Share-Based Compensation

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

In 2018, QEP's Board and QEP's shareholders approved the QEP Resources, Inc. 2018 Long-Term Incentive Plan (LTIP), which replaced the 2010 Long-Term Stock Incentive Plan (LTSIP) and provides for the issuance of up to 10.0 million shares such that the Board may grant long-term incentive compensation. QEP issues restricted share awards, restricted cash 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 stock options, restricted share awards, restricted cash awards, restricted share units and performance share units. There were 3.6 million shares available for future grants under the LTIP at June 30, 2020.

Share-based compensation expense is generally recognized within "General and administrative" expense on the statements of operations and is summarized in the table below.


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020⁽¹⁾		2019⁽²⁾		2020⁽¹⁾		2019⁽²⁾
	(in millions)
Non-cash share-based compensation
Stock options	$	—	$	—	$	—	$	0.3
Restricted share awards	3.1		4.8		6.4		10.9
Total non-cash share-based compensation	3.1		4.8		6.4		11.2
Cash share-based compensation
Restricted cash awards	0.5		—		0.7		—
Performance share units	(0.4)		0.3		—		5.5
Restricted share units	—		0.1		—		0.2
Total cash share-based compensation	0.1		0.4		0.7		5.7
Total share-based compensation expense	$	3.2	$	5.2	$	7.1	$	16.9

________________________

⁽¹⁾During the three and six months ended June 30, 2020, the Company recorded $0.3 million and $0.5 million, respectively, of share-based compensation expense related to the acceleration of vesting that occurred as part of the restructuring program and is included in the table above. Refer to Note 9 – Restructuring for additional information.

⁽²⁾During the three and six months ended June 30, 2019, the Company recorded $1.3 million and $9.7 million, respectively, of share-based compensation expense related to the acceleration of vesting that occurred as part of the restructuring program. Of the $9.7 million recorded during the six months ended June 30, 2019, $1.5 million was recorded in "Net gain (loss) from asset sales, inclusive of restructuring costs" on the statement of operations and the remaining $8.2 million is included in the table above. Refer to Note 9 – Restructuring for additional information.

Stock Options

During the six months ended June 30, 2020, QEP did not issue stock options to its employees. In periods when QEP granted stock options, the Company historically used 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 options not traded on an exchange. The Company utilized the "simplified" method to estimate the expected term of the stock options granted as there was limited historical exercise data available in estimating the expected term of the stock options. QEP used a historical volatility method to estimate the fair value of stock option awards, and the risk-free interest rate was 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.

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, 2019	1,802,387	$	20.87


Cancelled	(305,163)	30.12
Outstanding at June 30, 2020	1,497,224	$	18.98	2.26	$	—
Options Exercisable at June 30, 2020	1,494,157	$	19.00	2.26	$	—
Unvested Options at June 30, 2020	3,067	$	7.52	4.18	$	—

During the six months ended June 30, 2020 there were no exercises of stock options. The Company recognized $1.0 million of income tax expense for the cancellation of options for the six months ended June 30, 2020, and no income tax expense related to stock options for the six months ended June 30, 2019. As of June 30, 2020, there was less than $0.1 million of unrecognized compensation expense related to stock options granted under the LTSIP. 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 six months ended June 30, 2020 and 2019 was $11.1 million and $25.0 million, respectively. The Company recognized $2.0 million of income tax expense for shares that were either vested or forfeited during the six months ended June 30, 2020, and no income tax expense related to restricted shares for the six months ended June 30, 2019. The weighted-average grant date fair value of restricted share awards was $2.10 per share and $7.98 per share for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, $13.0 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 2.33 years.

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, 2019	2,845,033	$	8.67
Granted	5,080,589	2.10
Vested	(1,149,316)	9.67
Forfeited	(85,218)	5.05
Unvested balance at June 30, 2020	6,691,088	$	3.55

Restricted Cash Awards

Beginning in March 2020, QEP issued restricted cash awards under its LTIP to certain employees. Restricted cash award grants vest in equal installments over three years from the grant date. The Company recognizes restricted cash forfeitures as they occur. There were no restricted cash awards granted or outstanding during the six months ended June 30, 2019. As of June 30, 2020, $2.6 million of unrecognized compensation expense related to restricted cash awards granted under the LTIP is expected to be recognized over a weighted-average vesting period of 2.74 years.

Transactions involving restricted cash awards under the terms of the LTIP are summarized below:


	Restricted Cash Awards Outstanding

Unvested balance at December 31, 2019	$	—
Granted	3,249,925
Vested	—
Forfeited	(54,250)
Unvested balance at June 30, 2020	$	3,195,675

Performance Share Units

The payouts associated with performance share units under the CIP 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 June 30, 2020, the Company expects to settle all awards under the CIP in cash. These awards are classified as liabilities and are included within "Other long-term liabilities" on the balance sheets. Because 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 $0.3 million and $11.4 million, respectively, for vested performance share units during the six months ended June 30, 2020 and 2019. The weighted-average grant date fair value of the performance share units granted during the six months ended June 30, 2020 and 2019 was $2.17 and $7.93 per share, respectively. As of June 30, 2020, $1.7 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 2.33 years. 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, 2019	625,922	$	9.04
Granted	1,926,026	2.17
Vested and paid	(96,734)	13.06
Unvested balance at June 30, 2020	2,455,214	$	3.56

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 Wrap Plan at the time of grant. These awards are ultimately paid in cash when distributed from the deferred compensation plan. They are classified as liabilities in "Other long-term liabilities" on the 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 $2.08 and $7.93 per share for the six months ended June 30, 2020 and 2019, respectively. The Company recognized $0.2 million of income tax expense related to restricted share units for the six months ended June 30, 2020, and no income tax expense related to restricted share units for the six months ended June 30, 2019. As of June 30, 2020, there was less than $0.1 million of unrecognized compensation cost, which represents the unvested portion of the fair market value of restricted share units granted. 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, 2019	34,393	$	8.16
Granted	76,083	2.08
Vested and paid	(26,770)	8.20
Unvested balance at June 30, 2020	83,706	$	2.62