are as follows:
The weighted average fair values of stock options and SARs granted from the Plan during the years ended December 31, 2012, 2011 and
2010 at market prices equal to HSNi’s common stock on the grant date were $12.96 , $12.84 , and $8.79 , respectively.
At the date of the Spin-off, HSNi granted approximately 719,000 stock options to its Chief Executive Officer at exercise prices greater
than market value on the date of grant with a term of 10 years and graded vesting over 4 years . The weighted average exercise price and the
weighted average fair value related to these grants were $39.84 and $3.36 , respectively. All other awards granted under the Plan have exercise
prices based on the fair market value of HSNi’s common stock at the date of grant.
As of December 31, 2012, there was approximately $4.8 million
of unrecognized compensation cost, net of estimated forfeitures, related to
stock options and SARs, which is currently expected to be recognized on a straight-line basis over a weighted average period of approximately
1.4 years.
52
Number of
options
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic Value
Outstanding at January 1, 2012
4,009,427
$
22.63
Granted
357,415
35.69
Exercised
(1,542,969
)
15.61
Forfeited
—
—
Expired
(47,180
)
18.85
Outstanding at December 31, 2012 (1)
2,776,693
28.28
6.1
$
74,407,602
Vested and expected to vest at December 31, 2012
2,722,267
28.18
6.1
$
73,229,471
Exercisable at December 31, 2012
2,041,397
27.44
5.3
$
56,433,155
(1) Approximately 0.3 million
stock options outstanding as of December 31, 2012 were held by employees of the other Spincos.
Year Ended December 31,
2012 2011 2010
Volatility factor
46.5
%
46.5
%
46.5
%
Risk-free interest rate
0.91
%
2.33
%
2.39
%
Expected term
5.0
5.0
5.0
Dividend yield
1.4
%
0.0
%
0.0
%