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53
The weighted average assumptions used in the Black-Scholes option pricing model are as follows:
Year Ended December 31,
2013 2012 2011
Volatility factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49.1% 46.5% 46.5%
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.85% 0.91% 2.33%
Expected term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 5.0 5.0
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2% 1.4% 0.0%
The weighted average fair values of stock options and SARs granted from the Plan during the years ended December 31,
2013, 2012 and 2011 at market prices equal to HSNi’s common stock on the grant date were $22.57, $12.96, and $12.84,
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, 2013, there was approximately $5.9 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 1.8 years.
The following table summarizes the information about stock options and SARs outstanding and exercisable as of
December 31, 2013:
Outstanding Exercisable
Number
Outstanding at
December 31,
2013
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual
Term in Years
Number
Exercisable at
December 31,
2013
Weighted
Average
Exercise Price
$0.00 to $9.99 . . . . . . . . . . . . . . . . . . . 116,787 $ 5.50 4.7 116,787 $ 5.50
$10.00 to $19.99 . . . . . . . . . . . . . . . . . 161,745 17.60 4.5 161,745 17.60
$20.00 to $29.99 . . . . . . . . . . . . . . . . . 658,778 24.80 6.5 551,814 23.84
$30.00 to $39.99 . . . . . . . . . . . . . . . . . 973,046 34.93 5.0 743,252 34.69
$40.00 to $49.99 . . . . . . . . . . . . . . . . . 370,555 44.71 4.6 370,555 44.71
$50.00 to $59.99 . . . . . . . . . . . . . . . . . 299,978 59.16 9.1 — —
2,580,889 1,944,153
Performance-Based Awards
During the first quarter of 2010, HSNi implemented a performance-based equity compensation program for certain key
members of Cornerstone’s management. The amount payable was based on the extent to which certain pre-established
performance goals for Cornerstone were achieved during the three years ending December 31, 2012. These equity awards were
accounted for as liabilities which were remeasured each reporting period based on the probability of achievement of the
performance conditions.The amount earned pursuant to the award at the end of the December 31, 2012 service period was
$16.8 million which was settled in shares of HSNi common stock in the first quarter of 2013.
During the third quarter of 2013, HSNi granted approximately 101,000 MSUs to its Chief Executive Officer. The MSUs
vest over respective 3 years and 5 years performance periods (50% for each period). Payout percentages range between 0%
and 200% of the target award depending on the awards' market condition, the future price of HSNi's stock at the end of each
performance period as compared to HSNi's stock price at the date of grant (as defined in the MSU agreement). The fair value
of the MSUs was $8.3 million, or an average of $82.67 per unit, and were measured on the grant date by applying a Monte
Carlo simulation pricing model which estimates the potential outcome of reaching the market condition based on simulated
future stock prices and is recognized over the performance period. The weighted average assumptions used in the valuation of
the MSUs were the following: volatility factor of 39.7%, risk-free interest rate of 1.00%, expected term of 4.0 years and
dividend yield of 1.1%.