Note 8 - Share-Based Compensation

Questar may issue stock options, restricted shares, RSUs and performance shares to certain officers, employees and non-employee directors under its LTSIP. Questar recognizes expense over time as the stock options, restricted shares, RSUs and performance shares vest. Total share-based compensation expense amounted to $7.7 million for the first nine months of 2013 compared to $7.5 million in 2012. Deferred share-based compensation, representing the unvested value of restricted share and RSU awards, amounted to $6.5 million at September 30, 2013. For the first nine months, cash flow from income tax benefits in excess of recognized compensation expense amounted to $1.5 million in 2013 compared to $8.1 million in 2012. There were 5,577,106 shares available for future grants at September 30, 2013.

Unvested stock options decreased by 29,398 shares to zero shares in the first nine months of 2013. No stock options were granted in the first nine months of 2013. Stock option transactions under the terms of the LTSIP are summarized below:



	Options Outstanding		Exercise Price Range					Weighted-Average Exercise Price
Balance at December 31, 2012	770,923		$	4.37	-	$	17.35	$	11.35
Exercised	(53,083	)	4.37		-	13.10		4.75
Balance at September 30, 2013	717,840		$	7.84	-	$	17.35	$	11.84



Options Outstanding									Options Exercisable
Range of exercise prices					Number outstanding at Sept. 30, 2013	Weighted-average remaining term in years	Weighted-average exercise price		Number exercisable at Sept. 30, 2013	Weighted-average exercise price
$	7.84	-	$	11.40	404,174	2.1	$	10.52	404,174	$	10.52
13.10		-	17.35		313,666	2.8	13.54		313,666	13.54
					717,840	2.4	$	11.84	717,840	$	11.84

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 remaining vesting period of unvested restricted shares at September 30, 2013, was 11 months. 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, 2012	810,342		$	13.10	-	$	20.90	$	17.74
Granted	658		21.53			21.53		21.53
Vested	(417,882	)	13.10		-	20.90		17.24
Balance at September 30, 2013	393,118		$	13.10	-	$	21.53	$	18.29

Starting in the first quarter of 2013, Questar granted RSUs to certain officers, employees and non-employee directors under its 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, 2013, was 17 months.

Transactions involving RSUs under the terms of the LTSIP are summarized below:



	RSUs Outstanding		Price Range					Weighted-Average Price
Granted	326,797		$	22.17	-	$	25.44	$	23.63
Vested	(12,522	)	23.62			23.62		23.62
Balance at September 30, 2013	314,275		$	22.17	-	$	25.44	$	23.63

Grants of RSUs with deferred share distributions (deferred RSUs) typically vest in equal installments over a three-year period from the grant date. At September 30, 2013, Questar's outstanding deferred RSUs totaled 73,071 with a weighted-average price of $15.67 per share. The deferred RSUs were fully vested as of July 1, 2013. One share of Questar common stock will be distributed for each vested deferred RSU (including accrued reinvested dividend equivalents) at the time of the grantee's separation from service.

Questar grants performance shares to certain Company executive officers under the terms of the LTSIP. The awards are 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 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 executive officer was employed by the Company or its affiliates as of the last day of the performance period.

Half of any award will be distributed in shares of Questar 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. 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 $1.2 million in the first nine months of 2013 and $1.4 million in the first nine months of 2012. The weighted-average remaining vesting period of unvested performance shares at September 30, 2013, 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, 2012	264,867		$	18.23	-	$	25.42	$	21.94
Granted	126,606		39.62			39.62		39.62
Forfeited	(3,594	)	18.23		-	39.62		33.09
Balance at September 30, 2013	387,879		$	18.23	-	$	39.62	$	27.61

The above September 30, 2013 balance includes 5,330 vested target performance shares with a weighted-average grant-date fair value of $23.39 and expected distribution dates ranging from the first quarter of 2014 through the first quarter of 2016.