Quarterly report pursuant to Section 13 or 15(d)

Note 8 - Share-based Compensation and Cash-based Incentive Compensation

v3.20.2
Note 8 - Share-based Compensation and Cash-based Incentive Compensation
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Share-based Payment Arrangement [Text Block]

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 (as amended from time to time, the “Plan”) was approved by our shareholders.  During 2019, 2018 and 2017, the Company granted restricted stock units (“RSUs”) under the Plan to certain of its employees.  RSUs are a long-term compensation component, and are subject to satisfaction of certain predetermined performance criteria and adjustments at the end of the applicable performance period based on the results achieved.  In addition to share-based awards, the Company may grant to its employees cash-based incentive awards under the Plan, which may be used as short-term and long-term compensation components of the awards, and are subject to satisfaction of certain predetermined performance criteria.

 

As of September 30, 2020, there were 10,874,043 shares of common stock available for issuance in satisfaction of awards under the Plan.  The shares available for issuance are reduced on a one-for-one basis when RSUs are settled in shares of common stock, which shares of common stock are issued net of withholding tax through the withholding of shares.  The Company has the option following vesting to settle RSUs in stock or cash, or a combination of stock and cash. The Company expects to settle RSUs that vest in the future using shares of common stock.

 

RSUs currently outstanding relate to the 2019 and 2018 grants.  The 2019 and 2018 grants were subject to predetermined performance criteria applied against the applicable performance period.  All the RSUs currently outstanding are subject to employment-based criteria and vesting generally occurs in December of the second year after the grant.  See the table below for anticipated 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 2019, 2018 and 2017 were determined using the Company’s closing price on the grant date.  We also 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 nine months ended September 30, 2020 is as follows:

 

   

Restricted Stock Units

 
           

Weighted Average

 
           

Grant Date Fair

 
   

Units

   

Value Per Unit

 

Nonvested, December 31, 2019

    1,614,722     $ 5.73  

Forfeited

    (51,915 )     6.10  

Nonvested, September 30, 2020

    1,562,807       5.71  

 

 

For the outstanding RSUs issued to the eligible employees as of September 30, 2020, vesting is expected to occur as follows (subject to forfeitures): 

 

   

Restricted Stock Units

 

2020

 

787,203

 

2021

 

775,604

 

Total

 

1,562,807

 

 

 

Awards to Non-Employee Directors.  Under the W&T Offshore, Inc. 2004 Directors Compensation Plan (as amended from time to time, 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 2020, 2019, 2018 and 2017.  During the second quarter of 2020, our shareholders approved increasing the shares available by 500,000 shares.  As of September 30, 2020, there were 473,244 shares of common stock available for issuance in satisfaction of awards under the Director Compensation Plan.  The shares available are reduced on a one-to-one basis 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 otherwise 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 during the nine months ended September 30, 2020 is as follows:

 

   

Restricted Shares

 
           

Weighted Average

 
           

Grant Date Fair

 
   

Shares

   

Value Per Share

 

Nonvested, December 31, 2019

    123,180     $ 4.55  

Granted

    109,376       2.53  

Vested

    (78,428 )     3.57  

Nonvested, September 30, 2020

    154,128     $ 3.61  

 

For the outstanding Restricted Shares issued to the non-employee directors as of September 30, 2020, vesting is expected to occur as follows (subject to any forfeitures):

 

   

Restricted Shares

 

2021

 

138,676

 

2022

 

15,452

 

Total

 

154,128

 

 

Share-Based Compensation.  Share-based compensation expense is recorded in the line General and administrative expenses in the Condensed Consolidated Statements of Operations.  No share-based awards have been granted to date in 2020 under the Plan, and therefore, no share-based compensation expense for 2020 has been recorded.  The Compensation Committee has deferred its decision regarding the potential awarding of incentive compensation, including by the exercise of discretion.  The tax benefit related to compensation expense recognized under share-based payment arrangements was not meaningful and was minimal due to our income tax situation.  A summary of incentive compensation expense under share-based payment arrangements is as follows (in thousands):

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Share-based compensation expense from:

                               

Restricted stock units (1)

  $ 927     $ 1,178     $ 2,854     $ 2,219  

Restricted Shares

    148       70       288       210  

Total

  $ 1,075     $ 1,248     $ 3,142     $ 2,429  

 

 

(1)

For the nine months ended September 30, 2019, share-based compensation expense includes adjustments for a former executive's forfeitures.

 

Unrecognized Share-Based Compensation.  As of September 30, 2020, unrecognized share-based compensation expense related to our awards of RSUs and Restricted Shares was $1.9 million and $0.4 million, respectively.  Unrecognized share-based compensation expense will be recognized through November 2021 for RSUs and April 2022 for Restricted Shares.

 

Cash-Based Incentive Compensation.  In addition to share-based compensation, short-term, cash-based incentive awards were granted under the Plan to substantially all eligible employees in 2019 and 2018.  The short-term, cash-based incentive awards, which are generally 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 of such criteria.  In addition, these cash-based incentive awards included an additional financial condition requiring Adjusted EBITDA less reported Interest Expense Incurred (terms 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 incentive award.  No cash-based incentive awards have been granted to date in 2020 under the Plan, and therefore, no cash-based incentive award compensation expense for 2020 has been recorded. The Compensation Committee has deferred its decision regarding the potential awarding of incentive compensation, including by the exercise of discretion.  During 2018, long-term, cash-based incentive awards were granted to certain employees subject to pre-defined performance criteria.  Expense is recognized over the service period once the business criteria, individual performance criteria and financial condition are met. 

 

 

For the 2019 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 over the  January 2019 to February 2020 period (the service period of the award).  Payments were made in March 2020 and are subject to all the terms of the 2019 Annual Incentive Award Agreement.

 

 

In 2018, the Company, as part of its long-term incentive program, granted cash awards to certain employees that will vest over a three-year service period.  

 

 

For the 2018 long-term, cash-based awards, incentive compensation expense was determined based on the Company achieving certain performance metrics for 2018 and is being recognized over the September 2018 to November 2020 period (the service period of the award).  The 2018 long-term, cash-based awards will be eligible for payment on December 14, 2020 subject to participants meeting certain employment-based criteria.

 

 

For the 2018 short-term, cash-based awards, incentive compensation expense was determined based on the Company achieving certain performance metrics for 2018 combined with individual performance criteria for 2018 and was recognized over the January 2018 to February 2019 period.  The 2018 short-term, cash-based awards were paid during March 2019.

 

 

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

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Share-based compensation included in:

                               

General and administrative expenses

  $ 1,075     $ 1,248     $ 3,142     $ 2,429  

Cash-based incentive compensation included in:

                               

Lease operating expense (1)

          672       849       951  

General and administrative expenses (1)

    154       1,679       3,944       5,017  

Total charged to operating income

  $ 1,229     $ 3,599     $ 7,935     $ 8,397  

 

 

(1)

Includes adjustments of accruals to actual payments.