Note 5 - Stock-Based Compensation

12 Months Ended

Dec. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 5:  Stock-Based Compensation

Long-Term Incentive Plan

The Company’s Long-Term Incentive Plan (“LTIP”) is administered by the Compensation Committee and permits the grant of stock-based awards to key employees in the form of nonqualified stock options (Non-Qualified Stock Option Plan) and non-vested shares (Performance Accelerated Restricted Stock Plan (“PARS”)). At the effective time of the merger, the stock options of Legacy Media General outstanding immediately prior to the merger became an option to purchase the same number of shares of voting common stock equal to the number of shares of Class A common stock subject to such stock option, on the same terms and conditions as applied to such stock option immediately prior to the effective time of the merger (including applicable vesting, exercise and expiration provisions). Likewise, the outstanding PARS of Legacy Media General became an award on the same terms and conditions that applied prior to the merger.

At December 31, 2013, a combined 1,483,656 shares remained available for grants of PARS (up to 298,585 shares) and stock options under the LTIP. Grant prices of stock options are equal to the fair market value of the underlying stock on the date of grant. Options are exercisable during the continued employment of the optionee but not for a period greater than ten years and not for a period greater than one year after termination of employment; they generally become exercisable at the rate of one-third each year from the date of grant. For awards granted prior to 2006, the optionee may exercise any option in full in the event of death or disability or upon retirement after at least ten years of service with the Company and after attaining age 55. For awards granted in 2006 and thereafter, the optionee must be 63 years of age, with ten years of service, and must be an employee on December 31 of the year of grant in order to be eligible to exercise an award upon retirement. The Company has options for 11,400 shares outstanding under a former plan with slightly different exercise terms.

The Company valued outstanding stock options as of November 12, 2013, using a Black-Scholes valuation method. The volatility factor in all periods was estimated based on the Company’s historical volatility over the contractual term of the options. The Company also used historical data to derive the option’s expected life. The risk-free interest rate was based on the U.S. Treasury yield curve on November 12, 2013. The dividend yield was predicated on the average expected dividend payment over the expected life of the option and the stock price on November 12, 2013. Outstanding options that were granted prior to 2011 (with an aggregate fair value of $6.9 million) were fully vested and were considered to be part of the purchase price of Legacy Media General. The portion of outstanding options granted in 2013, 2012 and 2011 that were earned prior to the merger transaction (an aggregate fair value of $4.9 million) were also considered to be part of the purchase price of Legacy Media General. The portion of these awards that were not earned prior the merger transaction (an aggregate fair value of $2.8 million) will be amortized over the remaining service period. The key assumptions used to value stock options granted by Legacy Media General in 2013, 2012 and 2011 and the resulting merger date fair values are summarized below:

	2013			2012			2011
Risk-free interest rate		1.82	%		1.82	%		1.82	%
Dividend yield		0.00	%		0.00	%		0.00	%
Volatility factor		79.05	%		86.31	%		94.15	%
Expected life (years)		6.2			6.2			6.2
Exercise price	$	4.26		$	4.98		$	5.20
Merger date fair value	$	12.90		$	12.96		$	13.19

The following is a summary of option activity for the year ended December 31, 2013:

(In thousands, except per share amounts)	Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)*		Aggregate Intrinsic Value
Outstanding -11/12/13		1,704		$	22.22
Granted		-			-
Exercised		(141	)		18.53
Forfeited or expired		(246	)		53.18
Outstanding - 12/31/13		1,317		$	16.83		6.0	$	16,027
Outstanding - 12/31/13 less estimated forfeitures		1,264		$	17.35		5.9	$	15,067
Exercisable - 12/31/13		823		$	24.19		4.4	$	7,116

* Excludes 11,400 options which are exercisable during the continued employment of the optionee and for a three-year period thereafter.

The total intrinsic value of options exercised during 2013 was $0.4 million; cash received from these options exercised was $2.6 million. 

The Company recognized non-cash compensation expense of approximately $450 thousand ($290 thousand after-tax) related to stock options in 2013. As of December 31, 2013, there was $2.4 million of total unrecognized compensation cost related to stock options expected to be recognized over a weighted-average period of approximately 1.7 years.

Certain executives are eligible for PARS, which vest over a ten-year period. If pre-determined earnings targets are achieved (as defined in the plan), vesting may accelerate to either a three, five or seven year period. The recipient of PARS must remain employed by the Company during the vesting period. However, in the event of death, disability or retirement after age 63, a pro-rata portion of the recipient’s PARS becomes vested. All restrictions on PARS granted prior to 2005 have been released. The following is a summary of PARS activity for the year ended December 31, 2013:

(In thousands, except per share amounts)	Shares			Weighted- Average Merger Date Fair Value
Nonvested balance - 11/12/13		207		$	15.06
Restrictions released		(3	)	$	15.06
Nonvested balance - 12/31/13		204		$	15.06

The Company valued outstanding PARS as of November 12, 2013, using the closing price on November 11, 2013, of $15.06. The portion of outstanding PARS that were earned prior to the merger transaction (an aggregate fair value of $1 million) was considered to be part of the purchase price of Legacy Media General. The portion of these awards that were not earned prior to the merger transaction (an aggregate fair value of $2.1 million) will be amortized over the remaining service period. As of December 31, 2013, there was $2.1 million of total unrecognized compensation cost related to PARS under the LTIP; that cost is expected to be recognized over a weighted-average period of approximately 7.2 years. The Company recognized approximately $40 thousand of expense related to PARS in the year ended December 31, 2013.

Executive Retention Deferred Stock Units

In June of 2013, Legacy Media General entered into employment agreements with certain executive officers of Legacy Media General and Young. Each agreement became effective upon the closing of the transaction. The employment agreements entitled certain of the officers to a grant of deferred stock units, the number of which was determined by dividing the officer’s base salary by the closing per share price ($9.76) on the date of the public announcement of the transaction, June 6, 2013. One half of such units will vest on each of the first and second anniversary of the closing date of the merger. Officers must be employed through each applicable vesting date in order to receive a cash payment in settlement of the deferred stock units. The Company recorded expense of $0.4 million ($0.3 million after-tax) during the year ended December 31, 2013, which reflected the number of deferred stock units earned following the merger as well an adjustment for changes in fair value of the deferred stock units.

Supplemental 401(k) Plan

The Company has a Supplemental 401(k) Plan (the “Plan”) which allows certain employees to defer salary and obtain a Company match where federal regulations would otherwise limit those amounts. The Company is the primary beneficiary of the VIE that holds the Plan’s investments and consolidates the Plan accordingly. Participants receive cash payments upon termination of employment, and participants age 55 and above can choose from a range of investment options including the Company’s voting common stock.  The Plan’s liability to participants ($1 million at December 31, 2013) is adjusted to its fair value each reporting period. The Plan’s investments ($0.3 million at December 31, 2013) other than its voting common stock, are considered trading securities, reported as assets, and are adjusted to fair value each reporting period. Investments in the voting common stock fund are measured at historical cost and are recorded as a reduction of voting common stock. Consequently, fluctuations in the Company’s stock price will have an impact on the Company’s net income when the liability is adjusted to fair value and the common stock remains at historical cost. The Company recognized $0.2 million of expense in 2013 due to the fluctuations in the Company’s stock price following the merger. During 2013, Legacy Media General matched up to a maximum of 2% of an eligible and participating employee’s salary. Effective January 1, 2014, eligible and participating employees can receive a company match of up to 4% of their compensation as defined by the Plan. Participants will receive a dollar-for-dollar matching contribution for the first 3% of compensation contributed and 50 cents on the dollar at the 4% and 5% levels. Participants are permitted to contribute up to a maximum of 50% of their annual base salary in any Plan year.

Directors’ Deferred Compensation Plan

Each member of the Board of Directors who is neither an employee nor a former employee of the Company (an Outside Director) is eligible to participate in the Directors’ Deferred Compensation Plan (the “Plan”). The Plan provides that each Outside Director shall receive half of his or her annual compensation for services to the Board in the form of Deferred Stock Units (“DSU”); each Outside Director additionally may elect to receive the balance of his or her compensation in either cash, DSU or a split between cash and DSU. Other than dividend credits (if dividends are declared), deferred stock units do not entitle Outside Directors to any rights due to a holder of common stock. DSU account balances may be settled after the Outside Director's retirement date by a cash lump-sum payment, a single distribution of common stock or annual installments of either cash or common stock over a period of up to ten years. The Company records expense annually based on the amount of compensation paid to each Outside Director as well as recording an adjustment for changes in fair value of DSU. The Company recognized an expense of $5 million ($3.2 million after-tax) in 2013 under the plan due primarily to the fluctuations in the fair value of DSU following the date of the merger. The Company’s DSU liability was $14.6 million as of December 31, 2013, of which $4.2 million was classified as accrued expenses and was paid to two former Outside Directors in January of 2014.

Because the Supplemental 401(k) Plan, the Directors’ Deferred Compensation Plan and the deferred stock units awarded to certain officers were designed to align the interest of participants with those of shareholders, fluctuations in stock price have an effect on the expense recognized by the Company. Each $1 change in the Company’s stock price as of December 31, 2013, would have adjusted the Company’s pretax income by approximately $0.7 million.