Stock-Based Compensation |
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| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-Based Compensation |
22. Stock-Based Compensation:
Eco Services Class B Units
Prior to the Business Combination, the Company recognized stock-based compensation expense for incentive awards issued under the Eco Services Group Holdings Incentive Unit Agreement dated December 29, 2014 (the “Incentive Unit Agreement”). Under the Incentive Unit Agreement, the Company granted Eco Services Class B Units to certain employees, directors and affiliates of the Company. As of December 31, 2015 and immediately prior to the date of the Business Combination on May 4, 2016, there were 25,093 of Eco Services Class B Units outstanding with an exercise price of $1,000/unit.
Of this total, 10,674 Eco Services Class B Units granted to employees (the “Management Awards”) had two vesting criteria, in which 50% were subject to a service (time-based) vesting condition and 50% were subject to a performance condition based upon the occurrence of specific liquidity events. The Eco Services Class B Units subject to the service condition vested 25% annually, with the first annual vesting date of December 1, 2015. The remaining 14,419 of Eco Services Class B Units awarded to directors and affiliates (the “Director Awards”) were subject to a service vesting condition only, consistent with that of the Management Awards. The Eco Services Class B Units did not have a contractually defined maximum term.
PQ Group Holdings Awards
In conjunction with the Business Combination, the Company adopted an equity incentive plan, namely the PQ Group Holdings Inc. Stock Incentive Plan (“2016 Plan”). Under the terms of the 2016 Plan, the Company is authorized to issue a total of 8,017,038 shares for common stock awards to employees, directors and affiliates of the Company. Immediately preceding the IPO as of September 30, 2017, awards with respect to 7,644,518 shares of common stock had been issued under the 2016 Plan. In connection with the IPO, the Company’s board of directors adopted the PQ Group Holdings Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”). Subsequent to the IPO, all equity incentive awards are granted under the 2017 Plan. The number of shares of common stock reserved for issuance under the 2017 Plan is 7,344,000 shares, which amount is increased by the 372,520 shares remaining available for grant under the 2016 Plan as of the 2017 Plan adoption. Shares that become available for issuance pursuant to the 2016 Plan as a result of forfeiture, cancellation or termination for no consideration will be available for future awards under the 2017 Plan. Shares underlying awards granted under the 2017 Plan that are forfeited, canceled, terminated for no consideration, settled in cash or are withheld for exercise, taxes, etc. will not be deemed as delivered and will also be available for future issuance under the 2017 Plan. At December 31, 2018, 5,396,119 shares of common stock were available for issuance under the 2017 Plan.
Stock Options
As part of the Business Combination, the 25,093 of outstanding Eco Services Class B Units at the date of the Business Combination were canceled and replaced with 1,378,302 of options to purchase PQ Group Holdings common stock at an exercise price of $8.04/share. The Eco Services Class B Units were replaced by common stock options in accordance with a formula to convert such awards, plus a vested cash component. The terms of the new awards were substantially identical to those in effect prior to the Business Combination, except for adjustments to the underlying number of shares (based on the conversion ratio) and the exercise price, which was based on PQ Group Holdings common stock. Additionally, although the Eco Services Class B Units did not have a contractually defined maximum term, the maximum term of the common stock options is ten years.
The Company accounted for the cancellation and replacement (including a cash component) as a combination of a modification and a cash settlement. This resulted in no incremental compensation cost recognized at the time of the modification, but led to an acceleration of $1,174 of previously measured but unrecognized compensation cost.
In addition to the Eco Services Class B Units that were canceled and replaced at the time of the Business Combination, the Company exchanged the outstanding option awards of PQ Holdings for options of PQ Group Holdings in connection with the merger. The terms of the PQ Group Holdings awards were substantially identical to those of the PQ Holdings awards, including the number of underlying shares and vesting conditions, with the exception of an exercise price of $8.04/share for the common stock options. There are various vesting conditions associated with the exchanged awards, including satisfaction of certain service and performance based conditions.
Beginning with the date of the Business Combination of May 4, 2016 through the Company’s IPO, the Company granted common stock options with either service or performance vesting conditions, all with a maximum contractual term of ten years. Starting on October 2, 2017 in connection with the Company’s IPO and subsequent to this date, the Company’s stock option grants have been subject to graded vesting conditions based on service and a maximum contractual term of ten years.
The following table summarizes the activity of common stock options for the period from the date of the Business Combination of May 4, 2016 through the year ended December 31, 2018, which includes both the Eco Services Class B Units that were canceled and replaced, as well as the PQ Holdings options that were exchanged as part of the Business Combination:
The aggregate intrinsic value per the above table represents the difference between the fair value the Company’s common stock on the last trading day of the reporting period (determined in accordance with the plan terms) and the exercise price of in-the-money stock options multiplied by the respective number of stock options as of that date. The total intrinsic value of stock options exercised during the years ended December 31, 2018 and 2017 and the resulting tax benefits recognized by the Company were not material for either year. Additionally, cash proceeds received by the Company during the year ended December 31, 2018 were not material. The Company did not receive any cash proceeds from the exercise of stock options during the year ended December 31, 2017, as the Company withheld shares in satisfaction of the exercise price and taxes due.
The fair values of PQ Group Holdings common stock options granted during the years ended December 31, 2018, 2017 and 2016 were determined on the respective grant dates using a Black-Scholes option pricing model with the following weighted-average assumptions:
With the limited experience of the Company with respect to historical exercise and forfeiture rates or patterns, the expected term for stock option grants in 2016 was estimated in the context of the service award vesting period as well as the timeframe for a liquidity event for the performance awards, along with the ten-year contractual maximum term, while the Company was still privately held. Beginning in 2017, the Company used the simplified method for plain vanilla stock options to estimate the expected term assumption, since the Company lacks sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term due to the limited period of time its common stock has been publicly traded. The application of the simplified method involves calculating the average of the time-to-vesting period and the total contractual life of the options.
The Company applied a consistent methodology for the remainder of the assumptions in the Black-Scholes option pricing model for stock option grants during the years ended December 31, 2018, 2017 and 2016. The expected volatility was compared to a range of the actual stock price volatility of a peer group of companies. The risk-free interest rate was based on U.S. Treasury rates in effect at the time of the grant commensurate with the expected term. There was no dividend yield assumption since the Company has not paid dividends nor does it have an expectation of future dividend payouts.
Restricted Stock Awards and Restricted Stock Units
In addition to the exchange of the PQ Holdings options at the date of the Business Combination on May 4, 2016, the Company also exchanged unvested PQ Holdings restricted stock awards for 2,444,070 shares of restricted stock awards of PQ Group Holdings. The restricted stock awards were issued at substantially identical terms to the original PQ Holdings awards, with the exception of a new price ascribed to the shares.
The restricted stock awards were subject to the same vesting requirements as the original awards, which included awards with vesting conditions based on (1) service only, (2) performance only, or (3) a combination of service and performance conditions, dependent on which event occurs first. The vesting requirements for the majority of these awards were based upon the achievement of a performance condition. As defined in the award agreements, each award subject to the performance condition fully vests upon the occurrence of a defined liquidity event upon which certain investment funds affiliated with CCMP receive proceeds exceeding certain thresholds. Although achievement of the performance condition is subject to continued service with the Company, the terms of awards issued with performance conditions stipulate that the performance vesting condition can be attained for a period of six months following separation from service. The same performance vesting condition for the Company’s restricted stock awards also governs the achievement of the performance vesting condition for the Company’s stock options. With the exception of 14,498 and 21,067 of restricted stock awards granted on December 27, 2018 and October 2, 2017, respectively, both of which immediately vested and were valued based on the average of the high and low trading prices of the Company’s common stock on the NYSE on the preceding trading day, based on the Company’s policy for valuing such awards, all of the Company’s restricted stock awards were granted prior to the IPO. As a result, the Company valued the pre-IPO restricted stock awards at grant using multiples of EBITDA and the income approach, based on a discounted free cash flow model.
In addition to restricted stock awards, the Company has granted restricted stock units as part of its equity incentive compensation program. The value of the restricted stock unit grants were based on the average of the high and low trading prices of the Company’s common stock on the NYSE on the preceding trading day, based on the Company’s policy for valuing such awards, and have graded vesting conditions based on service.
The following table summarizes the activity of restricted stock awards and restricted stock units for the period from the date of the Business Combination of May 4, 2016 through the year ended December 31, 2018, which includes the PQ Holdings restricted stock awards that were exchanged as part of the Business Combination:
Business Combination and Equity Restructuring
The exchange of the PQ Holdings stock options and restricted stock awards for similar awards of PQ Group Holdings in the context of the Business Combination was accounted for as a modification of the awards. As a result, the cost of the replacement awards of PQ Group Holdings represented a combination of both pre- and post-merger services. The amount attributable to services prior to the Business Combination in connection with the modification was $1,400, and is considered part of the consideration transferred in the Business Combination (see Note 7 to these consolidated financial statements for further information). The remainder of the cost is attributed to post-merger services and is being recognized over the respective remaining vesting periods.
The Company’s equity restructuring which occurred prior the IPO (see Note 1 to these consolidated financial statements for further information) also constituted an event subject to modification accounting for stock-based compensation awards. However, the change to the equity incentive awards of the Company was designed to preserve the fair value of the awards before and after the reclassification and stock split (based on the existing antidilution provisions of the 2016 Plan), and included the same terms and were classified in the same manner as the equity awards preceding the modification. As a result, no incremental compensation cost was recognized by the Company.
Total Stock-Based Compensation Expense
For the years ended December 31, 2018, 2017 and 2016, total stock-based compensation expense for the Company (inclusive of both the Eco Services Class B Units prior to the Business Combination and the awards replaced or exchanged at the consummation of the Business Combination) was $19,464, $8,799 and $7,029, respectively. The income tax benefit recognized in the statements of operations for the years ended December 31, 2018, 2017 and 2016 was $4,809, $3,345 and $2,660.
As of December 31, 2018, there was $2,484,141 of total unrecognized compensation cost related to nonvested stock options subject to service vesting conditions. As of December 31, 2018, there was $342,724 of total unrecognized compensation cost related to nonvested restricted stock awards subject to service vesting conditions. As of December 31, 2018, there was $13,945,550 of total unrecognized compensation cost related to nonvested restricted stock units. No expense has been recognized for any stock-based compensation awards subject to the performance condition for the years ended December 31, 2018, 2017 and 2016, as the performance-based criteria was not achieved nor considered probable of achievement.
Awards issued with performance conditions vest based on the occurrence of a defined liquidity event upon which certain investment funds affiliated with CCMP receive proceeds exceeding certain thresholds. All of the Company’s equity incentive awards with performance-based vesting, whether in the form of stock options or restricted stock awards, are subject to achievement of the same performance condition. If an exit event occurs that exceeds the defined threshold, then all performance-based awards of the Company vest 100%, with no potential for partial vesting or excess achievement. If an exit event or events occur with no further possibility of meeting the defined threshold, then all of the Company’s awards subject to the performance vesting condition will be forfeited. In addition to the defined liquidity event, subsequent to the Company’s IPO, the performance vesting condition can also be achieved if the average closing trading price of the Company’s common stock on the NYSE over any consecutive ten-day trading period equals or exceeds a price that would be equivalent to the achievement of the threshold proceeds to CCMP. See Note 21 to these consolidated financial statements for further information on the number of awards outstanding subject to performance-based vesting.
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