Share-Based Compensation

3 Months Ended

Mar. 31, 2012

Share-Based Compensation [Abstract]

Share-Based Compensation

Note 11 – Share-Based Compensation

QEP issues stock options and restricted shares under its Long-Term Stock Incentive Plan (LTSIP) and awards performance-based share units under its Cash Incentive Plan (CIP) to certain officers, employees, and non-employee directors. QEP recognizes expense over time as the stock options, restricted shares, and performance based share units vest. Deferred share-based compensation is included in additional paid-in capital in the Condensed Consolidated Balance Sheets. There were 13.2 million shares available for future grants under the LTSIP at March 31, 2012. Share-based compensation expense is recognized in “General and administrative” on the Condensed Consolidated Income Statements. During the three months ended March 31, 2012 and 2011, QEP recognized $5.7 million and $7.4 million, respectively, in total compensation expense related to share-based compensation.

Stock Options

QEP uses the Black-Scholes-Merton mathematical model to estimate the fair value of stock options for accounting purposes. 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 calculated fair value of options granted and major assumptions used in the model at the date of grant are listed below:

	Stock Option Variables Three Months Ended March 31, 2012
Fair value of options at grant date	$	14.49
Risk-free interest rate		0.81	%
Expected price volatility		55.9	%
Expected dividend yield		0.26	%
Expected life in years		5.0

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

	Options Outstanding			Weighted- Average Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
				(per share)		(in years)		(in millions)
Outstanding at December 31, 2011		2,003,694		$	21.23
Granted		283,029			30.90
Exercised		(313,342	)		8.15
Forfeited		-			-
Outstanding at March 31, 2012		1,973,381		$	24.69		3.8	$	13.3
Options Excercisable at March 31, 2012		1,393,956		$	22.08		3.0	$	12.4
Unvested Options at March 31, 2012		579,425		$	30.97		6.0	$	0.9

The total intrinsic value (the difference between the market price at the exercise date and the exercise price) of options exercised was $6.9 million and $1.8 million during the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012, $5.4 million of unrecognized compensation cost related to stock options granted under the LTSIP is expected to be recognized over a weighted-average period of 2.6 years.

Restricted Shares

Restricted share grants typically vest in equal installments over a three or four-year period from the grant date. The total fair value of restricted stock that vested was $11.6 million and $7.9 million during the three months ended March 31, 2012 and 2011, respectively. The weighted average grant-date fair value of restricted stock was $30.89 per share and $39.00 per share for the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012, $30.0 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 2.6 years. Transactions involving restricted shares under the terms of the LTSIP are summarized below:

	Restricted Shares Outstanding			Weighted- Average Price
				(per share)
Unvested balance at December 31, 2011		1,099,752		$	32.80
Granted		659,370			30.89
Vested		(362,743	)		32.85
Forfeited		(31,036	)		32.89
Unvested balance at March 31, 2012		1,365,343		$	31.87

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 delivered in cash at the end of the performance period. The weighted average grant-date fair value of the performance share units was $30.90 per share and $39.07 per share for the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012, $4.4 million of unrecognized compensation cost, or the fair market value, related to performance shares granted under the CIP is expected to be recognized over a weighted-average vesting period of 2.6 years. Transactions involving performance shares units under the terms of the CIP are summarized below:

	Performance Share Units Outstanding			Weighted- Average Price
Unvested balance at December 31, 2011		115,274		$	39.07
Granted		168,448			30.90
Vested		-			-
Forfeited		(2,707	)		39.07
Unvested balance at March 31, 2012		281,015		$	34.17