Quarterly report pursuant to Section 13 or 15(d)

Share-Based Compensation and Cash-Based Incentive Compensation

v3.10.0.1
Share-Based Compensation and Cash-Based Incentive Compensation
6 Months Ended
Jun. 30, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Share-Based Compensation and Cash-Based Incentive Compensation

8.  Share-Based Compensation and Cash-Based Incentive Compensation

Awards to Employees.  In 2010, the W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan (the “Plan”) was approved by our shareholders, and amendments to the Plan were approved by our shareholders in May 2013, May 2016 and May 2017.  The May 2017 amendment increased the number of shares available in the Plan by 7,700,000 shares.  As allowed by the Plan, during 2017 and 2016, the Company granted restricted stock units (“RSUs”) to certain of its employees.  RSUs are a long-term compensation component of the Plan, which are granted to certain employees, and are subject to adjustments at the end of the applicable performance period based on the results of certain predetermined criteria.  In addition to share-based compensation, the Company may grant to its employees cash-based incentive awards, which are a short-term component of the Plan and are typically based on the Company and the employee achieving certain pre-defined performance criteria.

As of June 30, 2018, there were 13,342,827 shares of common stock available for issuance in satisfaction of awards under the Plan.  The shares available for issuance are reduced when RSUs are settled in shares of common stock, net of withholding tax.  The Company has the option at vesting to settle RSUs in stock or cash, or a combination of stock and cash.  The Company plans to settle RSUs that vest in the future using shares of common stock.  

RSUs currently outstanding related to the 2017 and 2016 grants have been adjusted for performance achieved against predetermined criteria for the applicable performance year.  These RSUs continue to be subject to employment-based criteria and vesting occurs in December of the second year after the grant.  See the table below for potential vesting by year.

We recognize compensation cost for share-based payments to employees over the period during which the recipient is required to provide service in exchange for the award.  Compensation cost is based on the fair value of the equity instrument on the date of grant.  The fair values for the RSUs granted during 2017 and 2016 were determined using the Company’s closing price on the grant date.  We are also required to estimate forfeitures, resulting in the recognition of compensation cost only for those awards that are expected to actually vest.

All RSUs awarded are subject to forfeiture until vested and cannot be sold, transferred or otherwise disposed of during the restricted period.  

 

A summary of activity related to RSUs during the six months ended June 30, 2018 is as follows:

 

 

Restricted Stock Units

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

 

Grant Date Fair

 

 

Units

 

 

Value Per Unit

 

Nonvested, December 31, 2017

 

5,765,251

 

 

$

2.48

 

Vested

 

(28,503

)

 

 

2.38

 

Forfeited/adjustments

 

(45,017

)

 

 

2.47

 

Nonvested, June 30, 2018

 

5,691,731

 

 

 

2.48

 

 

For the outstanding RSUs issued to the eligible employees as of June 30, 2018, vesting is expected to occur as follows:  

 

 

Restricted Stock Units

 

2018

 

3,698,748

 

2019

 

1,992,983

 

Total

 

5,691,731

 

Awards to Non-Employee Directors.  Under the Director Compensation Plan, shares of restricted stock (“Restricted Shares”) have been granted to the Company’s non-employee directors.  Grants to non-employee directors were made during 2018, 2017 and 2016.  As of June 30, 2018, there were 128,980 shares of common stock available for issuance in satisfaction of awards under the Director Compensation Plan.  The shares available are reduced when Restricted Shares are granted.  

We recognize compensation cost for share-based payments to non-employee directors over the period during which the recipient is required to provide service in exchange for the award.  Compensation cost is based on the fair value of the equity instrument on the date of grant.  The fair values for the Restricted Shares granted were determined using the Company’s closing price on the grant date.   No forfeitures were estimated for the non-employee directors’ awards.

The Restricted Shares are subject to service conditions and vesting occurs at the end of specified service periods unless approved by the Board of Directors.  Restricted Shares cannot be sold, transferred or disposed of during the restricted period.  The holders of Restricted Shares generally have the same rights as a shareholder of the Company with respect to such Restricted Shares, including the right to vote and receive dividends or other distributions paid with respect to the Restricted Shares.

A summary of activity related to Restricted Shares is as follows:

 

Restricted Shares

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

 

Grant Date Fair

 

 

Shares

 

 

Value Per Share

 

Nonvested, December 31, 2017

 

246,528

 

 

$

2.27

 

Granted

 

41,544

 

 

 

6.74

 

Vested

 

(106,240

)

 

 

2.64

 

Nonvested, June 30, 2018

 

181,832

 

 

 

3.08

 

For the outstanding Restricted Shares issued to the non-employee directors as of June 30, 2018, vesting is expected to occur as follows:

 

Restricted Shares

 

2019

 

105,012

 

2020

 

62,972

 

2021

 

13,848

 

Total

 

181,832

 

Share-Based Compensation.  Share-based compensation expense is recorded in the line General and administrative expenses in the Condensed Consolidated Statements of Operations.  Share-based compensation was lower in the three and six months ended June 30, 2018 compared to the prior year period as no RSU awards have been granted yet as of June 30, 2018.  A summary of incentive compensation expense under share-based payment arrangements and the related tax benefit is as follows (in thousands):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Share-based compensation expense from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock units

$

1,145

 

 

$

2,342

 

 

$

2,294

 

 

$

4,200

 

Restricted Shares

 

70

 

 

 

70

 

 

 

140

 

 

 

140

 

Total

$

1,215

 

 

$

2,412

 

 

$

2,434

 

 

$

4,340

 

Share-based compensation tax benefit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax benefit computed at the statutory rate

$

255

 

 

$

844

 

 

$

511

 

 

$

1,519

 

Unrecognized Share-Based Compensation.  As of June 30, 2018, unrecognized share-based compensation expense related to our awards of RSUs and Restricted Shares was $3.9 million and $0.5 million, respectively.  Unrecognized share-based compensation expense will be recognized through November 2019 for RSUs and April 2021 for Restricted Shares.

Cash-Based Incentive Compensation. In addition to share-based compensation, cash-based awards were granted under the Plan to substantially all eligible employees in 2017 and 2016.  The cash-based awards, which are a short-term component of the Plan, are performance-based awards consisting of one or more business criteria or individual performance criteria and a targeted level or levels of performance with respect to each such criterion.  In addition, these cash-based awards included an additional financial condition requiring Adjusted EBITDA less reported Interest Expense Incurred (as defined in the awards) for any fiscal quarter plus the three preceding quarters to exceed defined levels measured over defined time periods for each cash-based award.  Expense is recognized over the service period once the business criteria, individual performance criteria and financial condition are met.

 

For the 2017 cash-based awards, a portion of the business criteria and individual performance criteria were achieved.  The financial condition requirement of Adjusted EBITDA less reported Interest Expense Incurred exceeding $200 million over four consecutive quarters was achieved; therefore, incentive compensation expense was recognized in 2017 and in the first two months of 2018 for the 2017 cash-based awards.  Payments were made in March 2018.

 

For the 2016 cash-based awards, the financial condition requirement of Adjusted EBITDA less reported Interest Expense Incurred exceeding $300 million over four consecutive quarters was not achieved as of June 30, 2018; therefore no expense was recognized during the six months ended June 30, 2018 or during 2017.  The terms of the 2016 cash-based awards allow for the achievement of the financial condition up through December 31, 2018.  If the financial condition is achieved, payment is to be made within 30 days of achievement of the financial condition.

A summary of compensation expense related to share-based awards and cash-based awards is as follows (in thousands):

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Share-based compensation included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

$

1,215

 

 

$

2,412

 

 

$

2,434

 

 

$

4,340

 

Cash-based incentive compensation included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating expense

 

543

 

 

 

394

 

 

 

1,403

 

 

 

394

 

General and administrative expenses

 

1,391

 

 

 

1,004

 

 

 

4,063

 

 

 

1,004

 

Total charged to operating income

$

3,149

 

 

$

3,810

 

 

$

7,900

 

 

$

5,738