Note 11 – Share-Based Compensation

QEP issues stock options and restricted shares under its Long-Term Stock Incentive Plan (LTSIP) and awards performance share units under its Cash Incentive Plan (CIP) to certain officers, employees, and non-employee directors. QEP recognizes expense over the vesting periods for the stock options, restricted shares, and performance share units. Deferred share-based compensation is included in additional paid-in capital in the Condensed Consolidated Balance Sheets. There were 9.2 million shares available for future grants under the LTSIP at June 30, 2015. Share-based compensation expense related to continuing operations is recognized in “General and administrative” on the Condensed Consolidated Statements of Operations, and expenses related to discontinued operations (including compensation expense related to the QEP Midstream Long Term Incentive Plan) are reflected in "Net income from discontinued operations, net of income tax". During the three and six months ended June 30, 2015, QEP recognized $6.5 million and $15.6 million, respectively, in total compensation expense related to share-based compensation for continuing operations, compared to $5.9 million and $12.3 million, respectively, during the three and six months ended June 30, 2014. During the three and six months ended June 30, 2014, QEP recognized $1.2 million and $2.3 million, respectively, in total compensation expense related to share-based compensation for discontinued operations.

Stock Options

QEP uses the Black-Scholes-Merton mathematical model to estimate the fair value of stock option awards at the date of the grant. Fair-value calculations rely upon subjective assumptions used in the mathematical model and may not be representative of future results. The Black-Scholes-Merton model is intended for measuring the value of options traded on an exchange. The Company utilizes the "simplified" method to estimate the expected term of the stock options granted as there is limited historical exercise data available in estimating the expected term of the stock options. QEP uses a historical volatility method to estimate the fair value of stock options awards and the risk-free interest rate is based on the yield on U.S. Treasury strips with maturities similar to those of the expected term of the stock options. The stock options typically vest in equal installments over a three-year period from the grant date and are exercisable immediately upon vesting through the seventh anniversary of the grant date. To fulfill options exercised, QEP either reissues treasury stock or issues new shares.

The calculated fair value of options granted and major assumptions used in the model at the date of grant are listed below for the six months ended June 30, 2015:



	Stock Option Assumptions
Weighted-average grant-date fair value of awards granted during the period	$	6.82
Weighted-average risk-free interest rate	1.38		%
Weighted-average expected price volatility	36.8		%
Expected dividend yield	0.37		%
Expected term in years at the date of grant	4.5

Stock option transactions under the terms of the LTSIP are summarized below:



	Options Outstanding		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
			(per share)		(in years)	(in millions)
Outstanding at December 31, 2014	1,996,215		$	28.60
Granted	425,877		21.69
Exercised	(15,000	)	19.37
Forfeited	(2,817	)	31.31
Canceled	(60,000	)	27.84
Outstanding at June 30, 2015	2,344,275		$	27.42	3.48	$	—
Options Exercisable at June 30, 2015	1,658,563		$	28.32	2.40	$	—
Unvested Options at June 30, 2015	685,712		$	25.23	6.12	$	—

The total intrinsic value (the difference between the market price at the exercise date and the exercise price) of options exercised was $0.1 million and $0.5 million during the six months ended June 30, 2015 and 2014, respectively. As of June 30, 2015, $3.3 million of unrecognized compensation cost related to stock options granted under the LTSIP is expected to be recognized over a weighted-average period of 2.34 years.

Restricted Shares

Restricted share grants typically vest in equal installments over a three-year period from the grant date. The grant date fair value is determined based on the closing bid price of the Company's common stock on the grant date. The total fair value of restricted stock that vested during the six months ended June 30, 2015 and 2014, was $18.1 million and $15.2 million, respectively. The weighted average grant-date fair value of restricted stock was $21.66 per share and $31.63 per share for the six months ended June 30, 2015 and 2014, respectively. As of June 30, 2015, $33.0 million of unrecognized compensation cost related to restricted shares granted under the LTSIP is expected to be recognized over a weighted-average vesting period of 2.42 years.

Transactions involving restricted shares under the terms of the LTSIP are summarized below:



	Restricted Shares Outstanding		Weighted- Average Grant-Date Fair Value
			(per share)
Unvested balance at December 31, 2014	1,426,453		$	31.02
Granted	1,373,300		21.66
Vested	(585,611	)	30.88
Forfeited	(83,590	)	27.54
Unvested balance at June 30, 2015	2,130,552		$	25.16

Performance Share Units

The performance share units' cash payouts are dependent upon the Company’s total shareholder return compared to a group of its peers over a three-year period. The awards are denominated in share units but have historically been delivered in cash at the end of the performance period. Beginning with awards granted in 2015, the Company has the option to settle earned awards in cash or shares of common stock under the Company's LTSIP; however, as of June 30, 2015, the Company expects to settle all awards in cash. The weighted average grant-date fair value of the performance share units was $21.69 per share and $31.67 per share for the six months ended June 30, 2015 and 2014, respectively. As of June 30, 2015, $2.5 million of unrecognized compensation cost, representing the fair market value of performance shares granted, is expected to be recognized over a weighted-average vesting period of 2.09 years.

Transactions involving performance share units under the terms of the CIP are summarized below:



	Performance Share Units Outstanding		Weighted- Average Grant-Date Fair Value
Unvested balance at December 31, 2014	552,209		$	30.85
Granted	234,085		21.69
Vested and paid out	(131,665	)	30.77
Canceled ⁽¹⁾	(14,612	)	30.77
Forfeited	(6,792	)	28.29
Unvested balance at June 30, 2015	633,225		$	27.52

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⁽¹⁾	Represents units that were not paid out due to performance under the plan.