Sirius XM Holdings Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Benefit Plans

Benefit Plans

12 Months Ended

Dec. 31, 2016

Compensation and Retirement Disclosure [Abstract]

We recognized share-based payment expense of $108,604, $84,310 and $78,212 for the years ended December 31, 2016, 2015 and 2014, respectively.

We account for equity instruments granted to employees in accordance with ASC 718, Compensation - Stock Compensation. ASC 718 requires all share-based compensation payments to be recognized in the financial statements based on fair value. Upon adoption of ASU 2016-09 as of January 1, 2016 we recorded actual forfeitures and no longer estimate forfeitures. For the years ended December 31, 2015 and 2014 we estimated forfeitures at the time of the grant. We use the Black-Scholes-Merton option-pricing model to value stock option awards and have elected to treat awards with graded vesting as a single award. Share-based compensation expense is recognized ratably over the requisite service period, which is generally the vesting period. We measure restricted stock awards and units using the fair market value of the restricted shares of common stock on the day the award is granted. Stock-based awards granted to employees, non-employees and members of our board of directors include stock options, stock awards and restricted stock units. We apply variable accounting to our non-employee stock-based awards, whereby we remeasure the value of such awards at each balance sheet date.

Fair value as determined using the Black-Scholes-Merton model varies based on assumptions used for the expected life, expected stock price volatility, expected dividend yield and risk-free interest rates. For the years ended December 31, 2016, 2015 and 2014, we estimated the fair value of awards granted using the hybrid approach for volatility, which weights observable historical volatility and implied volatility of qualifying actively traded options on our common stock. The expected life assumption represents the weighted-average period stock-based awards are expected to remain outstanding. These expected life assumptions are established through a review of historical exercise behavior of stock-based award grants with similar vesting periods. Where historical patterns do not exist, contractual terms are used. Dividend yield is based on the current expected annual dividend per share and our stock price. The risk-free interest rate represents the daily treasury yield curve rate at the grant date based on the closing market bid yields on actively traded U.S. treasury securities in the over-the-counter market for the expected term. Our assumptions may change in future periods.

2015 Long-Term Stock Incentive Plan

In May 2015, our stockholders approved the Sirius XM Holdings Inc. 2015 Long-Term Stock Incentive Plan (the “2015 Plan”). Employees, consultants and members of our board of directors are eligible to receive awards under the 2015 Plan. The 2015 Plan provides for the grant of stock options, restricted stock awards, restricted stock units and other stock-based awards that the compensation committee of our board of directors deem appropriate. Stock-based awards granted under the 2015 Plan are generally subject to a graded vesting requirement, which is generally three to four years from the grant date, and may include performance requirements. Stock options generally expire ten years from the date of grant. Each restricted stock unit entitles the holder to receive one share of common stock upon vesting. As of December 31, 2016, 181,148 shares of common stock were available for future grants under the 2015 Plan.

During the year ended December 31, 2016, we granted performance-based restricted stock units (“PRSUs”) to certain employees, the vesting of which is subject to the employee's continuing employment and our achievement of certain performance goals. The PRSUs awards cliff vest on the three-year anniversary of the grant date.

Other Plans

We maintain four other share-based benefit plans — the Sirius XM Radio Inc. 2009 Long-Term Stock Incentive Plan, the XM 2007 Stock Incentive Plan, the Amended and Restated Sirius Satellite Radio 2003 Long-Term Stock Incentive Plan and the XM 1998 Shares Award Plan. No further awards may be made under these plans.

The following table summarizes the weighted-average assumptions used to compute the fair value of options granted to employees and members of our board of directors:



	For the Years Ended December 31,
	2016	2015	2014
Risk-free interest rate	1.1%	1.4%	1.6%
Expected life of options — years	4.25	4.17	4.72
Expected stock price volatility	22%	26%	33%
Expected dividend yield	0%	0%	0%

The following table summarizes the weighted-average assumptions used to compute the fair value of options granted to third parties, other than non-employee members of our board of directors:



		For the Year Ended December 31,
		2015
Risk-free interest rate		2.0%
Expected life of options — years		7.00
Expected stock price volatility		37%
Expected dividend yield		0%

There were no options granted to third parties during the years ended December 31, 2016 and 2014. Since we have not historically paid dividends on our common stock prior to the fourth quarter of 2016, the dividend yield used in the Black-Scholes-Merton option value was less than one percent for the year ended December 31, 2016 and zero for the years ended December 31, 2015 and 2014.

The following table summarizes stock option activity under our share-based plans for the years ended December 31, 2016, 2015 and 2014:



	Options		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at the beginning of January 1, 2014	264,239		$	2.42
Granted	61,852		$	3.39
Exercised	(46,943	)	$	1.63
Forfeited, cancelled or expired	(11,294	)	$	4.08
Outstanding as of December 31, 2014	267,854		$	2.72
Granted	145,366		$	3.95
Exercised	(57,667	)	$	1.88
Forfeited, cancelled or expired	(17,072	)	$	4.60
Outstanding as of December 31, 2015	338,481		$	3.29
Granted	55,222		$	4.14
Exercised	(50,728	)	$	2.66
Forfeited, cancelled or expired	(10,327	)	$	4.30
Outstanding as of December 31, 2016	332,648		$	3.50	7.33	$	315,874
Exercisable as of December 31, 2016	126,580		$	2.82	5.99	$	209,696

The weighted average grant date fair value per share of options granted during the years ended December 31, 2016, 2015 and 2014 was $0.81, $1.11 and $1.05, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2016, 2015 and 2014 was $81,204, $117,944, and $89,428, respectively. During the years ended December 31, 2016, 2015 and 2014 the number of net settled shares which were issued as a result of stock option exercises was 10,918, 17,652 and 15,228, respectively.

We recognized share-based payment expense associated with stock options of $80,266, $70,084 and $69,754 for the years ended December 31, 2016, 2015 and 2014, respectively.

The following table summarizes the restricted stock unit, including PRSUs, and stock award activity under our share-based plans for the years ended December 31, 2016, 2015 and 2014:



	Shares		Grant Date Fair Value Per Share
Nonvested at the beginning of January 1, 2014	6,984		$	3.58
Granted	6,108		$	3.38
Vested	(1,138	)	$	3.62
Forfeited	(379	)	$	3.52
Nonvested as of December 31, 2014	11,575		$	3.47
Granted	8,961		$	3.92
Vested	(3,464	)	$	3.44
Forfeited	(984	)	$	3.52
Nonvested as of December 31, 2015	16,088		$	3.73
Granted	18,523		$	4.21
Vested	(4,212	)	$	3.68
Forfeited	(506	)	$	3.75
Nonvested as of December 31, 2016	29,893		$	4.03

The total intrinsic value of restricted stock units and stock awards vesting during the years ended December 31, 2016, 2015 and 2014 was $17,807, $13,720 and $4,044, respectively. During the years ended December 31, 2016, 2015 and 2014 the number of net settled shares which were issued as a result of restricted stock units vesting and the number of shares issued from stock awards granted totaled 2,493, 2,088 and 732, respectively. During the year ended December 31, 2016, we granted 3,036 PRSUs to certain employees. We believe it is probable that the performance target applicable to these PRSUs will be achieved.

In connection with the cash dividend paid in 2016, we granted 70 incremental restricted stock units, including PRSUs, in accordance with the terms of existing award agreements. This grant did not result in any additional incremental share-based payment expense being recognized in 2016.

We recognized share-based payment expense associated with restricted stock units and stock awards of $28,338, $14,226 and $8,458 for the years ended December 31, 2016, 2015 and 2014, respectively. The year ended December 31, 2016 included $1,859 of compensation expense related to PRSUs.

Total unrecognized compensation costs related to unvested share-based payment awards for stock options and restricted stock units granted to employees, members of our board of directors and third parties at December 31, 2016 and 2015 were $266,045 and $261,628, respectively. The total unrecognized compensation costs at December 31, 2016 are expected to be recognized over a weighted-average period of 2.5 years.

401(k) Savings Plan

Sirius XM sponsors the Sirius XM Radio Inc. 401(k) Savings Plan (the “Sirius XM Plan”) for eligible employees. The Sirius XM Plan allows eligible employees to voluntarily contribute from 1% to 50% of their pre-tax eligible earnings, subject to certain defined limits. We match 50% of an employee’s voluntary contributions per pay period on the first 6% of an employee’s pre-tax salary up to a maximum of 3% of eligible compensation. We may also make additional discretionary matching, true-up matching and non-elective contributions to the Sirius XM Plan. Employer matching contributions under the Sirius XM Plan vest at a rate of 33.33% for each year of employment and are fully vested after three years of employment for all current and future contributions. Our cash employer matching contributions are not used to purchase shares of our common stock on the open market, unless the employee elects our common stock as their investment option for this contribution. We recognized $7,104, $8,144 and $5,385 in expense during years ended December 31, 2016, 2015 and 2014, respectively.

Sirius XM Holdings Inc. Deferred Compensation Plan

In 2015, we adopted the Sirius XM Holdings Inc. Deferred Compensation Plan (the “DCP”). The DCP allows members of our board of directors and certain eligible employees to defer all or a portion of their base salary, cash incentive compensation and/or board of directors’ compensation, as applicable. Pursuant to the terms of the DCP, we may elect to make additional contributions beyond amounts deferred by participants, but we are under no obligation to do so. We have established a grantor (or “rabbi”) trust to facilitate the payment of our obligations under the DCP.

As of December 31, 2016, the fair value of the investments held in the trust was $4,854, which is included in Other long-term assets in our consolidated balance sheets and is classified as trading securities. Trading gains and losses associated with these investments are recorded in Other income within our consolidated statements of comprehensive income. The associated liability is recorded within Other long-term liabilities in our consolidated balance sheets, and any increase or decrease in the liability is recorded in General and administration expense within our consolidated statements of comprehensive income.