Annual report pursuant to Section 13 and 15(d)

Share-Based Compensation (Notes)

v2.4.1.9
Share-Based Compensation (Notes)
 12 Months Ended
Dec. 31, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
SHARE-BASED COMPENSATION
  
We have granted stock, restricted stock, phantom units and options to purchase common stock to employees, outside directors and a consultant under the Cheniere Energy, Inc. Amended and Restated 1997 Stock Option Plan (the “1997 Plan”), Amended and Restated 2003 Stock Incentive Plan, as amended (the “2003 Plan”), and 2011 Incentive Plan, as amended (the “2011 Plan”).

The 1997 Plan provides for the issuance of stock options to purchase up to 5.0 million shares of our common stock, all of which have been granted. Non-qualified stock options were granted to employees, contract service providers and outside directors. The 2003 Plan and 2011 Plan provide for the issuance of 21.0 million shares and 35.0 million shares, respectively, of our common stock that may be in the form of non-qualified stock options, incentive stock options, purchased stock, restricted (non-vested) stock, bonus (unrestricted) stock, stock appreciation rights, phantom units and other share-based performance awards deemed by the Compensation Committee of our Board of Directors (the “Compensation Committee”) to be consistent with the purposes of the 2003 Plan and 2011 Plan. As of December 31, 2014, all of the shares under the 2003 Plan have been granted and approximately 27 million shares, net of cancellations, have been granted under the 2011 Plan.

For the years ended December 31, 2014, 2013 and 2012, the total share-based compensation expense, net of capitalization, recognized in our net loss was $102.0 million, $271.4 million and $58.7 million, respectively, and for the same periods we capitalized as part of the cost of capital assets $8.2 million, $12.5 million and $2.4 million, respectively. We did not recognize any cumulative adjustments in our compensation expense for the years ended December 31, 2014, 2013 and 2012.
 
The total unrecognized compensation cost at December 31, 2014 relating to non-vested share-based compensation arrangements granted under the 1997 Plan, 2003 Plan and 2011 Plan was $172.1 million, which is expected to be recognized over a weighted average period of 2.8 years.

During the year ended December 31, 2014, we recognized $10.8 million of share-based compensation expense related to the modification of long-term commercial bonus awards resulting from an employee termination.

We have disclosed the deferred tax benefit realized from share-based compensation exercised during the annual period in Note 10—Income Taxes. A valuation allowance equal to the deferred tax asset has been established due to the uncertainty of realizing the tax benefits related to this deferred tax asset.
 
Restricted Stock
 
Restricted stock awards are awards of common stock that are subject to restrictions on transfer and to a risk of forfeiture if the recipient terminates employment with the Company prior to the lapse of the restrictions. For the years ended December 31, 2014, 2013 and 2012, we issued 549,774 shares,18,860,000 shares and 10,293,000 shares, respectively, of restricted stock awards to our employees, executives, directors and a consultant. These awards vest based on service conditions (one, three or four-year service periods), performance conditions and/or market conditions. The amortization of the value of restricted stock grants is accounted for as a charge to compensation expense or capitalized, depending on the employee, with a corresponding increase to additional paid-in-capital over the requisite service period.
Grants of restricted stock to employees and non-employee directors that vest based on service and/or performance conditions are measured at the closing quoted market price of the Company’s common stock on the grant date. For restricted stock awards granted to non-employees that vest based on service and/or performance conditions, the Company records compensation cost equal to the fair value of the award at the measurement date, which is determined to be the earlier of the performance commitment date or the service completion date. In addition, compensation cost for unvested restricted stock awards to non-employees is adjusted quarterly for any changes in the Company’s stock price.
Grants of restricted stock to employees and non-employees based on market conditions are measured using valuations based on Monte Carlo simulations. There were no awards granted with market conditions in 2014 or 2012. For the awards granted in 2013 with market conditions, we used the following variables in our Monte Carlo simulations:
•
Expected Volatility    44% - 62%
•
Risk Free Rate        2.80% - 2.83%
•
Cost of Equity        16.50% - 16.60%    
In July 2012, we met the criteria to determine the long-term commercial bonus pool that was established by the Compensation Committee in the 2011-2013 Bonus Plan in relation to Trains 1 and 2 of the Sabine Pass Liquefaction Project. In August 2012, the Compensation Committee approved a long-term commercial bonus pool, which consisted of approximately $60 million in cash awards and 10 million restricted shares of common stock to be issued under the 2011 Plan. The first restricted stock award installment vested in August 2012 when Sabine Pass Liquefaction issued its full notice to proceed (“NTP”) to Bechtel Oil, Gas and Chemicals, Inc. (“Bechtel”) under the lump sum turnkey contract Sabine Pass Liquefaction entered into with Bechtel for the engineering, procurement and construction of Trains 1 and 2 of the Sabine Pass Liquefaction Project. The restricted stock awards vest in five installments as follows:
•
35% when NTP is issued;
•
10% on the first anniversary of the issuance of NTP;
•
15% on the second anniversary of the issuance of NTP;
•
15% on the third anniversary of the issuance of NTP; and
•
25% on the fourth anniversary of the issuance of NTP.
In general, employees must be employed at the time of each vesting to receive the awards or will otherwise forfeit such awards. Vesting and payment of the awards would accelerate in full upon (i) termination of employment by the Company without “Cause” or, solely in the case of executive officers, termination of employment by the employee for “Good Reason” (each as defined in the restricted stock award agreement), (ii) the employee’s death or disability, or (iii) the occurrence of a change of control.

On December 12, 2012, pursuant to the 2011-2013 Bonus Plan, the Compensation Committee approved a Long-Term Bonus Pool for 2012 for all employees of the Company consisting of a total of 18 million shares of restricted stock. The Long-Term Commercial Bonus Awards for Trains 3 and 4 of the Sabine Pass Liquefaction Project were granted to employees in February 2013 under the 2003 Plan and 2011 Plan. A portion of each employee’s Long-Term Commercial Bonus Award for Trains 3 and 4 of the Sabine Pass Liquefaction Project was granted as a milestone award (“Milestone Award”), with vesting of the Milestone Award conditional on certain performance milestones relating to financing and constructing Trains 3 and 4 of the Sabine Pass Liquefaction Project, and a portion was granted as a stock price award (“Stock Price Award”), with vesting of the Stock Price Award conditional on the achievement of minimum average Company stock price hurdles.

On May 22, 2013, the $25 stock price hurdle was achieved. Following certification by a subcommittee of the Compensation Committee, 50% of the Stock Price Awards vested. On December 6, 2013, the $35 stock price hurdle was achieved. Following certification by a subcommittee of the Compensation Committee, the remaining 50% of the Stock Price Awards vested.

On May 28, 2013, the first performance milestone was achieved when Sabine Pass Liquefaction completed the financing for, and issued notice to proceed with construction under, the lump sum turnkey contract that Sabine Pass Liquefaction entered into with Bechtel for the engineering, procurement and construction of Trains 3 and 4 of the Sabine Pass Liquefaction Project (the “EPC Contract (Trains 3 and 4)”). Following certification of the achievement of the performance milestone by a subcommittee of the Compensation Committee, 30% of the Milestone Awards vested.
On October 1, 2014, the second performance milestone was achieved upon Sabine Pass Liquefaction’s payment of 60% of the original contract price of the EPC Contract (Trains 3 and 4). Following certification of the achievement of the performance milestone by a subcommittee of the Compensation Committee, 20% of the Milestone Awards vested.
The remaining Milestone Awards will vest based on the achievement of the following performance milestones:
•
20% upon substantial completion, as defined in the EPC Contract (Trains 3 and 4), of Train 4 of the Sabine Pass Liquefaction Project; and
•
30% on the first anniversary of substantial completion of Train 4 of the Sabine Pass Liquefaction Project.
The table below provides a summary of the status of our restricted stock under the 2003 Plan and 2011 Plan as of December 31, 2014 (in thousands, except for per share information):
 
 
Non-Vested
Shares
 
Weighted
Average Grant
Date Fair Value
Per Share
Non-vested at January 1, 2014
 
15,081

 
$
19.40

Granted
 
550

 
60.09

Vested
 
(4,428
)
 
18.99

Forfeited
 
(726
)
 
21.54

Non-vested at December 31, 2014
 
10,477

 
$
21.56



The weighted average grant date fair values per share of restricted stock granted during the years ended December 31, 2014, 2013 and 2012 were $60.09, $21.89 and $14.06, respectively. The total grant date fair value per share of shares vested during the years ended December 31, 2014, 2013 and 2012 were $18.99, $19.40 and $12.76, respectively.
 
Phantom Units
 
Phantom units are incentive based equity awards issued to employees over a vesting period that entitle the grantee to receive the cash equivalent to the value of a share of our common stock upon each vesting. Phantom units are not eligible to receive quarterly distributions. The Company records compensation cost equal to the fair value of the award at the measurement date, which is determined to be the earlier of the performance commitment date or the service completion date. In addition, compensation cost for unvested phantom unit awards is adjusted quarterly for any changes in the Company’s stock price. During the year ended December 31, 2014, we granted approximately 79,000 phantom units to employees and recognized $0.2 million of share-based compensation related to these grants.

Stock Options 

Stock options to employees are valued at the date of grant using a Black-Scholes valuation model and the cost is recognized over the option vesting period. We did not issue any options to purchase shares of our common stock and did not declare dividends on our common stock during the years ended December 31, 2014, 2013 and 2012. 

The table below provides a summary of option activity under the 1997 Plan, 2003 Plan and 2011 Plan as of December 31, 2014:
 
 
Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term
 
Aggregate Intrinsic Value
 
 
(in thousands)
 
 
 
(in years)
 
(in thousands)
Outstanding at January 1, 2014
 
480

 
$
30.73

 
1.32
 
$
5,947

Granted
 
—

 
—

 
 
 
 
Exercised
 
(387
)
 
29.50

 
 
 
 
Forfeited or Expired
 
—

 
—

 
 
 
 
Outstanding at December 31, 2014
 
93

 
$
35.81

 
0.81
 
$
3,224

Exercisable at December 31, 2014
 
93

 
$
35.81

 
0.81
 
$
3,224

 
The weighted average grant-date fair value of options granted during each of the years ended December 31, 2014, 2013 and 2012 was zero. The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $11.9 million, $2.0 million and $0.7 million, respectively.

We received $10.8 million, $3.7 million and $0.8 million in the years ended December 31, 2014, 2013 and 2012, respectively, of proceeds from the exercise of stock options.