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Stock Options and SARs
SARs are similar to traditional stock options, except, upon exercise, holders of SARs will only receive a value equal to
the spread between the current market price per share of the common stock and the exercise price. The SARs granted by HSNi
may be settled in cash or common stock of HSNi, in the sole discretion of HSNi. All SARs exercised by employees of HSNi
have been settled in stock. For all SARs currently outstanding, HSNi intends to settle these awards in stock upon exercise. The
exercise price for awards granted under the Plan is required to be priced at, or above, the fair market value of HSNi’s stock at
the date of grant. Awards typically vest ratably over a term of 3 years.
A summary of the status of the outstanding stock options and SARs as of December 31, 2015 is as follows:
Number of
options
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual
Term (in years) Aggregate
Intrinsic Value
Outstanding at January 1, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,296,680 $ 40.54
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508,420 65.24
Anti-dilution adjustment due to special dividend. . . . . . . . . . . . . . . . . . . 343,485 —
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,239,846) 30.58
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (96,242) 55.77
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,524) 13.29
Outstanding at December 31, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,810,973 45.80 6.4 $ 15,771,007
Vested and expected to vest at December 31, 2015 . . . . . . . . . . . . . . . . . 1,721,799 45.07 6.3 $ 15,694,922
Exercisable at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 979,546 35.53 4.6 $ 14,990,911
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, 2015 of $50.67 and the exercise price for all “in the money” awards at December 31, 2015.
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, 2015, 2014 and 2013 was approximately $44.4 million, $23.4 million
and $19.3 million, respectively. Cash received from stock option exercises for the years ended December 31, 2015, 2014 and
2013 was $15.0 million, $0.6 million, and $6.5 million, respectively. The tax benefit realized from stock option exercises for
the years ended December 31, 2015, 2014 and 2013 was $12.2 million, $8.8 million, and $7.3 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:
Year Ended December 31,
2015 2014 2013
Volatility factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.2% 36.4% 49.1%
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.49% 1.55% 0.85%
Expected term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 4.7 4.8
Dividend yield. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1% 1.8% 1.2%
The weighted average fair values of stock options and SARs granted from the Plan during the years ended December 31,
2015, 2014 and 2013 at market prices equal to HSNi’s common stock on the grant date were $13.65, $15.24, and $22.57,
respectively.
At the date of the Spin-off, HSNi granted 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. The weighted average exercise price and the weighted average fair