SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1994 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_____ TO _____.
Commission File No. 1-8796
QUESTAR CORPORATION
(Exact name of registrant as specified in its charter)
State of Utah 87-0407509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 East First South, P.O. Box 45433, Salt Lake City, Utah 84145-0433
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (801) 534-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which registered
Common Stock, Without Par Value New York Stock Exchange
Common Stock Purchase Rights
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ x ] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein and
will not be contained, to the best of registrants' knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the registrant's Common Stock,
without par value, held by nonaffiliates on March 20, 1994, was
$1,139,615,022 (based on the closing price of such stock).
On March 20, 1995, 40,501,220 shares of the registrant's
Common Stock, without par value, were outstanding.
Documents Incorporated by Reference. Portions of the definitive
Proxy Statement for the 1995 Annual Meeting of Stockholders, to be
dated April 3, 1995, are incorporated by reference into Part III.
The sections of the Proxy Statement labelled "Committee Report on
Executive Compensation" and "Cumulative Total Shareholder Return"
are expressly not incorporated into this document.
<PAGE>
TABLE OF CONTENTS
Heading Page
PART I
Items 1.
and 2. BUSINESS AND PROPERTIES 1
General 1
Exploration and Production Operations 2
Natural Gas Transmission Operations 6
Natural Gas Distribution Operations 9
Other Operations 13
Employees 13
Environmental Matters 13
Research and Development 14
Oil and Gas Operations 14
Item 3. LEGAL PROCEEDINGS 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 16
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS 17
Item 6. SELECTED FINANCIAL DATA 17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATION 18
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA 29
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 29
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT 29
Item 11. EXECUTIVE COMPENSATION 30
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 30
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 30
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K 31
SIGNATURES 59
<PAGE>
FORM 10-K
ANNUAL REPORT, 1994
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
General
Registrant Questar Corporation (Questar or the Company)
is a holding company that is engaged, through its major
affiliates, in the exploration for, production, gathering,
purchase, transmission, marketing, storage, and distribution of
natural gas and in the exploration for, production, and sale of
oil. The Company, through other affiliates, provides data
processing and microwave communication services and owns and
manages real estate.
The Company was organized as a Utah corporation in March
of 1984. Effective October 2, 1984, it became the parent of
Mountain Fuel Supply Company (Mountain Fuel) when a corporate
reorganization was approved by Mountain Fuel's shareholders. The
Company was created to provide organizational and financial
flexibility and to achieve a more clearly-defined separation of
utility and nonutility operations. Questar is a "holding
company," as that term is defined in the Public Utility Holding
Company Act of 1935, but qualifies for and claims an exemption
from provisions of such act applicable to registered holding
companies.
Questar, as an integrated natural gas company, has three
major lines of business: exploration and production activities
conducted by Wexpro Company (Wexpro), Celsius Energy Company
(Celsius), and Universal Resources Corporation (Universal
Resources); interstate transmission activities conducted by
Questar Pipeline Company (Questar Pipeline); and retail
distribution activities conducted by Mountain Fuel. These three
complementary lines of business involve Questar in all phases of
the natural gas business from the reservoir to the end-use
customer. The Company believes that its integrated status
enhances its operating flexibility as its core businesses,
particularly interstate transmission and retail distribution,
change. Questar's integrated status enhances its financial
strength by providing a balance between the stability of regulated
operations and the earnings growth potential of exploration and
production operations. Questar is also convinced that the long-
term outlook for natural gas, as an environmentally preferred and
abundant domestic energy source, is promising. Consequently, the
Company intends to retain and expand its three lines of business
and to enhance its reputation for customer service.
Questar is also engaged in other business activities:
commercial real estate (Questar Development Corporation); and data
processing and microwave communications (Questar InfoComm, Inc.).
During 1994, the Company completed the sale of Questar Telecom,
Inc., the Company's subsidiary engaged in specialized mobile radio
activities, to Nextel Communications Inc.
The following diagram shows the current corporate
structure of the Company and its primary affiliates:
Questar Corporation
Questar InfoComm Inc.
Mountain Fuel Supply Company
Entrada Industries, Inc.
Wexpro Company
Celsius Energy Company
Universal Resources Corporation
Questar Development Corporation
Questar Pipeline Company
Financial information concerning the Company's lines of
business, including information relating to the amount of total revenues
contributed by any class of similar products or services responsible for
10 percent or more of consolidated revenues, is presented in Note N in the
Notes to Consolidated Financial Statements.
The Company's lines of business are discussed below.
Exploration and Production Operations
The Company has been in the exploration and production (E&P)
business since its organization (as Mountain Fuel) in 1935. Through the
ensuing years, the Company's exploration and production activities have
generated substantial economic benefits for the Company and its
shareholders and customers and have expanded in size and geographic
location. The year 1994 was another good year for Questar's exploration
and production operations despite lower wellhead prices for crude oil and
a significant decrease in wellhead prices for natural gas during the year.
The year witnessed increased gas production and stable amortization rates.
During 1994, the E&P group spent $113 million for acquisitions that are
responsible for a 54 percent increase in noncost-of-service gas reserves
and a 28 percent increase in the gas volumes produced from such reserves.
The Company has three affiliates--Wexpro, Celsius, and
Universal Resources--that are directly engaged in exploration and
production operations. The division of Questar's exploration and
production activities into three companies is a result of historical
developments. All three companies are managed by the same group of
officers, although each also has a separate general manager. Together,
the three companies form a unique E&P group that conducts a blended
program of low-cost development drilling, low-risk reserve acquisition,
and high-quality exploration.
The E&P group also has a geographical balance and diversity,
with Wexpro and Celsius located in the Rocky Mountain area and Universal
Resources concentrated in the Midcontinent area. During 1994, Universal
Resources formed a new division--Questar Energy Company (Questar Energy)--
to operate some of the "Amax" properties acquired from Union Pacific
Resources Company (Union Pacific) that are located in the San Juan Basin.
Questar Energy also operates properties located in the Paradox Basin that
were formerly operated by Celsius and in west Texas that were formerly
operated by Universal Resources.
Mountain Fuel owns cost-of-service gas reserves and the
properties from which such reserves are produced. See "Oil and Gas
Operations," a separate section of this report, for additional information
concerning the Company's oil and gas activities on a consolidated basis.
Natural gas is the primary focus of the Company's E&P
operations. As of year-end 1994, the Company had proved reserves
(excluding Mountain Fuel's cost-of-service reserves) of 267,828 million
cubic feet (MMcf) of gas and 13,534 thousand barrels of oil (Mbbls),
compared to 191,328 MMcf of gas and 10,509 Mbbls of oil as of the same
date in 1993. (Any references to oil in this report include natural gas
liquids.) Natural gas reserves, after production, increased by 40 percent
between 1993 and 1994, primarily as a result of acquisitions.
The E&P group had capital expenditures of $151.8 million
during 1994, compared to $57.8 million during 1993. It emphasized reserve
acquisitions and spent $99.9 million or 66 percent of its total capital
budget for such activities. The group made three major acquisitions
during 1994. It spent approximately $22.0 million to purchase reserves
and producing wells owned by Petroleum, Inc., which were located in the
Midcontinent states of Kansas, Oklahoma, and Texas. The second
acquisition involved the northern division of Amax Oil and Gas Company
(Amax) properties, which were purchased from Union Pacific Resources
Company (Union Pacific) for approximately $78 million. (The total
acquisition cost includes approximately $12.6 million for gathering and
processing facilities.) These properties are located in Oklahoma, the
Texas Panhandle, and the San Juan Basin of northern New Mexico and
southwestern Colorado. The final acquisition involved properties owned by
BCO, Inc. in New Mexico, which were purchased for approximately $13
million.
Despite the decline in gas prices that has occurred since
these acquisitions were made, the E&P group believes that the properties
have appreciated in value since they were acquired. The acquired
properties contained 103.7 billion cubic feet of gas (Bcf) of gas and
3,900 Mbbls of oil, which were acquired for $.77 per Mcf equivalent
(Mcfe). The E&P group also acquired gathering facilities, processing
plans, and mineral acreage in connection with the acquisitions.
Before negotiating the acquisitions, the E&P group identifies
how it can "add value" by developing and exploiting the properties. It
determines whether it can operate the properties more efficiently, factors
in its ability (through its affiliates) to use available tax credits, and
analyzes future development opportunities. The E&P group has developed
expertise and has acquired experience in evaluating reserve acquisitions
and is cautiously optimistic that current low prices will result in
additional acquisition opportunities.
The E&P group, during 1994, spent approximately $22 million
for participation in 139 development wells and $2.6 million for
participation in 10 exploratory wells. The overall drilling success ratio
was 85 percent, with 87 percent for the development wells and 50 percent
for the exploratory wells. The wells were concentrated in the Green River
Basin (Church Buttes, Bruff) in southwestern Wyoming, the Paradox Basin
(Cutthroat, Island Butte) in southwestern Colorado, and the Anadarko Basin
in Oklahoma.
During 1994, the E&P group continued to pursue a marketing
strategy to use purchased gas volumes and its own production to build a
flexible and reliable portfolio. Universal Resources, as the marketing
entity, aggregated supplies of natural gas for delivery to large customers
including industrial users, municipalities, and other marketing entities.
In order to be successful in its marketing activities, the E&P group has
strategies to increase the delivery options for sellers and purchasers, to
respond to customers' requests for flexible arrangements, and to repackage
supplies. Universal Resources continued to concentrate its efforts in
premier markets in order to earn higher margins. It marketed a total of
88,941,000 decatherms (Dth) of gas in 1994, compared to 65,143,000 Dth in
1993 and earned a total margin of $6,181,000, compared to $3,864,000 in
1993. (A Dth is an amount of heat energy equal to 10 therms or 1 million
Btu. In the Company's system, each Mcf of gas equals approximately 1.07
Dth.)
Universal Resources, on behalf of the E&P group, uses
derivatives as a risk management tool to provide price protection for
physical transactions involving equity (or owned) production and marketing
purchases. The E&P group does not use derivatives for speculative
purposes or without physical transactions. Universal Resources generally
tries to hedge at least a portion of its equity production and does so
with a variety of contracts for different periods of time.
Section 29 tax credits continued to benefit the E&P group
during 1994. These tax credits are available for production from wells
that meet specified criteria, including a requirement that drilling of the
wells be commenced prior to January 1, 1993. The properties are often
referred to as "tight sands" or low permeability formations from which it
is generally more expensive to produce gas. The basic credit is $.52 per
Dth, but is equivalent to a price increase of $.90 per Dth at the wellhead
when factoring in other taxes. During 1994, Celsius and Universal
Resources recorded $5.6 million in tax credits. Approximately 25 percent
of the combined gas production of Celsius and Universal Resources
qualified for the tax credits. (Wexpro does not have an economic interest
in the cost-of-service gas produced from Mountain Fuel's properties.
Mountain Fuel earns the credits associated with such gas.)
The production of oil and gas is subject to regulation by
appropriate federal and state regulatory agencies. In general, these
regulatory agencies are authorized to make and enforce regulations to
prevent waste of oil and gas, to protect the correlative rights and
opportunities to produce oil and gas by owners of a common reservoir, and
to protect the environment. Many leases held by Celsius or operated by
Wexpro are federal leases subject to additional regulatory requirements.
Both federal and state agencies are imposing more restrictions on access
to leasehold acreage, thereby increasing the planning time to obtain
drilling permits and limiting the E&P's group flexibility to adapt quickly
to circumstances.
The following description of Questar's E&P group is bifurcated
between a discussion of Wexpro and a discussion of the combined
Celsius/Universal Resources:
Wexpro Company. Wexpro was incorporated in 1976 as a
subsidiary of Mountain Fuel. Mountain Fuel's efforts to transfer
producing properties and leasehold acreage to Wexpro resulted in
protracted regulatory proceedings and legal adjudications that ended with
a court-approved settlement that was effective August 1, 1981.
Wexpro, unlike Celsius and Universal Resources, generally does
not conduct exploratory or wildcat operations and does not acquire
leasehold acreage for exploration activities. It conducts oil and gas
development and production activities on certain producing properties
located in the Rocky Mountain region under the terms of the settlement
agreement. (The terms of the settlement agreement are described in Note K
in the Notes to Consolidated Financial Statements.) Wexpro produces gas
from specified properties for Mountain Fuel and is reimbursed for its
costs plus a return on its investment. In connection with its successful
development gas drilling, Wexpro charges Mountain Fuel for its costs plus
a specified rate of return (currently 22.0 percent and adjusted annually
based on a specified formula) on its net investment in such properties
adjusted for working capital and deferred taxes. At year-end 1994,
Wexpro's net investment in cost-of-service operations was $98.1 million.
Under the terms of the settlement agreement, Wexpro bears all dry hole
costs. The settlement agreement also provides for income sharing after
recovery of expenses and rates of return in connection with Wexpro's
production and successful drilling activities on specified oil properties.
The settlement agreement is monitored by the Utah Division of Public
Utilities, the staff of the Public Service Commission of Wyoming, and
retained experts.
The gas volumes produced by Wexpro for Mountain Fuel are
reflected in the latter's rates at cost-of-service prices. Cost-of-
service gas (defined to include the gas attributable to royalty interest
owners) produced by Wexpro has satisfied as much as 54 percent of Mountain
Fuel's requirements during the last ten years and satisfied 53 percent
during 1994. Costs attributable to Wexpro's operation of the properties
are reflected in Mountain Fuel's rates. Mountain Fuel relies upon
Wexpro's drilling program to develop the properties from which the cost-
of-service gas is produced. During 1994, the average wellhead cost of
Mountain Fuel's cost-of-service gas was $1.37 per Dth. In order to avoid
regulatory second guessing and to fulfill its obligation to Mountain Fuel,
Wexpro must continue to be an efficient operator.
Wexpro participates in drilling activities in response to the
demands of other working interest owners, to protect its rights, and to
meet the needs of Mountain Fuel. During 1994, Wexpro's drilling
activities declined with the price of natural gas. As of the date of this
report, Wexpro has no drilling rigs operating. Wexpro, during 1994,
produced 37,435 MMcf Mountain Fuel's cost-of-service properties, but added
reserves of 25,509 MMcf (through drilling activities and reserve estimate
revisions). (These numbers do not include the related royalty gas.)
Wexpro's oil production continued to decline during 1994. It
produced 824 Mbbls in 1994 compared to 854 Mbbls in 1993 reflecting a
normal decline in field production. Wexpro received an average price of
$15.59 per barrel during 1994 compared to $17.77 per barrel during 1993.
It has been able to sell its oil to customers for resale or refining.
Wexpro should be able to continue selling all of the liquids that it
produces at prices that reflect current market conditions.
Wexpro has an ownership interest in the wells and appurtenant
facilities related to its oil reservoirs
and in the facilities that have been installed to develop and produce gas
reservoirs described above since August 1, 1981 (a date specified by the
settlement agreement referred to above). Wexpro maintains an office in
Rock Springs, Wyoming, in addition to its principal office in Salt Lake
City, Utah.
Celsius Energy Company/Universal Resources Corporation.
Celsius and Universal Resources are increasingly combined from an
operating and financial perspective. Historically, Celsius operated in
the Rocky Mountain area and emphasized exploration and development
opportunities while Universal Resources, acquired as an independent
company in 1987, operated in the Midcontinent and emphasized development
and acquisition opportunities. The companies continue to maintain
separate regional offices, with Celsius's office in Denver and Universal
Resources' in Oklahoma City.
The reserve acquisitions in 1994, as previously noted,
required the E&P group to organize a new region, which included properties
formerly owned and managed by Celsius and Universal Resources. The 1994
reserve acquisitions also resulted in a shift in geographical focus.
Celsius and Universal Resources, on a combined basis, produced more gas
during 1994 in the Midcontinent than in the Rocky Mountains. Universal
Resources is responsible for marketing production owned by both entities
and is responsible for the hedging activities engaged in to provide price
protection.
Gas production for the two entities increased from 32,299 MMcf
in 1993 to 37,659 MMcf in 1994. The increase in production was generally
attributable to the reserve acquisitions. Celsius and Universal Resources
received an average selling price of $1.78 per Mcf in 1994, compared to
$1.85 in 1993. The simple average price statistic, however, is misleading
unless the decline in natural gas prices during 1994 is realized.
The average selling price declined from $2.10 per Mcf for first quarter
production to $1.47 per Mcf for fourth quarter production. This latter
price compares unfavorably with the $1.88 per Mcf price obtained by the
combined entities during the fourth quarter of 1993.
During 1994, Celsius and Universal Resources, again on a
combined basis, increased oil production. The two companies produced
1,618 MMbls in 1994 compared to 1,121 MMbls in 1993. The oil volumes were
sold at an average price of $14.34 in 1994 compared to $15.85 in 1993.
The combined full-cost amortization rate for the two entities was $.78 per
Mcfe compared to $.80 per Mcfe in 1993.
The decline in natural gas prices is forcing Celsius and
Universal Resources to change some strategies for 1995. The two companies
will continue to spend their cash flow, but they will deemphasize
exploration activities and emphasize acquisition opportunities, hedging
activities, and marketing opportunities. The E&P group may determine to
redirect the $9.3 million for exploration activities that is in its 1995
capital budget.
Universal Resources is also involved in a group organized to
develop, own, and operate the Western Market Center near Muddy Creek,
Wyoming. (Questar Pipeline was originally involved, but has dropped out
of the group.) Other partners include affiliates of Tenneco Inc., Entech,
Inc. (a subsidiary of Montana Power Company) and Union Pacific Resources
Company. The market center will offer a variety of services such as
wheeling (redirecting gas flows between sources), peaking, parking
(allowing a customer to temporarily store gas), balancing, and electronic
trading to producers, purchasers, brokers, and other interested parties.
The center will include a header facility that will allow pipelines to
flow gas in different directions and a sophisticated electronic bulletin
board. The new center is expected to be fully operational in 1995.
The E&P group has significantly increased its reserves,
production, and marketing activities during the last several years. Its
share of Questar's consolidated capital budget and its contribution to
Questar's consolidated net income have also increased significantly during
this same time frame. The E&P group believes that lower commodity prices
provide it with enhanced opportunities to acquire additional reserves at
reasonable prices, even as it will be required to develop new strategies
for developing and exploring such assets.
Natural Gas Transmission Operations
Questar Pipeline is an interstate pipeline company that is
currently engaged in the gathering, processing, transportation, and
storage of natural gas in the Rocky Mountain states of Utah, Wyoming and
Colorado. During 1994, Questar Pipeline capitalized on its strategic
location, expanded its storage capacity at Clay Basin, built new gathering
facilities, and developed new business opportunities.
As an open-access pipeline, Questar Pipeline transports gas
for affiliated and unaffiliated customers and also gathers gas volumes for
such customers. Questar Pipeline also operates the Clay Basin storage
project, which is a large underground storage project in northeastern
Utah, and other underground storage operations in Utah and Wyoming.
Questar Pipeline is involved in three partnerships, Blacks Fork Gas
Processing Plant (Blacks Fork), Overthrust Pipeline Company (Overthrust)
and TransColorado Gas Transmission Company (TransColorado).
Questar Pipeline is a "natural gas company" subject to the
exclusive regulation of the FERC as to rates and charges for storage and
transportation of gas in interstate commerce, construction of new
facilities, extensions or abandonments of service and facilities, accounts
and records, and depreciation and amortization policies. Questar Pipeline
holds certificates of public convenience and necessity granted by the FERC
for the transportation and underground storage of natural gas in
interstate commerce and for the facilities required to perform such
operations.
Questar Pipeline's transmission system is strategically
located in the Rocky Mountain area near large reserves of natural gas. It
is referred to as a "hub and spoke" system, rather than a "long-line"
pipeline, because it has multiple connections to other major pipeline
systems and has access to major producing areas. Questar Pipeline's
transmission system connects with the transmission systems of Colorado
Interstate Gas Company (CIG), Northwest Pipeline Corporation (Northwest
Pipeline), the middle segment (commonly referred to as the "WIC segment")
of the Trailblazer pipeline system (Trailblazer), Williams Natural Gas
Company (Williams), and Kern River Gas Transmission Company (Kern River).
These connections provide access to markets outside Mountain Fuel's
service area and allow Questar Pipeline to transport gas for nonaffiliated
customers.
Questar Pipeline's transmission system includes 1,761 miles of
transmission lines that interconnect with other pipelines and link
producers of natural gas with Mountain Fuel's distribution operations in
Utah and Wyoming. This system includes two major segments, often referred
to as the northern and southern systems; the northern segment extends from
northwestern Colorado through southwestern Wyoming into northern Utah and
the southern segment extends from western Colorado to Payson in central
Utah. The two portions are linked together and have significant
connections with other pipeline systems, making it a fully integrated
system. The transmission mileage figure includes lines at storage fields
and tap lines used to serve Mountain Fuel.
Questar Pipeline's largest transportation customer is Mountain
Fuel. During 1994, Questar Pipeline transported 75,941,000 Dth for
Mountain Fuel, compared to 65,061,000 Dth in 1993. These transportation
volumes include cost-of-service gas produced by Wexpro on properties owned
by Mountain Fuel, as well as volumes purchased by Mountain Fuel directly
from field producers. (Questar Pipeline also sold volumes of gas to
Mountain Fuel in 1993. Consequently, a direct comparison between Mountain
Fuel's transportation volumes in 1993 and 1994 is somewhat misleading.)
Prior to September 1, 1993, Questar Pipeline purchased gas for
resale to Mountain Fuel, its only sale-for-resale customer. As of such
date, Mountain Fuel converted its firm sales capacity on Questar
Pipeline's transmission system to firm transportation capacity. Mountain
Fuel has a reserved capacity of approximately 800,000 Dth per day, or
approximately 85 percent of Questar Pipeline's reserved capacity.
Mountain Fuel paid demand charges of approximately $46.3 million to
Questar Pipeline in 1994, which includes demand charges attributable to
firm transportation and "no-notice" transportation. Mountain Fuel only
needs its reserved capacity during peak-demand situations. When it is not
fully utilizing its capacity, Mountain Fuel releases the capacity to
others, primarily industrial transportation customers and marketing
entities, and receives revenue credits from Questar Pipeline, which were
approximately $9.8 million during the 12-month period ending August 31,
1994.
Questar Pipeline recovers approximately 96 percent of its
transmission cost of service through demand charges from firm
transportation customers. In other words, these customers pay for access
to transportation capacity, rather than for the volumes actually
transported. Consequently, Questar Pipeline's throughput volumes do not
have a significant impact on its short-term operating results. Questar
Pipeline's transportation revenues are not significantly impacted by
fluctuating demand based on the vagaries of weather or commodity prices.
Questar Pipeline's total system throughput, however, did
increase from 238,586,000 Dth in 1993 to 250,284,000 Dth in 1994. The
increase was attributable to increased volumes for Mountain Fuel (from
65,061,000 Dth in 1993 to 75,941,000 Dth in 1994), for other affiliated
customers, primarily Universal Resources (from 35,599,000 Dth in 1993 to
45,093,000 Dth in 1994), and nonaffiliated customers (from 113,589,000 in
1993 to 129,250,000 Dth in 1994).
Questar Pipeline's transmission system is an open-access
system and has been since September of 1988. Order No. 636 and Questar
Pipeline's tariff provisions based on Order No. 636 require it to
transport gas on a nondiscriminatory basis when it has available
transportation capacity.
Questar Pipeline will continue to develop and build new lines
and related facilities that will allow it to meet customer needs or
improve transportation services. Questar Pipeline has announced plans to
expand its southern transmission system to meet market demand for
transportation of natural gas volumes from the Piceance Basin in western
Colorado. The project will involve upgrading a section of the system as
well as installing additional compression.
Questar Pipeline no longer has the only transmission system
with direct access to the major population centers in Utah. The Kern
River line, which became operational in late February of 1992, crosses
portions of Mountain Fuel's service area, making it possible for some
large industrial customers to bypass both Mountain Fuel and Questar
Pipeline by buying transportation service on the new line. At the current
time, however, no industrial customers in the Wasatch Front have taken any
deliveries from the Kern River line. A new tap has been installed on the
Kern River line in Salt Lake County. Mountain Fuel can take deliveries at
this tap; some transportation customers could also take deliveries at it.
The Kern River line has diverted some transportation volumes from both
Questar Pipeline and Overthrust. The Kern River line, on the other hand,
also provides Questar Pipeline with opportunities to make additional
connections with outside markets and increase transportation and gathering
volumes.
Questar Pipeline has an 18 percent interest in and is
operating partner of Overthrust, a general partnership that was organized
in 1979 to construct, own, and operate the Overthrust segment of the
Trailblazer system. The Overthrust segment is 88 miles in length and 36
inches in diameter and is the first of three segments of the 800-mile
Trailblazer system that extends from Whitney Canyon in southwestern
Wyoming to Beatrice, Nebraska. As the operating partner in the
Overthrust, Questar Pipeline is working to resolve some issues relating to
its future use, which are complicated by the bankruptcy proceedings of a
major shipper, Columbia Gas Transmission Corporation. A buyout settlement
with Columbia Gas has recently been negotiated, and the settlement
agreement has been submitted to the bankruptcy court and the FERC for
approval.
Questar Pipeline and its partners are continuing to pursue a
project announced in 1990 to build and operate the proposed TransColorado
pipeline. Questar Pipeline's partners include affiliates of Public
Service Company of Colorado and KN Energy, Inc. The proposed pipeline is
approximately 300 miles in length and would extend from the Piceance Basin
in western Colorado to northwestern New Mexico, where it would connect
with other major pipeline systems. As designed, the pipeline could
transport up to 300 MMcf of gas per day from western Colorado and other
producing basins in Wyoming and Utah to California and midwestern and
southwestern markets. The project has received the necessary
environmental clearances and regulatory approvals. The project, which was
developed prior to the adoption of Order No. 636, needs additional support
from customers before construction will begin. The construction could
begin in 1996.
In addition to providing transportation services, Questar
Pipeline provides gathering services for Mountain Fuel and other
customers. In 1994, Questar Pipeline earned revenues of $23,641,000 from
its gathering activities compared to $20,386,000 in 1993, but the reported
volumes decreased from 92,768,000 Dth in 1993 to 83,983,000 Dth in 1994.
All gathering services performed by Questar Pipeline are conducted on an
individual contract basis although it has included a statement of
gathering rates in its tariffs. Questar Pipeline performs gathering
services for Mountain Fuel under a four-year agreement that was filed with
and accepted by the FERC during 1994.
During 1994, Questar Pipeline spent a total of $9,392,000 to
expand its gathering activities; these activities included installing new
facilities (including dehydration units as well as laterals) at the Birch
Creek and Bruff areas in southwestern Wyoming and at Drunkards Wash in
eastern Utah.
Questar Pipeline intends to continue expanding its gathering
facilities and services. It is currently reviewing options to transfer
gathering facilities to a subsidiary or affiliate given the FERC's current
position that it has no direct jurisdiction over the gathering activities
of pipeline affiliates. Current natural gas prices have caused some
producers to shut in their wells and to postpone drilling activities;
these actions will result, at least for the short-term, in reduced
gathering volumes for Questar Pipeline.
Questar Pipeline owns 819 miles of gathering lines, compressor
stations, field dehydration plants, and measuring stations. Questar
Pipeline has long-term easements for its pipelines; its stations and
plants are built on property owned in fee or held through long-term
easements.
Questar Pipeline operates a major storage facility at Clay
Basin in northeastern Utah and three other storage facilities designed to
support Mountain Fuel's peak-demand requirements. Questar Pipeline's
storage facilities are certificated by the FERC, and its rates for storage
service (based on operating costs and investment in plant plus an allowed
rate of return) are subject to the approval of the FERC. The Clay Basin
storage reservoir has been operational since 1977 and has been providing
open-access storage service since June of 1991.
During 1994, Questar Pipeline installed the necessary
compressors and storage laterals to offer additional working gas capacity
of approximately 15.3 Bcf and injected the necessary cushion gas to expand
Clay Basin. The reservoir currently is certificated for 46.3 Bcf of
working gas capacity and a total capacity of 110 Bcf. (Working gas is gas
that is injected and withdrawn. Cushion gas is gas in the formation that
is necessary to maintain pressure and is not withdrawn under normal
operating conditions.) As a result of this expansion, maximum
deliverability increased from 500 MMcf per day to 763 MMcf per day. The
storage capacity is fully subscribed by customers under agreements
extending up to 30 years. Mountain Fuel currently has 12.5 Bcf of working
gas capacity at Clay Basin. Other large customers, in addition to
Mountain Fuel, include Northwest Pipeline; Washington Natural Gas Company,
a utility in Washington; and BC Gas Inc., a utility in British Columbia.
During 1994, Questar Pipeline, through a direct subsidiary,
formed a partnership with an affiliate of Coastal Corporation to build and
operate a new processing plant in southwestern Wyoming. The $20 million
plant, which should become fully operational in the spring of 1995, has a
design capacity of 84 MMcf per day and is located in a prolific gas
producing area. Natural gas liquids--ethane, propane, butane, and
gasoline--will be extracted from the natural gas volumes delivered to the
plant. In conjunction with this new processing plant, Questar Pipeline
extended its gathering system to the Birch Creek area. The new plant and
the expanded gathering system provide producers more options with respect
to gathering and processing their gas volumes. Once the liquids are
stripped, the natural gas can be transported by pipeline to end-use
markets.
The plant is not subject to the jurisdiction of the FERC and represents
Questar Pipeline's efforts to expand its expertise and its investment in
nonregulated activities.
When it was engaged in sales-for-resale activities and had a
purchased gas adjustment procedure, Questar Pipeline was required to file
a general rate case every three years. It is no longer subject to this
requirement. Questar Pipeline, however, may determine to file a general
rate case before year-end and must weigh several competing factors when
making such decision. It cannot recover its costs of complying with Order
No. 636 or its full cost accrual for postretirement benefits in the
absence of a general rate case. Other important considerations include
actual revenue generating capability, expectations of allowed return on
equity, and revenue crediting issues.
In a post-Order No. 636 environment, Questar Pipeline cannot
expect to receive unconditioned regulatory approvals for new construction
proposals without the support of long-term firm service agreements. The
FERC is currently imposing at-risk conditions on projects that lack such
support. In other words, the FERC is insisting that shareholders, not
customers, absorb any underrecovery of costs if the incremental revenues
obtained from a new project do not cover the costs. Given the change that
has already occurred in the industry and given the expectation of
additional change, customers are understandably wary of providing
pipelines with long-term contracts for firm service.
Questar Pipeline has several key assets that can contribute to
continued success. It has a strategically located and integrated
transmission system with interconnections to other major pipelines and
with access to major productive areas, storage projects, and markets. It
has Clay Basin, a strategically located storage reservoir that has been
operational since 1977, has been expanded in response to expressions of
interest, and is fully subscribed by long-term customers. Questar
Pipeline also has an extensive gathering system developed to collect gas
volumes from producing wells as well as expertise in extracting
hydrocarbon liquids from natural gas. As the operator of the new Blacks
Fork processing plant, Questar Pipeline is expanding its activities and
expertise and intends to continue engaging in processing and treatment
services. Questar Pipeline is also exploring a new salt cavern storage
project in southwestern Wyoming.
Natural Gas Distribution Operations
Mountain Fuel distributes natural gas as a public utility in
Utah, southwestern Wyoming, and a small portion of southeastern Idaho. As
of December 31, 1994, Mountain Fuel was serving 572,174 sales and
transportation customers, a record increase from the 550,184 customers
served as of the end of 1993. (Customers are defined in terms of active
meters.) Approximately 96 percent of Mountain Fuel's customers live in
Utah. Mountain Fuel distributes gas to customers in the major populated
areas of Utah, commonly referred to as the Wasatch Front in which the Salt
Lake metropolitan area, Provo, Ogden, and Logan are located. It also
serves customers in eastern, central, and southwestern Utah with Price,
Roosevelt, Fillmore, Richfield, Cedar City, and St. George as the primary
cities. Mountain Fuel supplies natural gas in the southwestern Wyoming
communities of Rock Springs, Green River, and Evanston, and the
southeastern Idaho community of Preston. Mountain Fuel has the necessary
regulatory approvals granted by the Public Service Commission of Utah (the
PSCU), the Public Service Commission of Wyoming (the PSCW), and the Public
Utilities Commission of Idaho (PUCI) to serve these areas. It also has
long-term franchises granted by communities and counties within its
service area.
Mountain Fuel's customer growth in 1994 resulted from new
housing, the addition of new customers in central and southwestern Utah,
and conversions. The customer growth reflects Utah's economic prosperity.
The population of Mountain Fuel's service area in Utah is growing faster
than the national average, and Mountain Fuel expects to add 15,000 to
18,000 customers per year for the next several years.
Mountain Fuel's sales to residential and commercial customers
are seasonal, with a substantial portion of such sales made during the
heating season. The typical residential customer in Utah (defined as a
customer using 115 Dth per year) uses approximately 75 percent of his
total gas requirements in the coldest six months of the year. Mountain
Fuel's revenue forecasts used to set rates are based on normal
temperatures. Consequently, Mountain Fuel's revenues and resulting net
income may be affected by temperature patterns that are below or above
normal. As measured in degree days, temperatures in Mountain Fuel's
service area were nine percent warmer than normal in 1994 after being five
percent colder than normal in 1993 and 10 percent warmer than normal in
1992.
During 1994, Mountain Fuel sold 74,233,000 Dth to residential
and commercial customers, compared to 79,369,000 Dth in 1993. The
decrease was attributable to warmer than normal weather, which was not
offset by an expanded customer base. Sales to residential and commercial
customers were responsible for 87 percent of Mountain Fuel's total
revenues in 1994.
Mountain Fuel has designed its distribution system and annual
gas supply plan to handle design-day demand requirements. The Company
periodically updates its design-day demand, which is the volume of gas
that firm customers could use during extremely cold weather. For the
1994-95 heating season, Mountain Fuel is using a design-day demand of
approximately 839,500 Dth. Mountain Fuel's management believes that the
distribution system is adequate to meet the demands of its firm customers.
Mountain Fuel's total industrial deliveries, including both
sales and transportation, continued to increase and expanded from
59,619,000 Dth in 1993 to 60,264,000 Dth in 1994. Sales to industrial
customers increased for the second consecutive year and expanded from
6,514,000 Dth in 1993 to 8,882,000 Dth in 1994. The increase in total
industrial deliveries reflects Utah's economic revitalization and the
strength of several major industries as well as the success of Mountain
Fuel's marketing efforts.
Mountain Fuel has been providing transportation service since
1986. Mountain Fuel has worked diligently to retain its transportation
customers and to offer them cost-based rates. Transportation service is
attractive to customers that can buy volumes of gas directly from
producers and have such volumes transported at aggregate prices lower than
Mountain Fuel's sales rates.
Under Mountain Fuel's current rate schedules, a typical
interruptible transportation customer pays block rates ranging from $.12
to $.02 per Dth and uses Mountain Fuel's released capacity on Questar
Pipeline's transmission system. Mountain Fuel receives demand cost
credits from Questar Pipeline for transportation customers that use
Mountain Fuel's released capacity. These credits totaled $9.8 million for
the 12-month period ending August 31, 1994 (the first year of Questar
Pipeline's restructured operations).
During 1994, Mountain Fuel obtained regulatory approval of a
firm transportation rate schedule available to industrial customers that
transport or are obligated to pay for the transportation of at least
120,000 Dth per year and that have firm transportation service on an
upstream pipeline. Mountain Fuel currently has 10 transportation
customers on this schedule.
Mountain Fuel's largest transportation customers, as measured
by revenue contributions, are the Geneva Steel plant in Orem, Utah; Utah
Power, an electric utility that uses gas for an electric generating plant
in Salt Lake City; the Kennecott copper processing operations, located in
Salt Lake County; and the mineral extraction operations of Magnesium
Corporation of America that are located west of Salt Lake.
Mountain Fuel's competitive position has been strengthened as
a result of owning natural gas producing properties. During 1994, it has
satisfied 53 percent of its system requirements with the cost-of-service
gas produced from such properties. (As defined, cost-of-service gas
includes the gas attributable to royalty interest owners.) These
properties are operated by Wexpro, and the gas produced from such
properties is transported by Questar Pipeline. Mountain Fuel's investment
in these properties is included in its rate base. (A court-approved
settlement agreement, described in Note K in the Notes to Consolidated
Financial Statements, specifies the terms relating to the ownership and
operation of these properties.) During 1994, 44,413,000 Dth were
delivered from such properties compared to 47,120,000 Dth in 1993.
Mountain Fuel estimates that it had reserves of 416,312 MMcf as of year-
end 1994, compared to 428,238 MMcf as of year-end 1993. (The reserve
numbers do not include volumes attributable to royalty interests.) The
average wellhead cost associated with Mountain Fuel's cost-of-service
reserves was $1.37 per Dth in 1994. During 1994, Mountain Fuel recorded
$4.7 million in Section 29 tax credits (including $1.7 million for prior
years) associated with production from wells on its cost-of-service
properties that qualify for such credits. Mountain Fuel believes that it
is important to continue owning gas reserves, producing them in a manner
that will serve the best interests of its customers, and satisfying a
significant portion of its supply requirements with gas produced from such
properties.
Mountain Fuel has been directly responsible for its gas
acquisition activities since September 1, 1993. Prior to that date,
Mountain Fuel purchased its remaining gas supply requirements from an
affiliated pipeline, Questar Pipeline. As of that date, Mountain Fuel
assumed Questar Pipeline's gas purchase contracts. Mountain Fuel has a
balanced and diversified portfolio of gas supply contracts with field
producers located in the Rocky Mountain states of Wyoming, Colorado, and
Utah. It purchases gas on the spot market and under longer-term
contracts. The contracts have market-price provisions and are either of
short-duration or renewable on an annual basis upon agreement of the
parties. Mountain Fuel's gas acquisition objective is to obtain reliable,
diversified sources of gas supply at competitive prices. In its latest
semi-annual purchased gas cost filing, Mountain Fuel estimated that its
average wellhead cost of field-purchased gas would be $1.83 per Dth for
1995. Mountain Fuel expects that this average cost will decline if
natural gas prices continue to be as low as they currently are.
Mountain Fuel has historically enjoyed a favorable price
comparison with all energy sources used by residential and commercial
customers except coal and occasionally fuel oil. This historic price
advantage, together with the convenience and handling advantages
associated with natural gas, has permitted Mountain Fuel to retain 85-95
percent of the residential space and water heating markets in its service
area and to distribute more energy, in terms of Btu content, than any
other energy supplier to residential and commercial markets in Utah.
These competitive advantages are responsible for Mountain Fuel's ability
to attract residential users of alternate energy sources to gas in its new
service areas in central and southwestern Utah even though such users are
temporarily required to pay higher rates than their counterparts in the
more populated areas of Utah.
Although Mountain Fuel is a public utility and has no direct
competition from other distributors of natural gas for residential and
commercial customers, it competes with other energy sources. Mountain
Fuel continues to monitor its competitive position, in terms of commodity
costs and efficiency of usage, with other energy sources. PacifiCorp
(operating as Utah Power in Utah) is the primary electric utility in Utah
and portions of southwestern Wyoming. Although its current rates for
residential space heating and water heating are more than twice as high on
a Btu basis as Mountain Fuel's rates for such service, PacifiCorp provides
an ongoing source of competition, particularly as Mountain Fuel attempts
to secure incremental load.
Mountain Fuel is continuing to expand the size of its customer
base by entering new service areas. Mountain Fuel is also interested in
Utah's economic development in order to enhance market growth and is
encouraging the use of natural gas in additional appliances. Most
households in Mountain Fuel's service area already use natural gas for
space and water heating. Mountain Fuel's market share for other
appliances, e.g., ranges and dryers, has historically been less than 20
percent, which is significantly lower than its 85-95 percent market share
for furnaces and water heaters. Mountain Fuel has commenced marketing
campaigns to convince existing customers to take advantage of natural
gas's lower prices and greater efficiency by converting other appliances
to natural gas. Mountain Fuel also has marketing campaigns to motivate
contractors to install the necessary lines for gas fireplaces, ranges, and
dryers in new homes.
Mountain Fuel believes that it must maintain a competitive
price advantage in order to retain its residential and commercial
customers and to build incremental load by convincing current customers to
convert additional appliances to natural gas. Consequently, Mountain Fuel
has worked to develop and follow an annual gas supply plan that provides
for a judicious balance between cost-of-service gas and purchased gas.
Mountain Fuel's rates for general service customers in Utah
continue to be lower than they were ten years ago. Using rates in effect
as of January 1, 1995, the typical residential customer in Utah would have
an annual bill of $506.28, compared to an annual bill of $607.07, using
rates in effect as of January 1, 1985.
The Kern River pipeline, which was built to transport gas from
southwestern Wyoming to Kern County, California, runs through portions of
Mountain Fuel's service area and provides an alternative delivery source
to Mountain Fuel's transportation customers. As of the date of this
report, Mountain Fuel has lost no industrial load as a result of Kern
River. The existence of this interstate pipeline system has made it
possible for Mountain Fuel to extend service into a new area in Utah and
to develop a second source of supply for its southern system. During
1994, Mountain Fuel obtained a tap on the Kern River line in the Wasatch
Front in order to obtain an additional source for peak-day gas supply.
Within the last several years, Mountain Fuel has increased its
activities to encourage the use of natural gas as a fuel in automobiles,
trucks, and buses. Mountain Fuel has expanded the number of its service
vehicles using natural gas and has helped convert fleet vehicles owned by
several state agencies, commercial businesses, municipalities, and others.
There are a total of 74 natural gas refueling stations in Mountain Fuel's
service area, including 23 that are open to the public. Mountain Fuel is
actively promoting the environmental advantages of natural gas. Portions
of Mountain Fuel's service area do not satisfy the ambient air quality
standards set by the federal Environmental Protection Agency.
Mountain Fuel has adopted innovative and cost-cutting measures
to deal with competitive pressures during the last several years and to
maintain its competitive posture for the future. One measure of improved
efficiency is the number of customers served per employee. In 1988,
Mountain Fuel's rate of year-end customers to full-time equivalent
employees was 319 to 1; in 1994, the rate was 383 to 1. Mountain Fuel's
1995 goal is to increase this ratio to greater than 400 to 1.
In early 1995, Mountain Fuel announced immediate plans to
consolidate some customer service functions such as telephone service,
engineering, and sales and to phaseout or significantly reduce the size of
10 customer service offices in Utah and Wyoming. An early-retirement
offer was also made to 169 employees of Mountain Fuel. Although Mountain
Fuel cannot forecast the number of employees who will accept the offer,
which is open until April 17, 1995, it does expect that the cost
associated with offering retirement incentives will be more than offset by
expected labor savings.
Mountain Fuel intends to maintain a competitive position in an
energy marketplace in which there is more gas on gas competition and in
which some traditional "utility" and "monopoly" services are deregulated.
Mountain Fuel is committed to keeping its costs as low as possible,
increasing the productivity of its employees, and emphasizing the
importance of providing high quality natural gas service.
As a public utility, Mountain Fuel is subject to the
jurisdiction of the PSCU and PSCW. (Mountain Fuel's customers in Idaho
are served under the provisions of its Utah tariff. Pursuant to a special
contract between the PUCI and the PSCU, Mountain Fuel's Idaho customers
are regulated by the PSCU.) Mountain Fuel's natural gas sales and
transportation services are made under rate schedules approved by the two
regulatory commissions.
On March 3, 1995, Mountain Fuel filed a general rate case
application in Utah. In the rate case, Mountain Fuel requested a return
on equity of 12.5 percent (compared to its current authorized return on
equity of 11.0 percent), regulatory approval of a new weather
normalization adjustment mechanism, and regulatory approval to collect an
annualized revenue deficiency of $9,559,000. Mountain Fuel based its
revenue deficiency on a "future" test year ending December 31, 1995, and
estimated that its year-end rate base in Utah would be $372,134,000.
Mountain Fuel's proposed normalization mechanism would adjust the non-gas
cost portion of a customer's monthly bill as the actual degree days in the
billing cycle are warmer or colder than normal. Mountain Fuel expects
that return on equity, future test year, rate base growth, and the
proposed weather normalization procedure will be major issues in the case.
At the current time, Mountain Fuel does not expect to file a
general rate case application with the PSCW in 1995. Mountain Fuel's last
Wyoming case was settled in August of 1993 with rates reflecting a 10.4
percent return on rate base.
Both the PSCU and the PSCW have authorized Mountain Fuel to
use a balancing account procedure for changes in the cost of natural gas,
including supplier non-gas costs, and to reflect changes on a semi-annual
basis. In connection with its last gas-cost application in Utah, Mountain
Fuel also obtained regulatory approval to remove approximately $5.6
million of gas costs associated with "unbilled revenues" from the gas
balancing account. This accounting adjustment resulted from the PSCU's
requirement in the 1993 general rate case that Mountain Fuel recognize
revenues on an "as delivered" rather than on "as billed" basis.
Mountain Fuel owns and operates distribution systems
throughout its Utah, Wyoming and Idaho service areas and has a total of
17,468 miles of street mains, service lines, and interconnecting
pipelines. Mountain Fuel has a new office building adjacent to a
warehouse, garage, and operations center in Salt Lake City, Utah. It also
owns operations centers, field offices, and service center facilities
throughout other parts of its service area. The mains and lines are
constructed pursuant to franchise agreements or rights-of-way. Mountain
Fuel has fee title to the properties on which its office building and
operation and service centers are constructed.
Other Operations
In addition to the three major lines of business, Questar has
other operations that are discussed in detail below.
Questar Development Corporation. Questar Development has been
functioning since 1984 to handle business development investments and real
estate projects. A subsidiary, Interstate Land Corporation (Interstate
Land), owns and manages real estate properties in Utah, Idaho, and
Wyoming, including the Company's headquarters in downtown Salt Lake City,
Utah. Interstate Land will be managing a two-year project to remodel and
enlarge this building. Since 1989, Questar Development has been a one-
third owner in FuelMaker Corporation, a Canadian corporation that
develops, manufactures, and markets small compressors to be used when
refueling natural gas vehicles in remote locations or residences.
(Questar Development wrote-off its investment in FuelMaker at year-end
1994.) In addition to its investment in FuelMaker, Questar Development
has an equity investment in several Utah-based companies engaged in
research and development activities.
Questar InfoComm, Inc. Questar InfoComm (formerly Questar
Service Corporation) operates data processing facilities and provides data
processing services for other members of the Questar group of companies.
It also operates a network of microwave facilities, all of which are
located in Mountain Fuel's service area or near Questar Pipeline's
transmission lines, for members of the affiliated group. Services are
priced to recover operating expenses and a return on investment. During
1994, Questar InfoComm continued to expand services for nonaffiliated
customers and has identified five key products and services to market to
such customers. The products and services are private line communications
with microwave and fiber optics systems; telephone services including
long-distance reselling; services involving the design installation and
maintenance of networks; services to store and protect data; and the sale
of software products for natural gas and energy markets.
Employees
As of December 31, 1994, Questar and its affiliates had 2,624
employees compared to 2,596 at year-end 1993. None of these employees is
represented under collective bargaining agreements. Questar has
comprehensive benefit plans for its employees. Employee relations are
generally deemed to be satisfactory.
Environmental Matters
Questar and its affiliates are subject to the National
Environmental Policy Act and other federal and state legislation
regulating the environmental aspects of their businesses. During 1994,
Questar and its affiliates continued to be involved in actions involving
local and federal environmental enforcement agencies and allegations of
"hazardous waste" problems. Entrada's liability for contamination is
described in "Legal Proceedings" and in Note H in the Notes to
Consolidated Financial Statements. The Company does not believe that
environmental protection provisions will have any significant effect on
its competitive position; it does believe, however, that such provisions
have added and will continue to add to capital expenditures and operating
costs.
As noted earlier, Questar is actively promoting the
environmental advantages of natural gas in comparison to other fuels. It
has actively participated in various clean air committees and has promoted
the use of natural gas in automobiles. Questar's management believes that
increasing concerns about environmental pollution will result in an
increased demand for natural gas.
Research and Development
Mountain Fuel has the primary responsibility for the Company's
research and development activities. It evaluates gas conversion
equipment, gas piping, and engines using natural gas and also evaluates
technological developments with electrical appliances. In addition to
conducting research activities and funding research activities of entities
in which the Company has an equity position, Questar and its affiliates
also contribute to research and development projects of industry
associations, e.g., the Gas Research Institute. The total dollar amount
spent by Questar on research and development activities either directly or
through contributions is not material.
Oil and Gas Operations
Oil and gas operations are material to the business functions
and financial condition of Questar. (All information set forth below
relates to the Company on a consolidated basis.) Certain information
concerning the Company's oil and gas operations is presented in Note L in
the Notes to Consolidated Financial Statements. The Company does not have
any long-term supply contracts with foreign governments or reserves of
equity investees.
Reserve Reports. The following is a reconciliation of reserve
quantities reported in Note L in the Notes to Consolidated Financial
Statements and reserve quantities reported to other regulatory agencies:
Questar is reporting 684 Bcf of natural gas reserves at
year-end 1994. This total represents the net revenue interest of all
owned reserves and includes quantities attributable to cost-of-service
properties.
Mountain Fuel files information using a Form 2 format with the
PSCU and PSCW and lists gas reserves of 488 Bcf (working interest) at
December 31, 1994, which include reserves attributable to royalty
interests. The 416 Bcf (net revenue interest) reported as cost-of-service
gas reserves in Note L exclude reserves attributable to royalty interests.
Questar Pipeline files a Form 2 (Annual Report) with the FERC.
The Form 2 discloses Questar Pipeline's cushion gas of 61 Bcf at December
31, 1994. This gas is not included in the total reserve number.
Oil and Gas Production.1
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Natural gas (MMcf) 75,094 67,807 54,249
Oil (Mbbl) 2,507 2,056 2,175
</TABLE>
1 Production quantities from all properties, including cost-of
-service properties.
<TABLE>
<CAPTION>
Average Sales Price.2
1994 1993 1992
<S> <C> <C> <C>
Natural gas per Mcf $1.78 $1.85 $1.65
Oil per Bbl 14.76 16.68 18.64
</TABLE>
2 Average sales price is calculated on production excluding cost-
of-service volumes.
Average Production (Lifting) Cost. The average production cost per
energy equivalent Mcf (Mcfe) excludes costs and volumes associated with
production of cost-of-service reserves. One barrel of oil equals the
energy content of 6,000 cubic feet of gas.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Production cost per Mcfe $ .52 $ .60 $ .68
</TABLE>
Producing Wells at December 31, 1994.
<TABLE>
<CAPTION>
Gas Oil
<S> <C> <C>
Gross wells 3,208 1,587
Net wells 984 410
</TABLE>
The number for gross wells includes 67 wells with multiple
completions.
Leasehold Acreage at December 31, 1994. Questar's affiliates can
retain their interest in undeveloped acreage by either drilling activity
that establishes commercial production or by the payment of delay rentals.
A portion of the unproved acreage may be allowed to lapse prior to the
primary terms of the lease. All leasehold acreage is located in the
United States. Approximately 80 percent of the unproved acreage consists
of federal and state leases that generally have ten-year terms. The
remaining 20 percent is attributable to fee leases that generally have
three- to five-year terms. About 44 percent of the unproved acreage is
scheduled to expire within the next five years if no drilling or
development activity is undertaken.
<PAGE>
The following chart lists the Company's productive and unproved
acreage by state:
<TABLE>
<CAPTION>
State Productive Unproved
Gross Net Gross Net
<S> <C> <C> <C> <C>
Arizona 480 450
Arkansas 4,156 833 588 392
California 6,393 912 800 100
Colorado 120,061 83,096 297,807 173,837
Idaho 44,175 10,650
Indiana 1,311 273 1,536 468
Illinois 25,722 18,166 13,796 4,145
Kansas 115,511 23,117 52,347 17,818
Kentucky 5,131 715 17,245 7,007
Louisiana 640 8
Michigan 3,780 605 5,891 1,214
Minnesota 313 104
Montana 51,719 9,007 339,738 65,615
Nebraska 4,359 1,497 164,224 45,031
Nevada 520 520 20,530 20,392
New Mexico 131,492 81,621 42,338 25,769
New York 24,590 201
North Dakota 51,629 4,006 153,448 23,847
Ohio 2,701 65 202 43
Oklahoma 1,158,221 224,270 277,963 50,449
Oregon 43,868 7,670
Pennsylvania 668 173
South Dakota 8,718 640 204,490 107,055
Texas 308,066 19,963 7,613 3,271
Utah 81,243 43,229 142,561 63,900
Washington 26,631 10,046
West Virginia 6,474 923
Wyoming 244,780 154,980 426,079 263,791
Total 2,357,885 668,820 2,284,663 903,064
</TABLE>
Net Productive and Dry Wells Drilled.
<TABLE>
<CAPTION>
Exploratory Wells Development Wells
1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Productive 1 1 4 31 63 44
Dry 1 5 2 5 7 5
Total 2 6 6 36 70 49
</TABLE>
Present Activities. At year-end 1994, Questar affiliates
had a working interest in 24 wells waiting on completion and 3
wells being drilled.
Delivery Commitments. Mountain Fuel is obligated to deliver
natural gas to about 572,000 customers in Utah, Wyoming and
Idaho, but future quantities associated with such service are
neither fixed nor determinable.
The three E&P companies sell a majority of their noncost-of-
service oil and gas production on the spot-market or under short-
term contracts that provide for price readjustments.
ITEM 3. LEGAL PROCEEDINGS
There are various legal proceedings pending against the
Company and its affiliates. While it is not feasible to predict
or determine the outcome of these proceedings, the Company's
management believes that the outcome will not have a material
adverse effect on the Company's financial position.
Questar, Entrada, and Mountain Fuel have each been named a
"potentially responsible party" for contaminants on property
owned by Entrada in Salt Lake City, Utah. The property, known as
the Wasatch Chemical property, was the location of chemical
operations conducted by Entrada's Wasatch Chemical division,
which ceased operation in 1978. A portion of the property is
included on the national priorities list, commonly known as the
"Superfund" list.
In September of 1992, a consent order governing clean-up
activities was formally entered by the federal district court
judge presiding over the underlying litigation involving the
property. The underlying lawsuits seek declaratory relief that
the named potentially responsible parties, including the Questar
affiliates and unrelated parties, are liable for the expense of
the investigation and clean-up. The consent order was agreed to
by Questar, Entrada, and other affiliates as well as the Utah
Department of Health and the Environmental Protection Agency.
Entrada has settled with the named unrelated parties and has
assumed the liability of such parties.
In late 1994, Entrada began an in situ vitrification
procedure to clean up the Wasatch Chemical property. The
clean-up procedure may take as long as three years.
Entrada has recorded all costs spent on the matter and has
accounted for all settlement proceeds, accruals, and insurance
claims. It has received cash settlements, which together with
accruals and insurance receivables, should be sufficient for
future clean-up costs.
Mountain Fuel, as a result of acquiring Questar Pipeline's
gas purchase contracts, is responsible for any judgment rendered
against Questar Pipeline that resulted in an adverse jury verdict
in 1994. The jury awarded an independent producer compensatory
damages of approximately $6,100,000 and punitive damages of
$200,000 on his claims involving take-or-pay, tax reimbursement,
contract breach, and tortuous interference with a contract. The
presiding judge has not issued a decision concerning the
competing forms of judgment entered by the opposing parties.
Consequently, Questar Pipeline and Mountain Fuel have not filed
any post-judgment actions or determined whether to appeal.
Mountain Fuel expects that any amounts arising from the breach of
contract claims will be included in its gas balancing account and
recovered in its rates for natural gas service.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of
stockholders during the last quarter of 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information concerning the market for the common equity of
the Company and the dividends paid on such stock is located in
Note N in the Notes to Consolidated Financial Statements. As of
March 20, 1995, Questar had 11,545 shareholders of record and
estimates that it had an additional 10,000-12,000 beneficial
holders.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992 1991 1990
(In Thousands)
<S> <C> <C> <C> <C> <C>
Revenues $670,318 $660,430 $591,346 $624,263 $532,035
Operating expenses
Natural gas purchases 212,528 224,500 201,018 247,762 174,539
Other expenses 303,132 287,636 252,792 243,197 239,279
Total operating expenses 515,660 512,136 453,810 490,959 413,818
Operating income $154,658 $148,294 $137,536 $133,304 $118,217
Write-down of investment in
Nextel Communications ($61,743)
Income from continuing operations $49,417 $84,464 $73,771 $66,752 $59,221
Gain from sale of Questar Telecom
to Nextel Communications 38,126
Loss from discontinued operations (2,772) (2,437) (2,719) (1,701)
Cumulative effect of change in
accounting for income taxes 9,303
Net income $87,543 $81,692 $80,637 $64,033 $57,520
Earnings per common share
Income from continuing operations $1.21 $2.10 $1.85 $1.70 $1.49
Gain from sale of
discontinued operations 0.95
Loss from discontinued operations (0.07) (0.06) (0.07) (0.04)
Cumulative effect 0.23
Net income $2.16 $2.03 $2.02 $1.63 $1.45
Dividends per common share $1.13 $1.09 $1.04 $1.01 $0.97
Book value per common share 16.17 14.99 13.92 12.78 11.96
Total assets $1,585,575 $1,417,687 $1,320,358 $1,212,519 $1,148,340
Net cash provided from operating
activities 163,375 194,982 160,179 156,029 123,328
Capital expenditures 276,882 168,388 180,061 142,250 149,086
Capitalization
Long-term debt $494,684 $371,713 $364,594 $354,327 $328,012
Redeemable cumulative preferred sto 6,324 7,525 8,726 9,955 11,155
Common stock 653,589 601,942 553,810 501,968 460,473
Total capitalization $1,154,597 $981,180 $927,130 $866,250 $799,640
</TABLE>
Note - Selected financial data for 1990-1992 has been reclassified for the
reporting of discontinued operations.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SUMMARY
Questar Corporation's 1994 net income was $87,543,000, or $2.16 per share in
compared with $81,692,000, or $2.03 per share in 1993 and $80,637,000, or
$2.02 per share in 1992.
Exploration and production operations had 1994 income of $40,216,000,
compared with $36,325,000 in 1993 and $27,762,000 in 1992. The positive
effect of increased natural gas and oil production was diminished by lower
selling prices in 1994.
Natural gas transmission operation's income was $25,829,000 in 1994 compared
with $23,275,000 in 1993 and $22,463,000 in 1992. Questar Pipeline is
expanding storage and gathering services while taking advantage of the terms
of Federal Energy Regulatory Commission (FERC) Order No. 636. The current
tariff allows recovery of about 96% of the transmission cost of service in
the reservation component of rates.
Natural gas distribution operations earned $23,352,000 in 1994 compared with
$25,069,000 in 1993, and $23,395,000 in 1992. Temperatures were 9% warmer
than normal in 1994, compared with 5% colder than normal in 1993, and 10%
warmer than normal in 1992.
Other operations reported a $38,126,000 after-tax gain from the sale of
Questar Telecom to Nextel Communications in the third quarter of 1994. The
Company received 3,875,950 shares of Nextel common stock in the transaction.
At year end 1994, the Company wrote down its investment in Nextel by
$61,743,000, which amounted to a $38,126,000 after-tax loss.
Questar spent $276,882,000 for capital expenditures in 1994 and estimates
1995 capital expenditures of $232,500,000. Capital expenditures in 1994
were financed through cash provided from operating activities plus borrowed
funds. Long-term debt represented 43% of consolidated capitalization at
December 31, 1994.
<PAGE>
RESULTS OF OPERATIONS
EXPLORATION AND PRODUCTION - Celsius Energy, Universal Resources and Wexpro
(E & P group) conduct exploration and production operations. Following are
operating income and statistics for these operations:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Natural gas production $67,151 $59,911 $40,611
Oil and natural gas-liquids product 36,045 32,965 38,669
Natural gas marketing 160,961 131,176 114,819
Cost-of-service gas operations 57,870 49,595 43,324
Plant and gathering operations 8,569 1,635 1,588
Other 1,317 1,165 2,556
Total revenues 331,913 276,447 241,567
Operating expenses
Natural gas purchases 154,780 127,312 113,527
Operating and maintenance 44,846 36,769 35,289
Depreciation and amortization 48,542 44,614 35,517
Oil-income sharing 3,391 1,028 3,389
Other taxes 21,060 17,337 11,604
Total expenses 272,619 227,060 199,326
Operating income $59,294 $49,387 $42,241
OPERATING STATISTICS
Production volumes
Natural gas (in MMcf) 37,659 32,299 24,550
Oil and natural
gas-liquids (in Mbbls) 2,442 1,975 2,075
Production revenue
Natural gas (per Mcf) $1.78 $1.85 $1.65
Oil and natural
gas-liquids (per bbl) $14.76 $16.68 $18.64
Gas marketing volumes (in Mdth) 88,941 65,143 72,712
</TABLE>
Expansion of gas and oil reserves in 1994, 1993 and 1992 led to increased
gas- and oil-production volumes. A successful strategy of acquisition,
development and exploration employed by the E&P group resulted in a 281%
replacement of noncost-of-service gas and oil reserves in 1994, following
76% measured in 1993 and 185% replacement in 1992. Noncost-of-service gas
and oil reserves reached 349 Bcfe (billion cubic feet equivalent) at
year-end 1994.
Natural gas production increased 17% in 1994 and 32% in 1993 when compared
with the prior year's level. Average daily gas production reached 103 MMcf
in 1994, 88 MMcf in 1993 and 67 MMcf in 1992. A strategy to produce
natural gas wells near full capacity was adopted in the last half of 1992.
Oil and natural gas liquids production increased 24% in 1994 after declining
5% in 1993. The E&P group completed three acquisitions with a total cost of
$113 million, adding 127 Bcfe of natural gas and oil reserves, related
equipment and facilities and liquids extraction plants. These properties,
located in the Midcontinent and Southwestern areas of the United States,
produced 9 Bcf of natural gas and 435,000 barrels of oil and natural gas
liquids in 1994.
Gas-processing plants and gathering systems, acquired along with the reserve
purchases, added $6,651,000 of revenues to 1994's performance. The plants
generate revenues by extracting liquids from natural gas streams.
Nationally, energy prices declined in 1994 resulting from weak demand,
especially in the last half of the year. The average selling price of
natural gas dropped 4% in 1994 after increasing 12% in 1993 and declining 2%
in 1992. The average selling price received for oil and natural gas liquids
production fell for the fourth consecutive year. Prices were 12% lower in
1994, 11% lower in 1993, and 14% lower in 1992.
Natural gas marketing volumes increased 37% in 1994 after decreases of 10%
in 1993 and 23% in 1992. Beginning in 1993, the E&P group changed its gas
marketing strategy from an emphasis on a volumetric objective to one
targeting premium customers and marketing of production from the Company's
E&P group.
The E&P group employs price risk management strategies in response to the
volatility of energy prices. The E&P group enters into swaps, futures
contracts or option agreements to hedge exposure to price fluctuations in
connection with marketing production of natural gas and oil, and to secure a
known margin for the purchase and resale of gas in marketing activities. The
activity resulted in an approximate $.20 per Mcf improvement in the average
selling price received for the E&P group's natural gas production. At
December 31, 1994 the E&P group held contracts hedging the price for about
45 Bcf of gas and 334,000 bbls of oil.
Revenues from Wexpro's cost-of-service gas operations continued to grow in
1994 as a result of investment and operation of gas-development properties.
Activity focused in the Church Buttes, Bruff and Birch Creek areas of
southwestern Wyoming. Wexpro's net investment in cost-of-service gas
operations was $98,134,000 in 1994, $92,561,000 in 1993 and $81,261,000 in
1992. Wexpro's after-tax return on investment in those properties ranges
from 18% and 20%.
<PAGE>
NATURAL GAS TRANSMISSION - Questar Pipeline conducts natural gas
transmission, storage, and gathering operations. Following are operating
income and statistics for these operations:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Transportation $61,844 $51,590 $43,912
Gathering 23,641 20,386 17,822
Storage 27,620 14,698 7,798
Sales for resale 81,813 133,059
Other 2,503 3,141 1,995
Total revenues 115,608 171,628 204,586
Operating expenses
Natural gas purchases 56,022 93,024
Operating and maintenance 42,778 48,356 46,601
Depreciation and amortization 15,453 14,084 13,699
Other taxes 4,499 3,915 3,842
Total expenses 62,730 122,377 157,166
Operating income $52,878 $49,251 $47,420
OPERATING STATISTICS
Natural gas volumes (in Mdth)
Transportation
For Mountain Fuel 75,941 65,061 33,883
For other customers 174,343 149,188 171,097
Total transportation 250,284 214,249 204,980
Sales for resale to Mountain Fuel 24,337 38,981
Total system throughput 250,284 238,586 243,961
Gathering
For Mountain Fuel 32,098 44,432 48,164
For other customers 51,885 48,336 25,901
Total gathering 83,983 92,768 74,065
Clay Basin storage working gas-
volumes (in Bcf) 41.8 31.0 30.0
Natural gas revenues (per dth)
Transportation $0.25 $0.24 $0.21
Gathering 0.28 0.22 0.24
Sales for resale - 3.36 3.41
Natural gas purchase cost (per dth) - 2.28 2.53
</TABLE>
1994 was the first full year of operations for Questar Pipeline under the
regulations of FERC Order No. 636. In this new regulatory environment
Questar Pipeline's transportation, gathering and storage services are
separate activities, and sales-for resale services have been discontinued.
Firm-transportation volumes do not have a significant impact on current
operating results because about 96% of the cost of service is recovered
equally each month in the reservation component of rates.
Most of Questar Pipeline's transportation capacity has been reserved by
firm-transportation customers. Roughly 92% of firm-transportation contracts
have remaining terms of at least four years. Firm-transportation customers
can release that capacity to third parties when it is not required for their
own needs. Mountain Fuel has reserved transportation capacity from Questar
Pipeline of approximately 800,000 decatherms per day, or about 85% of the
total reserved daily transportation capacity.
Throughput volumes increased 5% in 1994 reflecting increases in services
provided to both firm-and interruptible-transportation customers. After
$1.5 million of revenues are earned from interruptible transportation
services, 90% of remaining interruptible-transportation revenues are
credited back to firm-transportation customers. Throughput volumes for
Mountain Fuel, which include sales for resale in 1993 and 1992, declined 15%
in 1994 because of warmer weather in Mountain Fuel's service area.
Gathering revenues increased 16% in 1994 and 14% in 1993. Gathering
activities were unbundled from the sales function in 1991. Volumes of gas
gathered for Mountain Fuel have remained level for 1994, 1993 and 1992.
However, billings for gas gathered for Mountain Fuel in 1993 and 1992 were
based on imputed volumes, which were substantially higher than volumes
gathered. Gas volumes gathered for other customers have increased. Questar
Pipeline has expanded its gas gathering operations in the past several years
in the Birch Creek, Bruff and Henry areas of southwestern Wyoming.
Questar Pipeline began a program in 1993 to expand firm-storage service
offered at its Clay Basin storage facility. Working gas storage capacity
was increased to 31 Bcf in 1993 and to 41.8 Bcf beginning May 1994. Planned
capacity of 46.3 Bcf is projected beginning mid-year 1995. Storage capacity
at year-end 1994 was 100% subscribed with contractual terms extending from
seven to 30 years. Storage revenues increased $12,922,000 in 1994.
Increased capacity and the associated service at Clay Basin resulted in a
$3,400,000 addition to storage revenues. The remaining change in storage
revenues comes from unbundling and reclassifying peaking storage service
from sales-for-resale revenues. Peaking storage is designed to meet peak
daily demand requirements of Mountain Fuel.
Questar Pipeline, through a partnership, is a 50% owner of a gas processing
plant in southwestern Wyoming. The Blacks Fork Processing plant cost $19.7
million to build and will be operational in the first half of 1995.
<PAGE>
NATURAL GAS DISTRIBUTION - Mountain Fuel conducts natural gas distribution
operations. Following are operating income and statistics for these
operations:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Residential and commercial sales $329,576 $360,210 $330,920
Industrial sales 24,395 21,678 19,878
Industrial transportation 5,665 5,898 6,252
Other 18,624 14,605 15,997
Total revenues 378,260 402,391 373,047
Operating expenses
Natural gas purchases 210,507 230,139 218,123
Operating and maintenance 94,094 92,486 79,975
Depreciation and amortization 24,749 23,244 20,713
Other taxes 9,589 10,013 9,839
Total expenses 338,939 355,882 328,650
Operating income $39,321 $46,509 $44,397
OPERATING STATISTICS
Natural gas volumes (in Mdth)
Residential and commercial sales 74,233 79,369 68,635
Industrial deliveries
Sales 8,882 6,514 5,338
Transportation 51,382 53,105 51,621
Total industrial 60,264 59,619 56,959
Total deliveries 134,497 138,988 125,594
Natural gas revenue (per dth)
Residential and commercial $4.44 $4.54 $4.82
Industrial sales 2.75 3.33 3.72
Transportation for industrial cus 0.11 0.11 0.12
Natural gas purchase price (per dth) $2.40 $2.52 $2.83
Heating degree days (normal 5,801) 5,290 6,073 5,235
Colder (warmer) than normal (9%) 5% (10%)
Number of customers at end of period 572,174 550,184 532,109
</TABLE>
Natural gas deliveries to residential and commercial customers dropped 6% in
1994 after increasing 16% in 1993. These changes parallel temperatures in
Mountain Fuel's service area which were 9% warmer than normal in 1994 after
being 5% colder than normal in 1993. The number of customers increased by
4.0% in 1994, 3.4% in 1993 and 3.2% in 1992 reflecting record setting
growth.
Gas deliveries to industrial customers improved by 1% in 1994 and 5% in
1993. Mountain Fuel's service area has experienced strong economic growth
for several successive years. The Company has benefitted from a demand for
gas for expanded operations and environmental concerns, especially for the
generation of electricity.
Mountain Fuel's allowed return on equity for Utah operations was reduced
from 12.1% to 11% effective January 1, 1994, in a general rate case order
from the Public Service Commission of Utah (PSCU). In addition, the
Company also changed the accounting for revenues for residential and
commercial customers from an "as billed" to an "as delivered" basis.
Mountain Fuel began accruing gas-distribution revenues for gas delivered to
residential and commercial customers but not billed at the end of the
reporting period starting in 1993. The impact of these accruals on the
income statement has been deferred and is being recognized at the rate of
$2,011,000 per year over a five-year period beginning in 1994, in accordance
with a PSCU rate order. This rate order also reduces customer rates by
$2,011,000 per year over the same five-year period. In addition Mountain
Fuel recorded other income of $5,589,000 for a one-time reduction in gas
costs associated with these unbilled revenues. This transaction added about
$3.5 million to net income in 1994.
Mountain Fuel filed a general rate case in the State of Utah on March 3,
1995 requesting a $9.6 million increase in revenues and a 12.5% return on
equity. Management believes the rate increase is necessary to secure an
appropriate allowed rate of return and to recover the costs of record
customer growth.
In March 1995 Mountain Fuel announced an early retirement opportunity for
about 169 employees resulting from consolidation of customer service jobs.
This restructuring reflects the substantial gains in efficiency the Company
is starting to realize from its investment in customer service system
technology. Mountain Fuel expects labor cost savings will exceed the cost
of the early retirement program.
<PAGE>
OTHER OPERATIONS - Following is a summary of the results from Questar's
other operations:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
Corporate and other
Net income (loss) ($39,980) ($205) $151
Discontinued operations
Gain from sale of Questar Teleco $38,126
Loss from discontinued operations ($2,772) ($2,437)
</TABLE>
In October 1993 Questar agreed to sell Questar's entire interest in Questar
Telecom to Nextel Communications for 3,875,950 shares of Nextel common
stock. The sale was completed August 4, 1994 resulting in a pretax gain of
$61,743,000 ($38,126,000 after income taxes). Since Questar Telecom
represented all of Questar's specialized mobile radio operations, these
operations were disclosed as discontinued on Questar's financial statements.
The value of Nextel common stock dropped significantly between August 4,
1994 and year-end 1994. Management judged the decline in value of Nextel
common stock to be other-than-temporary and wrote down its investment in
Nextel Communications by $61,743,000. This amounted to $38,126,000, or $.95
per share, after income taxes.
The Company also wrote off its investment in FuelMaker in the fourth quarter
of 1994. The write-off of investment and a note receivable totalled
$3,368,000 and was offset by income tax benefits resulting in no effect on
net income.
The Company has been named a potentially responsible party in an
environmental clean-up action involving a site in Salt Lake City. The site
was the location of chemical operations conducted by Entrada's Wasatch
Chemical Division, which ceased operation in 1978. Entrada began
remediation in 1994 under a plan approved by both the Environmental
Protection Agency and the Utah Department of Health. Settlements have been
reached with the other major potentially responsible parties and an accrual
has been established for the remedial work costs. Management believes that
current accruals of $5,680,000, recorded in deferred credits, will be
sufficient for estimated clean-up costs, which are expected to be incurred
over the next several years. The Company has recorded a receivable from an
insurance company of $4,587,000 for expected payments related to the Wasatch
Chemical clean-up. Additional amounts may be collected from the insurance
company if clean-up costs are higher than anticipated.
CONSOLIDATED OPERATING RESULTS - Consolidated revenues increased 1% in 1994
as a result of higher natural gas production and gas marketing sales by the
E&P group partially offset by lower gas deliveries to Mountain Fuel's
residential and commercial customers. Consolidated revenues increased 12%
in 1993 due to higher natural gas production from the E&P group and greater
volumes sold by Mountain Fuel to residential and commercial customers.
Natural gas purchases declined 5% in 1994 because of lower gas volumes sold
by Mountain Fuel after increasing 12% in 1993. Operating and maintenance
expenses increased 3% in 1994 and 10% in 1993. The primary reasons for the
1994 increase were expansion of the number of producing properties by the
E&P group and more customers and expanded service territory for Mountain
Fuel. Higher 1994 operating costs were partially offset by $5,976,000 of
gas-production credits received from gas sold from a discontinued pressure
maintenance project. Depreciation and amortization expense increased 7% in
1994 and 18% in 1993, due to capital expenditure programs in all lines of
business and higher natural gas production. The full cost amortization rate
was $.78 per Mcfe in 1994 compared with $.80 per Mcfe in 1993, and $.79 in
1992.
Section 29 income tax credits received from production of gas from certain
properties reduced the effective income tax rate. Credits of $10,289,000 in
1994, $11,026,000 in 1993 and $5,722,000 in 1992 increased net income by
reducing income tax expenses.
The Company adopted SFAS No.112, Accounting for Postemployment Benefits, on
January 1, 1994, by establishing a liability of $3,268,000 offset by a
$2,794,000 regulatory asset and expense of $474,000. This statement
requires the Company to recognize the net present value of the liability for
postemployment benefits, such as, long-term disability benefits and health
care and life insurance costs, when employees become eligible for such
benefits. Postemployment benefits are paid to former employees after
employment has been terminated but before retirement benefits are paid.
SFAS No.112 requires the Company to accrue both current and future costs
which formerly had been recorded when cash was paid. By December 1994 the
total liability had dropped from $3,268,000 to $1,872,000 as a result of
designating Medicare as the primary health care provider and increasing the
discount rate from 7% to 8.5%. At year-end 1994, Mountain Fuel expensed
SFAS No. 112 costs previously recorded as a regulatory asset. The Company
expects $450,000 to be recovered in subsequent rate filings by Questar
Pipeline.
The Company adopted SFAS No.115, Accounting for Certain Investments in Debt
and Equity Securities, in 1994. Investment in securities available for
sale, primarily Nextel Communications common stock, is carried at
approximate fair value at the balance sheet date. The Company records
unrealized gains or losses, net of income taxes, as a separate component of
shareholders' equity at the end of each quarter based on the market value of
Nextel. Upon sale of the securities, gains or losses will be reported in
the determination of income.
The Company adopted SFAS No.119, Accounting for Disclosure of Derivative
Financial Instruments and Fair Value of Financial Instruments in 1994. The
E&P group enters into swaps, futures contracts or option agreements to hedge
exposure to price fluctuations in connection with marketing production of
natural gas and oil, and to secure a known margin for the purchase and
resale of gas in marketing activities. There is a high degree of
correlation of such contracts because timing of production and the hedge
contracts are closely matched, and hedge prices are established in the areas
of the E&P group's operations. Recognized gains and losses on hedge
transactions are matched and reported during the same time period as the
related physical transactions. Cash flows from the hedge contracts are
reported in the same category as cash flows from the hedged assets.
LIQUIDITY AND CAPITAL RESOURCES
Spending for capital projects rose 64% in 1994 to $276,882,000, while net
cash provided from operating activities declined 16% to $163,375,000
resulting in a greater share of funding being supplied from external
sources. Short- and long-term debt, net of repayments, increased
$139,571,000, in 1994 after a $581,000 reduction in 1993 and a $46,492,000,
increase in 1992.
Operating Activities:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
Net cash provided from operating
activities $163,375 $194,982 $160,179
</TABLE>
Higher net income and higher depreciation and amortization resulting from
increased natural gas production were more than offset by reductions in
working-capital accounts resulting in less cash provided from operating
activities in 1994. The gain from the sale of Questar Telecom and the
write-down of investment in Nextel were noncash transactions.
<PAGE>
Investing Activities:
Capital expenditures reached a record level in 1994 largely driven by the
acquisition of gas and oil properties by the E&P group. Following is a
summary of capital expenditures for 1994 and 1993 plus a forecast of 1995
expenditures.
<TABLE>
<CAPTION>
Year Ended December 31,
1995
Estimated 1994 1993
(In Thousands)
<S> <C> <C> <C>
Exploration and production
Exploration $7,200 $5,938 $8,780
Development 9,200 25,252 24,691
Leasehold acquisitions 2,100 5,623 1,262
Reserve acquisitions 60,000 99,892 1,228
Cost-of-service gas development 13,500 15,116 21,829
92,000 151,821 57,790
Natural gas transmission
Clay Basin cushion gas and expansion 8,700 42,196 30,070
Other storage 4,200
Transmission lines 12,300 1,878 4,856
Gathering facilities 8,200 9,392 5,743
Order 636 transition costs 421 4,313
Partnerships 2,000 614 354
General and other 5,600 3,726 2,244
41,000 58,227 47,580
Natural gas distribution
New-customer service equipment 23,200 22,343 16,749
Distribution system 12,100 7,085 9,295
Buildings 2,800 7,193 10,993
Computer software and hardware 7,200 5,849 4,702
General and other 4,700 11,346 8,919
50,000 53,816 50,658
Other operations
General office building 12,600
Investment in Questar Telecom 8,080 5,300
Special projects fund 30,000
Other 6,900 4,938 7,060
49,500 13,018 12,360
$232,500 $276,882 $168,388
</TABLE>
Exploration and Production
The E&P group completed three acquisitions with a total cost of $113 million
including $3.5 million of assumed liabilities in 1994. The acquisitions
added 127 Bcfe of natural gas and oil reserves, related equipment and
facilities, and liquids extraction plants. These properties are located in
the Southwestern and Midcontinent regions of the United States. The asset
purchases were financed through an expansion of an existing production-based
credit facility, which was expanded to $135 million.
The exploration and production operations participated in 149 wells in 1994
of which 97 were completed as gas wells, 7 were oil wells, 18 were dry holes
and 27 were in progress at year end. The 1994 drilling program had an
overall success rate of 85%.
Natural Gas Transmission
Questar Pipeline is expanding the capacity of its Clay Basin underground gas
storage facility, which involves building compression facilities and
injecting cushion gas into the reservoir. After expansion, the storage
field will have a total capacity of 110 Bcf, including 46.3 Bcf of
working-gas storage. The first phase of the project was completed in May
1994 with an increase in working-gas capacity to 41.8 Bcf. The final phase
is scheduled for completion by mid 1995.
Capital projects also added 14 miles of transmission lines and 42 miles of
gathering lines in 1994. A major increase in gathering lines will enable
Questar Pipeline to provide service to gas producers in the Birch Creek are
of southwestern Wyoming.
Natural Gas Distribution
Mountain Fuel's capital spending is primarily in response to a record
increase in the number of customers, amounting to 21,990 in 1994, 18,075 in
1993 and 16,284 in 1992 due to population growth and construction activity
in its service area. Mountain Fuel extended its system by 539 miles of
main, feeder and service lines in 1994. The 1995 capital expenditures
anticipate a slightly lower level of customer growth.
Other Operations
Questar invested an additional $8,080,000 into the operations of Questar
Telecom in 1994 according to the sales agreement with Nextel for the
purchase of FCC licenses and working capital requirements. Other
expenditures were for computers and communications equipment for corporate
use. A $30 million amount has been reserved for unspecified projects that
may be accepted during 1995.
Financing Activities:
The Company funded its 1994 capital expenditures with cash generated
internally plus short- and long-term borrowings. 1995 capital expenditures
will be funded through cash generated internally, borrowings and possible
monetization of Nextel stock.
The Company has short-term line-of-credit arrangements with several banks
under which it may borrow up to $170,700,000. These lines are generally
below the prime interest rate and are renewable annually. At December 31,
1994 short-term bank loans amounted to $9,600,000 and commercial-paper
borrowings amounted to $85,300,000. Commercial-paper borrowings are backed
by the short-term line-of-credit arrangements. Moody's and Standard and
Poors have rated Questar's commercial paper P-1 and A-1.
Questar Corporation, the parent company, entered into an long-term agreement
with a bank in December 1994 to borrow up to $50 million at variable
interest rates. The proceeds were used to refinance commercial-paper
borrowings.
In August 1994, the exploration and production group expanded its variable
interest rate production-based credit facility from $65 million ($15 million
short-term and $50 million long-term), to $135 million ($35 million
short-term and $100 million long-term). Part of the proceeds of this
revolving-credit term loan were used to repay a bridge loan used to finance
the E&P group's 1994 property acquisitions. The remainder will provide
financing for future capital expenditures.
During the second quarter of 1994, Mountain Fuel issued $17 million of
30-year notes at an 8.12% interest rate. Mountain Fuel used proceeds from
these notes for capital expenditures and operations.
The Company typically has negative net working capital at the end of the
year because of short-term borrowings. These borrowings are seasonal and
generally peak at the end of December because of cold-weather gas purchases.
Questar has a consolidated capital structure of 43% long-term debt and 57%
common shareholders' equity. Moody's and Standard and Poors have rated
Mountain Fuel's and Questar Pipeline's long-term debt A1 and A+.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item are submitted in a
separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has not changed its independent auditors or had any
disagreements with them concerning accounting matters and financial statement
disclosures within the last 24 months.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information requested in this item concerning Questar's directors is
presented in the Company's definitive Proxy Statement dated April 3, 1995,
under the section entitled "Election of Directors" and is incorporated herein
by reference. A copy of the definitive Proxy Statement will be filed with the
Securities and Exchange Commission on or about April 3, 1995.
The following individuals served as executive officers of the Company
during 1994:
Primary Positions Held with
Name the Company and Affiliates
R. D. Cash 52 Chairman of the Board of Directors (May 1985);
President and Chief Executive Officer, Director
(May 1984); Chairman of the Boards of Directors,
all affiliates.
D. N. Rose 50 President and Chief Executive Officer, Mountain
Fuel (October 1984); Director (May 1984);
Director, Mountain Fuel (May 1984); Senior Vice
President, Questar (May 1985).
Clyde M. Heiner 56 Senior Vice President, Questar (May 1988);
President and Chief Executive Officer, Questar
InfoComm (February 1993); President and Chief
Executive Officer, Questar Development (May
1984); Director, Entrada (May 1984), Questar
Development (May 1984), and Questar InfoComm
(February 1993).
A. J. Marushack 59 President and Chief Executive Officer, Questar
Pipeline (June 1984); Senior Vice President,
Questar (May 1985); Director, Questar Pipeline
(May 1984) and Wexpro (May 1985).
Gary L. Nordloh 47 President and Chief Executive Officer, Wexpro,
Celsius, and Universal Resources (March 1991);
Senior Vice President, Questar (March 1991);
Executive Vice President and Chief Operating
Officer, Wexpro, Celsius, and Universal
Resources (June 1989 to March 1991); Director,
Celsius and Wexpro (June 1989); Director,
Universal Resources (May 1989); Senior Vice
President, Celsius and Wexpro (May 1988 to June
1989).
W. F. Edwards 49 Senior Vice President and Chief Financial
Officer, Questar (February 1989); Vice President
and Chief Financial Officer, affiliates (at
various dates beginning in May 1984); Vice
President and Chief Financial Officer, Questar
(May 1984 to February 1989); Director, Questar
Pipeline (May 1985), Celsius (May 1988), and
Universal Resources (May 1988).
R. G. Groussman 59 Vice President and General Counsel (October
1984); Director, Wexpro (November 1976) and
Celsius (May 1988).
Connie C. Holbrook 48 Vice President and Corporate Secretary (October
1984); Corporate Secretary, Mountain Fuel and
other affiliates (at various dates beginning in
March 1982); Director, Celsius (May 1985),
Wexpro (May 1988), and Universal Resources (June
1987).
There is no "family relationship" between any of the listed officers or
between any of them and the Company's directors. The executive officers serve
at the pleasure of the Board of Directors. There is no arrangement or
understanding under which the officers were selected. Information concerning
compliance with Section 16(a) of the Securities Exchange Act of 1934, as
amended, is presented in the Company's definitive Proxy Statement dated April
3, 1995, under the section entitled "Section 16(a) Compliance" and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information requested in this item is presented in Questar's
definitive Proxy Statement dated April 3, 1995, under the sections entitled
"Executive Compensation" and "Election of Directors" and is incorporated
herein by reference. The sections of the Proxy Statement labelled "Committee
Report on Executive Compensation" and "Cumulative Total Shareholder Return"
are expressly not incorporated into this document.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information requested in this item for certain beneficial owners is
presented in Questar's definitive Proxy Statement dated April 3, 1995, under
the section entitled "Security Ownership, Principal Holders" and is
incorporated herein by reference. Similar information concerning the
securities ownership of directors and executive officers is presented in the
definitive Proxy Statement dated April 3, 1995, under the section entitled
"Security Ownership, Directors and Executive Officers" and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information requested in this item for related transactions
involving the Company's directors and executive officers is presented in the
definitive Proxy Statement dated April 3, 1995, under the section entitled
"Election of Directors."
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1)(2) Financial Statements and Financial Statement Schedules. The
financial statements identified in the List of Financial Statements are filed
as part of this report.
(a)(3) Exhibits. The following is a list of exhibits required to be
filed as a part of this report in Item 14(c).
Exhibit No. Exhibit
2.* Plan and Agreement of Merger dated as of December 16, 1986, by
and among the Company, Questar Systems Corporation, and
Universal Resources Corporation. (Exhibit No. (2) to Current
Report on Form 8-K dated December 16, 1986.)
3.1.* Restated Articles of Incorporation effective May 28, 1991.
(Exhibit No. 3.2. to Form 10-Q Report for Quarter ended June
30, 1991.)
3.2.* Bylaws (as amended effective August 11, 1992). (Exhibit No.
3. to Form 10-Q Report for Quarter ended June 30, 1992.)
4.1.* Rights Agreement, dated as of March 14, 1986, between the
Company and Morgan Guaranty Trust Company of New York
pertaining to the Company's Shareholder Rights Plan. (Exhibit
No. 4. to Current Report on Form 8-K dated March 14, 1986.)
4.2.* First Amendment to the Rights Agreement, dated as of May 15,
1989, between the Company and Morgan Shareholder Service Trust
Company pertaining to the Company's Shareholder Rights Plan.
(Exhibit No. 28(a) to Current Report on Form 8-K dated May 15,
1989.)
10.1.* Stipulation and Agreement, dated October 14, 1981, executed by
Mountain Fuel; Wexpro; the Utah Department of Business
Regulations, Division of Public Utilities; the Utah Committee
of Consumer Services; and the staff of the Public Service
Commission of Wyoming. (Exhibit No. 10(a) to Mountain Fuel
Supply Company's Form 10-K Annual Report for 1981.)
10.2. 1 Questar Corporation Annual Management Incentive Plan, as
amended effective February 14, 1995.
10.3.* 1 Questar Corporation Executive Incentive Retirement Plan, as
amended effective November 1, 1993. (Exhibit No. 10.3. to
Form 10-Q Report for Quarter ended September 30, 1993.)
10.4.* 1 Questar Corporation Stock Option Plan, as amended effective
February 13, 1990. (Exhibit No. 10.4. to Form 10-K Annual
Report for 1989.)
10.5.* 1 Questar Corporation Long Term Stock Incentive Plan effective
March 1, 1991. (Exhibit No. 10.5. to Form 10-K Annual Report
for 1990.)
10.6.* 1 Questar Corporation Executive Severance Compensation Plan, as
amended effective January 1, 1990. (Exhibit No. 10.5. to Form
10-K Annual Report for 1989.)
10.7.* 1 Questar Corporation Deferred Compensation Plan for Directors,
as amended April 30, 1991. (Exhibit No. 10.7. to Form 10-K
Annual Report for 1991.)
10.8. 1 Questar Corporation Supplemental Executive Retirement Plan, as
amended and restated effective February 14, 1995.
10.9. 1 Questar Corporation Equalization Benefit Plan, as amended and
restated effective February 14, 1995.
10.10.* 1 Questar Corporation Stock Option Plan for Directors, as
amended effective February 9, 1993. (Exhibit No. 10.10. to
Form 10-K Annual Report for 1992.)
10.11.* 1 Form of Individual Indemnification Agreement dated February 9,
1993 between Questar Corporation and Directors. (Exhibit No.
10.11. to Form 10-K Annual Report for 1992.)
10.12.* 1 Questar Corporation Deferred Share Plan, as amended and
restated November 1, 1993. (Exhibit No. 10.12. to Form 10-Q
Report for Quarter ended September 30, 1993.)
10.13.* 1 Questar Corporation Deferred Compensation Plan as adopted
effective November 1, 1993. (Exhibit No. 10.13. to Form 10-Q
Report for Quarter ended September 30, 1993.)
10.14.* Agreement and Plan of Reorganization dated April 29, 1994, by
and between Nextel Communications, Inc.; Questar Corporation;
Advance MobilComm, Inc.; Robert C. Mearns and Francis G.
Fuson. (Exhibit No. 10.14 to Form 10-Q Report for Quarter
ended June 30, 1994.)
11. Statement concerning computation of earnings per share.
22. Subsidiary Information.
24. Consent of Independent Auditors.
25. Power of Attorney.
27. Financial Data Schedule.
99.1. Form 11-K Annual Report for the Questar Corporation Employee
Investment Plan.
99.2. Undertakings for Registration Statements on Form S-3 (No. 33-
48168) and on Form S-8 (Nos. 33-4436, 33-15148, 33-15149, 33-
40800, 33-40801, and 33-48169).
________________________
*Exhibits so marked have been filed with the Securities and Exchange
Commission as part of the indicated filing and are incorporated herein by
reference.
1 Exhibit so marked is management contract or compensation plan or
arrangement.
(b) The Company did not file a Current Report on Form 8-K during the last
quarter of 1994.
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14 (a) (1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
YEAR ENDED DECEMBER 31, 1994
QUESTAR CORPORATION
SALT LAKE CITY, UTAH
FORM 10-K -- ITEM 14 (a) (1) and (2)
QUESTAR CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Questar
Corporation and subsidiaries are included in Item 8:
Consolidated statements of income -- Years ended December 31, 1994,
1993 and 1992
Consolidated balance sheets -- December 31, 1994 and 1993
Consolidated statements of common shareholders' equity -- Years
ended December 31, 1994, 1993 and 1992
Consolidated statements of cash flows -- Years ended December 31,
1994, 1993 and 1992
Notes to consolidated financial statements
Financial Schedules, for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission,
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
<PAGE>
Report of Independent Auditors
Shareholders and Board of Directors
Questar Corporation
We have audited the accompanying consolidated balance sheets of
Questar Corporation and subsidiaries as of December 31, 1994 and
1993 and the related consolidated statements of income, common
shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Questar Corporation and subsidiaries at
December 31, 1994 and 1993, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As noted in Notes A and J to the financial statements, in 1994
Questar Corporation changed its method of accounting for certain
equity securities and postemployment benefits.
ERNST & YOUNG LLP
Salt Lake City, Utah
February 10, 1995, except for Note I as to
which the date is March 5, 1995
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
REVENUES $670,318 $660,430 $591,346
OPERATING EXPENSES
Natural gas purchases 212,528 224,500 201,018
Operating and maintenance 174,080 168,835 153,198
Depreciation and amortization 93,037 86,758 73,553
Other taxes 36,015 32,043 26,041
TOTAL OPERATING EXPENSES 515,660 512,136 453,810
OPERATING INCOME 154,658 148,294 137,536
INTEREST AND OTHER INCOME 4,957 3,632 6,675
WRITE-DOWN OF INVESTMENT IN NEXTEL
COMMUNICATIONS - Note B (61,743)
DEBT EXPENSE (39,811) (33,984) (35,768)
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 58,061 117,942 108,443
INCOME TAXES - Note G 8,644 33,478 34,672
INCOME FROM CONTINUING OPERATIONS 49,417 84,464 73,771
DISCONTINUED OPERATIONS - Note B
Gain from sale of Questar Telecom
to Nextel Communications 38,126
Loss from operations (2,772) (2,437)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES - Note G 9,303
NET INCOME $87,543 $81,692 $80,637
EARNINGS PER COMMON SHARE
Income from continuing operations $1.21 $2.10 $1.85
Gain from sale of discontinued
operations 0.95
Loss from discontinued operations (0.07) (0.06)
Cumulative effect 0.23
Net income $2.16 $2.03 $2.02
Average common shares outstanding 40,292 39,995 39,492
</TABLE>
See notes to consolidated financial statements.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1994 1993
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments - Note E $7,549 $6,365
Accounts receivable 116,625 111,553
Unbilled gas accounts receivable - Note I 26,456 27,313
Inventories, at lower of average cost or market
Gas stored underground 22,166 21,745
Materials and supplies 7,932 8,183
Total inventories 30,098 29,928
Prepaid expenses and deposits 12,397 11,384
TOTAL CURRENT ASSETS 193,125 186,543
PROPERTY, PLANT AND EQUIPMENT
Exploration and production 840,192 706,852
Natural gas transmission 615,313 561,108
Natural gas distribution 739,945 710,100
Other operations 67,720 46,334
2,263,170 2,024,394
LESS ALLOWANCES FOR DEPRECIATION
AND AMORTIZATION
Exploration and production 434,688 389,559
Natural gas transmission 203,008 189,279
Natural gas distribution 280,162 267,314
Other operations 37,678 25,582
955,536 871,734
NET PROPERTY, PLANT AND EQUIPMENT 1,307,634 1,152,660
OTHER ASSETS
Investment in and advances to
unconsolidated affiliates 10,580 13,224
Securities available for sale, approximates
fair value - Note B 37,578
Investment in discontinued operations - Note B 29,498
Income taxes recoverable from customers - Note G 14,244 14,250
Unamortized costs of reacquired debt 14,010 14,797
Other 8,404 6,715
TOTAL OTHER ASSETS 84,816 78,484
$1,585,575 $1,417,687
</TABLE>
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
1994 1993
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Short-term loans - Notes C and E $94,900 $78,300
Accounts payable and accrued expenses
Accounts payable 77,470 89,971
Federal income taxes 1,695 1,867
Other taxes 11,238 12,980
Interest payable 7,301 5,938
Other 10,539 8,308
Total accounts payable and accrued expenses 108,243 119,064
Purchased-gas adjustments 17,071 25,727
TOTAL CURRENT LIABILITIES 220,214 223,091
LONG-TERM DEBT - Notes C and E 494,684 371,713
OTHER LIABILITIES
Unbilled gas revenues - Note I 20,721 26,489
Other 25,502 19,143
TOTAL OTHER LIABILITIES 46,223 45,632
DEFERRED INVESTMENT TAX CREDITS 7,672 8,089
DEFERRED INCOME TAXES - Note G 156,869 159,695
COMMITMENTS AND CONTINGENCIES - Note H
REDEEMABLE CUMULATIVE PREFERRED
STOCK - Notes D and E 6,324 7,525
COMMON SHAREHOLDERS' EQUITY - Note F
Common stock - without par value;
authorized 175,000,000 shares; issued
and outstanding 42,332,485 (1994)
and 42,113,335 (1993) 310,402 303,503
Retained earnings 401,577 359,637
Treasury stock, at cost; 1,903,746 shares (1994)
and 1,943,936 shares (1993) (33,847) (34,396)
Note receivable from employee
investment plan (ESOP) (24,543) (26,802)
TOTAL COMMON SHAREHOLDERS' EQUITY 653,589 601,942
$1,585,575 $1,417,687
</TABLE>
See notes to consolidated financial statements.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION> Note
Common Stock Retained Treasury Stock Receivable
Shares Amount Earnings Shares Amount from ESOP
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1992 41,230,979 $283,506 $282,361 (1,954,478) ($33,364) ($30,535)
Issuance of common stock 503,139 10,349 41,333 707
1992 net income 80,637
Payment of dividends
Preferred stock (800)
Common stock - $1.04 per share (41,088)
Income tax benefit of dividends
paid to ESOP 580
Purchase of treasury stock (26,060) (659)
Collection of note receivable
from ESOP 2,116
Balances at December 31, 1992 41,734,118 293,855 321,690 (1,939,205) (33,316) (28,419)
Issuance of common stock 379,217 9,648 51,864 899
1993 net income 81,692
Payment of dividends
Preferred stock (695)
Common stock - $1.09 per share (43,610)
Income tax benefit of dividends
paid to ESOP 560
Purchase of treasury stock (56,595) (1,979)
Income tax benefit of dividends
paid to ESOP 1,617
Balances at December 31, 1993 42,113,335 303,503 359,637 (1,943,936) (34,396) (26,802)
Issuance of common stock 219,150 6,899 51,568 914
1994 net income 87,543
Payment of dividends
Preferred stock (591)
Common stock - $1.13 per share (45,528)
Income tax benefit of dividends
paid to ESOP 516
Purchase of treasury stock (11,378) (365)
Income tax benefit of dividends
paid to ESOP 2,259
Balances at December 31, 1994 42,332,485 $310,402 $401,577 (1,903,746) ($33,847) ($24,543)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $87,543 $81,692 $80,637
Depreciation and amortization 97,567 91,196 77,985
Deferred income taxes (20,029) (1,870) 8,094
Deferred investment tax credits (417) (429) (471)
Write-down of investment in Nextel
Communications 61,743
Gain from sale of Questar Telecom
to Nextel Communications (38,126)
Loss from discontinued operations 2,772 2,437
Cumulative effect of change in
accounting for income taxes (9,303)
188,281 173,361 159,379
Changes in operating assets
and liabilities
Accounts receivable (4,215) 705 (7,065)
Inventories (170) 5,532 23
Prepaid expenses and deposits (1,013) 728 (2,960)
Accounts payable and accrued expenses (10,649) 16,263 (4,531)
Federal income taxes (172) 658 1,233
Purchased-gas adjustments (8,656) 1,245 13,216
Other (31) (3,510) 884
NET CASH PROVIDED FROM OPERATING
ACTIVITIES 163,375 194,982 160,179
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (267,515) (160,559) (166,445)
Investment in discontinued operations (8,080) (5,300) (12,170)
Other investments (1,287) (2,529) (1,446)
Total capital expenditures (276,882) (168,388) (180,061)
Proceeds from disposition of property,
plant and equipment, and investments 12,217 8,125 4,528
CASH USED IN INVESTING ACTIVITIES (264,665) (160,263) (175,533)
FINANCING ACTIVITIES
Issuance of common stock 7,813 10,547 11,056
Purchase of treasury stock (365) (1,979) (659)
Redemption of preferred stock (1,201) (1,201) (1,229)
Issuance of long-term debt 155,000 129,227 148,000
Repayment of long-term debt (32,029) (138,108) (124,808)
Change in short-term loans 16,600 8,300 23,300
Collection of note receivable from ESOP 2,259 1,617 2,116
Income tax benefit of dividends
paid to ESOP 516 560 580
Payment of dividends (46,119) (44,305) (41,888)
CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES 102,474 (35,342) 16,468
CHANGE IN CASH AND SHORT-TERM
INVESTMENTS 1,184 (623) 1,114
BEGINNING CASH AND SHORT-TERM
INVESTMENTS 6,365 6,988 5,874
ENDING CASH AND SHORT-TERM
INVESTMENTS $7,549 $6,365 $6,988
</TABLE>
See notes to consolidated financial statements.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Summary of Accounting Policies
Principles of Consolidation: The consolidated financial statements
contain the accounts of Questar Corporation and subsidiaries
(Questar or the Company). Questar is engaged in three principal
lines of business. Oil and gas exploration and production
operations (E&P group) are conducted by Celsius Energy Company
(Celsius Energy), Universal Resources Corporation and its Questar
Energy Division (Universal Resources) and Wexpro Company (Wexpro).
Natural gas transmission operations are conducted by Questar
Pipeline Company (Questar Pipeline). Natural gas distribution
operations are conducted by Mountain Fuel Supply Company (Mountain
Fuel). All significant intercompany accounts and transactions have
been eliminated in consolidation.
Regulation: Mountain Fuel is regulated by the Public Service
Commission of Utah (PSCU) and the Public Service Commission of
Wyoming (PSCW). Questar Pipeline is regulated by the Federal
Energy Regulatory Commission (FERC). These regulatory agencies
establish rates for the storage, transportation and sale of natural
gas. The regulatory agencies also regulate, among other things,
the extension and enlargement or abandonment of jurisdictional
natural gas facilities. Regulation is intended to permit the
recovery, through rates, of the cost of service, including a rate
of return on investment.
The financial statements of rate-regulated businesses are presented
in accordance with regulatory requirements. Methods of allocating
costs to time periods, in order to match revenues and expenses, may
differ from those of nonregulated businesses because of
cost-allocation methods used in establishing rates.
Revenue Recognition: Revenues are recognized in the period that
services are provided or products are delivered. In 1993,
Mountain Fuel began accruing gas distribution revenues for gas
delivered to residential and commercial customers but not billed at
the end of the accounting period. Rate-regulated affiliates
periodically collect revenues subject to possible refunds pending
final orders from regulatory agencies. These companies establish
reserves for revenues collected subject to refund.
Purchased-Gas Adjustments: Mountain Fuel accounts for
purchased-gas costs in accordance with procedures authorized by the
PSCU and PSCW whereby purchased-gas costs that are different from
those provided for in the present rates are accumulated and
recovered or credited through future rate changes.
Credit Risk: The Company's primary market area is the Rocky
Mountain region of the United States. The Company's exposure to
credit risk may be impacted by the concentration of customers in
this region due to changes in economic or other conditions. The
Company's customers include individuals and numerous industries
that may be affected differently by changing conditions. The
Company believes that it has adequately reserved for expected
credit-related losses and that the carrying amount of trade
receivables approximates fair value.
Property, Plant and Equipment: Property, plant and equipment are
stated at cost. Celsius Energy and Universal Resources account for
exploration and development activities using the full-cost
accounting method. Under the full-cost method, all costs
associated with acquisition, exploration and development of oil and
gas reserves are capitalized. If net capitalized costs exceed the
present value of estimated future net revenues from proved oil and
gas reserves plus the fair market value of unproved properties, the
excess is expensed. Wexpro uses the successful-efforts accounting
method to account for its production and development activities
under the terms of the Wexpro settlement agreement (See Note K).
The provision for depreciation and amortization is based upon rates
that will amortize costs of assets over their estimated useful
lives. The costs of natural gas distribution and natural gas
transmission property, plant and equipment, excluding gas wells,
are amortized using the straight-line method. The costs of oil and
gas wells, production plants and leaseholds are amortized using the
unit-of-production method. Average depreciation and amortization
rates used were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Exploration and production, per
Mcf equivalent
Full-cost amortization rate $0.78 $0.80 $0.79
Wexpro depreciation rate $0.41 $0.48 $0.48
Natural gas transmission 3.6% 3.6% 3.6%
Natural gas distribution
Distribution plant 4.0% 3.9% 3.8%
Gas wells, per Mcf $0.17 $0.18 $0.16
Other operations 9.0% 12.4% 11.2%
</TABLE>
Price Risk Management: The E&P group enters into swaps, futures
contracts or option agreements to hedge exposure to price
fluctuations in connection with marketing production of natural gas
and oil, and to secure a known margin for the purchase and resale
of gas in marketing activities. There is a high degree of
correlation of such contracts because timing of production and the
hedge contracts are closely matched, and hedge prices are
established in the areas of the E&P group's operations. Recognized
gains and losses on hedge transactions are matched and reported
during the same time period as the related physical transactions.
Cash flows from the hedge contracts are reported in the same
category as cash flows from the hedged assets. Some hedge
contracts are designed to be settled through the delivery of
natural gas or oil.
Securities Available for Sale: Available-for-sale securities
consist of 3,875,950 shares of Nextel Communications' common stock
carried at approximate fair value at the balance sheet date. The
Company records unrealized gains or losses, net of income taxes, as
a separate component of shareholders' equity at the end of each
quarter based on the market value of Nextel. Upon sale of the
securities, gains or losses will be included in the determination
of income. At December 31, 1994, Questar Corporation wrote-down
its investment in Nextel to reflect an other-than-temporary decline
in value.
Investment in Unconsolidated Affiliates: The Company uses the
equity method to account for investments in affiliates in which it
does not own a controlling interest. Principal affiliates include:
Overthrust Pipeline Company, TransColorado Gas Transmission
Company, Canyon Creek Compression Company and Western Market
Center. The Company's investment in these affiliates equals the
underlying equity in net assets.
Income Taxes: Effective January 1, 1992 the Company adopted
Statement of Financial Accounting Standard (SFAS) No. 109 by
recording a cumulative effect of the change in accounting related
to prior years. The deferred tax balance represents the temporary
differences between book and taxable income multiplied by the
effective tax rates. These temporary differences relate primarily
to depreciation, intangible drilling costs, unbilled revenues,
leasehold costs, purchased-gas adjustments and net operating loss
carryforwards. Mountain Fuel and Questar Pipeline use the deferral
method to account for investment tax credits as required by
regulatory commissions. The Company allocates income taxes to
subsidiaries on a separate return basis except that subsidiaries
are paid for all tax benefits utilized in the consolidated tax
return.
Reacquisition of Debt: Gains and losses on the reacquisition of
debt by Mountain Fuel and Questar Pipeline are deferred and
amortized as debt expense over the remaining life of the issue or
the life of the replacement debt in order to match regulatory
treatment.
Allowance for Funds Used During Construction: The Company's rate
regulated subsidiaries capitalize the cost of capital during the
construction period of plant and equipment. This amounted to
$1,759,000 in 1994, $1,725,000 in 1993, and $1,153,000 in 1992.
Earnings Per Common Share: Earnings per common share are computed
by dividing net income less preferred stock dividends by the
weighted average number of common shares outstanding during the
year. Common stock equivalents in the form of stock options do not
have a material dilutive effect on the earnings-per-share
calculations and are excluded from the computation.
Cash and Short-Term Investments: Short-term investments consist
principally of Euro-time deposits and repurchase agreements with
maturities of three months or less.
Note B - Discontinued Operations
In October 1993, Questar reached an agreement with Nextel
Communications (NASD:CALL) to sell Questar's entire interest in
Questar Telecom for 3,875,950 unregistered shares of Nextel common
stock. The sale was completed August 4, 1994, resulting in a
pretax gain of $61,743,000 ($38,126,000 after income taxes) based
on the closing price of Nextel's common stock. Since Questar
Telecom represented all of Questar's specialized mobile radio
operations, these operations were disclosed as discontinued on
Questar's financial statements. Net losses from Questar Telecom
subsequent to the sales agreement were deferred until the sale was
recorded. The Company expects to receive registered shares when
Motorola's merger with Nextel is finalized, about mid-year 1995.
Questar Telecom's operating results prior to the sale were as
follows:
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30December 31,
1993 1992
(In Thousands)
<S> <C> <C>
Revenues $14,517 $13,500
Expenses (18,944) (17,352)
Income tax credit 1,655 1,415
Net loss ($2,772) ($2,437)
</TABLE>
Questar's net investment in discontinued operations was as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Current assets $6,622
Net property, plant and equipment 10,841
Net intangible assets 13,908
Current liabilities (1,162)
Long-term debt (171)
Deferred income taxes (540)
Net assets at September 30, 1993 29,498
Additional investment, as specified in sales
agreement, plus closing costs 8,080
$37,578
</TABLE>
Note C - Debt
The Company has short-term line-of-credit arrangements with several
banks under which it may borrow up to $170,700,000. These lines
have interest rates generally below the prime interest rate and are
renewable annually. At December 31, 1994, outstanding short-term
bank loans were $9,600,000 at an average interest rate of 5.95% and
commercial-paper borrowings were $85,300,000 at an average interest
rate of 5.96%. At December 31, 1993, outstanding short-term bank
loans were $12,300,000 at an average interest rate of 3.49% and
commercial-paper borrowings were $66,000,000 at an average interest
rate of 3.45%. Commercial-paper borrowings are backed by the
short-term line-of-credit arrangements.
The details of long-term debt at December 31, were as follows:
<TABLE>
<CAPTION>
1994 1993
(In Thousands)
<S> <C> <C>
Exploration and production
Revolving-credit term loan due 1999
with variable interest rates
(6.23% at December 31, 1994) $100,000 $44,000
Questar Pipeline
9 3/8% debentures due 2021 85,000 85,000
9 7/8% debentures due 2020 50,000 50,000
Mountain Fuel
Medium-term notes 7.19% to 8.43%,
due 2007 to 2024 175,000 158,000
Questar
Revolving-credit term loan due 1999
with variable interest rates
(6.47% at December 31, 1994) 50,000
8.25% ESOP notes due 1996 19,000 19,000
8.28% ESOP notes due 1999 16,000 16,000
Other 178 226
Total long-term debt outstanding 495,178 372,226
Less unamortized debt discount 494 513
$494,684 $371,713
</TABLE>
Maturities of long-term debt for the five years following December
31, 1994, are as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
1995 -
1996 $19,000
1997 17,200
1998 105,300
1999 43,500
</TABLE>
Questar Corporation, the parent company, entered into an agreement
with a bank in December 1994 to borrow up to $50 million at
variable interest rates. The proceeds were used to refinance
commercial paper borrowings.
In August 1994 the exploration and production group expanded its
variable interest rate production-based credit facility from $65
million ($15 million short-term and $50 million long-term), to $135
million ($35 million short-term and $100 million long-term). Part
ot the proceeds of this revolving-credit term loan were used to
repay a bridge loan used to finance the E&P group's 1994 property
acquisitions. The remainder will provide financing for future
capital expenditures.
During the second quarter of 1994 Mountain Fuel issued $17 million
of 30-year notes at an 8.12% interest rate. Mountain Fuel used
proceeds from these notes for capital expenditures and operations.
Cash paid for interest was $38,110,000 in 1994, $33,414,000 in
1993, and $36,115,000 in 1992.
Note D - Redeemable Cumulative Preferred Stock
Mountain Fuel has authorized 4,000,000 shares of nonvoting
redeemable cumulative preferred stock with no par value. The two
current outstanding issues of stock have a stated and redemption
value of $100 per share.
<TABLE>
<CAPTION>
8% Series $8.625 Series
(In Thousands)
<S> <C> <C>
Balance at January 1, 1992 $5,155 $4,800
1992 redemption of stock (29) (1,200)
1993 redemption of stock (1) (1,200)
1994 redemption of stock (1) (1,200)
Balance at December 31, 1994 $5,124 $1,200
</TABLE>
Redemption requirements for the five years following December 31,
1994, are as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
1995 $685
1996 780
1997 180
1998 180
1999 180
</TABLE>
Note E - Financial Instruments and Hedging Activities
The carrying amounts and estimated fair values of the Company's
financial instruments were as follows:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and short-term investments $7,549 $7,549 $6,365 $6,365
Financial liabilities
Short-term loans 94,900 94,900 78,300 78,300
Long-term-debt 494,684 485,251 371,713 424,195
Redeemable cumulative preferred stock 6,324 6,377 7,525 7,654
</TABLE>
The Company used the following methods and assumptions in
estimating fair values: (1) Cash and short-term investments - the
carrying amount approximates fair value; (2) Short-term loans - the
carrying amount approximates fair value; (3) Long-term debt - the
carrying amount of variable- rate debt approximates fair value, the
fair value of marketable debt is based on quoted market prices, and
the fair value of other debt is based on the discounted present
value of cash flows using the Company's current borrowing rates;
(4) Redeemable cumulative preferred stock - the fair value is based
on the discounted present value of cash flows using current
preferred stock rates. Fair value is calculated at a point in time
and does not represent what the Company would pay to retire the
debt securities.
Price Risk Management: The E&P group periodically enters into
swaps, futures contracts or options agreements to hedge its
exposure to price fluctuations in connection with marketing
production of natural gas and oil, and to secure a known margin for
the purchase and resale of gas in marketing activities. Recognized
gains and losses on hedge transactions are reported as a component
of the related physical transaction. A majority of the contracts
and agreements terminate in 12 months or less; however, some
contracts and agreements extend beyond a year.
The E&P group bears some risk of loss if counterparties fail to
perform according to the terms of the contracts. Management
believes that credit-review procedures and bad-debt reserves have
adequately compensated for usual and customary losses.
While it is a primary objective of the E&P group to protect product
sales against market loss, hedging transactions give rise to market
risk, which represents the potential loss caused by changes in
market value. The loss is reported along with any gains as a
factor in determining revenues when products are sold.
At December 31, 1994, the E&P group held contracts covering prices
for about 45 million dth of natural gas, primarily for gas
marketing activities, and 334,000 barrels of oil. The contracts,
which primarily were swaps, have terms extending through February
1997; however, approximately 87% terminate in 1995. Face value of
these contracts was about $97 million. Market value of hedging
contracts at December 31, 1994, was $6.4 million less than face
value. However, this calculation of market value assumes that the
E&P group closed its position on that date and does not recognize
the physical side of these transactions. Deferred losses on
anticipated transactions are not material.
Note F - Common Stock
Employee Investment Plan: An Employee Investment Plan (ESOP)
allows the majority of employees to purchase Company stock or other
investments through payroll deductions. The Company makes
contributions to the ESOP of approximately 75% of the employee's
purchases. In June 1989, the Company sold 1,992,884 shares of its
common stock (LESOP shares) to the trustee of the ESOP. The ESOP
trustee financed the purchase of stock by borrowing $35 million
from the Company. The note receivable from the ESOP was recorded as
a reduction of common shareholders' equity. At the same time, the
Company borrowed $35 million from a group of insurance companies.
Interest expense on these notes to the insurance companies totaled
$2,892,000 in 1994 and $2,918,000 in 1993 and 1992.
The ESOP is repaying the loan to the Company over ten years using
Company contributions and dividends on the LESOP shares. The
Company's expense and contribution to the ESOP, dividends paid by
the Company to the ESOP on the LESOP shares, and income tax
benefits for dividends paid on ESOP shares and dividends paid
directly to ESOP are summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
Company's expense and contribution to ESOP $2,489 $2,368 $2,477
Dividends paid by Company to ESOP 2,180 2,112 2,033
Income tax benefits for dividends paid on
ESOP shares were recorded as:
Reduction of income tax expense $422 $351 $278
Direct increase to retained earnings 516 560 580
$938 $911 $858
</TABLE>
Dividend Reinvestment and Stock Purchase Plan: A Dividend
Reinvestment and Stock Purchase Plan (Reinvestment Plan) allows
shareholders to reinvest dividends or invest additional funds in
common stock. The Reinvestment Plan purchased common stock from
the Company amounting to 164,124 shares in 1994, 148,708 shares in
1993 and 241,322 shares in 1992. At December 31, 1994, 895,741
shares were reserved for future issuance.
Stock Plans: The Company has a Long-term Stock Incentive Plan for
officers and key employees and a Stock Option Plan for nonemployee
directors (Stock Plans). The Long-term Stock Incentive Plan was
approved by shareholders in 1991 and replaces a previous stock
option plan for officers and key employees. The number of shares
available for options or other stock awards under the Long-term
Stock Incentive Plan is increased each year by 1% of the
outstanding shares of common stock on the first day of the calendar
year. No awards may be granted under the Long-term Stock Incentive
Plan after May 2001. The Stock Option Plan for nonemployee
directors was amended in 1991 and the term extended to May 1996.
Transactions involving option shares in the Stock Plans are
summarized as follows:
<TABLE>
<CAPTION>
Price
Shares Range
<S> <C> <C>
Balance at January 1, 1992 1,029,628 $16.50 - $19.63
Granted 410,700 19.63
Cancelled (54,944) 16.50 - 19.63
Exercised (482,777) 16.50 - 19.63
Balance at December 31, 1992 902,607 16.50 - 19.63
Granted 415,800 28.88
Cancelled (11,738) 16.82
Exercised (407,133) 16.50 - 28.88
Balance at December 31, 1993 899,536 16.50 -28.88
Granted 409,100 31.50
Cancelled (5,400) 16.50 - 31.50
Exercised (70,918) 16.50 - 28.88
Balance at December 31, 1994 1,232,318 $16.50 -$31.50
</TABLE>
<TABLE>
Exercisable at December 31, 1994 637,218
Available for future grant at December 31, 526,104
Shareholder Rights: In 1986, Questar issued one common share
purchase right for each outstanding share of stock. The rights
expire in March 1996. The rights become exercisable if a person
acquires 20% or more of the Company's common stock or announces an
offer for 20% or more of the common stock. Each right initially
represents the right to buy one share of the Company's common stock
for $50. Once any person acquires 20% or more of the Company's
common stock, the rights are automatically modified. Each right
not owned by the 20% owner becomes exercisable for the number of
shares of Questar's stock that have a market value equal to two
times the exercise price of the right. This same result occurs if
a 20% owner acquires the Company through a reverse merger when
Questar and its stock survive. If the Company is involved in a
merger or other business combination at any time after the rights
become exercisable, rights holders will be entitled to buy shares
of common stock in the acquiring company having a market value
equal to twice the exercise price of each right. The rights may be
redeemed by the Company at a price of $.025 per right until 15 days
after a person acquires 20% ownership of the common stock.
Note G - Income Taxes
Effective January 1, 1992, the Company changed its method of
accounting for income taxes from the deferred method to the
liability method required by SFAS No. 109, Accounting for Income
Taxes. The Company did not restate prior years' financial
statements. The cumulative effect of adopting SFAS No. 109 as of
January 1, 1992, increased net income by $9,303,000, or $.23 per
share. The application of the rules did not have a significant
impact on the 1992 income before cumulative effect.
Regulated operations recorded cumulative increases in deferred
taxes as income taxes recoverable from customers. Mountain Fuel
and Questar Pipeline have adopted procedures with their regulatory
commissions to include under-provided deferred taxes in customer
rates on a systematic basis.
As of January 1, 1992, Universal Resources recorded a cumulative
decrease in deferred taxes of $8,626,000 as a reduction of
property, plant and equipment. This cumulative effect was a result
of net operating loss carryforwards acquired by Questar in the 1987
purchase of Universal Resources. At December 31, 1994, the Company
had net operating loss carryforwards of $16,859,000 which expire
from 1999 through 2001. These carryforwards can be used to offset
Universal Resources' future taxable income. The tax benefit of
these carryforwards is $5,901,000.
The components of income taxes were as follows:
Year Ended December 31,
1994 1993 1992
(In Thousands)
Federal
Current $13,329 $30,878 $23,615
Deferred (6,103) (2,044) 6,901
State
Current 1,704 4,899 3,404
Deferred 131 174 1,223
Deferred investment tax credits (417) (429) (471)
$8,644 $33,478 $34,672
The difference between income tax expense and the tax computed by
applying the statutory federal income tax rate to income before
income taxes is explained as follows:
Year Ended December 31,
1994 1993 1992
(In Thousands)
Income from continuing operations
before income taxes $58,061 $117,942 $108,443
Federal income taxes at statutory rate $20,321 $41,280 $36,871
State income taxes, net of federal income
tax benefit 1,239 3,358 3,054
Tight-sands gas production credits (10,289) (11,026) (5,722)
Investment tax credits (417) (429) (471)
Capital loss carryforward (2,498)
Tax benefits from dividends paid to ESOP (422) (351) (278)
Increase in federal income tax rate 1,027
Adjustment to deferred tax rates (1,268)
Deferred taxes related to regulated assets
for which deferred taxes were not provided
in prior years 772 744 768
Other (62) 143 450
Income tax expense $8,644 $33,478 $34,672
Effective income tax rate 14.9% 28.4% 32.0%
Significant components of the Company's deferred tax liabilities
and assets were as follows:
December 31,
1994 1993
(In Thousands)
Deferred tax liabilities
Property, plant and equipment $186,752 $189,495
Unamortized debt reacquisition costs 5,289 5,587
Pension costs 969 1,811
Income taxes recoverable from customers 5,344 5,350
Other 8,476 8,875
Total deferred tax liabilities 206,830 211,118
Deferred tax assets
Net operating loss carryforwards 5,901 15,672
Alternative minimum tax and production
credit carryforwards 14,829 7,504
Purchased-gas adjustments 8,486 11,477
Unbilled revenues 7,574 9,780
Deferred investment tax credits 2,910 3,327
Other 10,261 10,077
Total deferred tax assets 49,961 57,837
Valuation allowance for deferred
tax assets (6,414)
Net deferred tax assets 49,961 51,423
Net deferred tax liabilities $156,869 $159,695
Cash paid for income taxes was $29,974,000 in 1994, $25,588,000 in
1993 and $25,028,000 in 1992.
Note H - Litigation, Environmental Matters and Commitments
The Company has been named a potentially responsible party in an
environmental clean-up action involving a site in Salt Lake City.
The site was the location of chemical operations conducted by
Entrada's Wasatch Chemical Division, which ceased operation in
1978. Entrada began remediation in 1994 under a plan approved by
both the Environmental Protection Agency and the Utah Department of
Health. Settlements have been reached with the other major
potentially responsible parties and an accrual has been established
for the remedial work costs. Management believes that current
accruals of $5,680,000, recorded in deferred credits, will be
sufficient for estimated clean-up costs, which are expected to be
incurred over the next several years. The Company has recorded a
receivable from an insurance company of $4,587,000 for expected
payments related to the Wasatch Chemical clean-up. Additional
amounts may be collected from the insurance company if clean-up
costs are higher than anticipated.
The Company and its subsidiaries have received notice that they may
be partially liable in several additional environmental clean-up
actions on sites that involve numerous other parties. Management
believes that the Company's responsibility for remediation will be
minor, and that any potential liability will not significantly
affect its results of operations or financial position.
There are various other legal proceedings against Questar and its
subsidiaries. While it is not currently possible to predict or
determine the outcome of these proceedings, it is the opinion of
management that the outcome will not have a materially adverse
effect on the Company's results of operations, financial position
or liquidity.
Each year Mountain Fuel purchases significant quantities of natural
gas under numerous gas- purchase contracts with varying terms and
conditions. Purchases under these agreements totalled $73,682,000
in 1994, $85,909,000 in 1993 and $104,032,000 in 1992. Some of the
agreements have terms that obligate Mountain Fuel to purchase
specific quantities on a periodic basis into the future, while a
few contracts have take-or-pay provisions that obligate Mountain
Fuel to take delivery of a minimum amount of gas on an annual
basis.
Projected natural gas purchase commitments for the next five years
are reported in the table below. These commitments are based upon
current market conditions. Future changes will occur as a result
of negotiations with suppliers and changes in market conditions.
(In Millions)
<S> <C>
1995 $24.4
1996 9.6
1997 5.4
1998 3.3
1999 3.1
Note I - Rate Matters
The PSCU issued a rate order in January 1994 granting Mountain Fuel
a $1.6 million decrease in general rates and a $2.1 million
increase in costs allowed through the purchase-gas adjustment
account for a net increase in rates of $500,000. The PSCU allowed
a return on equity of 11%, required Mountain Fuel to reduce rates
over a five-year period for unbilled revenues, and disallowed rate
coverage for certain incentive compensation and advertising costs.
Mountain Fuel requested rehearing of the PSCU's decision regarding
return on equity and unbilled revenues. In a ruling issued December
1, 1994, the PSCU reaffirmed its position on the allowed return on
equity and the treatment of unbilled revenues.
In 1993 Mountain Fuel began accruing revenues for gas delivered to
residential and commercial customers but not billed at the end of
the year. The impact of these accruals on the income statement has
been deferred and is being recognized at the rate of $2,011,000 per
year over a five-year period beginning in 1994 in accordance with a
rate order received from the PSCU. This rate order also reduces
customer rates by $2,011,000 per year over the same five-year
period. In addition, Mountain Fuel recorded other income of
$5,589,000 for a one-time reduction of gas costs associated with
these unbilled revenues. This transaction added about $3.5 million
to net income in 1994.
Mountain Fuel filed a general rate case in the State of Utah on
March 3, 1995 requesting a $9.6 million increase in revenues and a
12.5% return on equity. Management believes the rate increase is
necessary to secure an appropriate allowed rate of return and to
recover the costs of record customer growth.
Note J - Employee Benefits
The Company and its subsidiaries have a defined-benefit pension
plan covering the majority of their employees. Benefits are
generally based on years of service and the employee's 36-month
period of highest earnings during the ten years preceding
retirement. The Company's policy is to make contributions to the
plan at least sufficient to meet the minimum funding requirements
of the Internal Revenue Code. Plan assets consist principally of
equity securities and corporate and U.S. government debt
obligations. A summary of pension cost is as follows:
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
Service cost $7,167 $6,190 $5,892
Interest cost 15,411 15,315 14,442
Actual gain on plan assets (13) (22,027) (9,173)
Net amortization and deferral (16,677) 7,116 (5,106)
Pension cost $5,888 $6,594 $6,055
</TABLE>
Assumptions used to calculate cost at January 1, were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Discount rate 7.00% 8.00% 8.00%
Rate of increase in compensation 5.35% 6.35% 6.35%
Long-term return on assets 8.50% 8.50% 8.50%
</TABLE>
The Company used a discount rate of 8.5% and a rate of increase in
compensation of 6.35% to measure the actuarial present value of
benefits at December 31, 1994. The status of the plan at December
31 was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
Actuarial present value of benefits
Vested benefits $133,390 $138,650 $121,062
Nonvested benefits 21,336 18,951 16,547
Accumulated benefit obligation 154,726 157,601 137,609
Effect of projected future salary increa 42,619 59,798 52,213
Projected benefit obligation 197,345 217,399 189,822
Fair value of plan assets 200,349 203,053 182,421
Plan assets in excess of (less than)
projected benefit obligation 3,004 (14,346) (7,401)
Unrecognized net losses 337 15,707 7,678
Unrecognized transition obligation 926 1,069 1,212
Unrecognized prior service cost 3,437 4,385 4,779
Prepaid pension cost $7,704 $6,815 $6,268
</TABLE>
The Company pays a portion of the health-care costs and all the
life insurance costs for retired employees. Effective January 1,
1992, this program was changed for employees retiring after January
1, 1993, to link the health-care benefit to years of service and to
limit the Company's monthly health-care contribution per individual
to 170% of the 1992 contribution. The Company's policy is to fund
amounts allowable for tax deduction under the Internal Revenue
Code. Plan assets consist of equity securities, corporate and U.S.
government debt obligations, and insurance company general
accounts.
The Company adopted the provisions of SFAS No. 106 on Employer's
Accounting for Postretirement Benefits Other than Pensions
effective January 1, 1993. This statement requires the Company to
expense the costs of postretirement benefits, principally
health-care benefits, over the service life of employees using an
accrual method. The Company is amortizing the transition
obligation over a 20-year period. Total cost of postretirement
benefits other than pensions under SFAS No. 106 was $6,279,000 in
1994 and $5,918,000 in 1993 compared with the costs based on cash
payments to retirees plus the prefunding of some benefits totaling
$1,553,000 in 1992.
Components of the postretirement benefit cost for 1994 and 1993
were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
(In Thousands)
<S> <C> <C>
Service cost $1,207 $874
Interest cost 3,768 3,573
Actual gain on plan assets (334) (636)
Amortization of transition obligation 2,016 1,971
Net amortization and deferral (378) 136
Post retirement benefit cost $6,279 $5,918
</TABLE>
Assumptions used to calculate cost at January 1, were as follows:
1994 1993
Discount rate 7.00% 7.00%
Long-term return on assets 8.50% 8.50%
Health-care inflation rate 13.50% 13.50%
grading to grading to
5.50% 6.50%
at .50% per year
A 1% increase in the health-care inflation rate would increase the
service cost by $9,000, the interest cost by $248,000 and the
accumulated benefit obligation by $3,333,000.
The Company used a discount rate of 8.5% to measure the actuarial
present value of benefits at December 31, 1994. The status of the
postretirement benefit programs at December 31, was as follows:
<TABLE>
<CAPTION>
1994 1993
(In Thousands)
<S> <C> <C>
Accumulated postretirement benefit
obligation
Retired employees and beneficiaries $29,758 $35,409
Active employees 20,403 19,193
50,161 54,602
Plan assets 11,305 8,581
Accumulated benefit obligation in excess
of plan assets (38,856) (46,021)
Unrecognized transition obligation 35,370 37,458
Unrecognized (gains) losses (679) 6,788
Accrued postretirement benefit cost ($4,165) ($1,775)
</TABLE>
Mountain Fuel and Questar Pipeline account for approximately 57%
and 18% of the postretirement benefit costs, respectively. The
impact of SFAS No. 106 on Questar's future net income will be
mitigated by recovery of these costs from customers. Both the PSCU
and the PSCW allowed Mountain Fuel to recover future SFAS No. 106
costs in the 1993 rate cases if the amounts are funded in an
external trust. The FERC issued an order granting rate-recovery
methodology for SFAS No. 106 costs to the extent that pipeline
companies contribute the amounts to an external trust. Questar
Pipeline expects to receive coverage of future SFAS No. 106 costs
in its next general rate case and recovery of costs in excess of
the amounts currently included in rates for the period from 1993 to
the rate case filing if the rate case is filed prior to January 1,
1996.
The Company adopted SFAS No.112, Accounting for Postemployment
Benefits, on January 1, 1994, by establishing a liability of
$3,268,000 offset by a $2,794,000 regulatory asset and expense of
$474,000. This statement requires the Company to recognize the net
present value of the liability for postemployment benefits, such as
long-term disability benefits and health care and life insurance
costs, when employees become eligible for such benefits.
Postemployment benefits are paid to former employees after
employment has been terminated but before retirement benefits are
paid. SFAS No.112 requires the Company to accrue both current and
future costs which formerly had been recorded when cash was paid.
By December 1994 the total liability had dropped from $3,268,000 to
$1,872,000 as a result of designating Medicare as the primary
health care provider and increasing the discount rate from 7% to
8.5%. At year-end 1994, Mountain Fuel expensed SFAS No. 112 costs,
previously recorded as a regulatory asset. The Company expects
$450,000 to be recovered in subsequent rate filings by Questar
Pipeline.
Note K - Wexpro Settlement Agreement
Wexpro's operations are subject to the terms of the Wexpro
settlement agreement. The agreement was effective August 1, 1981,
and sets forth the rights of Mountain Fuel's utility operations to
share in the results of Wexpro's operations. The agreement was
approved by the PSCU and PSCW in 1981 and affirmed by the Supreme
Court of Utah in 1983. Major provisions of the settlement
agreement are as follows:
a. Wexpro continues to hold and operate all oil-producing
properties previously transferred from Mountain Fuel's nonutility
accounts. The oil production from these properties is sold at
market prices, with the revenues used to recover operating expenses
and to give Wexpro a return on its investment. The rate of return
is adjusted annually and is currently 14.0%. Any net income
remaining after recovery of expenses and Wexpro's return on
investment is divided between Wexpro and Mountain Fuel, with Wexpro
retaining 46%.
b. Wexpro conducts developmental oil drilling on productive oil
properties and bears any costs of dry holes. Oil discovered from
these properties is sold at market prices, with the revenues used
to recover operating expenses and to give Wexpro a return on its
investment in successful wells. The rate of return is adjusted
annually and is currently 19.0%. Any net income remaining after
recovery of expenses and Wexpro's return on investment is divided
between Wexpro and Mountain Fuel, with Wexpro retaining 46%.
c. Amounts received by Mountain Fuel from the sharing of Wexpro's
oil income are used to reduce natural gas costs to utility
customers.
d. Wexpro conducts developmental gas drilling on productive gas
properties and bears any costs of dry holes. Natural gas produced
from successful drilling is owned by Mountain Fuel. Wexpro is
reimbursed for the costs of producing the gas plus a return on its
investment in successful wells. The return allowed Wexpro is
currently 22.0%.
e. Wexpro operates natural gas properties owned by Mountain Fuel.
Wexpro is reimbursed for its costs of operating these properties,
including a rate of return on any investment it makes. This rate
of return is currently 14.0%.
Note L - Oil and Gas Producing Activities (Unaudited)
The following information discusses the Company's oil and gas
producing activities. Separate disclosures are presented for
cost-of-service and noncost-of-service activities.
Cost-of-service properties are those for which the operations and
return on investment are governed by state regulatory agencies or
the Wexpro settlement agreement (see Note K). Production from gas
properties owned or operated by Wexpro is delivered to Mountain
Fuel at cost of service. Noncost-of-service properties are
properties from which production is sold at market prices. These
properties include all Celsius Energy and Universal Resources
properties and Wexpro oil properties. Production from Wexpro oil
properties is sold at market prices and the income is shared with
Mountain Fuel after a specified return on investment is earned.
Information on the results of operations and standardized measure
of future net cash flows has not been included for cost-of-service
activities because operating results and the value of the related
properties is dependent upon returns established by state
regulatory agencies based on historical costs or the terms of the
Wexpro settlement agreement.
NONCOST-OF-SERVICE ACTIVITIES
Capitalized Costs: The aggregate amounts of costs capitalized for
noncost-of-service oil- and gas-producing activities and the
related amounts of accumulated depreciation and amortization
follow:
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
Proved properties 621,732 $530,591 $502,754
Unproved properties 19,756 14,613 21,100
641,488 545,204 523,854
Accumulated depreciation
and amortization 364,360 333,656 305,585
$277,128 $211,548 $218,269
</TABLE>
Full-Cost Amortization: Unproved properties held by Celsius Energy
and Universal Resources are excluded from amortization until
evaluation. A summary of costs excluded from amortization at
December 31, 1994, and the year in which these costs were incurred
is as follows:
<TABLE>
<CAPTION>
Year Costs Incurred
1991 and
Total 1994 1993 1992 Prior
(In Thousands)
<S> <C> <C> <C> <C> <C>
Leaseholds $11,842 $5,651 $631 $701 $4,859
Exploration 7,914 1,848 1,756 1,440 2,870
$19,756 $7,499 $2,387 $2,141 $7,729
</TABLE>
Costs Incurred: The following costs were incurred in
noncost-of-service oil- and gas-producing activities.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
Property acquisition
Unproved $5,623 $1,262 $1,257
Proved 99,892 1,228 3,462
Exploration 5,877 8,141 7,940
Development 16,488 22,385 36,301
$127,880 $33,016 $48,960
</TABLE>
Results of Operations: Following are the results of operations of
noncost-of-service oil- and gas-producing activities before
corporate overhead and interest expenses.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
Revenues
From unaffiliated customers $104,498 $94,621 $79,994
From affiliates 15 1,055 3,430
Total revenues 104,513 95,676 83,424
Production expenses 27,085 26,282 24,996
Oil-income sharing under Wexpro
settlement agreement 3,391 1,028 3,389
Depreciation and amortization 38,046 33,386 26,657
Total expenses 68,522 60,696 55,042
35,991 34,980 28,382
Income tax expense - Note 1 7,433 7,101 8,812
Results of operations before corporate
overhead and interest expenses $28,558 $27,879 $19,570
</TABLE>
Note 1 - Income tax expense has been reduced by tight-sands gas
production credits of $5,619,000 in 1994, $5,563,000 in 1993 and
$1,441,000 in 1992.
Estimated Quantities of Proved Oil and Gas Reserves for
Noncost-of-Service Properties: The majority of the following
estimates were made by Ryder Scott Company, H. J. Gruy and Company
and Netherland, Sewell & Associates, independent reservoir
engineers, and the remainder by the Company's reservoir engineers.
Reserve estimates are based on a complex and highly interpretive
process that is subject to continuous revision as additional
production and development-drilling information becomes available.
The quantities reported below are based on existing economic and
operating conditions using current prices and operating costs. All
oil and gas reserves reported are located in the United States.
The Company does not have any long-term supply contracts with
foreign governments or reserves of equity investees.
<TABLE>
<CAPTION>
Natural Gas Oil
(In Million (In Thousands
Cubic Feet) of Barrels)
<S> <C> <C>
Proved Reserves
Balance at January 1, 1992 169,631 10,671
Revisions of estimates (2,508) 1,157
Extensions and discoveries 51,691 1,343
Purchase of reserves in place 4,294 228
Sale of reserves in place (872) (87)
Production (24,550) (2,075)
Balance at December 31, 1992 197,686 11,237
Revisions of estimates 6,262 1,135
Extensions and discoveries 19,308 555
Purchase of reserves in place 2,102 22
Sale of reserves in place (1,731) (465)
Production (32,299) (1,975)
Balance at December 31, 1993 191,328 10,509
Revisions of estimates (10,119) 792
Extensions and discoveries 20,581 972
Purchase of reserves in place 104,580 3,927
Sale of reserves in place (883) (224)
Production (37,659) (2,442)
Balance at December 31, 1994 267,828 13,534
Proved Developed Reserves
Balance at January 1, 1992 148,078 9,991
Balance at December 31, 1992 182,278 10,558
Balance at December 31, 1993 183,494 9,743
Balance at December 31, 1994 252,677 12,707
</TABLE>
Standardized Measure of Future Net Cash Flows Relating to Proved
Reserves for Noncost-of-Service Activities: Future net cash flows
were calculated using December 31, 1994, prices and known contract
price changes. Year-end production, development costs and income
tax rates were used to compute the future net cash flows. All cash
flows were discounted at 10% to reflect the time value of cash
flows, without regard to the risk of specific properties.
The assumptions used to derive the standardized measure of future
net cash flows are those required by the FASB and do not
necessarily reflect the Company's expectations. The usefulness of
the standardized measure of future net cash flows is impaired
because of the reliance on reserve estimates and production
schedules that are inherently imprecise, and because the costs of
oil-income sharing under the Wexpro settlement agreement were not
included.
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
Future cash inflows $649,644 $513,015 $610,015
Future production and development costs (222,894) (161,969) (185,395)
Future income tax expenses (54,203) (67,060) (79,910)
Future net cash flows 372,547 283,986 344,710
10% annual discount for estimated timing of
net cash flows (135,297) (103,514) (124,636)
Standardized measure of discounted future net
cash flows $237,250 $180,472 $220,074
</TABLE>
The principal sources of change in the standardized measure of
discounted future net cash flows were:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
Beginning balance $180,472 $220,074 $163,150
Sales of oil and gas produced, net of
production costs (77,428) (69,394) (58,428)
Net changes in prices and production c (15,667) (34,401) 41,281
Extensions and discoveries, less relat 20,524 19,688 60,629
Revisions of quantity estimates (4,173) 11,370 4,499
Purchase of reserves in place 99,892 1,228 3,462
Sale of reserves in place (10,873) (6,043) (1,168)
Accretion of discount 18,047 22,007 16,315
Net change in income taxes 12,220 13,639 (9,107)
Change in production rate 1,046 (1,433) (684)
Other 13,190 3,737 125
Net change 56,778 (39,602) 56,924
Ending balance $237,250 $180,472 $220,074
</TABLE>
COST-OF-SERVICE ACTIVITIES
Capitalized Costs: Capitalized costs for cost-of-service oil- and
gas-producing activities net of the related accumulated
depreciation and amortization were as follows:
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
Mountain Fuel $40,991 $44,708 $48,222
Wexpro 98,134 92,561 81,261
$139,125 $137,269 $129,483
</TABLE>
Costs Incurred: Costs incurred by Wexpro for cost-of-service
gas-producing activities were $15,636,000 in 1994, $21,829,000 in
1993, and $18,348,000 in 1992.
Estimated Quantities of Proved Oil and Gas Reserves for
Cost-of-Service Properties: The following estimates were made by
the Company's reservoir engineers. No estimates are available for
cost-of-service proved undeveloped reserves that may exist.
<TABLE>
<CAPTION>
Natural Gas Oil
(In Million (In Thousands
Cubic Feet) of Barrels)
<S> <C> <C>
Proved Developed Reserves
Balance at January 1, 1992 379,771 814
Revisions of estimates 5,891 68
Extensions and discoveries 43,682 5
Sale of reserves in place (34)
Production (29,699) (100)
Balance at December 31, 1992 399,611 787
Revisions of estimates (1,158) 57
Extensions and discoveries 65,293 9
Production (35,508) (81)
Balance at December 31, 1993 428,238 772
Revisions of estimates (576) (13)
Extensions and discoveries 26,085 13
Production (37,435) (65)
Balance at December 31, 1994 416,312 707
</TABLE>
<PAGE>
Note M - Quarterly Financial and Stock Price Data (Unaudited)
Following is a summary of quarterly financial and stock price data.
The quarterly results have been reclassified for the discontinued
operations.
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
1994 (In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Revenues $223,309 $135,397 $110,431 $201,181 $670,318
Operating income 55,475 26,232 17,695 55,256 154,658
Write-down of investment in Nextel (61,743) (61,743)
Income (loss) from continuing operations $31,093 $13,928 $9,033 ($4,637) $49,417
Gain from sale of Questar
Telecom to Nextel 38,126 38,126
Net income (loss) $31,093 $13,928 $47,159 ($4,637) $87,543
Earnings per common share
Income (loss) from continuing operations $0.77 $0.34 $0.22 ($0.12) $1.21
Gain from sale of Questar Telecom 0.95 0.95
Net income (loss) $0.77 $0.34 $1.17 ($0.12) $2.16
Dividends per common share 0.275 0.285 0.285 0.285 1.13
Market price per common share
High $35.25 $34.38 $33.50 $29.38 $35.25
Low 29.88 29.38 28.00 26.63 26.63
Close $30.25 $32.38 $28.38 $27.50 $27.50
Price-earnings ratio on closing price 15.4 17.1 9.7 12.7 12.7
Annualized dividend yield on closing price 3.6% 3.5% 4.0% 4.1% 4.1%
Market-to-book ratio on closing price 1.95 2.08 1.75 1.70 1.70
Average number of common shares traded per 91 57 78 61 72
1993
Revenues $245,537 $131,656 $100,240 $182,997 $660,430
Operating income 63,574 26,192 14,713 43,815 148,294
Income from continuing operations $36,021 $16,029 $6,970 $25,444 $84,464
Loss from discontinued operations (898) (764) (1,110) (2,772)
Net income $35,123 $15,265 $5,860 $25,444 $81,692
Earnings per common share
Income from continuing operations $0.90 $0.39 $0.17 $0.64 $2.10
Loss from discontinued operations (0.02) (0.02) (0.03) (0.07)
Net income $0.88 $0.37 $0.14 $0.64 $2.03
Dividends per common share 0.265 0.275 0.275 0.275 1.09
Market price per common share
High $31.38 $34.75 $42.75 $44.00 $44.00
Low 25.38 30.25 33.00 31.50 25.38
Close $31.38 $34.50 $42.50 $33.00 $33.00
Price-earnings ratio on closing price 16.4 16.2 19.3 16.3 16.3
Annualized dividend yield on closing price 3.4% 3.2% 2.6% 3.3% 3.3%
Market-to-book ratio on closing price 2.16 2.35 2.91 2.20 2.20
Average number of common shares traded per 58 69 86 104 79
1992
Revenues $223,131 $106,112 $87,217 $174,886 $591,346
Operating income 56,713 17,167 13,968 49,688 137,536
Income from continuing operations $30,863 $6,612 $6,857 $29,439 $73,771
Loss from discontinued operations (709) (595) (633) (500) (2,437)
Cumulative effect 9,303 9,303
Net income $39,457 $6,017 $6,224 $28,939 $80,637
Earnings per common share
Income from continuing operations $0.78 $0.16 $0.17 $0.74 $1.85
Loss from discontinued operations (0.02) (0.01) (0.02) (0.01) (0.06)
Cumulative effect 0.23 0.23
Net income $0.99 $0.15 $0.15 $0.73 $2.02
Dividends per common share 0.255 0.255 0.265 0.265 1.04
Market price per common share
High $21.50 $23.38 $27.38 $27.50 $27.50
Low 18.50 19.50 22.38 25.00 18.50
Close $19.88 $22.75 $25.13 $26.25 $26.25
Price-earnings ratio on closing price 12.9 15.5 15.9 14.7 14.7
Annualized dividend yield on closing price 5.1% 4.5% 4.2% 4.0% 4.0%
Market-to-book ratio on closing price 1.49 1.72 1.91 1.89 1.89
Average number of common shares traded per 88 80 89 65 81
</TABLE>
<PAGE>
Note N - Operations by Line of Business
Following is a summary of operations by line of business:
<TABLE>
<CAPTION>
Exploration Natural Gas Natural Gas Other Interco. Questar
and Transmis- Distri- Oper. Trans. Consolid.
Production sion bution
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
1994
Revenues
From unaffiliated customers $254,564 $40,412 $374,240 $1,102 $670,318
From affiliates 77,349 75,196 4,020 28,099 ($184,664)
331,913 115,608 378,260 29,201 (184,664) 670,318
Operating expenses
Natural gas purchases 154,780 210,507 (152,759) 212,528
Operating and maintenance 44,846 42,778 94,094 20,876 (28,514) 174,080
Depreciation and amortization 48,542 15,453 24,749 4,293 93,037
Other expenses 24,451 4,499 9,589 867 (3,391) 36,015
272,619 62,730 338,939 26,036 (184,664) 515,660
Operating income 59,294 52,878 39,321 3,165 154,658
Interest and other income (expense) 732 (895) 7,820 937 (3,637) 4,957
Write-down of investment in Nextel (61,743) (61,743)
Debt expense (6,086) (13,107) (15,886) (8,369) 3,637 (39,811)
Income tax (expense) credit (13,724) (13,047) (7,903) 26,030 (8,644)
Income (loss) from continuing
operations $40,216 $25,829 $23,352 ($39,980) $49,417
Identifiable assets $456,746 $437,584 $536,157 $155,088 $1,585,575
Capital expenditures 151,821 58,227 53,816 13,018 276,882
1993
Revenues
From unaffiliated customers $217,669 $41,354 $400,225 $1,182 $660,430
From affiliates 58,778 130,274 2,166 26,961 ($218,179)
276,447 171,628 402,391 28,143 (218,179) 660,430
Operating expenses
Natural gas purchases 127,312 56,022 230,139 (188,973) 224,500
Operating and maintenance 36,769 48,356 92,486 19,402 (28,178) 168,835
Depreciation and amortization 44,614 14,084 23,244 4,816 86,758
Other expenses 18,365 3,915 10,013 778 (1,028) 32,043
227,060 122,377 355,882 24,996 (218,179) 512,136
Operating income 49,387 49,251 46,509 3,147 148,294
Interest and other income (expense) 679 (11) 1,692 3,478 (2,206) 3,632
Debt expense (2,090) (13,114) (15,423) (5,563) 2,206 (33,984)
Income tax expense (11,651) (12,851) (7,709) (1,267) (33,478)
Income (loss) from continuing
operations $36,325 $23,275 $25,069 ($205) $84,464
Identifiable assets $370,726 $397,356 $521,416 $128,189 $1,417,687
Capital expenditures 57,790 47,580 50,658 12,360 168,388
1992
Revenues
From unaffiliated customers $186,323 $34,991 $369,122 $910 $591,346
From affiliates 55,244 169,595 3,925 24,021 ($252,785)
241,567 204,586 373,047 24,931 (252,785) 591,346
Operating expenses
Natural gas purchases 113,527 93,024 218,123 (223,656) 201,018
Operating and maintenance 35,289 46,601 79,975 17,073 (25,740) 153,198
Depreciation and amortization 35,517 13,699 20,713 3,624 73,553
Other expenses 14,993 3,842 9,839 756 (3,389) 26,041
199,326 157,166 328,650 21,453 (252,785) 453,810
Operating income 42,241 47,420 44,397 3,478 137,536
Interest and other income 2,251 1,170 1,703 4,558 (3,007) 6,675
Debt expense (3,457) (13,829) (15,254) (6,235) 3,007 (35,768)
Income tax expense (13,273) (12,298) (7,451) (1,650) (34,672)
Income from continuing
operations $27,762 $22,463 $23,395 $151 $73,771
Identifiable assets $347,956 $400,336 $470,863 $101,203 $1,320,358
Capital expenditures 69,216 37,938 55,721 17,186 180,061
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 24th day
of March, 1995.
QUESTAR CORPORATION
(Registrant)
By /s/ R. D. Cash
R. D. Cash
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
/s/ R. D. Cash Chairman, President and Chief
R. D. Cash Executive Officer (Principal
Executive Officer)
/s/ W. F. Edwards Senior Vice President and
W. F. Edwards Chief Financial Officer
(Principal Financial and
Accounting Officer)
*R. D. Cash Director
*U. Edwin Garrison Director
*James A. Harmon Director
*W. W. Hawkins Director
*W. N. Jones Director
*Robert E. Kadlec Director
*Dixie L. Leavitt Director
*Neal A. Maxwell Director
*Gary G. Michael Director
*Mary Mead Director
*D. N. Rose Director
*Harris H. Simmons Director
March 24, 1995 *By /s/ R. D. Cash
Date R. D. Cash, Attorney in Fact
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
2.* Plan and Agreement of Merger dated as of December 16,
1986, by and among the Company, Questar Systems
Corporation, and Universal Resources Corporation.
(Exhibit No. (2) to Current Report on Form 8-K dated
December 16, 1986.)
3.1.* Restated Articles of Incorporation effective May 28,
1991. (Exhibit No. 3.2. to Form 10-Q Report for
Quarter ended June 30, 1991.)
3.2.* Bylaws (as amended effective August 11, 1992).
(Exhibit No. 3. to Form 10-Q Report for Quarter ended
June 30, 1992.)
4.1.* Rights Agreement, dated as of March 14, 1986, between
the Company and Morgan Guaranty Trust Company of New
York pertaining to the Company's Shareholder Rights
Plan. (Exhibit No. 4. to Current Report on Form 8-K
dated March 14, 1986.)
4.2.* First Amendment to the Rights Agreement, dated as of
May 15, 1989, between the Company and Morgan
Shareholder Service Trust Company pertaining to the
Company's Shareholder Rights Plan. (Exhibit No. 28(a)
to Current Report on Form 8-K dated May 15, 1989.)
10.1.* Stipulation and Agreement, dated October 14, 1981,
executed by Mountain Fuel; Wexpro; the Utah Department
of Business Regulations, Division of Public Utilities;
the Utah Committee of Consumer Services; and the staff
of the Public Service Commission of Wyoming. (Exhibit
No. 10(a) to Mountain Fuel Supply Company's Form 10-K
Annual Report for 1981.)
10.2. 1 Questar Corporation Annual Management Incentive Plan,
as amended effective February 14, 1995.
10.3.* 1 Questar Corporation Executive Incentive Retirement
Plan, as amended effective November 1, 1993. (Exhibit
No. 10.3. to Form 10-Q Report for Quarter ended
September 30, 1993.)
10.4.* 1 Questar Corporation Stock Option Plan, as amended
effective February 13, 1990. (Exhibit No. 10.4. to
Form 10-K Annual Report for 1989.)
10.5.* 1 Questar Corporation Long Term Stock Incentive Plan
effective March 1, 1991. (Exhibit No. 10.5. to Form
10-K Annual Report for 1990.)
10.6.* 1 Questar Corporation Executive Severance Compensation
Plan, as amended effective January 1, 1990. (Exhibit
No. 10.5. to Form 10-K Annual Report for 1989.)
10.7.* 1 Questar Corporation Deferred Compensation Plan for
Directors, as amended April 30, 1991. (Exhibit No.
10.7. to Form 10-K Annual Report for 1991.)
10.8. 1 Questar Corporation Supplemental Executive Retirement
Plan, as amended and restated effective February 14,
1995.
10.9. 1 Questar Corporation Equalization Benefit Plan, as
amended and restated effective February 14, 1995.
10.10.* 1 Questar Corporation Stock Option Plan for Directors,
as amended effective February 9, 1993. (Exhibit No.
10.10. to Form 10-K Annual Report for 1992.)
10.11.* 1 Form of Individual Indemnification Agreement dated
February 9, 1993 between Questar Corporation and
Directors. (Exhibit No. 10.11. to Form 10-K Annual
Report for 1992.)
10.12.* 1 Questar Corporation Deferred Share Plan, as amended
and restated November 1, 1993. (Exhibit No. 10.12. to
Form 10-Q Report for Quarter ended September 30,
1993.)
10.13.* 1 Questar Corporation Deferred Compensation Plan as
adopted effective November 1, 1993. (Exhibit No.
10.13. to Form 10-Q Report for Quarter ended September
30, 1993.)
10.14.* Agreement and Plan of Reorganization dated April 29,
1994, by and between Nextel Communications, Inc.;
Questar Corporation; Advance MobilComm, Inc.;
Robert C. Mearns and Francis G. Fuson. (Exhibit No.
10.14 to Form 10-Q Report for Quarter ended June 30,
1994.)
11. Statement concerning computation of earnings per
share.
22. Subsidiary Information.
24. Consent of Independent Auditors.
25. Power of Attorney.
27. Financial Data Schedule.
99.1. Form 11-K Annual Report for the Questar Corporation
Employee Stock Purchase Plan.
99.2. Undertakings for Registration Statements on Form S-3
(No. 33-48168) and on Form S-8 (Nos. 33-4436, 33-
15148, 33-15149, 33-40800, 33-40801, and 33-48169).
________________________
*Exhibits so marked have been filed with the Securities and
Exchange Commission as part of the indicated filing and are
incorporated herein by reference.
1 Exhibit so marked is management contract or compensation plan
or arrangement.
EXHIBIT 10.2
QUESTAR CORPORATION
ANNUAL MANAGEMENT INCENTIVE PLAN
(As amended effective
February 14, 1995)
Paragraph 1. Name. The name of this Plan is the
Questar Corporation Annual Management Incentive Plan (the Plan).
Paragraph 2. Purpose. The purpose of the Plan is to
provide an incentive to officers and key employees of Questar
Corporation (the Company) for the accomplishment of major
organizational and individual objectives designed to further the
efficiency, profitability, and growth of the Company.
Paragraph 3. Administration. The Management
Performance Committee (Committee) of the Board of Directors shall
have full power and authority to interpret and administer the
Plan. Such Committee shall consist of no less than three
disinterested members of the Board of Directors.
Paragraph 4. Participation. Within 60 days after the
beginning of each year, the Committee shall nominate Participants
from the officers and key employees for such year. The Committee
shall also establish a target bonus for the year for each
Participant expressed as a percentage of base salary.
Participants shall be notified of their selection and their
target bonus as soon as practicable.
Paragraph 5. Determination of Performance Objectives.
Within 60 days after the beginning of each year, the Committee
shall establish target, minimum, and maximum performance
objectives for the Company and for its operating subsidiaries and
shall determine the manner in which the target bonus is allocated
among the performance objectives. The Committee shall also
recommend a dollar maximum for payments to Participants for any
Plan year. The Board of Directors shall take action concerning
the recommended dollar maximum within 60 days after the beginning
of the Plan year. Participants shall be notified of the
performance objectives as soon as practicable once such
objectives have been established.
Paragraph 6. Determination and Distribution of Awards.
As soon as practicable, but in no event more than 90 days after
the close of each year during which the Plan is in effect, the
Committee shall compute incentive awards for eligible
participants in such amounts as the members deem fair and
equitable, giving consideration to the degree to which the
Participant's performance has contributed to the performance of
the Company and its affiliated companies and using the target
bonuses and performance objectives previously specified.
Aggregate awards calculated under the Plan shall not exceed the
maximum limits approved by the Board of Directors for the year
involved. To be eligible to receive a payment, the Participant
must be actively employed by the Company or an affiliate as of
the date of distribution except as provided in Paragraph 8.
Beginning with the 1995 plan year, an assessment of
individual performance will be formally included in determining
the bonus awarded to any eligible Participant. Eligible
Participants are only entitled to receive 80 percent of the bonus
amounts calculated on the basis of performance objectives The
remaining 20 percent of such bonus amounts will be aggregated
together in a pool and be available for allocation among such
Participants on the basis of their individual performance.
Amounts shall be paid (less appropriate withholding
taxes and FICA deductions) according to the following schedule:
Award Distribution Schedule
Percent of
Award Date
Initial Award 75% As soon as possible after
(First Year of initial award is
Participation) determined
25 One year after initial award
is determined
100%
Subsequent Awards 50% As soon as possible after
award is determined
25 One year after award is
determined
25 Two years after award is
determined
100%
Paragraph 7. Restricted Stock in Lieu of Cash. For
1992 and subsequent years, participants who have a target bonus
of $10,000 or higher shall be paid all deferred portions of such
bonus with restricted shares of the Company's common stock under
the Company's Long-Term Stock Incentive Plan. Such stock shall
be granted to the participant when the initial award is
determined, but shall vest free of restrictions according to the
schedule specified above in Paragraph 6.
Paragraph 8. Termination of Employment. (a) In the
event a Participant ceases to be an employee during a year by
reason of death, disability or approved retirement, an award, if
any, determined in accordance with Paragraph 6 for the year of
such event, shall be reduced to reflect partial participation by
multiplying the award by a fraction equal to the months of
participation during the applicable year through the date of
termination rounded up to whole months divided by 12.
For the purpose of this Plan, approved retirement shall
mean any termination of service on or after age 60, or, with
approval of the Board of Directors, early retirement under the
Company's qualified retirement plan. For the purpose of this
Plan, disability shall mean any termination of service that
results in payments under the Company's long-term disability
plan.
The entire amount of any award that is determined after
the death of a Participant shall be paid in accordance with the
terms of Paragraph 11.
In the event of termination of employment due to
disability or approved retirement, a Participant shall be paid
the undistributed portion of any prior awards in his final
paycheck or in accordance with the terms of elections to
voluntarily defer receipt of awards earned prior to February 12,
1991, or deferred under the terms of the Company's Deferred
Compensation Plan. In the event of termination due to disability
or approved retirement, any shares of common stock previously
credited to a Participant shall be distributed free of
restrictions as of the final date of employment. The current
market value (defined as the closing price for the stock on the
New York Stock Exchange on the date in question) of such shares
shall be included in the Participant's final paycheck. Such
Participant shall be paid the full amount of any award (adjusted
for partial participation) declared subsequent to the date of
such termination within 30 days of the date of declaration. Any
partial payments shall be made in cash.
(b) In the event a Participant ceases to be an
employee during a year by reason of a change of control, he shall
be entitled to receive all amounts deferred by him prior to
February 12, 1991, or under the terms of the Company's Deferred
Compensation Plan, and all undistributed portions for prior Plan
years. He shall also be entitled to an award for the year of
such event as if he had been an employee throughout such year.
The entire amount of any award for such year shall be paid in a
lump sum within 60 days after the end of the year in question.
Such amounts shall be paid in cash.
For the purpose of this Plan, a "change of control"
shall be defined as (i) any person (as such term is used in
Sections 13(d) and 14(d) of the Act is or becomes the beneficial
owner (as such term is used in Rule 13d-3 under the Act) of
securities of the Company representing 20% or more of the
combined voting power of the Company, or (ii) the stockholders of
the Company approve (A) a plan of merger or consolidation of the
Company (unless, immediately following consummation of such
merger or consolidation, the persons who held the Company's
voting securities immediately prior to consummation thereof will
hold at least a majority of the total voting power of the
surviving or new company), or (B) a sale or disposition of all or
substantially all assets of the Company, or (C) plan of
liquidation or dissolution of the Company.
A change of control shall also include any act or event
that, with the passage of time, would result in a Distribution
Date, within the meaning of the Rights Agreement dated as of
March 14, 1986, and as amended on May 16, 1989, between the
Company and Morgan Guaranty Trust Company of New York.
Paragraph 9. Interest on Previously Deferred Amounts.
Amounts voluntarily deferred prior to February 12, 1991, shall be
credited with interest from the date the payment was first
available in cash to the date of actual payment. Such interest
shall be calculated at a monthly rate using the typical rates
paid by major banks on new issues of negotiable Certificates of
Deposit in the amounts of $1,000,000 or more for one year as
quoted in The Wall Street Journal on the first day of the
relevant calendar month or the next preceding business day if the
first day of the month is a non-business day.
Paragraph 10. Coordination with Deferred Compensation
Plan. Some Participants are entitled to defer the receipt of
their cash bonuses under the terms of the Company's Deferred
Compensation Plan, which became effective November 1, 1993. Any
cash bonuses deferred pursuant to the Deferred Compensation Plan
shall be accounted for and distributed according to the terms of
such plan and the choices made by the Participant.
Paragraph 11. Death and Beneficiary Designation. In
the event of the death of a Participant, any undistributed
portions of prior awards shall become payable. Amounts
previously deferred by the Participant, together with credited
interest to the date of death, shall also become payable. Each
Participant shall designate a beneficiary to receive any amounts
that become payable after death under this Paragraph or Paragraph
8. In the event that no valid beneficiary designation exists at
death, all amounts due shall be paid as a lump sum to the estate
of the Participant. Any shares of restricted stock previously
credited to the Participant shall be distributed to the
Participant's beneficiary or, in the absence of a valid
beneficiary designation, to the Participant's estate, at the same
time any cash is paid.
Paragraph 12. Amendment of Plan. The Company's Board
of Directors, at any time, may amend, modify, suspend, or
terminate the Plan, but such action shall not affect the awards
and the payment of such awards for any prior years. The
Company's Board of Directors cannot terminate the Plan in any
year in which a change of control has occurred without the
written consent of the Participants. The Plan shall be deemed
suspended for any year for which the Board of Directors has not
fixed a maximum dollar amount available for award.
Paragraph 13. Nonassignability. No right or interest
of any Participant under this Plan shall be assignable or
transferable in whole or in part, either directly or by operation
of law or otherwise, including, but not by way of limitation,
execution, levy, garnishment, attachment, pledge, bankruptcy, or
in any other manner, and no right or interest of any Participant
under the Plan shall be liable for, or subject to, any obligation
or liability of such Participant. Any assignment, transfer, or
other act in violation of this provision shall be void.
Paragraph 14. Effective Date of the Plan. The Plan
shall be effective with respect to the fiscal year beginning
January 1, 1984, and shall remain in effect until it is suspended
or terminated as provided by Paragraph 12.
EXHIBIT 10.8
QUESTAR CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As amended and restated effective February 14, 1995)
1. PURPOSE
The Supplemental Executive Retirement Plan is intended to
enable Questar Corporation and its participating affiliates to
attract and retain key management personnel by providing them
with monthly supplemental retirement benefits to compensate them
for the limitations imposed by federal tax laws on benefits
payable from the Questar Corporation Retirement Plan.
2. DEFINITIONS
The following terms, when used herein, shall have the
meanings set forth below, unless a different meaning is plainly
required by the context:
"Affiliated Corporation" means any company that is
affiliated with Questar Corporation that has or may have a
responsibility for a portion of the compensation paid to officers
eligible to receive benefits hereunder.
"Board" means the Board of Directors of Questar Corporation
or a successor company.
"Code" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
"Company" means Questar Corporation or any other
organization controlling Questar Corporation or any successor
organization.
"Committee" means the Management Performance Committee of
the Company's Board.
"Compensation" means an Employee's salary or wages,
including payments under incentive compensation plans paid by the
Employer and includable in taxable income during the applicable
Plan Year, but exclusive of any other forms of additional
Compensation such as the Employer's cost for any public or
private employee benefit plan or any income recognized by the
Employee as a result of exercising stock options. An Employee's
Compensation for any Plan Year shall include any Elective
Deferrals of the Employee under the Employee Stock Purchase Plan
or other tax-qualified plan, and any Compensation deferred under
the Questar Corporation Deferred Compensation Plan and the
Questar Corporation Deferred Share Plan. An Employee's
Compensation also shall include the amount of any reduction in
Compensation for a Plan Year agreed upon under one or more
Compensation reduction agreements entered into pursuant to the
Questar Corporation Cafeteria Plan.
"EIRP" means the Company's Executive Incentive Retirement
Plan, as amended or restated from time to time.
"Officer" means any officer of the Company and/or its
affiliates who has a vested right to receive benefits under the
Company's Retirement Plan and who has been nominated to receive
supplemental retirement benefits under the EIRP. Hours of
service shall be determined in the same manner as hours of
service are determined under the Company's Retirement Plan.
"Participating Corporation" means any company that is
affiliated with the Company whose employees are covered by the
Company's Retirement Plan.
"Plan" means the plan set forth in and created by this
document.
"Retired Officer" refers to an Officer who has satisfied the
eligibility requirements set forth in Section 4 of this Plan and
who is eligible to receive or who is receiving Supplemental
Retirement Benefits pursuant to the terms of this Plan.
"Retirement Plan" means the Company's Retirement Plan, as
amended or restated from time to time, or any successor plan.
"Supplemental Retirement Benefits" means monthly retirement
benefits payable to Retired Officers under the terms of the Plan
calculated as set forth in Section 5.
3. EFFECTIVE DATE
The Plan is effective January 1, 1987.
4. PARTICIPATION IN THE PLAN AND ELIGIBILITY FOR BENEFITS
Participation in the Plan shall be limited to Officers of
the Company and Participating Corporations. To become eligible
for Supplemental Retirement Benefits under the Plan, an Officer
must have a vested right to receive benefits under the Retirement
Plan. A Retired Officer cannot receive benefits under both the
Plan and the Company's Equalization Benefit Plan. A Retired
Officer cannot receive benefits under the Plan during any period
that his monthly benefits from the Retirement Plan are suspended.
5. SUPPLEMENTAL RETIREMENT BENEFITS
An Officer who satisfies the eligibility requirements
described above shall be eligible to receive Supplemental
Retirement Benefits under the Plan. The first payment of
Supplemental Retirement Benefits will be due on the first day of
the month following retirement, and payments will continue on the
first day of each month thereafter so long as the Retired Officer
is alive or so long as his surviving spouse is entitled to
receive monthly benefits under the Retirement Plan. (The Retired
Officer's surviving spouse must have been married to the Officer
at date of retirement.)
The monthly Supplemental Retirement Benefit shall equal the
monthly benefit that would have been payable to or on behalf of a
Retired Officer under the Retirement Plan if the limitation on
annual benefits imposed by Section 415 of the Code and if the
limitation on annual compensation as defined in Section
401(a)(17) of the Code were not applicable, and if the Retired
Officer had not voluntarily chosen to defer any compensation
under the terms of the Questar Corporation Deferred Share Plan or
the Questar Corporation Deferred Compensation Plan, less the
monthly benefits payable from the Retirement Plan and the EIRP.
The monthly Supplemental Retirement Benefit payable to or on
behalf of the Retired Officer as determined herein shall be paid
in the same form as such Retired Officer's benefits are payable
under the Retirement Plan. Any monthly Supplemental Retirement
Benefits payable to the Retired Officer's surviving spouse shall
be reduced by the monthly benefits payable to such surviving
spouse under the Retirement Plan and the EIRP.
An officer has a one-time election prior to the date of his
retirement to elect to receive the present value of his
Supplemental Retirement Benefit in a lump sum, which shall be
payable on the first day of the month following his retirement
date or as soon thereafter as is administratively practicable.
The Officer's spouse must consent to the Officer's election to
receive a lump sum payment of such Supplemental Retirement
Benefits. Such consent must be in writing, must acknowledge the
effect of such election, and must be witnessed by a notary
public. (The present value will be calculated using the same
rate assumed for making present value calculations under the
Retirement Plan and a standard mortality table.)
6. FUNDING
The Supplemental Retirement Benefits payable under the Plan
shall be paid by the Company and the Affiliated Corporations out
of general assets. In its discretion, the Board may establish a
trust fund or make other arrangements to assure payment of the
Supplemental Retirement Benefits.
7. ALLOCATION OF COSTS
The cost of Supplemental Retirement Benefits paid to or on
behalf of Retired Officers shall be allocated to and be the
responsibility of the Company and Affiliated Corporations.
8. ADMINISTRATION
The Committee shall administer the Plan and may appoint an
officer of the Company to assist the Committee with this
responsibility. The Committee shall have the sole responsibility
to interpret the Plan and to adopt such rules and regulations for
carrying out the Plan as it may deem necessary. Decisions of the
Committee shall be final and binding.
<PAGE>
9. AMENDMENT OR TERMINATION
The Board may at any time amend, modify, or terminate this
Plan; provided, however, that any Retired Officers or their
surviving spouses receiving Supplemental Retirement Benefits
under the Plan at the date of amendment or termination shall
continue receiving such benefits as if such amendment or
termination had not occurred.
10. SUCCESSOR TO THE COMPANY
The Company shall require any successor or assign, whether
direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all of the business and/or
assets of the Company, to assume and agree to pay any
Supplemental Retirement Benefits in the same manner and to the
same extent that the Company would be required to perform if no
such succession or assignment had taken place.
11. CHANGE IN CONTROL AND LEGAL FEES
The Company shall pay all legal fees and expenses that a
Retired Officer or an Officer may incur as a result of the
Company's contesting the validity or enforceability of such
person's right to receive benefits under the terms of this Plan
following a "Change in Control" of the Company. For purposes of
this Plan, a Change in Control of the Company shall be deemed to
have occurred if any "acquiring person" is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934), directly or indirectly, of 20 percent or
more of the Company's outstanding shares of common stock;
provided, however, that the term "acquiring person" shall not
include the Company, any subsidiary of the Company, any employee
benefit plan established by the Company, or trustee for such
plan. A "Change in Control" shall also include any act or event
that, with the passage of time, would result in a Distribution
Date, within the meaning of the Rights Agreement dated as of
March 14, 1986, and as amended on May 16, 1989, between the
Company and First Chicago Trust Company of New York.
EXHIBIT 10.9
QUESTAR CORPORATION
EQUALIZATION BENEFIT PLAN
(As amended and restated effective February 14, 1995)
1. PURPOSE
The Equalization Benefit Plan is intended to enable Questar
Corporation and its participating affiliates to attract and retain key
management personnel by providing them with monthly retirement benefits to
compensate them for the limitations imposed by federal tax laws on benefits
payable from the Questar Corporation Retirement Plan.
2. DEFINITIONS
The following terms, when used herein, shall have the meanings set
forth below, unless a different meaning is plainly required by the context:
"Affiliated Corporation" means any company that is affiliated with
Questar Corporation that has or may have a responsibility for a portion of the
compensation paid to employees that are eligible to receive benefits
hereunder.
"Board" means the Board of Directors of Questar Corporation or a
successor company.
"Code" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
"Committee" means Questar Corporation's Employee Benefits
Committee.
"Company" means Questar Corporation or any other organization
controlling Questar Corporation or any successor organization.
"Compensation" means an Employee's salary or wages, including
payments under incentive compensation plans paid by the Employer and
includable in taxable income during the applicable Plan Year, but exclusive of
any other forms of additional Compensation such as the Employer's cost for any
public or private employee benefit plan or any income recognized by the
Employee as a result of exercising stock options. An Employee's Compensation
for any Plan Year shall include any Elective Deferrals of the Employee under
the Employee Stock Purchase Plan or other tax-qualified plan, and any
Compensation deferred under the Questar Corporation Deferred Compensation Plan
and the Questar Corporation Deferred Share Plan. An Employee's Compensation
also shall include the amount of any reduction in Compensation for a Plan Year
agreed upon under one or more Compensation reduction agreements entered into
pursuant to the Questar Corporation Cafeteria Plan.
"Disability Leave" means the period of time during which a former
Employee is receiving payments for disability under the Company's Long-Term
Disability Plan.
"Employee" means any employee who is employed by the Company or a
Participating Corporation who has at least 1,000 hours of service per year and
who is not eligible to receive benefits under any other supplemental
retirement plan maintained by the Company. Hours of service shall be
determined in the same manner as hours of service are determined under the
Company's Retirement Plan.
"Equalization Retirement Benefits" means monthly retirement
benefits payable hereunder calculated as set forth in Section 5.
"Participating Corporation" means any company that is affiliated
with the Company whose employees are covered by the Company's Retirement Plan.
"Plan" means the plan set forth in and created by this document.
"Retired Employee" means an Employee who has satisfied the
eligibility requirements set forth in Section 4 of this Plan and who is
eligible to receive or who is receiving Equalization Retirement Benefits
pursuant to the terms of this Plan.
"Retirement Plan" means the Company's Retirement Plan, as amended
or restated from time to time, or any successor plan.
3. EFFECTIVE DATE
The Plan is effective January 1, 1987.
4. PARTICIPATION IN THE PLAN AND ELIGIBILITY FOR BENEFITS
To be eligible for Equalization Retirement Benefits under the
Plan, an Employee must have a vested right to receive benefits under the
Retirement Plan. A Retired Employee cannot receive benefits under the Plan
during any period that his monthly benefits from the Retirement Plan are
suspended.
5. EQUALIZATION RETIREMENT BENEFITS
An Employee who satisfies the eligibility requirements described
above shall be eligible to receive Equalization Retirement Benefits under the
Plan. The first payment of Equalization Retirement Benefits will be due on
the first day of the month following retirement, and payments will continue on
the first day of each month thereafter so long as the Retired Employee is
alive or so long as his surviving spouse is entitled to receive monthly
benefits under the Retirement Plan. (The Retired Employee's surviving spouse
must have been married to the Employee at the date of retirement.)
The monthly Equalization Retirement Benefit shall equal the
monthly benefit that would have been payable to or on behalf of a Retired
Employee under the Retirement Plan if the limitation on annual benefits
imposed by Section 415 of the Code, and if the limitation on annual
compensation as defined in Section 401(a)(17) of the Code were not applicable,
and/or if the Retired Employee had not voluntarily chosen to defer any
compensation under the terms of the Questar Corporation Deferred Share Plan or
the Questar Corporation Deferred Compensation Plan, less the monthly benefits
payable from the Retirement Plan.
The monthly Equalization Retirement Benefit payable to or on
behalf of the Retired Employee as determined herein shall be paid in the same
form as such Retired Employee's benefits are payable under the Retirement
Plan. Any monthly Equalization Retirement Benefits payable to the Retired
Employee's surviving spouse shall be reduced by the monthly benefits payable
under the Retirement Plan.
An employee has a one-time opportunity prior to the date of his
retirement to elect to receive the present value of his Equalization
Retirement Benefit in a lump-sum, which shall be payable on the first day of
the month following his retirement date or as soon thereafter as is
administratively practicable. The Employee's spouse must consent to the
Employee's election to receive a lump-sum payment of his Equalization
Retirement Benefit. Such consent must be in writing, must acknowledge the
effect of such election, and must be witnessed by a notary public. (The
present value will be calculated using the same rate assumed for making
present value calculations under the Retirement Plan and a standard mortality
table.)
6. FUNDING
The Equalization Retirement Benefits payable under the Plan shall
be paid by the Company and the Affiliated Corporations out of general assets.
In its discretion, the Board may establish a trust fund or make other
arrangements to assure payment of the Equalization Retirement Benefits.
7. ALLOCATION OF COSTS
The cost of Equalization Retirement Benefits paid to or on behalf
of Retired Employees shall be allocated to and be the responsibility of the
Company and the Affiliated Corporations
8. ADMINISTRATION
The Committee shall administer the Plan. The Committee shall have
the sole responsibility to interpret the Plan and to adopt such rules and
regulations for carrying out the Plan as it may deem necessary. Decisions of
the Committee shall be final and binding.
9. AMENDMENT OR TERMINATION
The Board may at any time amend, modify, or terminate this Plan;
provided, however, that any Retired Employees or their surviving spouses
receiving Equalization Retirement Benefits under the Plan at the date of
amendment or termination shall continue receiving such benefits as if such
amendment or termination had not occurred.
10. SUCCESSOR TO THE COMPANY
The Company shall require any successor or assign, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all of the business and/or assets of the Company, to assume and
agree to pay any Equalization Retirement Benefits in the same manner and to
the same extent that the Company would be required to perform if no such
succession or assignment had taken place.
11. CHANGE IN CONTROL AND LEGAL FEES
The Company shall pay all legal fees and expenses that a Retired
Employee or an Employee may incur as a result of the Company's contesting the
validity or enforceability of such person's right to receive benefits under
the terms of this Plan following a "Change in Control" of the Company. For
purposes of this Plan, a Change in Control of the Company shall be deemed to
have occurred if any "acquiring person" is or becomes the beneficial owner (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of 20 percent or more of the Company's outstanding shares of
common stock; provided, however, that the term "acquiring person" shall not
include the Company, any subsidiary of the Company, any employee benefit plan
established by the Company, or trustee for such plan. A "Change in Control"
shall also include any act or event that, with the passage of time, would
result in a Distribution Date, within the meaning of the Rights Agreement
dated as of March 14, 1986, and as amended on May 16, 1989, between the
Company and First Chicago Trust Company of New York.
EXHIBIT 11.
STATEMENT CONCERNING COMPUTATION OF EARNINGS PER SHARE
QUESTAR CORPORATION
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(In Thousands, Except Per Share
Amounts)
<S> <C> <C> <C>
Net Income Data
Income from continuing operations $49,417 $84,464 $73,771
Gain from sale of discontinued operations 38,126
Preferred stock dividends (591) (695) (800)
Income for common from continuing
operations 86,952 83,769 72,971
Loss from discontinued operations (2,772) (2,437)
Cumulative effect of change in accounting
for income taxes 9,303
Income available for common stock $86,952 $80,997 $79,837
Earnings Per Share on Income Statement - Note A
Average shares outstanding 40,292 39,995 39,492
Earnings per share from continuing
operations $1.21 $2.10 $1.85
Gain from sale of discontinued operations 0.95
Loss from discontinued operations (0.07) (0.06)
Cumulative effect 0.23
Net income per share $2.16 $2.03 $2.02
Primary Earnings Per Share
Average shares outstanding 40,292 39,995 39,492
Additional shares assuming exercise of
dilutive stock options -- based on treasury
stock method using average market price 225 300 206
Shares used in primary earnings per
share 40,517 40,295 39,698
Earnings per share from continuing
operations $1.21 $2.08 $1.84
Gain from sale of discontinued operations 0.94
Loss from discontinued operations (0.07) (0.06)
Cumulative effect 0.23
Net income per share $2.15 $2.01 $2.01
Fully Diluted Earnings Per Share
Average shares outstanding 40,292 39,995 39,492
Additional shares assuming exercise of
dilutive stock options -- based on treasury
stock method using year-end market price
if higher than average market price 225 300 294
Shares used in fully diluted earnings per
share 40,517 40,295 39,786
Earnings per share from continuing
operations $1.21 $2.08 $1.83
Gain from sale of discontinued operations 0.94
Loss from discontinued operations (0.07) (0.06)
Cumulative effect 0.23
Net income per share $2.15 $2.01 $2.00
</TABLE>
Note A - The earnings per share reported on the income
statement do not reflect the dilutive effect of the stock
options because the dilution is less than 3%.
EXHIBIT 22
SUBSIDIARY INFORMATION
Registrant Questar Corporation has the following subsidiaries: Mountain
Fuel Supply Company, a Utah corporation; Entrada Industries, Inc., a Utah
corporation; Questar Pipeline Company, a Utah corporation; Questar InfoComm,
Inc. (formerly Questar Service Corporation), a Utah corporation; Universal
Resources Corporation, a Texas corporation; and Questar Development
Corporation, a Utah corporation.
Entrada Industries, Inc., has the following subsidiaries: Wexpro
Company, a Utah corporation, and Celsius Energy Company, a Nevada corporation.
Universal Resources Corporation has one active subsidiary: URC Canyon
Creek Compression Company, a Utah corporation. Universal Resources also does
business under the names Questar Energy Company and URC Corporation.
Questar Pipeline has two subsidiaries: Questar TransColorado, Inc. and
Questar Gas Management Company, both of which are Utah corporations.
Questar Pipeline Company and Universal Resources Corporation each have a
50 percent interest in Questar WMC Corporation, a Utah corporation. The
parties, however, plan to transfer Questar Pipeline's interest in Questar WMC
to Universal Resources.
Questar Development Corporation has one active subsidiary: Interstate
Land Corporation, a Utah corporation.
EXHIBIT 24
Consent of Independent Auditors
We consent to the incorporation by reference in the
Registration Statements (Form S-8, No. 33- 15148, No.
33-15149, Post-effective Amendment No. 3 to No. 33-4436, No.
33-40800, No. 33- 40801 and No. 33-48169) and the Registration
Statement (Form S-3, No. 33-48168) of Questar Corporation and
in the related Prospectus of our report dated February 10,
1995, except for Note I as to which the date is March 5, 1995,
with respect to the consolidated financial statements and
schedules of Questar Corporation included in this Annual
Report (Form 10-K) for the year ended December 31, 1994.
ERNST & YOUNG LLP
Salt Lake City, Utah
March 24, 1995
EXHIBIT 25
POWER OF ATTORNEY
We, the undersigned directors of Questar Corporation, hereby severally
constitute R. D. Cash and W. F. Edwards, and each of them acting alone, our
true and lawful attorneys, with full power to them and each of them to sign
for us, and in our names in the capacities indicated below, the Annual Report
on Form 10-K for 1994 and any and all amendments to be filed with the
Securities and Exchange Commission by Questar Corporation, hereby ratifying
and confirming our signatures as they may be signed by the attorneys appointed
herein to the Annual Report on Form 10-K for 1994 and any and all amendments
to such Report.
Witness our hands on the respective dates set forth below.
Signature Title Date
/s/ R. D. Cash Chairman of the Board, 2-14-95
R. D. Cash President & Chief
Executive Officer
/s/ U. Edwin Garrison Director 2-14-95
U. Edwin Garrison
/s/ J. A. Harmon Director 2-14-95
J. A. Harmon
/s/ W. Whitley Hawkins Director 2-14-95
W. Whitley Hawkins
/s/ William N. Jones Director 2-14-95
William N. Jones
/s/ R. E. Kadlec Director 2-14-95
R. E. Kadlec
/s/ Dixie L. Leavitt Director 2-14-95
Dixie L. Leavitt
/s/ Neal A. Maxwell Director 2-14-95
Neal A. Maxwell
/s/ Mary Mead Director 2-14-95
Mary Mead
/s/ Gary G. Michael Director 2-14-95
Gary G. Michael
/s/ D. N. Rose Director 2-14-95
D. N. Rose
/s/ Harris H. Simmons Director 2-14-95
Harris H. Simmons
EXHIBITY 99.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____.
Commission File No. 1-8796
QUESTAR CORPORATION
EMPLOYEE INVESTMENT PLAN
Questar Corporation
180 East First South
P.O. Box 45433
Salt Lake City, Utah 84145-0433
<PAGE>
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994.
Commission File Number 1-8796.
A. The full title of the plan is the Questar Corporation Employee
Investment Plan. The address of the plan is the same as that of the issuer
named below.
B. The name of the issuer of the securities held pursuant to the plan
and the address of its principal executive office are: Questar Corporation,
180 East First South, Salt Lake City, Utah 84111.
C. Financial Statements and schedules prepared in accordance with the
Employee Retirement Income Security Act of 1974 for the fiscal year ended
December 31, 1994, are
attached as an exhibit to this Form 11-K.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
members of the Questar Corporation Employee Benefits Committee have duly
caused this annual report to be signed by its duly authorized chairman.
QUESTAR CORPORATION
EMPLOYEE INVESTMENT PLAN
Date: March 24, 1995 By:
R. D. Cash
Chairman, Employee
Benefits Committee
<PAGE>
Financial Statements
and Schedules
Questar Corporation
Employee Investment Plan
Years ended December 31, 1994 and 1993
with Report of Independent Auditors
Contents
Report of Independent Auditors
Audited Financial Statements
Statements of Net Assets Available for Plan Benefits
Statements of Changes in Net Assets Available for Plan Benefits
Notes to Financial Statements
Schedules
Assets Held for Investment
Transactions or Series of Transactions in Excess of 5% of the
Current Value of Plan Assets
<PAGE>
Report of Independent Auditors
Participants in Questar Corporation
Employee Investment Plan
We have audited the accompanying statements of net assets
available for plan benefits of Questar Employee Investment
Plan as of December 31, 1994 and 1993, and the related
statements of changes in net assets available for plan
benefits for the years then ended. These financial statements
are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the net assets
available for plan benefits of the Plan at December 31, 1994
and 1993, and the changes in its net assets available for
plan benefits for the years then ended, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on
the financial statements taken as a whole. The accompanying
supplemental schedules are presented for the purposes of
complying with the Department of Labor's Rules and Regulations
for Reporting and Disclosure under the Employee retirement
Income Security Act of 1974, and are not a required part of
the financial statements. The supplemental schedules have
been subjected to the auditing procedures applied in our audit
of the 1994 financial statements and, in our opinion, are
fairly stated in all material respects in relation to the 1994
financial statements taken as a whole.
ERNST & YOUNG LLP
Salt Lake City, Utah
March 16, 1995
<PAGE>
Questar Corporation
Employee Investment Plan
Statements of Net Assets Available for Plan Benefits
<TABLE>
<CAPTION>
December 31
1994 1993
<S> <C> <C>
Assets
Investments (Notes 3 and 4) :
Questar Corporation common stock
at market
Allocated $84,142,679 $92,874,697
Unallocated 29,621,492 41,404,982
Mutual funds 7,452,693
Money market fund 2,382,430
Guaranteed investment contracts 1,428,692
125,027,986 134,279,679
Cash and short-term investments 21,107 22,283
Contribution receivable from Questar Corporation 1,534,239 889,874
Interest receivable 51,670
126,635,002 135,191,836
Liabilities
Unallocated contributions and dividends 17,121 18,285
Interest payable 1,020,021 868,220
Security acquisition loans (Note 3) 24,543,190 26,802,023
25,580,332 27,688,528
Net assets available for plan benefits $101,054,670 $107,503,308
</TABLE>
See accompanying notes.
<PAGE>
Questar Corporation
Employee Investment Plan
Statements of Changes in Net Assets Available for Plan Benefits
<TABLE>
<CAPTION>
Year ended December 31
1994 1993
<S> <C> <C>
Additions
Dividend income $4,575,529 $4,359,506
Interest income 601,430 17,082
Contributions:
Employees 7,077,643 4,650,379
Employer 3,169,768 2,290,461
10,247,411 6,940,840
15,424,370 11,317,428
Deductions
Withdrawals-at market 5,584,458 8,246,376
Distribution of dividends to participants 271,953 269,672
Trustee fees and commissions 25,423 25,257
Interest expense 2,147,415 2,336,708
8,029,249 10,878,013
Transfer of assets from the Questar Corporation
Employee Savings Plan 9,045,523
Net realized and unrealized appreciation
(depreciation) in the fair value of investments (22,889,282) 26,884,839
Net additions (deductions) (6,448,638) 27,324,254
Net assets available for plan benefits at
beginning of year 107,503,308 80,179,054
Net assets available for plan
benefits at end of year $101,054,670 $107,503,308
</TABLE>
See accompanying notes.
<PAGE>
Questar Corporation
Employee Investment Plan
Notes To Financial Statements
December 31, 1994
1. Description of the Plan
The Questar Corporation Employee Investment Plan (Plan) is an
employee benefit plan for employees of Questar Corporation
(Questar) and its subsidiaries. Effective January 1, 1994, the
Questar Corporation Employee Savings Plan was merged into the
Questar Corporation Employee Stock Purchase Plan, which was then
redesignated as the Questar Corporation Employee Investment Plan.
The Plan continues to be an employee stock ownership plan (ESOP)
as defined in Code Section 4975(e)(7).
In addition to Questar common stock, employees are able to direct
the investment of their contributions into the following funds: 1)
Fixed Income, which invests in guaranteed investment contracts and
money market funds; 2) Fidelity Magellan, which invests primarily
in common stocks; and 3) Fidelity Puritan, which invests primarily
in both common stocks and bonds. The Plan allows participants to
change their contribution elections 15 days before the first day
of the calendar month in which the change is to become effective.
Subject to a restriction on transfers out of the fixed income fund
and excluding the Questar stock fund, participants also can
transfer amounts invested between the various investment funds on
a monthly basis. Employees who contribute to the stock fund or
any of the other investment funds will receive employer matching
contributions in the form of leveraged Questar shares released
from the suspense account (see note 3) on the first 6% of
contributions, at the following percentages: 100% of the first 2%
of employee contributions, 75% of the next 2% and 50% of the next
2% contributed by the employee.
In addition to the funds described above, the Plan currently
includes investments in the Fidelity Intermediate Bond Fund. Even
though the Plan no longer allows employees to contribute to this
fund, the existing investments in the fund will remain in the Plan
until they are withdrawn by employees under the terms of the Plan.
Employees are eligible to participate in the Plan after completing
one year of service. An employee is credited with one year of
service for each year in which at least 1,000 hours are worked or
paid for by Questar or an affiliate. Subject to certain
restrictions in the Internal Revenue Code (Code), non-highly
compensated employees can elect to contribute from 1% to 16% of
annual compensation to the Plan on either a pre-tax basis pursuant
to salary reduction arrangements which will qualify the
contributions under section 401(k) of the Code, on an
after-tax basis, or a combination of the two. "Highly compensated
employees" are limited to contributing from 1% to 6% of annual
compensation to the Plan on a pre-tax basis, after-tax basis, or a
combination of the two.
The Plan also provides an additional $200 annual employer
contribution at the end of the Plan year in the form of shares of
Questar stock to each employee eligible to participate in the Plan
at the beginning of the Plan year and employed on both the first
and last day of the Plan year. This contribution is made
irrespective of whether the eligible employee actually
participates in the Plan.
The Plan provides for the direct rollover of taxable amounts
withdrawn from the Plan to the Trustee of the participant's
Individual Retirement Account or other qualified plan, if the
participant so elects. Eligible distributions made in cash that
are not directly rolled over are subject to a mandatory 20%
withholding for taxes. However, if a distribution is made all in
stock, or in stock with cash for fractional shares only, the 20%
withholding does not apply.
The rules for in-service withdrawals of Questar shares and
Investment Fund units (units) allocated to participants' accounts
and for distributions of such amounts upon termination of
employment, disability or death are set forth in the Summary Plan
Description of the Plan.
The Plan is subject to the diversification requirements imposed on
ESOP's by the Tax Reform Act of 1986 and meets these requirements
by allowing qualified participants to receive distributions of
shares of Questar stock.
Employees are always fully vested in all shares and units
allocated to their individual accounts. Should the Plan terminate
at some future time, all amounts allocated to the employees'
accounts would be distributed to them.
2. Accounting Policies
Investments
Investment in Questar common stock is recorded at market value
based on the closing market price on the last business day of the
year on the New York Stock Exchange. The mutual funds are
valued at market. The money market fund and the guaranteed
investment contracts are valued at cost plus interest earned,
which approximates market. Short-term investments consist
primarily of investments in a separate money market portfolio fund
and are valued at market.
Dividends
Questar has a Dividend Reinvestment and Stock Purchase Plan
whereby participants may reinvest dividends to purchase additional
shares of Questar common stock at market value. Beginning January
1, 1989, dividends payable with respect to Questar stock purchased
with employee after-tax and 401(k) contributions are distributed
directly to participants unless they elect to have such dividends
retained in the Plan. Dividends on shares purchased with employer
contributions must be reinvested. Dividends paid on leveraged
shares are applied to the principal and interest payments on the
two notes issued by Questar.
Withdrawals
Withdrawals are recorded based on market prices at the date
withdrawn. The differences between cost and market at the time of
withdrawal are included in the financial statements as realized
gains or losses.
Administrative Expenses
All legal, accounting, fixed income management and other
administrative expenses except commissions and a portion of the
trustee fees have been paid by Questar.
Income Taxes
The Plan is a qualified employee benefit plan under the Internal Revenue
Code and is exempt from federal income tax. Participants are not subject to
income tax on employer contributions (including 401(k) salary reductions) or
income credited to individual accounts until such time as these amounts are
distributed. A complete description of the income tax consequences to
employees is included in the Summary Plan Description of the Plan, which
has been provided to all participants.
3. Security Acquisition Loans
In 1989 the Plan issued two notes to Questar totaling $35,000,000
and used the proceeds to purchase 1,992,884 shares (leveraged
shares) of Questar Common Stock at $17.5625 per share, the market
price at that date. These shares are held in a separate suspense
account established under the Trust and will be allocated to
eligible participants as the notes are repaid over a ten year
period. Payments on the notes are made with contributions from
Questar and its participating subsidiaries and dividends and
earnings received on the remaining allocated and unallocated
leveraged shares. These contributions, when combined with
dividends and earnings received on such shares, will be sufficient
to meet the semi- annual principal and interest payments on the
notes. The notes are collateralized by the unallocated leveraged
shares. During 1994 the rates on the notes changed from 8.32% and
8.36% to 8.25% and 8.28%, respectively, due to the 1993 federal
income tax increase.
The detail of these notes payable is as follows:
<TABLE>
<CAPTION>
December 31
1994 1993
<S> <C> <C>
8.25% Senior ESOP Notes-Series A,
due July 1, 1996 $8,543,190 $10,802,023
8.28% Senior ESOP Notes-Series B,
due July 1, 1999 16,000,000 16,000,000
$24,543,190 $26,802,023
</TABLE>
Under the terms of the notes, the Plan is obligated to make
principal payments semi- annually, which, in aggregate, must meet
or exceed cumulative minimum principal payments as of each payment
date. Cumulative actual payments may exceed the cumulative
minimum payments as a result of the number of shares which are
required to be allocated to participants for the period.
Leveraged shares in excess of those needed to make matching
allocations may also be released from the suspense account in
certain years in order to meet required cumulative minimum
payments. These excess shares will be allocated to: (i)
participants who are employed on the last day of the year, (ii)
participants who are on leave under the federal Family and Medical
Leave Act of 1993 on the last day of such Plan year, and (iii) to
former participants (or their beneficiaries) who become disabled,
retire, or die during the year in which the excess leveraged
shares are released from the suspense account. At year-end 1994, a
special distribution of excess shares was allocated to the
accounts of the eligible participants who contributed to the Plan
during the year. Depending on the market price of Questar stock,
there could be further special distributions of shares in order to
meet cumulative minimum payment requirements.
The minimum principal payment requirements for the five years
following December 31, 1994, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1995 $2,193,000
1996 6,350,000
1997 4,700,000
1998 5,300,000
1999 6,000,000
</TABLE>
4. Investments - Questar Common Stock
First Security Bank of Utah, N.A., is the Plan Trustee.
Investments in Common Stock of Questar at cost for the two years
ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Allocated Unallocated
Shares Cost Shares Cost
<S> <C> <C> <C> <C>
Balances at January 1, 1993 2,739,060 $47,669,559 1,396,712 $24,529,762
Purchases 215,174 7,077,186
Allocation of shares 142,016 4,692,575 (142,016) (2,494,155)
Withdrawals (281,865) (4,761,567)
Balances at December 31, 1993 2,814,385 54,677,753 1,254,696 22,035,607
Purchases 238,381 7,307,467
Allocation of shares 177,551 5,407,992 (177,551) (3,118,244)
Withdrawals (170,583) (3,679,772)
Balances at December 31, 1994 3,059,734 $63,713,440 1,077,145 $18,917,363
</TABLE>
Average cost per share of allocated stock at December 31 was
$20.82 and $19.43 for 1994 and 1993, respectively.
Market value per share of stock, allocated and unallocated, at
December 31 was $27.50 and $33.00 for 1994 and 1993, respectively.
The cost of allocated shares is based on the average market
purchase price for shares for each quarter, whereas the cost of
unallocated shares is shown as the original purchase price of the
shares on June 12, 1989, which was $17.5625 per share.
Net realized and unrealized depreciation on allocated and
unallocated shares was $13.8 million and $8.7 million,
respectively, for 1994 and appreciation of $19.6 million and $7.2
million, respectively, for 1993. Security acquisition loans
attributable to allocated and unallocated shares was $493,000 and
$24 million, respectively, for 1994. Security aquisition loans
were entirely attributable to unallocated shares in 1993.
Dividends related to allocated and unallocated shares was $3.2
million and $1.3 million, respectively, during 1994 and $2.9
million and $1.5 million, respectively, during 1993. Interest
expense was entirely attributable to shares that were unallocated
during 1994 and 1993. Employer contributions receivable,
employer contributions, and distributions were entirely
attributable to allocated shares.
The net asset value per unit and the total number of units for the
Investment Funds at the end of each quarter for the years
indicated are as follows:
<TABLE>
<CAPTION>
1994
Net Asset Total
Value per Un Units
<S> <C> <C>
Fidelity Magellan Fund
March 31 $69.72 60,451
June 30 63.94 66,749
September 30 67.41 71,891
December 31 66.80 76,081
Fidelity Puritan Fund
March 31 15.52 114,269
June 30 15.54 124,762
September 30 15.35 138,639
December 31 14.81 157,842
Fidelity Intermediate Bond Fund
March 31 10.33 3,154
June 30 10.03 3,234
September 30 9.94 3,286
December 31 9.83 3,341
Fixed Income Fund
March 31 1.00 3,569,122
June 30 1.00 3,634,405
September 30 1.00 3,711,332
December 31 1.00 3,811,122
</TABLE>
4. Investments continued - Investment Funds
<TABLE>
<CAPTION>
December 31, 1994
Fixed Magellan Puritan Intermediate
Income Fund Fund Fund Bond Fund Total
<S> <C> <C> <C> <C> <C>
Assets
Investments:
Mutual funds $5,082,220 $2,337,635 $32,838 $7,452,693
Money market fund $2,382,430 2,382,430
Guaranteed investment
contracts $1,428,692 1,428,692
$3,811,122 $5,082,220 $2,337,635 $32,838 $11,263,815
</TABLE>
4. Investments continued - Investment Funds
<TABLE>
<CAPTION>
December 31, 1994
Fixed Magellan Puritan Intermediate
Income Fund Fund Fund Bond Fund Total
<S> <C> <C> <C> <C> <C>
Additions:
Employee contributions $278,725 $1,277,751 $789,129 $2,345,605
Interest income 223,822 173,909 128,612 $2,404 528,747
502,547 1,451,660 917,741 2,404 2,874,352
Withdrawals (55,656) (128,719) (50,436) (234,811)
Net transfers in (out) (574,876) 204,951 370,906 (981)
Net realized and unrealized
depreciation of
investments (258,469) (154,449) (3,036) (415,954)
Net additions (deductions) (127,985) 1,269,423 1,083,762 (1,613) 2,223,587
Net assets held by trustee at
beginning of year 3,939,107 3,812,797 1,253,873 34,451 9,040,228
Net assets held by trustee at
end of year $3,811,122 $5,082,220 $2,337,635 $32,838 $11,263,815
</TABLE>
Assets Held for Investment
December 31, 1994
Assets Held in Trust by First Security Bank of Utah, N.A.
<TABLE>
<CAPTION>
Cost Fair Value
<S> <C> <C>
Description of Investments
Questar Corporation Common Stock
Allocated (3,059,734 shares) $63,713,440 $84,142,679
Unallocated Stock (1,077,145 shares) 18,917,363 29,621,492
Fidelity Magellan Fund, Inc. (76,081 units) 4,960,784 5,082,220
Fidelity Puritan Fund, Inc. (157,842 units) 2,441,658 2,337,635
Fidelity Intermediate Bond Fund (3,341 units) 38,699 32,838
Fidelity Institutional Cash Portfolio -
Money Market Fund (2,382,430 units) 2,382,430 2,382,430
The Equitable Life Assurance Society of
the United States
Fixed Income Fund - Guaranteed Investment
Contracts (1,428,692 units) 1,428,692 1,428,692
Cash and Short-Term Investments 21,107 21,107
$93,904,173 $125,049,093
</TABLE>
Transactions or Series of Transactions in Excess of 5% of
the Current Value of Plan Assets
Year Ended December 31, 1994
<TABLE>
<CAPTION>
Description Purchase Selling Net Gain
of Assets Price Price or Loss
<S> <C> <C> <C> <C>
Identity of Issuer
Category (i) - Single Transaction in
Excess of 5% of Plan Assets 0 0 0 0
Category (ii) - Series of Transactions
(Other than Securities Transactions)
with the Same Person Aggregating 5% of
Plan Assets 0 0 0 0
Category (iii) - A Series of
Transactions in a Security Issue
Aggregating 5% of Plan Assets
Questar Corporation Common Stock $7,307,545 0 0
457
Purchases
Category (iv) - Transactions in
Securities with a Person if Any Single
Transaction with that Person was in
Excess of 5% of Plan Assets 0 0 0 0
</TABLE>
<PAGE>
Consent of Independent Auditors
We consent to the incorporation by reference in the
Registration Statements (Forms S-8 Nos. 33-4436 and 33-48169)
pertaining to the Questar Corporation Employee Investment Plan
(formerly the Questar Corporation Employee Stock Purchase
Plan) of our report dated March 16, 1995, with respect to the
financial statements and schedules of the Questar Corporation
Employee Investment Plan included in this Annual Report (Form
11-K) for the year ended December 31, 1994.
ERNST & YOUNG LLP
Salt Lake City, Utah
March 24, 1995
EXHIBIT 99.2
TO BE INCORPORATED BY REFERENCE INTO REGISTRATION
STATEMENTS ON FORM S-3 (NO. 33-48168) AND ON FORM S-8
(NOS. 33-4436, 33-15148, 33-15149, 33-40800, 33-40801, and 33-48169)
UNDERTAKINGS
(a) Rule 415 Offering.
The undersigned registrant hereby undertakes:
(l) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) that,
individually or in the aggregate, represents a fundamental change
in the information set forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Form S-3 or Form S-8 and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain unsold at
the termination of the offering.
(b) Incorporation of Documents by Reference.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(h) Registration Statements on Form S-8.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summarized financial information extracted from the
Questar Corporation Statements of Income and Balance Sheets for the period
ended December 31, 1994, and is qualified in its entirety by reference to
such audited financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 7,549
<SECURITIES> 0
<RECEIVABLES> 143,081
<ALLOWANCES> 0
<INVENTORY> 30,098
<CURRENT-ASSETS> 193,125
<PP&E> 2,263,170
<DEPRECIATION> 955,536
<TOTAL-ASSETS> 1,585,575
<CURRENT-LIABILITIES> 220,214
<BONDS> 494,684
<COMMON> 310,402
6,324
0
<OTHER-SE> 343,187
<TOTAL-LIABILITY-AND-EQUITY> 1,585,575
<SALES> 0
<TOTAL-REVENUES> 670,318
<CGS> 0
<TOTAL-COSTS> 386,608
<OTHER-EXPENSES> 129,052
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,811
<INCOME-PRETAX> 58,061
<INCOME-TAX> 8,644
<INCOME-CONTINUING> 49,417
<DISCONTINUED> 38,126
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87,543
<EPS-PRIMARY> 2.16
<EPS-DILUTED> 2.16
</TABLE>
