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, 1997 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, Utah84145-0433
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:(801) 324-5000
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 ValueNew 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 27, 1998, was
$1,727,273,823 (based on the closing price of such stock).
On February 27, 1998, 41,116,030 shares of the registrant's
common stock, without par value, were outstanding.
Documents Incorporated by Reference. Portions of the definitive Proxy
Statement for the 1998 Annual Meeting of Stockholders 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.
TABLE OF CONTENTS
Heading Page
PART I
Items 1.
and 2. BUSINESS AND PROPERTIES
General
Market Resources, Exploration and Production
Market Resources, Wholesale Marketing
Market Resources, Gathering and Processing
Market Resources, Retail Products and Services
Market Resources, General
Regulated Services, Introduction
Regulated Services, Retail Distribution
Regulated Services, Transmission and Storage
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
FORM 10-K
ANNUAL REPORT, 1997
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
General
Registrant Questar Corporation ("Questar" or "the Company") is an
integrated energy services holding company. It has two basic
divisions, Market Resources and Regulated Services. Market Resources
engages in energy development and production; gas gathering and
processing; wholesale gas, electricity and hydrocarbon liquids trading;
and retail energy services. Regulated Services conducts interstate gas
transmission and storage activities and retail gas distribution
services. The Company is also involved in information and communication
systems and technologies.
The Company was organized in 1984 and became a publicly held
entity when the shareholders of Mountain Fuel Supply Company (recently
renamed Questar Gas Company or "Questar Gas") approved a corporate
reorganization. Questar was created to provide organizational and
financial flexibility and to achieve a more clearly defined separation
of utility and nonutility activities. Questar is a "holding company,"
as that term is defined in the Public Utility Holding Company Act of
1935, because Questar Gas is a natural gas utility. The Company,
however, qualifies for and claims an exemption from provisions of such
act applicable to registered holding companies.
As is noted in the following organization chart, Questar's
Regulated Services unit includes a subholding entity, Questar Regulated
Services Company ("QRS"), Questar Gas and Questar Pipeline Company
("Questar Pipeline"). Market Resources entities are owned through
another subholding company, Entrada Industries, Inc. ("Entrada"). They
include Wexpro Company ("Wexpro"), Celsius Energy Company ("Celsius"),
and its Canadian subsidiary, Celsius Energy Resources Ltd. ("Celsius
Ltd."), Universal Resources Corporation ("Universal Resources"), Questar
Gas Management Company ("QGM"), Questar Energy Trading ("Questar Energy
Trading"), and Questar Energy Services, Inc. ("Questar Energy
Services"). The Company's information and communication activities are
conducted by Questar InfoComm, Inc. ("Questar InfoComm").
Questar Corporation
Questar InfoComm, Inc.
(Information Services)
Entrada Industries, Inc.
(Subholding Company)
Wexpro Company
(Production)
Universal Resources Corporation
(Exploration and Production)
Celsius Energy Company (Celsius Energy Resources Ltd.)
(Exploration and Production)
Questar Energy Trading Company
(Marketing)
Questar Gas Management Company
(Gathering and Processing)
Questar Energy Services, Inc.
(Retail Services)
Questar Regulated Services Company
(Subholding Company)
Questar Gas Company
(Retail Distribution)
Questar Pipeline Company
(Transportation and Storage)
As an integrated provider of energy services, the Company believes
that its structure enhances its operating flexibility as traditional
regulated activities (interstate transmission and storage and retail
distribution) become deregulated and more competitive and as previously
packaged services become unbundled. Questar's integrated structure also
enhances its financial strength by providing a balance between the
stability of regulated operations and revenues associated with rate-base
assets and the earnings growth potential of exploration and production
operations, wholesale marketing, gathering and processing, and
unregulated retail services.
Questar intends to continue emphasizing the ownership of
assets, reserves, pipelines, storage reservoirs, distribution systems, as
it offers new and traditional services in a changed environment with
different rules and new players. The Company has important partnerships
and joint venture arrangements and is pursuing new alliances to
strengthen its position and to minimize its risks.
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 12 in
the Notes to Consolidated Financial Statements.
The Company's activities are discussed below.
Market Resources, Exploration and Production
The Company has been in the exploration and production ("E&P")
business since its organization in 1935. Through the ensuing years, the
Company's E&P activities have generated substantial economic benefits
for the Company and its shareholders and customers and have expanded in
size and geographic location. The year 1997 was a good year for
Questar's E&P operations, as production volumes and commodity prices
increased. The E&P group, however, did not achieve its objective to
purchase additional reserves and recorded a $3 million write-down for
its Canadian properties.
The Company has three affiliates, Wexpro, Celsius, and Universal
Resources, that are directly engaged in E&P operations. The division of
Questar's E&P 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, operates
properties located in the Southwest, e.g., the San Juan and Paradox
Basins. Celsius Ltd. owns the Canadian assets acquired in 1996.
Natural gas remains the primary focus of the Company's E&P
operations. As of year-end 1997, the Company had proved reserves
(excluding Questar Gas's cost-of-service reserves) of 379.0 billion
cubic feet ("Bcf") of gas and 17.5 million barrels ("MMBbls") of oil,
compared to 384.0 Bcf of gas and 20.8 MMBbls of oil as of the same date
in 1996. (Any references to oil in this report include natural gas
liquids.) In 1997, the E&P group did not replace the reserves, through
acquisitions or drilling activities, that it 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.
The E&P companies participated in 235 (gross) wells in 1997,
compared to 108 wells in 1996. The 235 wells were divided between 11
exploratory wells and 224 development wells and included 91 gas wells,
70 oil wells, 22 dry holes and 52 wells in progress (waiting on
completion or drilling) at year-end. The overall drilling success in
1997 was 88 percent.
Section 29 tax credits continued to benefit the E&P group during
1997. 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. For gas volumes produced
from tight gas sands, the basic credit is $.52 per decatherm ("Dth"),
but is equivalent to a price increase of $.90 per Dth at the wellhead
when factoring in applicable taxes. During 1997, Celsius and Universal
Resources recorded $6.6 million in Section 29 credits. Approximately 19
percent of the combined gas production of Celsius and Universal
Resources qualified for the Section 29 tax credits. (Wexpro does not
have an economic interest in the cost-of-service gas produced from
Questar Gas's properties. Questar Gas earns the credits associated with
such gas.) In addition, Canadian assets generated Alberta royalty trust
credits of $782,000 in 1997.
The production of oil and gas is subject to regulation by
appropriate federal and state agencies. In general, these regulatory
agencies are authorized to make and enforce regulations to prevent waste
of oil and gas, protect the correlative rights and opportunities to
produce oil and gas by owners of a common reservoir, and 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 Questar Gas. Questar Gas'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 agreement 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 9 in the Notes
to Consolidated Financial Statements.) Wexpro produces gas from
specified properties for Questar Gas and is reimbursed for its costs
plus a return on its investment. In connection with its successful
development gas drilling, Wexpro charges Questar Gas for its costs plus
a specified rate of return (currently 21.69 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
1997, Wexpro's net investment in cost-of-service operations was $87.9
million. Under the terms of the settlement agreement, Wexpro bears all
dry hole costs. 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 Questar Gas 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 45 percent of Questar Gas's system
requirements during 1997. Questar Gas relies upon Wexpro's drilling
program to develop the properties from which the cost-of-service gas is
produced. During 1997, the average wellhead cost of Questar Gas's
cost-of-service gas was $1.32 per Dth, which is lower than Questar Gas's
average price for field-purchased gas. To fulfill its obligations to
Questar Gas under the settlement agreement, 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 Questar Gas. Wexpro, in 1997, produced 37.5 Bcf of
natural gas from Questar Gas's cost-of-service properties and added
reserves of 14.4 Bcf through drilling activities and reserve estimate
revisions. (These numbers do not include the related royalty gas.)
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' office in
Denver, Colorado, and Universal Resources' in Oklahoma City, Oklahoma.
Celsius and Universal Resources, for the third consecutive year in 1997,
produced more gas in the Midcontinent than in the Rocky Mountains. They
also spent more drilling dollars, during 1997, in the Midcontinent than
in the Rocky Mountains.
Gas production for the two entities increased from 40.5 Bcf in
1996 to 47.4 Bcf in 1997. The increase in production was attributable
to the reserve acquisitions made in 1996. Celsius and Universal
Resources received an average selling price of $1.89 per thousand cubic
feet ("Mcf") in 1997, compared to $1.53 per Mcf in 1996. Gas production
belonging to the two entities is produced from four separate gas
producing regions, the Midcontinent area, the San Juan Basin area, the
Rocky Mountain area, and the Canadian area. Production from each of
these areas is generally priced below the Henry Hub pricing center in
Louisiana, reflecting demand and access to transportation.
Gas prices remained volatile during 1997; spot prices for Rocky
Mountain production ranged from under $1.00 per Mcf to more than $4.00
per Mcf. The Company hedges as much as 50 percent of its production in
order to minimize the effect of price volatility on revenues. Hedging
activities are conducted by Questar Energy Trading.
The combined full-cost amortization rate for the two entities was
$.84 per Mcf equivalent ("Mcfe"), compared to $.79 per Mcfe in 1996.
Celsius and Universal Resources increase their activities and
minimize their risks by finding partners that will drill wells on their
acreage to acquire an interest in any resulting production. Examples of
these arrangements include a joint exploration program with North
American Resources Co. in the Moxa Arch area of southwestern Wyoming, a
similar venture with Texaco Exploration and Production Company in the
Ham's Fork region also located in southwestern Wyoming, and an agreement
with Marathon Oil Company covering the Vermillion Basin along the
Wyoming-Colorado border. Celsius was also involved with deep drilling
activities conducted by Union Pacific Resources Company in the Brady
unit in southwestern Wyoming.
Wexpro, under the terms of the Wexpro agreement, owns
oil-producing properties, including an interest in the Brady unit
mentioned above. Under the terms of the settlement agreement, the
revenues from the sale of crude oil produced from such properties are
used to recover operating expenses and provide Wexpro with a return on
its investment. In addition, Wexpro receives 46 percent of any residual
income.
During 1997, Celsius, Universal Resources, and Wexpro, on a
combined basis, produced 2.9 MMBbls of oil, compared to 2.5 MMBbls in
1996. The production was sold at an average price of $18.29 per barrel,
compared to $18.80 per barrel in 1996.
Market Resources, Wholesale Marketing
Questar Energy Trading conducts energy marketing activities. It
combines gas volumes purchased from third parties and equity production
(production that is produced by affiliates) to build a flexible and
reliable portfolio. Questar Energy Trading aggregates supplies of
natural gas for delivery to large customers, including industrial users,
municipalities, and other marketing entities. During 1997, Questar
Energy Trading marketed a total of 125.5 million decatherms ("MMDth") of
natural gas, 1.7 MMBbls of liquids, and 699,000 megawatt-hours of
electricity and earned a gross profit margin of $4,239,000. (The
volumes and margins exclude affiliated production.)
Questar Energy Trading uses derivatives as a risk management tool
to provide price protection for physical transactions involving equity
production and marketing purchases. Questar Energy Trading hedges at
least a portion of equity production and does so with a variety of
contracts for different periods of time.
As a wholesale marketing entity, Questar Energy Trading
concentrates on markets in the Pacific Northwest, Rocky Mountains,
Midwest, and western Canada that are close to reserves owned by
affiliates or accessible by major pipelines. Questar Energy Trading
sustained a loss in 1997, as its margins decreased and as it adjusted
the prices paid for affiliated production.
To sustain its activities in an increasingly competitive
environment in which sellers and purchasers are becoming more
sophisticated, Questar Energy Trading needs to expand its capabilities.
Through a new limited liability company, it has recently filed an
application with the Federal Energy Regulatory Commission ("FERC")
seeking authorization to construct and operate a private storage
reservoir in southwestern Wyoming adjacent to several interstate
pipelines and is negotiating partnerships with electricity providers and
others to obtain additional expertise and access to sophisticated
information technology.
Market Resources, Gathering and Processing
QGM conducts gathering and processing activities in the Rocky
Mountain and Midcontinent areas. Its activities are not subject to
regulation by the FERC. QGM was originally established in 1993 to
construct and operate the Blacks Fork processing plant in southwestern
Wyoming. It expanded in 1996 when Questar Pipeline spun down its
gathering assets and activities. QGM was then moved from Questar
Pipeline to the Market Resources group in mid-1996 and acquired the
processing plants that formerly belonged to Universal Resources and
Celsius.
QGM's gathering system, which consists of 1,400 miles of
gathering lines, compressor stations, field dehydration plants, and
measuring stations, was largely built to gather production from Questar
Gas's cost-of-service properties. During 1997, QGM gathered 28.5 MMDth
of natural gas for Questar Gas, compared to 30.2 MMDth in 1996, for
which it received $7.8 million in demand charges from Questar Gas.
Under the terms of a contract that was assigned with the gathering
assets from Questar Pipeline, QGM is obligated to gather Questar Gas's
cost-of-service production for the life of the properties.
QGM assumed a gathering contract with Questar Gas with a provision
specifying that gathering rates would be redetermined effective
September 1, 1997. The new gathering rates result in lower margins to
QGM.
During 1997, QGM continued to expand the volumes of gas it
gathered for nonaffiliated customers. Of its total throughput of 103.8
MMDth, a total of 57.6 MMDth were gathered for nonaffiliated customers.
QGM's gathering system was originally built as a regulated asset;
QGM now must operate in a different competitive environment. Often, new
wells will have connections with more than one gathering system, and
producers insist that gathering systems be tied to more than one
pipeline. During 1997, QGM reduced its future labor costs by offering
an enhanced early retirement program to its employees. It also recorded
a $3 million asset write-down.
In addition to gathering activities, QGM is also engaged in
processing activities. It owns a 50 percent interest in the Blacks Fork
processing plant, which has a daily capacity of 84 million cubic feet
("Mmcf") and will be expanded during 1998. This plant, which is located
in southwestern Wyoming, strips liquids (e.g., ethane, butane) from
natural gas volumes. QGM and Wexpro jointly own a new processing
facility located in the Canyon Creek area of southwestern Wyoming that
has an operating capacity of 45 Mmcf per day. QGM also owns interests
in other processing plants in the Rocky Mountain and MidContinent areas.
Market Resources, Retail Products and Services
Questar Energy Services was organized to take advantage of
opportunities created by the unbundling of retail energy services
traditionally offered by utilities. It has currently targeted Questar
Gas's service area for a bundle of products and services under the label
"Questar HomeWorks." These products include home security systems,
carbon monoxide detectors, and other items. Questar Energy Services has
access to Questar Gas's customers through bill stuffers and invoices
customers for its products through their Questar Gas bills. Questar
Energy Services has an appliance financing program and participates with
a group of heating and air conditioning contractors to handle appliance
repairs.
Questar Energy Services sustained a loss during 1997, which was
attributable to start-up and advertising costs. In order to succeed,
Questar Energy Services must continue to form alliances with other
parties, develop and promote higher margin products and services, and
concentrate attention on commercial customers.
Market Resources, General
Questar's Market Resources segment is growing faster than its
Regulated Services segment. The Company expects to spend more capital
budget funds on this segment to expand reserves through acquisitions and
drilling and to enlarge its infrastructure of gathering systems,
processing plants, header facilities, and nonregulated storage
facilities. The volatility of commodity prices makes it imperative for
the Market Resources group to manage risks and form strategic alliances.
This segment will continue to expand the scope of its activities and
joint venture or alliance relationships. Questar has announced a goal
of having this segment account for at least 55 percent of corporate
earnings by 2000.
The diversity of the activities pursued by Market Resources
companies should not cloud the basic strategy to pursue complementary
growth. As the E&P companies find or acquire new reserves, QGM has more
opportunities to expand gathering and processing activities, and Questar
Energy Trading has more physical production to support its marketing
programs.
Regulated Services, Introduction
Questar's Regulated Services segment includes Questar Gas, a
retail distribution utility; Questar Pipeline, an interstate pipeline;
and QRS, a subholding company that provides administrative services to
both entities. All three companies have some common officers and share
service functions, e.g., marketing, planning, business development,
engineering, public and employee communications, compensation, legal,
regulatory affairs, accounting, and budgeting. The employees in all
three entities share base and incentive compensation programs and are
expected to work together to improve customer service and operating
efficiency. The integration of the entities has resulted in lower
operating and maintenance costs and better coordination of activities
and projects.
Regulated Services, Retail Distribution
On December 31, 1997, Mountain Fuel legally changed its name to
Questar Gas as a key component of a new strategy to promote name
recognition for "Questar." Questar Gas distributes natural gas as a
public utility in Utah, southwestern Wyoming, and a small portion of
southeastern Idaho. As of December 31, 1997, it was serving 641,696
sales and transportation customers, a 3.8 percent increase from the
618,231 customers as of year-end 1996. (Customers are defined in terms
of active meters.)
Approximately 96 percent of Questar Gas's customers live in Utah.
Questar Gas 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. Questar Gas supplies natural gas in the southwestern
Wyoming communities of Rock Springs, Green River, and Evanston, and the
southeastern Idaho community of Preston. Questar Gas has the necessary
regulatory approvals granted by the Public Service Commission of Utah
("PSCU"), the Public Service Commission of Wyoming ("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.
Questar Gas added 23,465 customers in 1997, which was the fourth
consecutive year in which it added at least 20,000 customers. The
customer growth reflects Utah's economic prosperity and continued
in-migration. Utah's population is growing faster than the national
average, and Questar Gas expects to add 15,000-20,000 customers each
year until at least 2002, when Salt Lake City hosts the Winter Olympics.
Questar Gas'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) consumes over 75 percent of his total
gas requirements in the coldest six months of the year. Questar Gas's
revenue forecasts used to set rates are based on normal temperatures.
As measured in degree days, temperatures in Questar Gas's service area
were 6 percent warmer than normal in 1997, which was the fourth
consecutive year in which temperatures have been warmer than normal.
Questar Gas's sensitivity to weather and temperature conditions,
however, has been ameliorated by adopting a weather normalization
mechanism for its general service customers in Utah and Wyoming. The
mechanism, which was in effect for all of 1997, adjusts the non-gas
portion of a customer's monthly bill as the actual degree days in the
billing cycle are warmer or colder than normal. This mechanism reduces
the sometimes dramatic fluctuations in any given customer's monthly bill
from year to year.
During 1997, Questar Gas sold 85.8 MMDth to residential and
commercial customers, compared to 80.8 MMDth in 1996. General service
sales to residential and commercial customers were responsible for 89
percent of Questar Gas's total revenues in 1997.
Questar Gas 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 1997-98
heating season, Questar Gas used a design-day demand of 958,798 Dth for
firm sales customers. Questar Gas is also obligated to have pipeline
capacity, but not gas supply, for firm transportation customers.
Questar Gas's management believes that the distribution system is
adequate to meet the demands of its firm customers.
Questar Gas's total industrial deliveries, including both sales
and transportation, increased from 58.1 MMDth in 1996 to 60.8 MMDth in
1997.
Questar Gas has been providing transportation service since 1986.
It has worked diligently to retain its transportation customers with
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 Questar Gas's sales
rates.
Questar Gas's largest transportation customers, as measured by
revenue contributions in 1997, are the Geneva Steel plant in Orem, Utah;
the Kennecott copper processing operations, located in Salt Lake County;
and the mineral extraction operations of Magnesium Corporation of
America in Tooele County, west of Salt Lake City.
Questar Gas's competitive position has been strengthened as a
result of owning natural gas producing properties. During 1997, it
satisfied 45 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. Questar Gas's investment
in these properties is included in its utility rate base. (A
court-approved settlement agreement, described in Note 9 in the Notes to
Consolidated Financial Statements, specifies the terms relating to the
ownership and operation of these properties.) Questar Gas estimates
that it had reserves of 336.9 Bcf as of year-end 1997, compared to 359.9
Bcf as of year-end 1996. (The reserve numbers do not include volumes
attributable to royalty interests.) The average wellhead cost
associated with Questar Gas's cost-of-service reserves was $1.32 per Dth
in 1997 (compared to an actual cost of $2.26 per Dth of purchased gas).
During 1997, Questar Gas recorded $2.7 million in Section 29 tax credits
associated with production from wells on its cost-of-service properties
that qualify for such credits. Questar Gas 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.
Questar Gas 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.
Questar Gas has been directly responsible for its gas acquisition
activities since September 1, 1993. It has a balanced and diversified
portfolio of approximately 42 gas supply contracts with more than 21
suppliers located in the Rocky Mountain states of Wyoming, Colorado, and
Utah. Questar Gas 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-term
duration or renewable on an annual basis upon agreement of the parties.
Questar Gas'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, Questar Gas estimated that its
average wellhead cost of field-purchased gas would be $1.83 per Dth for
1998.
Questar Gas 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 Questar Gas to retain over 90 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.
Although Questar Gas 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. Questar
Gas continues to monitor its competitive position, in terms of commodity
costs and efficiency of usage, with other energy sources.
Questar Gas 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 Questar Gas's service area
already use natural gas for space and water heating. Its market share
for other gas appliances, e.g., ranges and dryers, has historically been
less than 30 percent, which is significantly lower than its over 90
percent market share for furnaces and water heaters. Questar Gas 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 encourage
contractors to install the necessary lines for gas fireplaces, ranges,
and dryers in new homes.
Questar Gas 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, Questar Gas follows
an annual gas supply plan that provides for a judicious balance between
cost-of-service gas and purchased gas and that allows it to increase
operating efficiency.
During 1997, Questar Gas's rates increased significantly,
primarily as a result of higher-than-forecast purchased gas costs. The
typical residential customer in Utah would have an annual bill of
$594.53, using rates as of January 1, 1998, compared to an annual bill
of $512.38, using rates in effect as of the same date a year earlier.
(The largest portion of this increase reflects a surcharge to amortize
an undercollection in Questar Gas's gas balancing account. The
undercollection has been substantially reduced and the surcharge may be
reduced or eliminated in future filings.) The 1998 rates remain lower
than they were in 1985.
The Kern River pipeline, which was built to transport gas from
southwestern Wyoming to Kern County, California, runs through portions
of Questar Gas's service area and provides an alternative delivery
source for Questar Gas's transportation customers. As of the date of
this report, Questar Gas has lost no industrial load as a result of the
Kern River pipeline. The existence of this interstate pipeline system
has made it possible for Questar Gas to extend service into a new area
in Utah and to develop a second source of supply for its central and its
southern Utah system. Questar Gas has a tap on the Kern River line in
Salt Lake County for the delivery of additional peak-day supplies to
meet increasing demand.
As of September 1, 1997, Questar Gas's transportation customers
are no longer required to pay a special additional charge if they do not
use their upstream capacity on Questar Pipeline. The cessation of this
charge, which had been approved by the PSCU for a transitional period,
may lead to discounted released capacity revenues and a reduction in the
revenues retained by Questar Gas. Questar Gas currently retains 10
percent of such revenues for Utah rate-making purposes (reduced from 20
percent effective February 18, 1997) and credits 90 percent of such
revenues to its gas balancing account.
Questar Gas 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, Questar Gas 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 Questar Gas
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. (Industrial customers
have enjoyed the benefit of supplier choice for over 10 years.)
Questar Gas has been reviewing the opportunities and risks
associated with unbundling and believes that it is well-positioned to
succeed in a competitive environment. With an annual operating and
maintenance expense of $159 per customer and an overall customer
satisfaction rating of 90 percent, Questar Gas is accurately described
as an efficient local distribution company. Its operating efficiency is
buttressed by owning the reserves to meet 40-50 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.
Questar Gas 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
has caused Questar Gas and other distribution companies to continue to
review their costs and reexamine their commitment to sales service.
On November 26, 1997, Questar Gas filed an application with the
PSCW requesting permission to offer "supplier choice" to its general
service customers in Wyoming. Questar Gas's proposal, which has been
approved by the PSCW, allows customers to select, on an annual basis, a
different supplier of gas while purchasing transportation and associated
services from Questar Gas. Customers can continue purchasing full
service (commodity, transportation, and associated services) from
Questar Gas. The first "open season" during which customers can select
a new commodity supplier runs from March 1 through April 30, 1998.
Questar Gas has over 21,500 general service customers in Wyoming
and expects that a majority of them will continue to choose full
service. The Wyoming unbundling program should provide Questar Gas with
valuable information about customer preferences if retail utility
services are unbundled in the Utah market.
The state of Utah and the PSCU are actively involved in reviewing
the restructuring and unbundling of telephone and electric utility
services. Questar Gas anticipates that electric utility service will be
unbundled before retail gas distribution service. Given its attractive
rates and high customer service ratings, Questar Gas does not believe
that its residential customers will push for rapid unbundling in Utah.
As a public utility, Questar Gas is subject to the jurisdiction of
the PSCU and PSCW. (Questar Gas's customers in Idaho are served under
the provisions of its Utah tariff. Pursuant to a special contract
between the PUCI and the PSCU, rates for Questar Gas's Idaho customers
are regulated by the PSCU.) Questar Gas's natural gas sales and
transportation services are made under rate schedules approved by the
two regulatory commissions.
Questar Gas has consistently endeavored to balance the costs of
adding more than 20,000 customers each year with the cost savings
associated with reducing labor costs, consolidating activities, and
utilizing new technology. Questar Gas does not expect to file a general
rate case application with the PSCU or the PSCW in 1998. It is
currently authorized to earn a return on rate base of 10.4 percent in
Wyoming and of 10.22 to 10.34 percent in Utah.
Both the PSCU and the PSCW have authorized Questar Gas to use a
balancing account procedure for changes in the cost of natural gas,
including supplier non-gas costs, and to reflect changes on at least a
semi-annual basis. Questar Gas received regulatory approval from the
PSCU and the PSCW to adjust its rates in October of 1997, to reflect
unexpected purchased gas cost increases and to address the
undercollection in its balancing account. On an aggregate basis,
Questar Gas increased its 1997 revenues by $86.8 million in Utah and
$3.6 million in Wyoming to reflect gas cost increases. Questar Gas did
not change its rates as of January 1, 1998, in either state.
The PSCU has not issued an order in a pending case involving
gathering rates paid by Questar Gas to QGM. QGM provides gathering
services to Questar Gas under a 1993 agreement that was assigned to it
by Questar Pipeline. The agreement specified that contract rates would
be redetermined as of September 1, 1997; the redetermination resulted in
lower rates. The Utah Division of Public Utilities (the "Division"), a
state agency, claims that the reduction in gathering rates should be
extended retroactively to March of 1996, when Questar Pipeline
transferred the gathering assets and agreement to QGM. The Division's
claims involve approximately $7.8 million.
The PSCU presided over public hearings to address the Division's
claims, and both parties have fully briefed the issues. Questar Gas
believes that its gathering costs are reasonable and that it should not
be required to retroactively adjust its gathering rates.
Questar Gas owns and operates distribution systems throughout its
Utah, Wyoming and Idaho service areas and has a total of 19,256 miles of
street mains, service lines, and interconnecting pipelines. Questar Gas
has consolidated many of its activities in its operations center,
warehouse and garage located 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 service lines
are constructed pursuant to franchise agreements or rights-of-way.
Questar Gas has fee title to the properties on which its operation and
service centers are constructed.
Regulated Services, Transmission and Storage
Questar Pipeline is an interstate pipeline company that is engaged
in the transportation and storage of natural gas in the Rocky Mountain
states of Utah, Wyoming and Colorado. As a "natural gas company" under
the Natural Gas Act of 1938, Questar Pipeline is subject to regulation
by the FERC as to rates and charges for storage and transportation of
gas in interstate commerce, construction of new facilities, extensions
or abandonments of service and facilities, accounts and records, and
depreciation and amortization policies. Questar Pipeline holds
certificates of public convenience and necessity granted by the FERC for
the transportation and underground storage of natural gas in interstate
commerce and for the facilities required to perform such operations.
As an open-access pipeline, Questar Pipeline transports gas for
affiliated and unaffiliated customers. It also owns and 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. Questar Pipeline is involved in two partnerships,
Overthrust Pipeline Company ("Overthrust") and TransColorado Gas
Transmission Company ("TransColorado"). During 1997, it increased its
percentage interest in both partnerships.
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, the middle segment (commonly
referred to as the "WIC segment") of the Trailblazer pipeline system,
The Williams Companies, Inc. ("Williams"), and Kern River Gas
Transmission Company ("Kern River"). These connections provide access
to markets outside Questar Gas's service area and allow Questar Pipeline
to transport gas for nonaffiliated customers.
Questar Pipeline's transmission system includes 1,763 miles of
transmission lines that interconnect with other pipelines and link
producers of natural gas with Questar Gas's distribution operations in
Utah and Wyoming. (The transmission mileage figure includes lines at
storage fields and tap lines used to serve Questar Gas.) This system
includes two major segments, often referred to as the northern and
southern systems; the northern system segment extends from northwestern
Colorado through southwestern Wyoming into northern Utah, and the
southern system 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 Questar Gas.
During 1997, Questar Pipeline transported 110.3 MMDth for Questar Gas,
compared to 100.2 MMDth in 1996. These transportation volumes include
cost-of-service gas produced by Wexpro on properties owned by Questar
Gas, as well as some volumes purchased by Questar Gas directly from
field producers.
As of September 1, 1997, Questar Gas has a reserved firm
transportation capacity of about 800,000 Dth per day, or approximately
70 percent of Questar Pipeline's reserved capacity. Questar Gas paid
reservation charges of $49.6 million to Questar Pipeline in 1997; these
charges include reservation charges attributable to firm and "no-notice"
transportation. Questar Gas only needs its total reserved capacity
during peak-demand situations. When it is not fully utilizing such
capacity, Questar Gas releases it to others, primarily industrial
transportation customers and marketing entities, and receives revenue
credits from Questar Pipeline.
Questar Pipeline's transportation agreement with Questar Gas
expires on June 30, 1999. The parties expect that the agreement will be
extended, given Questar Gas's design-day requirements and Questar
Pipeline's competitive transportation rates.
Questar Pipeline recovers approximately 95 percent of its
transmission cost of service through demand charges from firm
transportation customers. In other words, these customers pay primarily
for access to transportation capacity, rather than for the volumes
actually transported. Consequently, Questar Pipeline's throughput
volumes do not have a significant effect 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 revenues may be
adversely affected if the FERC changes its basic regulatory scheme of
"straight-fixed variable" rates.
Questar Pipeline's total system throughput decreased from 276.4
MMDth in 1996 to 264.3 MMDth in 1997. Volumes of gas transported from
other affiliated customers decreased from 44.3 MMDth in 1996 to 37.8
MMDth in 1997. The volumes of gas transported from nonaffiliated
customers decreased from 131.9 MMDth in 1996 to 116.2 MMDth in 1997.
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 1997, Questar Pipeline completed the
first phase of a project to build a 20-inch diameter line extending from
Clay Basin to Coleman Compressor Station in southwestern Wyoming. The
final phase of this project is scheduled to be completed in 1998. The
project has already significantly expanded Questar Pipeline's capacity
to move gas north from its storage facility at Clay Basin and its
southern system. Questar Pipeline also expanded its capacity to
transport production from the Ferron area of eastern Utah, which is the
site of a large project to produce gas from coal seams to market areas.
The Kern River pipeline, which is currently owned by Williams, was
built to transport gas from Wyoming to the enhanced oil recovery
projects in Kern County, California. It runs through Utah's Wasatch
Front, making it possible for some large industrial customers to bypass
both Questar Gas and Questar Pipeline by buying transportation service
on Kern River. 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.
During 1997, Questar Pipeline increased its ownership in
Overthrust from 36 to 54 percent. It is the 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.
Although the Overthrust segment is currently underutilized, the
Overthrust partners are reviewing opportunities, including backhauling,
to increase its value. The Overthrust partnership agreement requires
unanimous consent of all partners on major operating and financial
issues.
During 1997, Questar Pipeline agreed to increase its ownership
interest in the TransColorado pipeline project to 50 percent. Questar
Pipeline and its remaining partner, KN Energy, have ordered the pipe and
compressor equipment and intend to begin construction of the second
phase of the project during 1998 after the final environmental
clearances are obtained. The pipeline is 292 miles in length and will
extend from the Piceance Basin in western Colorado to Blanco, New
Mexico, where it will connect with other pipeline systems. (Questar
Pipeline did not originally participate in the first phase of the
project, which was a 22-mile line between the San Juan Basin and Blanco
facilities.) As designed, the pipeline could transport up to 300 MMcf
of gas per day from western Colorado and other producing basins in
Wyoming to California and other markets.
This project, which was announced in 1990 and which has a total
projected cost of $240 million, involves risks associated with the
unwillingness of producers and other shippers to make long-term
transportation commitments.
Questar Pipeline operates a major storage facility at Clay Basin
in northeastern Utah and three other storage facilities specifically
designed to support Questar Gas'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.
The Clay Basin facility is certificated for 46.3 Bcf of working
gas capacity and a total capacity of 110 Bcf. (Working gas is gas that
is injected and withdrawn) It has a maximum deliverability of 763 MMcf
per day. Questar Pipeline recently completed a successful open season
for additional working gas of 5 Bcf, which was fully subscribed. It has
filed the necessary notice with the FERC to increase the facility's
total capacity to 117 Bcf and expects to inject the additional volumes
this summer.
Storage service is important to parties that need a "shock
absorber" to balance purchases with fluctuating customer demand, improve
service reliability, and avoid imbalance penalties. The storage
capacity at Clay Basin is fully subscribed by customers under long-term
agreements. Questar Gas currently has 12.5 Bcf of working gas capacity
at Clay Basin. Other large customers, in addition to Questar Gas,
include Williams; Washington Natural Gas Company, a utility in the state
of Washington; and BC Gas Utility Ltd., a distribution utility in
British Columbia, Canada.
Questar Pipeline also offers interruptible storage service at Clay
Basin and also allows firm storage service customers the right to
transfer their injection and withdrawal rights to other parties.
Questar Pipeline does not currently plan to file a general rate
case in 1998. It, however, will continue to review its revenues and
costs as it adds new facilities that are not included in its rate base
and makes expenditures to comply with regulatory mandates.
In February of 1998, the FERC concluded an investigation in
Questar Pipeline's gathering rates to Questar Gas for the period from
November 1, 1988 through September 30, 1992. The order instituting the
proceedings was issued by the FERC in May of 1997, contained allegations
that Questar Pipeline may have violated a provision of the Natural Gas
Act and its FERC tariff by charging gathering rates higher than the
rates specified in its tariff, and required Questar Pipeline to show why
it should not be obligated to refund the alleged overcharge of
approximately $3.4 million plus interest to Questar Gas. When
concluding the investigation, the FERC determined that Questar Pipeline
committed a technical violation of applicable law, but ruled that it was
not appropriate to order refunds or assess fines.
During 1997 and 1998, Questar Pipeline expects to spend $2.8
million to comply with standards originally proposed by the Gas Industry
Standards Board ("GISB") and mandated by the FERC. These requirements,
commonly known as the GISB standards, are designed to facilitate the
seamless transportation of gas volumes on different pipeline systems and
address such issues as nominations, confirmations, priority of service,
allocation, balancing, and invoicing. Questar Pipeline is complying
with some standards and has obtained an extension until June 1, 1998, to
be in full compliance.
The FERC has adopted specific criteria for determining when
"rolled-in" rates (rather than incremental rates) are appropriate.
Under the FERC's 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, can still impose at-risk conditions on
new projects even if it approves rolled-in rate treatment for them and
require additional support in subsequent rate cases to continue
rolled-in treatment.
Competition for Questar Pipeline's transportation and storage
services has intensified in recent years. Regulatory changes have
significantly increased customer flexibility and increased the risks
associated with new projects. Questar Pipeline has two key assets that
contribute to its continued success. It has a strategically located and
integrated transmission system with interconnections to major pipeline
systems and with access to major producing areas and markets. Questar
Pipeline's Clay Basin storage facility has been and is being expanded in
response to customer interest. Questar Pipeline intends to take
advantage of these assets by increasing its "intra-hub capacity" or its
ability to quickly and reliably move gas between receipt and delivery
points and by expanding its storage capacity and services.
Other Operations
In addition to the two primary segments of Market Resources and
Regulated Services, Questar has "other operations." This group includes
Questar InfoComm, which is a full-service provider of integrated
information and communication services to affiliates and external
businesses; miscellaneous real estate activities; and the ownership of
stock issued by Nextel Communications Inc. ("Nextel").
Questar InfoComm provides information, communication, and
electronic measurement services. It operates a regional microwave
system that covers much of Utah and southwestern Wyoming. This system,
which has been converted to digital, was originally built to satisfy the
needs of Questar's operations, but also carriers data for alternative
telephone providers and other external customers. Questar InfoComm
installs and maintains telephone-switching equipment and voice-mail
systems. It built and leases a fiber optic telephone network in parts
of Salt Lake City for an alternative telephone provider, NextLink
Communications.
Questar InfoComm also owns and operates the Business Continuity
Center, which is designed to protect critical communication and data
processing equipment in the event of a natural disaster. Although built
to allow Questar companies to continue vital operations, the facility
accommodates other tenants that have the same need to safeguard
information and equipment. During 1997, an electronic measurement
function was transferred from Questar Pipeline to Questar InfoComm.
Questar, through an affiliate, owns a large office building in
downtown Salt Lake City that has recently been remodeled, enlarged, and
upgraded from a seismic protection perspective. The building has over
217,000 square feet of space and accommodates 800 employees. The
Company has leased the building through 2012; its subsidiaries have
subleased space in the building and use it as their principal place of
business.
Through an affiliate, Questar also owns 14.5 acres of commercial
real estate in Salt Lake County that was the site of the Wasatch
Chemical clean-up activities. Although the Company intends to continue
owning the property to minimize any future problems associated with
environmental compliance, it believes that the property can earn
attractive returns when leased.
Questar retains approximately 2 million shares of stock issued by
Nextel, an international wireless communication company. The Company
acquired this stock in 1994 when it sold Questar Telecom, a specialized
mobile radio subsidiary, to Nextel. Questar has sold approximately 1.9
million of its original 3.9 million shares and intends to continue
selling such stock in favorable market conditions.
Employees
As of December 31, 1997, Questar and its affiliates had 2,437
employees compared to 2,452 at year-end 1996. Of this total, 1,675
worked for the Regulated Services segment, 406 worked for Market
Resources entities, and 356 worked for corporate and Questar InfoComm.
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 1997,
Questar 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 6 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.
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
Questar Gas 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
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 significant 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 10
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 10 in the Notes to Consolidated Financial
Statements and reserve quantities reported to other regulatory agencies:
Questar is reporting 716 Bcf of natural gas reserves at year-end
1997. This total represents the net revenue interest of all owned
reserves and includes quantities attributable to cost-of-service
properties.
Questar Gas files information using a FERC Form 2 format with the
PSCU and PSCW and lists gas reserves of 390.2 Bcf (working interest) at
December 31, 1997, which include reserves attributable to royalty
interests. The 336.9 Bcf (net revenue interest) reported as
cost-of-service gas reserves in Note 10 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 59.8 Bcf at
December 31, 1997. This gas is not included in the total reserve
number.
Oil and Gas Production. 1\
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
Natural gas (MMcf) 84,896 77,259 69,295
Oil (MBbl) 2,962 2,558 2,493
</TABLE>
1\Production quantities from all properties, including
cost-of-service properties.
Average Sales Price. 2\
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
Natural gas per Mcf $1.89 $1.53 $1.33
Oil per Bbl 18.29 18.80 15.96
</TABLE>
2\Average sales price is calculated on production excluding
cost-of-service volumes.
Average Production (Lifting) Cost. The average production cost
Mcfe excludes costs and volumes associated with production of
cost-of-service reserves. One barrel of oil equals the energy content
of 6 Mcf of gas.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1997 1996 1995
Production cost per Mcfe $ .68 $ .62 $ .57
</TABLE>
Producing Wells at December 31, 1997.
<TABLE>
<CAPTION>
<S> <C> <C>
Gas Oil
Gross wells 2,956 3,071
Net wells 982 478
</TABLE>
The numbers for gross wells include 132 wells with multiple
completions.
Leasehold Acreage at December 31, 1997. Questar can retain its
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. Leasehold acreage is located in the United
States and Canada. Approximately 90 percent of the domestic unproved
acreage consists of federal and state leases that generally have
ten-year terms. The remaining 10 percent is attributable to fee leases
that generally have three- to five-year terms. About 21 percent of the
unproved acreage is scheduled to expire within the next five years if no
drilling or development activity is undertaken. Substantially all the
Canadian unproved acreage is related to Crown or government leases,
which provide for five-year terms.
The following chart lists the Company's consolidated productive
and unproved acreage:
<TABLE>
<CAPTION>
Productive Unproved
Gross Net Gross Net
<S> <C> <C> <C> <C>
United States 2,431,161 788,415 1,645,775 670,480
Canada 55,297 14,766 101,328 33,464
Total 2,486,458 803,181 1,747,103 703,944
</TABLE>
Net Productive and Dry Wells Drilled.
<TABLE>
<CAPTION>
Exploratory Wells Development Wells
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1997 1996 1995
Productive 3 3 2 36 19 24
Dry _ _ 3 7 2 1
Total 3 3 5 43 21 25
</TABLE>
Present Activities. At year-end 1997, Questar affiliates had a
working interest in 35 wells waiting on completion and 17 wells being
drilled.
Delivery Commitments. Questar Gas is obligated to deliver natural
gas to approximately 641,700 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 through Questar Energy Trading 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 Questar Gas 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
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 1996, 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 any future clean-up costs.
Questar Gas, as a result of acquiring Questar Pipeline's gas
purchase contracts, is responsible for any judgment rendered against
Questar Pipeline resulting from an adverse jury verdict in a case heard
in Wyoming's federal district court. 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 tortious interference with a
contract. The presiding judge has not yet issued a decision concerning
the competing forms of judgment submitted by the opposing parties.
Questar Gas 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.
The producer involved filed a new lawsuit against Questar and its
affiliates in 1997. This lawsuit was also filed in Wyoming's federal
district court and presents some of the same claims heard in the first
case for the time period since the first lawsuit. It also involves new
claims of fraud and antitrust violations. This second lawsuit has been
formally and indefinitely stayed, pending the issuance of a decision
from the 1994 case.
QGM, as one of two equal partners in the Blacks Fork processing
plant, is involved in a construction lawsuit currently pending before a
Texas state court. The Blacks Fork partnership originally filed the
lawsuit alleging that the plant contractor breached the terms of the
contract. The contractor, which was terminated prior to the end of the
project, filed counterclaims alleging breach of contract, unjust
enrichment, fraud, tortious interference with business relations, and injury
to credit. Attorneys' fees and punitive damages of undetermined amounts
have also been raised as issues. The Company cannot predict the resolution
of this dispute or any financial impact of such resolution on its balance
sheet, income statement, or cash flows at the current time.
See "Regulated Services, Retail Distribution" and "Regulated
Services, Transmission and Storage" for a review of significant
regulatory proceedings.
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 1997.
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 11 in
the Notes to Consolidated Financial Statements. As of March 23, 1998,
Questar had 11,871 shareholders of record and estimates that it had an
additional 13,000-15,000 beneficial holders.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Revenues $933,274 $817,981 $649,287 $670,318 $660,430
Operating expenses
Natural gas and other
product purchases 399,941 314,271 199,419 212,528 224,500
Other expenses 363,178 332,087 307,842 303,132 287,636
Total operating
expenses 763,119 646,358 507,261 515,660 512,136
Operating income $170,155 $171,623 $142,026 $154,658 $148,294
Write-down of investment in
Nextel Communications $(61,743)
Income from continuing
operations $104,795 $98,145 $83,786 49,417 $84,464
Gain from sale of Questar Telecom
to Nextel Communications 38,126
Loss from discontinued
operations (2,772)
Net income $104,795 $98,145 $83,786 $87,543 $81,692
Basic earnings per common share
From continuing
operations $2.55 $2.39 $2.05 $1.21 $2.10
Gain from sale of
Questar Telecom 0.95
Loss from discontinued
operations (0.07)
Net income $2.55 $2.39 $2.05 $2.16 $2.03
Diluted earnings per common share
From continuing
operations $2.53 $2.38 $2.05 $1.21 $2.08
Gain from sale of
Questar Telecom 0.94
Loss from discontinued
operations (0.07)
Net income $2.53 $2.38 $2.05 $2.15 $2.01
Dividends per share $1.24 $1.19 $1.16 $1.13 $1.09
Book value per common
share 20.59 18.82 17.51 16.17 14.99
Total assets 1,945,017 1,816,225 1,584,553 1,585,575 1,417,687
Net cash provided from
operating activities 202,678 182,921 204,171 163,375 194,982
Capital expenditures 212,797 291,835 118,188 276,882 168,388
Capitalization
Long-term debt, less
current portion 541,986 555,509 421,695 494,684 371,713
Redeemable cumulative
preferred stock 4,828 4,957 6,324 7,525
Common stock 845,778 772,085 712,675 653,589 601,942
Total capitalizatio $1,387,764 $1,332,422 $1,139,327 $1,154,597 $981,180
</TABLE>
<PAGE>
ITEM 7. MAMAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SUMMARY
Questar Corporation reported 1997 net income of $104,795,000 or
$2.55 basic earnings per share (EPS) compared with $98,145,000
or $2.39 basic EPS in 1996 and $83,786,000, or $2.05 basic EPS
in 1995.
Questar's Regulated Services group, consisting of
gas-distribution and interstate gas-transportation and storage,
achieved net income of $55,660,000 compared with $51,631,000 in
1996 and $44,936,000 in 1995. Earnings of Questar Gas, which
provides retail distribution services in Utah and portions of
Wyoming and Idaho, were $29 million, level with the prior year.
Questar Pipeline, which operates a natural gas-transmission and
storage system in Wyoming, Colorado and Utah, earned $26.6
million in 1997 compared with $22.6 million for the prior year.
The pipeline's net income benefited from $2.8 million in
after-tax additions from capitalizing interest and capital
costs associated with construction of the TransColorado
Pipeline.
Questar's Market Resources group, which engages in various
nonregulated activities, has net income of $41,063,000 in 1997
compared with $41,762,000 in 1996 and $35,295,000 in 1995. Net
income from exploration and production activities increased 30%
in 1997 primarily due to higher gas prices and production.
Market Resources' 1997 performance was impacted by a $6 million
pretax write-down of various gathering- and -production assets,
along with losses in the energy-trading and retail
energy-services areas. Gathering income fell from $4.5 million
in 1996 to $1 million because of an asset write-down, a revised
gathering agreement with Questar's distribution subsidiary,
costs of an early-retirement program and other programs.
Other operations reported net income of $8,072,000 in 1997
compared with $4,752,000 in 1996 and $3,555,000 in 1995.
Questar realized a $5.5 million after-tax gain from the sale of
805,000 shares of Nextel Corp. stock. In the prior year,
Questar sold 620,000 shares of stock in the
communications-technology company for an after-tax gain of $3.7
million.
Net cash provided from operating activities increased to
$202,678,000 in 1997 from $182,921,000 in 1996 due to higher
net income and depreciation charges. Capital expenditures
amounted to $212,797,000 in 1997 and were financed primarily
through net cash flow provided from operations and short-term
debt. Capital spending for 1998 is projected to reach
$329,400,000 and to be financed with net cash flow from
operations, bank loans and long-term debt. Common equity
represented 61% and long-term debt 39% of consolidated
capitalization at December 31, 1997.
RESULTS OF OPERATIONS
MARKET RESOURCES - The Market Resources group conducts
Questar's exploration and production, energy marketing and
services, and gas gathering and processing operations.
Following is a summary of financial results and operating
information:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Natural gas and oil production $143,211 $109,015 $82,395
Energy marketing 297,413 286,042 154,439
Cost-of-service gas operations 49,887 53,119 59,831
Gas gathering and processing 28,175 31,851 31,352
Other 4,663 4,056 3,852
Total revenues 523,349 484,083 331,869
Operating expenses
Energy purchases 293,174 272,610 146,676
Operating and maintenance 75,071 66,741 58,295
Depreciation and amortization 73,087 58,590 53,747
Other taxes 22,506 19,034 17,977
Oil-income sharing 2,347 2,768 3,400
Total expenses 466,185 419,743 280,095
Operating income $57,164 $64,340 $51,774
OPERATING STATISTICS
Production volumes
Natural gas (in MMcf) 47,442 40,519 32,663
Oil and natural gas
liquids (in Mbbls) 2,938 2,502 2,436
Production revenue
Natural gas (per Mcf) $1.89 $1.53 $1.33
Oil and natural gas
liquids (per bbl) $18.29 $18.80 $15.96
Energy marketing volumes
Natural gas (in Mdth) 125,543 141,414 109,374
Oil (in Mbbl) 1,678 1,471
Electricity (in MMwh) 699 204
Natural gas-gathering volumes (in Mdth)
For unaffiliated customers 57,586 48,525 39,028
For Questar Gas 28,506 30,199 31,691
For other affiliated customers 17,679 8,794 5,949
Total gathering 103,771 87,518 76,668
Gathering revenue (per dth) $0.21 $0.24 $0.28
</TABLE>
Revenues for the Market Resources group increased 8% in 1997
when compared with 1996 due primarily to higher gas and oil
production and gas selling prices. The volume of natural gas
produced grew 17% to 47.4 billion cubic feet (Bcf) in 1997.
Oil and natural gas liquids (NGL) production increased to 2.9
million barrels (bbls) registering a 17% increase. Market
Resources' revenues increased 46% in 1996 when compared with
1995 primarily due to higher gas and oil production and prices
and increased energy-marketing activities. Gas production
increased 24% and oil and NGL production increased 3% in 1996.
The higher 1997 and 1996 production was primarily the result of
two acquisitions, totaling $164 million and adding 194 billion
cubic feet equivalent (Bcfe) of gas and oil reserves. These
acquisitions occurred in the last third of 1996.
The Market Resources group achieved a five-year average finding
cost of $.78 per thousand cubic feet equivalent (Mcfe) in 1997
compared with $.70 per Mcfe in 1996. Noncost-of-service
reserve additions amounted to 45 Bcfe in 1997 and a
production-replacement ratio of 62%. Reserve additions in 1996
of 235 Bcfe resulted in a 416% production-replacement ratio.
Natural gas prices in the United States improved in 1997, while
the average price for Canadian production was flat when
compared with 1996. The average price for gas received by
Market Resources increased 24% to $1.89 per Mcf in 1997
reflecting higher demand. U.S. gas volumes represented 94% of
Market Resources' 1997 production with prices averaging 42%
higher than was received by Canadian operations. A $7.5
million after-tax impairment of Canadian producing properties
measured under full-cost accounting rules was indicated at
year-end 1997. Prices improved subsequent to year end 1997.
The Company recorded a write down of assets as additional
depreciation expense in the fourth quarter of 1997, which
reduced net income by $1.7 million after tax.
The average price for oil and NGL declined 3% in 1997 to
$18.29. Oil prices weakened in the last half of 1997 as a
result of increasing supply and decreasing demand. The weak
demand and low oil prices have extended into the first quarter
of 1998. In contrast, improving demand in 1996 led to higher
prices for gas and oil received by Questar for the 12 months of
1996 when compared with the same period of 1995.
Higher gas prices resulted in increased revenues from
energy-marketing activities in 1997 and 1996. Marketing of gas
volumes comprised 84% of 1997 marketing revenues. The margin
received from energy-marketing activities decreased 68% in 1997
as a result of paying higher prices for production from
affiliated companies. Energy-marketing revenues increased 85%
in 1996 when compared with 1995. The volume of gas marketed in
1996 was 29% ahead of 1995 because of increased success in
utilizing undersubscribed natural gas-pipeline capacity. The
Market Resources group also markets oil and electricity, which
represented 16% of energy-marketing revenues in 1997 and 9% in
1996, respectively.
The Market Resources group periodically enters into swaps,
futures contracts or option agreements to hedge its exposure to
price fluctuations in connection with marketing production of
natural gas and oil. Hedging also secures a known margin for
the purchase and resale of gas, oil and electricity in
marketing activities. Face value of these contracts at December
31, 1997 was $86.3 million, $2.6 million less than market
value. Approximately, 99% of the contracts will expire by the
end of 1998. At year-end 1997, Market Resources had hedges or
fixed-price contracts in place for roughly 37% of its January
1998 gas production at an average price of $2.20 per Mcf to the
wellhead and 9% of its oil production at $18.50 per bbl. These
price-hedging positions assume prices are at the lower end of a
contract range.
Revenues from Wexpro's cost-of-service gas operations declined
6% in 1997 when compared with 1996 and by 11% in 1996 when
compared with 1995. The decreases were the result of a lower
investment base and rate of return on investment. Wexpro's
investment base, net of deferred income taxes at December 31
was $72,867,000 in 1997, $74,806,000 in 1996 and $85,116,000 in
1995. Wexpro's after-tax return on investment in those
properties averaged 20.7% in 1997. For more details, see a
summary of the Wexpro Settlement Agreement in Note 9 to the
consolidated financial statements.
Revenues from gas gathering and processing fell 12% in 1997
when compared with 1996 after increasing slightly in 1996 when
compared with 1995. The decrease in 1997 was the result of
selling three processing plants and revising a gathering
contract with an affiliated company. The revision became
effective September 1, 1997 and reduced revenues by about
$350,000 per month. Gathering assets were written down by $3
million pretax in 1997. The write-down was recorded as
additional depreciation expense and reduced net income by $1.9
million. The amount of gas gathered increased in 1996 when
compared with 1995 as a result of higher gas production in the
areas served.
New program development costs, including advertising expenses,
resulted in after tax losses from the retail energy-marketing
activities of Market Resources of $1,021,000 in 1997 and
$322,000 in 1996. In 1997, an early retirement program with a
cost of $419,000 was offered to specified employees of the
Market Resources group. Market Resources' operating results for
1996 were reduced by a $3,516,000 pretax loss associated with
its share of the Western Market Center, which included writing
off the investment.
REGULATED SERVICES - The Regulated Services group conducts
Questar's regulated services of natural gas distribution,
transmission and storage activities.
Natural Gas Distribution - Questar Gas conducts the Company's
natural gas distribution operations. Following is a summary of
financial results and operating information:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Residential and commercial sales $399,174 $328,785 $315,458
Industrial sales 24,459 18,357 22,479
Industrial transportation 6,491 5,898 6,127
Other 18,099 18,888 18,705
Total revenues 448,223 371,928 362,769
Natural gas purchases 248,933 182,400 190,606
Revenues less natural
gas purchases 199,290 189,528 172,163
Operating expenses
Operating and maintenance 101,719 97,110 93,384
Depreciation and amortization 31,160 28,309 25,469
Other taxes 8,174 8,071 9,588
Total expenses 141,053 133,490 128,441
Operating income $58,237 $56,038 $43,722
OPERATING STATISTICS
Natural gas volumes (in Mdth)
Residential and commercial sales 85,747 80,844 73,950
Industrial deliveries
Sales 9,523 8,584 9,210
Transportation 51,313 49,499 59,569
Total industrial 60,836 58,083 68,779
Total deliveries 146,583 138,927 142,729
Natural gas revenue (per dth)
Residential and commercial $4.66 $4.07 $4.27
Industrial sales 2.57 2.14 2.44
Transportation for industrial
customers 0.13 0.12 0.10
System natural gas cost (per dth) $2.62 $2.44 $2.16
Heating degree days (normal 5,801) 5,465 5,307 5,047
Warmer than normal 6% 9% 13%
Number of customers at December 31, 641,696 618,231 592,738
</TABLE>
Revenues, net of gas costs, increased $9,762,000 in 1997 when
compared with 1996 and increased $17,365,000 in 1996 when
compared with 1995. The increases resulted primarily from
higher heating demand caused by colder temperatures and
customer additions somewhat offset by lower rates. Temperatures
were 3% colder in 1997 when compared with 1996 and 5% colder in
1996 when compared with 1995. However, temperatures were
warmer than normal for the three years presented. This
warmer-than-normal temperature trend was mitigated in 1997 and
1996 as a result of a weather-normalization adjustment, which
was part of a 1995 rate settlement. Virtually all of Questar
Gas' residential and commercial volumes were covered under the
weather-normalization adjustment in 1997 compared with about
50% in 1996.
On February 4, 1997, Questar Gas filed an application with the
Public Service Commission of Utah (PSCU) to reduce block rates,
eliminate a new-premises fee for multi-family dwellings and
reduce capacity-release revenues retained by Questar Gas from
20% to 10%. The PSCU approved the filing effective February
18, 1997. Revenues were $2.1 million lower in 1997 as a result
of this reduction. In addition, a revenue surcharge to
customers on the southern system, in effect for the past ten
years, expired in the last half of 1997. This resulted in an
approximate $.6 million decrease in 1997 revenues and an
estimated $2.4 million reduction on a yearly basis. The
surcharge was added to this area's customer bills to help pay
for the system expansion in 1987.
Questar Gas added 23,465 customers in 1997 and 25,493 customers
in 1996 representing an increase of 3.8% and 4.3%,
respectively. Customer additions in 1998 are expected to reach
nearly 20,000.
Gas deliveries to industrial customers increased 5% in 1997
when compared with 1996 after decreasing 16% in 1996. The
increase in 1997 was due to the effects of a healthy regional
economy. The 1996 decrease was the result of the availability
of cheap electricity from hydropower sources, that reduced the
use of gas for electricity generation.
Questar Gas' natural gas purchases were higher in 1997 when
compared with 1996 due to a higher natural gas cost component
allowed in rates and an increase in volumes sold. The gas-cost
component in Utah rates was increased in January, July and
October of 1997 in an effort to recover sharply increased
natural gas purchase costs incurred during the 1996-1997
heating season. The PSCU approved, on an interim basis, gas
cost pass through filings in 1997 for a total $86.8 million
annualized increase. The Public Service Commission of Wyoming
(PSCW) also approved annualized rate increases of $3.6 million
to allow recovery of purchased gas costs.
In March 1998, the PSCW approved Questar Gas' gas-merchant
unbundling proposal that was filed in Wyoming in 1997. Under
this plan, a transportation service option is extended to
residential and commercial customers as well as industrial
customers. Customers choosing transportation service are
allowed to secure gas supplies directly from producers and
marketers and pay Questar Gas a fee for transportation
services. Questar Gas continues to offer a traditional bundled
sales service as well. Questar expects that the option of
unbundled service in Wyoming, will not have a material effect
on earnings. Questar Gas will maintain its current structure in
Utah. At December 31, 1997, Questar Gas served 21,632 customers
in the state of Wyoming representing, 3% of the total number of
customers served.
Questar Gas' operating and maintenance (O & M) expenses
increased 5% in 1997 due primarily to costs of serving an
expanding customer base, higher labor costs and modernization
of key computer systems. O & M expenses increased 4% in 1996.
Questar Gas initiated cost-containment measures intended to
slow the increase of operating expenses. In 1997, Questar Gas
and Questar Pipeline combined functions common to
gas-distribution and gas-transmission operations in order to
eliminate duplications. In 1995, Questar Gas closed five
service centers, reduced activities at five other service
centers and offered an early-retirement program.
Natural Gas Transmission - Questar Pipeline conducts the
Company's natural gas transmission and storage operations.
Following is a summary of financial results and operating
information:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(Dollars In Thousands)
<S> <C> <C> <C>
OPERATING INCOME
Revenues
Transportation $68,837 $67,656 $61,749
Storage 34,410 34,280 31,276
Other 2,190 2,242 1,747
Total revenues 105,437 104,178 94,772
Operating expenses
Operating and maintenance 37,334 39,959 34,003
Depreciation and amortization 14,797 14,206 12,911
Other taxes 2,816 2,519 3,370
Total expenses 54,947 56,684 50,284
Operating income $50,490 $47,494 $44,488
OPERATING STATISTICS
Natural gas transportation volumes (in Mdth)
For unaffiliated customers 116,215 131,895 151,943
For Questar Gas 110,311 100,161 79,872
For other affiliated customers 37,797 44,327 38,839
Total transportation 264,323 276,383 270,654
Transportation revenue (per dth) $0.26 $0.24 $0.23
Clay Basin storage, working gas-
volumes (in Bcf) 46.3 46.3 46.3
</TABLE>
Revenues increased $1,259,000 or 1% in 1997 when compared with
1996 as a result of adding firm transportation contracts. The
new contracts cover several short-haul portions of the
pipeline. The increase in revenues reported in 1996 was due to
a rate increase and expanded firm gas-storage activities. The
Federal Energy Regulatory Commission approved rates which
included a stated return on equity of 11.75%.
At December 31, 1997, approximately 82% of Questar Pipeline's
transportation system was reserved by firm-transportation
customers under contracts with varying terms and lengths. The
remaining 18% of transportation system capacity, which has
multiple delivery points, is available for interruptible
transportation. Questar Gas has reserved transportation
capacity from Questar Pipeline of approximately 800,000 dth per
day, or about 70% of the total reserved daily-transportation
capacity at December 31, 1997. This contract, which represents
80% of the demand charges collected by Questar Pipeline,
expires June 30, 1999. Negotiations are under way to structure
an agreement that would benefit both companies. Management
believes that any new contract will not have a material impact
on the results of operations, financial position or cash flows
of Questar Pipeline.
Storage revenues were flat in 1997 compared with 1996 after
increasing by 10% in 1996 from the year earlier. In addition
to a rate increase, the higher revenues resulted when Clay
Basin's firm-storage capacity increased from 41.8 Bcf to 46.3
Bcf in May 1995. Storage capacity at year-end 1997 was 100%
subscribed and about 76% of the contractual volumes had
remaining terms of at least 10 years. Questar Gas has reserved
27% of firm-storage capacity for at least 10 years. Questar
Pipeline intends to expand working gas capacity at Clay Basin
in 1998 by 5 Bcf at an estimated cost of $4 million. In an
open season sign-up conducted in January 1998, all potential
new capacity was pledged under long-term commitments. The
expansion is expected to add about $3 million in annual
revenues.
Questar Pipeline's O & M expenses decreased 7% in 1997 because
of cost-containment measures and reduced labor and related
costs. Questar Pipeline along with Questar Gas initiated
cost-containment measures intended to slow the increase of O &
M expenses. Questar Gas and Questar Pipeline in 1997 combined
functions common to gas-distribution and gas-transmission
operations in order to eliminate duplications. O & M expenses
increased 18% in 1996 when compared with 1995 caused by system
expansion, one-time costs associated with the spin-down of
certain assets that were eventually transferred in 1996 and
issues in Questar Pipeline's 1996 rate settlement.
Questar Pipeline has a 50% ownership interest in a partnership
building Phase II of the TransColorado pipeline in western
Colorado. Upon completion of Phase II, Questar Pipeline will
complete an acquisition of El Paso Energy Corporation's 50%
interest in Phase I of the pipeline project completed in 1996,
making Questar Pipeline a 50% owner of the entire project. KN
Energy owns the other 50% interest. The 292-mile pipeline will
cost about $240 million when completed. Questar Pipeline
reported pretax earnings of $4,456,000 in 1997 from
capitalizing the interest and financing costs associated with
the pipeline project.
Questar Pipeline purchased an additional 18% interest in the
Overthrust Pipeline partnership in 1997.
OTHER OPERATIONS - Other operations include data processing and
communications services and corporate activities.
Other operations reported net income of $8,072,000 in 1997,
$4,752,000 in 1996 and $3,555,000 in 1995. The increase in net
income was primarily due to higher gains from selling more
shares of Nextel Communications at higher prices. Questar sold
805,000 shares of Nextel in 1997, 620,000 shares in 1996 and
300,000 shares in 1995. In 1994, Questar sold a
telecommunications subsidiary, Questar Telecom, to Nextel in
exchange for 3.9 million shares of Nextel common stock.
In 1986, 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 the Company's Wasatch Chemical Division, which
ceased operation in 1978. Clean-up of the site was completed in
1996 with subsequent and future efforts focused on maintenance
of a groundwater filtration system. Total cost of the clean-up
project through December 31, 1997 was $23.7 million. The
Company estimates future costs to be approximately $4.6
million. Clean-up costs were and will be funded through cash
settlements reached with the other major potentially
responsible parties, claims collected from insurance carriers
and Company assets.
The Company was named a potentially responsible party at
another former Wasatch Chemical site in 1997. This site is
located in the Rocky Flats Industrial Park outside of Denver,
Colorado. Management believes that the Company's
responsibility for remediation will not significantly affect
its results of operations, financial position or cash flows.
CONSOLIDATED OPERATING RESULTS
Revenues: Consolidated revenues rose 14% to $933,274,000 in
1997 because of increased gas and oil production and natural
gas deliveries combined with higher gas selling prices.
Consolidated revenues were 26% higher in 1996 than the amount
reported in 1995 because of increases in revenues from
energy-marketing, production of gas and oil, and natural
gas-distribution deliveries.
Natural gas and other product purchases: Natural gas and other
product purchases increased by $85,670,000 or 27% in 1997 when
compared with 1996 primarily due to higher gas-purchase costs
for natural gas distribution and energy-marketing customers.
Natural gas and other product purchases increased 58% in 1996
from 1995 due to product purchases for resale in the
energy-marketing activities and the increased volumes and costs
of natural gas sold to distribution customers.
Operating and maintenance expenses: Operating and maintenance
expenses increased 4% in 1997 when compared with 1996 and 9% in
1996 when compared with 1995. The primary causes of the higher
expenses were operations of additional producing-properties and
a $419,000 charge for an early retirement program offered to
certain employees of the Market Resources group, and the growth
in the number of customers served combined. The Regulated
Services group's cost-containment efforts, including the
combination of shared services, have somewhat mitigated the
escalation of operating expenses.
Depreciation expenses: Depreciation and amortization expenses
increased 18% in 1997 as a result of increased capital
investment, higher gas and oil production and a write down of
various gathering and producing assets. A $6 million
write-down, half related to gathering assets and the other half
related to production assets, was recorded in the fourth
quarter of 1997. Depreciation and amortization expenses were
9% higher in 1996 when compared with 1995 due largely to
increased investment and higher gas-and-oil production rates.
The full-cost amortization rate was $.84 per Mcfe in 1997, $.79
per Mcfe in 1996 and $.80 per Mcfe in 1995.
Other taxes: Other taxes, primarily production and property
related, increased in 1997 because of higher gas prices and gas
and oil production. Other taxes decreased in 1996 due to
settlements with local taxing agencies that reduced property
taxes by $2,160,000.
Interest and other income: Interest and other income was
$11,041,000 higher in 1997 when compared with 1996 and
$4,347,000 lower in 1996 when compared with 1995 as described
in the following details:
<TABLE>
<CAPTON>
Year ended December 31,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Sales of Nextel and other securities $9,376 $6,265 $4,438
Settlement of gas-sales contracts 4,315
Earnings of unconsolidated affiliates 4,341 927 1,561
Return earned on working-gas inventor 1,317 1,827 2,697
Write-off of Western Market Center (2,970)
Interest and other income 8,974 6,918 4,303
Total interest and other income $24,008 $12,967 $17,314
</TABLE>
Income taxes: The effective combined federal, state and
foreign income tax rate was 30.3% in 1997, 31.6% in 1996, and
28.1% in 1995. Income-tax rates were below the combined
statutory rate of about 38% primarily due to tight-sands gas
production and other production income tax credits. Production
tax credits of $10,101,000 in 1997, $9,736,000 for 1996 and
$8,395,000 for 1995 reduced income tax expenses.
Year 2000 Costs: Questar has undertaken steps to identify
areas of concern and potential remedies, prioritize needs,
estimate costs and begin work either to repair or replace data
processing software and hardware affected by Year 2000 issues.
The cost, associated with addressing Year 2000 related problems,
is not expected to be material. However, measurement of the
cost has not been completed. The solutions either involve
replacement or repair of the affected software or hardware
systems. Some replacement or upgrade of systems would take
place in the normal course of business. Several systems, key
to Questar's operations, have been scheduled to be replaced
through vendor supplied systems before 2000. The costs of
repairing existing systems is expensed as incurred, while the
costs of replacing systems is capitalized and depreciated
generally over a three- to five-year period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities increased to
$202,678,000 in 1997 from $182,921,000 reported in 1996.
Capital expenditures amounted to $212,797,000 in 1997, down
from $291,835,000 reported in 1996. Questar initiated a common
stock repurchase program, reduced long-term debt and
repurchased its remaining balance of preferred stock in 1997.
Common equity and long-term debt represented 61% and 39%, of
consolidated capitalization at December 31, 1997, respectively.
Operating Activities:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Net cash provided from operating
activities $202,678 $182,921 $204,171
</TABLE>
Net cash provided from operating activities of $202,678,000
increased 11% in 1997 due primarily to higher net income and
depreciation charges. Net cash provided from operating
activities of $182,921,000 in 1996 declined 10% when compared
with the amount reported for 1995. Decreased cash flow from
operating assets and liabilities more than offset the increased
cash flow from higher net income. The amount received in
distribution rates for recovery of gas costs did not keep pace
with market prices of natural gas. In addition, growing
energy-marketing sales consumed more working capital in 1996.
Investing Activities:
Capital expenditures amounted to $212,797,000 in 1997.
Following is a summary of capital expenditures for 1997 and
1996, and a forecast for 1998:
<TABLE>
<CAPTION>
Year Ended December 31,
1998
Estimated 1997 1996
(In Thousands)
<S> <C> <C> <C>
Market Resources group
Exploratory drilling $7,300 $6,677 $1,230
Development drilling 41,200 33,301 13,286
Other exploration 6,500 8,733 13,537
Reserve acquisitions 54,000 2,155 154,374
Production 7,100 8,754 4,240
Processing and gathering 26,400 29,405 3,175
General and other 1,900 3,362 1,950
144,400 92,387 191,792
Regulated Services group
Natural gas distribution
New-customer service 30,800 30,794 29,152
Distribution system 9,400 10,507 10,594
Buildings 400 5,388 1,902
Computer software and
hardware 16,100 9,083 7,321
General 8,700 9,603 2,688
65,400 65,375 51,657
Natural gas transmission
Transmission system 36,700 19,622 18,173
Storage 5,800 1,399 1,466
Partnerships 27,700 6,214 2,890
General 5,900 5,361 1,279
76,100 32,596 23,808
Other operations
General office building 1,000 9,676 14,861
Communications 13,100 6,429
Uncommitted 25,000
Other 4,400 6,334 9,717
43,500 22,439 24,578
$329,400 $212,797 $291,835
</TABLE>
Market Resources
Capital expenditures included exploration and development of
gas and oil wells, production plants and gathering system
expansion. The group participated in drilling 235 wells (46
wells on a net revenue basis) in 1997, that resulted in 91 gas
wells, 70 oil wells, 22 dry holes and 52 wells in progress at
year-end.
Regulated Services - Natural gas distribution
Expansion of the distribution system in response to the rapid
growth in the number of customers was the focus of capital
spending. The distribution system was extended by 509 miles of
main, feeder and service lines.
Regulated Services - Natural gas transmission
Capital expenditures included new pipelines, replacement and
expansion of sections of existing gas mainlines and additional
investments in pipeline partnerships.
Other Operations
Remodeling corporate offices and construction of a fiber-optic
communication line represented the largest part of capital
spending for other operations.
Financing Activities:
Funding for 1997 capital spending was obtained primarily from
internal sources. Net cash flow provided from operating
activities, plus the cash raised from selling excess assets,
less dividends, amounted to $181,929,000. Short-term debt
provided the remaining funding. Other financing activities in
1997 included a net $10,432,000 reduction of long-term debt,
repurchase of 326,451 shares of common stock at a cost of
$12,619,000 and repurchase of 48,280 remaining shares of
preferred stock for a cost of $4,876,000. Capital expenditures
for 1998 will be funded through cash generated internally,
short- and long-term borrowings and the proceeds from continued
sales of Nextel stock.
Questar has short-term line-of-credit arrangements with several
banks under which it may borrow up to $145,200,000. These
lines have interest rates generally below the prime interest
rate. The balance of commercial paper outstanding at December
31, 1997 amounted to $131,200,000 with a weighted average
interest rate of 6.14%. The balance of short-term bank loans
and commercial paper outstanding at December 31, 1996 amounted
to $77,800,000 with a weighted average interest rate of 5.73%.
Commercial-paper borrowings are backed by the short-term
line-of-credit arrangements, and rated P1 and A1 by Moody's and
Standard and Poor's, respectively.
At December 31, 1996, an additional $84,500,000 of commercial
paper with an average interest rate of 5.67% was classified as
long-term debt because refinancing negotiations were
substantially completed.
The Company typically has negative net working capital at
December 31 because of short-term borrowings. These borrowings
are seasonal and generally peak at the end of the year because
of cold-weather gas purchases.
Questar had a consolidated capital structure consisting of 39%
long-term debt and 61% common shareholders' equity at December
31, 1997. Moody's and Standard and Poor's have rated the
long-term debt of Questar Gas and Questar Pipeline A1 and A+,
respectively.
Forward Looking Statements
This annual report contains some forward looking statements
about future operations and expectations of Questar Corporation
and its subsidiaries. Management believes they are reasonable
representations of Questar's expected performance at this
time. Actual results may vary from management's stated
expectations and projections.
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 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 6, 1998.
The following individuals are serving as executive officers of the
Company:
Primary Positions Held with
Name the Company and Affiliates
R. D. Cash 55 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 53 President and Chief Executive Officer,
Questar Gas (October 1984); President and
Chief Executive Officer, Questar Pipeline
(March 1997); President and Chief Executive
Officer, QRS (December 1996); Executive Vice
President, Questar (February 1996); Senior
Vice President, Questar (May 1985 to February
1996); Director (May 1984); Director, Questar
Gas (May 1984), and Questar Pipeline (May
1996).
Gary L. Nordloh 50 President and Chief Executive Officer,
Wexpro, Celsius, Universal Resources, QGM,
Questar Energy Trading, Questar Energy
Services, and Celsius Ltd. (at various times
beginning in March 1991); Executive Vice
President, Questar (February 1996); Senior
Vice President, Questar (March 1991 to
February 1996); Director, (October 1996);
Director, Entrada (May 1991), Questar Gas
(May 1997), all Market Resources subsidiaries
(various times beginning in June 1989).
Clyde M. Heiner 59 Senior Vice President, Questar (May 1984);
President and Chief Executive Officer,
Questar InfoComm (February 1993); Director,
Entrada (May 1984) and Questar InfoComm
(February 1993).
S. E. Parks 46 Vice President, Treasurer and Chief Financial
Officer, Questar and all affiliates (February
1996); Treasurer, Questar and affiliates (at
various dates beginning in May 1984);
Director, Celsius and Universal Resources
(May 1996).
Gary G. Sackett 57 Vice President and General Counsel (February
1997); Associate General Counsel (May 1980 to
February 1997) and Assistant Vice President
(May 1986 to February 1997).
Connie C. Holbrook 51 Vice President and Corporate Secretary
(October 1984); Corporate Secretary, Questar
Gas and other affiliates (at various dates
beginning in March 1982); Director, Celsius
(May 1985) 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 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 for the Company's 1998 annual meeting, 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 for the
Company's 1998 annual meeting 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 for
the Company's 1998 annual meeting 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 for the Questar's 1998 annual meeting
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.* 1\ 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.* 2\ Questar Corporation Annual Management Incentive Plan, as
amended and restated effective February 13, 1996.
(Exhibit No. 10.2. to Form 10-K Annual Report for 1995.)
10.3. 2\ Questar Corporation Executive Incentive Retirement Plan,
as amended and restated effective February 10, 1998.
10.4. 2\ Questar Corporation Long-Term Stock Incentive Plan, as
amended and restated effective February 10, 1998.
10.5.* 2\ Questar Corporation Executive Severance Compensation
Plan, as amended and restated effective February 13,
1996. (Exhibit No. 10.6. to Form 10-K Annual Report for
1995.)
10.6.* 2\ Questar Corporation Deferred Compensation Plan for
Directors, as amended and restated effective February 13,
1996. (Exhibit No. 10.7. to Form 10-K Annual Report for
1995.)
10.7.* 2\ Questar Corporation Supplemental Executive Retirement
Plan, as amended and restated effective February 13,
1996. (Exhibit No. 10.8. to Form 10-K Annual Report for
1995.)
10.8.* 2\ Questar Corporation Equalization Benefit Plan, as amended
and restated effective February 13, 1996. (Exhibit No.
10.9. to Form 10-K Annual Report for 1995.)
10.9. 2\ Questar Corporation Stock Option Plan for Directors, as
amended and restated effective February 10, 1998.
10.10.* 2\ 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.)
10.11.* 2\ Questar Corporation Deferred Share Plan, as amended and
restated effective February 13, 1996. (Exhibit No.
10.12. to Form 10-K Annual Report for 1995.)
10.12.*2\ Questar Corporation Deferred Compensation Plan, as
amended and restated effective February 13, 1996.
(Exhibit No. 10.13. to Form 10-K Annual Report for 1995.)
10.13.* 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.)
10.14.*2\ Questar Corporation Directors' Stock Plan as approved May
21, 1996. (Exhibit No. 10.15. to Form 10-Q Report for
Quarter ended June 30, 1996.)
11. Statement concerning computation of earnings per share.
22. Subsidiary Information.
23. Consent of Independent Auditors.
24. Power of Attorney.
27. Financial Data Schedule.
99.1. Undertakings for Registration Statements on Form S-3 (No.
33-48168) and on Form S-8 (Nos. 33-4436, 33-15149,
33-40800, 33-40801, 33-48169, 333-04913, and 333-04951).
________________________
*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\The name of the Rights Agent has been changed to Chase Mellon
Shareholder Services, L.L.C.
2\Exhibit so marked is management contract or compensation plan or
arrangement.
(b) The Company did not file any Current Reports on Form 8-K
during the last quarter of 1997.
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, 1997
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, 1997,
1996 and 1995
Consolidated balance sheets -- December 31, 1997 and 1996
Consolidated statements of common shareholders' equity -- Years
ended December 31, 1997, 1996 and 1995
Consolidated statements of cash flows -- Years ended December 31,
1997, 1996 and 1995
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.
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, 1997 and
1996, and the related consolidated statements of income and common
shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. 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,
1997 and 1996, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Salt Lake City, Utah
February 9, 1998
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
REVENUES $933,274 $817,981 $649,287
OPERATING EXPENSES
Natural gas and other product purchases 399,941 314,271 199,419
Operating and maintenance 204,834 196,389 179,725
Depreciation and amortization 124,037 105,209 96,292
Other taxes 34,307 30,489 31,825
TOTAL OPERATING EXPENSES 763,119 646,358 507,261
OPERATING INCOME 170,155 171,623 142,026
INTEREST AND OTHER INCOME 24,008 12,967 17,314
DEBT EXPENSE (43,766) (41,083) (42,815)
INCOME BEFORE INCOME TAXES 150,397 143,507 116,525
INCOME TAXES - Note 5 45,602 45,362 32,739
NET INCOME $104,795 $98,145 $83,786
EARNINGS PER COMMON SHARE - Note 3
Basic $2.55 $2.39 $2.05
Diluted 2.53 2.38 2.05
Average common shares outstanding
Basic 41,083 40,828 40,552
Diluted 41,334 41,036 40,687
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1997 1996
(In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $17,271 $5,703
Accounts receivable 149,712 153,931
Unbilled gas accounts receivable 37,302 23,528
Federal income taxes receivable 997
Inventories, at lower of average
cost or market
Gas stored underground 19,881 14,141
Materials and supplies 9,187 8,202
Total inventories 29,068 22,343
Purchased-gas adjustments 37,251 24,210
Prepaid expenses and deposits 14,420 13,555
TOTAL CURRENT ASSETS 285,024 244,267
PROPERTY, PLANT AND EQUIPMENT
Market Resources 1,175,348 1,100,070
Regulated Services - gas distribution 882,936 825,121
Regulated Services - gas transmission 580,603 562,711
Regulated Services - other 2,472
Other operations 100,578 87,078
2,741,937 2,574,980
LESS ALLOWANCES FOR DEPRECIATION
AND AMORTIZATION
Market Resources 617,082 547,958
Regulated Services - gas distribution 354,761 325,821
Regulated Services - gas transmission 202,427 194,396
Regulated Services - other 1,923
Other operations 34,524 29,469
1,210,717 1,097,644
NET PROPERTY, PLANT AND EQUIPMENT 1,531,220 1,477,336
OTHER ASSETS
Securities available for sale,
approximates fair value - Note 1 55,925 38,612
Investments in unconsolidated affiliates 29,952 19,192
Unamortized costs of reacquired debt 11,666 12,433
Income taxes recoverable from customers 10,923 11,223
Other noncurrent assets 20,307 13,162
TOTAL OTHER ASSETS 128,773 94,622
$1,945,017 $1,816,225
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
1997 1996
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Short-term loans - Notes 2 and 4 $131,200 $77,800
Accounts payable and accrued expenses
Accounts payable 130,556 136,773
Federal income taxes 6,447
Other taxes 19,527 14,706
Interest 7,994 6,465
Other 4,420 3,867
Total accounts payable and
accrued expenses 168,944 161,811
Current portion of long-term debt 6,068 4,705
TOTAL CURRENT LIABILITIES 306,212 244,316
LONG-TERM DEBT, less current portion -
Notes 2 and 4 541,986 555,509
OTHER LIABILITIES
Unbilled gas revenues 5,180 10,360
Other - Note 6 24,621 25,073
TOTAL OTHER LIABILITIES 29,801 35,433
DEFERRED INVESTMENT TAX CREDITS 6,422 6,810
DEFERRED INCOME TAXES - Note 5 214,818 197,244
COMMITMENTS AND CONTINGENCIES - Note 6
REDEEMABLE CUMULATIVE PREFERRED
STOCK - $100 stated value, 4,000,000
shares authorized, 48,280 shares
outstanding in 1996 4,828
COMMON SHAREHOLDERS' EQUITY - Note 3
Common stock - without par value;
175,000,000 shares authorized;
41,071,042 outstanding in 1997
and 41,024,887 outstanding in 1996 291,322 292,613
Retained earnings 541,663 487,799
Note receivable from employee
investment plan (ESOP) (10,173) (15,556)
Unrealized gain on securities available
for sale, net of income taxes 22,974 7,410
Foreign currency translation adjustment (8) (181)
TOTAL COMMON SHAREHOLDERS' EQUITY 845,778 772,085
$1,945,017 $1,816,225
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized Foreign
Note gain (loss) Currency
Common Stock Retained Receivableon securitiesTranslation
Shares Amount Earnings from ESOP available Adjustment
for sale
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995 40,428,739 $276,555 $401,577 $(24,543)
Issuance of common stock 290,410 7,841
Purchase of 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 of income taxes $11,853
Balances at December 31, 1995 40,697,814 283,776 438,284 (21,238) 11,853
Issuance of common stock 372,167 10,396
Purchase of common stock (45,094) (1,559)
1996 net income 98,145
Payment of dividends
Preferred stock (391)
Common stock - $1.19 per share (48,589)
Income tax benefit of dividends paid
to ESOP 350
Collection of note receivable from ESOP 5,682
Unrealized loss on securities available
for sale, net of income taxes (4,443)
Foreign currency translation adjustment $(181)
Balances at December 31, 1996 41,024,887 292,613 487,799 (15,556) 7,410 (181)
Issuance of common stock 372,606 11,328
Purchase of common stock (326,451) (12,619)
1997 net income 104,795
Payment of dividends
Preferred stock (192)
Common stock - $1.24 per share (50,943)
Premium paid on retired preferred stock (48)
Income tax benefit of dividends paid
to ESOP 252
Collection of note receivable from ESOP 5,383
Unrealized gain on securities available
for sale, net of income taxes 15,564
Foreign currency translation adjustment 173
Balances at December 31, 1997 41,071,042 $291,322 $541,663 $(10,173) $22,974 $(8)
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $104,795 $98,145 $83,786
Depreciation and amortization 128,517 110,006 101,093
Deferred income taxes 5,929 17,137 16,417
Deferred investment tax credits (388) (461) (401)
Gain from sales of securities (9,376) (6,265) (4,438)
229,477 218,562 196,457
Changes in operating assets
and liabilities
Accounts receivable (9,555) (51,604) 20,598
Inventories (6,725) 5,767 1,988
Prepaid expenses and deposits (865) (2,590) 274
Accounts payable and accrued expenses 686 44,571 9,313
Federal income taxes 7,444 3,048 (5,740)
Purchased-gas adjustments (13,041) (33,392) (7,889)
Other (4,743) (1,441) (10,830)
NET CASH PROVIDED FROM OPERATING
ACTIVITIES 202,678 182,921 204,171
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (199,919) (287,489) (114,820)
Other investments (12,878) (4,346) (3,368)
Total capital expenditures (212,797) (291,835) (118,188)
Proceeds from disposition of property,
plant and equipment, and investments 13,118 10,418 11,406
Proceeds from sales of securities 17,268 13,202 9,789
NET CASH USED IN INVESTING ACTIVITIES (182,411) (268,215) (96,993)
FINANCING ACTIVITIES
Issuance of common stock 11,328 10,396 7,841
Purchase of Questar common stock (12,619) (1,559) (620)
Redemption of preferred stock (4,876) (129) (1,367)
Issuance of long-term debt 60,047 181,500 2,000
Repayment of long-term debt (70,479) (61,985) (55,985)
Change in short-term loans 53,400 600 (17,700)
Collection of note receivable from ESOP 5,383 5,682 3,305
Income tax benefit of dividends
paid to ESOP 252 350 446
Payment of dividends (51,135) (48,980) (47,525)
NET CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES (8,699) 85,875 (109,605)
CHANGE IN CASH AND SHORT-TERM
INVESTMENTS 11,568 581 (2,427)
BEGINNING CASH AND SHORT-TERM
INVESTMENTS 5,703 5,122 7,549
ENDING CASH AND SHORT-TERM
INVESTMENTS $17,271 $5,703 $5,122
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - 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 a diversified resource and
energy services holding company with two principal lines of
business: non-rate regulated and rate-regulated. The Company's
nonregulated activities of exploration and production, gas
gathering and processing, and energy marketing operations are
conducted by its Market Resources group. The Company's regulated
activities of natural-gas distribution, transmission and storage
operations are conducted by the Regulated Services group. Natural
gas distribution activities are conducted by Questar Gas, formerly
named Mountain Fuel, and transmission and storage activities are
conducted by Questar Pipeline. The Company's other operations
include data processing, telecommunications and corporate
activities. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Investments in Unconsolidated Affiliates: Questar uses the equity
method to account for investments in affiliates in which it does
not have control. Principal affiliates include: Overthrust
Pipeline Company, TransColorado Gas Transmission Company, Canyon
Creek Compression Company, Western Market Center and Blacks Fork
Gas Processing Company. Generally, the Company's investment in
these affiliates equals the underlying equity in net assets.
Regulation: Questar Gas is regulated by the Public Service
Commission of Utah (PSCU) and the Public Service Commission of
Wyoming (PSCW). While Questar Gas also serves a small area of
southeastern Idaho, the Public Utilities Commission of Idaho has
deferred to the PSCU 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. Questar Gas
records 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: Questar Gas accounts for purchased-gas
costs in accordance with procedures authorized by the PSCU and PSCW
under which purchased-gas costs that are different from those
provided for in present rates are accumulated and recovered or
credited through future rate changes.
Cash and Short-Term Investments: Short-term investments consist
principally of repurchase agreements with maturities of three
months or less.
Securities Available for Sale: The value of securities available
for sale approximates 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. At
December 31, shares of Nextel Communications comprised the
securities available for sale held by the Questar. The number of
shares of held at December 31, 1997 and 1996 was 2,150,950 and
2,955,950, respectively. Questar acquired 3,875,950 shares of
Nextel in 1994 in exchange for Questar's entire interest in Questar
Telecom.
Property, Plant and Equipment: Property, plant and equipment is
stated at cost. The Company employs the full-cost accounting
method for gas and oil exploration and development activities.
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 value of unproved properties, the excess is expensed.
Wexpro, a company in the Market Resources group, uses the
successful-efforts accounting method to account for its development
activities under the terms of the Wexpro settlement agreement (Note
9). Questar adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived to be Disposed of" in 1996
without a significant impact to operating results, financial
position or cash flow. The provisions of SFAS No. 121 do not
supersede full-cost accounting rules, which require a quarterly
full-cost ceiling test.
The provision for depreciation and amortization is based upon rates
that will systematically charge the costs of assets against income
over the estimated useful lives of those assets. The investment in
natural gas distribution, transmission, storage and gathering
property, plant and equipment, and processing plants is amortized
using the straight-line method. The costs of gas and oil wells and
leaseholds are amortized using the units-of-production method.
Average depreciation and amortization rates used were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Market Resources
Exploration and production, per Mcf equivalent
Full-cost amortization rate $0.84 $0.79 $0.80
Wexpro depreciation rate $0.39 $0.45 $0.44
Gas gathering 5.8% 4.3% 4.5%
Regulated Services
Natural gas distribution
Distribution plant 4.2% 4.1% 3.9%
Gas wells, per Mcf $0.16 $0.16 $0.17
Natural gas transmission 3.5% 3.7% 3.4%
Other operations 6.7% 7.0% 6.8%
</TABLE>
Capitalized Interest: Questar's rate-regulated subsidiaries
capitalize the cost of capital employed during the construction
period of plant and equipment and the Company's non-rate regulated
subsidiaries capitalize interest costs during construction of
assets when applicable. The sum of Allowance for Funds Used During
Construction and capitalized interest amounted to $2,268,000 in
1997, $1,486,000 in 1996 and $784,000 in 1995.
Reacquisition of Debt: Gains and losses on the reacquisition of
debt by rate-regulated affiliates 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.
Foreign Currency Translation: The local currency is the functional
currency of the Company's foreign operations. Translation from the
functional currency to U. S. dollars is performed for balance sheet
accounts using the exchange rate in effect at the balance-sheet
date. Revenue and expense accounts are translated using an average
exchange rate for the period. Adjustments resulting from such
translations are reported as a separate component of shareholders'
equity. Deferred income taxes have been provided on translation
adjustments because the earnings are not considered to be
permanently invested.
Energy Price and Interest Rate Risk Management: The Market
Resources group enters into swaps, futures contracts or option
agreements to hedge exposure to price fluctuations in connection
with marketing of the Company's natural gas and oil production, and
to secure a known margin for the purchase and resale of gas, oil
and electricity in marketing activities. There is a high degree of
correlation of such contracts because timing of production and the
hedge contracts is closely matched, and hedge prices are
established in the areas of the Market Resources 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 has entered into interest-rate swaps for the purpose of
managing interest rate exposure. Changes in amounts payable or
receivable under these agreements are recorded as increases or
decreases of interest expense in the accounting period incurred.
Income Taxes: Regulated operations record cumulative increases in
deferred taxes as income taxes recoverable from customers. Questar
Gas and Questar Pipeline have adopted procedures with their
regulatory commissions to include under-provided deferred taxes in
customer rates on a systematic basis. Questar Gas and Questar
Pipeline use the deferral method to account for investment tax
credits as required by regulatory commissions. Questar 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.
Earnings Per Common Share: The Company adopted SFAS No. 128, "
Earnings Per Share," in 1997. The new accounting standard requires
dual presentation of basic and diluted earnings per share (EPS) on
the face of the income statement. Basic EPS are computed by
dividing net income less preferred stock dividends by the weighted
average number of common shares outstanding during the year
including ESOP shares. Diluted EPS include the potential dilution
as a result of exercising stock options. Questar restated prior
periods EPS in order to conform with the new accounting standard.
New Accounting Standards: According to the provisions of SFAS No.
130 "Reporting Comprehensive Income", Questar is required to report
comprehensive income in external financial statements beginning in
the first quarter of 1998. Comprehensive income is defined as any
nonowner change in common equity. The disclosure begins with net
income and adds transactions which result in changes in common
equity. These transactions are called other comprehensive income.
The other comprehensive income transactions that currently apply to
Questar are the unrealized gains and losses in the value of
available for sale investments and foreign currency translation
adjustments. Management is evaluating several methods that will
comply with the new standard. Restatement of prior period
financial statements for comparability is required.
Beginning with the 1998 annual report, Questar will be required to
report information about operating segments under a management
approach. The management approach bases a company's disclosures on
how top management evaluates the performance of its business
segments. Limited segmental disclosures will also now be required
in interim financial statements. The new standard, SFAS No. 131 "
Disclosures about Segments of an Enterprise and Related
Information", affects the level of information disclosed, not the
measurement of operating results, cash flows or financial position.
Management is evaluating several methods of complying with the new
standard. Restatement of prior period financial statements for
comparability is required.
Note 2 - Debt
The Company has short-term line-of-credit arrangements with several
banks under which it may borrow up to $145,200,000. These lines
have interest rates generally below the prime interest rate.
Commercial paper-borrowings are backed by the short-term
line-of-credit arrangements. The details of short-term debt were as
follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
(Dollars In Thousands)
<S> <C> <C>
Commercial paper with variable
interest rates $131,200 $45,000
Bank loans with variable interest rates 32,800
$131,200 $77,800
Weighted average interest rate at December 6.14% 5.73%
</TABLE>
At December 31, 1996, an additional $84,500,000 of commercial paper
having an average interest rate of 5.67% was classified as
long-term debt because refinancing negotiations were substantially
completed by year-end 1996. Questar Pipeline guarantees $9 million
of long-term debt borrowed by Blacks Fork Gas Processing Company.
The details of long-term debt were as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
(In Thousands)
<S> <C> <C>
Market Resources
Revolving-credit loan due 2002 with
variable interest rates
(5.51% at December 31, 1997) $133,387 $120,000
Regulated Services - Natural gas distribution
Medium-term notes 6.85% to 8.43%, due
2007 to 2024 225,000 175,000
Regulated Services - Natural gas transmission
9 3/8% debentures due 2021 85,000 85,000
9 7/8% debentures due 2020 50,000 50,000
Corporate and other
Revolving-credit term loan due 2001 with
variable interest rates (6.16% at
December 31, 1997) 13,000 30,000
8.28% ESOP notes due 1998 - 1999 11,300 16,000
7.11% senior notes due 2012 secured
by real estate 30,638
Other 166 170
Commercial paper refinanced through
revolving-credit amendment and
secured note 84,500
Total long-term debt outstanding 548,491 560,670
Less current portion 6,068 4,705
Less unamortized debt discount 437 456
$541,986 $555,509
</TABLE>
Maturities of long-term debt for the five years following December
31, 1997, are as follows:
(In Thousands)
1998 $6,068
1999 6,824
2000 884
2001 16,449
2002 141,155
Cash paid for interest was $42,289,000 in 1997, $41,338,000 in
1996, and $42,487,000 in 1995.
Note 3 - 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 worth of common stock in the name of each eligible
employee. In June 1989, Questar sold 1,992,884 shares of its
common stock (LESOP shares) to the trustee of the ESOP to prefund
its matching obligation for a 10-year period. This prefunding
arrangement combined with an increase in stock price has enabled
the Company to pay out an additional annual contribution of 10% to
80% in excess of the 75% matching contribution since 1993.
The ESOP trustee financed the purchase of stock by borrowing $35
million from the Company. A note receivable from the ESOP was
recorded as a reduction of common shareholders' equity. At the
same time, Questar borrowed $35 million from a group of insurance
companies. Interest expense on these notes to the insurance
companies totaled $1,130,000 in 1997, $2,109,000 in 1996, and
$2,892,000 in 1995.
The ESOP is repaying the loan to Questar over 10 years using
Company contributions and dividends on LESOP shares. As the LESOP
loan is repaid, shares are released and allocated to employee
accounts. Employee 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. At December 31, 1997, 1,589,934
shares were allocated to employees with the remaining 402,950
shares unallocated. The Company's contribution to the ESOP is
determined by the amount of debt service required after considering
dividends paid on LESOP shares. Questar'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,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Company's expense and contribution
to the ESOP $4,289 $3,849 $3,249
Dividends paid by the Company to the ESOP
Allocated shares $1,879 $1,571 $1,298
Unallocated shares 660 915 1,167
$2,539 $2,486 $2,465
Income tax benefits for dividends paid on
ESOP shares were recorded as
Reduction of income tax expense $719 $601 $496
Direct increase to retained earnings 252 350 446
$971 $951 $942
</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 148,089 shares in 1997, 130,937 shares in
1996 and 144,414 shares in 1995. At December 31, 1997, 1,472,301
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 Stock Plans after May 2001. The option price equals the
market price of the stock on the grant date. Stock options for
employees have a 10-year life and vest in four, equal annual
installments beginning six months after grant date. In 1996, the
shareholders approved a plan allowing nonemployee directors to
receive shares of common stock instead of cash in payment for
directors fees. There were 49,255 shares available for future
issuance under this plan at December 31, 1997.
No compensation expense is recorded for stock options issued. If
compensation expense had been recorded based on an estimate of the
fair value of stock options granted, the Company's net income and
earnings per share would have been lower. The pro forma amounts of
net income and earnings per share shown below were calculated for
options granted since January 1, 1995. For purposes of the pro
forma expense, the weighted average fair value of the options was
amortized over the vesting period. The pro forma estimates rely
upon subjective assumptions and the use of a mathematical model to
estimate value, and are not likely to be representative of future
results.
<TABLE>
<CAPTION>
1997 1996 1995
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
As reported
Net income $104,795 $98,145 $83,786
Basic earnings per share $2.55 $2.39 $2.05
Pro forma
Net income $102,073 $95,874 $82,279
Basic earnings per share $2.48 $2.34 $2.02
</TABLE>
Transactions involving option shares in the Stock Plans are
summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Price Exercise
Shares Range Price
<S> <C> <C> <C>
Balance at January 1, 1995 1,232,318 $17.69-$31.5 26.19
Granted 413,800 27.38 27.38
Cancelled (15,871) 18.81-31.50 28.11
Exercised (150,984) 17.69-31.50 20.10
Balance at December 31, 1995 1,479,263 17.69-31.50 27.12
Granted 429,100 33.63 33.63
Cancelled (38,250) 27.38-33.63 30.56
Exercised (350,708) 17.69-33.63 24.00
Balance at December 31, 1996 1,519,405 19.63-33.63 29.59
Granted 397,700 38.25 38.25
Cancelled (80,800) 27.375-38.2 32.67
Exercised (366,000) 19.63- 33.6 26.86
Balance at December 31, 1997 1,470,305 $19.63-$38.25 $32.44
Exercisable at December 31, 1997 921,231 $30.87
Available for future grant at
December 31, 1997 948,571
</TABLE>
The stock options at December 31, 1997 had a weighted average
remaining life of 7.5 years. Approximately 69% of the outstanding
options have exercise prices between $31.50 and $38.25. The fair
value of the stock options was determined on the grant date using
the Black-Scholes option valuation model. The calculated fair value
of options granted and major assumptions used to calculate fair
value at date of grant were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Fair value of options $7.52 $7.50 $7.09
Risk-free interest rate 6.15% 5.73% 7.70%
Expected price volatility 19.0% 20.9% 20.8%
Expected dividend yield 3.19% 3.51% 4.16%
Expected life in years 5.1 8 10
</TABLE>
In addition to stock options, the Company issued restricted shares
to officers and key employees as part of its payment of bonuses.
Compensation expense is recorded when the bonus is earned.
Restricted stock vests in two equal, annual installments beginning
one year after grant. Stock is issued at the market price on date
of issuance. Recipients of restricted stock awards are entitled to
full voting rights and receipt of dividends.
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Shares of restricted stock awarded 12,137 23,486 5,447
Market price at award date $42.75 $38.25 $33.625
</TABLE>
Earnings Per Common Share: The Company adopted SFAS No. 128,
"Earnings Per Share", in 1997. The new accounting standard requires
dual presentation of basic and diluted earnings per share (EPS). The
numerator for both basic and diluted EPS was net income less
preferred stock dividends. The denominator for basic EPS was the
weighted average number of common shares outstanding during the year
including ESOP shares. Diluted EPS includes the potential dilution
as a result of exercising stock options. The calculation of
weighted average number of shares was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(Number of shares in thousands)
<S> <C> <C> <C>
Basic EPS 41,083 40,828 40,552
Potential stock options 251 208 135
Diluted EPS 41,334 41,036 40,687
</TABLE>
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 were issued March 25, 1996. The
rights become exercisable if a person, as defined, 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, rightsholders 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 4 - Financial Instruments and Risk Management Activities
The carrying amounts and estimated fair values of the Company's
financial instruments were as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
Book Estimated Book Estimated
Value Fair Value Value Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and short-term investments $17,271 $17,271 $5,703 $5,703
Financial liabilities
Short-term loans 131,200 131,200 77,800 77,800
Long-term debt, including
current portion 548,054 596,804 560,214 593,477
Redeemable cumulative preferred stock - - 4,828 4,876
Gas and oil price hedging contracts 86,300 88,900 197,100 186,100
</TABLE>
The Company used the following methods and assumptions in estimating
fair values: (1) Cash and short-term investments and short-term
loans - the carrying amount approximates fair value; (2) Long-term
debt - the carrying amount of variable-rate debt approximates fair
value. The fair value of fixed-rate debt is based on quoted market
prices, and on the discounted present value of cash flows using the
Company's current borrowing rates; (3) Gas and oil price hedging
contracts - the fair value of contracts is based on market prices as
posted on the NYMEX, Inside FERC or other indices at the end of the
year.
Fair value is calculated at a point in time and does not represent
the amount the Company would pay to retire the debt securities. In
the case of gas-and-oil price-hedging activities, the fair value
calculation does not consider the physical side of gas and oil
transactions.
Price Risk Management: The Market Resources group held open hedge
contracts covering the price exposure for about 45 million dth of
gas and 167,000 bbls of oil at December 31, 1997 and 74.5 million
dth of natural gas and 1 million bbls of oil at December 31, 1996.
The hedging contracts are primarily for gas and oil marketing
activities, but also include Questar-owned production. The
contracts at December 31, 1997 had terms extending through June 1999
with about 99% of those contracts expiring by the end of 1998.
Deferred losses on anticipated transactions are not material. While
it is a primary objective of the Market Resources group to protect
product sales from adverse changes in market prices, hedging
transactions give rise to market risk, which results from changes in
market prices.
Interest Rate Risk Management: The Market Resources group entered
into a three-year interest rate-swap agreement in 1995 covering $25
million notional principal of floating-rate debt. The Market
Resources group recognizes interest expense and receives a payment
based on LIBOR (5.76% at December 31, 1997) 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.
Credit Risk: The Company's primary market areas are the Rocky
Mountain and Midcontinent regions of the United States. Exposure to
credit risk may be impacted by the concentration of customers in
these regions due to changes in economic or other conditions.
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.
Note 5 - Income Taxes
By December 31, 1997, the Company had utilized the remaining balance
of net-operating-loss carryforwards. The net-operating-loss
carryforwards were acquired by Questar when it purchased a company
in 1987. In addition to net-operating-loss carryforwards, the
Company acquired percentage-depletion and investment-tax credit
(ITC) carryforwards. However, because it is uncertain whether or
not the Company will be able to utilize these credits, the entire
tax benefit of $3,661,000 has been offset by a valuation allowance.
The components of income taxes were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Federal
Current $36,131 $21,412 $15,419
Deferred 6,773 18,732 14,244
State
Current 5,742 4,442 1,599
Deferred 639 1,273 1,878
Deferred investment tax credits (388) (461) (401)
Foreign income tax benefits (3,295) (36)
$45,602 $45,362 $32,739
</TABLE>
The difference between income tax expense reported and the tax
computed by applying the statutory federal income tax rate of 35% to
income before income taxes is explained as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Income before income taxes $150,397 $143,507 $116,525
Federal income taxes at 35% $52,639 $50,227 $40,784
State income taxes, net of federal
income tax benefit 4,138 4,160 2,918
Tight-sands gas production credits (9,319) (9,491) (8,395)
Investment tax credits utilized (388) (461) (401)
Deferred taxes related to regulated assets
that were not provided in prior years 884 857 772
Tax benefits from dividends paid to ESOP (719) (601) (446)
Foreign income tax benefits (1,340) (36)
Adjustment of deferred income tax rate (571)
Capital loss carryforwards recognized (694)
Other (293) 707 (1,228)
Income tax expense $45,602 $45,362 $32,739
Effective income tax rate 30.3% 31.6% 28.1%
</TABLE>
Significant components of the Company's deferred tax liabilities and
assets were as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
(In Thousands)
<S> <C> <C>
Deferred tax liabilities
Property, plant and equipment $199,888 $192,671
Purchased-gas adjustments 14,155 9,200
Other 29,275 25,663
Total deferred tax liabilities 243,318 227,534
Deferred tax assets
Alternative minimum tax and production
credit carryforwards 15,133 15,783
Depletion and ITC carryforwards 3,661 3,898
Net-operating-loss carryforwards 1,510
Other 13,367 12,997
Total deferred tax assets 32,161 34,188
Less a valuation allowance 3,661 3,898
Net deferred tax assets 28,500 30,290
Net deferred tax liabilities $214,818 $197,244
</TABLE>
Cash paid for income taxes was $29,653,000 in 1997, $22,455,000 in
1996, and $23,232,000 in 1995.
Note 6 - Litigation, Environmental Matters and Commitments
In 1986, 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 the
Company's Wasatch Chemical Division, which ceased operation in 1978.
Clean-up of the site was completed in 1996 with subsequent and
future efforts focused on maintenance of a groundwater filtration
system. Total cost of the clean-up project through December 31, 1997
was $23.7 million. The Company estimates future costs to be
approximately $4.6 million. Clean-up costs were and will be funded
through cash settlements reached with the other major potentially
responsible parties, claims collected from insurance carriers and
Company assets.
In 1997, the Company was named a potentially responsible party at
another former Wasatch Chemical site. This site is located in the
Rocky Flats Industrial Park outside of Denver, Colorado. Management
believes that the Company's responsibility for remediation will not
significantly affect its results of operations, financial position
or cash flows.
Questar is involved in an environmental cleanup action on a site
that involves 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, Questar Gas purchases significant quantities of natural
gas under numerous gas-purchase contracts with varying terms and
conditions. Purchases under these agreements totalled $122,106,000
in 1997, $67,249,000 in 1996 and $44,892,000 in 1995.
Historically, gas-purchase contracts extended over many years.
However, it is now common practice to set contract terms for
anywhere from one day up to one year. With this trend toward
shorter-term contracts, as of February 1, 1998, substantially all
long-term contracts have expired. The remaining long-term contracts
are not material.
Note 7 - Rate Matters
On January 8, 1997, the Utah Division of Public Utilities (Division)
filed a motion with the PSCU seeking an investigation into the
reasonableness of Questar Gas' rates and requesting an interim rate
decrease of $3.5 million. On January 29, 1997, the Division
withdrew its petition, and the PSCU accepted that action after
Questar Gas agreed to reduce rates and charges by $2.85 million
annually. On February 4, 1997, Questar Gas filed an application
with the PSCU to reduce block rates, eliminate the new-premises fee
for multi-family dwellings, and reduce the capacity-release revenue
retained by Questar Gas from 20% to 10%. The PSCU approved the
filing effective February 18, 1997.
The PSCU approved a purchased gas-cost recovery application on an
interim basis, effective January 1, 1996. In connection with the
application and pass-through cases filed since then, the Division
has raised issues about the reasonableness of gas gathering costs
for field-purchased gas gathered by Market Resources affiliate,
Questar Gas Management. Hearings were held January 6, 1998 at which
the Division requested that the PSCU disallow gas gathering costs of
approximately $7.6 million plus a $.2 million interest charge.
Briefs have been filed with the PSCU. The Company's management
believes that its gathering costs are reasonable and in compliance
with contract terms and applicable laws. The Company cannot predict
the resolution of this dispute or any financial impact of such
resolution on its balance sheet, income statement, or cash flows at
the current time.
In March 1998, the PSCW approved Questar Gas' gas-merchant
unbundling proposal that was filed in Wyoming in 1997. Under this
plan, a transportation service option is extended to residential and
commercial customers as well as industrial customers. Customers
choosing transportation service are allowed to secure gas supplies
directly from producers and marketers and pay Questar Gas a fee for
transportation services. Questar Gas continues to offer a
traditional bundled service as well. Questar expects that the
option of unbundled service in Wyoming, will not have a material
effect on earnings. Questar Gas will maintain its current structure
in Utah. At December 31, 1997, Questar Gas served 21,632 customers
in the state of Wyoming representing 3% of the total number of
customers served.
Note 8 - 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,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Service cost $7,226 $7,606 $5,940
Interest cost 18,270 16,829 16,162
Actual gain on plan assets (38,192) (29,026) (47,543)
Net amortization and deferral 18,319 10,514 31,535
Pension cost $5,623 $5,923 $6,094
</TABLE>
Assumptions used to calculate pension costs were as follows:
<TABLE>
<CAPTION>
January 1,
1997 1996 1995
<S> <C> <C> <C>
Discount rate 7.50% 7.00% 8.50%
Rate of increase in compensation 5.35% 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, 1997. The status of the plan was as
follows:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Actuarial present value of benefits
Vested benefits $180,101 $159,162 $158,335
Nonvested benefits 32,914 25,696 25,248
Accumulated benefit obligation 213,015 184,858 183,583
Effect of projected future salary
increases 56,244 49,376 55,725
Projected benefit obligation 269,259 234,234 239,308
Fair value of plan assets 284,698 252,071 225,963
Plan assets in excess of (less than)
projected benefit obligation 15,439 17,837 (13,345)
Unrecognized net (gain) loss (11,226) (13,900) 15,060
Unrecognized transition obligation 497 640 783
Unrecognized prior service cost 3,149 3,684 4,089
Prepaid pension cost $7,859 $8,261 $6,587
</TABLE>
Postretirement Benefits Other Than Pensions: The Company pays a
portion of health-care costs and life- insurance costs for employees
who retired prior to January 1, 1993. The plan was changed for
employees hired after January 1, 1993, to link the health-care
benefits to years of service and to limit Questar's monthly health
care contribution per individual to 170% of the 1992 contribution.
Employees hired after December 31, 1996, do not qualify for
postretirement medical 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 and
corporate and U.S. government debt obligations. The Company is
amortizing its transition obligation over a 20-year period, which
began in 1992. A table listing the primary components of the costs
of postretirement benefits other than pensions is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Service cost $1,075 $1,015 $956
Interest cost 4,050 3,452 3,871
Actual gain on plan assets (2,919) (2,103) (2,600)
Amortization of transition obligation 1,971 1,971 1,971
Net amortization and deferral 1,204 557 1,598
Postretirement benefit cost $5,381 $4,892 $5,796
</TABLE>
Assumptions used to calculate postretirement benefit costs were as
follows:
<TABLE>
<CAPTION>
January 1,
1997 1996 1995
<S> <C> <C> <C>
Discount rate 7.5% 7.0% 8.5%
Long-term return on assets 8.5% 8.5% 8.5%
Health care inflation rate 12.0% 12.5% 13.0%
decreasing to
5.5% 5.0% 6.5%
by .5% per year
</TABLE>
A 1% increase in the health care inflation rate would increase the
service cost by $88,000, the interest cost by $357,000 and the
accumulated postretirement benefit obligation by $4,906,000.
The Company used a discount rate of 7% to measure the actuarial
present value of benefits at December 31, 1997. The status of the
postretirement benefit programs was as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation
Retired employees and beneficiaries $35,669 $28,911 $33,228
Active employees 24,074 19,513 22,772
59,743 48,424 56,000
Plan assets 24,684 20,477 16,748
Accumulated postretirement benefit
obligation in excess of plan assets 35,059 27,947 39,252
Unrecognized transition obligation (29,571) (31,542) (33,514)
Unrecognized gains (losses) 3,299 10,222 (432)
Accrued postretirement benefit
liability $8,787 $6,627 $5,306
</TABLE>
Regulated Services accounts for approximately 64% of the
postretirement benefit costs. The impact of postretirement benefit
costs on Questar's future net income will be mitigated by recovery
of these costs from customers. Both the PSCU and the PSCW allowed
Questar Gas to recover future costs if the amounts are funded in an
external trust. The FERC allows rate-recovery of future
postretirement benefits costs to the extent that pipeline companies
contribute the amounts to an external trust. As part of its 1996
general rate settlement, Questar Pipeline began making annual
contributions of $1,187,000 to an external trust fund. This amount
will recover accumulated postretirement costs measured at December
1995 over a three-year period.
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 PSCU
and the PSCW have allowed Questar Gas to recover postemployment
costs of about $1.1 million, as measured at December 31, 1994, over
a 10-year period. Beginning in 1996, the FERC allowed Questar
Pipeline to recover $138,000 per year of postemployment costs in
future rates over a three year period if funded in an external
trust. Questar's postemployment liability was $2,468,000 in 1997,
$2,412,000 in 1996 and $1,994,000 in 1995.
Note 9 - 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 Questar Gas' utility operations to
share in the results of Wexpro's operations. The agreement was
approved by the PSCU and PSCW in 1981 and affirmed by the Supreme
Court of Utah in 1983. Major provisions of the settlement agreement
are as follows:
a. Wexpro continues to hold and operate all oil-producing
properties previously transferred from Questar Gas' 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 13.69%. Any net income remaining
after recovery of expenses and Wexpro's return on investment is
divided between Wexpro and Questar Gas, 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 18.69%. Any net income remaining after
recovery of expenses and Wexpro's return on investment is divided
between Wexpro and Questar Gas, with Wexpro retaining 46%.
c. Amounts received by Questar Gas 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 Questar Gas. 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 21.69%.
e. Wexpro operates natural-gas properties owned by Questar Gas.
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 13.69%.
Note 10 - Oil and Gas Producing Activities (Unaudited)
The following information discusses Questar's oil-and-gas producing
activities. The Company began operations in Canada in the second
half of 1996 through an acquisition. Prior to 1996, all of
Questar's oil-and-gas properties were located in the United States.
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 the Wexpro settlement agreement
(Note 9). Production from gas properties owned or operated by Wexpro
is delivered to Questar Gas 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
Questar Gas 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 are 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, 1997
United States Canada Total
(In Thousands)
<S> <C> <C> <C>
Proved properties $805,614 $42,882 $848,496
Unproved properties 19,200 13,390 32,590
824,814 56,272 881,086
Accumulated depreciation
and amortization 472,773 9,643 482,416
$352,041 $46,629 $398,670
</TABLE>
<TABLE>
<CAPTION>
December 31,
1996 1995
United States Canada Total
(In Thousands)
<S> <C> <C> <C> <C>
Proved properties $760,329 $43,721 $804,050 $631,580
Unproved properties 16,448 8,351 24,799 18,307
776,777 52,072 828,849 649,887
Accumulated depreciation
and amortization 428,708 1,494 430,202 388,957
$348,069 $50,578 $398,647 $260,930
</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 the amortization pool
at December 31, 1997, and the year in which these costs were
incurred are listed below. Costs excluded from amortization
include $13,390,000 associated with Canadian properties.
<TABLE>
<CAPTION>
Year Costs Incurred
1994 and
Total 1997 1996 1995 Prior
(In Thousands)
<S> <C> <C> <C> <C> <C>
Leaseholds $22,073 $6,553 $8,525 $997 $5,998
Exploration 10,517 3,480 1,236 523 5,278
$32,590 $10,033 $9,761 $1,520 $11,276
</TABLE>
Costs Incurred: The following costs were incurred in
noncost-of-service oil-and gas-producing activities:
<TABLE>
<CAPTION>
Year Ended December 31,
1997
United States Canada Total
(In Thousands)
<S> <C> <C> <C>
Property acquisition
Unproved $4,057 $203 $4,260
Proved 2,155 $2,155
Exploration 9,975 1,198 $11,173
Development 45,067 4,437 $49,504
$61,254 $5,838 $67,092
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
United States Canada Total
(In Thousands)
<S> <C> <C> <C> <C>
Property acquisition
Unproved $1,159 $8,114 $9,273 $1,162
Proved 111,994 42,380 $154,374 731
Exploration 3,639 800 $4,439 3,978
Development 13,367 778 $14,145 14,701
$130,159 $52,072 $182,231 $20,572
</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. The Company recorded a $3
million write down of Canadian properties in 1997 as additional
depreciation expense.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
United States Canada Total United States Canada Total
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
From unaffiliated customers $60,650 $8,694 $69,344 $77,235 $3,233 $80,468 $85,185
From affiliates 76,858 76,858 30,814 30,814 14
Total revenues 137,508 8,694 146,202 108,049 3,233 111,282 85,199
Production expenses 41,981 2,424 44,405 33,824 750 34,574 27,076
Oil-income sharing under Wexpro
settlement agreement 2,347 2,347 2,768 2,768 3,400
Depreciation and amortization 46,372 8,374 54,746 40,655 1,526 42,181 35,085
Total expenses 90,700 10,798 101,498 77,247 2,276 79,523 65,561
46,808 (2,104) 44,704 30,802 957 31,759 19,638
Income tax expense
(benefit) - Note 1 10,500 (1,729) 8,771 5,349 186 5,535 3,249
Results of operations
before corporate overhead
and interest expenses $36,308 ($375) $35,933 $25,453 $771 $26,224 $16,389
</TABLE>
Note 1 - Income tax expense has been reduced by gas production tax
credits of $7,415,000 in 1997, $6,490,000 in 1996 and $4,019,000 in
1995.
Estimated Quantities of Proved Oil and Gas Reserves for
Noncost-of-Service Properties: The majority of the reserve estimates
located in the United States were made by Ryder Scott Company, H. J.
Gruy and Associates and Netherland, Sewell & Associates, independent
reservoir engineers, and the remainder by the Company's reservoir
engineers. Estimated Canadian reserves were prepared by Gilbert
Laustsen Joung Associates Ltd. 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 were
located in the United States prior to 1996. The Company does not
have any long-term supply contracts with foreign governments or
reserves of equity investees.
<TABLE>
<CAPTION>
Natural Gas Oil
United States Canada Total United States Canada Total
(In Million Cubic Feet) (In Thousands of Barrels )
<S> <C> <C> <C> <C> <C> <C>
Proved Reserves
Balance at January 1, 1995 267,828 267,828 13,534 13,534
Revisions of estimates 6,156 6,156 909 909
Extensions and discoveries 15,912 15,912 436 436
Purchase of reserves in place 2,679 2,679 24 24
Sale of reserves in place (1,225) (1,225) (23) (23)
Production (32,663) (32,663) (2,436) (2,436)
Balance at December 31, 1995 258,687 258,687 12,444 12,444
Revisions of estimates 19,219 3,354 22,573 1,286 (774) 512
Extensions and discoveries 8,331 2,534 10,865 540 84 624
Purchase of reserves in place 116,855 19,600 136,455 6,816 2,920 9,736
Sale of reserves in place (4,014) (4,014) (30) (30)
Production (39,506) (1,013) (40,519) (2,399) (103) (2,502)
Balance at December 31, 1996 359,572 24,475 384,047 18,657 2,127 20,784
Revisions of estimates 11,409 (4,635) 6,774 (1,847) (316) (2,163)
Extensions and discoveries 24,353 4,366 28,719 1,060 898 1,958
Purchase of reserves in place 8,166 8,166 351 351
Sale of reserves in place (1,292) (1,292) (450) (3) (453)
Production (44,370) (3,072) (47,442) (2,667) (271) (2,938)
Balance at December 31, 1997 357,838 21,134 378,972 15,104 2,435 17,539
Proved Developed Reserves
Balance at January 1, 1995 252,677 252,677 12,707 12,707
Balance at December 31, 1995 245,357 245,357 11,756 11,756
Balance at December 31, 1996 299,219 14,683 313,902 16,686 1,880 18,566
Balance at December 31, 1997 300,859 16,670 317,529 13,209 1,851 15,060
</TABLE>
Standardized Measure of Future Net Cash Flows Relating to Proved
Reserves for Noncost-of-Service Activities: Future net cash flows
were calculated at December 31 using year-end 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>
Year Ended December 31,
1997 1996 1995
United States Canada Total United States Canada Total
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Future cash inflows $937,059 $68,550 $1,005,609 $1,259,525 $123,186 $1,382,711 $614,469
Future production and
development costs (349,624) (25,066) (374,690) (443,074) (37,445) (480,519) (206,712)
Future income tax expenses (99,107) (99,107) (187,263) (15,857) (203,120) (59,093)
Future net cash flows 488,328 43,484 531,812 629,188 69,884 699,072 348,664
10% annual discount for estimated
timing of net cash flows (198,070) (14,885) (212,955) (259,602) (23,188) (282,790) (126,582)
Standardized measure of discounted
future net cash flows $290,258 $28,599 $318,857 $369,586 $46,696 $416,282 $222,082
</TABLE>
The principal sources of change in the standardized measure of
discounted future net cash flows were:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Beginning balance $416,282 $222,082 $237,250
Sales of oil and gas produced, net
of production costs (101,797) (76,708) (58,123)
Net changes in prices and
production costs (138,678) 168,288 1,468
Extensions and discoveries, less
related costs 31,535 16,400 14,381
Revisions of quantity estimates (4,979) 25,298 9,012
Purchase of reserves in place 2,155 154,374 731
Sale of reserves in place (3,606) (3,045) (1,062)
Accretion of discount 41,629 22,208 23,725
Net change in income taxes 73,804 (79,386) 368
Change in production rate 5,025 (19,738) (298)
Other (2,513) (13,491) (5,370)
Net change (97,425) 194,200 (15,168)
Ending balance $318,857 $416,282 $222,082
</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,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Questar Gas $32,399 $34,334 $37,485
Wexpro 87,927 81,229 89,431
$120,326 $115,563 $126,916
</TABLE>
Costs Incurred: Costs incurred by Wexpro for cost-of-service
gas-producing activities were $10,281,000 in 1997, $3,931,000 in
1996, and $4,827,000 in 1995.
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, 1995 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
Revisions of estimates 4,365 (44)
Extensions and discoveries 2,812 2
Production (36,740) (56)
Balance at December 31, 1996 359,877 564
Revisions of estimates 7,008 41
Extensions and discoveries 7,439 28
Production (37,454) (24)
Balance at December 31, 1997 336,870 609
</TABLE>
Note 11 - Quarterly Financial and Stock Price Data (Unaudited)
Following is a summary of quarterly financial and stock price data.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
(Dollars In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
1997
Revenues $358,378 $151,453 $138,632 $284,811 $933,274
Operating income 71,922 23,448 20,342 54,443 170,155
Net income 40,974 13,607 15,726 34,488 104,795
Basic earnings per common share 1.00 0.32 0.39 0.84 2.55
Diluted earnings per common share 0.99 0.32 0.38 0.83 2.53
Dividends per common share 0.305 0.305 0.315 0.315 1.24
Market price per common share
High 40 1/2 43 42 7/8 44 3/4 44 3/4
Low 35 5/8 34 1/4 38 3/8 36 3/4 34 1/4
Close $36 $40 3/8 $40 9/16 $44 5/8 $44 5/8
Price-earnings ratio on closing price 14.2 16.3 15.9 17.5 17.5
Annualized dividend yield on closing price 3.4% 3.0% 3.1% 2.8% 2.8%
Market-to-book ratio on closing price 1.84 2.05 2.01 2.17 2.17
Average number of common shares traded
per day 62 91 86 74 78
1996
Revenues $225,723 $148,968 $156,469 $286,821 $817,981
Operating income 61,061 25,169 23,268 62,125 171,623
Net income 34,596 16,068 12,787 34,694 98,145
Basic earnings per common share 0.85 0.39 0.31 0.84 2.39
Diluted earnings per common share 0.84 0.39 0.31 0.84 2.38
Dividends per common share 0.295 0.295 0.295 0.305 1.19
Market price per common share
High 34 1/2 35 1/4 37 3/8 41 3/8 41 3/8
Low 30 7/8 31 1/2 31 3/8 34 1/4 30 7/8
Close $33 $34 $35 3/8 $36 3/4 $36 3/4
Price-earnings ratio on closing price 14.8 15.0 15.4 15.4 15.4
Annualized dividend yield on closing price 3.6% 3.5% 3.3% 3.3% 3.3%
Market-to-book ratio on closing price 1.80 1.85 1.91 1.95 1.95
Average number of common shares traded
per day 71 52 78 70 68
1995
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
Basic and diluted 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 day 85 65 75 77 75
</TABLE>
Note 12 - Operations by Line of Business
Following is a summary of operations by line of business for
the Year Ended December 31:
<TABLE>
<CAPTION>
Regulated Services
Market Natural Gas Natural Gas Other Other Intercompany Questar
Resources DistributionTransmission Operations TransactionsConsolidated
<S> <C> <C> <C> <C> <C> <C> <C>
1997
Revenues
From unaffiliated customers $448,765 $445,684 $36,343 $2,482 $933,274
From affiliated companies 74,584 2,539 69,094 135 36,453 $(182,805)
523,349 448,223 105,437 135 38,935 (182,805) 933,274
Operating expenses
Natural gas and other product
purchases 293,174 248,933 (142,166) 399,941
Operating and maintenance 75,071 101,719 37,334 29,002 (38,292) 204,834
Depreciation and amortization 73,087 31,160 14,797 4,993 124,037
Other expenses 24,853 8,174 2,816 811 (2,347) 34,307
Total operating expenses 466,185 389,986 54,947 34,806 (182,805) 763,119
Operating income 57,164 58,237 50,490 135 4,129 170,155
Interest and other income 5,849 3,388 5,952 7 19,512 (10,700) 24,008
Debt expense (11,068) (19,119) (13,536) (10,743) 10,700 (43,766)
Income tax expense (10,882) (13,492) (16,338) (64) (4,826) (45,602)
Net income $41,063 $29,014 $26,568 $78 $8,072 $104,795
Identifiable assets $647,196 $601,720 $410,481 $3,584 $282,036 $1,945,017
Capital expenditures 92,387 65,375 32,596 22,439 212,797
1996
Revenues
From unaffiliated customers $408,205 $368,905 $38,837 $2,034 $817,981
From affiliated companies 75,878 3,023 65,341 29,723 $(173,965)
484,083 371,928 104,178 31,757 (173,965) 817,981
Operating expenses
Natural gas and other product
purchases 272,610 182,400 (140,739) 314,271
Operating and maintenance 66,741 97,110 39,959 23,037 (30,458) 196,389
Depreciation and amortization 58,590 28,309 14,206 4,104 105,209
Other expenses 21,802 8,071 2,519 865 (2,768) 30,489
Total operating expenses 419,743 315,890 56,684 28,006 (173,965) 646,358
Operating income 64,340 56,038 47,494 3,751 171,623
Interest and other income 89 3,033 1,980 15,503 (7,638) 12,967
Debt expense (8,704) (16,637) (13,416) (9,964) 7,638 (41,083)
Income tax expense (13,963) (13,446) (13,415) (4,538) (45,362)
Net income $41,762 $28,988 $22,643 $4,752 $98,145
Identifiable assets $668,221 $554,476 $396,019 $197,509 $1,816,225
Capital expenditures 191,792 51,657 23,808 24,578 291,835
1995
Revenues
From unaffiliated customers $251,800 $358,758 $36,780 $1,949 $649,287
From affiliated companies 80,069 4,011 57,992 29,570 $(171,642)
331,869 362,769 94,772 31,519 (171,642) 649,287
Operating expenses
Natural gas purchases 146,676 190,606 (137,863) 199,419
Operating and maintenance 58,295 93,384 34,003 24,422 (30,379) 179,725
Depreciation and amortization 53,747 25,469 12,911 4,165 96,292
Other expenses 21,377 9,588 3,370 890 (3,400) 31,825
Total operating expenses 280,095 319,047 50,284 29,477 (171,642) 507,261
Operating income 51,774 43,722 44,488 2,042 142,026
Interest and other income 5,921 4,232 1,744 11,548 (6,131) 17,314
Debt expense (8,290) (16,580) (13,472) (10,604) 6,131 (42,815)
Income tax (expense) credit (14,110) (7,706) (11,492) 569 (32,739)
Net income $35,295 $23,668 $21,268 $3,555 $83,786
Identifiable assets $470,466 $542,503 $399,129 $172,455 $1,584,553
Capital expenditures 31,282 51,413 23,146 12,347 118,188
</TABLE>
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 25th day of March, 1998.
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
*W. W. Hawkins Director
*W. N. Jones Director
*Robert E. Kadlec Director
*Marilyn S. Kite Director
*Dixie L. Leavitt Director
*Gary G. Michael Director
*G. L. Nordloh Director
*Scott S. Parker Director
*D. N. Rose Director
*Harris H. Simmons Director
March 25, 1998 *By /s/ R. D. Cash
Date R. D. Cash, Attorney in Fact
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.* 1\ 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.* 2\ Questar Corporation Annual Management Incentive Plan, as
amended and restated effective February 13, 1996. (Exhibit
No. 10.2. to Form 10-K Annual Report for 1995.)
10.3. 2\ Questar Corporation Executive Incentive Retirement Plan, as
amended and restated effective February 10, 1998.
10.4. 2\ Questar Corporation Long-Term Stock Incentive Plan, as
amended and restated effective February 10, 1998.
10.5.* 2\ Questar Corporation Executive Severance Compensation Plan,
as amended and restated effective February 13, 1996.
(Exhibit No. 10.6. to Form 10-K Annual Report for 1995.)
10.6.* 2\ Questar Corporation Deferred Compensation Plan for
Directors, as amended and restated effective February 13,
1996. (Exhibit No. 10.7. to Form 10-K Annual Report for
1995.)
10.7.* 2\ Questar Corporation Supplemental Executive Retirement Plan,
as amended and restated effective February 13, 1996.
(Exhibit No. 10.8. to Form 10-K Annual Report for 1995.)
10.8.* 2\ Questar Corporation Equalization Benefit Plan, as amended
and restated effective February 13, 1996. (Exhibit No.
10.9. to Form 10-K Annual Report for 1995.)
10.9. 2\ Questar Corporation Stock Option Plan for Directors, as
amended and restated effective February 10, 1998.
10.10.* 2\ 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.)
10.11.* 2\ Questar Corporation Deferred Share Plan, as amended and
restated effective February 13, 1996. (Exhibit No. 10.12.
to Form 10-K Annual Report for 1995.)
10.12.* 2\ Questar Corporation Deferred Compensation Plan, as amended
and restated effective February 13, 1996. (Exhibit No.
10.13. to Form 10-K Annual Report for 1995.)
10.13.* 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.)
10.14.* 2\ Questar Corporation Directors' Stock Plan as approved May 21,
1996. (Exhibit No. 10.15. to Form 10-Q Report for Quarter
ended June 30, 1996.)
11. Statement concerning computation of earnings per
share.
22. Subsidiary Information.
23. Consent of Independent Auditors.
24. Power of Attorney.
27. Financial Data Schedule.
99.1. Undertakings for Registration Statements on Form S-3 (No.
33-48168) and on Form S-8 (Nos. 33-4436, 33-15149,
33-40800, 33-40801, 33-48169, 333-04913, and 333-04951).
________________________
*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\The name of the Rights Agent has been changed to Chase Mellon
Shareholder Services, L.L.C.
2\Exhibit so marked is management contract or compensation plan or
arrangement.
(b) The Company did not file any Current Reports on Form 8-K
during the last quarter of 1997.
Exhibit No. 10.3.
QUESTAR CORPORATION
EXECUTIVE INCENTIVE RETIREMENT PLAN
(As amended and restated effective February 10, 1998)
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,
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 7 of this Plan.
"Final Average Earnings" shall mean the highest average monthly
Compensation paid to the Nominee during any period of 72 consecutive
pay periods of employment with the Company and/or any Participating
Corporation.
"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).
"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
Participating Corporations shall be allocated among them.
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 Participating
Corporations.
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 Corporations having nominated such
employee.
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.
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 prior to 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 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 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 prior to retirement and before
having 25 years of service or satisfying the age and service
requirements for early or normal retirement under the Company's
Regular Retirement Plan, the amount of the Family Protection Benefit
shall be equal to the full benefit calculated in accordance with
Section 5 that would have been payable if the Nominee had been deemed
to have satisfied the eligibility requirements under this Plan as of
the date of death. 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 day of each month thereafter provided that the Spouse or a
Dependent is alive and, in the case of a Dependent, until has
Dependent has reached his/her 18th birthday.
In the event that the Nominee dies prior to retirement but after
having 25 years of service or satisfying the age and service
requirements for early or normal retirement under the Company's
Regular Retirement Plan, the amount of the Family Protection Benefit
shall be equal to one-half of the benefit calculated in accordance
with Section 5 that would have been payable if the Nominee had been
deemed to have satisfied the eligibility requirements under this Plan
as of the date of death. 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 day of the 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.
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.
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 Corporations.
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.
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
Benefits. His Retirement Benefits 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 Chase 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.
Exhibit No. 10.4.
QUESTAR CORPORATION
LONG-TERM STOCK INCENTIVE PLAN
(As amended and restated February 10, 1998)
Section 1. Purpose
The Questar Corporation Long-Term Stock Incentive Plan (the "Plan")
is designed to encourage officers and selected key employees of and
consultants to 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
"Affiliate" shall mean any business entity in which the Company
directly or indirectly has an equity interest deemed significant by the
Company's Board of Directors.
"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, no par
value, of the Company. The term shall also include any Common Stock
Purchase Rights attached to the Common Stock.
"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 or consultant
to the Employer.
"Employer" shall mean the Company and any Affiliate.
"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 Common Stock shall not have been traded on such
date, the closing price on the next preceding day on which a sale
occurred.
"Family Member" shall mean the Participant's spouse, children,
grandchildren, parents, siblings, nieces and nephews.
"Fiscal Year" shall mean the fiscal year of the Company.
"Incentive Stock Option" shall mean a stock option granted under
Section 6 that is intended to meet the requirements of Section 422 of
the Code.
"Nonqualified Stock Option" shall mean a stock option granted under
Section 6 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 that 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.
"Termination of Employment" shall mean the date on which a
Participant actually notifies his/her supervisor of his/her resignation,
in the case of a voluntary termination; and the date on which the
Company actually notifies the Participant of his/her termination, in the
case of an involuntary termination. This term, as defined, does not
include termination of employment as the result of an Approved
Retirement, Disability, or death.
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 or
consultants to the Company or any Affiliate 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 and Maximum Award
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, to the extent not precluded by
applicable law or regulation, shall be again available for Awards
pursuant to the Plan.
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.
There is a maximum of 100,000 shares that can be the subject of
Awards granted to any single Participant in any given fiscal year.
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, Nonqualified
Stock Options, or 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 conditions 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.
(d) Transferability. Participants are allowed to transfer vested
Nonqualified Stock Options to Family Members or family trusts, provided
that such options were granted as of and after February 10, 1998 and
provided that such transfers are made and transferred Options are
exercised in accordance with procedural rules adopted by the Committee.
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) Once the Committee decides to use Performance Shares, it 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 such 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 or an Affiliate either directly or in a
consulting role, 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 for any reason
other than Approved Retirement, Disability or death shall lose the right
to exercise any Options or Rights as of Termination of Employment. Any
Options transferred to a Family Member or family trust shall also be
terminated as of the Participant's Termination of Employment for any
reason other than Approved Retirement, Disability, or death.
(2) A Participant who terminates employment as a result of
an Approved Retirement shall have a period of time specified in the
individual agreements by which Options are granted to exercise such
Options or Rights.
(3) A Participant who is Disabled shall have 12 months after
Termination of Employment in which to exercise an Option or Right.
(4) Upon the death of a Participant during employment, the
Participant's Designated Beneficiary shall have 12 months from the date
of death to exercise the Participant's Option or Right. Upon the death
of a Participant after an Approved Retirement but within the period
specified by the Committee to exercise Options or Rights after the
Participant's Approved Retirement, the Participant's Designated
Beneficiary shall have the period specified by the Committee to exercise
the Option or Right.
(5) The foregoing notwithstanding, a Participant or the
Participant's Designated Beneficiary shall not be permitted to exercise
an Option or Right after the expiration date.
(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 as of Termination of
Employment. 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 as of
Termination of Employment.
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.
(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. Except as provided in Section 6(d), 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 that 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 February 13, 1996, between the Company and
Chase 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.
Exhibit No. 10.9.
QUESTAR CORPORATION
STOCK OPTION PLAN FOR DIRECTORS
(as amended and restated effective February 10, 1998)
1. Purpose of the Plan
The Questar Corporation Stock Option Plan for Directors ("Plan")
is intended to provide a method whereby the nonemployee voting directors
("Directors") of Questar Corporation (the "Company"), who are
responsible for reviewing and monitoring the performance of the Company
and the performance of the Company's officers, may be encouraged to
acquire a larger stock ownership in the Company, thereby promoting the
interests of the Company and all its stockholders. Accordingly, the
Company, during the term of the Plan, will grant options to Directors to
purchase shares of the Company's common stock, subject to the conditions
hereinafter provided.
2. Administration of the Plan
The Plan shall be administered by the Company's Option Plan
Committee ("Committee"), a group appointed by the Company's President
and Chief Executive Officer that includes three or more officers of the
Company. The Committee shall hold meetings at such times and places as
it may determine. No member of the Committee shall be eligible to
receive options granted under the Plan.
3. Stock Subject to the Plan
(a) The stock to be issued upon exercise of options granted under
the Plan shall be the Company's common stock, without par value, that
shall be made available either from authorized but unissued common stock
or from common stock reacquired by the Company, including shares
purchased in the open market. The aggregate number of shares of common
stock that may be issued under options shall not exceed 470,000 shares.
The limitations established by the preceding sentence shall be subject
to adjustment as provided in Section 13 of the Plan.
(b) In the event that any outstanding option under the Plan for
any reason expires or is terminated, the shares of common stock
allocable to the unexercised portion of such option may again be made
subject to options under the Plan.
4. Type of Option
Only nonqualified stock options shall be granted under the terms
of the Plan. Nonqualified stock options granted under the terms of the
Plan are not to be treated as incentive stock options.
5. Option Price
The purchase price per share shall be 100 percent of the fair
market value of one share of the Company's common stock on the date the
option is granted.
The fair market value shall be deemed to be the closing price of
the Company's common stock as reported on the New York Stock Exchange
Composite Tape on the date the option is granted, or, if no sale of
common stock has been reported on that date, the fair market value shall
be determined by reference to such price for the next preceding day on
which a sale occurred.
The purchase price shall be subject to adjustment only as provided
in Section 13 of the Plan.
6. Eligibility of Optionees
(a) Options shall be granted only to Directors of the Company who
are not currently serving as employees of the Company or its affiliates.
(b) Neither anything contained in the Plan or in any instrument
under the Plan nor the grant of any option hereunder shall confer upon
any optionee any right to continue as a Director of the Company.
7. Grant of Option
All Directors shall receive the first grant of options pursuant to
this Plan upon the date such Plan is initially approved by the Company's
stockholders. Thereafter, all Directors shall receive options each year
on the date of the first regular meeting of the Board of Directors.
Each Director shall receive, on an annual basis, an option to purchase
3,200 shares of the Company's common stock. Each Director who serves as
the chairman of a committee of the Board of Directors shall receive an
option to purchase an additional 800 shares of the Company's common
stock for each assignment as chairman of a committee.
8. Transferability of Options
Directors may transfer Options granted as of and after February
10, 1998, to family members or family trusts; provided that Options
cannot be transferred until they have vested and provided, further, that
any transferred Options are subject to the same rules applicable to
Options retained by the Director with respect to forfeiture,
termination, duration and subject to rules approved by the Company's
Board of Directors with respect to transferred Options. For purposes of
the Plan, the term family members includes spouse, children,
grandchildren, parents, siblings, nieces and nephews.
9. Term and Exercise of Options
(a) Each option granted under the Plan shall terminate ten years
after the date on which it was granted and shall vest six months from
the grant date.
(b) A Director electing to exercise an option shall give written
notice to the Company of such election and of the number of shares he
has elected to purchase, in such form as the Committee shall have
prescribed or approved, and shall at the time of exercise tender the
full purchase price of the shares he has elected to purchase. The
purchase price shall be paid in full in cash upon the exercise of the
option; provided, however, that in lieu of cash, an optionee may
exercise his option by tendering to the Company shares of common stock
owned by him and having a fair market value equal to the cash exercise
price applicable to his option, with the fair market value of such stock
to be determined in the manner provided in Section 5 of the Plan. The
optionee may also use a combination of cash and previously acquired
shares. An optionee may not use shares of common stock obtained by
exercising an option as consideration for additional shares until such
shares have been held for six months.
(c) An optionee shall have no rights as a stockholder with
respect to any shares covered by his option until the date the stock
certificate is issued evidencing ownership of the shares. No
adjustments shall be made for dividends (ordinary or extraordinary),
whether in cash, securities or other property, or distributions or other
rights, for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 13 hereof.
(d) Notwithstanding any provision of the Plan or any provision or
limitation in any option to the contrary, if the Company obtains actual
knowledge of a "change in control" in the Company (as defined below),
then all outstanding options held by Directors may be exercised with
respect to all shares of common stock subject thereto at any time during
the period of 60 days following the date upon which the Company obtained
actual knowledge of such change of control of the Company. 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
Chase 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% 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
corporation), or (B) a sale or disposition of all or substantially all
assets of the Company, or (C) plan of liquidation or dissolution of the
Company. A change in control shall also include any act or event which,
with the passage of time, would result in a Distribution Date, within
the meaning of the Rights Agreement.
10. Termination of Status as Director
If an optionee is removed from his position as Director, any
option granted to him under the terms of the Plan shall terminate as of
the date of his removal or resignation. Any unvested options granted
after February 13, 1996, shall vest upon the optionee's retirement as a
Director. If an optionee dies, retires, or resigns for some reason
other than to pursue a business opportunity that is or could be
perceived to be a business opportunity for the Company, he (or his
estate in the event of his death) or his transferee (if the Option has
been transferred), shall have one year from the date of the Optionee's
death, retirement or resignation to exercise options that were granted
prior to such date.
11. Period in Which Options May be Granted
Options may be granted pursuant to the Plan, as amended, after
such amendments are approved by the Company's stockholders and prior to
May 21, 2001.
12. Amendment or Termination of the Plan
The Company's Board of Directors may at any time terminate, annul,
modify or suspend the Plan subject to the following conditions:
(a) The Board of Directors cannot amend the Plan more often than
once per six-month period except for amendments to comply with changes
in federal tax laws.
(b) The Board of Directors cannot amend, modify, suspend, or
terminate the Plan in such a way that affects any options previously
granted under the Plan without the consent of the optionee.
(c) Without the approval of the stockholders of the Company, no
amendment or modification shall be made by the Board that:
(i) Increases the maximum number of shares as to which
options may be granted under the Plan;
(ii) Alters the method by which the option price is
determined;
(iii) Extends any option for a period longer than 10 years
after the date of grant;
(iv) Materially modifies the requirements as to eligibility
for participation in the Plan; or
(v) Provides for the administration of the Plan by a
Committee that is not composed entirely of officers of the Company who
are not eligible to participate in the Plan;
(vi) Alters this Section 12 so as to defeat its purpose.
13. Changes in Capitalization
(a) In the event that the shares of stock of the Company, as
presently constituted, shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the
Company or of another corporation (whether by reason of merger,
consolidation, recapitalization, reclassification, split-up, combination
of shares or otherwise) or if the number of such shares of stock shall
be increased through the payment of a stock dividend, then, subject to
the provisions of Section 13(c) below, there shall be substituted for or
added to each share of stock of the Company that was theretofore
appropriated or that thereafter may become subject to an option under
the Plan, the number and kind of shares of stock or other securities
into which each outstanding share of the stock of the Company shall be
so changed or for which each such share shall be exchanged or to which
each such share shall be entitled, as the case may be. Outstanding
options shall also be appropriately amended as to price and other terms,
as may be necessary to reflect the foregoing events.
(b) A dissolution or liquidation of the Company, or a merger or
consolidation in which the Company is not the surviving corporation,
shall cause each outstanding option to terminate, except to the extent
that another corporation may and does in the transaction assume and
continue the option or substitute its own options.
(c) Fractional shares resulting from any adjustment in options
pursuant to this Section 13 may be settled as the Committee shall
determine.
(d) To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding
and conclusive. Notice of any adjustment shall be given by the Company
to each holder of an option which shall have been so adjusted.
(e) The grant of an option pursuant to the Plan shall not affect
in any way the right or power of the Company to make adjustments,
reclassifications, reorganization or changes of its capital or business
structure, to merge, to consolidate, to dissolve, to liquidate or to
sell or transfer all or any part of its business or assets.
(f) In the case of an option exercised prior to the redemption or
other termination of Rights pursuant to the Rights Agreement, (i) if
such exercise occurs prior to the Distribution Date, the shares received
upon exercise shall be deemed to include the Rights to which a holder of
such shares on the Record Date would have been entitled, and (ii) if
such exercise occurs on or after the Distribution Date, the holder of
such option shall receive, upon exercise, in addition to the shares of
common stock subject to such option, the Rights to which he would have
been entitled had he been a holder of such shares on the Distribution
Date; provided, however, that the preceding clause (ii) shall not apply
if and to the extent that the Company shall have been advised by counsel
that application thereof would create a significant risk of material
adverse tax consequences to the Company or to such holder, and provided
further that, if the provisions of clause (i) or (ii) hereof apply to an
option with respect to a distribution of Rights, no further adjustment
shall be made to such option under this Section 13 with regard to such
distribution. The immediately preceding sentence contains terms and
concepts that are defined in the Rights Agreement; the use of such terms
and concepts is subject to the definitions and restrictions contained in
the Rights Agreement.
EXHIBIT 11.
STATEMENT CONCERNING COMPUTATION OF EARNINGS PER SHARE
QUESTAR CORPORATION
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(In Thousands, Except Per Share
Amounts)
<S> <C> <C> <C>
Net Income Information
Net income $104,795 $98,145 $83,786
Preferred stock dividends (192) (391) (483)
Income available for common stock $104,603 $97,754 $83,303
Calculation of average shares outstanding
Shares used for basic earnings per 41,083 40,828 40,552
share.
Additional shares assuming
exercise of dilutive stock options --
based on treasury stock method using
average market price. 251 208 135
Shares used for diluted earnings
per share 41,334 41,036 40,687
Basic Earnings Per Common Share $2.55 $2.39 $2.05
Diluted Earnings Per Common Share $2.53 $2.38 $2.05
</TABLE>
Exhibit No. 22.
SUBSIDIARY INFORMATION
Registrant Questar Corporation has the following subsidiaries:
Questar Regulated Services Company; Entrada Industries, Inc.; Questar
InfoComm, Inc.; Interstate Land Corporation; and Questar Employee
Services, Inc. Each of these companies is a Utah corporation.
Entrada Industries, Inc., has the following subsidiaries: Wexpro
Company; Celsius Energy Company; Universal Resources Corporation;
Questar Energy Trading Company; and Questar Energy Services, Inc.
Celsius Energy is a Nevada corporation and Universal Resources is a
Texas corporation. The other listed companies are incorporated in
Utah.
Celsius Energy has a wholly owned subsidiary, Celsius Energy
Resources, Ltd., which is an Alberta corporation.
Universal Resources Corporation has two active subsidiaries: URC
Canyon Creek Compression Company and Questar WMC Corporation. Both
entities are Utah corporations. Universal Resources also does
business under the names Questar Energy Company and URC Corporation.
Questar Regulated Services has two subsidiaries, both of which
are Utah corporations: Questar Gas Company and Questar Pipeline
Company. Questar Pipeline, in turn, has one wholly owned subsidiary,
Questar TransColorado, Inc., which is a Utah corporation.
Interstate Land has one active subsidiary, Questar GO Holding
Corporation, which is a Utah corporation.
Exhibit No. 23.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8, No. 33-15149, Post-effective Amendment No. 3 to No. 33-4436,
No. 33-40800, No. 33-40801 and No. 33-48169; Form S-8, No. 333-04951; and
Form S-8, No. 333-04913) and the Registration Statement (Form S-3,
No. 33-48168) of Questar Corporation and in the related Prospectus of our
report dated February 9, 1998 with respect to the consolidated financial
statements of Questar Corporation included in this Annual Report (Form 10-K)
for the year ended December 31, 1997.
/s/Ernst & Young LLP
Ernst & Young LLP
Salt Lake City, Utah
March 24, 1998
Exhibit No. 24.
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 1997 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 1997 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, 2-10-98
R. D. Cash President & Chief
Executive Officer
/s/ Patrick J. Early Director 2-10-98
Patrick J. Early
/s/ U. Edwin Garrison Director 2-10-98
U. Edwin Garrison
/s/ W. Whitley Hawkins Director 2-10-98
W. Whitley Hawkins
/s/ William N. Jones Director 2-10-98
William N. Jones
/s/ R. E. Kadlec Director 2-10-98
R. E. Kadlec
/s/ Marilyn S. Kite Director 2-10-98
Marilyn S. Kite
/s/ Dixie L. Leavitt Director 2-10-98
Dixie L. Leavitt
/s/ Gary G. Michael Director 2-10-98
Gary G. Michael
/s/ Gary L. Nordloh Director 2-10-98
Gary L. Nordloh
/s/ Scott S. Parker Director 2-10-98
Scott S. Parker
/s/ D. N. Rose Director 2-10-98
D. N. Rose
/s/ Harris H. Simmons Director 2-10-98
Harris H. Simmons
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summarized financial information extracted
from the Questar Corporation consolidated Statements of Income and Balance
Sheets for the periods ended Decemeber 31, 1997, December 31, 1996 and
December 31, 1995, and is qualified in its entirety by reference to such
audited financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 17,271 5,703 5,122
<SECURITIES> 0 0 0
<RECEIVABLES> 187,014 178,456 126,538
<ALLOWANCES> 0 0 0
<INVENTORY> 29,068 22,343 28,110
<CURRENT-ASSETS> 285,024 244,267 170,725
<PP&E> 2,741,937 2,574,980 2,330,900
<DEPRECIATION> 1,210,717 1,097,644 1,020,779
<TOTAL-ASSETS> 1,945,017 1,816,225 1,584,553
<CURRENT-LIABILITIES> 306,212 244,316 222,626
<BONDS> 541,986 555,509 421,695
0 4,828 4,957
0 0 0
<COMMON> 291,322 292,613 283,776
<OTHER-SE> 554,456 479,472 428,899
<TOTAL-LIABILITY-AND-EQUITY> 1,945,017 1,816,225 1,584,553
<SALES> 0 0 0
<TOTAL-REVENUES> 933,274 817,981 649,287
<CGS> 0 0 0
<TOTAL-COSTS> 604,775 510,660 379,144
<OTHER-EXPENSES> 158,344 135,699 128,117
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 43,766 41,083 42,815
<INCOME-PRETAX> 150,397 143,507 116,525
<INCOME-TAX> 45,602 45,362 32,739
<INCOME-CONTINUING> 104,795 98,145 83,786
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 104,795 98,145 83,786
<EPS-PRIMARY> 2.55 2.39 2.05
<EPS-DILUTED> 2.53 2.38 2.05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summarized information extracted from the
Questar Corporation consolidated Balance Sheets and Income Statements for
the periods ended March 31, 1997, June 30, 1997 and September 30, 1997 and
1996, and is qualified in its entirety by reference to such unaudited
financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1996
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997 SEP-30-1996
<CASH> 0 0 1,723 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 173,742 108,729 101,879 93,975
<ALLOWANCES> 0 0 0 0
<INVENTORY> 12,854 17,508 28,673 24,256
<CURRENT-ASSETS> 229,158 187,319 205,152 142,818
<PP&E> 2,591,024 2,631,139 2,678,787 2,545,641
<DEPRECIATION> 1,128,681 1,156,602 1,186,013 1,086,321
<TOTAL-ASSETS> 1,783,402 1,763,995 1,828,886 1,707,125
<CURRENT-LIABILITIES> 197,027 178,618 210,932 230,409
<BONDS> 538,706 520,116 526,727 474,006
4,808 4,808 0 4,840
0 0 0 0
<COMMON> 294,929 293,947 292,884 289,368
<OTHER-SE> 508,577 517,785 536,530 467,412
<TOTAL-LIABILITY-AND-EQUITY> 1,783,402 1,763,995 1,828,886 1,707,125
<SALES> 0 0 0 0
<TOTAL-REVENUES> 358,378 509,831 648,463 531,160
<CGS> 0 0 0 0
<TOTAL-COSTS> 243,510 332,407 416,097 322,148
<OTHER-EXPENSES> 42,946 82,054 116,654 99,514
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 10,887 21,486 32,162 29,526
<INCOME-PRETAX> 62,883 80,543 101,918 92,291
<INCOME-TAX> 21,909 25,962 31,611 28,840
<INCOME-CONTINUING> 40,974 54,581 70,307 63,451
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 40,974 54,581 70,307 63,451
<EPS-PRIMARY> 1.00 1.32 1.70 1.55
<EPS-DILUTED> .99 1.31 1.69 1.54
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summarized information extracted from the
Questar Corporation consolidated Balance Sheets and Income Statements for
the periods ended March 31, 1996 and June 30, 1996, and is qualified in its
entirety by reference to such unaudited financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 144,409 105,072
<ALLOWANCES> 0 0
<INVENTORY> 11,867 17,825
<CURRENT-ASSETS> 166,212 133,116
<PP&E> 2,341,157 2,352,497
<DEPRECIATION> 1,045,206 1,061,996
<TOTAL-ASSETS> 1,576,000 1,530,133
<CURRENT-LIABILITIES> 187,493 140,170
<BONDS> 411,700 404,004
4,957 4,954
0 0
<COMMON> 285,292 286,880
<OTHER-SE> 460,703 463,623
<TOTAL-LIABILITY-AND-EQUITY> 1,576,000 1,530,133
<SALES> 0 0
<TOTAL-REVENUES> 225,723 374,691
<CGS> 0 0
<TOTAL-COSTS> 129,646 220,860
<OTHER-EXPENSES> 35,016 67,601
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11,125 20,320
<INCOME-PRETAX> 53,972 75,857
<INCOME-TAX> 19,376 25,193
<INCOME-CONTINUING> 34,596 50,664
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 34,596 50,664
<EPS-PRIMARY> .85 1.24
<EPS-DILUTED> .84 1.23
</TABLE>
Exhibit No. 99.1.
TO BE INCORPORATED BY REFERENCE INTO REGISTRATION
STATEMENTS ON FORM S-3 (NO. 33-48168) AND ON
FORM S-8 (NOS. 33-4436, 33-15149, 33-40800, 33-40801,
33-48169, 333-04913, and 333-04951)
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.
