0000751652 2009-06-30 0000751652 2008-06-30 0000751652 2008-01-01 2008-06-30 0000751652 2008-12-31 0000751652 2009-01-01 2009-06-30 0000751652 2009-04-01 2009-06-30 0000751652 2008-04-01 2008-06-30 0000751652 2007-12-31 0000751652 2009-07-31 iso4217:USD xbrli:shares iso4217:USD xbrli:shares Note 10 - Change in Ownership Interest Gas Management constructed a gathering pipeline for $203.5 million and contributed the asset to Rendezvous Gas Services LLC (Rendezvous). Gas Management's ownership interest increased from 50% to 78%. As a result, common stock was reduced by $31.6 million and noncontrolling interest increased by $28.5 million. Rendezvous operates gas-gathering facilities for Pinedale Anticline and Jonah field producers for delivery to various interstate pipelines. No -23900000 -14200000 -195600000 -109500000 116800000 -77800000 900000 700000 12200000 8500000 176.1 176.3 176.0 176.3 true 49900000 1491700000 70700000 68400000 7349500000 7133000000 0.44 0.98 0.82 2.03 -27800000 16300000 -162700000 30000000 Note 2 - Basis of Presentation of Interim Consolidated Financial Statements The interim condensed consolidated financial statements contain the accounts of Questar and its majority-owned or controlled subsidiaries. The condensed consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP) and with the instructions for quarterly reports on Form 10-Q and Regulations S-X and S-K. All significant intercompany accounts and transactions have been eliminated in consolidation. On January 1, 2009, Questar adopted Statement of Financial Accounting Standards (SFAS) 160 "Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51." SFAS 160 requires noncontrolling interests, previously known as minority interest, in a subsidiary be clearly identified, labeled, and presented in the consolidated financial statements separate from the parent's equity; the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented in the consolidated income statement; changes in a parent's ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently; and any retained noncontrolling equity investment in a former subsidiary be initially measured at fair value. The provisions of SFAS 160 are applied prospectively from the date of adoption, except for the presentation and disclosure requirements, which are applied retrospectively for all periods presented. The condensed consolidated financial statements reflect all normal, recurring adjustments and accruals that are, in the opinion of management, necessary for a fair presentation of financial position and results of operations for the interim periods presented. Interim condensed consolidated financial statements do not include all of the information and notes required by GAAP for audited annual consolidated financial statements. These condensed consolidated 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, 2008. Certain reclassifications were made to prior-period financial statements to conform with the current presentation. The preparation of the condensed consolidated financial statements and notes in conformity with GAAP requires that management make estimates and assumptions that affect the amounts of revenues, expenses, assets and liabilities, and disclosure of contingent assets and liabilities. Actual results could differ from estimates. The results of operations for the three months and six months ended June 30, 2009, are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. The condensed consolidated financial statements reflect management's consideration of known subsequent events as of August 4, 2009, the date that the consolidated financial statements were issued. All dollar and share amounts in this quarterly report on Form 10-Q are in millions, except per-share information and where otherwise noted. Yes 5600000 14000000 -699400000 -1403300000 48600000 45800000 12200000000 10-Q 0 -9000000 344400000 431300000 0 23900000 14200000 0 174.1 172.7 173.9 172.6 138500000 159500000 544200000 549700000 Yes 0000751652 -175200000 708600000 1300000 12200000 7200000 3000000 3700000 0 104600000 130600000 600000 2100000 1100000 4500000 8900000 3800000 12000000 7300000 Note 6 - Fair-Value Measures Beginning in 2008, Questar adopted the effective provisions of SFAS 157 "Fair-Value Measures." SFAS 157 defines fair value in applying GAAP, establishes a framework for measuring fair value and expands disclosures about fair-value measurements. SFAS 157 does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 establishes a fair-value hierarchy. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The Level 2 fair value of derivative contracts is located in Note 7. The fair value of these derivative contracts is based on market prices posted on the NYMEX on the last trading day of the reporting period. In February 2008, the FASB issued FSP Financial Accounting Standard (FAS) 157-2 "Partial Deferral of the Effective Date of Statement 157," which delayed the effective date of SFAS 157 for one year for certain nonfinancial assets and nonfinancial liabilities, except those recognized or disclosed at fair value in the financial statements on a recurring basis. On January 1, 2009, Questar adopted, without material impact on the consolidated financial statements, the provisions of SFAS 157 related to nonfinancial assets and nonfinancial liabilities that are not required or permitted to be measured at fair value on a recurring basis, which includes, among other things, asset retirement obligations. The valuation of asset retirement obligations is a Level 3 fair value and is discussed in Note 8. In April 2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board 28-1 "Interim Disclosures about Fair Value of Financial Instruments," which requires disclosures about fair value of financial instruments for interim periods as well as in annual financial statements. The FSP is effective for interim reporting periods ending after June 15, 2009. The following table discloses the fair value and related carrying amount of certain financial instruments not disclosed in other notes to the consolidated financial statements in this quarterly report on Form 10-Q: Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value June 30, 2009 December 31, 2008 (in millions)Financial assets Cash and cash equivalents $ 23.9 $ 23.9 Financial liabilities Checks outstanding in excess of cash balances $ 14.4 $ 14.4 Short-term debt 35.5 35.5 231.1 231.1 Long-term debt 2,172.2 2,145.2 2,122.2 1,994.8 Cash and cash equivalents, checks outstanding in excess of cash balances and short-term debt - the carrying amount approximates fair value. Long-term debt - the carrying amount of variable-rate debt approximates fair value. The fair value of fixed-rate debt is based on the discounted present value of cash flows using the Company's current borrowing rates. --12-31 Questar Corporation 3415100000 3418000000 35500000 231100000 119400000 106900000 0.125 0.1225 0.25 0.245 175500000 284600000 442600000 593200000 -200000 3500000 1700000 3400000 180100000 115200000 341400000 225900000 47400000 45000000 88600000 87300000 Note 8 - Asset Retirement Obligations (ARO) Questar recognizes ARO in accordance with SFAS 143 "Accounting for Asset Retirement Obligations." SFAS 143 addresses the financial accounting and reporting of the fair value of legal obligations associated with the retirement of tangible long-lived assets. At Questar, ARO applies primarily to abandonment costs associated with gas and oil wells, production facilities and certain other properties. The fair value of retirement costs are estimated by Company personnel based on abandonment costs of similar properties (Level 3 inputs under the provisions of SFAS 157) available to field operations and depreciated over the life of the related assets. Revisions to ARO estimates result from changes in expected cash flows or material changes in estimated retirement costs. Income or expense resulting from the settlement of ARO liabilities is included in other income on the Consolidated Statements of Income. The ARO liability is adjusted to present value each period through an accretion calculation using a credit-adjusted risk-free interest rate. Changes in ARO were as follows: Level 3 fair value 2009 2008 (in millions) ARO liability at January 1, $175.6 $149.1 Accretion 5.5 4.7 Liabilities incurred 1.4 7.9 Revisions 2.4 1.5 Liabilities settled (1.5) (0.8)ARO liability at June 30, $183.4 $162.4 Wexpro collects from Questar Gas and deposits in trust certain funds related to estimated ARO costs. The funds are used to satisfy retirement obligations as the properties are abandoned and recorded in other noncurrent assets on the Consolidated Balance Sheets. Trust funds are invested primarily in a money-market account with a balance of $10.8 million at June 30, 2009. The fair value of Wexpro's trust is based on asset summary statements provided by the bank holding the trust and considered Level 2 fair value measurement under the provisions of SFAS 157. Note 1 - Nature of Business Questar Corporation (Questar or the Company) is a natural gas-focused energy company with five major lines of business - gas and oil exploration and production, midstream field services, energy marketing, interstate gas transportation, and retail gas distribution - which are conducted through its three principal subsidiaries: - Questar Market Resources, Inc. (Market Resources) is a subholding company that operates through four principal subsidiaries. Questar Exploration and Production Company (Questar E&P) acquires, explores for, develops and produces natural gas, oil and NGL. Wexpro Company (Wexpro) manages, develops and produces cost-of-service reserves for gas utility affiliate Questar Gas. Questar Gas Management Company (Gas Management) provides midstream field services including natural gas-gathering and processing services for affiliates and third parties. Questar Energy Trading Company (Energy Trading) markets equity and third-party natural gas and oil, provides risk-management services and owns and operates an underground gas-storage reservoir. - Questar Pipeline Company (Questar Pipeline) provides interstate natural gas transportation and storage and other energy services. - Questar Gas Company (Questar Gas) provides retail natural gas distribution services in Utah, Wyoming and Idaho. Questar operates in the Rocky Mountain and Midcontinent regions of the United States of America and is headquartered in Salt Lake City, Utah. Shares of Questar common stock trade on the New York Stock Exchange under the symbol STR. 0 1000000 56600000 152200000 3470900000 3447500000 414200000 682900000 14400000 0 69900000 70000000 3800000 14200000 7500000 16800000 Note 5 - Capitalized Exploratory Well Costs Net changes in capitalized exploratory well costs are presented in the table below and exclude amounts that were capitalized and subsequently expensed in the first six months. All costs have been capitalized for less than one year. 2009 2008 (in millions) Balance at January 1, $ 17.0 $1.5 Additions to capitalized exploratory well costs pending the determination of proved reserves 35.2 Reclassifications to property, plant and equipment after the determination of proved reserves (14.3) (0.1)Capitalized exploratory well costs charged to expense (2.7) Balance at June 30, $ 35.2 $1.4 10-Q/A 43500000 42400000 14400000 14400000 7900000 33300000 847400000 659200000 119300000 142700000 2129000000 2078900000 74900000 55000000 Note 13 - Recent Accounting Developments In April 2009, the FASB issued FSP FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly," which provides additional guidance for estimating fair value when the level of activity for the asset or liability has significantly decreased. This FSP clarifies and includes additional factors to consider in determining whether there has been a significant decrease in market activity for an asset or liability and estimating fair value when the market activity for an asset or liability has declined significantly. The scope of this FSP does not include assets and liabilities measured under Level 1 inputs. FSP FAS 157-4 is to be applied prospectively to all fair value measurements where appropriate and its provisions are in effect for interim and annual periods ending after June 15, 2009. The adoption of FSP FAS 157-4 did not have a material impact on financial position or results of operations. In May 2009, the FASB issued SFAS 165, "Subsequent Events" to establish a general standard of accounting for and disclosure of events that occur after the close of the period but before financial statements are issued or are available to be issued. The provisions of this statement are in effect for interim and annual periods ending after June 15, 2009. The adoption of SFAS 165 did not have a material impact on financial position or results of operations. 183400000 175600000 42000000 42000000 23800000 26300000 806800000 1185000000 218100000 386600000 Note 12 - Comprehensive Income Comprehensive income is the sum of net income attributable to Questar as reported in the Consolidated Statements of Income and other comprehensive income (loss). Other comprehensive income (loss) includes changes in the market value of commodity-based derivative instruments and recognition of the under-funded position of pension and other postretirement benefit plans. Comprehensive income (loss) attributable to Questar is shown below: 3 Months Ended June 30, 6 Months Ended June 30, 2009 2008 2009 2008 (in millions)Net income $ 78.5 $174.7 $146.2 $362.9 Other comprehensive (loss) Net unrealized (loss) on derivatives (229.6) (501.6) (140.0) (812.5) Income taxes 85.4 190.1 52.0 307.9 Net other comprehensive (loss) (144.2) (311.5) (88.0) (504.6) Comprehensive income (loss) (65.7) (136.8) 58.2 (141.7) Comprehensive income attributable to noncontrolling interest (0.6) (2.1) (1.1) (4.5) Total comprehensive income (loss) attributable to Questar ($ 66.3) ($138.9) $ 57.1 ($146.2) The components of AOCI, net of income taxes, shown on the condensed Consolidated Balance Sheets are as follows: June 30, December 31, 2009 2008 Change (in millions) Net unrealized income on derivatives $ 253.6 $ 341.6 ($88.0) Pension liability (129.5) (129.5) Postretirement benefits liability (17.4) (17.4) Accumulated other comprehensive income $106.7 $ 194.7 ($88.0) Note 11 - Operations by Line of Business Questar's major lines of business include gas and oil exploration and production (Questar E&P and Wexpro), midstream field services (Gas Management), energy marketing (Energy Trading), interstate gas transportation (Questar Pipeline), and retail gas distribution (Questar Gas). Line-of-business information is presented according to senior management's basis for evaluating performance considering differences in the nature of products, services and regulation among other factors. Following is a summary of operations by line of business: 3 Months Ended June 30, 6 Months Ended June 30, 2009 2008 2009 2008 (in millions)Revenues from Unaffiliated Customers Questar E&P $298.3 $349.4 $ 605.7 $ 649.1 Wexpro 3.4 8.5 5.8 16.8 Gas Management 52.9 72.2 101.2 135.3 Energy Trading and other 77.0 192.9 191.6 387.4 Market Resources 431.6 623.0 904.3 1,188.6 Questar Pipeline 43.0 43.3 83.7 88.0 Questar Gas 138.5 159.5 544.2 549.7 Total $613.1 $825.8 $1,532.2 $1,826.3 Revenues from Affiliated Companies Wexpro $ 53.3 $ 52.3 $112.8 $ 98.7 Gas Management 6.5 5.5 13.2 11.3 Energy Trading and other 77.1 257.8 170.3 484.1 Market Resources 136.9 315.6 296.3 594.1 Questar Pipeline18.3 18.7 37.4 38.2 Questar Gas 0.5 2.3 0.5 4.3 Total $155.7 $336.6 $334.2 $636.6 Operating Income Questar E&P $ 88.7 $186.8 $212.5 $338.8 Wexpro 29.9 28.2 58.8 53.6 Gas Management 24.2 37.8 43.8 70.9 Energy Trading and other 1.1 7.1 9.4 19.3 Market Resources 143.9 259.9 324.5 482.6 Questar Pipeline 29.9 23.6 59.2 56.1 Questar Gas 1.6 1.1 58.8 54.5 Corporate 0.1 0.1 Total $175.5 $284.6 $442.6 $593.2 Net Income (Loss) Attributable to Questar Questar E&P $29.6 $116.8 $ 14.7 $213.3 Wexpro 19.8 18.8 38.6 35.0 Gas Management 14.5 21.7 25.9 40.2 Energy Trading and other 0.8 4.8 6.2 12.9 Market Resources 64.7 162.1 85.4 301.4 Questar Pipeline 15.0 12.7 29.7 28.6 Questar Gas (2.0) (2.0) 29.8 28.6 Corporate 0.2 (0.2) 0.2 (0.2)Total $77.9 $172.6 $145.1 $358.4 Note 7 a Derivative Contracts Market Resources' subsidiaries use commodity-based derivative instruments in the normal course of business. Market Resources has established policies and procedures for managing commodity-price risks through the use of derivative instruments. The Finance and Audit Committee of the Company's Board of Directors periodically reviews the policies. On January 1, 2009, the Company adopted SFAS 161 "Disclosures about Derivative Instruments and Hedging Activities," which requires more detailed information about hedging transactions including the location and effect on the primary consolidated financial statements. Market Resources hedges natural gas and oil prices to support rate of return and cash-flow targets and protect earnings from downward movements in commodity prices. However, these same arrangements typically limit future gains from favorable price movements. Derivative contracts are currently in place for a significant share of Questar E&P-owned gas and oil production and a portion of Energy Trading gas marketing transactions. The volume of hedged production and the mix of derivative instruments are regularly evaluated and adjusted by management in response to changing market conditions. Market Resources may hedge up to 100% of forecast production from proved reserves when prices meet earnings and cash-flow objectives. Market Resources does not enter into derivative arrangements for speculative purposes. Market Resources uses derivative instruments known as fixed-price swaps to realize a known price for a specific volume of production delivered into a regional sales point. Swap agreements do not require the physical transfer of natural gas between the parties at settlement. Swap transactions are settled in cash with one party paying the other for the net difference in prices, multiplied by the relevant volume, for the settlement period. Questar E&P has also used natural gas basis-only swaps to protect cash flows and net income from widening natural gas-price basis differentials. However, natural gas basis-only swaps expose the Company to losses from narrowing natural gas price-differentials. Market Resources enters into derivative instruments that do not have margin requirements or collateral provisions that would require funding prior to the scheduled cash settlement dates. Derivative-arrangement counterparties are normally financial institutions and energy-trading firms with investment-grade credit ratings. The Company regularly monitors and manages its exposure to counterparty risk by requiring specific minimum credit standards for all counterparties and transacting with multiple counterparties. Under SFAS 133 "Accounting for Derivative Instruments and Hedging Activities", every derivative instrument is required to be recorded on the balance sheet as either an asset or a liability measured at its fair value. The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria of SFAS 133 determines how change in fair value of the derivative instrument is reflected in the consolidated financial statements. A derivative instrument qualifies for hedge accounting, if at inception, the derivative is expected to be highly effective in offsetting the underlying hedged cash flows. Generally, Market Resources' derivative instruments are matched to equity gas and oil production, thus qualifying as cash flow hedges. Changes in the fair value of effective cash flow hedges are recorded as a component of accumulated other comprehensive income (AOCI) on the Condensed Consolidated Balance Sheets and reclassified to earnings as gas and oil sales when the underlying physical transactions occur. Gas hedges are typically structured as fixed-price swaps into regional pipelines, locking in basis and hedge effectiveness. A basis-only swap does not qualify for hedge accounting treatment. Market Resources regularly reviews the effectiveness of derivative instruments. The ineffective portion of cash flow hedges and the mark to market adjustment of basis-only swaps are immediately recognized in the determination of net income. 3 Months Ended 6 Months Ended June 30, 2009 (in millions) Effect of derivative instruments designated as hedges Revenues Fixed-price swaps increased revenues $178.0 $333.1Cost Of Natural Gas And Other Products Sold Fixed-price swaps increased product costs 3.3 3.9Effect of derivative instruments not designated as hedges Net mark-to-market (loss) on basis-only swaps ($ 27.8) ($162.7) Contract settlements for the first half of 2009 resulted in a transfer of $153.6 million after-tax income from AOCI to the Consolidated Statements of Income. In the next twelve months $223.2 million or 88% of the $253.6 million after-tax net unrealized income on derivatives will be settled and transferred from AOCI to the Consolidated Statements of Income. The following table discloses Level 2 fair value of derivative contracts on a gross-contract basis as opposed to the net-contract basis presentation on the Condensed Consolidated Balance Sheets. The fair value of these derivative contracts is based on prices posted on the NYMEX on the last trading day of the reporting period. Level 2 fair value June 30, 2009 (in millions) Assets Fixed-price swaps $519.3 Basis-only swaps 9.0 Fair value of derivative instruments - short term $528.3 Fixed-price swaps $77.2 Basis-only swaps 0.7 Fair value of derivative instruments - long term $77.9 Liabilities Fixed-price swaps $ 83.6 Basis-only swaps 154.9 Fair value of derivative instruments - short term $238.5 Fixed-price swaps $109.5 Basis-only swaps 92.9 Fair value of derivative instruments - long term $202.4 The following table sets forth Market Resources' hedged volumes and average net to the well hedge prices as of June 30, 2009: Questar E&P Equity Production Year Time Periods Quantity Average hedge price,net to the well(a) (estimated)Gas (Bcf) Fixed-price Swaps2009 Second half 65.0 $7.652010 12 months 140.7 5.292011 12 months 58.0 5.25 Gas (Bcf) Basis-only Swaps 2009 Second half 12.8 $2.49 2010 12 months 6.7 0.952011 12 months 57.6 2.27 Oil (Mbbl) Fixed-price Swaps 2009 Second half 736 $59.03 2010 12 months 913 60.66 Energy Trading Marketing Transactions Year Time Periods Quantity Average price per MMBtuGas Sales (millions of MMBtu) Fixed-price Swaps2009 Second half 9.6 $3.952010 12 months 1.1 5.34 Gas Purchases (millions of MMBtu) Fixed-price Swaps 2009 Second half 8.1 $3.632010 12 months 0.6 5.60(a) The fixed-price swap price is reduced by gathering costs and adjusted for product quality to determine the net-to-the-well price Note 3 - Earnings Per Share (EPS) Basic EPS is computed by dividing net income attributable to Questar by the weighted-average number of common shares outstanding during the reporting period. Diluted EPS includes the potential increase in the number of outstanding shares that could result from the exercise of in-the-money stock options. During the first quarter of 2009, the Company adopted the provisions of Financial Accounting Standards Board (FASB) Staff Position (FSP) Emerging Issues Task Force (EITF) 03-06-1 "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities." EITF 03-06-1 addresses whether instruments granted in share-based payment transactions are participating securities and therefore have a potential dilutive effect on EPS. The adoption of EITF 03-06-1 was applied retrospectively and did not have a material effect on the Company's EPS calculations. A reconciliation of the components of basic and diluted shares used in the EPS calculation follows: 3 Months Ended June 30, 6 Months Ended June 30, 2009 2008 2009 2008 (in millions)Weighted-average basic common shares outstanding 174.1 172.7 173.9 172.6Potential number of shares issuable under the Long-term Stock Incentive Plan 2.0 3.6 2.1 3.7Average diluted common shares outstanding 176.1 176.3 176.0 176.3 0 643000000 170400000 69000000 18500000 95800000 0.44 1.00 0.83 2.08 2009-06-30 -696100000 -1382000000 434500000 451000000 31500000 85500000 437400000 544700000 1091300000 1236500000 88100000 226600000 403400000 630600000 613100000 825800000 1532200000 1826300000 Note 4 - Share-Based Compensation Questar issues stock options and restricted shares to certain officers, employees and non-employee directors under its Long-term Stock Incentive Plan (LTSIP). First half share-based compensation expense amounted to $12.2 million in 2009 compared with $8.5 million in 2008. Deferred share-based compensation, representing the unvested restricted shares awards amounted to $21.3 million at June 30, 2009, and $17.7 million at December 31, 2008. First half cash flow from tax deductions in excess of recognized compensation expense amounted to $1.3 million in 2009 and $12.2 million in 2008. There were 8,200,879 shares available for future grant at June 30, 2009. 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 is intended to measure the value of options traded on an exchange. The calculated fair value of options granted during the six months ended June 30, 2009, and range of major assumptions used in the model at the dates of grant are listed below: 6 Months Ended June 30, 2009 Range of Option Prices Fair value of options at grant date $31.06 $35.38Risk-free interest rate 2.51% 1.78%Expected price volatility 29.9% 28.1%Expected dividend yield 1.61% 1.39%Expected life in years 5.0 5.0 Unvested stock options increased by 957,332 shares in the first half of 2009. Stock-option transactions under the terms of the LTSIP are summarized below: Outstanding Options Price Range Weighted- average PriceBalance at January 1, 2009 4,183,075 $7.50 - $53.83 $17.53 Granted 1,004,000 31.06 - 35.38 35.01 Exercised (261,602) 7.50 - 14.01 8.57 Balance at June 30, 2009 4,925,473 $7.50 - $53.83 $21.57 Options Outstanding Options Exercisable Unvested Options Range of exercise prices Number outstanding at June 30, 2009 Weighted-average remaining term in years Weighted-average exercise price Number exercisable at June 30,2009 Weighted-average exercise price Number unvested at June 30, 2009 Weighted- average exercise price$ 7.50 199,092 0.7 $ 7.50 199,092 $ 7.50 11.48 - 11.98 855,488 2.6 11.58 855,488 11.58 13.56 - 14.86 1,895,119 2.9 13.71 1,895,119 13.71 17.55 - 31.06 451,774 3.6 27.57 114,274 23.48 337,500 $28.95 $33.86 - $53.83 1,524,000 5.7 37.00 46,668 41.08 1,477,332 36.88 4,925,473 3.7 $21.57 3,110,641 $13.50 1,814,832 $35.40 Restricted-share grants typically vest in equal installments over a three or four year period from the grant date. Several grants vest in a single installment after a specified period. The weighted-average vesting period of unvested restricted shares at June 30, 2009, was 19 months. Transactions involving restricted shares under the terms of the LTSIP are summarized below: Restricted Weighted-average Shares Price Range Price Balance at January 1, 2009 856,000 $24.33 - $70.13 $45.64 Granted 368,700 31.06 - 36.50 35.06 Distributed (305,344) 24.33 - 70.13 37.34 Forfeited (1,900) 49.97 - 62.50 55.91 Balance at June 30, 2009 917,456 $25.12 - $70.13 $44.13 Note 4 - Share-Based Compensation Questar issues stock options and restricted shares to certain officers, employees and non-employee directors under its Long-term Stock Incentive Plan (LTSIP). First half share-based compensation expense amounted to $12.2 million in 2009 compared with $8.5 million in 2008. Deferred share-based compensation, representing the unvested restricted shares awards amounted to $21.3 million at June 30, 2009, and $17.7 million at December 31, 2008. First half cash flow from tax deductions in excess of recognized compensation expense amounted to $1.3 million in 2009 and $12.2 million in 2008. There were 8,200,879 shares available for future grant at June 30, 2009. 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 is intended to measure the value of options traded on an exchange. The calculated fair value of options granted during the six months ended June 30, 2009, and range of major assumptions used in the model at the dates of grant are listed below: 6 Months Ended June 30, 2009 Range of Option Prices Fair value of options at grant date $31.06 $35.38Risk-free interest rate 2.51% 1.78%Expected price volatility 29.9% 28.1%Expected dividend yield 1.61% 1.39%Expected life in years 5.0 5.0 Unvested stock options increased by 957,332 shares in the first half of 2009. Stock-option transactions under the terms of the LTSIP are summarized below: Outstanding Options Price Range Weighted- average PriceBalance at January 1, 2009 4,183,075 $7.50 - $53.83 $17.53 Granted 1,004,000 31.06 - 35.38 35.01 Exercised (261,602) 7.50 - 14.01 8.57 Balance at June 30, 2009 4,925,473 $7.50 - $53.83 $21.57 Options Outstanding Options Exercisable Unvested Options Range of exercise prices Number outstanding at June 30, 2009 Weighted-average remaining term in years Weighted-average exercise price Number exercisable at June 30,2009 Weighted-average exercise price Number unvested at June 30, 2009 Weighted- average exercise price$ 7.50 199,092 0.7 $ 7.50 199,092 $ 7.50 11.48 - 11.98 855,488 2.6 11.58 855,488 11.58 13.56 - 14.86 1,895,119 2.9 13.71 1,895,119 13.71 17.55 - 31.06 451,774 3.6 27.57 114,274 23.48 337,500 $28.95 $33.86 - $53.83 1,524,000 5.7 37.00 46,668 41.08 1,477,332 36.88 4,925,473 3.7 $21.57 3,110,641 $13.50 1,814,832 $35.40 Restricted-share grants typically vest in equal installments over a three or four year period from the grant date. Several grants vest in a single installment after a specified period. The weighted-average vesting period of unvested restricted shares at June 30, 2009, was 19 months. Transactions involving restricted shares under the terms of the LTSIP are summarized below: Restricted Weighted-average Shares Price Range Price Balance at January 1, 2009 856,000 $24.33 - $70.13 $45.64 Granted 368,700 31.06 - 36.50 35.06 Distributed (305,344) 24.33 - 70.13 37.34 Forfeited (1,900) 49.97 - 62.50 55.91 Balance at June 30, 2009 917,456 $25.12 - $70.13 $44.13 55800000 29500000 37900000 41700000 4300000 8300000 8700000 10300000 3300000 4800000 2873900000 2772300000 54600000 500000 10769700000 10229800000 30400000 32500000 62200000 58100000 -900000 -3000000 -1700000 -3400000 252900000 250000000 45900000 106300000 77900000 172600000 145100000 358400000 123000000 276900000 229400000 575800000 1400000 200000 3000000 400000 84200000 90600000 184500000 178500000 Note 9 - Employee Benefits Questar has defined-benefit pension and postretirement medical and life insurance plans covering the majority of its employees. Questar is subject to and complies with minimum-required and maximum-allowed annual contribution levels for its qualified retirement plan as determined by the Employee Retirement Income Security Act and Internal Revenue Code. Subject to these limitations, Questar plans to fund the qualified retirement plan in amounts approximately equal to the yearly expense, which is estimated to be $18.4 million for 2009. Pension expense increased year-over-year because returns on plan assets were lower than expected. The Company also has a nonqualified pension plan for eligible employees, which provides a benefit in addition to the benefit limit defined by the Internal Revenue Service for qualified pension plans. The nonqualified pension plan is unfunded. Claims are paid from the Company general funds. The 2009 expense is estimated to be $3.2 million. Components of the qualified and nonqualified pension expense included in the determination of net income are listed below: 3 Months Ended June 30, 6 Months Ended June 30, 2009 2008 2009 2008 (in millions)Service cost $2.5 $ 2.4 $5.0 $ 4.8 Interest cost 7.1 6.6 14.3 13.2 Expected return on plan assets (6.3) (6.8) (12.7) (13.6)Prior service and other costs 0.3 0.3 0.6 0.6 Recognized net-actuarial loss 1.4 0.8 2.9 1.6 Settlement costs 0.3 0.6 Pension expense $5.3 $ 3.3 $10.7 $ 6.6 The Company currently estimates a $6.3 million expense for postretirement benefits other than pensions in 2009 before $0.8 million for accretion of a regulatory liability. Expense components are listed below: 3 Months Ended June 30, 6 Months Ended June 30, 2009 2008 2009 2008 (in millions)Service cost $0.2 $ 0.2 $0.4 $ 0.4 Interest cost 1.2 1.2 2.4 2.4 Expected return on plan assets (0.6) (0.9) (1.1) (1.7)Amortization of transition obligation 0.4 0.5 0.9 0.9 Amortization of losses 0.2 0.5 Accretion of regulatory liability 0.2 0.2 0.4 0.4 Postretirement benefits expense $1.6 $ 1.2 $3.5 $ 2.4 8404500000 8630700000 78500000 174700000 146200000 362900000 43000000 43300000 83700000 88000000 431600000 623000000 904300000 1188600000 -703100000 -1412300000 345500000 229700000 8404500000 8630700000 3420200000 3096800000 24900000 49300000 53900000 90100000 174227789 Large Accelerated Filer 106700000 194700000 1364700000 1334100000 713900000 1132900000 44500000 102200000 83200000 212900000