Share-Based Compensation

Share-Based Compensation Plans

We have multiple share-based compensation plans with outstanding awards including the 2005 Stock Compensation Plan, most recently amended by our Board of Directors in May 2013, which 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; the 1990 Non-Qualified Stock Option Plan solely for our independent directors. No further 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 stock option awards remain outstanding under the plans and are accordingly included in the tables below. In addition, we have an employee stock purchase plan and an employee stock ownership plan. We follow guidance contained in FASB ASC 718 to account for share-based compensation.

Under the 2005 plan, stock option awards 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 option awards and other equity based awards were granted to employees. Under the 1990 non-qualified plan, non-employee members of our Board of Directors were automatically granted stock option awards to purchase shares of common stock on a formula basis. All three plans provide that the exercise prices for stock option awards equal 100% of the fair value of the common stock on the date of grant. Restricted stock grants become vested over a three year period, and stock option awards become exercisable in various terms ranging from one year to five years. Stock option awards 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 option awards are exercised, the cash received is credited to common stock and additional paid-in capital. The 2005 plan allows for the use of a “stock swap” in lieu of a cash exercise for stock option awards, 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.” Stock option awards issued under a “stock swap” also previously included a reload feature that was discontinued during 2012. There were no mature shares that were delivered in “stock swap” transactions during 2014 while there were 10,752 and 20,692 for the years ended December 31, 2013 and 2012, respectively.

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. To date, employees have been allowed to authorize payroll deductions of up to 10% of their base salary, within IRS limitations and plan rules, 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. Under this plan for the last three years, we have issued 71,825 shares at a price of $11.47 in 2014, 72,273 shares at a price of $13.08 in 2013 and 42,624 shares at a price of $25.26 in 2012. The contributions for the years ended December 31, 2014, 2013 and 2012 were all made in common stock. As of December 31, 2014, 318,027 shares remained available for issuance under this plan.

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 financing cash flows. We recognized an excess tax shortfall for the years ended December 31, 2014 and 2013, as referenced in Note 3 of these consolidated financial statements. We did not recognize any material excess tax benefit or shortfall in earnings for the year ended December 31, 2012.

There were no stock option exercises for the year ended December 31, 2014. Net cash proceeds from the exercise of stock option awards were not material for the year ended December 31, 2013 and were $0.6 million for the year ended December 31, 2012. The actual income tax benefit from stock option exercises was $0.3 million for the year ended December 31, 2012.

Share-based compensation expense awards to both employees and non-employees, which was recorded in “General and administrative, net” in the accompanying consolidated statements of operations, was $6.7 million, $9.3 million and $12.9 million for the years ended December 31, 2014, 2013 and 2012, respectively. Share-based compensation recorded in lease operating cost was $0.2 million for the year ended December 31, 2014 and $0.3 million for the years ended December 31, 2013 and 2012, respectively. We also capitalized $3.5 million, $5.5 million and $5.2 million of share-based compensation for the years ended December 31, 2014, 2013 and 2012, respectively. We view stock option awards and restricted stock awards with graded vesting as single awards with an expected life equal to the average expected life of component awards and amortize the awards on a straight-line basis over the life of the awards.

Our shares available for future grant under our Share-Based Compensation plans were 1,814,928 at December 31, 2014. Each stock option award granted reduces the aforementioned total by 1.0 share, while each restricted stock award and restricted stock unit granted reduces the shares available for future grant by 1.44 shares.

Stock Option Awards

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 stock option awards issued during the indicated periods:



	Twelve Months Ended December 31,
	2012
Dividend yield	0%
Expected volatility	61.2%
Risk-free interest rate	0.8%
Expected life of stock option awards (in years)	4.3
Weighted-average grant-date fair value	$15.71

During the years ended December 31, 2014 and 2013, we did not grant any stock option awards. 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 5.5 year look-back period to estimate expected volatility of our stock option awards.

At December 31, 2014, we had $0.1 million of unrecognized compensation cost related to stock option awards, which is expected to be recognized over a weighted-average period of 0.1 years. The following table represents stock option award activity for the year ended December 31, 2014:



	2014
	Shares		Wtd. Avg. Exer. Price

Options outstanding, beginning of period	1,488,314		$	33.38
Options granted	—		$	—
Options canceled	(156,124	)	$	27.68
Options exercised	—		$	—
Options outstanding, end of period	1,332,190		$	34.02
Options exercisable, end of period	1,230,019		$	34.14

Our outstanding and exercisable stock option awards at December 31, 2014 had no intrinsic value since all outstanding stock option awards were out of the money. The weighted average remaining contract life of stock option awards outstanding and exercisable at December 31, 2014 was 4.7 years and 4.5 years, respectively. The total intrinsic value of stock option awards exercised for the years ended December 31, 2014 and 2013 was not material and was $0.9 million for the year ended December 31, 2012.

The following table summarizes information about stock option awards outstanding at December 31, 2014:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding at 12/31/14	Wtd. Avg. Remaining Contractual Life	Wtd. Avg. Exercise Price		Number Exercisable at 12/31/14	Wtd. Avg. Exercise Price
$8.00 to $24.99	380,080	4.6	$	19.91	380,080	$	19.91
$25.00 to $45.00	952,110	4.8	$	39.66	849,939	$	40.50
$8.00 to $45.00	1,332,190	4.7	$	34.02	1,230,019	$	34.14

Restricted Stock Awards

For the years ended December 31, 2014, 2013 and 2012, the Company issued 747,400, 869,430 and 543,800 shares, respectively, of restricted stock to employees, consultants, and directors. These shares vest over three years and remain subject to forfeiture if vesting conditions are not met. The weighted average fair values of these shares when issued, for the years ended December 31, 2014, 2013 and 2012 were $11.55, $14.86 and $31.12 per share, respectively.

The compensation expense for these awards was determined based on the closing 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, 2014, we had unrecognized compensation expense of $9.6 million related to restricted stock awards which is expected to be recognized over a weighted-average period of 1.5 years. The grant date fair values of shares vested for the years ended December 31, 2014, 2013 and 2012 were $11.8 million, $12.8 million and $10.0 million, respectively.

The following table represents restricted stock award activity for the year ended December 31, 2014:



	2014
	Shares		Wtd. Avg. Grant Price
Restricted shares outstanding, beginning of period	1,267,110		$	21.54
Restricted shares granted	747,400		$	11.55
Restricted shares canceled	(208,206	)	$	15.30
Restricted shares vested	(392,292	)	$	30.09
Restricted shares outstanding, end of period	1,414,012		$	14.81

Performance-Based Restricted Stock Units

For the years ended December 31, 2014 and 2013, the Company granted 185,250 and 189,700 of performance-based restricted stock units, respectively. These units contained predetermined market and performance conditions set by our compensation committee with a performance period of 3 years and a cliff vesting period of 3.1 years. The Target payout is 100% of the units granted while the conditions of the grants allow for a payout ranging between no payout and 200% of target.

The compensation expense for the market condition is based on the per unit grant date valuation using a Monte-Carlo simulation. The performance condition is remeasured quarterly and compensation expense is recorded based on the closing market price of our stock per unit on the grant date multiplied by the expected payout level. The payout level is calculated based on actual performance achieved during the performance period compared to a defined peer group.

As of December 31, 2014, we had unrecognized compensation expense of $2.2 million related to our restricted stock units which is expected to be recognized over a weighted-average period of 1.8 years. No shares vested during the years ended December 31, 2014 and 2013. The weighted average grant date fair value for the restricted stock units granted during the years ended December 31, 2014 and 2013 was $11.68 and $15.01 per unit, respectively.

The following table represents restricted stock unit activity for the year ended December 31, 2014:



	Shares	Wtd. Avg. Grant Price
Restricted stock units outstanding, beginning of period	189,700	$	15.01
Restricted stock units granted	185,250	$	11.68
Restricted stock units canceled	—	$	—
Restricted stock units vested	—	$	—
Restricted stock units outstanding, end of period	374,950	$	13.36

Employee Stock Ownership Plan

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 three-year cliff vesting requirement. The ESOP is designed to enable our employees to accumulate stock ownership. While employees do not contribute to the plan, contributions made by Swift energy provide participants with an allocation of stock within the plan. 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. No contributions will be made by Swift Energy for the year ended December 31, 2014. Our contribution to the ESOP plan totaled $0.2 million for the years ended December 31, 2013 and 2012, were all made in common stock, from treasury shares, and are recorded as “General and administrative, net” on the accompanying consolidated statements of operations. The shares of common stock contributed to the ESOP plan, from treasury shares, totaled 14,815 and 12,995 for the years ended December 31, 2013 and 2012, respectively.

Employee Savings Plan

We have a savings plan under Section 401(k) of the Internal Revenue Code. In 2013 this plan was updated so that eligible employees may make voluntary contributions into the 401(k) savings plan with Swift Energy contributing on behalf of the eligible employee an amount equal to 100% of the first 6% of compensation based on the contributions made by the eligible employees. Our contributions to the 401(k) savings plan were $1.8 million for the years ended December 31, 2014 and 2013, respectively, and were $1.5 million for the year ended December 31, 2012. These amounts were recorded as “General and administrative, net” on the accompanying consolidated statements of operations. The 2014 plan contributions were made with a combination of $0.9 million of cash and 352,476 shares of common stock, from treasury shares, while the 2013 and 2012 plan contributions were all made in common stock, from treasury shares. The shares of common stock contributed to the 401(k) savings plan totaled 139,850 and 91,895 for the years ended December 31, 2013 and 2012, respectively.