Note 2 - Earnings Per Share

Earnings Per Share

Basic EPS is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period, which includes vested undistributed RSUs. Diluted EPS includes the potential increase in the number of outstanding shares that could result from the exercise of in-the-money stock options, the vesting of RSUs with forfeitable dividends and the distribution of performance shares that are part of the Company's LTSIP, less shares repurchased under the treasury stock method. Restricted shares and RSUs with nonforfeitable dividends are participating securities for the computation of basic earnings per share. The application of the two-class method had an insignificant impact on the calculation of both basic and diluted EPS.

A reconciliation of the components of basic and diluted shares used in the EPS calculation follows:



	Year Ended December 31,
	2013	2012	2011
	(in millions)
Weighted-average basic common shares outstanding	175.4	176.5	177.4
Potential number of shares issuable under the Company's LTSIP	0.6	1.0	1.4
Weighted-average diluted common shares outstanding	176.0	177.5	178.8

In the past three years, Questar had the ability to issue shares under the terms of the Dividend Reinvestment and Stock Purchase Plan, Employee Investment Plan (see Note 13) and LTSIP.

Dividend Reinvestment and Stock Purchase Plan

The Dividend Reinvestment and Stock Purchase Plan allows shareholders to reinvest dividends or invest additional funds in Questar common stock. The Company can issue new shares or buy shares in the open market to meet shareholders' purchase requests. The Company bought shares in the open market to satisfy shareholders' purchases in 2013 and 2012 and no shares were issued. The Company issued 4,400 shares in 2011 and relied on open market purchases to supplement Company-issued shares. At December 31, 2013, there were 20,210,415 shares reserved and authorized for future issuance.

Long-Term Stock Incentive Plan

Questar may issue stock options, restricted shares and RSUs to certain officers, directors and employees under its LTSIP. Stock options for participants 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. Restricted shares and RSUs vest in equal installments over a specified number of years after the grant date with the majority vesting in three years. Unvested restricted shares have voting and dividend rights; however, sale or transfer is restricted. 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. Dividend equivalents on certain RSUs with deferred share distributions accrue quarterly and are subject to the same vesting, distribution and voting conditions of the underlying award.

Questar grants performance shares to Company 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 a summary of LTSIP transactions, see Note 12.