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STOCK-BASED COMPENSATION
 6 Months Ended
Jun. 30, 2012
STOCK-BASED COMPENSATION  
STOCK-BASED COMPENSATION

12.  STOCK-BASED COMPENSATION

 

Stock Incentive Plan

 

In August 2007, we adopted the Exterran Holdings, Inc. 2007 Stock Incentive Plan (as amended and restated, the “2007 Plan”) that provides for the granting of stock-based awards in the form of options, restricted stock, restricted stock units, stock appreciation rights and performance awards to our employees and directors. In May 2011, our stockholders approved an amendment to the 2007 Plan that increased the aggregate number of shares of common stock that may be issued under the 2007 Plan to 12,500,000 from 9,750,000. Each option and stock appreciation right granted counts as one share against the aggregate share limit, and each share of restricted stock and restricted stock unit granted counts as two shares against the aggregate share limit. Awards granted under the 2007 Plan that are subsequently cancelled, terminated or forfeited are available for future grant, and awards that are granted as cash settled awards are not counted against the aggregate share limit.

 

Stock Options

 

Under the 2007 Plan, stock options are granted at fair market value at the date of grant, are exercisable in accordance with the vesting schedule established by the compensation committee of our board of directors in its sole discretion and expire no later than seven years after the date of grant. Options generally vest 33 1/3% on each of the first three anniversaries of the grant date.

 

The weighted average fair value at date of grant for options granted during the six months ended June 30, 2012 was $5.74, and was estimated using the Black-Scholes option valuation model with the following weighted average assumptions:

 

 

 

Six Months
Ended
June 30, 2012

 

Expected life in years

 

4.5

 

Risk-free interest rate

 

0.78

%

Volatility

 

47.96

%

Dividend yield

 

0.0

%

 

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for a period commensurate with the estimated expected life of the stock options. Expected volatility is based on the historical volatility of our stock over the period commensurate with the expected life of the stock options and other factors. We have not historically paid a dividend and do not expect to pay a dividend during the expected life of the stock options.

 

The following table presents stock option activity for the six months ended June 30, 2012 (in thousands, except per share data and remaining life in years):

 

 

 

Stock
Options

 

Weighted
Average
Exercise Price

 

Weighted
Average
Remaining
Life

 

Aggregate
Intrinsic
Value

 

Options outstanding, December 31, 2011

 

3,271

 

$

27.39

 

 

 

 

 

Granted

 

153

 

14.36

 

 

 

 

 

Cancelled

 

(603

)

25.56

 

 

 

 

 

Options outstanding, June 30, 2012

 

2,821

 

27.07

 

4.9

 

$

1,395

 

Options exercisable, June 30, 2012

 

1,865

 

33.51

 

3.4

 

—

 

 

Intrinsic value is the difference between the market value of our stock and the exercise price of each option multiplied by the number of options outstanding for those options where the market value exceeds their exercise price. As of June 30, 2012, $3.8 million of unrecognized compensation cost related to unvested stock options is expected to be recognized over the weighted-average period of 2.2 years.

 

Restricted Stock, Restricted Stock Units and Cash Settled Restricted Stock Units

 

For grants of restricted stock and restricted stock units, we recognize compensation expense over the vesting period equal to the fair value of our common stock at the date of grant. For grants of cash settled restricted stock units, we re-measure the fair value of these cash settled restricted stock units and record a cumulative adjustment of the expense previously recognized. Our obligation related to the cash settled restricted stock units is reflected as a liability in our condensed consolidated balance sheets. Our restricted stock, restricted stock unit and cash settled restricted stock unit grants generally vest 33 1/3% on each of the first three anniversaries of the grant date.

 

The following table presents restricted stock, restricted stock unit and cash settled restricted stock unit activity for the six months ended June 30, 2012 (in thousands, except per share data):

 

 

 

Shares

 

Weighted
Average
Grant-Date
Fair Value
Per Share

 

Non-vested awards, December 31, 2011

 

1,670

 

$

19.49

 

Granted

 

1,216

 

14.31

 

Vested

 

(632

)

20.56

 

Cancelled

 

(83

)

21.21

 

Non-vested awards, June 30, 2012

 

2,171

 

16.21

 

 

As of June 30, 2012, $27.4 million of unrecognized compensation cost related to unvested restricted stock, restricted stock units and cash settled restricted stock units is expected to be recognized over the weighted-average period of 2.2 years.

 

Our compensation committee’s general practice has been to grant equity-based awards once a year.  While typically these awards have been made in late February or early March after fourth quarter earnings information for the prior year has been released for at least two full trading days, it is possible that the compensation committee may make equity awards at other, or additional, times during the year. The schedule for making equity-based awards is typically established several months in advance, and is not set based on knowledge of material nonpublic information or in response to our stock price. This practice results in awards being granted on a regular, predictable cycle, after annual earnings information has been disseminated to the marketplace. Equity-based awards are occasionally granted at other times during the year, such as upon the hiring of a new employee or following the promotion of an employee. In some instances, the compensation committee may be aware, at the time grants are made, of matters or potential developments that are not ripe for public disclosure at that time but that may result in public announcement of material information at a later date. In March 2012, the compensation committee of our board of directors authorized annual long-term incentive awards of stock options, restricted stock, restricted stock units, cash settled restricted stock units and cash settled performance awards to our executive officers, other employees and non-employee directors.

 

Employee Stock Purchase Plan

 

In August 2007, we adopted the Exterran Holdings, Inc. Employee Stock Purchase Plan (“ESPP”), which is intended to provide employees with an opportunity to participate in our long-term performance and success through the purchase of shares of common stock at a price that may be less than fair market value. The ESPP is designed to comply with Section 423 of the Internal Revenue Code of 1986, as amended. Each quarter, an eligible employee may elect to withhold a portion of his or her salary up to the lesser of $25,000 per year or 10% of his or her eligible pay to purchase shares of our common stock at a price equal to 85% to 100% of the fair market value of the stock as of the first trading day of the quarter, the last trading day of the quarter or the lower of the first trading day of the quarter and the last trading day of the quarter, as the compensation committee of our board of directors may determine. The ESPP will terminate on the date that all shares of common stock authorized for sale under the ESPP have been purchased, unless it is extended. In May 2011, our stockholders approved an amendment to the ESPP that increased the aggregate number of shares of common stock available for purchase under the ESPP to 1,000,000. At June 30, 2012, 393,696 shares remained available for purchase under the ESPP. Our ESPP is compensatory and, as a result, we record an expense on our condensed consolidated statements of operations related to the ESPP. Since July 2009, the purchase discount under the ESPP has been 5% of the fair market value of our common stock on the first trading day of the quarter or the last trading day of the quarter, whichever is lower.

 

Partnership Long-Term Incentive Plan

 

The Partnership has a long-term incentive plan that was adopted by Exterran GP LLC, the general partner of the Partnership’s general partner, in October 2006 for employees, directors and consultants of the Partnership, us or our respective affiliates. The long-term incentive plan currently permits the grant of awards covering an aggregate of 1,035,378 common units, common unit options, restricted units and phantom units. The long-term incentive plan is administered by the board of directors of Exterran GP LLC or a committee thereof (the “Plan Administrator”).

 

Phantom units are notional units that entitle the grantee to receive a common unit upon the vesting of the phantom unit or, at the discretion of the Plan Administrator, cash equal to the fair value of a common unit.

 

Partnership Phantom Units

 

The following table presents phantom unit activity for the six months ended June 30, 2012:

 

 

 

Phantom
Units

 

Weighted
Average
Grant-Date
Fair Value
per Unit

 

Phantom units outstanding, December 31, 2011

 

75,267

 

$

21.45

 

Granted

 

22,340

 

23.38

 

Vested

 

(31,701

)

17.97

 

Cancelled

 

(771

)

28.50

 

Phantom units outstanding, June 30, 2012

 

65,135

 

23.72

 

 

As of June 30, 2012, $1.2 million of unrecognized compensation cost related to unvested phantom units is expected to be recognized over the weighted-average period of 2.2 years.