Quarterly report pursuant to Section 13 or 15(d)

Equity-Based Compensation

v3.7.0.1
Equity-Based Compensation
6 Months Ended
Jun. 30, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Equity-Based Compensation
EQUITY-BASED COMPENSATION:
Stock Incentive Plans
On May 19, 2011, Quanta’s stockholders approved the 2011 Omnibus Equity Incentive Plan (the 2011 Plan). The 2011 Plan provides for the award of non-qualified stock options, incentive (qualified) stock options, stock appreciation rights, restricted stock, RSUs, stock bonus awards, performance compensation awards (including performance units and cash bonus awards) or any combination of the foregoing. The purpose of the 2011 Plan is to attract and retain key personnel and provide participants with additional performance incentives by increasing their proprietary interest in Quanta. Employees, directors, officers, consultants or advisors of Quanta or its affiliates are eligible to participate in the 2011 Plan, as are prospective employees, directors, officers, consultants or advisors of Quanta who have agreed to serve Quanta in those capacities. An aggregate of 11,750,000 shares of Quanta common stock may be issued pursuant to awards granted under the 2011 Plan. Quanta also has a Restricted Stock Unit Plan (the RSU Plan), pursuant to which RSUs may be awarded to certain employees and consultants of Quanta’s Canadian operations. The Quanta Services, Inc. 2007 Stock Incentive Plan (the 2007 Plan), which was adopted on May 24, 2007, and provided for awards of restricted stock, incentive stock options and non-qualified stock options to eligible employees, directors, and certain consultants and advisors terminated on May 24, 2017.
The 2011 Plan and the RSU Plan, together with certain plans assumed by Quanta in acquisitions, are referred to as the Plans.
Restricted Stock and RSUs to be Settled in Common Stock
During each of the three months ended June 30, 2017 and 2016, Quanta granted 0.1 million RSUs to be settled in common stock under the 2011 Plan with weighted average grant date fair values of $33.32 and $23.59. During the six months ended June 30, 2017 and 2016, Quanta granted 1.2 million and 1.8 million RSUs to be settled in common stock under the 2011 Plan with weighted average grant date fair values of $37.76 and $22.11. The grant date fair value for awards of restricted stock and RSUs to be settled in common stock is based on the market value of Quanta common stock on the date of grant. RSUs to be settled in common stock are subject to forfeiture, restrictions on transfer and certain other conditions until vesting, which generally occurs in equal installments over a two-year or three-year period following the date of grant. Holders of RSUs to be settled in common stock are entitled to receive a cash dividend equivalent payment equal to any cash dividend payable on account of common shares.
During each of the three months ended June 30, 2017 and 2016, vesting activity consisted of 0.1 million shares of restricted stock and RSUs settled in common stock with an approximate fair value at the time of vesting of $3.8 million and $1.1 million. During the six months ended June 30, 2017 and 2016, vesting activity consisted of 1.4 million and 1.3 million shares of restricted stock and RSUs settled in common stock with an approximate fair value at the time of vesting of $54.3 million and $26.4 million.
During the three months ended June 30, 2017 and 2016, Quanta recognized $10.1 million and $8.5 million in non-cash stock compensation expense related to restricted stock and RSUs to be settled in common stock. During the six months ended June 30, 2017 and 2016, Quanta recognized $21.3 million and $21.7 million in non-cash stock compensation expense related to restricted stock and RSUs to be settled in common stock. As of June 30, 2017, there was $49.2 million of total unrecognized compensation cost related to unvested RSUs to be settled in common stock granted to both employees and non-employees. This cost is expected to be recognized over a weighted average period of 1.89 years.
Performance Units to be Settled in Common Stock
Performance units awarded pursuant to the 2011 Plan provide for the issuance of shares of common stock upon vesting. These performance units cliff-vest at the end of a three-year performance period based on achievement of certain performance metrics established by Quanta’s compensation committee, including company performance goals and, with respect to certain awards, Quanta’s total shareholder return as compared to a predetermined group of peer companies. The final number of earned and vested performance units can range from 0% to 200% of the initial award based on the level of achievement of such goals, as determined by Quanta’s compensation committee.
During the three months ended June 30, 2017 and 2016, Quanta granted a nominal number and 0.1 million performance units to be settled in common stock under the 2011 Plan. The weighted average grant date fair value of performance units granted in the three months ended June 30, 2016 was $24.11 per unit. During each of the six months ended June 30, 2017 and 2016, Quanta granted 0.3 million performance units to be settled in common stock under the 2011 Plan with a weighted average grant date fair value of $17.63 and $22.86 per unit. The grant date fair value for awards of performance units without market-based metrics was based on the market value of Quanta common stock on the date of grant applied to the total number of performance units that Quanta anticipates will vest. The grant date fair value for awards of performance units with market-based metrics, which were granted in the six months ended June 30, 2017, was based on a fair value as determined by a Monte Carlo simulation using the following key inputs:
Valuation date stock price based on the March 22, 2017 closing stock price
$36.31
Expected volatility
36.00
%
Risk-free interest rate
1.46
%
Term in years
2.78


This fair value is expensed ratably over the three-year performance period and is adjusted for changes in the expected probability of achievement of the underlying goals and the resulting number of performance units anticipated to vest, so that the expense recognized is equivalent to the proportion of the three-year period that has expired multiplied by the fair value of the number of performance units anticipated to vest. During the three months ended June 30, 2017 and 2016, Quanta recognized $1.4 million and $1.0 million in compensation expense associated with performance units to be settled in common stock. During the six months ended June 30, 2017 and 2016, Quanta recognized $2.1 million and $1.5 million in compensation expense associated with performance units to be settled in common stock. During the three months ended June 30, 2017 and 2016, no performance units vested, and no shares of common stock were issued in connection with performance units. During the six months ended June 30, 2017 and 2016, 0.1 million and no performance units vested, and 0.1 million and no shares of common stock were issued in connection with performance units. The fair value of the 0.1 million performance units that vested during the six months ended June 30, 2017 was $4.3 million at the time of vesting
RSUs to be Settled in Cash
Certain RSUs granted by Quanta under the Plans are settled solely in cash. These cash-settled RSUs are intended to provide plan participants with cash performance incentives that are substantially equivalent to the risks and rewards of equity ownership in Quanta, typically vest in equal installments over a two-year or three-year period following the date of grant, and are subject to forfeiture under certain conditions, primarily termination of service. Additionally, subject to certain restrictions, Quanta’s non-employee directors may elect to cash settle a portion of their RSU awards, which generally vest upon conclusion of the director service year. For all RSUs settled in cash, the holders receive for each vested RSU an amount in cash equal to the fair market value of one share of Quanta common stock on the settlement date, as specified in the applicable award agreement.
Compensation expense related to RSUs to be settled in cash was $1.2 million and $1.4 million for the three months ended June 30, 2017 and 2016 and $3.9 million and $2.9 million for the six months ended June 30, 2017 and 2016. Such expense is recorded in selling, general and administrative expenses. RSUs that are anticipated to be settled in cash are not included in the calculation of earnings per share, and the estimated earned value of such RSUs is classified as a liability. Quanta paid $3.8 million and $2.4 million to settle liabilities related to cash-settled RSUs in the three months ended June 30, 2017 and 2016 and $6.1 million and $3.4 million to settle liabilities related to cash-settled RSUs in the six months ended June 30, 2017 and 2016. Accrued liabilities for the estimated earned value of outstanding RSUs to be settled in cash were $2.9 million and $5.1 million at June 30, 2017 and December 31, 2016.