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Stock-Based Compensation | 12 Months Ended
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Dec. 31, 2012
Stock-Based Compensation |
Stock-Based Compensation | 12. Stock-Based Compensation Compensation expense for stock-based awards for the years ended December 31, 2012, 2011 and 2010 was $33.5 million, $39.5 million and $14.4 million, respectively, and is included in General and administrative expense in the Consolidated Statement of Operations. Restricted Stock Awards Most restricted stock awards vest either at the end of a three year service period or on a graded-vesting basis at each anniversary date over a three or four year service period. For awards that vest at the end of the three year service period, expense is recognized ratably using a straight-line expensing approach over three years. Under the graded-vesting approach, the Company recognizes compensation cost ratably over the three or four year requisite service period, as applicable, for each separately vesting tranche as though the awards are, in substance, multiple awards. For all restricted stock awards, vesting is dependent upon the employees' continued service with the Company, with the exception of employment termination due to death, disability or retirement. The fair value of restricted stock grants is based on the average of the high and low stock price on the grant date. The maximum contractual term is four years. The Company accelerated the vesting period for retirement-eligible employees for purposes of recognizing compensation expense in accordance with the vesting provisions of the Company's stock-based compensation programs. The Company used an annual forfeiture rate assumption ranging from 6.0% to 7.0% for purposes of recognizing stock-based compensation expense for restricted stock awards. The annual forfeiture rates were based on approximately 10 years of the Company's history for this type of award to various employee groups. The following table is a summary of restricted stock award activity for the year ended December 31, 2012:
Restricted Stock Awards |  | Shares |  | Weighted- Average Grant Date Fair Value per Share |  | Weighted- Average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value (in thousands)(1) |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Outstanding at December 31, 2011 |  |  | 238,194 |  | $ | 18.35 |  |  |  |  |  |  |
Granted |  |  | 6,550 |  |  | 36.84 |  |  |  |  |  |  |
Vested |  |  | (201,400 | ) |  | 18.05 |  |  |  |  |  |  |
Forfeited |  |  | (7,590 | ) |  | 17.60 |  |  |  |  |  |  |
Outstanding at December 31, 2012 |  |  | 35,754 |  | $ | 23.64 |  |  | 0.8 |  | $ | 1,778 |
(1) The aggregate intrinsic value of restricted stock awards is calculated by multiplying the closing market price of the Company's stock on December 31, 2012 by the number of non-vested restricted stock awards outstanding. During the year ended December 31, 2011, 19,600 shares of restricted stock were granted to employees with a weighted-average grant date fair value per share of $27.66. During the year ended December 31, 2010, 47,600 shares of restricted stock were granted to employees with a weighted- average grant date fair value per share of $17.44. The total fair value of shares vested during 2012, 2011 and 2010 was $3.6 million, $0.2 million and $1.5 million, respectively. Compensation expense recorded for all restricted stock awards for the years ended December 31, 2012, 2011 and 2010 was $1.1 million, $1.2 million and $1.8 million, respectively. Unamortized expense as of December 31, 2012 for all outstanding restricted stock awards was $0.3 million and will be recognized over the next 1.1 years. Restricted Stock Units Restricted stock units are granted from time to time to non-employee directors of the Company and to new directors upon appointment to the Board of Directors. The fair value of these units is measured at the average of the high and low stock price on grant date and compensation expense is recorded immediately. These units immediately vest and are issued when the director ceases to be a director of the Company. The following table is a summary of restricted stock unit activity for the year ended December 31, 2012:
Restricted Stock Units |  | Units |  | Weighted- Average Grant Date Fair Value per Unit |  | Weighted- Average Remaining Contractual Term (in years)(2) |  | Aggregate Intrinsic Value (in thousands)(1) |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Outstanding at December 31, 2011 |  |  | 343,654 |  | $ | 15.75 |  |  |  |  |  |  |
Granted and fully vested |  |  | 38,304 |  |  | 36.55 |  |  |  |  |  |  |
Issued |  |  | (124,224 | ) |  | 17.11 |  |  |  |  |  |  |
Forfeited |  |  | — |  |  | — |  |  |  |  |  |  |
Outstanding at December 31, 2012 |  |  | 257,734 |  | $ | 18.19 |  |  | — |  | $ | 12,820 |
(1) The aggregate intrinsic value of restricted stock units is calculated by multiplying the closing market price of the Company's stock on December 31, 2012 by the number of outstanding restricted stock units. (2) Due to the immediate vesting of the units and the unknown term of each director, the weighted-average remaining contractual term in years has been omitted from the table above. During 2011, 59,402 restricted stock units were granted with a weighted-average grant date fair value per share of $20.88. During 2010, 53,922 restricted stock units were granted with a weighted-average grant date fair value per share of $20.04. During the years ended December 31, 2012, 2011 and 2010, compensation cost recorded, which reflects the total fair value of these units, was $1.4 million, $1.2 million and $1.1 million, respectively. Stock Options Stock options are no longer granted by the Company. In prior years, stock option awards were granted on an annual basis with an exercise price equal to the average of the high and low trading price of the Company's stock at the date of grant. During the years ended December 31, 2012, 2011 and 2010, there were no stock options granted. During 2012, 2011 and 2010 there was no compensation expense recorded. There was no unamortized expense as of December 31, 2012 for stock options. The following table is a summary of stock option activity:
|  | Year Ended December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
Stock Options |  | Shares |  | Weighted- Average Exercise Price |  | Shares |  | Weighted- Average Exercise Price |  | Shares |  | Weighted- Average Exercise Price |
Outstanding at beginning of year |  |  | — |  | $ | — |  |  | 30,000 |  | $ | 11.90 |  |  | 100,000 |  | $ | 11.90 |
Granted |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Exercised |  |  | — |  |  | — |  |  | (30,000 | ) |  | 11.90 |  |  | (70,000 | ) |  | 11.90 |
Forfeited or expired |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Outstanding at December 31 |  |  | — |  | $ | — |  |  | — |  | $ | — |  |  | 30,000 |  | $ | 11.90 |
Options exercisable at December 31 |  |  | — |  | $ | — |  |  | — |  | $ | — |  |  | 30,000 |  | $ | 11.90 |
The total intrinsic value of options exercised during the years ended December 31, 2011 and 2010 was $0.2 million and $0.5 million, respectively. Stock Appreciation Rights Stock appreciation rights (SARs) allow the employee to receive any intrinsic value over the grant date market price that may result from the price appreciation on a set number of common shares during the contractual term of seven years. All of these awards have graded-vesting features and will vest over a service period of three years, with one-third of the award becoming exercisable each year on the anniversary date of the grant. The Company calculates the fair value of the awards using a Black-Scholes model. The assumptions used in the Black-Scholes fair value calculation on the date of grant for SARs are as follows:
|  | Year Ended December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
Weighted-average value per stock appreciation rights Granted during the period |  | $ | 16.31 |  | $ | 9.47 |  | $ | 9.48 |
Assumptions |  |  |  |  |  |  |  |  |  |
Stock price volatility |  |  | 55.3% |  |  | 52.7% |  |  | 52.9% |
Risk free rate of return |  |  | 0.9% |  |  | 2.3% |  |  | 2.4% |
Expected dividend yield |  |  | 0.3% |  |  | 0.3% |  |  | 0.3% |
Expected term (in years) |  |  | 5.0 |  |  | 5.0 |  |  | 5.0 |
The expected term was derived by reviewing minimum and maximum expected term outputs from the Black-Scholes model based on award type and employee type. This term represents the period of time that awards granted are expected to be outstanding. The stock price volatility was calculated using historical closing stock price data for the Company for the period associated with the expected term through the grant date of each award. The risk free rate of return percentages are based on the continuously compounded equivalent of the U.S. Treasury (Nominal 10) within the expected term as measured on the grant date. The expected dividend percentage assumes that the Company will continue to pay a consistent level of dividend each quarter. The following is a summary of SAR activity:
|  | Year Ended December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
Stock Appreciation Rights |  | Shares |  | Weighted- Average Exercise Price |  | Shares |  | Weighted- Average Exercise Price |  | Shares |  | Weighted- Average Exercise Price |
Outstanding at Beginning of Year |  |  | 1,288,130 |  | $ | 16.04 |  |  | 1,471,300 |  | $ | 15.27 |  |  | 1,346,200 |  | $ | 14.64 |
Granted |  |  | 120,442 |  |  | 35.18 |  |  | 191,500 |  |  | 20.37 |  |  | 159,100 |  |  | 20.27 |
Exercised |  |  | (547,350 | ) |  | 14.84 |  |  | (374,670 | ) |  | 15.22 |  |  | (34,000 | ) |  | 13.58 |
Forfeited or expired |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Outstanding at December 31(1) |  |  | 861,222 |  | $ | 19.49 |  |  | 1,288,130 |  | $ | 16.04 |  |  | 1,471,300 |  | $ | 15.27 |
Exercisable at December 31(2) |  |  | 572,986 |  | $ | 15.94 |  |  | 902,664 |  | $ | 15.14 |  |  | 1,064,444 |  | $ | 14.82 |
(1) The intrinsic value of a SAR is the amount which the current market value of the underlying stock exceeds the exercise price of the SAR. The aggregate intrinsic value of SARs outstanding at December 31, 2012 was $26.1 million. The weighted-average remaining contractual term is 3.9 years. (2) The aggregate intrinsic value of SARs exercisable at December 31, 2012 was $19.4 million. The weighted-average remaining contractual term is 3.1 years. Compensation expense recorded during the years ended December 31, 2012, 2011 and 2010 for all outstanding SARs was $1.9 million, $2.1 million and $1.6 million, respectively. In 2012, 2011 and 2010 there was $1.2 million, $0.1 million and $0, related to the immediate expensing of shares granted to retirement-eligible employees, respectively. Unamortized expense as of December 31, 2012 for all outstanding SARs was $0.4 million. The weighted-average period over which this compensation will be recognized is approximately 2.0 years. Performance Share Awards The Company grants three types of performance share awards: two based on performance conditions measured against the Company's performance metrics and one based on market conditions measured based on the Company's performance relative to a predetermined peer group. For all performance share awards, the Company used an annual forfeiture rate assumption ranging from 0% to 7% for purposes of recognizing stock-based compensation expense. The performance period for the awards granted in 2012 commenced on January 1, 2012 and ends on December 31, 2014. The following table is a summary of performance share award activity for the year ended December 31, 2012:
Performance Share Awards |  | Shares |  | Weighted- Average Grant Date Fair Value per Share(1) |  | Weighted- Average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value (in thousands)(2) |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Outstanding at December 31, 2011 |  |  | 2,441,566 |  | $ | 15.31 |  |  |  |  |  |  |
Granted |  |  | 518,602 |  |  | 33.62 |  |  |  |  |  |  |
Issued and fully vested |  |  | (1,358,564 | ) |  | 11.95 |  |  |  |  |  |  |
Forfeited |  |  | (42,850 | ) |  | 24.22 |  |  |  |  |  |  |
Outstanding at December 31, 2012 |  |  | 1,558,754 |  | $ | 24.08 |  |  | 1.1 |  | $ | 77,532 |
(1) The fair value figures in this table represent the fair value of the equity component of the performance share awards. (2) The aggregate intrinsic value of performance share awards is calculated by multiplying the closing market price of the Company's stock on December 31, 2012 by the number of non-vested performance share awards outstanding. During the year ended December 31, 2012, 518,602 performance shares (401,141 shares based on performance conditions and 117,461 shares based on market conditions) were granted to employees. Of the 1,358,564 performance shares that vested during 2012, a total of 168,940 shares based on market conditions were granted in 2010 (valued at $2.7 million), 393,620 shares based on market conditions were granted in 2009 (valued at $3.5 million) and were issued in addition to $18.4 million that was paid in cash due to the ranking of the Company compared to its peers. A total of 594,960 shares based on performance conditions granted in 2009 (valued at $6.7 million) were also issued. In addition, 201,044 shares vested (valued at $3.3 million) which represents one-third of the three-year graded vesting schedule performance share awards based on performance conditions were granted in 2011, 2010 and 2009 with a grant date per share value of $20.37, $20.27 and $11.32, respectively. During the year ended December 31, 2011, 789,514 performance share awards (604,122 shares based on performance conditions and 185,392 shares based on market conditions) were granted to employees with a weighted-average grant date fair value per share of $19.25. Of the 620,140 performance shares that vested during 2011, 471,744 shares were granted in 2008 (valued at $2.7 million) based on market conditions and were issued due to the ranking of the Company compared to its peers. A total of 287,600 shares based on performance conditions granted in 2008 (valued at $5.9 million) were also issued. In addition, 187,516 shares vested (valued at $3.9 million) which represents one-third of the three-year graded vesting schedule performance share awards granted in 2010, 2009 and 2008 with a grant date per share value of $20.27, $11.32 and $24.24, respectively. During the year ended December 31, 2010, 694,340 performance share awards (525,400 shares based on performance conditions and 168,940 shares based on market conditions) were granted to employees with a weighted-average grant date fair value per share of $19.24. Of the 820,538 performance shares that vested during 2010, 184,800 shares (valued at $2.8 million) based on market conditions were granted in 2007 and were issued in addition to $1.3 million that was paid in cash due to the ranking of the Company compared to its peers. A total of 300,200 shares based on performance conditions granted in 2007 (valued at $5.3 million) were also issued. In addition, 335,538 shares vested (valued at $5.1 million) which represents one-third of the three-year graded vesting schedule performance share awards granted in 2009, 2008, and 2007 with a grant date per share value of $11.32, 24.24 and $17.61, respectively. During 2012, 2011 and 2010, 42,850, 65,700 and 80,360 performance shares, respectively, were forfeited. Total unamortized compensation cost related to the equity component of performance shares at December 31, 2012 was $12.7 million and will be recognized over the next 1.9 years, which was computed by using the weighted-average of years remaining to recognize unamortized expense. Total compensation cost recognized for both the equity and liability components of all performance share awards during the years ended December 31, 2012, 2011 and 2010 was $24.6 million, $28.5 million and $12.4 million, respectively. Awards Based on Performance Conditions The performance awards granted in 2012 based on internal metrics had a grant date per share value of $35.18, which is based on the average of the high and low stock price on the grant date. These awards represent the right to receive up to 100% of the award in shares of common stock. During 2012, 401,141 performance share awards were granted based on performance conditions measured against the Company's performance metrics. Of these shares, 117,461 shares have a three-year graded performance period; one-third of the shares are issued on each anniversary date following the date of grant, provided that the Company has $100 million or more of operating cash flow for the year preceding the vesting date. If the Company does not meet this metric for the applicable period, then the portion of the performance shares that would have been issued on that date will be forfeited. For the remaining 283,380 performance awards, the actual number of shares issued at the end of the performance period will be determined based on the Company's performance against three performance criteria set by the Company's Compensation Committee. An employee will earn one-third of the award granted for each performance metric that the Company meets at the end of the performance period. These performance criteria are based on the Company's average production, average finding costs and average reserve replacement over the three year performance period. Based on the Company's probability assessment at December 31, 2012, it is considered probable that the criteria for these awards will be met. Awards Based on Market Conditions The 117,461 performance shares granted during 2012 are based on market conditions and are earned, or not earned, based on the comparative performance of the Company's common stock measured against sixteen other companies in the Company's peer group over a three-year performance period. These performance shares have both an equity and liability component, with the right to receive up to the first 100% of the award in shares of common stock and the right to receive up to 100% of the value of the award in excess of the equity component in cash. The equity portion of the 2012 awards was valued on the grant date (February 16, 2012) and was not marked to market. The liability portion of the awards was valued as of December 31, 2012 on a mark-to-market basis. The following assumptions were used for the Monte Carlo model to determine the grant date fair value of the equity component of the performance share awards based on market conditions for the respective periods:
|  | Year Ended December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
Fair value per performance share award granted during the period |  | $ | 28.31 |  | $ | 15.62 |  | $ | 6.50 |
Assumptions |  |  |  |  |  |  |  |  |  |
Stock price volatility |  |  | 46.7% |  |  | 62.0% |  |  | 61.8% |
Risk free rate of return |  |  | 0.4% |  |  | 1.3% |  |  | 1.4% |
Expected dividend yield |  |  | 0.2% |  |  | 0.2% |  |  | 0.3% |
The following assumptions were used in the Monte Carlo model to determine the fair value of the liability component of the performance share awards based on market conditions for the respective periods:
|  | December 31,
--- | --- | ---
|  | 2012 |  | 2011 |  | 2010
Fair value per performance share award at the end of the period |  | $38.22 - $49.52 |  | $25.64 - $35.47 |  | $0.00 - $3.08
Assumptions |  |  |  |  |  |
Stock price volatility |  | 41.1% - 45.7% |  | 41.9% - 42.7% |  | 70.7% - 71.7%
Risk free rate of return |  | 0.2% - 0.3% |  | 0.1% - 0.3% |  | 0.3% - 0.4%
Expected dividend yield |  | 0.2% |  | 0.2% |  | 0.4%
The long-term liability for market condition performance share awards, included in Other liabilities in the Consolidated Balance Sheet, at December 31, 2012 and 2011 was $7.6 million and $5.6 million, respectively. The short-term liability, included in Accrued liabilities in the Consolidated Balance Sheet, at December 31, 2012 and 2011 was $0 and $10.1 million, respectively. Other Information On December 31, 2012, the performance period ended for two types of performance shares awarded in 2010, including 305,480 shares measured based on performance metrics of the Company and 168,940 shares measured based on market conditions. For the internal performance metric awards, the calculation of the average of the three years of the Company's three performance metrics was completed in the first quarter of 2013 and was certified by the Compensation Committee in February 2013. As the Company achieved the three performance metrics, 305,480 shares (valued at $6.2 million) were issued in February 2013, which will be reported in the first quarter of 2013 upon certification by the Compensation Committee. For the awards based on market conditions, 168,940 shares (valued at $2.7 million) were issued in addition to $8.3 million in cash due to the ranking of the Company relative to a predetermined peer group. The calculation of the award payout was certified by the Compensation Committee and payout occurred on December 31, 2012. Deferred Performance Shares As of December 31, 2012, 267,087 shares of the Company's common stock representing vested performance share awards were deferred into the Deferred Compensation Plan. No shares were sold out of the plan in 2012. During 2012, an increase to the deferred compensation liability of $3.7 million was recognized, representing an increase in the investment excluding the Company's common stock and an increase in the closing price of the Company's common stock from December 31, 2011 to December 31, 2012. The increase in stock-based compensation expense was included in General and administrative expense in the Consolidated Statement of Operations. Supplemental Employee Incentive Plan On May 1, 2012, the Company's Board of Directors adopted a new Supplemental Employee Incentive Plan ("Plan") to replace the previously adopted supplemental employee incentive plan that expired on June 30, 2012. There were no amounts paid under the expired plan. The Plan commenced on July 1, 2012 and is intended to provide a compensation tool tied to stock market value creation to serve as an incentive and retention vehicle for full-time, non-officer employees by providing for cash payments in the event the Company's common stock reaches a specified trading price. The Plan is accounted for as a liability award under ASC 718. The Company recognized stock-based compensation expense of $1.4 million and $1.2 million for years ended December 31, 2012 and 2011, respectively, and a benefit of $0.9 million for the year ended December 31, 2010, which is included in General and administrative expense in the Consolidated Statement of Operations. The Plan provides for a payout if, for any 20 trading days out of any 60 consecutive trading days, the closing price per share of the Company's common stock equals or exceeds the price goal of $50 per share by June 30, 2014 (interim trigger date) or $75 per share by June 30, 2016 (final trigger date). Under the Plan, each eligible employee may receive (upon approval by the Compensation Committee) a distribution of 20% of base salary if the interim trigger is met or 50% of base salary if the final trigger is met (or an incremental 30% of base salary if the Company paid interim distributions upon achievement of the interim trigger). In accordance with the Plan, in the event the interim or final trigger date occurs between July 1, 2012 and December 31, 2014, 25% of the total distribution will be paid immediately and the remaining 75% will be deferred and paid at a future date as described in the Plan. For final trigger dates occurring between January 1, 2015 and June 30, 2016, total distribution will be paid immediately. The Compensation Committee can increase any of the payments as applied to any employee if desired. Any deferred portion will only be paid if the participant is employed by the Company, or has terminated employment by reason of retirement, death or disability (as provided in the Plan). Payments are subject to certain other restrictions contained in the Plan. On February 11, 2013, the Company achieved the price goal of $50 per share prior to the interim trigger date. Accordingly, a total distribution of approximately $6.8 million will be made to the Company's eligible employees under the Plan, of which 25% of the total distribution, or $1.7 million, was paid in February 2013 and the remaining 75%, or $5.1 million, will be deferred until August 2014 in accordance with the Plan.

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 93-6 -Paragraph 53 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 123R -Paragraph 64, 65, A240 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 + Details
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