Share-Based Compensation

Share-Based Compensation Plans

Upon the Company's emergence from bankruptcy on April 22, 2016, as discussed in Note 12, the Company's previous share-based compensation plans were canceled and the new 2016 Equity Incentive Plan was approved in accordance with the joint plan of reorganization. Additionally, upon the emergence the awards issued under the previous share-based compensation plan for most employees vested on an accelerated basis while awards issued to certain officers of the Company and the Board of Directors were canceled.

For awards granted after emergence from bankruptcy, the Company does not estimate the forfeiture rate during the initial calculation of compensation cost but rather has elected to account for forfeitures in compensation cost when they occur. For the predecessor periods the Company had estimated the forfeiture rate for share-based compensation during the initial calculation of compensation cost.

The Company computes a deferred tax benefit for restricted stock awards, unit awards and stock options expected to generate future tax deductions by applying its effective tax rate to the expense recorded. For restricted stock units the Company's actual tax deduction is based on the value of the units at the time of vesting.

We receive a tax deduction for certain stock option exercises during the period the stock option awards are exercised, generally for the excess of the market value on the exercise date over the exercise price of the stock option awards. We receive an additional tax deduction when restricted stock awards vest at a higher value than the value used to recognize compensation expense at the date of grant. We are required to report excess tax benefits from the award of equity instruments as operating cash flows.

For the year ended December 31, 2017 (successor) and the period of April 23, 2016 through December 31, 2016 (successor), no incremental tax benefit was recognized for shares that vested due to the offsetting valuation allowance as discussed in Note 3 of these consolidated financial statements. For the period of January 1, 2016 through April 22, 2016 (predecessor) the tax deduction realized was significantly less than the associated deferred tax asset, however the tax asset had been fully offset with a valuation allowance in prior periods so no incremental tax expense was realized. For the year ended December 31, 2015 (predecessor), we recognized an income tax shortfall in earnings as referenced in Note 3 of these consolidated financial statements.

Share-based compensation for the predecessor and successor periods are not comparable. The expense for awards issued to both employees and non-employees, which was recorded in “General and administrative, net” in the accompanying consolidated statements of operations was $6.8 million and $3.6 million for the year ended December 31, 2017 (successor) and the period of April 23, 2016 through December 31, 2016 (successor), respectively, and $0.9 million and $4.4 million for the period of January 1, 2016 through April 22, 2016 (predecessor) and the year ended December 31, 2015 (predecessor), respectively.

We capitalized in property and equipment $0.2 million of share-based compensation for the year ended December 31, 2017 (successor) and did not capitalize any share-based compensation for the period of April 23, 2016 through December 31, 2016 (successor). For the period of January 1, 2016 through April 22, 2016 (predecessor) and the year ended December 31, 2015 (predecessor) we capitalized $0.2 million and $1.4 million, respectively. We view stock option awards and restricted stock unit awards with graded vesting as single awards with an expected life equal to the average expected life of component awards, and we amortize the awards on a straight-line basis over the life of the awards.

There was no share-based compensation recorded in lease operating cost for the year ended December 31, 2017 (successor), the period of April 23, 2016 through December 31, 2016 (successor) and the period of January 1, 2016 through April 22, 2016 (predecessor). Share-based compensation recorded in lease operating cost was $0.2 million for the year ended December 31, 2015 (predecessor).

Our shares available for future grant under our Share-Based Compensation plans were 549,665 at December 31, 2017. Each restricted stock award and restricted stock unit granted reduces the shares available for future grant by one share.

Stock Option Awards

The compensation cost related to these awards is based on the grant date fair value and is expensed over the vesting period (generally one to five years). We use the Black-Scholes-Merton option pricing model to estimate the fair value of stock option awards with the following assumptions for stock option awards issued during the year ended December 31, 2017:



	Stock Option Valuation Assumptions
Expected Dividend	—
Expected volatility	70.3		%
Risk-free interest rate	1.99		%
Expected life of stock option awards (in years)	5.7
Grant-date market value	$	27.71
Grant-date fair value	$	17.09

To estimate expected volatility of our 2017 stock option grants we used the historical volatility of stock prices based on a group of our peer companies. The expected term for grants issued considers all relevant factors including historical and expected future employee exercise behavior. We have analyzed historical volatility and, based on an analysis of all relevant factors, we have used a 6 year look-back period to estimate expected volatility of our stock option awards.

At December 31, 2017, we had $5.2 million in unrecognized compensation cost related to stock option awards. The following table represents stock option award activity for the year ended December 31, 2017:



	Shares		Wtd. Avg. Exer. Price

Options outstanding, beginning of period (successor)	105,811		$	23.25
Options granted	428,974		$	27.71
Options forfeited	(26,055	)	$	26.96
Options canceled	—		$	—
Options exercised	—		$	—
Options outstanding, end of period (successor)	508,730		$	26.82
Options exercisable, end of period (successor)	112,338		$	25.47

Our outstanding stock option awards at December 31, 2017 had $1.7 million in aggregate intrinsic value. At December 31, 2017 the weighted average remaining contract life of stock option awards outstanding was 6.9 years and exercisable was 2.0 years. The total intrinsic value of stock option awards exercisable as of December 31, 2017 was $0.6 million.

Restricted Stock Units

The 2016 equity incentive compensation plan allows for the issuance of restricted stock unit awards that generally may not be sold or otherwise transferred until certain restrictions have lapsed. The compensation cost related to these awards is based on the grant date fair value and is expensed over the requisite service period (generally one to five years).

As of December 31, 2017, we had unrecognized compensation expense of $7.1 million related to our restricted stock units which is expected to be recognized over a weighted-average period of 2.8 years.

The following table represents restricted stock unit activity for the year ended December 31, 2017:



	Shares		Wtd. Avg. Grant Price
Restricted units outstanding, beginning of period (successor)	178,847		$	23.25
Restricted stock units granted	326,532		$	28.21
Restricted stock units forfeited	(16,821	)	$	26.41
Restricted stock units vested	(141,818	)	$	25.15
Restricted stock units outstanding, end of period (successor)	346,740		$	26.99

In accordance with their employment agreements, the former Chief Executive Officer and Chief Financial Officer vested in all of their share-based compensation awards in conjunction with their retirements. As such, all expense for their stock option awards and restricted stock unit awards was accelerated and is included in the share-based compensation expense for the period of April 23, 2016 through December 31, 2016 (successor). The total expense included in the period for such awards was $1.6 million for 76,058 restricted stock unit awards and $0.7 million for 60,847 stock option awards.

Employee Savings Plan

We have a savings plan under Section 401(k) of the Internal Revenue Code. The Company contributed on behalf of eligible employees an amount up to 100% of the first 6% of compensation based on the contributions made by the eligible employees in 2017 and 2% in 2016. The Company's 2017 and 2016 plan contributions of $0.5 million and $0.3 million were paid in cash during the first quarter of 2018 and 2017, respectively. The Company's contributions to the 401(k) savings plan were $0.7 million for the year ended December 31, 2015 (predecessor). These amounts were recorded as “General and administrative, net” on the accompanying consolidated statements of operations.

Predecessor Share-Based Compensation Awards

We previously had shares outstanding under multiple share-based compensation plans. In addition, we had an employee stock purchase plan and also had an employee stock ownership plan prior to their termination during 2016 and 2015, respectively.

Under the previous plans, stock option awards and other equity-based awards could be granted to employees, directors, and consultants, with directors only eligible to receive restricted awards. Restricted stock grants became vested over a three-year period, and stock option awards were exercisable in various terms ranging from one year to five years. Stock option awards granted typically expired ten years after the date of grant or earlier in the event of the optionee's separation from employment. At the time the stock option awards were exercised, the cash received was credited to common stock and additional paid-in capital.

The employee stock purchase plan, which began in 1993, provided eligible employees the opportunity to acquire shares of Swift Energy common stock at a discount through payroll deductions. Under this plan, we had issued 87,629 shares at a price of $3.44 in 2015. As of December 31, 2015, this plan was terminated.

During the year ended December 31, 2015, we did not grant any stock option awards and there were no stock option exercises. The total intrinsic value of stock option awards exercised was not material.

For the year ended December 31, 2015, the Company issued 609,238 shares of restricted stock to employees, consultants, and directors. The weighted average fair values of these shares when issued for the year ended December 31, 2015 was $2.64 per share. The grant date fair values of shares vested for the year ended December 31, 2015 was $6.1 million. All of the remaining grants either vested or were canceled upon emergence from bankruptcy.

During the year ended 2015, the Company granted 147,812 units of cash-settled restricted stock units. The grants had a cliff vesting period of approximately 1.0 year while the compensation expense and corresponding liability were re-measured quarterly over the corresponding service period. All of the remaining grants were canceled upon emergence from bankruptcy.

For the year ended December 31, 2015, the Company granted 216,450 performance-based restricted stock units. These units contained predetermined market and performance conditions set by our compensation committee with a performance period of 3 years. No shares vested during the year ended December 31, 2015. The weighted average grant date fair value for the restricted stock units granted during the year ended December 31, 2015 was $1.98 per unit. All of the remaining grants were canceled upon emergence from bankruptcy.