QEP Resources, Inc. (QEP or the Company) is an independent crude oil and natural gas exploration and production company with operations in two regions of the United States: the Southern Region (primarily in Texas) and the Northern Region (primarily in North Dakota). Unless otherwise specified or the context otherwise requires, all references to "QEP" or the "Company" are to QEP Resources, Inc. and its subsidiaries on a consolidated basis. QEP's corporate headquarters are located in Denver, Colorado and shares of QEP's common stock trade on the New York Stock Exchange (NYSE) under the ticker symbol "QEP".

The interim Condensed Consolidated Financial Statements (financial statements) contain the accounts of QEP and its majority-owned or controlled subsidiaries. The financial statements were prepared in accordance with Generally Accepted Accounting Principles (GAAP) in the United States and with the instructions for Quarterly Reports on Form 10-Q and Regulation S-X. All intercompany accounts and transactions have been eliminated in consolidation.

The financial statements reflect all normal recurring adjustments and accruals that are, in the opinion of management, necessary for a fair statement of financial position and results of operations for the interim periods presented. Interim financial statements do not include all of the information and notes required by GAAP for annual consolidated financial statements. These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

The preparation of the financial statements and Notes in conformity with GAAP requires that management make estimates and assumptions that affect revenues, expenses, assets and liabilities, and disclosure of contingent assets and liabilities. Actual results could differ from estimates. Further, these estimates and other factors, including those outside the Company's control, such as the impact of sustained lower commodity prices, could have a significant adverse impact to the Company's financial condition, results of operations and cash flows. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Certain prior period balances on the Condensed Consolidated Balance Sheets (balance sheets) and Condensed Consolidated Statements of Cash Flows (statements of cash flows) have been reclassified to conform to the current year presentation. Such reclassifications had no effect on the Company's net income (loss), earnings (loss) per share or retained earnings previously reported.

Cash equivalents primarily consist of highly liquid investments in securities with original maturities of three months or less made through commercial bank accounts that result in available funds the next business day. Restricted cash are funds that are legally or contractually reserved for a specific purpose and therefore not available for immediate or general business use.

(1) As of September 30, 2020 and 2019, the restricted cash balance is cash held in an escrow account related to a title dispute between outside parties in the Williston Basin. The restricted cash balance is recorded within "Other noncurrent assets" on the balance sheets.

The tax legislation enacted in December 2017 reduced our federal corporate tax rate from 35% to 21% and eliminated the corporate Alternative Minimum Tax (AMT), allowing the Company to claim AMT refunds for AMT credits carried forward from prior tax years. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) enacted in March 2020 permitted the Company to carry back its net operating loss (NOL) generated in 2018 and 2019, creating additional AMT credits, and accelerate all of its AMT refunds. The Company received $170.7 million of AMT credit refunds, inclusive of $5.6 million in interest income, during the three months ended September 30, 2020 and $73.9 million of AMT credit refunds in 2019. As of September 30, 2020, the Company expects to receive an additional $81.0 million in AMT credit refunds due to additional NOL carrybacks relating to the 2018 and 2019 tax years. The NOLs that were generated are primarily due to the issuance of final regulations by the U.S Department of Treasury in July 2020 that relate to the deductibility of interest expense. Of the $81.0 million in AMT credit refunds to be received, $50.1 million is included in "Income taxes receivable" and $30.9 million is included in "Other noncurrent assets" on the balance sheets as of September 30, 2020.

QEP’s effective federal and state income tax rate was 52.9% during the third quarter of 2020 compared to a rate of 24.7% during the third quarter of 2019. The increase in the federal and state income tax rate was primarily driven by the impact of discrete items (unusual or infrequent items impacting the tax provision) and permanent differences recognized during the third quarter of 2020 and 2019. During the third quarter 2020 the effective rate was above the statutory rate due to discrete items recognized in the third quarter of 2020, including the remeasurement of deferred taxes due to NOL carrybacks under the CARES Act to a year with a higher federal tax rate, partially offset by a state tax payment. During the third quarter 2019 the rate was driven higher than the statutory rate by the recognition of a discrete item related to share-based compensation and a permanent difference related to the change in the estimated amount of non-deductible executive compensation.

QEP’s effective federal and state income tax rate was negative 46.5% during the nine months ended September 30, 2020 compared to a rate of 130.8% during the nine months ended September 30, 2019. The decrease in the federal and state income tax rate was primarily driven by the impact of discrete items and permanent differences recognized during the nine months ended September 30, 2020 and 2019. During the first three quarters of 2020 the primary discrete item lowering the effective tax rate was the remeasurement of deferred taxes due to NOL carrybacks under the CARES Act to a year with a higher federal tax rate. The primary discrete items recognized during the nine months ended September 30, 2019 related to the remeasurement of deferred taxes associated with the sale of QEP's Haynesville/Cotton Valley assets in January 2019, share-based compensation adjustments and a permanent difference related to the estimated amount of non-deductible executive compensation.

QEP provides pension and other postretirement benefits to certain employees through three retiree benefit plans: the QEP Resources, Inc. Retirement Plan (the Pension Plan), the Supplemental Executive Retirement Plan (the SERP), and a postretirement medical plan (the Medical Plan). The Pension Plan is a closed, qualified, defined-benefit pension plan that is funded and provides pension benefits to certain QEP employees. The Pension Plan was amended in June 2015 and was frozen, such that active participants do not earn any additional accrued benefits on or after January 1, 2016. The SERP is a nonqualified retirement plan that is unfunded and provides postretirement benefits to certain QEP employees. The Medical Plan is a self-insured plan. It is unfunded and provides other postretirement benefits including certain health care and life insurance benefits for certain retired QEP employees.

During the nine months ended September 30, 2020, the Company made contributions of $11.5 million to its retiree benefit plans (including $4.0 million to the Pension Plan and $7.5 million to the SERP) and expects to contribute an additional $2.3 million during the remainder of 2020 (including $2.2 million to the SERP and $0.1 million to the Medical Plan). Contributions to the Pension Plan increase plan assets whereas contributions to the SERP and Medical Plan are used to fund current benefit payments.

The Company recognizes service costs related to SERP and Medical Plan benefits on the Condensed Consolidated Statements of Operations (statements of operations) within "General and administrative" expense. All other expenses related to the Pension Plan, SERP and Medical Plan are recognized on the statements of operations within "Interest and other income (expense)".

QEP also offers a nonqualified, unfunded deferred compensation wrap plan (Wrap Plan) to certain individuals. The Wrap Plan provides participants with certain tax planning benefits as well as supplemental funds for retirement and allows participants to defer the receipt of various types of compensation. Participants are able to select from a variety of investment options, including mutual funds and phantom QEP shares. As of September 30, 2020 and December 31, 2019, the Wrap Plan obligations for participants' future benefits were $25.0 million and $26.8 million, respectively, and are included in "Other long-term liabilities" on the balance sheets. The Company established a trust (Rabbi Trust) to hold the investments associated with the Wrap Plan (other than phantom QEP shares) and to pay Wrap Plan obligations as they arise. As of September 30, 2020 and December 31, 2019, the marketable securities held in the Rabbi Trust were $23.6 million and $23.1 million, respectively, and are included in "Other noncurrent assets" on the balance sheets.

Changes in the fair value of Wrap Plan obligations and marketable securities are recorded as "Deferred compensation mark-to-market adjustments" and "Unrealized gain/loss on marketable securities" within "General and administrative" and "Interest and other income (expense)", respectively, on the statements of operations. "Deferred compensation mark-to-market adjustments" and "Unrealized gain/loss on marketable securities" for the three and nine months ended September 30, 2020 and 2019, respectively, are summarized in the table below:

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of credit losses on financial instruments, which requires a company immediately recognize management's current estimated credit losses ("CECL") for all financial instruments that are not accounted for at fair value through net income. Previously, credit losses on financial assets were only required to be recognized when they were incurred. The Company adopted ASU 2016-13 on January 1, 2020. The guidance did not have a significant impact on the financial statements or notes accompanying the financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform, which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (LIBOR). The amendment provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. This amendment is effective upon issuance and expires on December 31, 2022. The Company is currently assessing the impact of the LIBOR transition and this ASU on the Company's financial statements.