Note 11 - Share-Based Compensation

Questar issues stock options and restricted shares to certain officers, employees and non-employee directors under its LTSIP. To generally preserve the potential benefits under the LTSIP prior to the Spinoff, stock options and restricted share awards outstanding as of June 30, 2010, were adjusted and bifurcated into stock options and restricted share awards for both Questar and QEP, respectively. The exercise price of options and the grant-date prices of restricted shares were recast using the ratio of the June 30, 2010, closing prices of Questar, $14.66 or 32.23%, and QEP, $30.83 or 67.77%.

Questar recognizes expense over time as the stock options or restricted shares vest. Share-based compensation expense amounted to $10.1 million in 2011 compared to $15.4 million in 2010 and $9.3 million in 2009. Deferred share-based compensation, representing the nonvested value of restricted share awards, amounted to $3.6 million at December 31, 2011, and $6.3 million at December 31, 2010. Deferred share-based compensation is included in common stock. Cash flow from income tax benefits in excess of recognized compensation expense amounted to $9.2 million in 2011, $8.4 million in 2010 and $3.6 million in 2009. There were 7,580,245 shares available for future grant at December 31, 2011.

The Company uses the Black-Scholes-Merton mathematical model in estimating 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 was intended for measuring the value of options traded on an exchange. No stock options were granted in 2011. The calculated fair value of options granted and major assumptions used in the model at the date of the 2010 and 2009 grants are listed below:



	2010		2009
	Stock Option Input Variables		Range of Stock Option Variables
Fair value of options at grant date	$13.10		$10.01 - $11.40
Risk-free interest rate	2.30	%	1.78% - 2.51%
Expected price volatility	30.3	%	28.1% - 29.9%
Expected dividend yield	1.18	%	1.39% - 1.61%
Expected life in years	5.2		5.0 - 5.0

Unvested stock options decreased by 115,068 shares to 117,794 shares in 2011. No stock options were granted or forfeited in 2011. Stock-option transactions under the terms of the LTSIP are summarized for the year ended December 31, 2011, below:



	Options Outstanding		Price Range	Weighted Average Price
Balance at December 31, 2010	2,560,059		$ 3.70 - $17.35	$	7.30
Exercised	(786,424	)	3.70 - 13.10	4.49
Balance at December 31, 2011	1,773,635		$ 3.70 - $17.35	$	8.54



Options Outstanding					Options Exercisable			Unvested Options
Range of exercise prices	Number outstanding at Dec. 31, 2011	Weighted-average remaining term in years	Weighted-average exercise price		Number exercisable at Dec. 31, 2011	Weighted-average exercise price		Number unvested at Dec. 31, 2011	Weighted- average exercise price
$ 3.70 - $ 4.37	791,261	1.0	$	4.29	791,261	$	4.29	—	$	—
7.84 - 11.40	449,174	3.9	10.61		390,177	10.49		58,997	11.40
12.43 - 17.35	533,200	3.2	13.11		474,403	13.11		58,797	13.10
	1,773,635	2.4	$	8.54	1,655,841	$	8.28	117,794	$	12.25

Restricted shares are valued at the grant-date market price and amortized to expense over the vesting period. Most restricted share grants vest in equal installments over a three or four year period from the grant date. The weighted average vesting period of unvested restricted shares at December 31, 2011, was 14 months. Transactions involving restricted shares under the terms of the LTSIP for the year ended December 31, 2011, are summarized below:



	Restricted Shares Outstanding		Price Range	Weighted Average Price
Balance at December 31, 2010	568,707		$11.40 - $20.31	$	14.66
Granted	348,127		17.50 - 17.97	17.96
Distributed	(133,391	)	11.40 - 20.31	14.09
Forfeited	(11,893	)	11.40 - 17.97	16.45
Balance at December 31, 2011	771,550		$11.40 - $17.97	$	16.22

Restricted stock units granted typically vest in equal installments over a three year period from the grant date. At December 31, 2011, Questar's outstanding restricted stock units totaled 69,107 with a weighted-average price of $15.34 per share and a weighted-average vesting period of 12 months.

As a result of the Spinoff and bifurcation of share-based awards, restricted QEP shares and QEP stock options were granted to certain officers, employees and non-employee directors of Questar. The awards included 134,008 unvested restricted shares with a weighted-average price of $29.41 per share and 121,127 unvested stock options with a weighted-average price of $25.71 per share. Questar will recognize expense in future periods for these unvested share-based awards. In addition, certain QEP officers, employees and non-employee directors hold 894,283 Questar stock options with a weighted-average exercise price of $11.17 per share and a weighted-average remaining life of 4.1 years and 323,346 Questar unvested restricted shares with a weighted-average price of $13.50.

In the first quarter of 2011, Questar granted to certain Company executive officers a total of 128,021 performance shares under the terms of the LTSIP. The awards were designed to motivate and reward these executives for long-term Company performance and provide an incentive for them to remain with the Company. The target number of performance shares for each executive officer is subject to adjustment upward or downward based on the Company's performance over the three-year performance period ending December 31, 2013 with respect to specified performance criteria relative to a specified peer group of companies. The actual performance shares awarded, if any, will be distributed in the first quarter of 2014 so long as such executive officer was employed by the Company or its affiliates as of December 31, 2013. Half of any award will be distributed in shares of Company common stock and half in cash. The Monte Carlo simulation method was used to estimate the grant-date fair value of the performance share awards at $18.23 per share. The liability awards to be settled in cash will be marked-to-market at least annually. Equity- and liability-based performance share compensation expense amounted to $0.6 million in 2011. As of December 31, 2011, the total unrecognized compensation cost related to outstanding stock options, restricted stock, RSUs and performance shares was $7.6 million, which the Company expects to recognize over a weighted average period of 14 months.

Questar issues stock options and restricted shares to certain officers and employees of Questar Pipeline and Questar Gas under its LTSIP and recognizes expense over time as the stock options or restricted shares vest. Questar Pipeline share-based compensation expense amounted to $1.8 million in 2011 compared with $1.3 million in 2010 and $1.1 million in 2009. Questar Gas share-based compensation expense amounted to $1.1 million in 2011 compared with $1.4 million in 2010 and $1.0 million in 2009.

The following table summarizes the stock options held under the LTSIP of Questar Pipeline and Questar Gas at December 31, 2011:



Options Outstanding					Options Exercisable			Unvested Options
Range of exercise prices	Number outstanding at Dec. 31, 2011	Weighted-average remaining term in years	Weighted-average exercise price		Number exercisable at Dec. 31, 2011	Weighted-average exercise price		Number unvested at Dec. 31, 2011	Weighted- average exercise price
Questar Pipeline
$ 3.70 - $13.10	231,514	3.1	$	8.56	194,650	$	7.86	36,864	$	12.25
Questar Gas
$ 3.70 - $13.10	99,046	1.6	$	5.66	91,047	$	5.07	7,999	$	12.39

The following table summarizes the restricted shares held under the LTSIP of Questar Pipeline and Questar Gas at December 31, 2011. The weighted average vesting period of unvested restricted shares at December 31, 2011, for Questar Pipeline was 13 months, and 14 months for Questar Gas.



	Restricted Shares Outstanding	Price Range	Weighted- Average Price

Questar Pipeline	153,888	$11.40 - $17.97	$	16.18
Questar Gas	89,561	$11.40 - $17.97	$	16.40