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6. Stockholders’ Equity
Stock-Based Compensation Plans.
We have three stock option plans that awards are currently granted under,
the 2005 Stock Compensation Plan, which was adopted by our Board of
Directors in March 2005 and was approved by shareholders at the 2005 annual
meeting of shareholders, the 2001 Omnibus Stock Compensation Plan, which was
adopted by our Board of Directors in February 2001 and was approved by
shareholders at the 2001 annual meeting of shareholders, and the 1990
Non-Qualified Stock Option Plan solely for our independent directors. No
further grants, other than stock option reload grants, will be made under
the 2001 Omnibus Stock Compensation Plan or the 1990 Non-Qualified Stock
Option Plan, both of which were replaced by the 2005 Stock Compensation
Plan, although options remain outstanding under both plans and are
accordingly included in the tables below. In addition, we have an employee
stock purchase plan and an employee stock ownership plan.
Under the 2005 plan, stock options and other equity based
awards may be granted to employees, directors, and consultants, with
directors only eligible to receive restricted awards. Under the 2001 plan,
stock options and other equity based awards may be granted to employees.
Under the 1990 non-qualified plan, non-employee members of our Board of
Directors were automatically granted options to purchase shares of common
stock on a formula basis. All three plans provide that the exercise prices
equal 100% of the fair value of the common stock on the date of grant.
Restricted stock grants become vested in various terms ranging from three
years to five years, stock options become exercisable in various terms
ranging from one year to five years. Options granted typically expire ten
years after the date of grant or earlier in the event of the optionee’s
separation from employment. At the time the stock options are exercised, the
cash received is credited to common stock and additional paid-in capital.
Options issued under these plans also include a reload feature where
additional options are granted at the then current market price when mature
shares of Swift Energy common stock are used to satisfy the exercise price
of an existing stock option grant. When Swift Energy common stock is used to
satisfy the exercise price, the net shares actually issued are reflected in
the accompanying Statement of Stockholders’ Equity (see note 1 to table
below). We view all awards of stock compensation as a single award with an
expected life equal to the average expected life of component awards and
amortize the award on a straight-line basis over the life of the award.
The employee stock purchase plan, which began in 1993,
provides eligible employees the opportunity to acquire shares of Swift
Energy common stock at a discount through payroll deductions. Through May
31, 2006, the prior plan year was from June 1 to the following May 31. A
transition period from June 1 to December 31 was used during the second half
of 2006 and a new plan year, from January 1 to December 31, began being used
in 2007. To date, employees have been allowed to authorize payroll
deductions of up to 10% of their base salary during the plan year by making
an election to participate prior to the start of a plan year. The purchase
price for stock acquired under the plan is 85% of the lower of the closing
price of our common stock as quoted on the New York Stock Exchange at the
beginning or end of the plan year (or a date during the year chosen by the
participant through the plan year, for plan years ending on or before May
31, 2006). Under this plan for the last three years, we have issued 17,678
shares at a price of $35.00 in 2007, 22,425 shares at a price range of
$29.84 to $32.80 in 2006, and 32,495 shares at a price range of $15.56 to
$18.12 in 2005. As of December 31, 2007, 58,721 shares remained available
for issuance under this plan.
As a result of adopting SFAS No. 123R on January 1, 2006,
our income from continuing operations before income taxes, income from
continuing operations, net income and basic and diluted earnings per share
for the year ended December 31, 2006, were $3.4 million, $2.8 million, $2.8
million, $0.09, and $0.09 lower, respectively. Upon adoption of SFAS 123R,
we recorded an immaterial cumulative effect of a change in accounting
principle as a result of our change in policy from recognizing forfeitures
as they occur to one recognizing expense based on our expectation of the
amount of awards that will vest over the requisite service period for our
restricted stock awards. This amount was recorded in "General and
Administrative, net" in the accompanying consolidated statements of income.
We receive a tax deduction for certain stock option
exercises during the period the options are exercised, generally for the
excess of the price at which the stock is sold over the exercise price of
the options. In addition, we receive an additional tax deduction when
restricted stock vests at a higher value than the value used to recognize
compensation expense at the date of grant. Prior to adoption of SFAS No.
123R, we reported all tax benefits resulting from the award of equity
instruments as operating cash flows in our consolidated statements of cash
flows. In accordance with SFAS No. 123R, we are required to report excess
tax benefits from the award of equity instruments as financing cash flows.
These benefits were $3.3 million for the year ended December 31, 2006. For
2007 an estimated excess benefit of $0.6 million has been realized and
credited to paid-in capital. Unrealized benefits of $1.2 million will not be
recognized until the period in which the related carryover tax assets are
realized.
Net cash proceeds from the exercise of stock options were
$3.2 million and $11.8 million for the years ended December 31, 2007 and
2006. The actual income tax benefit from stock option exercises was $1.9
million and $4.8 million for the same periods.
Stock compensation expense for both stock options and
restricted stock issued to both employees and non-employees is recorded in
"General and Administrative, net" in the accompanying consolidated
statements of income, and was $9.4 million, $6.3 million, and $1.5 million
for the years ended December 31, 2007, 2006, and 2005 respectively. We also
capitalized $4.2 million, $3.4 million, and $1.0 million of stock
compensation in 2006, 2005, and 2004, respectively.
Our shares available for future grant under our stock
compensation plans were 714,103 at December 31, 2007. Each stock option
granted reduces the aforementioned total by one share, while each restricted
stock grant reduces the shares available for future grant by 1.44 shares.
Stock Options. We
use the Black-Scholes-Merton option pricing model to estimate the fair value
of stock option awards with the following weighted-average assumptions for
the indicated periods.
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Years
Ended December 31,
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|
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2007
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2006
|
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2005
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|
|
|
|
|
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Dividend
yield
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0%
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0%
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0%
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Expected
volatility
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38.5%
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39.3%
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41.6%
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Risk-free
interest rate
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4.7%
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4.8%
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|
3.8%
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Expected
life of options (in years)
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6.0
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4.8
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3.9
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Weighted-average
grant-date fair value
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$19.61
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$18.03
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$12.84
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The expected term has been calculated using the
Securities and Exchange Commission Staff’s shortcut approach from Staff
Accounting Bulletin No. 107. We have analyzed historical volatility and
based on an analysis of all relevant factors use a three-year period to
estimate expected volatility of our stock option grants.
At December 31, 2007, $2.9 million of unrecognized
compensation cost related to stock options is expected to be recognized over
a weighted-average period of 1.5 years.
The following table represents stock option activity for
the years ended December 31, 2007, 2006 and 2005:
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2007
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2006
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2005
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Shares
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Wtd
Avg. Exer. Price
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|
Shares
|
|
Wtd,
Avg. Exer. Price
|
|
Shares
|
|
Wtd.
Avg. Exer. Price
|
|
|
|
|
|
|
|
|
|
|
|
|
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Options
outstanding, beginning of period
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1,549,140
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$24.59
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2,118,179
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$21.28
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2,998,668
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$18.51
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Options
granted
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201,691
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$43.40
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234,110
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$45.73
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176,262
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$35.17
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Options
canceled
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(41,800)
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$37.15
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(51,739)
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$22.25
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(45,142)
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$18.94
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Options
exercised1
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(259,791)
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$18.13
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(751,410)
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$22.02
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(1,011,609)
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$9.78
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Options
outstanding, end of period
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1,449,240
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$28.47
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1,549,140
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$24.59
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2,118,179
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$21.28
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Options
exercisable, end of period
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967,429
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$25.70
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884,876
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$22.60
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1,085,509
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$20.98
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(1) The plans allow for the
use of a “stock swap” in lieu of a cash exercise for options, under
certain circumstances. The delivery of Swift Energy common stock,
held by the optionee for
a minimum of six months, which are considered mature shares, with a
fair market value equal to the required purchase price of the shares
to which the exercise relates, constitutes a valid “stock swap.”
Options issued under a “stock swap” also include a reload feature
where additional options are granted at the then current market
price when mature shares of Swift stock are used to satisfy the
exercise price of an existing stock option grant. The terms of the
plans provide that the mature shares delivered, as full or partial
payment in a “stock swap”, shall again be available for awards under
the plans. In 2007, 2006 and 2005 respectively, 19,191, 98,581 and
170,762 mature shares were delivered in “stock swap” transactions,
which resulted in the issuance of an equal number of reload option
grants.
The aggregate intrinsic value and weighted average
remaining contract life of options outstanding and exercisable at December
31, 2007 was $23.2 million and 5.2 years and $18.3 million and 4.1 years,
respectively. The total intrinsic value of options exercised during the year
ended December 31, 2007 was $6.1 million.
The following table summarizes information about stock
options outstanding at December 31, 2007:
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Range
of Exercise Prices
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Number
Outstanding at 12/31/07
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Wtd.
Avg. Remaining Contractual Life
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|
Wtd.
Avg. Exercise Price
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Number
Exercisable at 12/31/07
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Wtd.
Avg. Exercise Price
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$ 6.00 to $20.99
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503,471
|
|
|
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$13.64
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401,371
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$13.35
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$21.00 to $35.99
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473,870
|
|
|
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$28.14
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382,790
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|
$28.88
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$36.00 to $52.00
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471,899
|
|
|
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$44.62
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183,268
|
|
$46.08
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|
$ 6.00 to $52.00
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1,449,240
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$28.47
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967,429
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$25.70
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Restricted Stock.
In 2007, 2006 and 2005, the Company issued 329,290, 324,640 and 158,500
shares, respectively, of restricted stock to employees, consultants, and
directors. These shares vest over a three-year to five-year period and
remain subject to forfeiture if vesting conditions are not met. The fair
value of these shares when issued was approximately $43 per share in
2007 and 2006 and $38 per share in 2005.
The compensation expense for these awards was
determined based on the market price of our stock at the date of grant
applied to the total number of shares that were anticipated to fully
vest. As of December 31, 2007, we have unrecognized compensation expense
of approximately $16.2 million associated with these awards which are
expected to be recognized over a weighted-average period of 1.6 years.
The total fair value of shares vested during the year ended December 31,
2007 was $7.5 million.
The following is a summary of our restricted stock
issued to employees, consultants, and directors under these plans as of
December 31, 2007, 2006, and 2005:
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Shares
|
|
Wtd.
Avg. Grant Price
|
|
Shares
|
|
Wtd.
Avg.Grant Price
|
|
Shares
|
|
Wtd.
Avg. Grant Price
|
|
|
|
|
|
|
|
|
|
|
|
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Restricted
shares outstanding, beginning
of period
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503,184
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$40.04
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236,950
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$34.79
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100,900
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|
$23.92
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Restricted
shares granted
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329,290
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$43.17
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324,640
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$43.21
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158,500
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$38.31
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Restricted
shares canceled
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(47,595)
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$39.63
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(22,630)
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$38.01
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(7,450)
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$39.03
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Restricted
shares vested
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(188,289)
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$40.05
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(35,776)
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$24.57
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(15,000)
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|
$---
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Restricted
shares outstanding, end of period
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596,590
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$41.60
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503,184
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$40.04
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236,950
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$34.79
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Employee Stock Ownership Plan.
In 1996, we established an Employee Stock Ownership Plan ("ESOP") effective
January 1, 1996. All employees over the age of 21 with one year of service
are participants. This plan has a five-year cliff vesting. The ESOP is
designed to enable our employees to accumulate stock ownership. While there
will be no employee contributions, participants will receive an allocation
of stock that has been contributed by Swift Energy. Compensation expense is
recognized upon vesting when such shares are released to employees. The plan
may also acquire Swift Energy common stock, purchased at fair market value.
The ESOP can borrow money from Swift Energy to buy Swift Energy common
stock. ESOP payouts will be paid in a lump sum or installments, and the
participants generally have the choice of receiving cash or stock. At
December 31, 2007, 2006, and 2005, all of the ESOP compensation was earned.
Our contribution to the ESOP plan totaled $0.4 million for the years ended
December 31, 2007 and 2006 and $0.2 million for the year ended December 31,
2005, and were made all in common stock, and are recorded as "General and
administrative, net" on the accompanying consolidated statements of income.
The shares of common stock contributed to the ESOP plan totaled 9,218,
8,927, and 4,438 shares for the 2007, 2006, and 2005 contributions,
respectively.
Employee Savings Plan.
We have a savings plan under Section
401(k) of the Internal Revenue Code. Eligible employees may make voluntary
contributions into the 401(k) savings plan with Swift contributing on behalf
of the eligible employee an amount equal to 100% of the first 2% of
compensation and 75% of the next 4% of compensation based on the
contributions made by the eligible employees. Our contributions to the
401(k) savings plan were $1.3 million for 2007, $1.0 million for 2006, and
$0.8 million for 2005, and are recorded as "General and administrative, net"
on the accompanying consolidated statements of income. The contributions in
2007, 2006, and 2005 were made all in common stock. The shares of common
stock contributed to the 401(k) savings plan totaled 29,934, 23,890, and
17,920 shares for the 2007, 2006, and 2005 contributions, respectively.
Treasury Shares.
In March 1997, our Board of Directors approved a common stock repurchase
program that terminated as of June 30, 1999. Under this program, we spent
approximately $13.3 million to acquire 927,774 shares in the open market at
an average cost of $14.34 per share. At December 31, 2007, 436,414 shares
remain in treasury (net of 533,505 shares used to fund the ESOP, 401(k)
contributions and acquisitions) with a total cost of $7.5 million and are
included in "Treasury stock held, at cost" on the accompanying consolidated
balance sheets.
Shareholder Rights Plan.
Our Rights Agreement was initially
adopted by the Board of Directors in 1997 for a ten year term. The Board of
Directors renewed and extended the Rights Agreement for an additional ten
year term from December 21, 2006. Pursuant to the Rights Agreement as
amended, for each share of Swift Energy common stock a holder has the right
to purchase one one-thousandth of a share of Swift Energy preferred stock
for $250 upon the occurrence of certain events triggered when a person or
entity purchases 15% or more beneficial ownership of Swift Energy’s
outstanding common stock. The rights are not exercisable by such 15% or more
beneficial owner.
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