Note 8 - Share-Based Compensation

Questar may issue stock options, restricted shares, RSUs and performance shares to certain of its 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 $8.5 million for the first nine months of 2014 compared to $7.7 million in 2013. Deferred share-based compensation, representing the unvested value of restricted share and RSU awards, amounted to $6.8 million at September 30, 2014. Cash flow from income tax benefits in excess of recognized compensation expense amounted to $1.3 million for the first nine months of 2014 compared to $1.5 million for the same period in 2013. There were 4,041,007 shares available for future grants at September 30, 2014.

Stock Options

There were no unvested stock options at September 30, 2014. No stock options were granted or forfeited in the first nine months of 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	(67,559	)	7.84		-	13.10		8.78
Balance at September 30, 2014	650,281		$	7.84	-	$	17.35	$	12.16



Options Outstanding									Options Exercisable
Range of exercise prices					Number outstanding at Sept. 30, 2014	Weighted-average remaining term in years	Weighted-average exercise price		Number exercisable at Sept. 30, 2014	Weighted-average exercise price
$	7.84	-	$	11.40	341,948	1.3	$	10.90	341,948	$	10.90
13.10		-	17.35		308,333	1.8	13.55		308,333	13.55
					650,281	1.5	$	12.16	650,281	$	12.16

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 1.7 years at September 30, 2014.

Restricted Shares

Restricted share grants typically vest in equal installments over a three-year period from the grant date. Several grants vest in a single installment after a specified period. The weighted-average remaining vesting period of unvested restricted shares at September 30, 2014, was 5 months. No restricted shares were granted in the first nine months of 2014.

Transactions involving restricted shares under the terms of the LTSIP 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	(284,154	)	15.22		-	21.53		17.85
Forfeited	(661	)	19.39		-	20.90		20.00
Balance at September 30, 2014	107,512		$	15.98	-	$	21.53	$	19.41

Restricted Stock Units

Questar may grant RSUs to certain of its officers, employees and non-employee directors under the LTSIP. One share of Questar common stock will be distributed for each RSU at the time of vesting. RSU grants typically vest in equal installments over a three-year period from the grant date. Several grants vest in a single installment after a specified period. The weighted-average remaining vesting period of unvested RSUs at September 30, 2014, was 15 months. Transactions involving RSUs under the terms of the LTSIP are summarized below:



	RSUs Outstanding		Price Range					Weighted-Average Price
Balance at December 31, 2013	316,268		$	22.17	-	$	25.44	$	23.62
Granted	353,540		22.81		-	24.70		23.60
Vested	(131,007	)	22.17		-	25.44		23.64
Forfeited	(10,225	)	23.60		-	23.62		23.60
Balance at September 30, 2014	528,576		$	22.17	-	$	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. At September 30, 2014, Questar's outstanding deferred RSUs totaled 17,355 with a weighted-average price of $23.60 per share. The weighted-average remaining vesting period of unvested deferred RSUs at September 30, 2014, was 5 months. 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.

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 adjustment upward or downward 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.

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. Thereafter, any award 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 Monte Carlo simulation method is used to estimate the grant-date fair value of the performance share awards. 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 $2.0 million in the first nine months of 2014 and $1.2 million in the first nine months of 2013. The weighted-average remaining vesting period of unvested performance shares at September 30, 2014, was 15 months.

Performance share transactions under the terms of the LTSIP 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	(5,660	)	25.42		-	39.62		33.06
Balance at September 30, 2014	394,069		$	25.42	-	$	39.62	$	31.80

⁽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 above September 30, 2014 balance includes 6,475 vested target performance shares with a weighted-average grant-date fair value of $30.08 and expected distribution dates ranging from the first quarter of 2015 through the first quarter of 2017.