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, 1995
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 New York Stock Exchange
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 February 29, 1996, was
$1,266,176,772 (based on the closing price of such stock).
On February 29, 1996, 40,728,973 shares of the registrant's Common
Stock, without par value, were outstanding.
Documents Incorporated by Reference. Portions of the definitive Proxy
Statement for the 1996 Annual Meeting of Stockholders, to be dated April
8, 1996, 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....................................
General.................................................
Exploration and Production Operations...................
Natural Gas Transmission Operations.....................
Natural Gas Distribution Operations.....................
Other Operations........................................
Employees...............................................
Environmental Matters...................................
Research and Development................................
Oil and Gas Operations ..................................
Item 3. LEGAL PROCEEDINGS..........................................
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS...........................................
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS............................
Item 6. SELECTED FINANCIAL DATA....................................
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATION..................................................
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.........................................
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.......................................
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT..........................................
Item 11. EXECUTIVE COMPENSATION.....................................
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT......................................
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS...............................................
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K....................................
SIGNATURES.............................................................
<PAGE>
FORM 10-K
ANNUAL REPORT, 1995
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 and
storage 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 traditional regulated activities become
deregulated and as packaged services become unbundled. Questar's
integrated status also 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
convinced that the long-term outlook for natural gas, as an
environmentally preferred and abundant domestic energy source, remains
promising. The Company's management recently emphasized its commitment
to provide a wide variety of energy services. Consequently, Questar
intends to retain and expand the scope of its three lines of business
and to enhance its reputation for customer service.
In early 1996, Questar announced a basic division into two
components, regulated and nonregulated activities. The regulated area,
which includes Mountain Fuel and the transmission and storage activities
of Questar Pipeline, will focus on remaining the low-cost provider of
basic distribution and transportation services. The nonregulated area
will be focused on energy asset management, marketing, and services.
Questar concurrently announced the organization of new
companies, Questar Energy Trading Company (Questar Trading) and Questar
Energy Services, Inc. (Questar Energy Services), that will pursue
additional activities such as electricity marketing. Questar Pipeline's
gathering activities were transferred to Questar Gas Management Company
(Questar Gas Management), a nonregulated entity that is also engaged in
field processing activities, effective March 1, 1996.
Questar conducts other business activities: commercial real
estate (Questar Development Corporation); and data processing and
microwave communications (Questar InfoComm, Inc.).
The following diagram shows the current corporate structure of the
Company and its primary affiliates:
Questar Corporation
Questar InfoComm, Inc.
Questar Development Corporation
Questar Energy Services
Entrada Industries, Inc.
Wexpro Company
Celsius Energy Company
Universal Resources
Questar Energy Trading Company
Questar Pipeline Company
Questar Gas Management Company
Mountain Fuel Supply
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 1995, however, was a frustrating year for Questar's
E&P operations. Average wellhead natural gas prices were 25 percent
lower in 1995 than they were in 1994. The basis differentials between
Rocky Mountain gas and Henry Hub gas widened significantly due to a
combination of warmer than normal weather, lack of pipeline capacity to
move gas volumes east, and cheaper hydroelectric power costs. Much of
the E&P group's Rocky Mountain wells were shut-in, and Rocky Mountain
drilling activity slowed down. The E&P group did not make any
significant reserve acquisitions even though it increased the number of
properties that it reviewed and offered to purchase.
During 1995, the E&P group, nevertheless, did achieve some
successes with its strategy to find and exploit hidden values. The unit
used its marketing group to fill contract obligations with spot
purchases of natural gas, preserving its own reserves for a better price
environment. It announced a significant and potentially long-term
agreement with Marathon Oil Company that obligates Marathon to perform
seismic activities in order to obtain an interest in some acreage. The
group also obtained regulatory authorization to become a wholesale
distributor of electrical power and negotiated several alliances with
electric utilities. Universal Resources is a partner in the group
organized to develop the Western Market Center, a new full-service hub
that began limited operations in 1995.
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. A division of
Universal Resources, known as Questar Energy Company (Questar Energy),
operates properties located in the Southwest, e.g., the San Juan and
Paradox Basins.
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 1995, the Company had proved reserves (excluding Mountain
Fuel's cost-of-service reserves) of 258,687 million cubic feet (MMcf) of
gas and 12,444 thousand barrels of oil (Mbbls), compared to 267,828 MMcf
of gas and 13,534 Mbbls of oil as of the same date in 1994. (Any
references to oil in this report include natural gas liquids.) Natural
gas reserves, after production, decreased by 3.4 percent as drilling
activities were partially suspended and as reserve acquisition
activities were unsuccessful.
The E&P group had capital expenditures of $26.7 million during
1995, compared to $151.8 million during 1994. Less than three percent
of this capital budget was spent on reserve acquisitions. The unit
scaled back its Rocky Mountain drilling program while developing some
properties in the Midcontinent and Southwest. It continued to
deemphasize higher-risk exploration activities and to place greater
emphasis on development drilling and drilling alliances.
The E&P companies participated in 105 wells in 1995, compared to
149 wells in 1994. The 1995 wells included 53 gas wells, 20 oil wells,
12 dry holes and 20 wells in progress at year-end. The wells were
concentrated in the Anadarko Basin in Oklahoma and Texas where gas
prices were higher than in the Rocky Mountain area. The overall
drilling success in 1995 was 86 percent.
During 1995, 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 succeed with 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 continues
to concentrate its efforts in premier markets in order to earn higher
margins. It marketed a total of 109,374 thousand decatherms (Mdth) of
gas in 1995, compared to 88,941 Mdth in 1994 and earned a total margin
of $7,583,000, compared to $6,181,000 in 1994. (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
1995. (Wells producing tax-credit volumes were not shut-in.) 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 1995, Celsius and
Universal Resources recorded $4.0 million in tax credits. Approximately
22.5 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 or operated by the E&P
group 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 group's flexibility to adapt
quickly to circumstances.
The following description of Questar's E&P group is bifurcated
between Wexpro and 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 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 22.03 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
1995, Wexpro's net investment in cost-of-service operations was $89.4
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 satisfied 64 percent of Mountain Fuel's requirements
during 1995. 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 1995, the average wellhead cost
of Mountain Fuel's cost-of-service gas was $1.25 per Dth. In order to
avoid regulatory questioning and to fulfill its obligations 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 1995, Wexpro's drilling
activities declined with the price of natural gas. Wexpro, in 1995,
produced 36,632 MMcf of natural gas from Mountain Fuel's cost-of-service
properties, and only added reserves of 9,760 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 1995. It
produced 806 Mbbls in 1995 compared to 824 Mbbls in 1994, reflecting a
normal decline in field production. Wexpro received an average price of
$16.91 per barrel during 1995 compared to $15.59 per barrel during 1994.
It has been able to sell its oil to customers for resale or refining and
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 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. Reserve acquisitions
made in 1994 are managed by Questar Energy, a division of Universal
Resources, that also has an office in Denver. Celsius and Universal
Resources, for the second consecutive year in 1995, produced more gas in
the Midcontinent than in the Rocky Mountains. They also spent more
drilling dollars, during 1995, 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
used to provide price protection.
Gas production for the two entities decreased from 37,659 MMcf in
1994 to 32,663 MMcf in 1995. The decrease in production was generally
attributable to shutting-in Rocky Mountain production. Celsius and
Universal Resources received an average selling price of $1.33 per Mcf
in 1995, compared to $1.78 in 1994. Gas production belonging to the two
entities is produced from three separate gas producing regions, the
Midcontinent area, the San Juan Basin area, and the Rocky Mountain area.
Production from each of these three areas is generally priced below the
Henry Hub pricing center in Louisiana. Basis differentials between
Rocky Mountain area gas and Henry Hub prices were as high as $2.00
during the 1995-96 winter heating season. San Juan production, because
it has more opportunities to move east, is generally priced higher than
Rocky Mountain gas volumes, but San Juan prices still generally lag
behind Midcontinent prices.
During 1995, Celsius and Universal Resources, again on a combined
basis, had a slight increase in oil production. The two companies
produced 1,630 MMbls in 1995 compared to 1,618 MMbls in 1994. The oil
volumes were sold at an average price of $15.50 in 1995 compared to
$14.34 in 1994. The combined full-cost amortization rate for the two
entities was $.80 per Mcf equivalent (Mcfe), compared to $.78 per Mcfe
in 1994.
Universal Resources is also involved in a group organized to
develop, own, and operate the Western Market Center near Muddy Creek,
Wyoming. Other partners include affiliates of Tenneco Inc., Entech,
Inc. (a subsidiary of Montana Power Company) and Union Pacific Resources
Company. The market center offers 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 includes a header facility that allows
pipelines to flow gas in different directions and a sophisticated
electronic bulletin board. The new center began operating on a limited
basis in 1995 and expects to be fully operational in 1996.
The E&P group's activities are expanding in scope to take
advantage of new opportunities, some of which are created by the
restructuring and unbundling of the interstate transmission and retail
distribution businesses. The E&P group, in conjunction with its
marketing activities, has formed several alliances with electric
utilities and has recently received regulatory approval to engage in
wholesale electric marketing. During 1995, the E&P group saw some of
its marketing customers take advantage of low electric prices to
purchase electricity rather than purchase natural gas with which to
generate electricity. Increasingly, the E&P group defines the available
market in terms of energy services, rather than natural gas services.
Questar Energy Services, the newest member of the Questar group,
has been organized under the leadership of the E&P group to offer a
variety of nonregulated energy services to customers in traditional and
new geographical areas.
Natural Gas Transmission Operations
Questar Pipeline is an interstate pipeline company that, during
1995, engaged in the gathering, processing, transportation, and storage
of natural gas in the Rocky Mountain states of Utah, Wyoming and
Colorado. In 1995, Questar Pipeline completed the expansion of its
base-load storage project at Clay Basin, sought regulatory approval to
spin down its gathering assets and activities to a subsidiary, filed a
general rate case, completed the construction of the Blacks Fork
processing plant through a joint venture, and pursued a salt cavern
storage project. It was also forced to withdraw from the proposed
acquisition of a one-half interest in the Kern River pipeline when the
Federal Trade Commission determined to oppose the transaction on
anticompetitive grounds.
As an open-access pipeline, Questar Pipeline transports gas for
affiliated and unaffiliated customers and also gathered gas volumes for
such customers. (Gathering activities were transferred to Questar Gas
Management as of March 1, 1996.) Questar Pipeline operates the Clay
Basin storage facility, which is a large underground storage project in
northeastern Utah, and other underground storage operations in Utah and
Wyoming. It 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 Federal Energy Regulatory Commission (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 of its physical configuration, multiple connections to
other major pipeline systems and 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 1,754 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. (The transmission mileage figure includes lines at
storage fields and tap lines used to serve Mountain Fuel.) 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.
Questar Pipeline's largest transportation customer is Mountain
Fuel. During 1995, Questar Pipeline transported 79,872 Mdth for
Mountain Fuel, compared to 75,941 Mdth in 1994. 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.
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 about 800,000 Dth per day, or
approximately 79 percent of Questar Pipeline's reserved capacity.
Mountain Fuel paid demand charges of $49.4 million to Questar Pipeline
in 1995, which include demand charges attributable to firm
transportation and "no-notice" transportation. Mountain Fuel only needs
its total reserved capacity during peak-demand situations. When it is
not fully utilizing such capacity, Mountain Fuel releases it to others,
primarily industrial transportation customers and marketing entities,
and receives revenue credits from Questar Pipeline. These credits
amounted to $13.0 million during the 12-month period ending August 31,
1995 (the second anniversary of Questar Pipeline's restructuring).
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 natural gas
prices.
Questar Pipeline's total system throughput, however, did increase
from 250,284 Mdth in 1994 to 270,654 Mdth in 1995. As previously noted,
some of this increase was attributable to increased transportation
volumes for Mountain Fuel. The volumes of gas transported from
nonaffiliated customers also increased from 129,250 Mdth in 1994 to
151,943 Mdth in 1995.
Questar Pipeline's transmission system is an open-access system
and has been since September of 1988. The FERC's 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 does have limited
opportunities for interruptible transportation service.
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. During 1995, it conducted a two-part, $10
million dollar project to increase gas deliverability from the Piceance
Basin in western Colorado.
The Kern River pipeline, which was originally a joint project
between affiliates of Tenneco, Inc. and The Williams Companies, Inc.,
became operational in February of 1992. Built to transport gas from
Wyoming to the enhanced oil recovery projects in Kern County,
California, this line runs through Utah's Wasatch Front, making it
possible for some large industrial customers to bypass both Mountain
Fuel and Questar Pipeline by buying transportation service on Kern
River. At the current time, however, no industrial customers in the
Wasatch Front have taken any deliveries from the Kern River line. A
tap, the Hunter Park tap, has been installed on the Kern River line in
Salt Lake County. The Kern River line has diverted some transportation
volumes from both Questar Pipeline and Overthrust. The Kern River line,
on the other hand, has also provided Questar Pipeline with opportunities
to make additional connections with outside markets and to 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, a pipeline that transports gas from Wyoming to the Midwest.
Since gas production from the Overthrust area is generally shipped on
the Kern River pipeline to California, the Overthrust segment is
currently underutilized. One major shipper has negotiated and paid an
exit fee to terminate its obligation to pay demand costs on Overthrust.
Questar Pipeline and its partners have explored several alternatives to
enhance the value of the line.
Questar Pipeline and its partners are continuing to pursue a
project announced in 1990 to build and operate the proposed
TransColorado pipeline. Partners include affiliates of El Paso Natural
Gas Company (replacing Public Service Company of Colorado) and KN
Energy, Inc. The proposed pipeline is 292 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 originally developed prior to the
adoption of Order No. 636 and which was delayed by regulatory and
environmental approval processes, needs additional support from
customers before construction will begin.
During 1995, Questar Pipeline provided gathering services for
Mountain Fuel and other customers, but the volumes associated with this
activity decreased as Rocky Mountain producers responded to low wellhead
prices by shutting-in production. Questar Pipeline's gathering volumes
decreased from 83,983 Mdth in 1994 to 76,668 Mdth in 1995. On March 1,
1996, Questar Pipeline transferred its gathering assets and activities
to Questar Gas Management once both parties received the necessary
regulatory approvals from the FERC. Questar Gas Management is obligated
to gather Mountain Fuel's cost-of-service production for the life of the
properties; its contract to gather Mountain Fuel's field-purchased gas
volumes expires in 1997.
Questar Pipeline spun down its gathering activities in order to
remove such activities from possible regulation by the FERC and to
follow the example set by other pipelines. Questar Gas Management is
also the named partner in the Blacks Fork processing plant and will
continue to seek new opportunities to expand gathering activities and
conduct nonregulated services such as natural gas processing, balancing
and aggregate services for producers, marketers, distribution companies
and other end users.
Questar Gas Management owns 799 miles of gathering lines,
compressor stations, field dehydration plants, and measuring stations.
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.
In 1995, Questar Pipeline completed a three-year project to expand
the capacity of Clay Basin. The reservoir currently is certificated for
46.3 billion cubic feet (Bcf) of working gas capacity and a total
capacity of 110 Bcf. (Working gas is gas that is injected and
withdrawn. Cushion gas makes up the difference between total capacity
and working gas and 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 29 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.
Questar Pipeline has located a salt formation in southwestern
Wyoming and has drilled a well to test the feasibility of turning it
into a new salt cavern gas storage project. Working gas can be cycled
more frequently in a salt cavern than in a depleted gas reservoir or
aquifer. Because of its location near several pipelines, this project,
if core sample tests support its feasibility, should help satisfy
growing customer demand for storage and load-balancing activities.
Questar Pipeline is soliciting customer interest in the project.
In mid-1995, the Blacks Fork processing plant became operational.
This project, which is located in southwestern Wyoming, was built and is
operated as a joint venture between Questar Gas Management and an
affiliate of Coastal Corporation. The plant has a capacity of 84 MMcf
per day and was processing more than 60 MMcf per day at year-end.
Natural gas liquids, ethane, propane, butane, and gasoline, are extracted
from the natural gas volumes delivered to the plant. The new plant and
the expanded gathering system built in 1994 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.
On July 31, 1995, Questar Pipeline filed a general rate case
application with the FERC requesting regulatory approval to increase its
rates to collect an additional $23.3 million in annualized revenues and
to reflect a return on equity of 14.5 percent. The requested revenue
increase included transition costs associated with Order No. 636,
retiree medical costs, long-term disability costs, increased labor
costs, and the costs of facilities added since Questar Pipeline's last
general rate case. Questar Pipeline began collecting the requested
rates, subject to refund, on February 1, 1996.
On March 8, 1996, Questar Pipeline filed a proposed settlement
agreement with the FERC that has been agreed to by the FERC staff and
most intervenors. The terms of the proposed settlement include an
annualized revenue increase of $8.3 million, a return on equity of 11.75
percent, and a new sharing allocation for interruptible transportation
revenues. Questar Pipeline's settlement rates would be effective
February 1, 1996.
The FERC recently relaxed its "at risk" policy on new pipeline
projects. It established specific criteria for determining when
"rolled-in" rates (rather than "incremental" rates) are appropriate for
such projects. (The FERC's original at-risk policy meant that
shareholders, not customers, would absorb any underrecovery of costs if
incremental revenues from a new project did not cover the project's
costs.) Under the FERC's new policy, rolled-in rates will generally be
approved if rates to existing customers will not increase by more than
five percent and if specified system-wide operational and financial
benefits can be demonstrated. The FERC, however, could still impose
at-risk conditions on new projects even if it approved rolled-in rate
treatment for them.
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 storage reservoir that has been operational since
1977, was expanded in response to expressions of interest, and is fully
subscribed by long-term customers. Questar Gas Management 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 Gas Management is expanding its activities and expertise
and intends to continue engaging in processing and treatment services.
Questar Pipeline has consistently established partnerships with
other players to acquire expertise, share risks and expand
opportunities. The Overthrust pipeline, the proposed TransColorado
pipeline, and the Blacks Fork plant all involve partners, some of which
are significantly larger than Questar Pipeline.
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, 1995, Mountain Fuel was serving 592,738 sales and
transportation customers, compared to 572,174 customers as of year-end
1994. (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 1995, which was almost equal to
a record growth of 22,000 customers in 1994, generally resulted from new
housing. The customer growth reflects Utah's economic prosperity and
continued in-migration. Utah's population is growing faster than the
national average, and Mountain Fuel expects to add 19,000-20,000
customers in 1996 and 15,000-18,000 customers each year for the
remainder of the century.
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. (During 1995, Mountain Fuel was authorized to include a weather
normalization mechanism in its Utah rates that will ameliorate the
effect of temperature variations.) As measured in degree days,
temperatures in Mountain Fuel's service area were 13 percent warmer than
normal in 1995 after being 9 percent warmer than normal in 1994.
During 1995, Mountain Fuel sold 73,950 Mdth to residential and
commercial customers, compared to 74,233 Mdth in 1994. The effect of
warmer weather in 1995 was nearly offset by an expanded customer base.
Sales to residential and commercial customers were responsible for 87
percent of Mountain Fuel's total revenues in 1995.
Mountain Fuel has designed its distribution system and annual gas
supply plan to handle design-day demand requirements. It periodically
updates its design-day demand, which is the volume of gas that firm
customers could use during extremely cold weather. For the 1995-96
heating season, Mountain Fuel is using a design-day demand of 851,906
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 60,264 Mdth
in 1994 to 68,779 Mdth in 1995. Sales to industrial customers increased
for the third consecutive year and expanded from 8,882 Mdth in 1994 to
9,210 Mdth in 1995. The increase in total industrial deliveries
reflects Utah's economic prosperity 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. It 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 this released capacity. These credits
totaled $13.0 million for the 12-month period ending August 31, 1995
(the second year of Questar Pipeline's restructured operations).
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 1995, it
satisfied 64 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.) Mountain Fuel estimates
that it had reserves of 389,440 MMcf as of year-end 1995, compared to
416,312 MMcf as of year-end 1994. (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 $1.25 per
Dth in 1995. During 1995, Mountain Fuel recorded $4.4 million in
Section 29 tax credits 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 uses storage capacity at Clay Basin to provide
flexibility for handling gas volumes produced from cost-of-service
properties. It stores gas at Clay Basin during the summer and withdraws
it during the heating season.
Mountain Fuel has been directly responsible for its gas
acquisition activities since September 1, 1993. Mountain Fuel has a
balanced and diversified portfolio of approximately 45 gas supply
contracts with more than 35 suppliers located in the Rocky Mountain
states of Wyoming, Colorado, and Utah. It purchases gas on the spot
market and under longer-term contracts, primarily during the winter
heating season. 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
$1.34 per Dth for 1996.
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. During 1996, it will extend service
to Ogden Valley, an area east of Ogden, Utah. 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 gas 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
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. It 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 and to
increase its operating efficiency. Mountain Fuel's rates for general
service customers in Utah continue to be lower than they were 10-11
years ago. Using rates in effect as of January 1, 1996, the typical
residential customer in Utah would have an annual bill of $490.42,
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 for 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.
Mountain Fuel also obtained a tap on the Kern River line in Salt Lake
County in order to facilitate the delivery of additional peak-day
supplies to meet increasing demand.
Within the last several years, Mountain Fuel has increased its
activities to encourage the use of natural gas as a fuel in automobiles,
trucks, buses and forklifts. It 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 86 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 its service area do not satisfy the ambient
air quality standards set by the Environmental Protection Agency.
Mountain Fuel has adopted innovative 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. The ratio has improved
from 388 customers per employee for 1994 to 423 customers per employee
for 1995. A goal of 440 customers per employee has been established for
1996.
The significant improvement in this ratio resulted from Mountain
Fuel's 1995 consolidation activities. Mountain Fuel closed four offices
and reduced the size of six additional offices as it consolidated
customer service functions such as dispatching, telephone service, and
engineering. A special early retirement offer was accepted by 109 of
169 employees effective April 30, 1995, allowing Mountain Fuel to reduce
its workforce from 1,486 employees at year-end 1994 to 1,373 employees
at year-end 1995.
Mountain Fuel and all other local distribution companies are faced
with the challenges and opportunities posed by the unbundling and
restructuring of traditional utility services. As a local distribution
company, Mountain Fuel owns and controls the lines through which gas is
delivered, is the only supplier of natural gas to residential customers,
measures the consumption of gas used by its customers, and bills for
consumption and related services. The services provided by Mountain
Fuel are packaged and priced as a "bundle." Most unbundling discussions
focus on extending residential and commercial customers the same choices
provided industrial customers, i.e., allowing them to separate the
commodity supply from the transportation service.
A review of opportunities associated with unbundling has led to
Mountain Fuel's assessment that it is well-positioned to succeed in a
competitive environment. Extensive gas-supply and marketing experience
may allow Mountain Fuel to secure and manage gas supplies for new
customer groups while sophisticated customer information systems may
allow it to perform billing and dispatch services for other entities.
With an annual operating and maintenance expense of $158 per customer, a
customer-to-employee ratio of 423 to 1, and an overall customer
satisfaction ratio of 91.3 percent, Mountain Fuel is accurately
described as an efficient local distribution company. Its operating
efficiency is buttressed by owning the reserves to meet over 60 percent
of its current demand and by having storage capacity to balance the
relationship between production of its reserves and seasonal demands of
residential customers.
Mountain Fuel and other retail distribution companies have been
subject to governmental regulation, as a substitute for competition.
Other industries; airline, trucking, telecommunication, financial
service, and interstate pipeline, have been and are being deregulated,
and competitive market forces are forcing these industries to focus on
operating efficiency. The substitution of competition for regulation
will cause Mountain Fuel and other distribution companies to review
their costs and levels of service.
The PSCW asked Mountain Fuel and other Wyoming gas utilities to
review the unbundling of transportation and commodity services. One
Wyoming utility, KN Energy, Inc., recently obtained regulatory approval
to unbundle sales service to a portion of its Wyoming customers.
Mountain Fuel was a party to the regulatory proceedings reviewing KN
Energy's application and is currently reviewing the advisability of
offering unbundled services in Wyoming.
The PSCU recently opened an informal docket to review the
restructuring of electric utility services, but has not taken a similar
action with gas utilities.
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.
During 1995, Mountain Fuel filed and settled a general rate case
in Utah. Under the terms of the settlement, which became effective
September 1, 1995, Mountain Fuel's approved revenue deficiency was $3.7
million, compared to the requested revenue deficiency of $11.4 million.
Approximately $2 million of the $3.7 million will be recovered through
new premise charges, with the remaining $1.7 million recovered through a
change in the method for crediting revenues when pipeline capacity is
released. The settlement agreement also permitted Mountain Fuel to
incorporate a weather normalization mechanism in its rates on a
phased-in basis. During the 1995-96 heating season, Mountain Fuel is
using the mechanism with its commercial and equal payment customers, or
approximately 40-45 percent of its general service load.
The settlement agreement did not specify an authorized return on
equity, but increased Mountain Fuel's allowed return on rate base from
10.08 percent to a range of 10.22 to 10.34 percent. The use of an
historic test year allowed Mountain Fuel to retain the cost savings
associated with reducing its labor force and consolidating its
operations.
Mountain Fuel does not expect to file a general rate case
application with the PSCU or the PSCW in 1996. It did not file a
general rate application with the PSCW in 1995. Under a 1993 order
issued by the PSCW, Mountain Fuel is currently authorized to earn a
return on rate base of 10.4 percent.
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. Mountain Fuel's latest semi-annual balancing account
applications were approved January 1, 1996, and its base rates were
decreased as the result of an overall decrease in the cost of natural
gas and an adjustment to offset the collection in its gas balancing
account.
Mountain Fuel owns and operates distribution systems throughout
its Utah, Wyoming and Idaho service areas and has a total of 18,027
miles of street mains, service lines, and interconnecting pipelines.
Mountain Fuel has an 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 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 is managing a two-year project to
remodel and enlarge this building that began in the fall of 1995.
Questar InfoComm, Inc. Questar InfoComm 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 1995, Questar InfoComm continued to
expand services for nonaffiliated customers and to market five key
products and services. 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, 1995, Questar and its affiliates had 2,510
employees compared to 2,624 at year-end 1994. 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 1995,
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 648 Bcf of natural gas reserves at year-end
1995. 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 FERC Form 2 format with
the PSCU and PSCW and lists gas reserves of 455 Bcf (working interest)
at December 31, 1995, which include reserves attributable to royalty
interests. The 389 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 59.1 Bcf at
December 31, 1995. This gas is not included in the total reserve
number.
Oil and Gas Production.1
1995 1994 1993
Natural gas (MMcf) 69,295 75,094 67,807
Oil (Mbbl) 2,493 2,507 2,056
1 Production quantities from all properties, including
cost-of-service properties.
Average Sales Price.2
1995 1994 1993
Natural gas per Mcf $1.33 $1.78 $1.85
Oil per Bbl 15.96 14.76 16.68
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.
1995 1994 1993
Production cost per Mcfe $ .57 $ .52 $ .60
Producing Wells at December 31, 1995.
Gas Oil
Gross wells 2,538 1,447
Net wells 910 403
The number for gross wells includes 75 wells with multiple
completions.
Leasehold Acreage at December 31, 1995. 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 35 percent of the
unproved acreage is scheduled to expire within the next five years if no
drilling or development activity is undertaken.
The following chart lists the Company's consolidated productive
and unproved acreage by state:
State Productive Unproved
Gross Net Gross Net
Arizona 480 450
Arkansas 4,156 833 588 392
California 4,725 994
Colorado 120,061 83,242 291,832 170,322
Idaho 44,175 10,650
Illinois 25,722 18,166 13,796 4,145
Indiana 1,311 273 1,536 468
Kansas 115,191 22,987 52,347 17,818
Kentucky 5,131 715 17,245 7,007
Louisiana 640 8
Michigan 3,780 551 5,891 1,214
Minnesota 313 104
Montana 51,719 9,007 339,738 65,615
Nebraska 3,639 1,444 162,185 44,615
Nevada 520 520 20,530 20,392
New Mexico 134,978 81,203 39,722 20,896
New York 24,503 5,174
North Dakota 51,629 4,006 153,448 23,847
Ohio 2,701 65 202 43
Oklahoma 1,154,138 210,479 277,963 50,449
Oregon 43,868 7,670
Pennsylvania 763 198
South Dakota 8,718 640 204,490 107,055
Texas 306,686 19,924 7,613 3,271
Utah 71,912 40,747 140,094 55,485
Washington 26,631 10,046
West Virginia 6,474 923
Wyoming 238,108 144,340 430,246 250,072
Total 2,332,480 645,445 2,279,658 873,020
Net Productive and Dry Wells Drilled.
Exploratory Wells Development Wells
1995 1994 1993 1995 1994 1993
Productive 2 1 1 24 31 63
Dry 3 1 5 1 5 7
Total 5 2 6 25 36 70
Present Activities. At year-end 1995, Questar affiliates had a
working interest in 16 wells waiting on completion and 4 wells being
drilled.
Delivery Commitments. Mountain Fuel is obligated to deliver
natural gas to about 593,000 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.
During 1995, Entrada completed soil remediation activities on the
property, using an in situ vitrification procedure. It is continuing to
conduct ground water remediation activities. 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 from an adverse jury verdict. The jury,
in late 1994, 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 still not issued
a decision concerning the competing forms of judgment entered by the
opposing parties. 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 1995.
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 M in the
Notes to Consolidated Financial Statements. As of February 29, 1996,
Questar had 11,496 shareholders of record and estimates that it had an
additional 13,000-15,000 beneficial holders.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Revenues $649,287 $670,318 $660,430 $591,346 $624,263
Operating expenses
Natural gas purchases 199,419 212,528 224,500 201,018 247,762
Other expenses 307,842 303,132 287,636 252,792 243,197
Total operating expenses 507,261 515,660 512,136 453,810 490,959
Operating income $142,026 $154,658 $148,294 $137,536 $133,304
Write-down of investment in
Nextel Communications ($61,743)
Income from continuing operations $83,786 $49,417 $84,464 $73,771 $66,752
Gain from sale of Questar Telecom
to Nextel Communications 38,126
Loss from discontinued operations (2,772) (2,437) (2,719)
Cumulative effect of change in
accounting for income taxes 9,303
Net income $83,786 $87,543 $81,692 $80,637 $64,033
Earnings per common share
Income from continuing operations $2.05 $1.21 $2.10 $1.85 $1.70
Gain from sale of discontinued
operations 0.95
Loss from discontinued operations (0.07) (0.06) (0.07)
Cumulative effect 0.23
Net income $2.05 $2.16 $2.03 $2.02 $1.63
Dividends per common share $1.16 $1.13 $1.09 $1.04 $1.01
Book value per common share 17.51 16.17 14.99 13.92 12.78
Total assets 1,584,553 1,585,575 1,417,687 1,320,358 1,212,519
Net cash provided from operating
activities 204,171 163,375 194,982 160,179 156,029
Capital expenditures $118,188 $276,882 $168,388 $180,061 $142,250
Capitalization
Long-term debt $421,695 $494,684 $371,713 $364,594 $354,327
Redeemable cumulative preferred
stock 4,957 6,324 7,525 8,726 9,955
Common stock 712,675 653,589 601,942 553,810 501,968
Total capitalization $1,139,327 $1,154,597 $981,180 $927,130 $866,250
</TABLE>
Note - Selected financial data for 1991 and 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 1995 net income was $83,786,000, or $2.05
per share, compared with $87,543,000, or $2.16 per share, in
1994, and $81,692,000, or $2.03 per share, in 1993.
Exploration and production operations had 1995 income of
$31,915,000, compared with $40,216,000 in 1994 and $36,325,000
in 1993. Lower prices for natural gas were the primary factor
causing lower earnings in 1995.
Natural gas transmission operation's income was $24,648,000 in
1995 compared with $25,829,000 in 1994 and $23,275,000 in 1993.
Decreased gas production caused by lower gas prices resulted in
a reduction in the volumes of gas gathered.
Interruptible-transportation activities were lower in 1995
because of a shift to capacity release services. Firm-storage
capacity increased to 46.3 Bcf in the second quarter of 1995.
Natural gas distribution operations earned $23,668,000 in 1995
compared with $23,352,000 in 1994 and $25,069,000 in 1993. A
1995 general rate case settlement, 3.6% increase in the number
of customers, increased transportation for industrial customers
and productivity improvement measures offset the effects of
temperatures that were 5% warmer than the prior year.
Other operations reported net income of $3,555,000 in 1995
compared with net losses of $1,854,000 in 1994, excluding the
write down of investment in Nextel, and $205,000 in 1993. A
write-down of investment in Nextel Communications of
$38,126,000 after income taxes was reported by the Company in
the fourth quarter of 1994. An after-tax gain of $38,126,000
was recorded in the third quarter of 1994 when the Company
received 3,875,950 shares of Nextel in exchange for its Questar
Telecom subsidiary.
Questar's net cash provided from operating activities in 1995
of $204,171,000 exceeded the sum of capital spending of
$118,188,000 and dividends paid of $47,525,000. This cash,
together with cash generated from selling investments in
securities and assets, and reinvesting dividends, was used to
repay long- and short-term debt. Capital spending for 1996 is
projected to be $235,000,000 and is expected to be financed
with cash flow from operations, bank loans and short-term debt.
Long-term debt represented 37% of consolidated capitalization
at December 31, 1995.
The Company announced in February 1996 the creation of a new
subsidiary and plans to align its subsidiaries in support of a
new strategic direction emphasizing energy services. The
Company will organize its structure into two primary strategic
functions, regulated and nonregulated. The new subsidiary,
Questar Energy Services Inc., will market natural gas and
electricity for both individual and industrial customers and
provide other energy-related services throughout the country.
Questar Energy Services Inc. will be part of the nonregulated
group that includes exploration, production and marketing. The
regulated group includes natural gas transmission and natural
gas distribution activities.
RESULTS OF OPERATIONS
EXPLORATION AND PRODUCTION - Celsius Energy, Universal
Resources and Wexpro (E&P group) conduct exploration,
production and marketing operations. Following are operating
income and statistics for these operations:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Natural gas production $43,511 $67,151 $59,911
Oil and natural gas-liquids
production 38,884 36,045 32,965
Natural gas marketing 154,439 160,961 131,176
Cost-of-service gas operations 59,831 57,870 49,595
Plant and gathering operations 9,888 8,569 1,635
Other 2,913 1,317 1,165
Total revenues 309,466 331,913 276,447
Operating expenses
Natural gas purchases 146,856 154,780 127,312
Operating and maintenance 47,664 44,846 36,769
Depreciation and amortization 50,044 48,542 44,614
Oil-income sharing 3,400 3,391 1,028
Other taxes 17,177 21,060 17,337
Total expenses 265,141 272,619 227,060
Operating income $44,325 $59,294 $49,387
OPERATING STATISTICS
Production volumes
Natural gas (in MMcf) 32,663 37,659 32,299
Oil and natural gas-liquids
(in Mbbls) 2,436 2,442 1,975
Production revenue
Natural gas (per Mcf) $1.33 $1.78 $1.85
Oil and natural gas-liquids
(per bbl) $15.96 $14.76 $16.68
Gas marketing volumes (in Mdth) 109,374 88,941 65,143
</TABLE>
Revenues were $22,447,000 lower in 1995 when compared with the
same period in 1994 primarily because of lower selling prices
for natural gas. The average selling price of natural gas in
1995 was $1.33 per Mcf, 25% below the average price for 1994.
The average selling price in 1994 was 4% below the average
price in 1993. Gas selling prices in the Rocky Mountain region
were near $1 per Mcf for much of 1995, while gas selling prices
in the Midcontinent region in which Universal Resources
operates, were near $1.50 per Mcf. In response to the low
selling prices, Celsius Energy, which operates in the Rocky
Mountain region, began shutting in production in June 1995.
For most of the second half of 1995, Celsius shut in 20 to 25
MMcf per day representing about 50% of Celsius' gas production.
Gas production in 1995 was 13% below 1994's level primarily due
to shutting in production in 1995. An abundance of cheap
hydroelectric power, warmer-than-normal weather and the
continued availability of low-priced Canadian gas have reduced
demand in the Rocky Mountains causing gas prices to drop.
Gas-marketing volumes expanded by 23% in 1995 as the E&P group
purchased low-cost gas on the open market and delivered it to
fulfill fixed-price contracts. The substitution of purchased
gas for produced gas enabled the E&P group to minimize lost
revenue from shut-in production. Much of the shut-in gas was
producing during the first quarter of 1996 in response to
seasonal demand.
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. Face value of these
contracts at December 31, 1995 was $73.4 million, which
exceeded market value by $3.6 million. During the 1995 - 1996
heating season, between 70 and 80% of Rocky Mountain gas
production and 15 to 30% of Midcontinent gas production were
covered under price-hedging contracts.
Revenues from the sale of oil and natural gas liquids were
higher in 1995 compared with the prior year because of an 8%
higher average selling price. Oil and natural gas liquids
production for 1995 was virtually unchanged when compared with
1994, after increasing 24% in 1994 and declining 5% in 1993.
Expansion of gas and oil reserves slowed in 1995 compared to
1994 largely as a result of low gas prices and increased
competition for purchasing existing reserves. Celsius Energy
and Universal Resources added 32.2 Bcf equivalent (Bcfe) of
natural gas reserves in 1995 reflecting a 73%
reserve-replacement ratio. These two companies added 147.5
Bcfe in 1994 through a successful acquisitions, exploration and
development strategy that resulted in a reserve-replacement
ratio of 307%. In 1994, Universal Resources 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 that resulted in
higher production volumes in that year. The acquired
properties are located in the Midcontinent and southwestern
areas of the United States.
Revenues from gas-processing plants and gathering systems
increased in 1995 and 1994. A majority of the increase was the
result of acquiring facilities along with the reserves
purchased in 1994. The plants generate revenues by extracting
liquids from natural gas streams.
Revenues from Wexpro's cost-of-service gas operations continued
to grow in 1995 due to higher depreciation charges and
production taxes on increased volumes. However, the investment
base decreased because of the effects of weak gas prices on
development prospects. Activity focused on investment in and
operation of gas-development properties in the Church Buttes,
Bruff and Birch Creek areas of southwestern Wyoming. Wexpro's
net investment in cost-of-service gas operations was
$89,431,000 in 1995, $98,134,000 in 1994 and $92,561,000 in
1993. Wexpro's after-tax return on investment in those
properties ranges from 14% to 22%.
Settlements of gas-sales contracts by gas purchasers added $4.3
million to other income in 1995.
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,
1995 1994 1993
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Transportation $61,749 $61,844 $51,590
Gathering 21,644 23,641 20,386
Storage 31,276 27,620 14,698
Sales for resale 81,813
Other 2,686 2,503 3,141
Total revenues 117,355 115,608 171,628
Operating expenses
Natural gas purchases 56,022
Operating and maintenance 44,634 42,778 48,356
Depreciation and amortization 16,614 15,453 14,084
Other taxes 4,170 4,499 3,915
Total expenses 65,418 62,730 122,377
Operating income $51,937 $52,878 $49,251
OPERATING STATISTICS
Natural gas volumes (in Mdth)
Transportation
For unaffiliated customers 151,943 129,250 113,589
For Mountain Fuel 79,872 75,941 65,061
For other affiliated customers 38,839 45,093 35,599
Total transportation 270,654 250,284 214,249
Sales for resale to Mountain Fuel 24,337
Total system throughput 270,654 250,284 238,586
Gathering
For unaffiliated customers 39,028 39,800 34,348
For Mountain Fuel 31,691 32,098 44,432
For other affiliated customers 5,949 12,085 13,988
Total gathering 76,668 83,983 92,768
Clay Basin storage working gas-
volumes (in Bcf) 46.3 41.8 31.0
Natural gas revenue (per dth)
Transportation $0.23 $0.25 $0.24
Gathering 0.28 0.28 0.22
Sales for resale 3.36
Natural gas purchase cost (per dth) 2.28
</TABLE>
Revenues were 2% higher in 1995 compared with 1994 after
decreasing 33% from 1993 to 1994. The 1995 rise was the result
of increased storage activities at Questar Pipeline's Clay
Basin storage reservoir. Questar Pipeline began a program in
1993 to expand firm-storage service offered at its Clay Basin
storage facility and completed the program in May 1995 with the
signing of contracts for an additional 4.5 Bcf of firm-storage
capacity. Working-gas storage capacity increased from 31 Bcf
in 1993 to 46.3 Bcf in May 1995. Storage capacity at year-end
1995 was 100% subscribed with contractual terms extending up to
29 years. Storage revenues increased $3,656,000 in 1995 and
$12,922,000 in 1994. Increased capacity and the associated
service at Clay Basin were responsible for all of the 1995
increase in revenues and $3,400,000 of the 1994 increase. The
remaining 1994 change in storage revenues was a result of
unbundling and reclassifying peaking-storage service from
sales-for-resale revenues. Peaking storage is designed to meet
peak daily demand requirements of Mountain Fuel.
Lower revenues from gas gathering and interruptible
transmission activities partially offset the higher storage
revenues in 1995 as compared with 1994. Weak gas prices in the
Rocky Mountain region caused producers to reduce gas
production. Gas gathering revenues decreased 8% in 1995 after
increasing 16% in 1994. Questar Pipeline has expanded its gas
gathering operations in the past several years in the Birch
Creek, Bruff and Henry areas of southwestern Wyoming.
The primary cause of a $56,020,000 decrease in Questar
Pipeline's revenues reported in 1994 compared with 1993 was the
termination of sales-for-resale activities under the
regulations of FERC Order No. 636. This order unbundled the
components of sales-for-resale, transmission, gathering and
storage into separate activities. Also as a result of Order
No. 636, short-term changes in 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 84% of
firm-transportation capacity is reserved for terms of at least
three 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 79% of the total reserved daily transportation
capacity. Interruptible-transportation revenues in 1995
decreased as a result of a shift by customers from
interruptible-transportation service to a lower cost
capacity-release service.
Questar Pipeline filed a general rate case with the FERC on
July 31, 1995, seeking an increase in jurisdictional revenues.
The request for additional revenues was intended to recover the
costs of enhanced service to customers, meet regulatory
requirements and collect costs associated with employee
postretirement benefits. By order issued August 31, 1995,
Questar Pipeline's rate filing was accepted with an effective
date of February 1, 1996, subject to refund. Questar Pipeline
expects to reach a settlement, which would avoid a lengthy
hearing process.
Questar Pipeline concurrently filed a plan with the FERC to
transfer about $53 million of gathering assets, net of
accumulated depreciation, to Questar Gas Management Company, a
wholly-owned subsidiary. The FERC approved the transfer
February 28, 1996.
In December 1995, Questar Pipeline announced it would not
complete the purchase of Tennessee Gas Pipeline Company's 50%
interest in the Kern River Gas Transmission Company following
a Federal Trade Commission decision to oppose the transaction.
The $1.2 million cost of the unsuccessful bid was expensed in
1995.
Questar Pipeline, through a partnership, is a 50% owner of a
gas processing plant in southwestern Wyoming. The Blacks Fork
Processing plant, which cost $20 million to build, began
operations in the second quarter of 1995 and Questar Pipeline's
share of earnings before taxes was $314,000. Questar Pipeline
operating results also include its 18% share or $1.2 million of
earnings before income taxes reported by Overthrust Pipeline
Company. A significant portion of Overthrust Pipeline's 1995
earnings was due to a shipper's buyout of a transportation
contract.
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,
1995 1994 1993
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Residential and commercial sales $315,458 $329,576 $360,210
Industrial sales 22,479 24,395 21,678
Industrial transportation 6,127 5,665 5,898
Other 18,705 18,624 14,605
Total revenues 362,769 378,260 402,391
Operating expenses
Natural gas purchases 190,606 210,507 230,139
Operating and maintenance 93,384 94,094 92,486
Depreciation and amortization 25,469 24,749 23,244
Other taxes 9,588 9,589 10,013
Total expenses 319,047 338,939 355,882
Operating income $43,722 $39,321 $46,509
OPERATING STATISTICS
Natural gas volumes (in Mdth)
Residential and commercial sales 73,950 74,233 79,369
Industrial deliveries
Sales 9,210 8,882 6,514
Transportation 59,569 51,382 53,105
Total industrial 68,779 60,264 59,619
Total deliveries 142,729 134,497 138,988
Natural gas revenue (per dth)
Residential and commercial $4.27 $4.44 $4.54
Industrial sales 2.44 2.75 3.33
Transportation for industrial
customers 0.10 0.11 0.11
Natural gas purchase price (per dth) $2.16 $2.40 $2.52
Heating degree days (normal 5,801) 5,047 5,290 6,073
Colder (warmer) than normal (13%) (9%) 5%
Number of customers at end of period 592,738 572,174 550,184
</TABLE>
Revenues, net of gas costs, increased $4,410,000 in 1995 when
compared with 1994 after decreasing $4,499,000 in 1994 when
compared with 1993. The positive influences derived from a
general rate case settlement, a 3.6% increase in the number of
customers, an increase in transportation volumes for industrial
customers and productivity improvement measures offset the
effect of temperatures that were 5% warmer than were
experienced in 1994.
On August 11, 1995, the Utah Public Service Commission (UPSC)
approved a settlement of Mountain Fuel's general rate case
filed April 13, 1995. Mountain Fuel received a $3.7 million
increase in revenues. The settlement allowed the Company to
implement a weather normalization adjustment, provided about $2
million in additional revenues through a new-premises fee and
added about $1.7 million from sharing capacity-release
revenues. The settlement did not specify an authorized return
on equity, but Mountain Fuel's allowed return on rate base
increased from 10.08% to between 10.22% and 10.34%. A
weather-normalization adjustment applied to about 40% of
Mountain Fuel's weather sensitive volumes for the last quarter
of 1995 and reduced the net income effect caused by
warmer-than-normal temperatures by about $1.3 million.
Mountain Fuel pays for firm-transportation capacity and sells
unused firm-transportation capacity as capacity-release
service. Under the rate settlement, Mountain Fuel is allowed
to credit 20% of capacity-release revenues, which amounted to
$676,000 in 1995, to earnings.
Natural gas deliveries to residential and commercial customers
were largely unchanged in 1995 when compared with 1994. Both
years experienced warmer-than-normal temperatures and a near 4%
increase in the number of customers. Sales volumes dropped 6%
in 1994 after increasing 16% in 1993 due to 1994 being 13%
warmer than 1993. The number of customers increased by 3.6% in
1995, 4.0% in 1994 and 3.4% in 1993.
Gas deliveries to industrial customers increased by 14% in 1995
and 1% in 1994. Mountain Fuel's service area has experienced
strong economic growth for several successive years. The
Company has benefitted from a higher gas demand for expanded
operations and environmental reasons.
Mountain Fuel closed four regional offices and reduced
functions at six other offices in an effort to consolidate and
restructure operations. In addition, the Company's offer of
early retirement was accepted by 109 employees effective April
30, 1995. The cost reductions associated with these changes
averaged $400,000 per month or about $3.2 million for 1995. The
early retirement program did not cause a material increase in
pension expense. Mountain Fuel is depending on its investment
in customer information system technology to provide increased
efficiency in serving customers. Mountain Fuel's customers
satisfaction rating continued to increase reaching a record
91.3% in 1995.
Starting 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 reporting period.
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 UPSC rate order. This rate order also reduces customer
rates by $2,011,000 per year over the same five-year period.
In addition in 1994, 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.
OTHER OPERATIONS - Following is a summary of the results from
Questar's other operations:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Corporate and other
Net income (loss) $3,555 ($39,980) ($205)
Discontinued operations
Gain from sale of Questar Telecom 38,126
Loss from discontinued operations (2,772)
</TABLE>
In the third quarter of 1994, Questar Corporation sold Questar
Telecom to Nextel Communications in exchange for 3.9 million
shares of Nextel common stock reporting a $38.1 million
after-tax gain from the sale. At year-end 1994, the Company
wrote down its investment in Nextel Communications by $61.7
million before income taxes, or $.95 per share 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.
Other operations earned $3,555,000 during 1995 as a result of
gains from the sale of securities, FCC licenses and equipment,
and the absence of losses reported by FuelMaker Corp. Net
losses of $1,854,000 for 1994, excluding the write down of
investment in Nextel, and $205,000 in 1993 were largely due to
operating losses reported by FuelMaker.
The Company 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. FuelMaker
reported operating losses of $1,930,000 for 1994 and $1,710,000
for 1993.
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. Clean-up of the site was essentially
completed in 1995. Future efforts will be focused on
maintenance of a ground water filtration system at the site.
Entrada began remediation in 1994 under a plan approved by both
the Environmental Protection Agency and the Utah Department of
Health. Settlements were reached with the other major
potentially responsible parties and an accrual was established
for the remedial work costs. Management believes that current
accruals of $982,000, recorded in deferred credits, will be
sufficient for estimated remaining clean-up and site
maintenance costs, which are expected to be incurred over the
next several years. Total cost of the clean-up project through
December 31, 1995 was $19,892,000. The Company has recorded a
receivable from an insurance company of $1,642,000 for expected
payments related to the Wasatch Chemical clean-up. Additional
amounts may be collected from the insurance company if future
clean-up costs are higher than anticipated.
CONSOLIDATED OPERATING RESULTS
Revenues: Consolidated revenues declined 3% in 1995 due
largely to lower selling prices for natural gas. 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.
Natural gas purchases and operating expenses: Natural gas
purchases declined 6% in 1995 when compared with 1994 due
primarily to lower gas costs. Natural gas purchases decreased
5% in 1994 because of lower gas volumes sold by Mountain Fuel.
Operating and maintenance expenses increased 3% in both 1995
and 1994 primary due to expansion of the number of producing
properties by the E&P group, growth in natural gas transmission
operations and more customers and expanded service territory
for Mountain Fuel. A restructuring of service centers and an
early retirement plan at Mountain Fuel reduced operating
expenses by about $3,200,000, partially offsetting other
increases in 1995 operating expenses. Operating costs in 1994
were partially offset by $5,976,000 of gas-production credits
received from selling gas from a discontinued pressure
maintenance project. Selling gas from the project ended in the
second quarter of 1995.
Depreciation expense and other taxes: Depreciation and
amortization expense increased 3% in 1995, due largely to
increased investment in natural gas distribution and natural
gas transmission facilities, partially offset by lower gas
production by the E&P group. A 7% increase in depreciation in
1994 from 1993 was due to capital expenditure programs in all
lines of business and higher natural gas production. The full
cost amortization rate was $.80 per Mcfe in 1995 compared with
$.78 per Mcfe in 1994 and $.80 per Mcfe in 1993. Other taxes,
predominantly related to production of gas and oil, decreased
in 1995 when compared with 1994 because of lower gas selling
prices. Increased production of natural gas in 1994 compared
with 1993 resulted in higher levels of production-related
taxes.
Interest and other income: Interest and other income of
$17,314,000 was $12,357,000 higher in 1995 compared with 1994
due primarily to the following transactions:
<TABLE>
<CAPTION>
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Sales of Nextel and other securities $4,438
Settlement of gas sales contracts 4,315
Gain from the sale of FCC licenses and equipment 1,239
Expenses of Kern River Pipeline bid and
other projects (2,310) ($2,110)
One-time reduction of gas costs 5,589
Return on working gas inventory 2,697 2,294 $841
Earnings (losses) of equity investees 1,561 (1,555) (1,404)
Write-off of FuelMaker equity and note receivable (3,368)
Interest income 5,374 4,107 4,195
$17,314 $4,957 $3,632
</TABLE>
Income taxes: The effective income tax rate was 28.1% in 1995,
14.9% in 1994 and 28.4% in 1993. Income tax rates were below
the statutory rate of about 38%, primarily due to tight-sands
production tax credits. These income tax credits were received
from production of gas from certain properties. Credits of
$8,395,000 for 1995, $10,289,000 for 1994, and $11,026,000 in
1993 increased net income by reducing income tax expenses. The
lower effective tax rate reported in 1994 was due to the effect
of these credits on lower pre-tax income.
Robert E. Kadlec is a member of the Boards of Directors of
Questar Corporation and BC Gas Inc. and former President and
Chief Executive Officer of BC Gas Inc. BC Gas has several gas
supply contracts with Universal Resources to purchase gas
during portions of the 1995-1996 and 1996-1997 winter heating
seasons and also has long-term contracts with Questar Pipeline
for storage service. The Company and BC Gas are former owners
of FuelMaker Corporation. The Company sold its interest in
FuelMaker during 1995.
The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, in October 1995
effective for financial statements for fiscal years beginning
after December 15, 1995. Statement No. 123 generally requires
a company to measure the effect of transactions based in a
company's stock at the fair value of the stock on the date of
issuance. However, Statement No. 123 also allows a company to
choose to either calculate earnings based on fair value of the
stock or to continue to account for stock-based transactions
using an intrinsic value. Generally, no expense is recorded
under the intrinsic value method because option price equals
market value on the grant date. Management expects to continue
recording stock-based transactions based on intrinsic value.
The Company will adopt Statement No. 123 for the 1996 Annual
Report to Shareholders.
In March 1995, the FASB issued SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of, that becomes effective for the Company January 1,
1996. Statement No. 121 requires the Company to review for
impairment, assets that are held and used whenever events or
changes in circumstances indicate that an asset's carrying
value may not be recoverable. If impairment is indicated, the
Company must reduce the carrying value of the asset in
question. The Company will adopt Statement No. 121 in 1996 and
does not expect a significant effect to either operating
results or the balance sheet.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities climbed 25% above
the amount reported for 1994 to $204,171,000, while spending
for capital projects fell 57% to $118,188,000. In addition,
cash received from the sales of securities and other assets
amounted to $21,195,000. The resulting excess of cash inflows
over the amount spent for capital projects and dividend
payments provided for a $73,685,000 repayment of long-and
short-term debt.
Operating Activities:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Net cash provided from operating
activities $204,171 $163,375 $194,982
</TABLE>
An increase in noncash expenses such as depreciation and
deferred income taxes, plus a reduction of accounts receivable,
provided a 25% increase in net cash provided from operating
activities. Depreciation expense increased because of
additional investment in plant. Deferred income taxes increased
primarily due to accelerated depreciation for tax purposes and
a decrease in the purchased-gas adjustment account. In 1994,
net cash provided from operating activities was 16% less than
the previous year because of a reduction in cash flow from
working-capital accounts.
Investing Activities:
Capital expenditures for 1995 were less than one-half the level
of 1994 due to the impact of lower gas prices on projects'
economics and fewer acquisitions. Capital expenditures reached
a record level in 1994, largely driven by the acquisitions of
gas and oil properties by the E&P group. Following is a
summary of capital expenditures for 1995 and 1994, plus a
forecast for 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
1996
Estimated 1995 1994
(In Thousands)
<S> <C> <C> <C>
Exploration and production
Exploration $9,400 $6,144 $11,561
Development 21,000 15,424 25,252
Reserve acquisitions 57,400 731 99,892
Cost-of-service gas development 7,900 4,357 15,116
95,700 26,656 151,821
Natural gas transmission
Transmission lines 22,400 15,216 1,878
Gathering facilities 6,200 3,050 9,392
Clay Basin cushion gas and expansion 1,300 2,500 42,196
Partnerships 4,800 2,082 614
General and other 6,200 4,924 4,147
40,900 27,772 58,227
Natural gas distribution
New-customer service equipment 27,700 24,950 22,343
Distribution system 11,300 9,981 7,085
Buildings 1,500 3,473 7,193
Computer software and hardware 6,600 5,121 5,849
General and other 7,900 7,888 11,346
55,000 51,413 53,816
Other operations
General office building 12,000 2,433
Special projects 21,000
Investment in Questar Telecom 8,080
Other 10,200 9,914 4,938
43,200 12,347 13,018
$234,800 $118,188 $276,882
</TABLE>
Exploration and Production
The exploration and production operations participated in
drilling 105 wells in 1995 of which 53 were completed as gas
wells, 20 were oil wells, 12 were dry holes and 20 were in
progress at year-end. The 1995 drilling program had an overall
success rate of 86%.
Natural Gas Transmission
Questar Pipeline's 1995 capital expenditures included
replacement of sections of gas mainlines, completion of the
Clay Basin storage project and cushion-gas injection, and
expansion of the gathering system.
Natural Gas Distribution
Mountain Fuel's capital spending is primarily in response to a
rapid increase in the number of customers, amounting to 20,564
in 1995, 21,990 in 1994 and 18,075 in 1993 due to population
growth and construction activity in its service area. Mountain
Fuel extended its system by 559 miles of main, feeder and
service lines in 1995.
Other Operations
Remodeling corporate offices and construction of a data
processing center, which will be specifically constructed to
absorb seismic forces, were the primarily capital projects in
this line of business. A $21 million amount has been reserved
for unspecified projects that may be accepted during 1996.
Financing Activities:
The Company's cash flow from operations was sufficient to fund
its 1995 capital expenditures and repay long- and short-term
debt. Additional cash was raised through asset sales and
dividend reinvestment. Capital expenditures for 1996 and a
scheduled $19 million repayment of long-term debt will be
funded by cash generated internally; short - and long-term
borrowings and possible sales of Nextel stock.
The Company has short-term line-of-credit arrangements with
several banks under which it may borrow up to $145,700,000.
These lines have interest rates generally below the prime
interest rate and are renewable annually. At December 31,
1995, short-term bank loans outstanding were $10,000,000 with
an average interest rate of 5.97% and commercial-paper
borrowings were $67,200,000 with an average interest rate of
6.00%. At December 31, 1994, short-term bank loans
outstanding were $9,600,000 with an average interest rate of
5.95% and commercial-paper borrowings were $85,300,000 with an
average interest rate of 5.96%. Commercial-paper borrowings
are backed by the short-term line-of-credit arrangements, and
rated P-1 and A-1 by Moody's and Standard and Poor's,
respectively.
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 had a consolidated capital structure of 37% long-term
debt and 63% common shareholders' equity at December 31, 1995.
Moody's and Standard and Poor's have rated Mountain Fuel's and
Questar Pipeline's long-term debt A-1 and A+, respectively.
<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 8, 1996, 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 8, 1996.
The following individuals are serving as executive officers of the
Company:
Primary Positions Held with
Name the Company and Affiliates
R. D. Cash 53 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 51 President and Chief Executive Officer,
Mountain Fuel (October 1984); Executive Vice
President, Questar (February 1996); Senior
Vice President, Questar (May 1985 to February
1986); Director (May 1984); Director,
Mountain Fuel (May 1984).
Gary L. Nordloh 48 President and Chief Executive Officer,
Wexpro, Celsius, and Universal Resources
(March 1991); Executive Vice President,
Questar (February 1996); Senior Vice
President, Questar (March 1991 to February
1996); Director, Celsius and Wexpro (June
1989); Director, Universal Resources (May
1989).
Clyde M. Heiner 57 Senior Vice President, Questar (May 1984);
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 60 President and Chief Executive Officer,
Questar Pipeline (June 1984); Senior Vice
President, Questar (May 1985); Director,
Questar Pipeline (May 1984) and Wexpro (May
1985).
S. E. Parks 44 Vice President, Treasurer and Chief Financial
Officer, Questar and all affiliates (February
1996); Treasurer, Questar and affiliates (at
various dates beginning in May 1984).
W. F. Edwards 50 Vice President, Investor Relations, Questar
(February 1996); Senior Vice President and
Chief Financial Officer, Questar (February
1989 to February 1996); Vice President and
Chief Financial Officer, affiliates (at
various dates beginning in May 1984 to
February 1996); Director, Questar Pipeline
(May 1985), Celsius (May 1988), and Universal
Resources (May 1988).
R. G. Groussman 60 Vice President and General Counsel (October
1984); Director, Wexpro (November 1976) and
Celsius (May 1988).
Connie C. Holbrook 49 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 8, 1996, 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 8, 1996, 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
8, 1996, 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 8, 1996,
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 8, 1996, under the section
entitled "Election of Directors."
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.)
4.3.* Rights Agreement dated as of February 13, 1996, between
the Company and Chemical Mellon Shareholder Services L.L.
C. pertaining to the Company's Shareholder Rights Plan.
(Exhibit No. 4. to Current Report on Form 8-K dated
February 13, 1996.)
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 and restated effective February 13, 1996.
10.3.1 Questar Corporation Executive Incentive Retirement Plan,
as amended and restated effective February 13, 1996.
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 1990.)
10.5.1 Questar Corporation Long-Term Stock Incentive Plan, as
amended and restated effective February 13, 1996.
10.6.1 Questar Corporation Executive Severance Compensation
Plan, as amended and restated effective February 13,
1996.
10.7.1 Questar Corporation Deferred Compensation Plan for
Directors, as amended and restated effective February 13,
1996.
10.8.1 Questar Corporation Supplemental Executive Retirement
Plan, as amended and restated effective February 13,
1996.
10.9.1 Questar Corporation Equalization Benefit Plan, as amended
and restated effective February 13, 1996.
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 effective February 13, 1996.
10.13.1 Questar Corporation Deferred Compensation Plan, as
amended and restated effective February 13, 1996.
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 filed a Current Report on Form 8-K dated December
27, 1995, to report the termination of Questar Pipeline Company's
proposed acquisition of Kern River Corporation, which is a wholly-owned
subsidiary of Tennessee Gas Pipeline Company and which is one of two
equal partners in the Kern River Gas Transmission Company.
<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, 1995
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, 1995,
1994 and 1993
Consolidated balance sheets -- December 31, 1995 and 1994
Consolidated statements of common shareholders' equity -- Years
ended December 31, 1995, 1994 and 1993
Consolidated statements of cash flows -- Years ended December 31,
1995, 1994 and 1993
Notes to consolidated financial statements
Financial statements 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, 1995 and
1994, 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, 1995. 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Questar Corporation and subsidiaries at December 31,
1995 and 1994, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Notes A and J to the financial statements, Questar
Corporation changed its method of accounting for certain equity
securities and postemployment benefits in 1994.
ERNST & YOUNG LLP
Salt Lake City, Utah
February 9, 1996
<PAGE>
QUESTAR CORPORATION AND SUBSIDIAIRES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
REVENUES $649,287 $670,318 $660,430
OPERATING EXPENSES
Natural gas purchases 199,419 212,528 224,500
Operating and maintenance 179,725 174,080 168,835
Depreciation and amortization 96,292 93,037 86,758
Other taxes 31,825 36,015 32,043
TOTAL OPERATING EXPENSES 507,261 515,660 512,136
OPERATING INCOME 142,026 154,658 148,294
INTEREST AND OTHER INCOME 17,314 4,957 3,632
WRITE-DOWN OF INVESTMENT IN NEXTEL
COMMUNICATIONS - Note A (61,743)
DEBT EXPENSE (42,815) (39,811) (33,984)
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 116,525 58,061 117,942
INCOME TAXES - Note G 32,739 8,644 33,478
INCOME FROM CONTINUING OPERATIONS 83,786 49,417 84,464
DISCONTINUED OPERATIONS - Note B
Gain from sale of Questar Telecom
to Nextel Communications 38,126
Loss from operations (2,772)
NET INCOME $83,786 $87,543 $81,692
EARNINGS PER COMMON SHARE
Income from continuing operations $2.05 $1.21 $2.10
Gain from sale of discontinued
operations 0.95
Loss from discontinued operations (0.07)
Net income $2.05 $2.16 $2.03
Average common shares outstanding 40,552 40,292 39,995
</TABLE>
See notes to consolidated financial statements.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1995 1994
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments - Note E $5,122 $7,549
Accounts receivable 97,334 116,625
Unbilled gas accounts
receivable - Note I 25,149 26,456
Federal income taxes receivable 4,045
Inventories, at lower of average
cost or market
Gas stored underground 18,829 22,166
Materials and supplies 9,281 7,932
Total inventories 28,110 30,098
Prepaid expenses and deposits 10,965 12,397
TOTAL CURRENT ASSETS 170,725 193,125
PROPERTY, PLANT AND EQUIPMENT
Exploration and production 836,347 840,192
Natural gas transmission 632,393 615,313
Natural gas distribution 784,466 739,945
Other operations 77,694 67,720
2,330,900 2,263,170
LESS ALLOWANCES FOR DEPRECIATION
AND AMORTIZATION
Exploration and production 464,990 434,688
Natural gas transmission 212,898 203,008
Natural gas distribution 302,619 280,162
Other operations 40,272 37,678
1,020,779 955,536
NET PROPERTY, PLANT AND EQUIPMENT 1,310,121 1,307,634
OTHER ASSETS
Securities available for sale,
approximates fair value - Note A 52,745 37,578
Investments in unconsolidated affiliates 13,720 10,580
Unamortized costs of reacquired debt 13,221 14,010
Income taxes recoverable from
customers - Note G 12,162 14,244
Other noncurrent assets 11,859 8,404
TOTAL OTHER ASSETS 103,707 84,816
$1,584,553 $1,585,575
</TABLE>
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
1995 1994
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Short-term loans - Notes C and E $77,200 $94,900
Accounts payable and accrued expenses
Accounts payable 80,004 77,470
Customer refund - Note I 11,886
Federal income taxes 1,695
Other taxes 13,554 11,238
Interest payable 7,183 7,301
Other 4,613 10,539
Total accounts payable and
accrued expenses 117,240 108,243
Purchased-gas adjustments 9,182 17,071
Current portion of long-term debt 19,004
TOTAL CURRENT LIABILITIES 222,626 220,214
LONG-TERM DEBT, less current
portion - Notes C and E 421,695 494,684
OTHER LIABILITIES
Unbilled gas revenues - Note I 15,541 20,721
Other 19,159 25,502
TOTAL OTHER LIABILITIES 34,700 46,223
DEFERRED INVESTMENT TAX CREDITS 7,271 7,672
DEFERRED INCOME TAXES - Note G 180,629 156,869
COMMITMENTS AND CONTINGENCIES - Note H
REDEEMABLE CUMULATIVE PREFERRED
STOCK - Notes D and E 4,957 6,324
COMMON SHAREHOLDERS' EQUITY - Note F
Common stock - without par value;
175,000,000 shares authorized;
40,697,814 outstanding in 1995
and 40,428,739 outstanding in 1994 283,776 276,555
Retained earnings 438,284 401,577
Note receivable from employee
investment plan (ESOP) (21,238) (24,543)
Unrealized gain on securities
available for sale,
net of income taxes 11,853
TOTAL COMMON SHAREHOLDERS' EQUITY 712,675 653,589
$1,584,553 $1,585,575
</TABLE>
See notes to consolidated financial statements.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION> Note Unrealized gain
Common Stock Retained Receivable on securities
Shares Amount Earnings from ESOP available for sale
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1993 39,794,913 $260,539 $321,690 ($28,419)
Issuance of common stock 431,081 10,547
Purchase of Questar common stock (56,595) (1,979)
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
Collection of note receivable
from ESOP 1,617
Balances at December 31, 1993 40,169,399 269,107 359,637 (26,802)
Issuance of common stock 270,718 7,813
Purchase of Questar common stock (11,378) (365)
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
Collection of note receivable
from ESOP 2,259
Balances at December 31, 1994 40,428,739 276,555 401,577 (24,543)
Issuance of common stock 290,410 7,841
Purchase of Questar common stock (21,335) (620)
1995 net income 83,786
Payment of dividends
Preferred stock (483)
Common stock - $1.16 per share (47,042)
Income tax benefit of dividends
paid to ESOP 446
Collection of note receivable
from ESOP 3,305
Unrealized gain on securities
available for sale net $11,853
of income taxes
Balances at December 31, 1995 40,697,814 $283,776 $438,284 ($21,238) $11,853
</TABLE>
See notes to consolidated financial statements.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $83,786 $87,543 $81,692
Depreciation and amortization 101,093 97,567 91,196
Deferred income taxes 16,417 (20,029) (1,870)
Deferred investment tax credits (401) (417) (429)
Gain from sales of securities (4,438)
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
196,457 188,281 173,361
Changes in operating assets and liabilities
Accounts receivable 20,598 (4,215) 705
Inventories 1,988 (170) 5,532
Prepaid expenses and deposits 274 (1,013) 728
Accounts payable and accrued expenses 9,313 (10,649) 16,263
Federal income taxes (5,740) (172) 658
Purchased-gas adjustments (7,889) (8,656) 1,245
Other (10,830) (31) (3,510)
NET CASH PROVIDED FROM OPERATING
ACTIVITIES 204,171 163,375 194,982
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (114,820) (267,515) (160,559)
Investment in discontinued operations (8,080) (5,300)
Other investments (3,368) (1,287) (2,529)
Total capital expenditures (118,188) (276,882) (168,388)
Proceeds from disposition of property,
plant and equipment, and investments 11,406 12,217 8,125
Proceeds from sales of securities 9,789
CASH USED IN INVESTING ACTIVITIES (96,993) (264,665) (160,263)
FINANCING ACTIVITIES
Issuance of common stock 7,841 7,813 10,547
Purchase of Questar common stock (620) (365) (1,979)
Redemption of preferred stock (1,367) (1,201) (1,201)
Issuance of long-term debt 2,000 155,000 129,227
Repayment of long-term debt (55,985) (32,029) (138,108)
Change in short-term loans (17,700) 16,600 8,300
Collection of note receivable from ESOP 3,305 2,259 1,617
Income tax benefit of dividends
paid to ESOP 446 516 560
Payment of dividends (47,525) (46,119) (44,305)
CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES (109,605) 102,474 (35,342)
CHANGE IN CASH AND SHORT-TERM
INVESTMENTS (2,427) 1,184 (623)
BEGINNING CASH AND SHORT-TERM
INVESTMENTS 7,549 6,365 6,988
ENDING CASH AND SHORT-TERM
INVESTMENTS $5,122 $7,549 $6,365
</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, production and
marketing operations (E&P group) are conducted by Celsius Energy
Company (Celsius Energy), Universal Resources Corporation and its
division, Questar Energy Company, (Universal Resources) and Wexpro
Company (Wexpro). Natural gas transmission, gathering and storage
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 Utah Public Service
Commission (UPSC) and the Public Service Commission of Wyoming
(PSCW). While Mountain Fuel also serves a small area of
southeastern Idaho, the Idaho Public Service Commission has
deferred to the UPSC for rate oversight of this area. 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.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts of assets and liabilities and disclosure of contingent
liabilities reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Revenue Recognition: Revenues are recognized in the period that
services are provided or products are delivered. Mountain Fuel
accrues 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
UPSC and PSCW whereby purchased-gas costs that are different from
those provided for in present rates are accumulated and recovered
or credited through future rate changes.
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 the 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 development activities under
the terms of the Wexpro settlement agreement (See Note K). In
March, the FASB issued SFAS No.121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
The Company will adopt Statement No. 121 in 1996 and does not
expect a significant effect to either operating results or the
balance sheet.
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, transmission,
storage and gathering property, plant and equipment and production
plants are amortized using the straight-line method. The costs of
oil and gas wells and leaseholds are amortized using the
units-of-production method. Average depreciation and amortization
rates used were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Exploration and production, per
Mcf equivalent
Full-cost amortization rate $0.80 $0.78 $0.80
Wexpro depreciation rate $0.44 $0.39 $0.48
Natural gas transmission 3.7% 3.6% 3.6%
Natural gas distribution
Distribution plant 3.9% 4.0% 3.9%
Gas wells, per Mcf $0.17 $0.17 $0.18
Other operations 6.8% 9.0% 12.4%
</TABLE>
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. Management
believes that its credit-review procedures, loss reserves and
customer deposits have adequately provided for usual and customary
credit-related losses. The carrying amount of trade receivables
approximates fair value.
Oil and Gas Price and Interest Rate Risk Management: The E&P group
enters into swaps, futures contracts or option agreements to hedge
exposure to price fluctuations in connection with marketing of the
Company's 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.
The Company does not enter into financial derivatives for trading
purposes.
The Company has entered into interest rate swaps for the purpose of
managing interest rate exposure. Amounts payable or receivable
under these agreements are recorded as interest expense in the
accounting period incurred.
Securities Available for Sale: Securities available for sale are
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 balance sheet
date based on the market value. Gains or losses resulting from the
sale of securities are included in the determination of income.
Available-for-sale securities at December 31, consisted of
3,575,950 shares in 1995 and 3,875,950 shares in 1994 of Nextel
Communications common stock. At December 31, 1994, Questar
Corporation wrote-down its investment in Nextel shares to
$37,578,000 to reflect an other-than-temporary decline in value.
Investments 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, Western Market Center,
and Blacks Fork Gas Processing Company. The Company's investment in
these affiliates equals the underlying equity in net assets.
Income Taxes: Regulated operations record 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. 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 rate-regulated subsidiaries 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.
Capitalized Interest: The Company's rate-regulated subsidiaries
capitalize the cost of capital during the construction period of
plant and equipment. The Company's non-rate-regulated subsidiaries
capitalize interest costs when applicable. Allowance for Funds
Used During Construction amounted to $784,000 in 1995, $1,759,000
in 1994 and $1,725,000 in 1993.
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, which
includes ESOP shares, 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.
Other Information: Operations by line of business are contained in
the section titled "Operations by Line of Business."
Reclassifications: Certain reclassifications were made to the 1994
and 1993 financial statements to conform with the 1995
presentation.
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 received registered shares of Nextel
Communications in July 1995.
Questar Telecom incurred a net loss of $2,772,000 for the nine
months ended September 30, 1993, that was reported as a loss from
discontinued operations. The net loss included revenues of
$14,517,000, expenses of $18,944,000 and an income tax credit of
$1,655,000. The Company's net investment in Questar Telecom at the
closing date of the sale was $37,578,000. The net investment
included net assets at September 30, 1993, of $29,498,000 plus
additional expenditures and closing costs of $8,080,000 as
specified in the sales agreement.
Note C - Debt
The Company has short-term line-of-credit arrangements with several
banks under which it may borrow up to $145,700,000. These lines
have interest rates generally below the prime interest rate and are
renewable annually. At December 31, 1995, short-term bank loans
outstanding were $10,000,000 with an average interest rate of 5.97%
and commercial-paper borrowings were $67,200,000 with an average
interest rate of 6.00%. At December 31, 1994, short-term bank
loans outstanding were $9,600,000 with an average interest rate of
5.95% and commercial-paper borrowings were $85,300,000 with an
average interest rate of 5.96%. 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>
1995 1994
(In Thousands)
<S> <C> <C>
Exploration and production
Revolving-credit term loan due 1999
with variable interest rates (6.42%
at December 31, 1995) $53,000 $100,000
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 175,000 175,000
Questar
Revolving-credit term loan due 1998
with variable with varible interest
rates (6.16% at December 31, 1995) 43,000 50,000
8.25% ESOP notes due 1996 19,000 19,000
8.28% ESOP notes due 1997 - 1999 16,000 16,000
Other 174 178
Total long-term debt outstanding 441,174 495,178
Less current portion 19,004
Less unamortized debt discount 475 494
$421,695 $494,684
</TABLE>
Maturities of long-term debt for the five years following December
31, 1995, are as follows:
(In Thousands)
1996 $19,004
1997 11,300
1998 74,800
1999 25,900
2000 -
Cash paid for interest was $42,487,000 in 1995, $38,110,000 in 1994
and $33,414,000 in 1993.
Note D - Redeemable Cumulative Preferred Stock
Mountain Fuel has authorized 4,000,000 shares of nonvoting
redeemable cumulative preferred stock with no par value, but a
stated and redemption value of $100 per share. During 1995, the
remaining shares of the $8.625 series were fully redeemed.
<TABLE>
<CAPTION>
8% Series $8.625 Series
(In Thousands)
<S> <C> <C>
Balance at January 1, 1993 $5,126 $3,600
1993 redemption of stock (1) (1,200)
1994 redemption of stock (1) (1,200)
1995 redemption of stock (167) (1,200)
Balance at December 31, 1995 $4,957 -
</TABLE>
Redemption requirements for the five years following December 31,
1995, are as follows:
(In Thousands)
1996 $97
1997 180
1998 180
1999 180
2000 180
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, 1995 December 31, 1994
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and short-term investments $5,122 $5,122 $7,549 $7,549
Financial liabilities
Short-term loans 77,200 77,200 94,900 94,900
Long-term debt 440,699 476,133 494,684 485,251
Redeemable cumulative preferred stock 4,957 5,006 6,324 6,377
Gas and oil price hedging activities 73,385 69,770 97,318 90,894
</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; (5) Gas and oil price hedging - the fair
value of contracts is based on market prices as posted on the NYMEX
at the end of the year. Fair value is calculated at a point in time
and does not represent what the Company would pay to retire the
debt securities and in the case of gas and oil price hedging
activities does not consider the physical side of gas and oil
transactions.
Price Risk Management: The E&P group periodically enters into
swaps, futures contracts or option agreements to hedge its exposure
to price fluctuations in connection with marketing of the Company's
production of natural gas and oil, and to secure a known margin for
the purchase and resale of gas in marketing activities. While it is
a primary objective of the E&P group to protect product sales
against changes in market prices, hedging transactions give rise to
market risk, which results from changes in market prices. Any loss
is reported along with any gain as a factor in determining revenues
when products are sold.
At December 31, the E&P group held hedge contracts covering prices
for about 56 million decatherms (dth) of natural gas in 1995, and
45 million dth of natural gas and 334,000 barrels of oil in 1994.
The gas contracts are primarily for gas marketing activities. The
1995 contracts, which primarily were swaps, have terms extending
through December 1997; however, approximately 92% terminate by
year-end 1996. Face value of these contracts at December 31, 1995
was $73.4 million, which exceeded market value by $3.6 million.
Deferred losses on anticipated transactions are not material.
Interest Rate Risk Management: In December 1995, the E&P group
entered into a three-year interest-rate-swap agreement covering $25
million notional principal of floating-rate debt. The E&P group
recognizes interest expense and receives a payment based on LIBOR
(5.94% at December 31, 1995) in exchange for making a payment at a
fixed rate of 5.55%. The LIBOR rate is reset every three months
and the agreement terminates January 1999.
Note F - Common Stock
Employee Investment Plan: The Employee Investment Plan (ESOP)
allows eligible employees to purchase shares of Questar Corporation
common stock or other investments through payroll deduction. The
Company makes matching contributions of common stock to the ESOP of
approximately 75% of the employees' purchases and contributes an
additional $200 of common stock in the name of each eligible
employee. 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 1995, $2,892,000 in 1994 and $2,918,000 in 1993.
The ESOP is repaying the loan to the Company over ten years using
Company contributions and dividends on LESOP shares. As the LESOP
loan is repaid, shares are released and allocated to employee
accounts. Employees' accounts are credited with an equivalent
number of shares for dividends paid on allocated LESOP shares and
used by the ESOP to repay the Company. Of the 1,992,884 shares
purchased by the ESOP, 1,111,554 were allocated and 881,330 were
unallocated as of December 31, 1995. The Company's contribution to
the LESOP is determined by the amount of debt service required
after considering dividends paid on LESOP shares. The Company's
expense and contribution to the ESOP, dividends paid by the Company
to the ESOP, and income tax benefits for dividends paid on ESOP
shares and dividends paid directly to the ESOP are summarized
below:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Company's expense and contribution to the
ESOP $3,249 $2,956 $2,832
Dividends paid by the Company to the ESOP:
Allocated shares $1,298 $1,102 $919
Unallocated shares 1,167 1,350 1,463
$2,465 $2,452 $2,382
Income tax benefits for dividends paid on
ESOP shares were recorded as:
Reduction of income tax expense $496 $422 $351
Direct increase to retained earnings 446 516 560
$942 $938 $911
</TABLE>
Dividend Reinvestment and Stock Purchase Plan: The 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 144,414 shares in 1995, 164,124 shares in
1994 and 148,708 shares in 1993. At December 31, 1995; 751,327
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 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 will expire in May 1996
unless amended.
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, in October 1995, effective for financial statements
for fiscal years beginning after December 15, 1995. Statement
No. 123 generally requires a company to measure the effect of
transactions based in a company's stock at the fair value of the
stock on the date of issuance. However, statement No. 123 also
allows a company to choose to either calculate earnings based on
fair value of the stock or to continue to account for stock-based
transactions using an intrinsic value. Generally, no expense is
recorded under the intrinsic value method because option price
equals market value on the grant date. Management expects to
continue recording stock-based transactions based on intrinsic
value. The Company will adopt statement No. 123 for the 1996
Annual Report to Shareholders.
Transactions involving option shares in the Stock Plans are
summarized as follows:
<TABLE>
<CAPTION>
Price
Shares Range
<S> <C> <C> <C>
Balance at January 1, 1993 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 17.69 - 31.50
Granted 413,800 27.38
Cancelled (15,871) 18.81 - 31.50
Exercised (150,984) 17.69 - 31.50
Balance at December 31, 1995 1,479,263 $17.69 - $31.50
</TABLE>
Exercisable at December 31, 1995 873,388
Available for future grant at December 31, 1995 505,722
Shareholder Rights: On February 13, 1996, Questar's Board of
Directors declared a stock right dividend for each outstanding
share of common stock. The stock rights will be issued March 25,
1996. The rights become exercisable if a person, as defined by the
plan, acquires 15% or more of the Company's common stock or
announces an offer for 15% or more of the common stock. Each right
initially represents the right to buy one share of the Company's
common stock for $175. Once any person acquires 15% or more of the
Company's common stock, the rights are automatically modified.
Each right not owned by the 15% 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 15% 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 $.01 per right until 10 days
after a person acquires 15% ownership of the common stock. The
rights expire March 25, 2006.
Note G - Income Taxes
At December 31, 1995, the Company had net operating loss
carryforwards of $15,273,000 which expire from 1999 through 2001.
These net operating loss carryforwards were acquired by Questar
when it purchased Universal Resources and can be used to offset
Universal Resources' future taxable income. The tax benefit of
these carryforwards at December 31, 1995, is $5,346,000. In
addition to net operating loss carryforwards, the Company acquired
percentage depletion and investment tax credit carryforwards with a
total tax benefit of $4,328,000, which was fully offset by a
valuation allowance.
The components of income taxes were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Federal
Current $15,419 $13,329 $30,878
Deferred 14,244 (6,103) (2,044)
State
Current 1,599 1,704 4,899
Deferred 1,878 131 174
Deferred investment tax credits (401) (417) (429)
$32,739 $8,644 $33,478
</TABLE>
The difference between income tax expense reported and the tax computed by
applying the statutory federal income tax rate to income from continuing
operations before income taxes is explained as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Income from continuing operations
before income taxes $116,525 $58,061 $117,942
Federal income taxes at statutory rate $40,784 $20,321 $41,280
State income taxes, net of federal
income tax benefit 2,918 1,239 3,358
Tight-sands gas production credits (8,395) (10,289) (11,026)
Investment tax credits utilized (401) (417) (429)
Capital loss carryforwards recognized (694) (2,498)
Tax benefits from dividends paid to ESOP (446) (422) (351)
Increase in federal income tax rate 1,027
Adjustment to deferred income tax rate (571) (1,268)
Deferred taxes related to regulated assets
assets for which deferred taxes were
not provided in prior years 772 772 744
Other (1,228) (62) 143
Income tax expense $32,739 $8,644 $33,478
Effective income tax rate 28.1% 14.9% 28.4%
</TABLE>
Significant components of the Company's deferred tax liabilities
and assets were as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
(In Thousands)
<S> <C> <C>
Deferred tax liabilities
Property, plant and equipment $191,894 $186,752
Unamortized debt reacquisition costs 5,018 5,289
Pension costs 1,845 969
Income taxes recoverable from customers 4,855 5,344
Other 14,587 8,476
Total deferred tax liabilities 218,199 206,830
Deferred tax assets
Alternative minimum tax and production
credit carryforwards 13,145 14,829
Net operating loss carryforwards 5,346 5,901
Unbilled revenues 5,905 7,574
Depletion and ITC carryforwards 4,328 6,417
Purchased-gas adjustments 3,489 8,486
Deferred investment tax credits 2,746 2,910
Other 6,939 10,261
Total deferred tax assets 41,898 56,378
Less a valuation allowance for
deferred tax assets 4,328 6,417
Net deferred tax assets 37,570 49,961
Net deferred tax liabilities $180,629 $156,869
</TABLE>
Cash paid for income taxes was $23,232,000 in 1995, $29,974,000 in
1994 and $25,588,000 in 1993.
Note H - Litigation, Environmental Matters and Commitments
The Company was 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. Clean-up of the site was essentially completed in 1995.
Future efforts will be focused on maintenance of a groundwater
filtration system at the site. Entrada began remediation in 1994
under a plan approved by both the Environmental Protection Agency
and the Utah Department of Health. Settlements were reached with
the other major potentially responsible parties and an accrual was
established for the remedial work costs. Management believes that
current accruals of $982,000, recorded in deferred credits, will be
sufficient for estimated remaining clean-up and site-maintenance
costs, which are expected to be incurred over the next several
years. Total cost of the clean-up project through December 31,
1995 was $19,892,000. The Company has recorded a receivable from
an insurance company of $1,642,000 for expected payments related to
the Wasatch Chemical cleanup. Additional amounts may be collected
from the insurance company if future clean-up costs are higher than
anticipated.
The Company has received notice that it may be partially liable in
several additional environmental cleanup 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
$44,892,000 in 1995, $73,682,000 in 1994 and $85,909,000 in 1993.
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)
1996 $17.0
1997 2.0
1998 2.0
1999 2.1
2000 2.2
Note I - Rate Matters
Questar Pipeline filed a general rate case with the FERC on July
31, 1995, seeking an increase in jurisdictional revenues. The
request for additional revenues was intended to recover the costs
of enhanced service to customers, meet regulatory requirements and
collect costs associated with employee postretirement benefits. By
order issued August 31, 1995, Questar Pipeline's rate filing was
accepted with an effective date of February 1, 1996, subject to
refund. Questar Pipeline expects to reach a settlement, which would
avoid a lengthy hearing process.
Questar Pipeline concurrently filed a plan with the FERC to
transfer about $53 million of gathering assets, net of accumulated
depreciation, to Questar Gas Management Company, a wholly-owned
subsidiary. The FERC approved the transfer February 28, 1996.
On August 11, 1995, the UPSC approved a settlement of Mountain
Fuel's general rate case filed April 13, 1995. Mountain Fuel
received a $3.7 million increase in revenues. The settlement, which
became effective September 1, allowed the Company to implement a
weather normalization adjustment, provided about $2 million in
additional revenues through a new-premises fee and added about $1.7
million from sharing capacity-release revenues. The settlement did
not specify an authorized return on equity, but Mountain Fuel's
allowed return on rate base increased from 10.08% to between 10.22%
and 10.34%.
In December 1995, Mountain Fuel requested approval from the UPSC to
make a lump sum refund of gas costs to Utah customers. The UPSC
agreed with the procedure and the refund will appear as a credit on
customers' February 1996 gas bills. A surplus of gas costs
collected in 1995 led to the refund. The lump-sum refund was
chosen as a mechanism to more quickly credit customers' accounts.
Normally, amortization of either over-or under-collected gas costs
requires about 12 months.
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 UPSC. 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 resulted in additional
net income of about $3.5 million in 1994.
Note J - Employee Benefits
Pension Plan: The Company has a defined-benefit pension plan
covering the majority of its 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>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Service cost $5,940 $7,167 $6,190
Interest cost 16,162 15,411 15,315
Actual gain on plan assets (47,543) (13) (22,027)
Net amortization and deferral 31,535 (16,677) 7,116
Pension cost $6,094 $5,888 $6,594
</TABLE>
Assumptions used to calculate cost at January 1, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Discount rate 8.50% 7.00% 8.00%
Rate of increase in compensation 6.35% 5.35% 6.35%
Long-term return on assets 8.50% 8.50% 8.50%
</TABLE>
The Company used a discount rate of 7% and a rate of increase in
compensation of 5.35% to measure the actuarial present value of
benefits at December 31, 1995. The status of the plan at December
31 was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Actuarial present value of benefits
Vested benefits $158,335 $133,390 $138,650
Nonvested benefits 25,248 21,336 18,951
Accumulated benefit obligation 183,583 154,726 157,601
Effect of projected future salary increase 55,725 42,619 59,798
Projected benefit obligation 239,308 197,345 217,399
Fair value of plan assets 225,963 200,349 203,053
Plan assets in excess of (less than)
projected benefit obligation (13,345) 3,004 (14,346)
Unrecognized net losses 15,060 337 15,707
Unrecognized transition obligation 783 926 1,069
Unrecognized prior service cost 4,089 3,437 4,385
Prepaid pension cost $6,587 $7,704 $6,815
</TABLE>
Postretirement Benefits Other Than Pensions: The Company pays a
portion of the health-care costs and all the life insurance costs
for employees who retired prior to January 1, 1993. The plan 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. Employees hired after December 31, 1996, will not
qualify for benefits under this plan. 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 is amortizing the transition obligation over
a 20-year period. A table listing the primary components of the
costs of postretirement benefits other than pensions is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Service cost $956 $1,207 $874
Interest cost 3,871 3,768 3,573
Actual gain on plan assets (2,600) (334) (636)
Amortization of transition obligation 1,971 2,016 1,971
Net amortization and deferral 1,598 (378) 136
Postretirement benefit cost $5,796 $6,279 $5,918
</TABLE>
Assumptions used to calculate cost at January 1, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Discount rate 8.50% 7.00% 7.00%
Long-term return on assets 8.50% 8.50% 8.50%
Health-care inflation rate 13.00% 13.50% 13.50%
decreasing to decreasing to decreasing to
6.50% 5.50% 6.50%
by .50% per year
</TABLE>
A 1% increase in the health-care inflation rate would increase the
service cost by $102,000, the interest cost by $338,000 and the
accumulated benefit obligation by $4,660,000.
The Company used a discount rate of 7% to measure the actuarial
present value of benefits at December 31, 1995. The status of the
postretirement benefit programs at December 31, was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Accumulated postretirement benefit
obligation
Retired employees and beneficiaries $33,228 $29,758 $35,409
Active employees 22,772 20,403 19,193
56,000 50,161 54,602
Plan assets 16,748 11,305 8,581
Accumulated benefit obligation in
excess of plan assets 39,252 38,856 46,021
Unrecognized transition obligation (33,514) (35,370) (37,458)
Unrecognized gains (losses) (432) 679 (6,788)
Accrued postretirement benefit
liability $5,306 $4,165 $1,775
</TABLE>
Mountain Fuel and Questar Pipeline account for approximately 55%
and 18% of the postretirement benefit costs, respectively. The
impact of postretirement benefit costs on Questar's future net
income will be mitigated by recovery of these costs from customers.
Both the UPSC and the PSCW allowed Mountain Fuel to recover future
costs if the amounts are funded in an external trust. The FERC
issued an order granting a 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 for the jurisdictional portion of future postretirement
benefit costs in its current general rate case and to recover costs
in excess of the amounts currently included in rates for the period
from January 1, 1993 to December 31, 1995.
Postemployment Benefits: The Company recognizes 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. The Company accrues both current and future costs. The UPSC
and the PSCW have allowed Mountain Fuel to recover postemployment
costs at December 31, 1994 in future rates. Questar Pipeline
expects the FERC to allow recovery for the jurisdictional portion
of postemployment costs in future rates as part of its current
general rate case. At December 31, 1995, the Company's
rate-regulated subsidiaries had a total balance of $1,474,000
recorded as a regulatory asset. A summary of postemployment costs
is as follows:
<TABLE>
<CAPTION>
December 31, December 31, January 1,
1995 1994 1994
<S> <C> <C> <C>
Postemployment benefits $1,994,000 $1,872,000 $3,268,000
Assumptions used to calculate costs were as follows:
Discount rate 7.00% 8.50% 7.00%
Health-care inflation rate 12.50% 13.00% 13.50%
decreasing to decreasing to decreasing to
5.00% 6.50% 6.50%
by .50% per year
</TABLE>
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 UPSC 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 14.03%. 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 19.03%. 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
currently is 22.03%.
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 14.03%.
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. Production from noncost-of-service
properties 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
operating costs are recovered and 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,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Proved properties $631,580 $621,732 $530,591
Unproved properties 18,307 19,756 14,613
649,887 641,488 545,204
Accumulated depreciation and
amortization 388,957 364,360 333,656
$260,930 $277,128 $211,548
</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, 1995, and the year in which these costs were incurred
is as follows:
<TABLE>
<CAPTION>
Year Costs Incurred
1992 and
Total 1995 1994 1993 Prior
(In Thousands)
<S> <C> <C> <C> <C> <C>
Leaseholds $10,976 $1,922 $4,360 $495 $4,199
Exploration 7,331 1,724 1,232 1,200 3,175
$18,307 $3,646 $5,592 $1,695 $7,374
</TABLE>
Costs Incurred: The following costs were incurred in
noncost-of-service oil- and gas-producing activities.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Property acquisition
Unproved $1,162 $5,623 $1,262
Proved 731 99,892 1,228
Exploration 3,978 5,877 8,141
Development 14,701 16,488 22,385
$20,572 $127,880 $33,016
</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,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Revenues
From unaffiliated customers $85,185 $104,498 $94,621
From affiliates 14 15 1,055
Total revenues 85,199 104,513 95,676
Production expenses 27,076 27,085 26,282
Oil-income sharing under Wexpro
settlement agreement 3,400 3,391 1,028
Depreciation and amortization 35,085 38,046 33,386
Total expenses 65,561 68,522 60,696
19,638 35,991 34,980
Income tax expense - Note 1 3,249 7,433 7,101
Results of operations before corporate
overhead and interest expenses $16,389 $28,558 $27,879
</TABLE>
Note 1 - Income tax expense has been reduced by tight-sands gas
production credits of $4,019,000 in 1995, $5,619,000 in 1994 and
$5,563,000 in 1993.
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, 1993 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
Revisions of estimates 6,156 909
Extensions and discoveries 15,912 436
Purchase of reserves in place 2,679 24
Sale of reserves in place (1,225) (23)
Production (32,663) (2,436)
Balance at December 31, 1995 258,687 12,444
Proved Developed Reserves
Balance at January 1, 1993 182,278 10,558
Balance at December 31, 1993 183,494 9,743
Balance at December 31, 1994 252,677 12,707
Balance at December 31, 1995 245,357 11,756
</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, 1995 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 accounting standards 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,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Future cash inflows $614,469 $649,644 $513,015
Future production and development costs (206,712) (222,894) (161,969)
Future income tax expenses (59,093) (54,203) (67,060)
Future net cash flows 348,664 372,547 283,986
10% annual discount for estimated
timing of net cash flows (126,582) (135,297) (103,514)
Standardized measure of discounted
future net cash flows $222,082 $237,250 $180,472
</TABLE>
The principal sources of change in the standardized measure of
discounted future net cash flows were:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Beginning balance $237,250 $180,472 $220,074
Sales of oil and gas produced, net of
production costs (58,123) (77,428) (69,394)
Net changes in prices and production costs 1,468 (15,667) (34,401)
Extensions and discoveries,
less related costs 14,381 20,524 19,688
Revisions of quantity estimates 9,012 (4,173) 11,370
Purchase of reserves in place 731 99,892 1,228
Sale of reserves in place (1,062) (10,873) (6,043)
Accretion of discount 23,725 18,047 22,007
Net change in income taxes 368 12,220 13,639
Change in production rate (298) 1,046 (1,433)
Other (5,370) 13,190 3,737
Net change (15,168) 56,778 (39,602)
Ending balance $222,082 $237,250 $180,472
</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,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Mountain Fuel $37,485 $40,991 $44,708
Wexpro 89,431 98,134 92,561
$126,916 $139,125 $137,269
</TABLE>
Costs Incurred: Costs incurred by Wexpro for cost-of-service
gas-producing activities were $4,827,000 in 1995, $15,636,000 in
1994 and $21,829,000 in 1993.
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, 1993 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
Revisions of estimates (831) 10
Extensions and discoveries 10,591 2
Production (36,632) (57)
Balance at December 31, 1995 389,440 662
</TABLE>
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
(In Thousands, Except Per Share Amounts)
1995
<S> <C> <C> <C> <C> <C>
Revenues $215,932 $138,569 $111,922 $182,864 $649,287
Operating income 50,352 24,964 16,133 50,577 142,026
Net income 27,073 14,562 11,940 30,211 83,786
Earnings per common share 0.67 0.35 0.29 0.74 2.05
Dividends per common share 0.285 0.285 0.295 0.295 1.16
Market price per common share
High 30 1/8 31 33 33 3/4 33 3/4
Low 26 1/8 28 27 1/2 28 5/8 26 1/8
Close $30 $28 3/4 $32 $33 1/2 $33 1/2
Price-earnings ratio on closing price 14.6 13.9 13.9 16.3 16.3
Annualized dividend yield on closing price 3.8% 4.0% 3.7% 3.5% 3.5%
Market-to-book ratio on closing price 1.78 1.70 1.87 1.91 1.91
Average number of common shares traded per 85 65 75 77 75
1994
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 Communications (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 Communications 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 $0.28 $0.29 $0.29 $0.29 $1.13
Market price per common share
High 35 1/4 34 3/8 33 1/2 29 3/8 35 1/4
Low 29 7/8 29 3/8 28 26 5/8 26 5/8
Close $30 1/4 $32 3/8 $28 3/8 $27 1/2 $27 1/2
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 $0.27 $0.28 $0.28 $0.28 $1.09
Market price per common share
High 31 3/8 34 3/4 42 3/4 44 44
Low 25 3/8 30 1/4 33 31 1/2 25 3/8
Close $31 3/8 $34 1/2 $42 1/2 $33 $33
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
</TABLE>
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 Prod. Transmission Distribution Oper. Trans. Consolidated
(In Thousands)
1995
<S> <C> <C> <C> <C> <C> <C>
Revenues
From unaffiliated customers $245,264 $43,316 $358,758 $1,949 $649,287
From affiliates 64,202 74,039 4,011 29,570 ($171,822)
309,466 117,355 362,769 31,519 (171,822) 649,287
Operating expenses
Natural gas purchases 146,856 190,606 (138,043) 199,419
Operating and maintenance 47,664 44,634 93,384 24,422 (30,379) 179,725
Depreciation and amortization 50,044 16,614 25,469 4,165 96,292
Other expenses 20,577 4,170 9,588 890 (3,400) 31,825
265,141 65,418 319,047 29,477 (171,822) 507,261
Operating income 44,325 51,937 43,722 2,042 142,026
Interest and other income (expense) 6,041 (352) 4,232 11,548 (4,155) 17,314
Debt expense (6,314) (13,472) (16,580) (10,604) 4,155 (42,815)
Income tax (expense) credit (12,137) (13,465) (7,706) 569 (32,739)
Net income $31,915 $24,648 $23,668 $3,555 $83,786
Identifiable assets $427,667 $441,928 $542,503 $172,455 $1,584,553
Capital expenditures 26,656 27,772 51,413 12,347 118,188
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
<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 22nd day of March, 1996.
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/ S. E. Parks Vice President, Treasurer and Chief
S. E. Parks Financial Officer (Principal Financial
and Accounting Officer)
*R. D. Cash Director
*Patrick J. Early 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 22, 1996 *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.)
4.3.* Rights Agreement dated as of February 13, 1996, between the
Company and Chemical Mellon Shareholder Services L.L. C.
pertaining to the Company's Shareholder Rights Plan.
(Exhibit No. 4. to Current Report on Form 8-K dated February
13, 1996.)
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 and restated effective February 13, 1996.
10.3.1 Questar Corporation Executive Incentive Retirement Plan, as
amended and restated effective February 13, 1996.
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 1990.)
10.5.1 Questar Corporation Long-Term Stock Incentive Plan, as
amended and restated effective February 13, 1996.
10.6.1 Questar Corporation Executive Severance Compensation Plan,
as amended and restated effective February 13, 1996.
10.7.1 Questar Corporation Deferred Compensation Plan for
Directors, as amended and restated effective February 13,
1996.
10.8.1 Questar Corporation Supplemental Executive Retirement Plan,
as amended and restated effective February 13, 1996.
10.9.1 Questar Corporation Equalization Benefit Plan, as amended
and restated effective February 13, 1996.
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 effective February 13, 1996.
10.13.1 Questar Corporation Deferred Compensation Plan, as amended
and restated effective February 13, 1996.
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.
</TABLE>
QUESTAR CORPORATION
ANNUAL MANAGEMENT INCENTIVE PLAN
(As amended and restated effective
February 13, 1996)
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 or specified portion 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 major 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.
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 initial
award is (First Year of determined
Participation)
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
during the last month 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 in control, he shall be entitled to
receive all amounts deferred by him prior to February 12, 1991, 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 in control" shall be
deemed to have occurred if (i) any "Acquiring Person" (as that term is
used in the Rights Agreement dated as of February 13, 1996, between the
Company and Chemical Mellon Shareholder Services, L.L.C. ("Rights
Agreement")) is or becomes the beneficial owner (as such term is used in
Rule 13d-3 under the Securities Exchange Act of 1934) of securities of
the Company representing 15 percent 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) a 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.
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.
QUESTAR CORPORATION
EXECUTIVE INCENTIVE RETIREMENT PLAN
(as amended and restated effective February 13, 1996)
1. PURPOSE
The Executive Incentive Retirement Plan (hereinafter referred to
as the Plan) is intended to enable Questar Corporation and its
subsidiaries to meet competition and to attract and retain key
management personnel by helping such individuals to maintain their
standards of living at retirement and providing for their families in
the event of their death.
2. DEFINITIONS
Unless otherwise required by the context, the terms used herein
shall have the meanings set forth below.
"Board" shall mean the Board of Directors of Questar Corporation.
"Company" shall mean Questar Corporation and any other
organization controlled by or controlling Questar Corporation, or any
successor thereto.
"Compensation" of a Nominee shall mean the total base salary paid
to the Nominee by the Company and all Participating Corporations, but
excluding any other forms of additional compensation such as bonuses or
contributions made to or under any form of employee benefit program or
ordinary income recognized as a result of exercising stock options.
Compensation shall include any base salary deferred by the Nominee under
the Company's tax-qualified plans or nonqualified plans and any base
salary reductions under the Company's Cafeteria Plan. Compensation
during a period of leave of absence approved by the Board shall be
assumed to be equal to the Nominee's full time earnings immediately
prior to such leave.
"Dependent" shall mean the unmarried natural or adopted child of
the Nominee prior to the attainment of age 18 by such child, provided
such child is a dependent of such Nominee as defined by the Internal
Revenue Service at the time of death of the Nominee.
"Family Protection Benefit" shall mean the benefit payments
defined in Section 6 of this Plan.
"Final Average Earnings" shall mean the highest average monthly
Compensation paid to the Nominee during any period of 36 consecutive
months of employment with the Company and/or any Participating
Corporation or the average monthly Compensation during the entire period
of employment with the Company and/or any Participating Corporation if
less than 36 months long.
"Nominee" shall mean an employee nominated for participation in
the Plan who agrees to participate by signing an agreement.
"Participating Corporation" shall mean an organization
participating in the Plan in accordance with the provisions of Section
3.
"Participating Service Units" shall mean a measure of employment
with the Company determined as follows: each Nominee shall be credited
with a total of 100 Participating Service Units for each full calendar
year of employment, disability leave, or approved absence with the
Company and/or any Participating Corporation (prorated for any calendar
year in which such Nominee has less than a full calendar year of
employment, disability leave, or approved absence). The Participating
Service Units of a Nominee for any calendar year will be allocated to
the Company and to each other Participating Corporation in the same
proportion that the amount of Compensation paid to the Nominee by each
such organization during the year bears to the total amount of
Compensation paid by all such participating organizations to the Nominee
during such year.
"Regular Retirement Plan" shall mean any retirement plan
maintained by the Company which qualifies as a defined benefit plan
under the terms of ERISA.
"Retirement Benefits" shall mean the benefit payments defined in
Section 5 and Section 6 of the Plan.
"Spouse" shall mean the person to whom the Nominee is legally
married continuously for one year immediately prior to the date of the
Nominee's death if death occurs prior to the Nominee's retirement or
continuously for one year immediately prior to the Nominee's retirement
date if the Nominee's death occurs after retirement.
3. PARTICIPATING CORPORATIONS
The benefits provided to Nominees and their families by the Plan
depend upon the employment and compensation histories of the Nominees.
The Plan will recognize all employment with the Company including
periods of employment with a predecessor organization immediately prior
to the acquisition of control of such organization by the Company.
Recognition of employment by companies or entities becoming affiliated
with the Company in the future shall be at the discretion of the Board.
Compensation paid directly by the Company to the Nominee will be
recognized for the purpose of determining the benefit payable under this
Plan. The amount of Compensation paid by any other organization
affiliated with the Company will be recognized only if the Company's
Board designates such organization as an eligible Participating
Corporation, and the board of directors of such designated organization
adopts a resolution agreeing to participate under the terms of the Plan.
A Participating Corporation may revoke future participation at any time,
except, however, that such revocation shall not deprive any Nominee,
Spouse, or Dependent of benefits hereunder that such Nominee, Spouse or
Dependent is then eligible to receive.
The benefits payable to any Nominee or to the Nominee's family
that depend upon amounts of Compensation paid by two or more
organizations shall be allocated among the organizations in accordance
with the provisions of Section 8.
The Company may provide a funding source for benefits payable
under the Plan by purchasing insurance policies on the lives of
Nominees. The premiums, cash values, loans and interest of any policy
on the life of a Nominee whose benefits depend upon Compensation paid
by two or more organizations will be allocated among the organizations
in accordance with the provisions of Section 9.
4. PARTICIPATION IN THE PLAN AND ELIGIBILITY FOR BENEFITS
Participation in this Plan shall be limited to those key executive
employees of the Company or its affiliates nominated prior to June 20,
1986, by the Company's Board or the Board of Directors of a
Participating Corporation. To become eligible for Retirement Benefits
under the Plan, a Nominee must have continued in the employment of the
Company until completion of 15 years of service or the attainment of age
65, whichever first occurs. Any Nominee who reaches age 65 or who has a
total of 15 years of service with the Company (counting no single annual
period of service more than once), and who is at such time a Nominee of
more than one Participating Corporation, shall be eligible for
Retirement Benefits as herein provided from all participating
organizations having nominated such employee, payable according to the
allocation methodology set forth in Section 8 hereof.
The Company may impose such other terms and conditions as it shall
deem to be desirable including but not limited to an agreement that the
Nominee shall consult upon the request of the Company following
retirement and shall not disclose any trade secrets or other
confidential information and shall engage in no competitive business
activities, directly or indirectly, after retirement.
All Nominees who elect to participate must sign an agreement and
consent to insurance being issued upon their lives to be paid for by the
Company and with the Company as beneficiary and agree to terms and
conditions above specified. Such agreements shall not constitute an
employment contract, and the Company may dismiss or demote such Nominee
as an officer at any time. The Nominee may voluntarily terminate
employment as an officer at any time. A Nominee who ceases to serve as
an officer shall be terminated from this Plan and shall forfeit all
benefit rights under this Plan unless the Nominee has satisfied the
eligibility requirements as hereinafter provided prior to the date on
which service as an officer ends.
5. RETIREMENT BENEFITS
A Nominee who becomes eligible for retirement benefits under the
Company's Regular Retirement Plan shall be eligible to commence
Retirement Benefits under this Plan. Except as set forth in Section 6,
the first payment of Retirement Benefits will be due on the first day of
the month following retirement under the provisions of a Regular
Retirement Plan, and payments will continue on the first of each month
thereafter so long as the Nominee is alive. Nominees of more than one
Participating Corporation must retire from all Participating
Corporations to receive benefits hereunder.
A Nominee who is not eligible to receive benefits under the
Company's Regular Retirement Plan may receive Retirement Benefits under
this Plan if declared eligible to receive such benefits by the Board of
Directors.
The basic monthly retirement amount of such a Nominee shall be ten
percent (10%) of the Final Average Earnings of the Nominee.
6. LUMP-SUM ELECTION
A Nominee has a one-time election to receive the present value of
his Retirement Benefit in a lump sum. The Nominee shall make this
election at least one year prior to his retirement. The present value
of the Retirement Benefit shall be calculated using a standard mortality
table referred to as the "83 Group Annuity Mortality Table" and 80
percent of the six-month average rate for the 30-year Treasury bonds
(with the six-month period ending as of the date of the Nominee's
retirement). When making this election, the Nominee shall also indicate
when the lump-sum payment shall be made and if it is to be made in more
than one installment. The full amount of any lump-sum payment, together
with credited interest, must be paid within five years of the Nominee's
retirement. Any deferred payouts of lump-sum payments shall be credited
with interest calculated at a monthly rate using the appropriate 30-year
Treasury bond quoted in the Wall Street Journal on the first business
day of each month. (The appropriate 10-year Treasury bond shall be the
bond that has the closest maturity date (by month) preceding the date on
which the interest is to be credited.) Any lump-sum payments that are
not deferred shall be paid on the first business day of the month
following the Nominee's retirement date or as soon thereafter as is
administratively practicable. The Nominee's spouse must consent to the
Nominee's election to receive a lump-sum payment. This consent must be
in writing and must acknowledge the effect of such election.
If the Nominee fails to timely make an election prior to his
retirement, the Nominee shall receive monthly Retirement Benefits.
7. FAMILY PROTECTION BENEFITS
A Family Protection Benefit shall become payable upon the event
that the Nominee dies in the active service of the Company or after
retirement and leaves a surviving Spouse or Dependent.
In the event that the Nominee dies after retirement and did not
elect a lump-sum, the amount of the Family Protection Benefit shall be
equal to one-half of the Nominee's Retirement Benefits under this Plan.
The first payment will be due on the first day of the month following
the date of death and payments will continue on the first of each month
thereafter provided that the Spouse or a Dependent is alive and, in the
case of a Dependent, until such Dependent has reached his/her 18th
birthday.
Family Protection Benefit payments shall be paid in full to the
surviving Spouse or divided equally amongst those Dependents who have
not reached their 18th birthdays in the event that there is no Spouse.
8. ALLOCATION OF BENEFITS
Benefit payments from the Plan attributable to a Nominee will be
allocated to and paid directly by the Company and the Participating
Corporations. Unless otherwise agreed to by the boards of directors of
all participating organizations, the allocation to and responsibility
for direct benefit payment of each organization will be in the same
proportion that the total number of Participating Service Units of such
Nominee allocated to the organization throughout the period of
employment with the Company and/or any Participating Corporation bears
to the total number of Participating Service Units for such Nominee.
9. FINANCING THE BENEFITS
The Company may enter into life insurance policies on the lives of
the Nominees to protect against the burdens of premature death and to
provide for an orderly financing program. The policies will be owned by
the Company, and the proceeds will be paid to the Company. The Nominee
will have no beneficial interest in any such insurance policy.
The premium payments, cash values, loans and interest of any
policies on the life of a Nominee for any calendar year will be
allocated among the participating organizations. Unless otherwise
agreed to by the boards of directors of all Participating Corporations,
the allocation to each organization for any premium paid, cash values
accrued, loan taken or interest paid during a year shall be in the same
proportion that the total number of Participating Service Units of such
Nominee allocated to the organization throughout the period of
employment with the Company and/or any Participating Corporation up to
and including such year bears to the total number of Participating
Service Units for such Nominee.
Proceeds from policies on the lives of Nominees will be allocated
in proportion to the total benefits and premiums paid by and for which
each Participating Corporation is ultimately responsible.
10. PAYMENT OF BENEFITS
Benefits as well as premium payments will be the obligation of the
Company and/or Participating Corporations allocated as set forth in the
Plan.
11. ADMINISTRATION
The Management Performance Committee of the Company's Board shall
administer the Plan and may appoint an officer of the Company to assist
the Committee with this responsibility. The Board shall have the sole
responsibility to interpret the Plan and adopt such rules and
regulations for carrying out the Plan as it may deem necessary.
Decisions of the Board shall be final and binding.
12. 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 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.
13. CHANGE IN CONTROL AND LEGAL FEES
The Company shall pay all legal fees and expenses that a Retired
Nominee or a Nominee 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.
In the event that a Change in Control of the Company occurs and a
Nominee's employment with the Company or its successors terminates, the
Nominee shall receive a full lump-sum payment of his Retirement Benefit.
His Retirement Benefit shall be calculated as set forth in Section 6.
As used herein, a Change in Control of the Company shall be deemed
to have occurred if (i) any "Acquiring Person" (as that term is used in
the Rights Agreement dated February 13, 1996, between the Company and
Chemical Mellon Shareholder Services, L.L.C. ("Rights Agreement")) is or
becomes the beneficial owner (as such term is used in Rule 13d-3 under
the Securities Exchange Act of 1934) of securities of the Company
representing 15 percent 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) a plan or liquidation or dissolution of
the Company. 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.
14. AMENDMENT OR TERMINATION
The Board may at any time amend, alter, modify or terminate this
Plan; provided, however, that any such action shall not adversely affect
the rights of any current Nominees or their Spouses or Dependents then
eligible to receive benefits under the Plan on the date of such
amendment, alteration, modification or termination.
QUESTAR CORPORATION
LONG-TERM STOCK INCENTIVE PLAN
As Amended and Restated February 13, 1996
Section 1. Purpose
The Questar Corporation Long-Term Stock Incentive Plan (the
"Plan") is designed to encourage officers and selected key employees of
Questar Corporation and its affiliated companies (the "Company") to
acquire a proprietary interest in the Company, to generate an increased
incentive to contribute to the Company's future growth and success, and
to enhance the Company's ability to attract and retain talented officers
and employees. Accordingly, the Company, during the term of this Plan,
may grant incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock, performance shares, and other
awards valued in whole or in part by reference to the Company's stock.
Section 2. Definitions
"Approved Retirement" shall mean any retirement of service on or
after age 60 or, with approval of the Board, early retirement under the
Company's Retirement Plan.
"Award" shall mean a grant or award under Section 6 through 10,
inclusive, of the Plan, as evidenced in a written document delivered to
a Participant as provided in Section 12(b).
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"Committee" shall mean the Management Performance Committee of the
Board of Directors.
"Common Stock" or "Stock" shall mean the Common Stock, without par
value, of the Company.
"Company" shall mean Questar Corporation on a consolidated basis.
"Designated Beneficiary" shall mean the beneficiary designated by
the Participant, in a manner determined by the Committee, to receive
amounts due the Participant in the event of the Participant's death. In
the absence of an effective designation by the Participant, Designated
Beneficiary shall mean the Participant's estate.
"Disability" shall mean permanent and total disability within the
meaning of Section 105(d)(4) of the Code.
"Employee" shall mean any officer or key employee of the Employer.
"Employer" shall mean the Company and any Subsidiary.
"Fair Market Value" shall mean the closing price of the Company's
Common Stock reported on the New York Stock Exchange on the date in
question, or, if the Stock shall not have been traded on such date, the
closing price on the next preceding day on which a sale occurred.
"Fiscal Year" shall mean the fiscal year of the Company.
"Incentive Stock Option" shall mean a stock option granted under
Section 8 that is intended to meet the requirements of Section 422 of
the Code.
"Nonqualified Stock Option" shall mean a stock option granted
under Section 8 that is not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Nonqualified
Stock Option.
"Participant" shall mean an Employee who is selected by the
Committee to receive an Award under the Plan.
"Payment Value" shall mean the dollar amount assigned to a
Performance Share which shall be equal to the Fair Market Value of the
Common Stock on the day of the Committee's determination under Section
8(c)(2) with respect to the applicable Performance Period.
"Performance Period" or "Period" shall mean the period of years
selected by the Committee during which the performance is measured for
the purpose of determining the extent to which an Award of Performance
Shares has been earned.
"Performance Goals" shall mean the objectives established by the
Committee for a Performance Period, for the purpose of determining the
extent to which Performance Shares which have been contingently awarded
for such Period are earned.
"Performance Share" shall mean an Award granted pursuant to
Section 8 of the Plan expressed as a share of Common Stock.
"Restricted Period" shall mean the period of years selected by the
Committee during which a grant of Restricted Stock or Restricted Stock
Units may be forfeited to the Company.
"Restricted Stock" shall mean shares of Common Stock contingently
granted to a Participant under Section 9 of the Plan.
"Restricted Stock Unit" shall mean a fixed or variable dollar
denominated unit contingently awarded under Section 9 of the Plan.
"Right" shall mean a Stock Appreciation Right granted under
Section 7.
"Stock Unit Award" shall mean an Award of Common Stock or units
granted under Section 10.
"Subsidiary" shall mean any business entity in which the Company
possesses directly or indirectly fifty percent (50%) or more of the
total combined voting power.
Section 3. Administration
The Plan shall be administered by the Committee. The Committee
shall have sole and complete authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the operation
of the Plan, and to interpret the terms and provisions of the Plan. The
Committee's decisions shall be binding upon all persons, including the
Company, stockholders, an Employer, Employees, Participants and
Designated Beneficiaries.
Section 4. Eligibility
Awards may only be granted to officers and key employees of the
Company who have the capacity to contribute to the success of the
Company. When selecting Participants and making Awards, the Committee
may consider such factors as the Employee's functions and
responsibilities and the Employee's past, present and future
contributions to the Company's profitability and growth.
Neither the members of the Committee nor any member of the Board
who is not an employee of the Company shall be eligible to receive
awards.
Nothing contained in the Plan or in any individual agreement
pursuant to the terms of the Plan shall confer upon any Participant any
right to continue in the employment of the Company or to limit in any
respect the right of the Company to terminate the Participant's
employment at any time and for any reason.
Section 5. Maximum Amount Available for Awards
The aggregate number of shares of Common Stock that may be issued
under Awards pursuant to this Plan on an annual basis shall not exceed
one percent (1%) of the issued and outstanding shares of Common Stock as
of the first day of each calendar year for which the Plan is in effect.
Any shares available in any year using this formula that are not granted
under this Plan or other plans in which stock is awarded to employees
would be available for use in subsequent years. Shares of Common Stock
may be made available from the authorized but unissued shares of the
Company or from shares reacquired by the Company, including shares
purchased in the open market. In the event that an Option or Right
expires or is terminated unexercised as to any shares of Common Stock
covered thereby, or any Award in respect of shares is forfeited for any
reason under the Plan, such shares shall thereafter be again available
for Awards pursuant to the Plan, to the extent permitted by applicable
regulations or interpretations adopted by the Securities and Exchange
Commission.
In the event that the Committee shall determine that any stock
dividend, extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, split-up, spin-off, combination, exchange of
shares, warrants or rights offering to purchase Common Stock at a price
substantially below fair market value or other similar corporate event
affects the Common Stock such that an adjustment is required in order to
preserve the benefits or potential benefits intended to be made
available under this Plan, then the Committee, in its sole discretion,
may take action. The Committee may adjust any or all of the number and
kind of shares that thereafter may be awarded or optioned and sold or
made the subject of Rights under the Plan, the number and kind of shares
subject to outstanding Options and other Awards, and the grant, exercise
or conversion price with respect to any of the foregoing and/or, if
deemed appropriate, make provision for a cash payment to a Participant
or a person who has an outstanding Option or other Award.
Section 6. Stock Options
(a) Grant. Subject to the provisions of the Plan, the Committee
shall have sole and complete authority to determine the Employees to
whom Options shall be granted, the number of shares to be covered by
each Option, the option price therefor and the conditions and
limitations, applicable to the exercise of the Option. The Committee
shall have the authority to grant Incentive Stock Options, or to grant
Nonqualified Stock Options, or to grant both types of Options. In the
case of Incentive Stock Options, the terms and conditions of such grants
shall be subject to and comply with such rules as may be prescribed by
Section 422 of the Code and any implementing regulations.
(b) Option Price. The Committee shall establish the option price
at the time each Option is granted, which price shall not be less than
100 percent of the Fair Market Value of the Common Stock on the date of
grant.
(c) Exercise. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Committee, in its sole
discretion, may specify in the applicable Award or thereafter; provided,
however, that in no event may any Option granted hereunder be
exercisable earlier than six months after the date of such grant or
after the expiration of ten years from the date of such grant. The
Committee may impose such conditions with respect to the exercise of
Options, including without limitation, any relating to the application
of federal or state securities laws, as it may deem necessary or
advisable.
No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price is received by the Company.
Such payment may be made in cash, or its equivalent, or, if and to the
extent permitted by the Committee, by exchanging shares of Common Stock
owned by the optionee (which are not the subject of any pledge or other
security interest), or by a combination of the foregoing, provided that
the combined value of all cash and cash equivalents and the Fair Market
Value of any such Common Stock so tendered to the Company, valued as of
the date of such tender, is at least equal to such option price.
Section 7. Stock Appreciation Rights
(a) The Committee may, with sole and complete authority, grant
Rights in tandem with an Option. Rights shall not be exercisable
earlier than six months after grant, shall not be exercisable after the
expiration of ten years from the date of grant and shall have an
exercise price of not less than 100 percent of the Fair Market Value of
the Common Stock on the date of grant.
(b) A Right shall entitle the Participant to receive from the
Company an amount equal to the excess of the Fair Market Value of a
share of Common Stock on the exercise of the Right over the grant price
thereof. The Committee shall determine whether such Right shall be
settled in cash, shares of Common Stock or a combination of cash and
shares of Common Stock.
Section 8. Performance Shares
(a) The Committee shall have sole and complete authority to
determine the Employees who shall receive Performance Shares and the
number of such shares for each Performance Period and to determine the
duration of each Performance Period and the value of each Performance
Share. There may be more than one Performance Period in existence at
any one time, and the duration of Performance Periods may differ from
each other.
(b) The Committee shall establish Performance Goals for each
Period on the basis of criteria selected by it. During any Period, the
Committee may adjust the Performance Goals for such Period as it deems
equitable in recognition of unusual or non-recurring events affecting
the Company, changes in applicable tax laws or accounting principles, or
such other factors as the Committee may determine.
(c) As soon as practicable after the end of a Performance Period,
the Committee shall determine the number of Performance Shares that have
been earned on the basis of performance in relation to the established
Performance Goals. Payment Values of earned Performance Shares shall be
distributed to the Participant or as soon as practicable after the
expiration of the Performance Period and the Committee's determination.
The Committee shall determine whether Payment Values are to be
distributed in the form of cash and/or shares of Common Stock.
Section 9. Restricted Stock and Restricted Stock Units
(a) Subject to the provisions of the Plan, the Committee shall
have sole and complete authority to determine the Employees to whom
shares of Restricted Stock and Restricted Stock Units shall be granted,
the number of shares of Restricted Stock and the number of Restricted
Stock Units to be granted to each Participant, the duration of the
Restricted Period during which and the conditions under which the
Restricted Stock and Restricted Stock Units may be forfeited to the
Company, and the other terms and conditions of such Awards.
(b) Shares of Restricted Stock and Restricted Stock Units may not
be sold, assigned, transferred, pledged or otherwise encumbered, except
as herein provided, during the Restricted Period. At the expiration of
the Restricted Period, the Company shall deliver stock certificates to
the Participant or the Participant's legal representative. Payment for
Restricted Stock Units shall be made to the Company in cash and/or
shares of Common Stock, as determined at the sole discretion of the
Committee.
Section 10. Other Stock Based Awards
(a) In addition to granting Options, Rights, Performance Shares,
Restricted Stock, Restricted Stock Units, the Committee shall have
authority to grant Stock Unit Awards to Participants that can be in the
form of Common Stock or units, the value of which is based, in whole or
in part, on the value of Common Stock. Subject to the provisions of the
Plan, Stock Unit Awards shall be subject to such terms, restrictions,
conditions, vesting requirements and payment rules as the Committee may
determine in its sole and complete discretion at the time of grant.
(b) Any shares of Common Stock that are part of a Stock Unit
Award may not be assigned, sold, transferred, pledged or otherwise
encumbered prior to the date on which the shares are issued or, if
later, the date provided by the Committee at the time of grant of the
Stock Unit Award.
Stock Unit Awards may provide for the payment of cash
consideration by the person to whom such Award is granted or provide
that the Award, and any Common Stock to be issued in connection
therewith, if applicable, shall be delivered without the payment of cash
consideration, provided that for any Common Stock to be purchased in
connection with a Stock Unit Award the purchase price shall be at least
50 percent of the Fair Market Value of such Common Stock on the date
such Award is granted.
Stock Unit Awards may relate in whole or in part to certain
performance criteria established by the Committee at the time of grant.
Stock Unit Awards may provide for deferred payment schedules and/or
vesting over a specified period of employment. In such circumstances as
the Committee may deem advisable, the Committee may waive or otherwise
remove, in whole or in part, any restriction or limitation to which a
Stock Unit Award was made subject at the time of grant.
(c) In the sole and complete discretion of the Committee, an
Award, whether made as a Stock Unit Award under this Section 10 or as an
Award granted pursuant to Sections 6 through 9, may provide the
Participant with dividends or dividend equivalents (payable on a current
or deferred basis) and cash payments in lieu of or in addition to an
Award.
Section 11. Termination of Employment
The following provisions define a Participant's status in the
event of termination of employment:
(a) Options and Rights. If a Participant shall cease to be
employed by the Company, any Option and any Right granted to him under
the Plan shall terminate in accordance with the following rules:
(1) A Participant who terminates employment as a result of
an Approved Retirement shall have three months from the date of
retirement to exercise an Option or Right. A Participant who returns to
part- or full-time service for the Company after termination of
employment shall not be eligible to exercise an Option or Right after
the expiration of three months from the date of his retirement.
(2) A Participant who is Disabled shall have 12 months after
the termination of employment in which to exercise an Option or Right.
(3) If a Participant dies while employed or after cessation
of employment but within the period during which he could have exercised
the Option or Right as provided above, then the Option or Right may be
exercised within 12 months after the Participant's termination of
employment by the Participant's Designated Beneficiary.
(4) The foregoing notwithstanding, a Participant shall not
be permitted to exercise an Option or Right after the expiration date
and shall not be permitted to exercise an Option or Right to which he
was not entitled to exercise on the date of termination of his
employment.
(b) Restricted Stock. If a Participant terminates employment
before the end of the Restricted Period for a reason other than death,
Approved Retirement, Disability, or Change of Control, the Participant
shall forfeit all shares of Restricted Stock. If a Participant
terminates employment as a result of death, Approved Retirement, or
Change of Control, the Committee, in its sole discretion, shall
determine what portion, if any, of the Restricted Stock shall be freed
from restrictions.
(c) Performance Shares and Other Awards. If a Participant ceases
to be an employee before the end of any Performance Period as a result
of death, Approved Retirement, or Disability, the Committee may
authorize the payment to such Participant or his Designated Beneficiary
of a pro rata portion of the amount that would have been paid to him had
he continued as an Employee to the end of the Performance Period. In
the event a Participant terminates employment for any other reason, any
amounts for outstanding Performance Periods shall be forfeited.
Section 12. General Provisions
(a) Withholding. The Employer shall have the right to deduct
from all amounts paid to a Participant in cash any taxes required by law
to be withheld in respect of Awards under this Plan. In the case of
payments of Awards in the form of Common Stock, the Committee shall
require the Participant to pay to the Employer the amount of any taxes
required to be withheld with respect to such Common Stock, or, in lieu
thereof, the Employer shall have the right to retain (or the Participant
may be offered the opportunity to elect to tender) the number of shares
of Common Stock whose Fair Market Value equals the amount required to be
withheld. The Participant may direct the Employer to retain sufficient
shares of Common Stock to satisfy the Participant's marginal tax payment
obligations.
(b) Awards. Each Award shall be evidenced in writing delivered
to the Participant and shall specify the terms and conditions and any
rules applicable to such Award.
(c) Nontransferability. No Award shall be assignable or
transferable, and no right or interest of any Participant shall be
subject to any lien, obligation or liability of the Participant, except
by will or the laws of descent and distribution.
(d) No Rights as Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have
any rights as a stockholder with respect to any shares of Common Stock
to be distributed under the Plan until becoming the holder.
Notwithstanding the foregoing, in connection with each grant of
Restricted Stock hereunder, the applicable Award shall specify if and to
what extent the Participant shall not be entitled to the rights of a
stockholder in respect of such Restricted Stock.
(e) Construction of the Plan. The validity, construction,
interpretation, administration and effect of the Plan and of its rules
and regulations, and rights relating to the Plan, shall be determined
solely in accordance with the laws of Utah.
(f) Effective Date. Subject to the approval of the stockholders
of the Company, the Plan shall be effective on March 1, 1991. No
Options or Awards may be granted under the Plan, however, until the Plan
is approved by the Company's shareholders or after May 20, 2001.
(g) Amendment of Plan. The Board of Directors may amend, suspend
or terminate the Plan or any portion thereof at any time, provided that
no amendment shall be made without stockholder approval if such approval
is necessary to comply with any tax or regulatory requirement, including
for these purposes any approval requirement which is a prerequisite for
exemptive relief under Section 16(b) of the Securities Exchange Act of
1934.
(h) Amendment of Award. The Committee may amend, modify or
terminate any outstanding Award with the Participant's consent at any
time prior to payment or exercise in any manner not inconsistent with
the terms of the Plan, including without limitation, to change the date
or dates as of which an Option or Right becomes exercisable; a
Performance Share is deemed earned; Restricted Stock becomes
nonforfeitable; or to cancel and reissue an Award under such different
terms and conditions as it determines appropriate.
Section 13. Change of Control.
In the event of a Change of Control of the Company, all options,
restricted stock, and other awards granted under the Plan shall vest
immediately.
As used herein, a Change in Control of the Company shall be deemed
to have occurred if (i) any "Acquiring Person" (as that term is used in
the Rights Agreement dated as of February 13, 1996, between the Company
and Chemical Mellon Shareholder Services, L.L.C. ("Rights Agreement"))
is or becomes the beneficial owner (as such term is used in Rule 13d-3
under the Securities Exchange Act of 1934 of securities of the Company
representing 15 percent 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) a plan of liquidation or dissolution of
the Company. 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.
EXECUTIVE SEVERANCE COMPENSATION PLAN
(as amended and restated effective February 13, 1996)
Section 1. Purpose. Questar Corporation and its affiliated
companies (hereinafter collectively referred to as Questar or the
Company) consider the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best interest
of the Company, its shareholders, customers, and other employees. The
Executive Severance Compensation Plan (hereinafter referred to as the
Plan) is designed to encourage the officers of the Company and its
affiliated companies to continue to dedicate their full attention and
energy to their duties as officers without distraction from the
potentially disturbing circumstances arising from the possibility of an
adversary change in control of Questar.
Section 2. Term of Plan. This Plan was originally adopted on
September 22, 1983, was amended and restated effective January 1, 1986,
and was further amended and restated effective February 13, 1996. The
Plan as amended shall be automatically extended for one-year periods as
of January 1, 1991, unless not later than September 30 of the preceding
year, the Company, through its Board of Directors, shall determine that
it does not wish to extend the Plan; and provided, further, that the
Plan shall continue in effect for a period of 36 months beyond the term
provided herein if a "Potential Change in Control of the Company" or a
"Change in Control of the Company," as defined in Section 3, shall have
occurred during such term.
Section 3. Definitions. The terms used in this Plan shall have
the meanings set forth below:
a. "Change in Control" shall mean a change in control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934 (Exchange Act), as amended, provided that a Change in
Control shall be deemed to have occurred if (i) any "Acquiring Person"
(as that term is used in the Rights Agreement dated February 13, 1996,
between the Company and Chemical Mellon Shareholders Services, L.L.C.
(Rights Agreement")) is or becomes the beneficial owned (as such term is
used in Rule 13d-3 under the Exchange Act) of securities of the Company
representing 15 percent 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) a plan or liquidation or
dissolution of the Company. A "Change in Control" shall also include
any event or act that, with the passage of time, would result in a
Distribution Date, within the meaning of the Rights Agreement.
b. "Potential Change in Control of the Company" shall mean (1)
the occurrence of an agreement entered into by the Company, the
consummation of which would result in the occurrence of a Change in
Control of the Company; (2) the public announcement of an interest to
take or to consider taking actions that, if consummated, would
constitute a Change in Control of the Company; (3) the beneficial
ownership, direct or indirect, by any "Acquiring Person" of the
securities of the Company representing 10 percent or more of the
combined voting power of the Company's then outstanding securities; or
(4) the adoption by the Board of Directors of a resolution to the effect
that a potential Change in Control of the Company for purposes of the
Plan has occurred.
c. "Participant" shall mean a person who serves as an officer of
the Company and/or its affiliated companies nominated by the Board of
Directors to participate in the Plan who assents to the terms of the
Plan by signing a copy of the attached agreement.
d. "Termination of Employment" shall mean a voluntary or
involuntary termination of the responsibilities, status, titles, salary,
or benefits of the respective Participant's employment.
e. "Cause" shall mean the willful and continued failure to
perform employment duties, after a written demand for substantial
performance is made by the Chief Executive Officer of the Successor
Entity, or the willful engaging in conduct that is materially injurious
to the Successor Entity. No act or failure to act shall be considered
"willful" unless done or omitted to be done in bad faith and without a
reasonable belief that such action or omission was in the best interests
of the Successor Entity.
f. "Successor Entity" shall mean the entity existing after the
date of the Change in Control, regardless of whether such entity is
formed through purchase, merger, consolidation or otherwise of or with
the Company or the "beneficial owner" of 15 percent or more of the
voting power of the Company's outstanding common stock or other
securities then convertible into common stock.
g. "Voluntary Retirement" shall mean termination of employment
in accordance with the terms of the Company's qualified Retirement Plan
or any retirement arrangement established for the Participant with his
consent.
h. "Disability" shall mean termination of employment that
results in payments under the Company's Long-Term Disability Plan.
Section 4. Participation in the Plan. Participation in this Plan
shall be limited to Participants as defined above who accept the terms
and conditions of the Plan by signing an agreement in the attached form.
Participation in the Plan is at the discretion of the Board of
Directors of the Company. A Participant may be terminated from the Plan
by action taken by the Board of Directors taken before the date of any
Potential Change in Control or any Change in Control of the Company (as
defined above).
Participants shall be automatically terminated from the Plan upon
death, Disability, Voluntary Retirement, or termination prior to a
Potential Change in Control or Change in Control of the Company.
Section 5. Employment in Event of Potential Change in Control.
In the event of any Potential Change in Control of the Company, the
Participants are obligated to remain or be willing to remain in the
employ of the Company or the Successor Entity for a period of six months
from the occurrence of such Potential Change in Control of the Company
and shall forfeit all benefits specified in this Plan if they
voluntarily terminate their employment within this six-month period.
Section 6. Termination of Employment Following Change in Control.
In the event of any Change in Control of the Company (as defined above),
a Participant is entitled to receive the compensation and benefits
specified in Sections 9 through 14 (subject to the limitation specified
in Section 15) upon Termination of Employment, unless such termination
occurs as a result of death, Disability, Voluntary Retirement at age 62
or higher, Cause (as defined above), or unless his voluntary termination
occurs within the six-month period following a Potential Change in
Control of the Company (as defined above).
Section 7. Notice of Termination of Employment. To terminate
employment following a Change in Control of the Company, a Participant
shall complete and sign a Notice of Termination, in the form attached to
this Plan. When mailed, postage prepaid, or hand-delivered to the
Corporate Secretary's office of the Successor Entity at 180 East First
South, P.O. Box 45433, Salt Lake City, Utah 84145-0433, this Notice of
Termination shall serve notice of the Participant's Termination of
Employment and shall constitute an election of the Participant to
receive the benefits specified in Sections 9 through 14 herein. The
Participant, however, is not entitled to receive such benefits if he has
not satisfied the requirements of Section 5 above.
To terminate the employment of a Participant, the Successor Entity
shall notify the Participant, in writing, of the Termination of
Employment. Such notice shall be mailed, postage prepaid, to the
Participant at the home address shown on Company records and shall
include a statement concerning the Participant's right to receive the
benefits specified in Sections 9 through 14 herein.
Termination of Employment shall not occur until proper written
notice is given as above provided by the Participant or the Successor
Entity. All salary and benefits shall be paid to the Participant until
Termination of Employment is effected through the procedures outlined
herein. The Participant has an obligation to fulfill all duties as an
officer until such time as he has complied with the obligation to serve
a Notice of Termination.
Section 8. Termination of Employment for Cause. The Successor
Entity cannot terminate the Participant's employment for Cause unless
the Participant has willfully and continuously failed to perform his
employment duties after receiving a written demand for substantial
performance made by the Chief Executive Officer of the Successor Entity
or unless the Participant has willfully engaged in conduct that is
materially injurious to the Successor Entity after the Change in
Control. For purposes of this Section, no act, or failure to act, by a
Participant shall be deemed "willful" unless done, or omitted to be
done, by a Participant not in good faith and without reasonable belief
that his action or omission was in the best interests of the Successor
Entity. The Successor Entity, through its Board of Directors, must
notify the Participant in writing that the employment is being
terminated for Cause. The Notice of Termination shall include a list of
factual findings to sustain the judgment that the Participant's
employment has been terminated for Cause. After receiving a Notice of
Termination for Cause, the Participant shall have the right to seek
arbitration or legal review of the Successor Entity's determination that
the employment was terminated for Cause and to continue receiving all
salary and benefits in effect prior to receipt of the Notice of
Termination until the conclusion of such arbitration or legal review
proceedings or the expiration of one year from the date of the receipt
of the Notice of Termination, whichever event occurs first.
In the event that arbitration or legal review proceedings do not
uphold the Termination of Employment for Cause, the Participant shall
have the right to receive the benefits specified in Sections 9 through
14, but such benefits shall be reduced by the benefits received during
the pendency of the arbitration or legal review proceedings.
Section 9. Compensation Benefits.
a. Upon Termination of Employment within one year from the date
of a Change in Control, a Participant is entitled to receive a cash
payment equal to twice the annual salary at the rate in effect for such
Participant immediately prior to the Change in Control. Upon
Termination of Employment between one and two years from the date of a
Change in Control of the Company, a Participant is entitled to receive a
cash payment equal to the annual salary at the rate in effect for such
Participant immediately prior to the Change in Control or the rate in
effect for such Participant immediately prior to Termination of
Employment, whichever is higher. Upon Termination of Employment between
two and three years from the date of a Change in Control of the Company,
a Participant is entitled to receive a cash payment equal to one-half of
such Participant's annual salary at the rate in effect for such
Participant immediately prior to the Change in Control or the rate in
effect for such Participant immediately prior to Termination of
Employment, whichever is higher. Any participant who terminates his
employment at any time after the date of a Change in Control of the
Company is also entitled to receive the amounts previously awarded or
allocated to him or earned by him under the or any other compensation
plan then in effect. Any benefits payable hereunder shall be payable,
at the choice of the Participant, in a single lump-sum payment within
ten days of Termination of Employment or in twelve monthly installments
payable on the first day of the month following the Termination of
Employment.
b. Any participant who terminates his employment at any time
after the date of a Change in Control of the Company is entitled to
receive a bonus payment under the Annual Management Incentive Plan
(AMIP) for the year in which he terminated his employment. The amount
of his bonus payment shall be equal to the amount he would have received
had he been an employee throughout such year. The full amount of this
bonus payment shall be payable in a single lump-sum payment within 60
days after the end of the year in which his employment terminated.
Section 10. Deferred Compensation Benefits. Any participant who
terminates his employment at any time after the date of a Change in
Control of the Company is also entitled to receive the amounts
previously deferred by him under the Company's AMIP, Deferred
Compensation Plan for Directors, Deferred Compensation Plan, Deferred
Share Plan, and other deferred compensation plans then in effect.
Notwithstanding any other provisions of such plans, a participant
may elect to have his account balances distributed to him within 60 days
following the date upon which the Company obtained knowledge of a Change
in Control of the Company.
Section 11. Supplemental Retirement Benefits.
a. Upon Termination of Employment within three years from the
date of a Change in Control, a Participant who has a vested right under
the Company's Retirement Plan shall be entitled to receive a
supplemental retirement benefit equal to the difference between the
amount payable to him under the terms of the Company's Retirement Plan
and the amount that would have been payable to him had he been credited
with additional years of service under the Company's Retirement Plan
commensurate with the compensation received hereunder, e.g., two years
of service for a payment equal to two years' salary. Benefits payable
hereunder shall also be calculated using the Participant's annual
compensation (as that term is defined in the Company's Retirement Plan)
for the last full year prior to the Termination of Employment as his
compensation for the additional years of service credited to the
Participant under the terms of this provision. Upon Termination of
Employment within three years from the date of a Change in Control, a
Participant who does not have a vested right under the Company's
Retirement Plan at the time of such Termination of Employment shall be
entitled to receive a supplemental retirement benefit equal to the
amount that would have been payable to him under the terms of the
Company's Retirement Plan had he become vested under the terms of such
Retirement Plan if he had continued in the Company's employment for the
period of time commensurate with the compensation received hereunder,
e.g., two years of service for a payment equal to two years' salary.
b. Upon Termination of Employment within three years from the
date of a Change in Control, a Participant who is entitled to receive
supplemental retirement benefits under the terms of the Company's
Supplemental Executive Retirement Plan (SERP) or Equalization Benefit
Plan (EBP) shall be entitled to receive such benefits. Benefits payable
under the Company's SERP or EBP shall be calculated using the
Participant's annual compensation (as that term is defined in the
Company's SERP or EBP) for the last full year prior to the Termination
of Employment as his compensation for the additional years of service
credited to the Participant under the terms of this provision.
d. Any Participant who is a Nominee in the Company's Executive
Incentive Retirement Plan (EIRP) and who has satisfied the eligibility
requirements contained in the EIRP at the date of a Change in Control of
the Company shall have the right to receive the retirement benefits
specified in the EIRP at the time he becomes eligible to receive
benefits to which he has a vested right under the Company's Retirement
Plan or at the time that he would have become eligible to receive such
benefits had he been vested at the time of this Termination of
Employment. The Participant's surviving spouse and dependent children
shall also have the right to receive the family protection benefits
specified in the EIRP.
Section 12. Special Lump-Sum Provision. Upon Termination of
Employment, a Participant shall receive a single-installment, lump-sum
payment of supplemental retirement benefits under the EIRP, SERP or EBP.
The present value of such benefits shall be calculated using a standard
mortality table referred to as the "83 Group Annuity Mortality Table"
and 80 percent of the six-month average rate for the 30-year Treasury
bonds (using the six-month period ending as of the date of the
Participant's Termination of Employment).
Section 13. Stock Options and Restricted Stock. Upon a Change in
Control, all stock options and stock appreciation rights granted under
the Company's Stock Option Plan and Long-Term Stock Incentive Plan and
their successors shall vest. A Participant shall have 60 days following
the Change in Control to exercise any vested stock options and stock
appreciation rights, notwithstanding a Termination of Employment. Upon
a Change in Control, all shares of restricted stock granted as partial
payment of earned bonuses under the AMIP or other incentive compensation
plans adopted by the Company shall immediately vest free of
restrictions.
Section 14. Miscellaneous Benefits. Upon termination of
Employment at any period of time within three years from the date of a
Change in Control of the Company, a Participant shall receive (for
himself and his family), at the sole expense of the Successor Entity,
life, disability, accident and health insurance benefits substantially
similar to those received prior to Termination of Employment, for a
period of six months following Termination of Employment, unless within
such period the Participant chooses to take Voluntary Retirement, in
which event the Participant will be entitled to receive the same
benefits as any eligible employee choosing to retire.
Section 15. Limitation on Benefits. The benefits payable under
the term of the Plan (excluding any benefits earned prior to the
Termination of Employment) (collectively referred to as the Severance
Payments) shall not exceed the level of payments that can be deductible
under Section 280G of the Internal Revenue Code (the Code). To the
extent that the Severance Payments exceed the level of payments that can
be deductible under Section 280G of the Code, they shall be reduced only
to the extent necessary that the Severance Payments shall constitute
reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code. For purposes of this
limitation, no portion of the Severance Payments shall be taken into
account that, in the opinion of tax counsel selected by the Successor
Entity and acceptable to the Participant, does not constitute a
"parachute payment" within the meaning of Section 280G(b)(2) of the
Code. For purposes of this limitation, the value of any non-cash
benefit or any deferred payment or benefit included in the Severance
Payments shall be determined by the Successor Entity's independent
auditors in accordance with the principles of Sections 280G(d)(3) and
(4) of the Code.
Section 16. Binding Agreement. Any and all agreements entered
pursuant to this Plan with individual officers of the Company shall be
binding upon any Successor Entity as defined above. The Company will
require any Successor Entity to expressly assume and agree to perform
such agreements. Failure of the Company to obtain such assumption and
agreement prior to the effective date of control by the Successor Entity
shall be a breach of the agreement entered into pursuant to the terms of
the Plan and shall entitle Participants to receive compensation from the
Company in the same amount and on the same terms as they would otherwise
be entitled to receive, except that the day prior to the date upon which
the Successor Entity obtains control shall be deemed the date of
Termination of Employment.
Section 17. Miscellaneous.
a. No provisions outlined in this Plan and the separate
agreements entered into pursuant to such Plan may be modified, waived,
or discharged after the date of a Potential Change in Control or a
Change in Control unless such waiver, modification, or discharge is
agreed to in writing by the Participant. No waiver by either a
Participant or Successor Entity at any time or any breach of any
condition or provision of this Plan or the separate agreements entered
into pursuant to this Plan shall be deemed a waiver of similar or
dissimilar provisions or conditions at the time or at any prior or
subsequent time.
b. The validity, interpretation, construction and performance of
this Plan and the separate agreements entered into pursuant to such Plan
shall be governed by the laws of the State of Utah.
c. The invalidity or unenforceability of any provision of this
Plan and the separate agreements entered pursuant to such Plan shall not
affect the validity or enforceability of any other provision of the Plan
and the separate agreements, which shall remain in full force and
effect.
d. The Participants are entitled to receive the benefits
specified in Sections 9 through 14 of this Plan in accordance with the
terms of the Plan. Such benefits are not to be construed as "damages."
The Participants have no obligation to accept employment with the
Successor Entity or any other employer in an effort to minimize the
benefits specified herein; provided, however, that the Participant is
obligated to work for the six-month period specified in Section 5 above
even if the six-month period extends past the date of the Change in
Control of the Company.
e. The Successor Entity shall be obligated to pay the legal fees
and expenses incurred by any Participant reasonably expended to obtain
or enforce any right or benefit provided by this Plan and the individual
agreements executed pursuant to such Plan.
Section 18. Amendment or Termination of Plan. This Plan and the
individual agreements entered into pursuant to this Plan may be amended
or terminated by action of the Company's Board of Directors taken prior
to a Potential Change in Control or Change in Control of the Company, as
defined above; provided, however, that the Board of Directors cannot
terminate this Plan prior to the expiration of the primary term
specified in Section 2.
QUESTAR CORPORATION
DEFERRED COMPENSATION PLAN FOR DIRECTORS
(As Amended and Restated February 13, 1996)
1. Purpose of Plan.
The purpose of the Deferred Compensation Plan for Directors
("Plan") is to provide Directors of Questar Corporation (the
"Company") with an opportunity to defer compensation paid to them
for their services as Directors.
2. Eligibility.
Subject to the conditions specified in this Plan or otherwise
set by the Executive Committee of the Company's Board of
Directors, all voting Directors of the Company who receive
compensation for their service as Directors are eligible to
participate in the Plan. Eligible Directors are referred to as
"Directors." Directors who elect to defer receipt of fees or who
have account balances are referred to as "Participants" in this
Plan.
3. Administration.
The Company's Board of Directors shall administer the Plan
and shall have full authority to make such rules and regulations
deemed necessary or desirable to administer the Plan and to
interpret its provisions.
4. Election to Defer Compensation.
(a) Time of Election. A Director can elect to defer future
compensation or to change the nature of his election for future
compensation by submitting a notice prior to the beginning of the
calendar year. A newly elected Director is entitled to make a
choice within five days of the date of his election or appointment
to serve as a Director to defer payment of compensation for future
service. An election shall continue in effect until the
termination of the Participant's service as a Director or until
the end of the calendar year during which the Director serves
written notice of the discontinuance of his election.
All notices of election, change of election, or
discontinuance of election shall be made on forms prepared by the
Corporate Secretary and shall be dated, signed, and filed with the
Corporate Secretary. A notice of change of election or
discontinuance of election shall operate prospectively from the
beginning of the calendar year, but any compensation deferred
shall continue to be held and shall be paid in accordance with the
notice of election under which it was withheld.
(b) Amount of Deferral. A Participant may elect to defer
receipt of all or a specified portion of the compensation payable
to him for serving as a Director and attending Board and Committee
Meetings as a Director. For purposes of this Plan, compensation
does not include any funds paid to a Director to reimburse him for
expenses or any income recognized by him as a result of exercising
options under the Company's Stock Option Plan for Directors.
(c) Period of Deferral. When making an election to defer
all or a specified percentage of his compensation, a Participant
shall elect to receive the deferred compensation in a lump sum
payment within 45 days following the end of his service as a
Director or in a number of annual installments (not to exceed
four), the first of which would be payable within 45 days
following the end of his service as a Director with each
subsequent payment payable one year thereafter. Under an
installment payout, the Participant's first installment shall be
equal to a fraction of the balance in his Deferred Compensation
Account as of the last day of the calendar month preceding such
payment, the numerator of which is one and the denominator of
which is the total number of installments selected. The amount of
each subsequent payment shall be a fraction of the balance in the
Participant's Account as of the last day of the calendar month
preceding each subsequent payment, the numerator of which is one
and the denominator of which is the total number of installments
elected minus the number of installments previously paid. The
term "balance," as used herein, refers to the amount credited to a
Participant's Account or to the Fair Market Value (as defined in
Section 5 (a)) of the Phantom Shares of the Company's Common Stock
credited to his Account.
(d) Phantom Stock Option and Certificates of Deposit
Option. When making an election to defer all or a specified
percentage of his compensation, a Participant shall choose between
two methods of determining earnings on the deferred compensation.
He may choose to have such earnings calculated as if the deferred
compensation had been invested in the Company's Common Stock at
the Fair Market Value (as defined in Section 5 (a)) of such stock
as of the date such compensation amount would have otherwise been
payable to him ("Phantom Stock Option") or may choose to have
earnings calculated as if the deferred compensation had been
invested in negotiable certificates of deposit at the time such
compensation would otherwise be payable to him ("Certificates of
Deposit Option").
The Participant must choose between the two options for all
of the compensation he elects to defer in any given year. He may
change the option for future compensation by filing the
appropriate notice with the Corporate Secretary before the first
day of each calendar year, but such change shall not affect the
method of determining earnings for any compensation deferred in a
prior year.
5. Deferred Compensation Account.
A Deferred Compensation Account ("Account") shall be
established for each Participant.
(a) Phantom Stock Option Account. If a Participant elects
the Phantom Stock Option, his Account will include the number of
shares and partial shares of the Company's Common Stock (to four
decimals) that could have been purchased on the date such
compensation would have otherwise been payable to him. The
purchase price for such stock is the Fair Market Value of such
stock, i.e., the closing price of such stock as reported on the
Composite Tape of the New York Stock Exchange for such date or the
next preceding day on which sales took place if no sales occurred
on the actual payable date.
The Participant's Account shall also include the dividends
that would have become payable during the deferral period if
actual purchases of Common Stock had been made, with such
dividends treated as if invested in Common Stock as of the payable
date for such dividends.
(b) Certificates of Deposit Option Account. If a
Participant elects the Certificates of Deposit Option, his Account
will be credited with any compensation deferred by the Participant
at the time such compensation would otherwise be payable and with
interest calculated at a monthly rate using the typical rates paid
by major banks on new issues of negotiable Certificates of Deposit
on amounts of $1,000,000 or more for one year as quoted in The
Wall Street Journal under "Money Rates" 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. The interest
credited to each Account shall be based on the amount held in the
Account at the beginning of each particular month.
6. Statement of Deferred Compensation Account.
Within 45 days after the end of the calendar year, a
statement will be sent to each Participant listing the balance in
his Account as of the end of the year.
7. Retirement
Upon retirement or resignation as a Director from the Board
of Directors or upon appointment as a non-voting Senior Director,
a Participant shall receive payment of the balance in his Account
in accordance with the terms of his prior instructions and the
terms of the Plan. Upon appointment as a non-voting Senior
Director of the Company, a Participant shall also receive payment
of account balances under any other Deferred Compensation Plans
maintained by the Company's affiliates unless the Participant
serves as a Director of the affiliate maintaining the account
balance.
8. Payment of Deferred Compensation.
(a) Phantom Stock Option. The amount payable to the
Participant choosing the Phantom Stock Option shall be the cash
equivalent of the stock using the Fair Market Value of such stock
on the date of withdrawal.
(b) Certificates of Deposit Option. The amount payable to
the Participant choosing the Certificate of Deposit Option shall
include the interest on all sums credited to the Account, with
such interest credited to the date of withdrawal.
(c) The date of withdrawal for both the Phantom Stock
Option Account and the Certificates of Deposit Option Account
shall be the last day of the calendar month preceding payment or
if payment is made because of death, the date of death.
(d) The payment shall be made in the manner (lump sum or
installment) chosen by the Participant. In the event of a
Participant's death, payment shall be made within 45 days of the
Participant's death to the beneficiary designated by the
Participant or, in the absence of such designation, to the
Participant's estate.
9. Payment, Change in Control
Notwithstanding any other provisions of this Plan or deferred
elections made pursuant to Section 4 of this Plan, a Director, in
the event of a Change in Control of the Company, shall be entitled
to elect a distribution of his account balance within 60 days
following the date upon which the Company obtained actual
knowledge of a Change in Control. As used herein, a Change in
Control of the Company shall be deemed to have occurred if (i) any
"Acquiring Person" (as that term is used in the Rights Agreement
dated as of February 13, 1996, between the Company and Chemical
Mellon Shareholder Services, L.L.C. ("Rights Agreement")) is or
becomes the beneficial owner (as such term is used in Rule 13d-3
under the Securities Exchange Act of 1934) of securities of the
Company representing 15 percent 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) a plan of liquidation or dissolution
of the Company. 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.
10. Hardship Withdrawal.
Upon petition to and approval by the Executive Committee, a
Participant may withdraw all or a portion of the balance in his
Account in the case of financial hardship in the nature of an
emergency, provided that the amount of such withdrawal cannot
exceed the amount reasonable necessary to meet the financial
hardship. The Executive Committee shall have sole discretion to
determine the circumstances under which such withdrawals are
permitted.
11. Amendment and Termination of Plan
The Plan may be amended, modified or terminated by the
Company's Board of Directors. No amendment, modification, or
termination shall adversely affect a Participant's rights with
respect to amounts accrued in his Account. In the event that the
Plan is terminated, the Board of Directors has the right to make
lump-sum payments of all Account balances on such date as it may
determine.
12. Nonassignability of Plan.
The right of a Participant to receive any unpaid portion of
his Account shall not be assigned, transferred, pledged or
encumbered or be subject in any manner to alienation or
attachment.
13. No Creation of Rights.
Nothing in this Plan shall confer upon any Participant the
right to continue as a Director. The right of a Participant to
receive any unpaid portion of his Account shall be an unsecured
claim against the general assets and will be subordinated to the
general obligations of the Company.
14. Effective Date.
The Plan shall become effective on October 15, 1984, and
shall remain in effect until it is discontinued by action of the
Company's Board of Directors. The Plan was amended and restated
effective May 1, 1991, and was further amended and restated
effective February 13, 1996.
QUESTAR CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As amended and restated effective February 13, 1996)
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. It is also intended to pay monthly
supplemental retirement benefits to certain officers based on years of
service that cannot be taken into account under 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:
"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 the Management Performance Committee of the
Company's Board.
"Company" means Questar Corporation or any other organization
controlling Questar Corporation or any successor organization.
"Compensation" means an Officer'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 Officer as a result of exercising stock
options. An Officer's Compensation for any Plan Year shall include any
Elective Deferrals of the Officer under Questar Corporation's Employee
Investment 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 Officer'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.
"Participating Corporation" means any company that is affiliated
with the Company and whose employees are covered by the Company's
Retirement Plan or that is affiliated with the Company and receives an
allocation of any employee benefit costs.
"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. If not otherwise
defined, capitalized words or terms used in the Plan shall have the same
definitions used in the Retirement Plan.
"Special Situation Officer" means any officer or former officer of
the Company and/or its affiliates who was expressly promised upon his
reemployment prior to January 1, 1976, that his years of service prior
to a break in service would be restored to him for purposes of
calculating his retirement benefits.
"Special Supplemental Retirement Benefits" means benefits payable
to Special Situation Officers under the terms of the Plan calculated as
set forth in Section 6 or Section 7.
"Supplemental Retirement Benefits" means retirement benefits
payable to Retired Officers under the terms of the Plan calculated as
set forth in Section 5 or Section 7.
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 and Special 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 such Officer's 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 of a Special
Situation Officer shall be calculated using the years of service
credited to him for purposes of calculating the Special Supplemental
Retirement Benefits as provided in Section 6.
Except as provided in Section 7, 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.
6. SPECIAL SUPPLEMENTAL RETIREMENT BENEFITS.
A Special Situation Officer shall be eligible to receive Special
Supplemental Retirement Benefits under the Plan.
The Special Supplemental Retirement Benefit is designed to provide
a Special Situation Officer with a supplemental retirement benefit that
is equal to the difference between the monthly Retirement Plan benefit
that he would have received if his years of service prior to his break
in service could be credited to him for purposes of calculating his
benefit under the Retirement Plan and the monthly Retirement Plan
benefit that he is entitled to receive because he cannot be given credit
for such years of service under the Retirement Plan.
The first payment of Special 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
Special Situation Officer is alive or so long as his surviving spouse is
entitled to receive monthly benefits under the Retirement Plan. (The
surviving spouse must have been married to the Special Situation Officer
at date of such Officer's retirement.)
The monthly benefit payable under this Section is not offset by
any monthly benefit payable under the EIRP. Except as provided in
Section 7, the monthly benefit payable to the Special Situation Officer
upon his retirement shall be paid in the same form as his benefits under
the Retirement Plan.
7. LUMP SUM ELECTION.
An Officer has a one-time election to receive the present value of
his Supplemental Retirement Benefit and Special Supplemental Retirement
Benefit (if applicable) in a lump sum. The Officer shall make this
election at least one year prior to retirement. The present value shall
be calculated using a standard mortality table referred to as the "83
Group Annuity Mortality Table" and 80 percent of the six-month average
rate for 30-year Treasury bond (with the six-month period ending as of
the date of the Officer's retirement). When making this election, the
Officer shall also indicate when the lump-sum payment shall be made and
if it is to be made in more than one installment. The full amount of
any lump-sum payment, together with credited interest, must be paid
within five years of the Officer's retirement. Any deferred payouts of
lump-sum payments shall be credited with interest calculated at a
monthly rate using the appropriate 30-year Treasury bond quoted in the
Wall Street Journal on the first business day of each month. (The
appropriate 30-year Treasury bond shall be the bond that has one closest
to maturity date (by month) preceding the date on which the interest is
to be credited.) Any lump-sum payments that are not deferred shall be
paid on the first business day of the month following the Officer's
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. Such consent must be in writing
and must acknowledge the effect of such election.
If the Officer fails to make an election at least one year prior
to retirement, the Officer shall receive monthly benefits.
8. FUNDING
The Supplemental Retirement Benefits and Special Supplemental
Retirement Benefits payable under the Plan shall be paid by the Company
and Participating 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
and Special Supplemental Retirement Benefits.
9. ALLOCATION OF COSTS
The cost of Supplemental Retirement Benefits and Special
Supplemental Retirement Benefits paid to or on behalf of Retired
Officers shall be allocated to and be the responsibility of the Company
and Participating Corporations.
10. 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.
11. 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 and Special 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.
12. 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 and Special
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.
13. 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.
In the event that a Change in Control of the Company occurs and an
Officer's employment with the company or its successors terminates, the
Officer shall receive a lump-sum payment of his Supplemental Retirement
Benefits and Special Situation Retirement Benefits. Such benefits shall
be calculated as set forth in Section 7.
As used herein, a Change in Control of the Company shall be deemed
to have occurred if (i) any "Acquiring Person" (as that term is used in
the Rights Agreement dated February 13, 1996, between the Company and
Chemical Mellon Shareholder Services L.L.C. ("Rights Agreement")) is or
becomes the beneficial owner (as such term is used in Rule 13d-3 under
the Securities Exchange Act of 1934) of securities of the Company
representing 15 percent 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) a plan or liquidation or dissolution of
the Company. 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.
QUESTAR CORPORATION
EQUALIZATION BENEFIT PLAN
(As amended and restated effective February 13, 1996)
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:
"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 Investment 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.
"Employee" means any employee who is employed by the Company or a
Participating Corporation who has a vested right to receive benefits
under the Company's Retirement Plan and who is not eligible to receive
benefits under any other supplemental retirement plan maintained by the
Company.
"Equalization Retirement Benefits" means retirement benefits
payable hereunder calculated as set forth in Section 5 or Section 6.
"Participating Corporation" means any company that is affiliated
with the Company whose employees are covered by the Company's Retirement
Plan or that is affiliated with the Company and receives an allocation
of any employer benefit costs.
"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.
Except as set forth in Section 6, 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 to her
under the Retirement Plan.
6. LUMP SUM ELECTION
An Employee has a one-time election to receive the present value
of his Equalization Retirement Benefit in a lump-sum. The Employee
shall make this election at least one year prior to retirement. The
present value shall be calculated using a standard mortality table
referred to as the "83 Group Annuity Mortality Table" and 80 percent of
the six-month average rate for the 30-year Treasury bonds (with the
six-month period ending as of the date of the Employee's retirement).
When making this election, the Employee shall also indicate when the
lump-sum payment shall be made and if it is to be made in more than one
installment. The full amount of any lump-sum payment, together with
credited interest, must be paid within five years of the Employee's
retirement. Any deferred payouts of lump-sum payments shall be credited
with interest calculated at a monthly rate using the appropriate 30-year
Treasury bond quoted in the Wall Street Journal on the first business
day of each month. (The appropriate 30-year Treasury bond shall be the
bond that has the closest maturity date (by month) preceding the date on
which the interest is to be credited.) Any lump-sum payments that are
not deferred shall be paid on the first business day of the month
following the Employee's 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. Such consent must be
in writing and must acknowledge the effect of such election.
If the Employee fails to make an election at least one year prior
to retirement, the Employee shall receive monthly Equalization
Retirement Benefits.
7. FUNDING
The Equalization Retirement Benefits payable under the Plan shall
be paid by the Company and Participating 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.
8. 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 Participating Corporations.
9. 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.
10. 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.
11. 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.
12. 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.
In the event that a change in Control of the Company occurs and an
Employee's employment with the Company or its successors terminates, the
Employee shall receive a lump-sum payment of his Equalization Retirement
Benefits. Such benefit shall be calculated as set forth in Section 6.
As used herein, a Change in Control of the Company shall be deemed
to have occurred if (i) any "Acquiring Person" (as that term is used in
the Rights Agreement dated February 13, 1996, between the Company and
Chemical Mellon Shareholder Services, L.L.C. ("Rights Agreement")) is or
becomes the beneficial owner (as such term is used in Rule 13d-3 under
the Securities Exchange Act of 1934) of securities of the Company
representing 15 percent 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) a plan or liquidation or dissolution of
the Company. 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.
QUESTAR CORPORATION
DEFERRED SHARE PLAN
FOR HIGHLY COMPENSATED EMPLOYEES
(As amended and restated effective February 13, 1996)
Questar Corporation hereby amends and restates this DEFERRED SHARE
PLAN FOR HIGHLY COMPENSATED EMPLOYEES, effective February 13, 1996.
This Plan, which was originally adopted effective July 1, 1989, is an
unfunded plan established for the exclusive purpose of providing
comparable benefits to Employees whose annual compensation exceeds the
compensation that may be taken into account in providing benefits under
the Questar Corporation Employee Investment Plan (or successor plan) due
to limitations set out in the Internal Revenue Code or who elect to
defer compensation under the terms of the Questar Corporation Deferred
Share Plan. All of such Employees are select key management and highly
compensated employees.
1. Definitions.
"Affiliated Company" means the Company and any corporation that is
a member of a controlled group of corporations (as defined in Section 414(b)
of the Code), which includes the Company.
"Beneficiary" means that person or persons who become entitled to
receive payments under the Employee Investment Plan (or successor plan)
in the event of the death of a Participant prior to the distribution of
all benefits to which he is entitled under the such plan.
"Code" means the Internal Revenue Code of 1986 and amendments
thereto. Reference to a section of the Code shall include that section
and any comparable section or sections of any future legislation that
amends, supplements or supersedes said section.
"Common Stock" means common stock of the Company.
"Company" means Questar Corporation, a corporation organized and
existing under the laws of the State of Utah, or its successor or
successors.
"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 ESOP or other tax-qualified
plan, and any compensation deferred under the Questar Corporation
Deferred Compensation 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.
"Compensation Limit" means $200,000 adjusted in the manner
provided under Code Section 401(a)(17), which dollar amount shall be reduced
to $150,000 as of January 1, 1994.
"Deferred Shares" means those units credited to a Participant's
account as a bookkeeping entry only that represent shares of Common
Stock in which investments are deemed to be made under this Plan.
"Disability" means a condition that renders a Participant unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to
result in death or to be of long-continued and indefinite duration. A
Participant shall not be considered to be disabled unless he furnishes
proof of the existence of such disability in such form and manner as may
be required by regulations promulgated under Code Section 72(m)(7).
"Elective Deferrals" means the pre-tax contributions made to the
ESOP or other tax-qualified plan by an Employer on behalf of a
Participant pursuant to a salary reduction agreement entered into by the
Participant under Code Section 401(k).
"Employee" means any employee of an Employer who meets the
eligibility criteria set out in Section 4 of this Plan.
"Employer" means the Company and each Affiliated Company that
consents to the adoption of the Plan.
"ESOP" means the Questar Corporation Employee Investment Plan, as
amended from time to time, or any successor plan. Such plan is
qualified under the provisions of Code Section 401(a).
"Fair Market Value" means the closing price of the Company's
common stock as reported on the composite tape of the New York Stock
Exchange for any given valuation date or the next preceding day on which
sales took place if no sales occurred on the actual valuation date.
"Participant" means an Employee who has made an election under
Section 5 of this Plan.
"Plan" means the plan set forth in and created by this document
and all subsequent amendments thereto.
"Plan Year" means the fiscal year of the Plan, which shall
coincide with the Company's fiscal year.
Any capitalized term used in this Plan for which no definition is
given shall have the same meaning given such term in the ESOP.
2. Purpose of Plan.
The purpose of the Plan is to provide a benefit to an Employee
approximately equal to the benefit he would have received under the ESOP
if the Compensation Limit were inapplicable, or if the Employee had not
elected to defer receipt of Compensation to an amount below the Ceiling
Limit, and the Employee contributed to the ESOP an amount equal to the
amount of Compensation deferred under this Plan.
3. Administration.
The Management Performance Committee of the Company's Board of
Directors shall construe and administer the Plan and shall have full
authority to make such rules and regulations deemed necessary or
desirable to carry out such administration. The Management Performance
Committee may appoint an officer or department to assist with the
administration of the Plan. All interpretations of the Plan by the
Committee shall be final and binding on all parties, including
Participants, Beneficiaries and Employers.
4. Eligibility.
All officers and key managers whose annual Compensation is
expected to exceed $125,000 and who participate in the ESOP are eligible
to participate in the Plan.
5. Election to Defer Compensation and Deemed Investment.
(a) Deferral Election. In order to participate in the Plan
during 1989, an Employee must make an election to defer from 2 to 6
percent of his annual Compensation in excess of the Compensation Limit.
For the first Plan Year, which is a partial Plan Year, such election
must be made at or prior to the effective date of this Plan and can only
be made as to Compensation to be paid for future services. For all
subsequent Plan Years, the election must be made prior to the first day
of the Plan Year in which it is to become effective and can only be made
with respect to Compensation to be paid for future services. A deferral
election, once made, shall remain in effect for subsequent Plan Years
until it is revoked or modified by the Participant. A Participant can
modify or revoke his deferral election with respect to Compensation to
be paid for future services by submitting a new election or a revocation
prior to the beginning of the Plan Year in which such new deferral
election or revocation is to become effective. All notices of election
or revocation shall be made on forms prepared by the Company's Secretary
and shall be dated, signed, and filed with the Company's Secretary.
(b) Deemed Investment. Any amounts deferred by a Participant
shall be accounted for as if invested in shares of Common Stock
purchased at a price equal to the average price paid for shares of
Common Stock purchased by the trustee of the ESOP during the quarter
(prior to January 1, 1996) or month (after such date) in which the
deferrals are made under this Plan. This amount shall be credited to a
Participant's account on a monthly (quarterly prior to January 1, 1996)
basis. In addition, a Participant's account shall be credited on a
quarterly basis with an amount equal to the dividends that would have
become payable during the deferral period if actual purchases of Common
Stock had been made, with such dividends accounted for as if invested in
Common Stock as of the payable date for such dividends. Any credited
shares treated as if they were purchased with dividends shall be deemed
to have been purchased at a price equal to the average price of shares
purchased with reinvested dividends under the ESOP during the quarter in
which the deemed purchases are treated as being made under this Plan.
Each share of Common Stock that is deemed to be purchased under this
Paragraph 5(b) shall be reflected in a Participant's account as a
Deferred Share.
6. Matching Allocations.
(a) Amount. A Participant who makes an election under Section 5
is entitled to the same Matching Allocations as are made under the terms
of the ESOP. The Matching Allocations are 100 percent for the first 2
percent of contributed Compensation; 75 percent for the second 2
percent; and 50 percent for the last 2 percent.
If there are any Excess ESOP Allocations under the ESOP for a Plan
Year, a Participant shall be entitled to an additional allocation under
this Plan if he is employed by an Employer on the last day of such Plan
Year or if his employment terminated during such Plan Year as a result
of an event described in 3.5.1, 3.5.2 or 3.5.3 of the ESOP. Such
additional allocation, or "Excess ESOP Allocation," shall be equal to
the amount determined by multiplying the Excess ESOP Allocations for a
Plan Year under the ESOP by a fraction, the numerator of which shall be
the total Compensation deferred by the Participant under this Plan for
such Plan Year, and the denominator of which shall be the sum of the
numerator and all Eligible Persons' Employee Contributions and Elective
Deferrals made under the ESOP for such Plan Year.
The amount of Matching Allocations shall be accounted for as if
invested in shares of Common Stock purchased at a price equal to the
average price paid for shares of Common Stock purchased by the trustee
of the ESOP during the month (quarter prior to January 1, 1996) in which
Matching Allocations are deemed to be made under this Plan. Common
Stock deemed to have been purchased with Matching Allocations shall be
credited to a Participant's account on a monthly (quarterly prior to
January 1, 1996) basis. The amount of any Excess ESOP Allocations for a
Plan Year shall be accounted for as if invested in shares of Common
Stock purchased at a price equal to the average price paid for shares of
Common Stock purchased by the trustee of the ESOP during the last month
(quarter prior to January 1, 1996) of such Plan Year. Common Stock
deemed to have been purchased with Excess ESOP Allocations shall be
credited to a Participant's account as of the last day of the Plan Year
to which such Excess ESOP Allocations relate.
In addition, a Participant's account shall be credited on a
quarterly basis with an amount equal to the dividends that would have
become payable during the deferral period if actual purchases of Common
Stock had been made, with such dividends accounted for as if invested in
Common Stock as of the payable date for such dividends. Any credited
shares treated as if they were purchased with dividends shall be deemed
to have been purchased at a price equal to the average price paid for
shares purchased with reinvested dividends under the ESOP during the
quarter in which the deemed purchases are treated as being made under
this Plan. Each share of Common Stock that is deemed to be purchased
under this Section 6 shall be reflected in the Participant's account as
a Deferred Share.
(b) Vesting. A Participant shall be vested in the portion of his
account attributable to Matching Allocations and Excess ESOP Allocations
to the same extent as such Participant is vested in any Matching
Allocations and Excess ESOP Allocations credited to his account under
the ESOP.
7. Integration with Other Plans.
If an Employee elects to reduce his Compensation under the terms
of the Questar Corporation Deferred Compensation Plan, six percent of
any Compensation deferred by the Participant shall be accounted for
under the terms of this Plan, even if his election under the Deferred
Compensation Plan reduces his Compensation below the Compensation Limit.
The Participant shall receive the benefit of Matching Allocations and
Excess Matching Allocations as provided in this Plan. A Participant's
benefits (if any) under the Company's Executive Incentive Retirement
Plan shall be based on the Participant's base salary including any base
salary deferred under the terms of this Plan and the Company's Deferred
Compensation Plan or any base salary reduction under the Company's ESOP
or Cafeteria Plan. A Participant's benefits (if any) under the
Company's Supplemental Executive Retirement Plan or Equalization Benefit
Plan shall be based on the Participant's Compensation plus any
Compensation deferred under the terms of this Plan or the Company's
Deferred Compensation Plan.
8. Statement of Deferred Share Account.
An annual statement shall be sent to each Participant within 60
days following the end of each year showing for each preceding Plan Year
the Compensation deferred, Matching Allocations, Excess ESOP
Allocations, the total Deferred Shares credited to the Participant's
account, and the number of these Deferred Shares that are attributable
to the Participant's deferred Compensation, to Matching Allocations,
Excess ESOP Allocations, and to reinvested dividends. Such information
shall be shown on a monthly (quarterly prior to January 1, 1996) basis.
9. Payment of Account Balance.
(a) Period of Deferral. When making the first deferral election
under Paragraph (a) of Section 5, a Participant shall elect to receive
all deferred Compensation, Matching Allocations, and Excess ESOP
Allocations either in a lump-sum payment within 45 days following his
death, Disability, or termination of employment or in a number of annual
installments (not to exceed four), the first of which would be payable
within 45 days following his death, Disability or termination of
employment with each subsequent payment payable one year thereafter.
The account balance shall be valued using the Fair Market Value of the
Company's Common Stock on the last day of the calendar month preceding
payment and shall be converted to a cash balance based upon such Fair
Market Value. Under an installment payout, the Participant's first
installment shall be equal to a fraction of the balance credited to his
account as of the last day of the calendar month preceding such payment,
the numerator of which is one and the denominator of which is the total
number of installments selected. The amount of each subsequent payment
shall be a fraction of the balance in the Participant's account as of
the last day of the calendar month preceding each subsequent payment,
the numerator of which is one and the denominator of which is the total
number of installments elected minus the number of installments
previously paid.
(b) Adverse Tax Determination. If there is a determination by
the Internal Revenue Service (IRS) that a Participant should be taxed on
some or all of the amounts allocated to his account prior to the
distribution date(s) elected under Paragraph (a) of this Section 9, the
Participant may elect to have all amounts determined to be currently
taxable paid to him immediately prior to the time he must pay any taxes
owed as a result of such IRS determination.
(c) Change in Control. Notwithstanding any other provision of
this Plan, if the Company obtains actual knowledge of a "Change in
Control" of the Company (as defined below), then all Deferred Shares
credited to a Participant's account shall be converted to cash equal in
amount to the Fair Market Value of the Deferred Shares if converted into
shares of the Company's Common Stock. At the Participant's election,
the cash shall be distributed to him within 60 days following the date
upon which the Company obtained actual knowledge of such Change in
Control. The account balance shall be valued using the Fair Market
Value of the Company's Common Stock on the last day of the calendar
month preceding payment. As used herein, a "Change in Control" of the
Company shall be deemed to have occurred if (i) an "Acquiring Person"
(as such term is defined in the Rights Agreement dated as of February
13, 1996, between the Company and Chemical Mellon Shareholder Services
L.L.C. ("Rights Agreement")) is or becomes the beneficial owner (as such
term is used in Rule 13d-3 under the Securities Exchange Act of 1934.)
of securities of the Company representing 15 percent 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) a plan of liquidation or dissolution of the Company. 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.
(d) Method of Payment. All amounts credited to a Participant's
account shall be distributed to him or, in the event of his death, to
his Beneficiary, in cash and in accordance with the election made by the
Participant.
(e) Source of Payments. Each participating Employer will pay all
benefits for its Employees arising under this Plan, and all costs,
charges and expenses relating thereto, out of its general assets.
10. Amendment and Termination of Plan.
The Plan may be amended, modified or terminated by the Company's
Board of Directors at any time. Provided, however, no such amendment,
modification or termination shall be made in the event there is a Change
in Control, as defined in Paragraph (c) of Section 9. In addition, no
amendment, modification, or termination shall reduce any deferred
benefit under the Plan reflected in a Participant's account prior to the
date of such amendment or termination.
11. Non-assignability of Benefits.
To the extent consistent with applicable law, the Participant's
deferred benefits under this Plan shall not be assigned, transferred,
pledged, or encumbered or be subject in any manner to alienation or
attachment.
12. No Creation of Rights.
Nothing in this Plan shall confer upon any Participant the right
to continue as an Employee or to receive annual Compensation in excess
of the Compensation Limit. The right of a Participant to receive a cash
distribution shall be an unsecured claim against the general assets of
his Employer. Nothing contained in this Plan nor any action taken
hereunder shall create, or be construed to create, a trust of any kind,
or a fiduciary relationship between the Company and the Participants,
Beneficiaries, or any other persons. All accounts under the Plan shall
be maintained for bookkeeping purposes only and shall not represent a
claim against specific assets of any Employer.
13. Effective Date.
The Plan, as originally adopted, was effective on July 1, 1989.
The Plan, as amended and restated, is effective February 13, 1996, and
shall remain in effect until it is discontinued by action of the
Company's Board of Directors.
QUESTAR CORPORATION
DEFERRED COMPENSATION PLAN
FOR HIGHLY COMPENSATED EMPLOYEES
(As Amended and Restated Effective February 13, 1996)
Questar Corporation hereby amends this DEFERRED COMPENSATION PLAN
FOR HIGHLY COMPENSATED EMPLOYEES, effective February 13, 1996. This
Plan, which was originally adopted effective November 1, 1993, is an
unfunded plan established to provide highly compensated employees with
an opportunity to defer receipt of up to a specified portion of their
annual compensation in order to reduce current tax obligations.
1. Definitions.
"Affiliated Company" means the Company and any corporation that is
a member of a controlled group of corporations (as defined in Section 414(b)
of the Code), which includes the Company.
"Beneficiary" means that person or persons who become entitled to
receive a distribution of benefits under the Plan in the event of the
death of a Participant prior to the distribution of all benefits to
which he is entitled.
"Code" means the Internal Revenue Code of 1986 and amendments
thereto. Reference to a section of the Code shall include that section
and any comparable section or sections of any future legislation that
amends, supplements or supersedes said section.
"Common Stock" means common stock of the Company.
"Company" means Questar Corporation, a corporation organized and
existing under the laws of the State of Utah, or its successor or
successors.
"Compensation" means an Employee's salary or wages and 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 Company's Employee Investment Plan or other
tax-qualified plans. 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" means a condition that renders a Participant unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or
mental impairment which can be expected to result in death or to be of
long-continued and indefinite duration. A Participant shall not be
considered to be disabled unless he furnishes proof of the existence of
such disability in such form and manner as may be required by
regulations promulgated under Code Section 72(m)(7).
"Employee" means any officer or key manager of an Employer who
meets the eligibility criteria set out in Paragraph 4 of this Plan.
"Employer" means the Company and each Affiliated Company that
consents to the adoption of the Plan.
"Fair Market Value" means the closing price of the Company's
common stock as reported on the composite tape of the New York Stock
Exchange for any given valuation date or the next preceding day on which
sales took place if no sales occurred on the actual valuation date.
"Participant" means an Employee who has made an election under
Paragraph 5 of this Plan.
"Plan" means the plan set forth in and created by this document
and all subsequent amendments thereto.
"Plan Year" means the fiscal year of the Plan, which shall
coincide with the Company's fiscal year.
"Tax-Qualified Plan" means the Questar Corporation Employee
Investment Plan, as amended from time to time, or any tax-qualified plan
adopted by the Company.
2. Purpose of Plan.
The purpose of the Plan is to provide eligible Employees with the
opportunity to defer receipt of up to a specified portion of their
annual Compensation in order to reduce current tax payment obligations.
3. Administration.
The Management Performance Committee of the Company's Board of
Directors shall construe and administer the Plan and shall have full
authority to make such rules and regulations deemed necessary or
desirable to carry out such administration. The Management Performance
Committee may appoint an officer or department to assist with the
administration of the Plan. All interpretations of the Plan by the
Committee shall be final and binding on all parties, including
Participants, Beneficiaries and Employers.
4. Eligibility.
All officers and any key manager whose annual Compensation is
expected to exceed $125,000 are eligible to participate in the Plan.
5. Election to Defer Compensation.
In order to participate in the Plan during 1993, an Employee must
make an election to defer at least $500 per month of participation. For
the first Plan Year, which is a partial Plan Year, such election must be
made at or prior to the effective date of this Plan and can only be made
as to Compensation to be paid for future services. In order to
participate in subsequent Plan Years, an Employee must make an election
to defer an amount from $5,000 to 50 percent of annual Compensation.
Such elections must be made prior to the first day of the Plan Year in
which it is to become effective and can only be made with respect to
Compensation to be paid for future services. A deferral election, once
made, shall remain in effect for subsequent Plan Years until it is
revoked or modified by the Participant. A Participant can modify or
revoke his deferral election with respect to Compensation to be paid for
future services by submitting a new election or a revocation prior to
the beginning of the Plan Year in which such new deferral election or
revocation is to become effective. All notices of election or
revocation shall be made on forms prepared by the Company's Secretary
and shall be dated, signed, and filed with the Company's Secretary.
6. Elections, Deemed Investments.
When making an election to defer Compensation, an Employee must
choose between two methods of determining earnings on the deferred
Compensation. He may choose to have such earnings calculated as if the
deferred Compensation had been invested in shares of the Company's
Common Stock (the "Common Stock Option") or he may choose to have
earnings calculated by adding 100 basis points to the interest payable
on a 10-Year Treasury Note (the "Treasury Note Option"). An Employee
may also choose to allocate his deferred Compensation between the
options in increments of 25 percent, 50 percent, or 75 percent.
The Participant must designate his deemed investment for all of
the Compensation he elects to defer in any given year. He may change
the deemed investment for future deferred Compensation by filing the
appropriate notice with the Company's Corporate Secretary before the
first day of each calendar year, but such change shall not affect the
method of determining earnings of any Compensation deferred in a prior
year.
Any deferred Compensation accounted for under the Common Stock
Option shall be accounted for as if invested in shares of Common Stock
purchased at a price equal to the average price paid for shares of
Common Stock purchased by the trustee of the Tax-Qualified Plan during
the month (quarter prior to January 1, 1996) in which the deferrals are
made under this Plan. This amount shall be credited to a Participant's
account on a monthly (quarterly prior to January 1, 1996) basis. In
addition, a Participant's account shall be credited on a quarterly basis
with an amount equal to the dividends that would have become payable
during the deferral period if actual purchases of Common Stock had been
made, with such dividends accounted for as if invested in Common Stock
as of the payable date for such dividends. Any credited shares treated
as if they were purchased with dividends shall be deemed to have been
purchased at a price equal to the average price of shares purchased with
reinvested dividends under the Tax-Qualified Plan during the quarter in
which the deemed purchases are treated as being made under this Plan.
If a Participant elects the Treasury Note Option, his account will
be credited with any Compensation deferred by the Participant in any
given month. Interest shall be calculated at a monthly rate calculated
by dividing by 12 the sum of 100 basis points plus the rate for the
appropriate 10-Year Treasury Note as quoted in the Wall Street Journal
on the first business day of each month. The appropriate 10-Year
Treasury Note shall be the Note that is the closest (in terms of months)
to the date on which the interest is credited. The interest deemed to
be credited to each Account shall be based on the amount credited to
such Account at the beginning of each particular month.
7. Integration with Other Plans.
If an employee elects to reduce his Compensation under the terms
of this Plan, six percent of any Compensation deferred shall be
accounted for under the terms of the Questar Corporation Deferred Share
Plan. A Participant's benefits (if any) under the Company's Executive
Incentive Retirement Plan shall be based on the Participant's base
salary including any base salary deferred under the terms of this Plan
or the Company's Deferred Share Plan or any base salary reductions under
the Company's Tax-Qualified Plan or Cafeteria Plan. A Participant's
benefits (if any) under the Company's Supplemental Executive Retirement
Plan or Equalization Benefit Plan shall be based on the Participant's
Compensation plus any Compensation deferred under the terms of this Plan
or the Company's Deferred Share Plan.
8. Account Statement.
Within 60 days after the end of the calendar year, a statement
shall be sent to each Participant listing the balance in his account as
of the end of the year.
9. Payment of Account Balances.
When making the first deferral election under Paragraph 5, a
Participant shall determine when to receive the Compensation deferred by
him. A Participant can elect to receive such deferred Compensation at a
specified date prior to his termination of employment, e.g., December
31, 2001, upon his termination of employment or at a specified time
within five years after his termination of employment. A Participant
can also elect whether to receive deferred Compensation in a lump-sum
payment or in a number of annual installments (not to exceed four). A
Participant cannot change such elections for Compensation previously
deferred, but can change such elections for Compensation to be paid for
future services.
Under the Common Stock Option, the account balance shall be valued
using the Fair Market Value of the Company's Common Stock on the last
day of the calendar month preceding payment and shall be converted to a
cash balance based upon such Fair Market Value. Under an installment
payout, the Participant's first installment shall be equal to a fraction
of the balance credited to his account (or the portion of his account to
be paid in installments) as of the last day of the calendar month
preceding such payment, the numerator of which is one and the
denominator of which is the total number of installments selected. The
amount of each subsequent payment shall be a fraction of the balance in
the Participant's account as of the last day of the calendar month
preceding each subsequent payment, the numerator of which is one and the
denominator of which is the total number of installments elected minus
the number of installments previously paid.
Under the Treasury Note Option, the account balance shall be
valued as of the date of withdrawal, which is the last day of the
calendar month preceding payment, with interest credited to such date.
Under an installment payout, the Participant's first installment shall
be equal to a fraction of the balance credited to his account (or the
portion of his account to be paid in installments) as of the last day of
the calendar month preceding such payment, the numerator of which is one
and the denominator of which is the total number of installments
selected. The amount of each subsequent payment shall be a fraction of
the balance in the Participant's account as of the last day of the
calendar month preceding each subsequent payment, the numerator of which
is one and the denominator of which is the total number of installments
elected minus the number of installments previously paid.
10. Miscellaneous Payment Issues.
(a) Adverse Tax Determination. If there is a determination by
the Internal Revenue Service (IRS) that a Participant should be taxed on
some or all of the amounts allocated to his account prior to the
distribution date(s) elected under Paragraph 9, the Participant may
elect to have all amounts determined to be currently taxable paid to him
immediately prior to the time he must pay any taxes owed as a result of
such IRS determination.
(b) Change in Control. Notwithstanding any other provision of
this Plan, if the Company obtains actual knowledge of a "Change in
Control" of the Company (as defined below) a Participant may elect to
have his Account distributed to him within 60 days following the date
upon which the Company obtained actual knowledge of such change of
control. The account balance shall be valued as described in Paragraph
9. As used herein, a "Change in Control" of the Company shall be deemed
to have occurred if (i) any "Acquiring Person" (as such term is defined
in the Rights Agreement dated as of February 13, 1996, between the
Company and Chemical Mellon Shareholder Services, L.L.C. (the Rights
Agreement)) is or becomes the beneficial owner (as such term is used in
Rule 13d-3 under the Securities Exchange Act of 1934) of securities of
the Company representing 15 percent 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) a plan of liquidation or
dissolution of the Company. 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.
(c) Method of Payment. All amounts credited to a Participant's
account shall be distributed to him or, in the event of his death, to
his Beneficiary, in cash and in accordance with the election made by the
Participant.
(d) Source of Payments. Each participating Employer will pay all
benefits for its Employees arising under this Plan, and all costs,
charges and expenses relating thereto, out of its general assets.
11. Amendment and Termination of Plan.
The Plan may be amended, modified or terminated by the Company's
Board of Directors at any time. Provided, however, no such amendment,
modification or termination shall be made in the event there is a Change
in Control, as defined in Paragraph 10(b). In addition, no amendment,
modification, or termination shall reduce any deferred benefit under the
Plan reflected in a Participant's account prior to the date of such
amendment or termination.
12. Non-nassignability of Benefits.
To the extent consistent with applicable law, the Participant's
deferred benefits under this Plan shall not be assigned, transferred,
pledged, or encumbered or be subject in any manner to alienation or
attachment.
13. No Creation of Rights.
Nothing in this Plan shall confer upon any Participant the right
to continue as an Employee of an Employer. The right of a Participant
to receive a cash distribution shall be an unsecured claim against the
general assets of his Employer. Nothing contained in this Plan nor any
action taken hereunder shall create, or be construed to create, a trust
of any kind, or a fiduciary relationship between the Company and the
Participants, Beneficiaries, or any other persons. All accounts under
the Plan shall be maintained for bookkeeping purposes only and shall not
represent a claim against specific assets of any Employer.
14. Effective Date.
The Plan, as originally adopted, was effective November 1, 1993.
The Plan, as amended and restated, is effective February 13, 1996, and
shall remain in effect until it is discontinued by action of the
Company's Board of Directors.
EXHIBIT 11.
STATEMENT CONCERNING COMPUTATION OF EARNINGS PER SHARE
QUESTAR CORPORATION
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
(In Thousands, Except Per Share
Amounts)
<S> <C> <C> <C>
Net Income Data
Income from continuing operations $83,786 $49,417 $84,464
Gain from sale of discontinued operations 38,126
Preferred stock dividends (483) (591) (695)
Income for common from continuing
operations 83,303 86,952 83,769
Loss from discontinued operations (2,772)
Income available for common stock $83,303 $86,952 $80,997
Earnings Per Share on Income Statement - Note A
Average shares outstanding 40,552 40,292 39,995
Earnings per share from continuing
operations $2.05 $1.21 $2.10
Gain from sale of discontinued operations 0.95
Loss from discontinued operations (0.07)
Net income per share $2.05 $2.16 $2.03
Primary Earnings Per Share
Average shares outstanding 40,552 40,292 39,995
Additional shares assuming exercise of
dilutive stock options -- based on treasury
stock method using average market price 181 225 300
Shares used in primary earnings per
share 40,733 40,517 40,295
Earnings per share from continuing
operations $2.05 $1.21 $2.08
Gain from sale of discontinued operations 0.94
Loss from discontinued operations (0.07)
Net income per share $2.05 $2.15 $2.01
Fully Diluted Earnings Per Share
Average shares outstanding 40,552 40,292 39,995
Additional shares assuming exercise of
dilutive stock options -- based on treasury
stock method using year-end market price
if higher than average market price 181 225 300
Shares used in fully diluted earnings per
share 40,733 40,517 40,295
Earnings per share from continuing
operations $2.05 $1.21 $2.08
Gain from sale of discontinued operations 0.94
Loss from discontinued operations (0.07)
Net income per share $2.05 $2.15 $2.01
</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%.
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., a Utah corporation; Universal Resources
Corporation, a Texas corporation; Questar Development Corporation, a
Utah corporation; and Questar Energy Services, Inc., 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 three active subsidiaries:
URC Canyon Creek Compression Company, a Utah corporation; Questar Energy
Trading Company, a Utah corporation; and Questar WMC Corporation, 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 Development Corporation has one active subsidiary:
Interstate Land Corporation, a Utah corporation.
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration
Statement (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 9, 1996 with respect to the consolidated financial
statements of Questar Corporation included in this Annual Report
(Form 10-K) for the year ended December 31, 1995.
ERNST & YOUNG LLP
Salt Lake City, Utah
March 22, 1996
POWER OF ATTORNEY
We, the undersigned directors of Questar Corporation, hereby
severally constitute R. D. Cash and S. E. Parks, 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 1995 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 1995 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, 2-13-96
R. D. Cash President & Chief
Executive Officer
/s/ Patrick J. Early Director 2-13-96
Patrick J. Early
/s/ U. Edwin Garrison Director 2-13-96
U. Edwin Garrison
/s/ J. A. Harmon Director 2-13-96
J. A. Harmon
/s/ W. Whitley Hawkins Director 2-13-96
W. Whitley Hawkins
/s/ William N. Jones Director 2-13-96
William N. Jones
/s/ R. E. Kadlec Director 2-13-96
R. E. Kadlec
/s/ Dixie L. Leavitt Director 2-13-96
Dixie L. Leavitt
/s/ Neal A. Maxwell Director 2-13-96
Neal A. Maxwell
/s/ Mary Mead Director 2-13-96
Mary Mead
/s/ Gary G. Michael Director 2-13-96
Gary G. Michael
/s/ D. N. Rose Director 2-13-96
D. N. Rose
/s/ Harris H. Simmons Director 2-13-96
Harris H. Simmons
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summarized financial information extracted from the
Questar Corporation Statements of Income and Balance Sheets for the years
ended December 31, 1995 and 1994, and is qualified in its entirety by
reference to such audited financial statements. Information prior to
December 31, 1995 is restated.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 6-MOS
9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1995 DEC-31-1995
DEC-31-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994 MAR-31-1995 JUN-30-1995
SEP-30-1994
<CASH> 5,122 7549 0 0
0
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 126,528 143081 127960 94470
92212
<ALLOWANCES> 0 0 0 0
0
<INVENTORY> 28,110 30098 26532 25659
33171
<CURRENT-ASSETS> 170,725 193125 166621 133699
137484
<PP&E> 2,330,900 2263170 2277711 2296788
2218843
<DEPRECIATION> 1,020,799 955536 980466 1004792
939725
<TOTAL-ASSETS> 1,584,553 1585575 1561501 1525475
1548421
<CURRENT-LIABILITIES> 222,695 220214 182709 147006
210482
<BONDS> 421,695 494684 486688 477692
439680
4,957 6324 6324 6218
7524
0 0 0 0
0
<COMMON> 283,776 310402 312073 313572
308901
<OTHER-SE> 428,899 343187 369028 373085
347133
<TOTAL-LIABILITY-AND-EQUITY> 1,584,553 1585575 1561501 1525475
1548421
<SALES> 0 0 0 0
0
<TOTAL-REVENUES> 649,287 670318 215932 354501
470899
<CGS> 0 0 0 0
0
<TOTAL-COSTS> 379,144 386608 131932 212352
271186
<OTHER-EXPENSES> 128,117 129052 33648 66833
100311
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> 42,815 39811 11257 22082
28229
<INCOME-PRETAX> 116,525 58061 40810 59271
75213
<INCOME-TAX> 32,739 8644 13737 17636
21159
<INCOME-CONTINUING> 83,786 49417 27073 41635
54054
<DISCONTINUED> 0 38126 0 0
38126
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 83,786 87543 27073 41635
92180
<EPS-PRIMARY> $2.05 2.16 .67 1.02
2.28
<EPS-DILUTED> $2.05 2.16 .67 1.02
2.28
</TABLE>
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, 1995
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
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995.
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, P.O. Box 45433, Salt Lake City, Utah
84145-0433.
C. Financial Statements and schedules prepared in accordance
with the Employee Retirement Income Security Act of 1974 for the fiscal
year ended December 31, 1995, 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 22, 1996 By: /s/R. D. Cash
R. D. Cash
Chairman, Employee Benefits
Committee
Financial Statements and Schedules
Questar Corporation Employee Investment Plan
Years ended December 31, 1995 and 1994
<PAGE>
Questar Corporation Employee Investment Plan
Financial Statements and Schedules
Years ended December 31, 1995 and 1994
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, 1995 and 1994, 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,
1995 and 1994, 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 1995 financial
statements and, in our opinion, are fairly stated in all
material respects in relation to the 1995 financial
statements taken as a whole.
ERNST & YOUNG LLP
Salt Lake City, Utah
March 8, 1996
<PAGE>
Questar Corporation
Employee Investment Plan
Statements of Net Assets Available for Plan Benefits
<TABLE>
<CAPTION>
December 31
1995 1994
<S> <C> <C>
Assets
Investments (Notes 3 and 4) :
Questar Corporation common stock -
at market :
Allocated $103,887,463 $84,142,679
Unallocated 29,524,553 29,621,492
Mutual funds 10,258,687 7,452,693
Money market fund 3,142,732 2,382,430
Guaranteed investment contracts 707,303 1,428,692
147,520,738 125,027,986
Cash and short-term investments 30,920 21,107
Contribution receivable from
Questar Corporation 1,612,323 1,534,239
Interest receivable 15,610 51,670
149,179,591 126,635,002
Liabilities
Unallocated contributions and dividends 27,261 17,121
Interest payable 924,337 1,020,021
Security acquisition(Note 3) 21,237,976 24,543,190
22,189,574 25,580,332
Net assets available
for plan benefits $126,990,017 $101,054,670
</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
1995 1994
<S> <C> <C>
Additions
Dividend income 4,602,072 $4,575,529
Interest income 867,690 601,430
Contributions :
Employees 6,495,451 7,077,643
Employer 3,660,142 3,169,768
10,155,593 10,247,411
15,625,355 15,424,370
Deductions
Withdrawals - at market 13,194,771 5,584,458
Distribution of dividends to participants 281,844 271,953
Trustee fees and commissions 32,817 25,423
Interest expense 1,939,812 2,147,415
15,449,244 8,029,249
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 25,759,236 (22,889,282)
Net additions (deductions) 25,935,347 (6,448,638)
Net assets available for plan benefits at
beginning of year 101,054,670 107,503,308
Net assets available for plan
benefits at end of year $126,990,017 $101,054,670
</TABLE>
See accompanying notes.
<PAGE>
Questar Corporation
Employee Investment Plan
Notes To Financial Statements
December 31, 1995
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 were able
to direct the investment of their contributions into the
following funds: 1) GIC/Money Market, 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 also included
investments in the Fidelity Intermediate Bond Fund even
though the Plan did not allow employees to contribute to
the fund in 1995. The Plan allowed participants to
change their contribution elections 15 days before the
first day of the calendar month in which the change was
to become effective.
With the exception of the Questar stock fund,
participants 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 receive employer matching contributions
in the form of leveraged Questar shares released from the
suspense account (see Note 3) on the first 6% of their
eligible compensation contributed, at the following
percentages: 100% of the first 2%, 75% of the next 2%,
and 50% of the next 2%.
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.
<PAGE>
Questar Corporation
Employee Investment Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
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 the 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 (IRA) or
other qualified plan, if the participant so elects. If
any part of the taxable portion of a withdrawal is
distributed directly to the participant rather than
directly rolled over to an IRA, any cash to be
distributed to the participant will be subject to
mandatory withholding equal to 20% of the taxable portion
of the distribution. However, if the taxable amount is
$200 or less, or 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 funds 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 funds
allocated to their individual accounts. Should the Plan
terminate at some future time, all amounts allocated to
the employee's accounts would be distributed to them.
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the amounts reported in the financial statements and
accompanying notes. Actual amounts could differ from the
estimates.
Questar Corporation
Employee Investment Plan
Notes to Financial Statements (continued)
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. 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 promissory notes payable to
Questar (see Note 3).
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
Questar Corporation
Employee Investment Plan
Notes to Financial Statements (continued)
2. Accounting Policies (continued)
(including 401(k) salary reductions) or income credited
to individual accounts until such time as these amounts
are distributed. A 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
The Plan issued two promissory notes payable 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. These shares are held in a
separate suspense account established under the Trust and
are released and 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. The notes are collateralized by the
unreleased leveraged shares.
The detail of these notes payable is as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
<S> <C> <C>
8.25% Senior ESOP Notes-Series A,
due July 1, 1996 $5,237,976 $8,543,190
8.28% Senior ESOP Notes-Series B,
due July 1, 1999 16,000,000 16,000,000
$21,237,976 $24,543,190
</TABLE>
Questar Corporation
Employee Investment Plan
Notes to Financial Statements (continued)
3. Security Acquisition Loans (continued)
Under the terms of the notes, the Plan is obligated to
make principal payments 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 when the actual
number of shares needed to make matching allocations
exceeds the minimum shares required to be released under
the terms of the notes. 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
1995, 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 four
years following December 31, 1995, are as follows:
1996 $5,238,000
1997 4,700,000
1998 5,300,000
1999 6,000,000
Questar Corporation
Employee Investment Plan
Notes to Financial Statements (continued)
4. Investments
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, 1995, were as follows:
<TABLE>
<CAPTION>
Allocated Unallocated
Shares Cost Shares Cost
<S> <C> <C> <C> <C>
Balances at January 1, 1994 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
Purchases 237,987 7,220,841
Allocation of shares 195,815 5,951,929 (195,815) (3,439,005)
Withdrawals (392,418) (8,137,083)
Balances at December 31, 1995 3,101,118 $68,749,127 881,330 $15,478,358
</TABLE>
Average cost per share of allocated stock at December 31
was $22.17 and $20.82 for 1995 and 1994, respectively.
Market price per share of stock, both allocated and
unallocated, as of December 31 was $33.50 and $27.50 for
1995 and 1994, 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 which was $17.5625
per share.
Statement amounts that were attributable to allocated and
unallocated shares during 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
Allocated Unallocated
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net realized and unrealized
appreciation (depreciation) $20,610,039 ($13,808,082) $3,342,066 ($8,665,246)
Security acquisition loans 687,986 493,205 20,549,990 24,049,985
Dividends 3,435,014 3,225,585 1,167,058 1,349,944
</TABLE>
Interest expense was entirely attributable to shares that
were unreleased during 1995 and 1994. Employer
contributions receivable, employer contributions, and
distributions were entirely attributable to allocated
shares.
Questar Corporation
Employee Investment Plan
Notes to Financial Statements (continued)
4. Investments (continued)
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>
1995 1994
Net Asset Total Net Asset Total
Value per Un Units Value per Unit Units
<S> <C> <C> <C> <C>
Fidelity Magellan Fund
March 31 $72.44 77,571 $69.72 60,451
June 30 83.50 72,769 63.94 66,749
September 30 92.37 74,732 67.41 71,891
December 31 85.98 81,708 66.80 76,081
Fidelity Puritan Fund
March 31 15.42 164,812 15.52 114,269
June 30 16.15 164,523 15.54 124,762
September 30 16.78 175,076 15.35 138,639
December 31 17.01 187,949 14.81 157,842
Fidelity Intermediate Bond Fund
March 31 9.99 3,394 10.33 3,154
June 30 10.24 3,393 10.03 3,234
September 30 10.23 3,446 9.94 3,286
December 31 10.41 3,502 9.83 3,341
GIC/Money Market Fund
March 31 1.00 3,991,442 1.00 3,569,122
June 30 1.00 3,857,246 1.00 3,634,405
September 30 1.00 3,936,469 1.00 3,711,332
December 31 1.00 3,850,035 1.00 3,811,122
</TABLE>
Questar Corporation
Employee Investment Plan
Notes to Financial Statements (continued)
4. Investments (continued)
<TABLE>
<CAPTION>
December 31, 1995
GIC/Money Magellan Puritan Intermediate
Market Fund Fund Fund Bond Fund Total
<S> <C> <C> <C> <C> <C>
Investments:
Mutual funds $7,025,227 $3,197,004 $36,456 $10,258,687
Money market fund $3,142,732 3,142,732
Guaranteed investment
investment
contracts 707,303 707,303
$3,850,035 $7,025,227 $3,197,004 $36,456 $14,108,722
December 31, 1994
GIC/Money Magellan Puritan Intermediate
Market Fund Fund Fund Bond Fund Total
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>
Questar Corporation
Employee Investment Plan
Notes to Financial Statements (continued)
4. Investments (continued)
<TABLE>
<CAPTION>
Year ended December 31, 1995
GIC/Money Magellan Puritan Intermediate Questar
Market Fund Fund Fund Bond Fund Stock Total
<S> <C> <C> <C> <C> <C> <C>
Additions:
Employee
contributions $256,653 $990,994 $597,052 $4,650,752 $6,495,451
Employer
contributions 3,660,142 3,660,142
Dividend income 4,602,072 4,602,072
Interest income 252,680 404,134 203,752 $2,180 41,004 903,750
509,333 1,395,128 800,804 2,180 12,953,970 15,661,415
Withdrawals (586,266) (837,303) (245,551) (549) (11,525,102) (13,194,771)
Distribution of
dividends (281,844) (281,844)
Trustee fees (32,817) (32,817)
Interest expense (1,939,812) (1,939,812)
Net transfers
in (out) 115,846 (51,694) (64,152)
Net realized and
unrealized
appreciation of
investments 1,436,876 368,268 1,987 23,952,105 25,759,236
Net additions 38,913 1,943,007 859,369 3,618 23,126,500 25,971,407
Net assets held by
trustee at
beginning of year 3,811,122 5,082,220 2,337,635 32,838 89,739,185 101,003,000
Net assets held by
by trustee at
end of year $3,850,035 $7,025,227 $3,197,004 $36,456 $112,865,685 $126,974,407
</TABLE>
Questar Corporation
Employee Investment Plan
Notes to Financial Statements (continued)
4. Investments (continued)
<TABLE>
<CAPTION>
Year ended December 31, 1994
GIC/Money Magellan Puritan Intermediate Questar
Market Fund Fund Fund Bond Fund Stock Total
<S> <C> <C> <C> <C> <C> <C>
Additions:
Employee
contributions $278,725 $1,277,751 $789,129 $4,732,038 $7,077,643
Employer
contributions 3,169,768 3,169,768
Dividend income 4,575,529 4,575,529
Interest income 223,822 173,909 128,612 $2,404 26,308 555,055
502,547 1,451,660 917,741 2,404 12,503,643 15,377,995
Withdrawals (55,656) (128,719) (50,436) (5,349,647) (5,584,458)
Distribution of
dividends (271,953) (271,953)
Trustee fees (25,423) (25,423)
Interest expense (2,147,415) (2,147,415)
Net transfers
in (out) (574,876) 204,951 370,906 (981)
Net realized and
unrealized
depreciation of
investments (258,469) (154,449) (3,036) (22,473,328) (22,889,282)
Net additions
(deductions) (127,985) 1,269,423 1,083,762 (1,613) (17,764,123) (15,540,536)
Net assets held
by trustee at
beginning of year 3,939,107 3,812,797 1,253,873 34,451 107,503,308 116,543,536
Net assets held
by trustee at
end of year $3,811,122 $5,082,220 $2,337,635 $32,838 $89,739,185 $101,003,000
</TABLE>
Schedules
Questar Corporation
Employee Investment Plan
Assets Held for Investment
December 31, 1995
Assets Held in Trust by First Security Bank of Utah, N.A.
<TABLE>
<CAPTION>
Description of Investments Cost Fair Value
<S> <C> <C>
Questar Corporation Common Stock
Allocated (3,101,118 shares) 68,749,127 103,887,463
Unallocated Stock (881,330 shares) 15,478,358 29,524,553
Fidelity Magellan Fund (81,708 units) 5,805,554 7,025,227
Fidelity Puritan Fund (187,949 units) 2,979,376 3,197,004
Fidelity Intermediate Bond
Fund (3,502 units) 40,487 36,456
Fidelity Institutional Cash Portfolio -
Money Market Fund (3,142,732 units) 3,142,732 3,142,732
The Equitable Life Assurance Society of
the United States
Guaranteed Investment
Contracts (707,303 units) 707,303 707,303
Cash and Short-Term Investments 30,920 30,920
$96,933,857 $147,551,658
</TABLE>
Questar Corporation
Employee Investment Plan
Transactions or Series of Transactions in Excess of 5% of
the Current Value of Plan Assets
Year ended December 31, 1995
<TABLE>
<CAPTION>
Description Purchase Selling Net Gain
Identity of Issuer of Assets Price Price or Loss
<S> <C> <C> <C> <C>
Category (i) - Single 0 0 0 0
Transaction in Excess of 5% of
Plan Assets (None)
Category (ii) - Series of 0 0 0 0
Transactions (Other than
Securities Transactions) with
the Same Person Aggregating 5%
of Plan Assets (None)
Category (iii) - A Series of
Transactions in a Security
Issue Aggregating 5% of Plan
Assets
Questar Corporation Common Stock
257
Purchases $7,220,882
113
Withdrawals $8,137,083 $11,525,102 $3,388,019
Category (iv) - Transactions in 0 0 0 0
Securities with a Person if Any
Single Transaction with that
Person was in Excess of 5% of
Plan Assets (None)
</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 8, 1996,
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, 1995.
ERNST & YOUNG LLP
Salt Lake City, Utah
March 22, 1996
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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected on the form of prospectus filed by the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
"calculation of Registration Fee" table in the effective
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.
(e) Incorporated Annual and Quarterly Reports.
The undersigned registrant hereby undertakes to deliver or cause
to be delivered with the prospectus, to each person to whom the
prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Securities Exchange Act of 1934; and where interim
financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver or cause
to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial
information.
(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.
