Note 12 - Share-Based Compensation

Questar may issue stock options, restricted shares, RSUs and performance shares to certain officers, employees and non-employee directors under the LTSIP. Questar recognizes expense over time as the stock options, restricted shares, RSUs and performance shares vest. Total share-based compensation expense amounted to $12.4 million in 2014 compared to $10.2 million in 2013 and $9.9 million in 2012. Cash flow from income tax benefits in excess of recognized compensation expense amounted to $2.2 million in 2014 and $14.0 million in 2013. There were no cash flows from income tax benefits in excess of recognized compensation expense in 2012. At December 31, 2014, there were 4,053,586 shares available for future grant. The following disclosures under the headings Stock Options, Restricted Shares, Restricted Stock Units and Performance Shares include all awards granted to officers, employees and non-employee directors of Questar and its affiliates. The disclosures under the heading Questar Gas and Questar Pipeline describe the subset of total awards granted to officers and employees of those companies.

Stock Options

Stock options have terms ranging from five to ten years, with a majority issued with a seven- to ten-year term. Options generally vest in three or four equal, annual installments. There were no unvested stock options at December 31, 2014 or 2013. No stock options have been granted since 2010 and no stock options were forfeited in 2014.

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



	Options Outstanding		Exercise Price Range					Weighted-Average Exercise Price
Balance at December 31, 2013	717,840		$	7.84	-	$	17.35	$	11.84
Exercised	(282,333	)	7.84		-	13.24		10.88
Balance at December 31, 2014	435,507		$	11.40	-	$	17.35	$	12.46



Options Outstanding									Options Exercisable
Range of exercise prices					Number outstanding at Dec. 31, 2014	Weighted-average remaining term in years	Weighted-average exercise price		Number exercisable at Dec. 31, 2014	Weighted-average exercise price
$	11.40		$	11.40	239,174	1.2	$	11.40	239,174	$	11.40
$	13.10	-	17.35		196,333	2.0	13.75		196,333	13.75
					435,507	1.5	$	12.46	435,507	$	12.46

As of December 31, 2014, the aggregate intrinsic value of outstanding and exercisable options was $5.6 million.

Certain officers, employees and non-employee directors of former subsidiary QEP Resources held 245,332 Questar stock options with a weighted-average exercise price of $11.34 per share and a weighted-average remaining life of 1.4 years at December 31, 2014.

Restricted Shares

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-year period from the grant date. Unvested restricted shares have voting and dividend rights; however, sale or transfer is restricted. The weighted-average remaining vesting period of unvested restricted shares at December 31, 2014, was 2 months. No restricted shares were granted in 2014. Transactions involving restricted shares under the terms of the LTSIP for the year ended December 31, 2014, are summarized below:



	Restricted Shares Outstanding		Price Range					Weighted- Average Price
Balance at December 31, 2013	392,327		$	15.22	-	$	21.53	$	18.28
Vested	(289,312	)	15.22		-	21.53		17.88
Forfeited	(661	)	19.39		-	20.90		20.00
Balance at December 31, 2014	102,354		$	17.97	-	$	21.53	$	19.41

Restricted Stock Units

Questar may grant RSUs to certain of its officers, employees and non-employee directors under the LTSIP. RSUs are valued at the grant-date market price and amortized to expense over the vesting period. RSU grants typically vest in equal installments over a three-year period from the grant date. Certain grants vest in a single installment after a specified period. RSUs do not have voting rights until shares are distributed, but they do have dividend equivalent rights. Most RSU dividend equivalents are paid in cash quarterly and vest immediately. One share of Questar common stock will be distributed for each RSU at the time of vesting. The weighted-average remaining vesting period of unvested RSUs at December 31, 2014, was 12 months.

Transactions involving RSUs under the terms of the LTSIP for the year ended December 31, 2014, are summarized below:



	RSUs Outstanding		Price Range					Weighted-Average Price
Balance at December 31, 2013	316,268		$	22.17	-	$	25.44	$	23.62
Granted	351,066		22.14		-	24.70		23.59
Vested	(131,007	)	22.17		-	25.44		23.64
Forfeited	(10,225	)	23.60		-	23.62		23.60
Balance at December 31, 2014	526,102		$	22.14	-	$	24.70	$	23.60

Questar may grant RSUs with deferred share distributions (deferred RSUs) to certain of its non-employee directors under the LTSIP. Grants of deferred RSUs typically vest in a single installment over a one-year period from the grant date. Dividend equivalents on deferred RSUs accrue quarterly and are subject to the vesting, distribution and voting conditions of the underlying award. One share of Questar common stock will be distributed for each vested deferred RSU (including accrued reinvested dividend equivalents) at the time of the grantees' separation from service. At December 31, 2014, Questar's outstanding deferred RSUs totaled 21,860 with a weighted-average price of $23.61 per share. The weighted-average remaining vesting period of unvested deferred RSUs at December 31, 2014, was 2 months.

Performance Shares

Questar may grant performance shares to certain of its officers under the terms of the LTSIP. The awards are designed to motivate and reward these officers for long-term Company performance and provide an incentive for them to remain with the Company. The target number of performance shares for each officer is subject to a payout adjustment multiplier ranging from 0.00 to 3.00 based on the Company's total shareholder return relative to a specified peer group of companies over a three-year performance period. Each three-year performance period commences at the beginning of the year of grant. Distributions of performance shares, if any, take place in the quarter following the conclusion of the performance period, so long as such officer was employed by the Company or its affiliates as of the last day of the performance period.

The Company uses the Monte Carlo simulation method to estimate the grant-date fair value of performance share awards. Fair value estimates rely upon subjective assumptions used in the mathematical model and may not be representative of future results. The estimated fair value of performance shares granted and major assumptions used in the simulation at the date of grant are listed below:



	2014			2013			2012
	Performance Share Input Variables
Fair value of performance shares at grant date	$	31.07		$	39.62		$	25.42
Risk-free interest rate	0.67		%	0.40		%	0.35		%
Expected price volatility	18.6		%	19.0		%	22.0		%
Expected dividend yield	3.05		%	2.88		%	3.35		%
Expected life in years	2.9			2.9			2.9

For performance shares granted in 2012 and 2013, half of any award will be distributed in shares of Questar common stock and half in cash. Subsequent awards will be distributed in shares, with no cash component. For share-settled performance share awards, the grant-date fair value of the awards is amortized to expense over the vesting period. The liability associated with awards to be settled in cash is adjusted to its estimated fair value through earnings on a quarterly basis. Equity- and liability-based performance share compensation expense amounted to $3.8 million in 2014, $2.0 million in 2013 and $1.8 million in 2012. The weighted-average remaining vesting period of unvested performance shares at December 31, 2014, was 18 months.

Transactions involving performance shares under the terms of the LTSIP for the year ended December 31, 2014, are summarized below:



	Target Number of Performance Shares Outstanding		Grant-Date Fair Value Range					Weighted-Average Grant-Date Fair Value
Balance at December 31, 2013	387,879		$	18.23	-	$	39.62	$	27.61
Granted	139,611		31.07			31.07		31.07
Payout adjustment⁽¹⁾	(76,657	)	18.23			18.23		18.23
Distributed⁽¹⁾	(51,104	)	18.23			18.23		18.23
Forfeited	(8,480	)	25.42		-	39.62		33.33
Balance at December 31, 2014^(2),(3)	391,249		$	25.42	-	$	39.62	$	31.78

⁽¹⁾Actual shares and cash distributed were determined by multiplying the target shares by 0.40 to reflect Questar's final total shareholder return ranking relative to the specified peer companies for the performance period from January 1, 2011 through December 31, 2013. The total amount paid for the cash half of the distribution was $0.6 million.

⁽²⁾The total undistributed balance consists of 262,979 of share-settled target shares and 128,270 of cash-settled target shares.

⁽³⁾The total undistributed balance includes 134,778 vested target shares that are expected to be distributed in the first quarter of 2015 using a payout adjustment multiplier of 1.00. The multiplier reflects Questar's final total shareholder return ranking relative to the specified peer companies for the performance period from January 1, 2012 through December 31, 2014. The distribution will be half in shares, half in cash. These target shares are included in the amounts described in note (2), immediately above.

As of December 31, 2014, the total unrecognized compensation cost related to outstanding stock options, restricted shares, RSUs and performance shares was $8.8 million, which the Company expects to recognize over a weighted-average period of 12 months.

Questar Gas and Questar Pipeline

Questar may issue stock options, restricted shares, RSUs and performance shares to certain officers and employees of Questar Gas and Questar Pipeline under the LTSIP. Questar Gas and Questar Pipeline recognize expense over time as the stock options, restricted shares, RSUs and performance shares vest. Questar Gas share-based compensation expense amounted to $1.6 million in 2014 compared with $1.4 million in 2013 and $1.2 million in 2012. Questar Pipeline share-based compensation expense amounted to $2.1 million in 2014 compared with $2.0 million in 2013 and 2012.

The following table summarizes the stock options held under the LTSIP by Questar Pipeline officers and employees at December 31, 2014. There were no stock options held under the LTSIP by Questar Gas officers or employees at December 31, 2014.



Options Outstanding									Options Exercisable
Range of exercise prices					Number outstanding at Dec. 31, 2014	Weighted-average remaining term in years	Weighted-average exercise price		Number exercisable at Dec. 31, 2014	Weighted-average exercise price
Questar Pipeline
$	11.40	-	$	13.10	58,933	1.5	$	11.95	58,933	$	11.95

The following table summarizes the restricted shares held under the LTSIP by Questar Gas and Questar Pipeline officers and employees at December 31, 2014. The weighted-average remaining vesting periods of unvested restricted shares at December 31, 2014, for Questar Gas and Questar Pipeline were 2 months and 3 months, respectively.



	Restricted Shares Outstanding	Price Range					Weighted-Average Price
Questar Gas	12,635	$	19.39		$	19.39	$	19.39
Questar Pipeline	25,269	$	19.39	-	$	19.56	$	19.42

The following table summarizes the RSUs held under the LTSIP by Questar Gas and Questar Pipeline officers and employees at December 31, 2014. The weighted-average remaining vesting period of unvested RSUs at December 31, 2014, for Questar Gas and Questar Pipeline was 12 months.



	RSUs Outstanding	Price Range					Weighted-Average Price
Questar Gas	82,351	$	23.09	-	$	23.62	$	23.61
Questar Pipeline	95,841	$	23.09	-	$	23.62	$	23.59

The following table summarizes the target number of performance shares held under the LTSIP by Questar Gas and Questar Pipeline officers at December 31, 2014. The weighted-average remaining vesting period of unvested performance shares at December 31, 2014, for Questar Gas and Questar Pipeline was 18 months.



	Target Number of Performance Shares Outstanding	Grant-Date Fair Value Range					Weighted-Average Grant-Date Fair Value
Questar Gas	33,826	$	25.42	-	$	39.62	$	31.73
Questar Pipeline	59,956	$	25.42	-	$	39.62	$	31.59