United states securities and exchange commission

PACIFIC DRILLING S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements―Continued
A summary of option activity under the 2011 Stock Plan as of and for the year ended December 31, 2016 is as follows:

		Number of Shares Under Option			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term			Aggregate Intrinsic Value
		(in thousands)			(per share)		(in years)			(in thousands)
Outstanding — January 1, 2016		640		$	74.02
Granted		—			—
Exercised		—			—
Cancelled or forfeited		(3)			36.40
Outstanding — December 31, 2016		637		$	74.24		6.7		$	—
Exercisable — December 31, 2016		395		$	90.66		5.6		$	—

 

The weighted-average grant date fair value of options granted during the years ended December 31, 2015 and 2014 was $14.90 and $51.00 per option, respectively.

During the years ended December 31, 2016, 2015 and 2014, there were 0,  0 and 8,500 options exercised, respectively. As of December 31, 2016, total compensation costs related to nonvested option awards not yet recognized was $2.8 million and was expected to be recognized over 1.9 years.

Restricted Stock Units

Pursuant to the 2011 Stock Plan, the Company has granted restricted stock units to certain members of our Board of Directors, executives and employees. Restricted stock units granted by the Company will be settled in shares of our stock and generally vest over a period of two to four years. The fair value of restricted stock units is determined using the market value of our shares on the date of grant.

A summary of restricted stock units activity under the 2011 Stock Plan as of and for the year ended December 31, 2016 was as follows:

		Number of Restricted Stock Units		Weighted-Average Grant-Date Fair Value
		(in thousands)			(per share)
Nonvested — January 1, 2016		249		$	53.90
Granted		418			5.29
Vested		(81)			59.57
Cancelled or forfeited		(6)			34.73
Nonvested —  December 31, 2016		580		$	18.14

 

The weighted-average grant-date fair value of restricted stock units granted was $36.40 and $100.60 per share for the years ended December 31, 2015 and 2014, respectively. The total grant-date fair value of the restricted stock units vested was $4.8 million, $9.7 million and $4.1 million for the years ended December 31, 2016, 2015 and 2014, respectively.

As of December 31, 2016, total compensation costs related to nonvested restricted stock units not yet recognized was $6.3 million an d is expected to be recognized over a weighted-average period of 2.0 years.

 

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PACIFIC DRILLING S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements―Continued
Note 9—Earnings per Share

The following reflects the income and the share data used in the basic and diluted EPS computations:

		Years Ended December 31,
		2016			2015			2014
			(in thousands, except per share information)
Numerator:
Net income (loss), basic and diluted		$	(37,157)		$	126,230		$	188,257
Denominator:
Weighted-average number of common shares outstanding, basic			21,167			21,145			21,722
Effect of share-based compensation awards			—			11			15
Weighted-average number of common shares outstanding, diluted			21,167			21,156			21,737
Earnings (loss) per share:
Basic		$	(1.76)		$	5.97		$	8.67
Diluted		$	(1.76)		$	5.97		$	8.66

 

The following table presents the share effects of share-based compensation awards excluded from our computations of diluted EPS as their effect would have been anti-dilutive for the periods presented:

		Years Ended December 31,
		2016		2015		2014
		(in thousands)
Share-based compensation awards		1,217		889		620

 

 

 

Note 10—Derivatives

We are currently exposed to market risk from changes in interest rates and foreign exchange rates. From time to time, we may enter into a variety of derivative financial instruments in connection with the management of our exposure to fluctuations in interest rates and foreign exchange rates. We do not enter into derivative transactions for speculative purposes; however, for accounting purposes, certain transactions may not meet the criteria for hedge accounting.

In 2013, we entered into an interest rate swap as a cash flow hedge against future fluctuations in LIBOR with a notional value of $712.5 million. The interest rate swap does not amortize and matures on December 3, 2017. On a quarterly basis, we pay a fixed rate of 1.56% and receive the maximum of 1% or three-month LIBOR.

In 2013, we also entered into an interest rate swap as a cash flow hedge against future fluctuations in LIBOR with a notional value of $400.0 million. The interest rate swap does not amortize and matures on July 1, 2018. On a quarterly basis, we pay a fixed rate of 1.66% and receive three-month LIBOR.

In 2014, we entered into a series of foreign currency forward contracts as a cash flow hedge against future exchange rate fluctuations between the Euro and U.S. Dollar. We used the forward contracts to hedge Euro payments for forecasted capital expenditures. Upon settlement, we paid U.S. Dollars and received Euros at forward rates ranging from $1.25 to $1.27. As of December 31, 2016, the forward contracts were fully settled. As a result of settling the effective hedge for the years ended 2016 and 2015, we incurred net cash outflows of $1.8 million and $1.2 million, respectively, based on the prevailing Euro exchange rates and reclassified the amounts from accumulated other comprehensive income to property and equipment.

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PACIFIC DRILLING S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements―Continued
The following table provides data about the fair values of derivatives that are designated as hedge instruments:

				December 31,
Derivatives Designated as Hedging Instruments		Balance Sheet Location		2016			2015
					(in thousands)
Short-term - Interest rate swaps		Accrued expenses		$	(3,838)		$	(5,899)
Long-term - Interest rate swaps		Other long-term liabilities			(84)			(238)
Short-term -  Foreign currency forward contracts		Accrued expenses			—			(1,584)
Total				$	(3,922)		$	(7,721)