Share-Based Compensation

9 Months Ended

Sep. 30, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

In 2018, QEP's Board of Directors and QEP's shareholders approved the QEP Resources, Inc. 2018 Long-Term Incentive Plan (LTIP), which replaces the 2010 Long-Term Stock Incentive Plan (LTSIP) and provides for the issuance of up to 10.0 million shares such that the Board of Directors may grant long-term incentive compensation. QEP has issued stock options, restricted share awards, and restricted share units under its LTSIP or LTIP and awards performance share units under its Cash Incentive Plan (CIP) to certain officers, employees and non-employee directors. Grants issued prior to May 15, 2018 were under the LTSIP and grants issued on or after May 15, 2018 are under the LTIP. QEP recognizes the expense over the vesting periods for the stock options, restricted share awards, restricted share units and performance share units. There were 8.3 million shares available for future grants under the LTIP at September 30, 2019.

Share-based compensation expense is generally recognized within "General and administrative" expense on the Condensed Consolidated Statements of Operations and is summarized in the table below.



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019⁽¹⁾			2018⁽²⁾			2019⁽¹⁾		2018⁽²⁾
	(in millions)
Stock options	$	—		$	0.2		$	0.3	$	0.9
Restricted share awards	5.0			5.3			15.9		20.9
Performance share units	(0.9		)	(2.9		)	4.6		4.1
Restricted share units	—			0.1			0.2		0.2
Total share-based compensation expense	$	4.1		$	2.7		$	21.0	$	26.1

________________________

⁽¹⁾

During the three and nine months ended September 30, 2019, the Company recorded an additional $1.6 million and $11.3 million, respectively, of share-based compensation expense related to the acceleration of vesting that occurred as part of the restructuring program, of which $1.5 million was recorded in "Net gain (loss) from asset sales, inclusive of restructuring costs" on the Condensed Consolidated Statement of Operations during the nine months ended September 30, 2019 and the remaining $1.6 million and $9.8 million, respectively, is included in the table above. Refer to Note 9 – Restructuring for additional information.

⁽²⁾

During the three and nine months ended September 30, 2018, the Company recorded an additional $3.2 million and $7.2 million, respectively of share-based compensation expense, related to the acceleration of vesting that occurred as part of the restructuring program, of which $2.2 million was recorded in "Net gain (loss) from asset sales, inclusive of restructuring costs" on the Condensed Consolidated Statement of Operations during the three and nine months ended September 30, 2018 and the remaining $1.0 million and $5.0 million, respectively, is included in the table above. Refer to Note 9 – Restructuring for additional information.

Stock Options

QEP uses the Black-Scholes-Merton mathematical model to estimate the fair value of stock option awards at the date of 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 calculating the value of stock options not 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 option 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 three years 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 Company recognizes forfeitures of stock options as they occur. During the nine months ended September 30, 2019, QEP did not issue stock options.

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, 2018	2,098,933		$	22.27
Cancelled	(292,921	)	30.82
Outstanding at September 30, 2019	1,806,012		$	20.88	2.56	$	—
Options Exercisable at September 30, 2019	1,761,836		$	21.00	2.52	$	—
Unvested Options at September 30, 2019	44,176		$	16.32	4.41	$	—

During the nine months ended September 30, 2019 there were no exercises of stock options. As of September 30, 2019, $0.1 million of unrecognized compensation expense related to stock options granted under the LTSIP is expected to be recognized over a weighted-average vesting period of 0.54 years. The weighted-average vesting period may be reduced due to accelerated vestings under the restructuring program. Refer to Note 9 – Restructuring for additional information.

Restricted Share Awards

Restricted share award grants typically vest in equal installments over three years 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 Company recognizes restricted share forfeitures as they occur. The total fair value of restricted share awards that vested during the nine months ended September 30, 2019 and 2018 was $29.6 million and $30.7 million, respectively. The weighted-average grant date fair value of restricted share awards was $7.79 per share and $9.56 per share for the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, $13.8 million of unrecognized compensation expense related to restricted share awards granted under the LTSIP and LTIP is expected to be recognized over a weighted-average vesting period of 2.15 years. The weighted-average vesting period may be reduced due to accelerated vestings under the restructuring program. Refer to Note 9 – Restructuring for additional information.

Transactions involving restricted share awards under the terms of the LTSIP and LTIP are summarized below:



	Restricted Share Awards Outstanding		Weighted-Average Grant Date Fair Value
			(per share)
Unvested balance at December 31, 2018	3,822,133		$	10.76
Granted	2,330,254		7.79
Vested	(2,780,285	)	10.66
Forfeited	(239,489	)	9.15
Unvested balance at September 30, 2019	3,132,613		$	8.76

Performance Share Units

The payouts associated with performance share units are dependent upon the Company's total shareholder return compared to a group of its peers over three years. The awards are denominated in share units and have historically been paid in cash. The Company has the option to settle earned awards in cash or shares of common stock under the Company's LTIP; however, as of September 30, 2019, the Company expects to settle all awards in cash under the CIP. These awards are classified as liabilities and are included within "Other long-term liabilities" on the Condensed Consolidated Balance Sheets. As these awards are dependent upon the Company's total shareholder return and stock price, they are remeasured at fair value at the end of each reporting period. The Company paid $12.1 million and $2.0 million for vested performance share units during the nine months ended September 30, 2019 and 2018, respectively. The weighted-average grant date fair value of the performance share units granted during the nine months ended September 30, 2019 and 2018 was $7.93 and $9.55 per share, respectively. As of September 30, 2019, $2.6 million of unrecognized compensation cost, which represents the unvested portion of the fair market value of performance shares granted, is expected to be recognized over a weighted-average vesting period of 2.16 years. The weighted-average vesting period may be reduced due to accelerated vestings under the restructuring program. Refer to Note 9 – Restructuring for additional information.

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



	Performance Share Units Outstanding		Weighted-Average Grant Date Fair Value
			(per share)
Unvested balance at December 31, 2018	1,559,312		$	11.47
Granted	614,633		7.93
Vested and paid	(1,206,165	)	10.68
Unvested balance at September 30, 2019	967,780		$	9.50

Restricted Share Units

Employees may elect to defer their grants of restricted share awards and these deferred awards are designated as restricted share units. Restricted share units vest over three years and are deferred into the Company's nonqualified, unfunded deferred compensation plan at the time of vesting. These awards are ultimately paid in cash. They are classified as liabilities in "Other long-term liabilities" on the Condensed Consolidated Balance Sheets and are measured at fair value at the end of each reporting period. The weighted-average grant date fair value of the restricted share units was $7.90 and $9.55 per share for the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, $0.1 million of unrecognized compensation cost, which represents the unvested portion of the fair market value of restricted share units granted, is expected to be recognized over a weighted-average vesting period of 1.22 years. The weighted-average vesting period may be reduced due to accelerated vestings under the restructuring program. Refer to Note 9 – Restructuring for additional information.

Transactions involving restricted share units under the terms of the LTSIP and LTIP are summarized below:



	Restricted Share Units Outstanding		Weighted-Average Grant Date Fair Value
			(per share)
Unvested balance at December 31, 2018	42,675		$	10.47
Granted	37,498		7.90
Vested and paid	(47,807	)	10.04
Unvested balance at September 30, 2019	32,366		$	8.13