Quarterly report pursuant to Section 13 or 15(d)

Equity-Based Compensation

v3.5.0.2
Equity-Based Compensation
6 Months Ended
Jun. 30, 2016
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 7,769,049 shares were available for future grant under the Plan as of June 30, 2016.

 

In connection with the Antero Midstream initial public offering (“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 7,707,464 common units were available for future grant under the Midstream Plan as of June 30, 2016.

 

The Company’s equity-based compensation expense was as follows for the three and six months ended June 30, 2015 and 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

  

2015

  

2016

  

2015

  

2016

 

Profits interests awards

 

$

12,363

 

 

 —

 

$

27,081

 

 

 —

 

Restricted stock unit awards

 

 

10,235

 

 

18,146

 

 

18,671

 

 

35,613

 

Stock options

 

 

642

 

 

641

 

 

771

 

 

1,301

 

Performance share unit awards

 

 

 —

 

 

2,466

 

 

 —

 

 

3,349

 

Antero Midstream phantom and restricted unit awards

 

 

4,267

 

 

4,013

 

 

8,692

 

 

8,001

 

Equity awards issued to directors

 

 

75

 

 

550

 

 

150

 

 

1,022

 

Total expense

 

$

27,582

 

 

25,816

 

$

55,365

 

 

49,286

 

 

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 provided 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 provided a mechanism that determines how the shares of the Company’s common stock held by Antero Investment would be allocated among its members, 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 recognized approximately $486 million of equity-based compensation expense for the vested profits interests from the fourth quarter of 2013 through the fourth quarter of 2015.  The profits interest awards were fully vested as of December 31, 2015.  Because consideration for the profits interest awards was deemed given by Antero Investment, the charge to equity-based compensation expense was 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 Company’s IPO, and no additional profits interest awards have been made since the Company’s IPO.

 

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.  Forfeitures are accounted for as they occur through reversal of expense on awards that were forfeited during the period.  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 for the six months ended June 30, 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted
average

 

Aggregate

 

 

    

Number of
shares

    

grant date
fair value

    

intrinsic value
(in thousands)

 

Total awarded and unvested—December 31, 2015

 

6,529,459

 

$

33.48

 

$

142,342

 

Granted

 

1,217,474

 

$

27.06

 

 

 

 

Vested

 

(527,795)

 

$

55.48

 

 

 

 

Forfeited

 

(217,935)

 

$

27.68

 

 

 

 

Total awarded and unvested—June 30, 2016

 

7,001,203

 

$

30.88

 

$

181,891

 

 

Intrinsic values are based on the closing price of the Company’s stock on the referenced dates.  Unamortized expense of $168.9 million at June 30, 2016 is expected to be recognized over a weighted average period of approximately 2.4 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.  Forfeitures are accounted for as they occur through reversal of expense on awards that were forfeited during the period.  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 six months ended June 30, 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted
average

 

average
remaining

 

Intrinsic

 

 

    

Stock
options

    

exercise
price

    

contractual
life

    

value
(in thousands)

  

Outstanding at December 31, 2015

 

720,887

 

$

50.44

 

9.14

 

$

 —

 

Granted

 

 —

 

$

 —

 

 

 

 

 

 

Exercised

 

 —

 

 

 —

 

 

 

 

 

 

Forfeited

 

(21,250)

 

$

50.00

 

 

 

 

 

 

Expired

 

 —

 

 

 —

 

 

 

 

 

 

Outstanding at June 30, 2016

 

699,637

 

$

50.45

 

8.55

 

$

 —

 

Vested or expected to vest as of  June 30, 2016

 

699,637

 

$

50.45

 

8.55

 

$

 —

 

Exercisable at June 30, 2016

 

210,715

 

$

50.92

 

8.20

 

$

 —

 

 

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

 

As of June 30, 2016, there was $6.7 million of unamortized equity-based compensation expense related to nonvested stock options.  That expense is expected to be recognized over a weighted average period of approximately 2.7 years.

 

Performance Share Unit Awards

 

Performance Share Unit Awards Based on Price Targets

 

In the first quarter of 2016, the Company granted performance share unit awards (“PSUs”) to certain of its executive officers.  PSUs vest conditioned on the closing price of the Company’s common stock achieving specific thresholds over 10-day periods, subject to the following vesting restrictions: no PSUs may vest before the first anniversary of the grant date; no more than one-third of the PSUs may vest before the second anniversary of the grant date; and no more than two-thirds of the PSUs may vest before the third anniversary of the grant date.  Any PSUs which have not vested by the fifth anniversary of the grant date will expire.  Expense related to these PSUs is recognized on a graded basis over three years.

 

Performance Share Unit Awards Based on Total Shareholder Return

 

In the second quarter of 2016, the Company granted PSUs to certain of its employees and executive officers which vest based on the total shareholder return (“TSR”) of the Company’s common stock relative to the TSR of a peer group of companies over a three-year performance period.  The number of performance shares which may ultimately be earned ranges from zero to 200% of the PSUs granted.

 

Summary Information for Performance Share Unit Awards

 

A summary of PSU activity for the six months ended June 30, 2016 is as follows:

 

 

 

 

 

 

 

 

 

Number of
units

 

Weighted
average
grant date
fair value

 

Total awarded and unvested—December 31, 2015

 

 —

 

$

 —

 

Granted

 

790,890

 

$

29.77

 

Vested

 

 —

 

$

 —

 

Forfeited

 

(5,589)

 

$

32.97

 

Total awarded and unvested—June 30, 2016

 

785,301

 

$

29.75

 

 

The grant-date fair values of PSUs were determined using a Monte Carlo simulation, which uses a probabilistic approach for estimating the fair values of the awards.  Expected volatilities were 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 yield available for zero-coupon U.S. government issues with remaining terms corresponding to the service periods of the PSUs.  A dividend yield of zero was assumed.

 

The following table presents information regarding the weighted average fair value for PSUs granted during the six months ended June 30, 2016 and the assumptions used to determine the fair values.

 

 

 

 

 

 

 

 

  

Six months ended June 30, 2016

 

 

Dividend yield

 

 

 —

%

 

Volatility

 

 

45

%

 

Risk-free interest rate

 

 

1.01

%

 

Weighted average fair value of awards granted

 

$

29.77

 

 

 

As of June 30, 2016, there was $20.0 million of unamortized equity-based compensation expense related to unvested PSUs.  That expense is expected to be recognized over a weighted average period of approximately 2.4 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.  Forfeitures are accounted for as they occur through reversal of expense on awards that were forfeited during the period.  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 for the six months ended June 30, 2016 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Number of
units

 

Weighted
average
grant date
fair value

 

Aggregate
intrinsic value
(in thousands)

 

Total awarded and unvested—December 31, 2015

 

1,667,832

 

$

28.97

 

$

38,060

 

Granted

 

290,254

 

$

21.24

 

 

 

 

Vested

 

(6,354)

 

$

24.98

 

 

 

 

Forfeited

 

(62,728)

 

$

28.42

 

 

 

 

Total awarded and unvested—June 30, 2016

 

1,889,004

 

$

27.81

 

$

52,647

 

 

Intrinsic values are based on the closing price of Antero Midstream’s common units on the referenced dates.  Unamortized expense of $42.5 million at June 30, 2016 is expected to be recognized over a weighted average period of approximately 2.6 years.