Attached files

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EX-32.1 - EX-32.1 - PATTERSON UTI ENERGY INCpten-ex321_6.htm
EX-31.1 - EX-31.1 - PATTERSON UTI ENERGY INCpten-ex311_7.htm
EX-31.2 - EX-31.2 - PATTERSON UTI ENERGY INCpten-ex312_8.htm
EX-10.1 - EX-10.1 - PATTERSON UTI ENERGY INCpten-ex101_337.htm
EX-10.2 - EX-10.2 - PATTERSON UTI ENERGY INCpten-ex102_338.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

R

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission file number 0-22664

 

Patterson-UTI Energy, Inc.

(Exact name of registrant as specified in its charter)

 

 

DELAWARE

 

75-2504748

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

450 GEARS ROAD, SUITE 500

HOUSTON, TEXAS

 

77067

(Address of principal executive offices)

 

(Zip Code)

(281) 765-7100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes R     No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes R    No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

 

R

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes £    No R

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

147,178,930 shares of common stock, $0.01 par value, as of October 22, 2015

 

 

 

 

 


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

 

PART I — FINANCIAL INFORMATION

 

 

 

 

 

 

Page

ITEM 1.

 

Financial Statements

  

 

 

 

Unaudited condensed consolidated balance sheets

  

3

 

 

Unaudited condensed consolidated statements of operations

  

4

 

 

Unaudited condensed consolidated statements of comprehensive income

  

5

 

 

Unaudited condensed consolidated statement of changes in stockholders’ equity

  

6

 

 

Unaudited condensed consolidated statements of cash flows

  

7

 

 

Notes to unaudited condensed consolidated financial statements

  

8

ITEM 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

23

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

35

ITEM 4.

 

Controls and Procedures

  

35

 

 

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

  

36

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

36

ITEM 5.

 

Other Information

 

36

ITEM 6.

 

Exhibits

  

37

Signature  

 

 

  

38

 

 

 

 


PART I  — FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

The following unaudited condensed consolidated financial statements include all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented.

PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share data)

 

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

76,465

 

 

$

43,012

 

Accounts receivable, net of allowance for doubtful accounts of $3,537 and $3,546 at September 30, 2015 and December 31, 2014, respectively

 

301,710

 

 

 

663,404

 

Federal and state income taxes receivable

 

30,952

 

 

 

81,726

 

Inventory

 

17,422

 

 

 

32,251

 

Deferred tax assets, net

 

37,809

 

 

 

37,075

 

Other

 

41,383

 

 

 

51,624

 

Total current assets

 

505,741

 

 

 

909,092

 

Property and equipment, net

 

4,023,199

 

 

 

4,131,071

 

Goodwill and intangible assets

 

93,520

 

 

 

220,813

 

Deposits on equipment purchases

 

35,863

 

 

 

112,379

 

Other

 

19,843

 

 

 

20,656

 

Total assets

$

4,678,166

 

 

$

5,394,011

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

165,547

 

 

$

382,438

 

Accrued expenses

 

180,530

 

 

 

173,466

 

Current portion of long-term debt

 

50,000

 

 

 

12,500

 

Total current liabilities

 

396,077

 

 

 

568,404

 

Borrowings under revolving credit facility

 

 

 

 

303,000

 

Other long-term debt

 

815,000

 

 

 

670,000

 

Deferred tax liabilities, net

 

826,163

 

 

 

935,660

 

Other

 

9,829

 

 

 

11,137

 

Total liabilities

 

2,047,069

 

 

 

2,488,201

 

Commitments and contingencies (see Note 9)

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, par value $.01; authorized 1,000,000 shares,

   no shares issued

 

 

 

 

Common stock, par value $.01; authorized 300,000,000 shares with 190,387,622 and 189,262,876 issued and 147,180,382 and 146,444,291 outstanding at September 30, 2015 and December 31, 2014, respectively

 

1,904

 

 

 

1,893

 

Additional paid-in capital

 

1,006,306

 

 

 

984,674

 

Retained earnings

 

2,531,923

 

 

 

2,811,815

 

Accumulated other comprehensive income

 

(1,991

)

 

 

6,463

 

Treasury stock, at cost, 43,207,240 shares and 42,818,585 shares at September 30, 2015 and December 31, 2014, respectively

 

(907,045

)

 

 

(899,035

)

Total stockholders' equity

 

2,631,097

 

 

 

2,905,810

 

Total liabilities and stockholders' equity

$

4,678,166

 

 

$

5,394,011

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

3


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract drilling

$

261,817

 

 

$

482,212

 

 

$

951,616

 

 

$

1,346,698

 

Pressure pumping

 

154,407

 

 

 

348,692

 

 

 

580,752

 

 

 

895,530

 

Oil and natural gas

 

6,027

 

 

 

14,724

 

 

 

20,343

 

 

 

38,844

 

Total operating revenues

 

422,251

 

 

 

845,628

 

 

 

1,552,711

 

 

 

2,281,072

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract drilling

 

136,718

 

 

 

278,195

 

 

 

503,376

 

 

 

784,572

 

Pressure pumping

 

138,597

 

 

 

281,016

 

 

 

494,078

 

 

 

722,801

 

Oil and natural gas

 

2,519

 

 

 

3,275

 

 

 

8,096

 

 

 

9,421

 

Depreciation, depletion, amortization and impairment

 

332,151

 

 

 

237,825

 

 

 

689,457

 

 

 

538,573

 

Impairment of goodwill

 

124,561

 

 

 

 

 

 

124,561

 

 

 

 

Selling, general and administrative

 

18,582

 

 

 

18,896

 

 

 

70,595

 

 

 

58,117

 

Net gain on asset disposals

 

(1,362

)

 

 

(3,870

)

 

 

(7,276

)

 

 

(8,705

)

Total operating costs and expenses

 

751,766

 

 

 

815,337

 

 

 

1,882,887

 

 

 

2,104,779

 

Operating income (loss)

 

(329,515

)

 

 

30,291

 

 

 

(330,176

)

 

 

176,293

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

323

 

 

 

234

 

 

 

924

 

 

 

618

 

Interest expense, net of amount capitalized

 

(9,254

)

 

 

(6,993

)

 

 

(27,044

)

 

 

(21,430

)

Other

 

16

 

 

 

 

 

 

16

 

 

 

3

 

Total other expense

 

(8,915

)

 

 

(6,759

)

 

 

(26,104

)

 

 

(20,809

)

Income (loss) before income taxes

 

(338,430

)

 

 

23,532

 

 

 

(356,280

)

 

 

155,484

 

Income tax expense (benefit):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

(42,446

)

 

 

48,618

 

 

 

(10,221

)

 

 

101,233

 

Deferred

 

(70,006

)

 

 

(41,062

)

 

 

(110,231

)

 

 

(50,830

)

Total income tax expense (benefit)

 

(112,452

)

 

 

7,556

 

 

 

(120,452

)

 

 

50,403

 

Net income (loss)

$

(225,978

)

 

$

15,976

 

 

$

(235,828

)

 

$

105,081

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(1.54

)

 

$

0.11

 

 

$

(1.61

)

 

$

0.72

 

Diluted

$

(1.54

)

 

$

0.11

 

 

$

(1.61

)

 

$

0.71

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

145,662

 

 

 

144,798

 

 

 

145,317

 

 

 

143,778

 

Diluted

 

145,662

 

 

 

146,991

 

 

 

145,317

 

 

 

146,101

 

Cash dividends per common share

$

0.10

 

 

$

0.10

 

 

$

0.30

 

 

$

0.30

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

4


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net income (loss)

$

(225,978

)

 

$

15,976

 

 

$

(235,828

)

 

$

105,081

 

Other comprehensive loss, net of taxes of $0 for

   all periods:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(2,909

)

 

 

(4,899

)

 

 

(8,454

)

 

 

(3,766

)

Total comprehensive income (loss)

$

(228,887

)

 

$

11,077

 

 

$

(244,282

)

 

$

101,315

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

5


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income

 

 

Stock

 

 

Total

 

Balance, December 31, 2014

 

189,263

 

 

$

1,893

 

 

$

984,674

 

 

$

2,811,815

 

 

$

6,463

 

 

$

(899,035

)

 

 

2,905,810

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(235,828

)

 

 

 

 

 

 

(235,828

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

(8,454

)

 

 

 

 

(8,454

)

Issuance of restricted stock

 

1,176

 

 

 

12

 

 

 

(12

)

 

 

 

 

 

 

 

 

 

Vesting of stock unit awards

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeitures of restricted stock

 

(66

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Stock-based compensation

 

 

 

 

 

21,186

 

 

 

 

 

 

 

 

 

21,186

 

Tax benefit related to stock-based   compensation

 

 

 

 

 

458

 

 

 

 

 

 

 

 

 

458

 

Payment of cash dividends

 

 

 

 

 

 

 

(44,064

)

 

 

 

 

 

 

(44,064

)

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

(8,010

)

 

 

(8,010

)

Balance, September 30, 2015

 

190,388

 

 

$

1,904

 

 

$

1,006,306

 

 

$

2,531,923

 

 

$

(1,991

)

 

$

(907,045

)

 

$

2,631,097

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

6


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

Nine Months Ended

 

 

September 30,

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

(235,828

)

 

$

105,081

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation, depletion, amortization and impairment

 

689,457

 

 

 

538,573

 

Impairment of goodwill

 

124,561

 

 

 

 

Dry holes and abandonments

 

159

 

 

 

337

 

Deferred income tax benefit

 

(110,231

)

 

 

(50,830

)

Stock-based compensation expense

 

21,186

 

 

 

19,945

 

Net gain on asset disposals

 

(7,276

)

 

 

(8,705

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

359,304

 

 

 

(143,039

)

Income taxes receivable/payable

 

52,037

 

 

 

13,701

 

Inventory and other assets

 

27,579

 

 

 

(6,419

)

Accounts payable

 

(120,740

)

 

 

71,865

 

Accrued expenses

 

7,274

 

 

 

22,414

 

Other liabilities

 

(1,443

)

 

 

3,410

 

Net cash provided by operating activities

 

806,039

 

 

 

566,333

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment and acquisitions

 

(608,220

)

 

 

(773,791

)

Proceeds from disposal of assets

 

15,920

 

 

 

22,499

 

Net cash used in investing activities

 

(592,300

)

 

 

(751,292

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Purchases of treasury stock

 

(8,010

)

 

 

(13,554

)

Dividends paid

 

(44,064

)

 

 

(43,652

)

Tax benefit related to stock-based compensation

 

458

 

 

 

8,682

 

Debt issuance costs

 

(1,979

)

 

 

 

Proceeds from long-term debt

 

200,000

 

 

 

 

Repayment of long-term debt

 

(17,500

)

 

 

(7,500

)

Proceeds from borrowings under revolving credit facility

 

54,000

 

 

 

 

Repayment of borrowings under revolving credit facility

 

(357,000

)

 

 

 

Proceeds from exercise of stock options

 

 

 

 

30,726

 

Net cash used in financing activities

 

(174,095

)

 

 

(25,298

)

Effect of foreign exchange rate changes on cash

 

(6,191

)

 

 

(658

)

Net increase (decrease) in cash and cash equivalents

 

33,453

 

 

 

(210,915

)

Cash and cash equivalents at beginning of period

 

43,012

 

 

 

249,509

 

Cash and cash equivalents at end of period

$

76,465

 

 

$

38,594

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Net cash (paid) received during the period for:

 

 

 

 

 

 

 

Interest, net of capitalized interest of $4,946 in 2015 and $5,268 in 2014

$

(18,734

)

 

$

(13,678

)

Income taxes

$

63,785

 

 

$

(74,252

)

Non-cash investing and financing activities:

 

 

 

 

 

 

 

Net (decrease) increase in payables for purchase of property and equipment

$

(95,371

)

 

$

125,271

 

Net decrease (increase) in deposits on equipment purchases

$

76,516

 

 

$

(59,728

)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

7


PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Basis of Consolidation and Presentation

The unaudited interim condensed consolidated financial statements include the accounts of Patterson-UTI Energy, Inc. (the “Company”) and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Except for wholly-owned subsidiaries, the Company has no controlling financial interests in any entity which would require consolidation.

The unaudited interim condensed consolidated financial statements have been prepared by management of the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes the disclosures included either on the face of the financial statements or herein are sufficient to make the information presented not misleading. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair statement of the information in conformity with accounting principles generally accepted in the United States of America have been included. The Unaudited Condensed Consolidated Balance Sheet as of December 31, 2014, as presented herein, was derived from the audited consolidated balance sheet of the Company, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014. The results of operations for the nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year.

The U.S. dollar is the functional currency for all of the Company’s operations except for its Canadian operations, which uses the Canadian dollar as its functional currency. The effects of exchange rate changes are reflected in accumulated other comprehensive income, which is a separate component of stockholders’ equity.

The carrying values of cash and cash equivalents, trade receivables and accounts payable approximate fair value.

The Company provides a dual presentation of its net income (loss) per common share in its unaudited condensed consolidated statements of operations: Basic net income (loss) per common share (“Basic EPS”) and diluted net income (loss) per common share (“Diluted EPS”).

Basic EPS excludes dilution and is computed by first allocating earnings between common stockholders and holders of non-vested shares of restricted stock. Basic EPS is then determined by dividing the earnings attributable to common stockholders by the weighted average number of common shares outstanding during the period, excluding non-vested shares of restricted stock.

Diluted EPS is based on the weighted average number of common shares outstanding plus the dilutive effect of potential common shares, including stock options, non-vested shares of restricted stock and restricted stock units. The dilutive effect of stock options and restricted stock units is determined using the treasury stock method. The dilutive effect of non-vested shares of restricted stock is based on the more dilutive of the treasury stock method or the two-class method, assuming a reallocation of undistributed earnings to common stockholders after considering the dilutive effect of potential common shares other than non-vested shares of restricted stock.

8


The following table presents information necessary to calculate net income (loss) per share for the three and nine month periods ended September 30, 2015 and 2014 as well as potentially dilutive securities excluded from the weighted average number of diluted common shares outstanding because their inclusion would have been anti-dilutive (in thousands, except per share amounts):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

BASIC EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

(225,978

)

 

$

15,976

 

 

$

(235,828

)

 

$

105,081

 

Adjust for (income) loss attributed to holders of non-vested

   restricted stock

 

2,359

 

 

 

(160

)

 

 

2,436

 

 

 

(1,074

)

Income (loss) attributed to common stockholders

$

(223,619

)

 

$

15,816

 

 

$

(233,392

)

 

$

104,007

 

Weighted average number of common shares outstanding,

   excluding non-vested shares of restricted stock

 

145,662

 

 

 

144,798

 

 

 

145,317

 

 

 

143,778

 

Basic net income (loss) per common share

$

(1.54

)

 

$

0.11

 

 

$

(1.61

)

 

$

0.72

 

DILUTED EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) attributed to common stockholders

$

(223,619

)

 

$

15,816

 

 

$

(233,392

)

 

$

104,007

 

Weighted average number of common shares outstanding,

   excluding non-vested shares of restricted stock

 

145,662

 

 

 

144,798

 

 

 

145,317

 

 

 

143,778

 

Add dilutive effect of potential common shares

 

 

 

 

2,193

 

 

 

 

 

 

2,323

 

Weighted average number of diluted common shares

   outstanding

 

145,662

 

 

 

146,991

 

 

 

145,317

 

 

 

146,101

 

Diluted net income (loss) per common share

$

(1.54

)

 

$

0.11

 

 

$

(1.61

)

 

$

0.71

 

Potentially dilutive securities excluded as anti-dilutive

 

7,840

 

 

 

442

 

 

 

7,840

 

 

 

473

 

 

 

2. Stock-based Compensation

The Company uses share-based payments to compensate employees and non-employee directors. The Company recognizes the cost of share-based payments under the fair-value-based method. Share-based awards consist of equity instruments in the form of stock options, restricted stock or restricted stock units and have included service and, in certain cases, performance conditions. The Company’s share-based awards also include share-settled performance unit awards. Share-settled performance unit awards are accounted for as equity awards. The Company issues shares of common stock when vested stock options are exercised, when restricted stock is granted and when restricted stock units and share-settled performance unit awards vest.

Stock Options — The Company estimates the grant date fair values of stock options using the Black-Scholes-Merton valuation model. Volatility assumptions are based on the historic volatility of the Company’s common stock over the most recent period equal to the expected term of the options as of the date the options are granted. The expected term assumptions are based on the Company’s experience with respect to employee stock option activity. Dividend yield assumptions are based on the expected dividends at the time the options are granted. The risk-free interest rate assumptions are determined by reference to United States Treasury yields. Weighted-average assumptions used to estimate the grant date fair values for stock options granted for the three and nine month periods ended September 30, 2015 and 2014 follow:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

2014

 

 

2015

 

 

2014

 

Volatility

NA

 

 

35.64%

 

 

 

37.95

%

 

 

35.89

%

Expected term (in years)

NA

 

 

5.00

 

 

 

5.00

 

 

 

5.00

 

Dividend yield

NA

 

 

1.18%

 

 

 

2.00

%

 

 

1.17

%

Risk-free interest rate

NA

 

 

1.62%

 

 

 

1.37

%

 

 

1.76

%

 

 

9


Stock option activity from January 1, 2015 to September 30, 2015 follows:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

Underlying

 

 

Exercise

 

 

Shares

 

 

Price

 

Outstanding at January 1, 2015

 

6,086,250

 

 

$

22.32

 

Granted

 

831,000

 

 

$

20.06

 

Exercised

 

 

 

 

 

Cancelled

 

(10,000

)

 

$

16.59

 

Expired

 

(600,000

)

 

$

26.06

 

Outstanding at September 30, 2015

 

6,307,250

 

 

$

21.68

 

Exercisable at September 30, 2015

 

5,134,697

 

 

$

21.39

 

Restricted Stock — For all restricted stock awards to date, shares of common stock were issued when the awards were made. Non-vested shares are subject to forfeiture for failure to fulfill service conditions and, in certain cases, performance conditions. Non-forfeitable dividends are paid on non-vested shares of restricted stock. The Company uses the straight-line method to recognize periodic compensation cost over the vesting period.

Restricted stock activity from January 1, 2015 to September 30, 2015 follows:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Grant Date

 

 

Shares

 

 

Fair Value

 

Non-vested restricted stock outstanding at January 1, 2015

 

1,493,059

 

 

$

26.93

 

Granted

 

792,100

 

 

$

20.60

 

Vested

 

(728,400

)

 

$

24.74

 

Forfeited

 

(65,853

)

 

$

26.22

 

Non-vested restricted stock outstanding September 30, 2015

 

1,490,906

 

 

$

24.67

 

Restricted Stock Units — For all restricted stock unit awards made to date, shares of common stock are not issued until the units vest.  Restricted stock units are subject to forfeiture for failure to fulfill service conditions.  Non-forfeitable cash dividend equivalents are paid on certain non-vested restricted stock units.  The Company uses the straight-line method to recognize periodic compensation cost over the vesting period.

Restricted stock unit activity from January 1, 2015 to September 30, 2015 follows:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

 

 

 

Grant Date

 

 

Shares

 

 

Fair Value

 

Non-vested restricted stock units outstanding at January 1, 2015

 

34,085

 

 

$

30.20

 

Granted

 

22,100

 

 

$

20.85

 

Vested

 

(14,499

)

 

$

27.37

 

Forfeited

 

 

 

 

 

Non-vested restricted stock units outstanding September 30, 2015

 

41,686

 

 

$

26.22

 

 

10


Performance Unit Awards — In 2011, 2012, 2013, 2014 and 2015, the Company granted stock-settled performance unit awards to certain executive officers (the “Stock-Settled Performance Units”). The Stock-Settled Performance Units provide for the recipients to receive a grant of shares of stock upon the achievement of certain performance goals established by the Compensation Committee during the performance period. The performance units will only have a payout if total shareholder return is positive for the performance period and, when compared to the peer group, is at or above the 25th percentile. The performance period for the Stock-Settled Performance Units is the three year period commencing on April 1 of the year of grant. For the 2012 and 2013 Stock-Settled Performance Units, the performance period can extend for an additional two years in certain circumstances. The performance goals for the Stock-Settled Performance Units are tied to the Company’s total shareholder return for the performance period as compared to total shareholder return for a peer group determined by the Compensation Committee. These goals are considered to be market conditions under the relevant accounting standards and the market conditions were factored into the determination of the fair value of the performance units. Generally, the recipients will receive a target number of shares if the Company’s total shareholder return is positive and, when compared to the peer group, is at the 50th percentile and two times the target if at the 75th percentile or higher. If the Company’s total shareholder return is positive, and, when compared to the peer group, is at the 25th percentile, the recipients will only receive one-half of the target number of shares. The grant of shares when achievement is between the 25th and 75th percentile will be determined on a pro-rata basis. The target number of shares with respect to the 2012 Stock-Settled Performance Units was 192,000. The performance period for the 2012 Stock-Settled Performance Units ended on March 31, 2015, and the Company’s total shareholder return was at the 87th percentile. In April 2015, 384,000 shares were issued to settle the 2012 Stock-Settled Performance Units.

The total target number of shares with respect to the Stock-Settled Performance Units is set forth below:

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

 

2011

 

 

Performance

 

 

Performance

 

 

Performance

 

 

Performance

 

 

Performance

 

 

Unit Awards

 

 

Unit Awards

 

 

Unit Awards

 

 

Unit Awards

 

 

Unit Awards

 

Target number of shares

 

190,600

 

 

 

154,000

 

 

 

236,500

 

 

 

192,000

 

 

 

144,375

 

Because the performance units are stock-settled awards, they are accounted for as equity awards and measured at fair value on the date of grant using a Monte Carlo simulation model. The fair value of the Stock-Settled Performance Units is set forth below (in thousands):

 

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

 

2011

 

 

Performance

 

 

Performance

 

 

Performance

 

 

Performance

 

 

Performance

 

 

Unit Awards

 

 

Unit Awards

 

 

Unit Awards

 

 

Unit Awards

 

 

Unit Awards

 

Fair value at date of grant

$

4,052

 

 

$

5,388

 

 

$

5,564

 

 

$

3,065

 

 

$

5,569

 

 

These fair value amounts are charged to expense on a straight-line basis over the performance period. Compensation expense associated with the Stock-Settled Performance Units is shown below (in thousands):

 

 

2015

 

 

2014