Quarterly report pursuant to Section 13 or 15(d)

Equity-Based Compensation

v3.3.0.814
Equity-Based Compensation
9 Months Ended
Sep. 30, 2015
Equity-Based Compensation  
Equity-Based Compensation

(6)Equity-Based Compensation

 

Antero is authorized to grant up to 16,906,500 shares of common stock to employees and directors of the Company under the Antero Resources Corporation Long-Term Incentive Plan (the “Plan”).  The Plan allows equity-based compensation awards to be granted in a variety of forms, including stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, dividend equivalent awards, and other types of awards.  The terms and conditions of the awards granted are established by the Compensation Committee of Antero’s Board of Directors.  A total of 13,410,574 shares were available for future grant under the Plan as of September 30, 2015.

 

In connection with the Antero Midstream IPO, Antero Midstream’s general partner adopted the Antero Midstream Partners LP Long-Term Incentive Plan (the “Midstream Plan”), pursuant to which non-employee directors of Antero Midstream’s general partner and certain officers, employees, and consultants of Antero Midstream’s general partner and its affiliates (which include Antero) are eligible to receive awards representing ownership interests in Antero Midstream.  An aggregate of 10,000,000 common units may be delivered pursuant to awards under the Midstream Plan, subject to customary adjustments.  A total of 7,658,363 common units are available for future grant under the Midstream Plan as of September 30, 2015.

 

The Company’s equity-based compensation expense was as follows for the three and nine months ended September 30, 2014 and 2015 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

  

2014

  

2015

  

2014

  

2015

 

Profits interests awards

 

$

15,688

 

 

8,140

 

 

68,456

 

 

35,221

 

Restricted stock awards

 

 

8,397

 

 

10,686

 

 

16,993

 

 

29,357

 

Stock options

 

 

125

 

 

743

 

 

372

 

 

1,514

 

Antero Midstream phantom and restricted unit awards

 

 

 —

 

 

4,271

 

 

 —

 

 

12,963

 

Common stock issued to directors in lieu of cash compensation

 

 

75

 

 

75

 

 

75

 

 

225

 

Total expense

 

$

24,285

 

 

23,915

 

 

85,896

 

 

79,280

 

 

Profits Interests Awards

 

In connection with its formation in October 2009, Antero Resources LLC issued profits interests to Antero Resources Employee Holdings LLC (“Employee Holdings”), which is owned solely by certain of the Company’s officers and employees.  These profits interests provide for the participation in distributions upon liquidation events meeting certain requisite financial return thresholds.  In turn, Employee Holdings issued membership interests to certain of the Company’s officers and employees.  The Employee Holdings interests in Antero Resources LLC were exchanged for similar interests in Antero Investment in connection with the Company’s initial public offering on October 16, 2013.

 

The limited liability company agreement of Antero Investment provides a mechanism that demonstrates how the shares of the Company’s common stock will be allocated among the members of Antero Investment, including Employee Holdings. As a result of the adoption of the Antero Investment Limited Liability Company Agreement, the satisfaction of all performance and service conditions relative to the profits interest awards held by Employee Holdings in Antero Investment became probable.  Accordingly, the Company has recognized approximately $484 million of equity-based compensation expense for the vested profits interests through September 30, 2015 and will recognize approximately $3 million over the remaining service period.  Because consideration for the profits interest awards is deemed given by Antero Investment, the charge to equity-based compensation expense is accounted for as a capital contribution by Antero Investment to the Company and credited to additional paid-in capital.  All available profits interest awards were made prior to the date of the IPO, and no additional profits interest awards will be made.

 

Restricted Stock and Restricted Stock Unit Awards

 

Restricted stock and restricted stock unit awards vest subject to the satisfaction of service requirements.  Expense related to each restricted stock and restricted stock unit award is recognized on a straight-line basis over the requisite service period of the entire award, less awards expected to be forfeited.  The grant date fair values of these awards are determined based on the closing price of the Company’s common stock on the date of the grant. A summary of restricted stock and restricted stock unit awards activity during the nine months ended September 30, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted
average

 

Aggregate

 

 

    

Number of
shares

    

grant date
fair value

    

intrinsic value
(in thousands)

 

Total awarded and unvested—December 31, 2014

 

1,983,673

 

$

64.71

 

$

80,497

 

Granted

 

881,617

 

$

40.82

 

 

 

 

Vested

 

(358,242)

 

$

64.28

 

 

 

 

Forfeited

 

(12,016)

 

$

40.05

 

 

 

 

Total awarded and unvested—September 30, 2015

 

2,495,032

 

$

56.38

 

$

52,795

 

 

Intrinsic values are based on the closing price of the Company’s stock on the referenced dates.  Unamortized expense of $109.9 million at September 30, 2015 is expected to be recognized over a weighted average period of approximately 2.8 years.

 

Stock Options

 

Stock options granted under the Plan vest over periods from one to four years and have a maximum contractual life of 10 years.  Expense related to stock options is recognized on a straight-line basis over the requisite service period of the entire award, less awards expected to be forfeited.  Stock options are granted with an exercise price equal to or greater than the market price of the Company’s common stock on the date of grant.  A summary of stock option activity for the nine months ended September 30, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted
average

 

average
remaining

 

Intrinsic

 

 

    

Stock
options

    

exercise
price

    

contractual
life

    

value
(in thousands)

  

Outstanding at December 31, 2014

 

81,021

 

$

53.92

 

8.92

 

$

 —

 

Options granted

 

665,366

 

$

50.00

 

 

 

 

 

 

Options exercised

 

 —

 

 

 —

 

 

 

 

 

 

Options cancelled

 

(3,833)

 

$

50.00

 

 

 

 

 

 

Options expired

 

 —

 

 

 —

 

 

 

 

 

 

Outstanding at September 30, 2015

 

742,554

 

$

50.43

 

9.39

 

$

 —

 

Vested or expected to vest as of  September 30, 2015

 

742,554

 

$

50.43

 

9.39

 

$

 —

 

Exercisable at September 30, 2015

 

25,339

 

$

54.15

 

8.04

 

$

 —

 

 

Intrinsic value is based on the exercise price of the options and the closing price of the Company’s stock on the referenced dates.

 

A Black-Scholes option-pricing model is used to determine the grant-date fair value of the Company’s stock options.  Expected volatility was derived from the volatility of the historical stock prices of a peer group of similar publicly traded companies’ stock prices.  The risk-free interest rate was determined using the implied yield available for zero-coupon U.S. government issues with a remaining term approximating the expected life of the options.  A dividend yield of zero was assumed.

 

The following table presents information regarding the weighted average fair value for options granted in 2014 and 2015 and the assumptions used to determine fair value.

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

 

2015

 

 

Dividend yield

 

 

 —

%

 

 

 —

%

 

Volatility

 

 

40

%

 

 

40

%

 

Risk-free interest rate

 

 

1.75

%

 

 

1.66

%

 

Expected life (years)

 

 

5.50

 

 

 

6.25

 

 

Weighted average fair value of options granted

 

$

20.55

 

 

$

14.74

 

 

 

As of September 30, 2015, there was $9.3 million of unrecognized equity-based compensation expense related to nonvested stock options.  That expense is expected to be recognized over a weighted average period of approximately 3.4 years.

 

Antero Midstream Partners Phantom and Restricted Unit Awards

 

Restricted units and phantom units granted by Antero Midstream vest subject to the satisfaction of service requirements, upon the completion of which common units in Antero Midstream are delivered to the holder of the restricted units or phantom units.  These restricted and phantom units are treated, for accounting purposes, as if Antero Midstream distributed the units to Antero.  Antero recognizes compensation expense as the units are granted to employees, and a portion of the expense is allocated to Antero Midstream.  Expense related to each restricted unit and phantom unit award is recognized on a straight-line basis over the requisite service period of the entire award, less awards expected to be forfeited.  The grant date fair values of these awards are determined based on the closing price of Antero Midstream’s common units on the date of grant.  A summary of restricted unit and phantom unit awards activity during the nine months ended September 30, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Number of
units

 

Weighted
average
grant date
fair value

 

Aggregate
intrinsic value
(in thousands)

 

Total awarded and unvested—December 31, 2014

 

2,381,440

 

$

29.00

 

$

65,490

 

Granted

 

12,057

 

$

24.88

 

 

 

 

Vested

 

 —

 

$

 —

 

 

 

 

Forfeited

 

(51,860)

 

$

29.00

 

 

 

 

Total awarded and unvested—September 30, 2015

 

2,341,637

 

$

28.98

 

$

41,822

 

 

Intrinsic values are based on the closing price of Antero Midstream’s common units on the referenced dates.  Unamortized expense of $52.5 million at September 30, 2015 is expected to be recognized over a weighted average period of approximately 3.1 years.