Chesapeake Energy 2014 Annual Report Download - page 119

Download and view the complete annual report

Please find page 119 of the 2014 Chesapeake Energy annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 173

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
111
The vesting of certain stock option grants may result in state and federal income tax benefits, or reductions in
these benefits, related to the difference between the market price of the common stock at the date of vesting and the
date of grant. During 2014, 2013 and 2012, we recognized excess tax benefits related to stock options of $3 million,
$1 million and $2 million, respectively. Each adjustment was recorded to additional paid-in capital and deferred income
taxes.
Restricted Stock and Stock Option Compensation. We recognized the following compensation costs related to
restricted stock and stock options for the years ended December 31, 2014, 2013 and 2012:
Years Ended December 31,
2014 2013 2012
($ in millions)
General and administrative expenses $ 46 $ 60 $ 71
Oil and natural gas properties 29 52 71
Oil, natural gas and NGL production expenses 18 21 24
Marketing, gathering and compression expenses 6 7 15
Oilfield services expenses 5 10 10
Total $ 104 $ 150 $ 191
Liability-Classified Awards
Performance Share Units. In 2012, 2013 and 2014, we granted PSUs to senior management that settle in cash
at the end of their respective performance periods and vest ratably over their respective terms. The 2012 awards were
granted in one-, two- and three-year tranches and are settled in cash on the first, second and third anniversary dates
of the awards, and the 2013 and 2014 awards are settled in cash on the third anniversary of the awards. The ultimate
amount earned is based on achievement of performance metrics established by the Compensation Committee of the
Board of Directors, which include total shareholder return (TSR) and, for certain of the awards, the achievement of
operational performance goals such as production and proved reserve growth.
For PSUs granted in 2012, each of the TSR and operational payout components can range from 0% to 125%
resulting in a maximum total payout of 250%. For PSUs granted in 2013, the TSR component can range from 0% to
125% and each of the two operational components can range from 0% to 62.5%; however, the maximum total payout
is capped at 200%. For PSUs granted in 2014, the TSR component can range from 0% to 200%, with no operational
components. For the 2013 and 2014 PSUs, the payout percentage is capped at 100% if the Company’s absolute TSR
is less than zero. Compensation expense associated with the PSU grants is recognized over the service period. The
number of units settled is dependent upon the Company’s estimates of the underlying performance measures. For the
2014 awards, the Company utilized the Monte Carlo simulation for the TSR performance measure, and the following
assumptions to determine the grant date fair value of the PSUs:
Volatility 41.37%
Risk-free interest rate 0.76%
Dividend yield for value of awards 1.36%