SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K (Mark One) x ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____. Commission File No. 1-8796 QUESTAR CORPORATION EMPLOYEE INVESTMENT PLAN Questar Corporation 180 East 100 South P.O. Box 45433 Salt Lake City, Utah 84145-0433 FORM 11-K ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998. Commission File Number 1-8796. A. The full title of the plan is the Questar Corporation Employee Investment Plan. The address of the plan is the same as that of the issuer named below. B. The name of the issuer of the securities held pursuant to the plan and the address of its principal executive office are: Questar Corporation, 180 East 100 South, P.O. Box 45433, Salt Lake City, Utah 84145-0433. C. Financial statements and schedules prepared in accordance with the Employee Retirement Income Security Act of 1974 for the fiscal year ended December 31, 1998, are attached as an exhibit to this Form 11-K. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the members of the Questar Corporation Employee Benefits Committee have duly caused this annual report to be signed by its duly authorized chairman. QUESTAR CORPORATION EMPLOYEE INVESTMENT PLAN Date: April 12, 1999 By: /s/ R. D. Cash R. D. Cash Chairman, Employee Benefits Committee Financial Statements and Schedules Questar Corporation Employee Investment Plan Years ended December 31, 1998 and 1997 Questar Corporation Employee Investment Plan Financial Statements and Schedules Years ended December 31, 1998 and 1997 Contents Report of Independent Auditors Audited Financial Statements Statements of Net Assets Available for Plan Benefits Statements of Changes in Net Assets Available for Plan Benefits Notes to Financial Statements Schedules Schedule of Assets Held for Investment Schedule of Reportable Transactions Report of Independent Auditors Participants in Questar Corporation Employee Investment Plan We have audited the accompanying statements of net assets available for plan benefits of Questar Corporation Employee Investment Plan as of December 31, 1998 and 1997, and the related statements of changes in net assets available for plan benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of the Plan at December 31, 1998 and 1997, and the changes in its net assets available for plan benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedules of assets held for investment purposes as of December 31, 1998, and reportable transactions for the year then ended, are presented for purposes of complying with the Department of Labor's Rules and Regulation for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974, and are not a required part of the financial statements. The supplemental schedules have been subjected to the auditing procedures applied in our audit of the 1998 financial statements and, in our opinion, are fairly stated in all material respects in relation to the 1998 financial statements taken as a whole. /s/Ernst & Young Ernst & Young Salt Lake City, Utah March 26, 1999 Questar Corporation Employee Investment Plan Statements of Net Assets Available for Plan Benefits December 31, 1998 1997 Assets Investments - at market: Questar Corporation common stock: Allocated 126,795,730 152,595,668 Unallocated 5,869,895 17,981,632 Mutual funds 24,412,047 18,893,579 Merrill Lynch Retirement Preservation Trust 2,158,833 2,874,782 159,236,505 192,345,661 Cash and short-term investments 96,780 341,910 159,333,285 192,687,571 Contribution receivable from Questar Corporation 398,000 436,400 Interest receivable 12,224 61,589 159,743,509 193,185,560 Liabilities Unallocated contributions and dividends 71,687 176,628 Security acquisition loans 3,955,225 10,172,947 4,026,912 10,349,575 Net assets available for plan benefits 155,716,597 182,835,985 See accompanying notes. Questar Corporation Employee Investment Plan Statements of Changes in Net Assets Available for Plan Benefits Year ended December 31, 1998 1997 Additions Dividend and interest income 6,298,664 6,139,263 Contributions: Employees 7,256,970 6,444,643 Employer 4,975,420 4,665,824 12,232,390 11,110,467 18,531,054 17,249,730 Deductions Withdrawals - at market 25,358,000 12,245,631 Distribution of dividends to participants 328,001 311,714 Trustee fees and commissions 16,847 18,550 Interest expense 622,900 1,093,416 26,325,748 13,669,311 Net realized and unrealized appreciation (depreciation) in the fair value of investments (19,324,694) 32,895,497 Net additions (deductions) (27,119,388) 36,475,916 Net assets available for plan benefits at beginning of year 182,835,985 146,360,069 Net assets available for plan benefits at end of year 155,716,597 182,835,985 See accompanying notes. Questar Corporation Employee Investment Plan Notes To Financial Statements December 31, 1998 1. Description of the Plan The Questar Corporation Employee Investment Plan (Plan) is a defined contribution plan for employees of Questar Corporation and certain of its subsidiaries (Questar). After August 1, 1999, the Plan will continue as a defined contribution plan, but will no longer be an employee stock ownership plan (ESOP) as defined in the Internal Revenue Code (Code) Section 4975(e)(7). Significant amendments and modifications were made to the Plan effective January 1, 1999 that are discussed in the following paragraphs. The changes were necessary to conform to new accounting software purchased from a third party vendor that is year 2000 compliant. In addition to Questar common stock, employees are able to direct the investment of their contributions into the following funds: the 1) Merrill Lynch Retirement Preservation Trust, which invests primarily in a broadly diversified portfolio of Guaranteed Investment Contracts (GICs) and in obligations of U.S. government and government-agency securities; 2) Fidelity Magellan Fund, which invests primarily in common stocks; 3) Fidelity Puritan Fund, which invests primarily in common stocks and bonds; 4) Fidelity Intermediate Bond Fund, which invests primarily in high and upper-medium grade fixed-income obligations; 5) Vanguard 500 Portfolio Index Fund, which invests primarily in common stocks as it seeks to replicate the Standard & Poor's 500 Composite Price Index; and 6) Vanguard Total International Portfolio Fund, which invests in a combination of the European, Pacific, and Emerging Markets Vanguard International Equity Index Funds. Since the beginning of 1999, employees have also been able to invest in the Vanguard Index Trust-Small Capitalization Stock Portfolio Fund, which invests in a diversified group of small-sized companies as it attempts to track the performance of the Russell 2000 Index. During 1998, the Plan allowed participants to change their contribution elections one day before the first day of the calendar month in which the change was to become effective. Beginning in 1999, employees are required to have any plan change request forms submitted to the Personnel Services Department by the 25th of the prior month. With the exception of the Questar stock fund, participants could transfer amounts invested with any of their employee contributions between the various investment funds on a monthly basis. Beginning in 1999, participants will be able to transfer all or part of their 401(k) account balance between any of the Plan investment funds, including their 401(k) Questar stock. Participants who contributed to the stock fund or any of the other investment funds received employer matching contributions in the form of Questar shares released from an ESOP suspense account (Note 3) on up to 6% of their eligible compensation contributed, at the following percentages: 100% of the first 2%, 75% of the next 2% and 50% of the next 2%. In 1999, these matching percentages will change to: 100% on the first 3% and 60% on the next 3% of eligible contributions. In May 1998, the Plan was amended to allow employees to participate in the Plan immediately upon hire if they were scheduled to work 20 hours per week, with a one year vesting period for employer matching. In 1999, the one year vesting period for employer matching is eliminated. Subject to certain restrictions in the Code, non-highly compensated employees in 1998 could elect to contribute from 1% to 16% of annual compensation to the Plan on either a pre-tax basis pursuant to salary reduction arrangements, that would qualify the contributions under section 401(k) of the Code, on an after-tax basis or a combination of the two. "Highly compensated employees" were limited to contributing from 1% to 6% of annual compensation to the Plan on a pre-tax basis, after-tax basis or a combination of the two. In 1999, all participants will be allowed to contribute from 1% to 16% on a pre-tax basis pursuant to salary reduction arrangements that will qualify under section 401(k) of the Code, subject to limits imposed by Federal tax laws and to discrimination testing. After-tax payroll deductions to the Plan have been eliminated. The Plan provides an additional $200 annual employer contribution at the end of the Plan year in the form of shares of Questar stock to each employee eligible to participate in the Plan at the beginning of the Plan year and employed on the last day of the Plan year. This contribution is made irrespective of whether the eligible employee actually participates in the Plan. Beginning in 1999, employees have the opportunity to borrow up to 50% of the value of their Plan account balance, not to exceed $50,000. The interest rate will be fixed and will be equal to prime plus one percent, set at the time the loan is made. The participant can elect loan repayment terms up to a maximum of five years (ten years if the loan is to purchase or build a primary residence) and repayment is by payroll deductions. Upon termination of employment, the participant can either elect to repay the loan at termination or treat the loan as a taxable distribution from his/her account. The Plan provides for the direct rollover of taxable amounts withdrawn from the Plan to the Trustee of the participant's Individual Retirement Account (IRA) or other qualified plan, if the participant so elects. The rules for in-service withdrawals of Questar shares and investment funds allocated to participants' accounts and for distributions of such amounts upon termination of employment, disability or death are set forth in the Summary Plan Description of the Plan. The Plan continues to be subject to the diversification requirements imposed on ESOPs by the Tax Reform Act of 1986 until August 1, 1999, and meets these requirements by allowing qualified participants to receive a diversification distribution of shares of Questar stock in 1999. Beginning in 1999, participants are always fully vested in all shares and funds allocated to their individual accounts. Should the Plan terminate at some future time, all amounts allocated to the participants' accounts would be distributed to them. 2. Accounting Policies The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts could differ from the estimates. Investments Investment in Questar common stock is recorded at market value based on the closing market price on the last business day of the year on the New York Stock Exchange. The nationally listed mutual funds are valued at market. The Merrill Lynch Retirement Preservation Trust is valued at cost plus interest earned, which approximates market. Short- term investments consist primarily of investments in a separate money market portfolio fund and are valued at market. Dividends Questar has a Dividend Reinvestment and Stock Purchase Plan whereby participants may reinvest dividends to purchase additional shares of Questar common stock at market value. In 1998, dividends payable with respect to Questar stock purchased with employee after-tax and 401(k) contributions were distributed directly to participants unless they had elected to have such dividends retained in the Plan. In 1999, dividends on all shares of Questar stock held in the Plan will be reinvested. Dividends paid on leveraged shares will continue to be applied to the principal and interest payments on the promissory note payable to Questar until the note is paid off. Withdrawals Withdrawals are recorded based on market prices at the date withdrawn. The differences between cost and market at the time of withdrawal are included in the financial statements as realized gains or losses. Administrative Expenses Legal, accounting, and other administrative expenses except commissions and a portion of the trustee fees have been paid by Questar. Income Taxes The Plan is a qualified defined contribution plan under section 401(a) of the Code and is exempt from federal income tax. The Plan administrator is not aware of any course of action or series of events that have occurred, including Plan amendments subsequent to the latest determination letter, that might adversely affect the Plan's qualified status. Participants are not subject to income tax on employer contributions (including 401(k) salary reductions) or income credited to individual accounts until such time as these amounts are distributed. A description of the income tax consequences to employees is included in the Summary Plan Description of the Plan, which has been provided to all participants. 3. Security Acquisition Loans In 1989 the Plan issued two promissory notes payable to Questar totaling $35,000,000 and used the proceeds to purchase 3,985,768 shares (leveraged shares) of Questar common stock at $8.7813 per share. These shares are held in a separate suspense account established under the Trust and are released and allocated to eligible participants as the notes are repaid over a ten-year period. Payments on the notes are made with contributions from Questar and from dividends and earnings received on the remaining allocated and unallocated leveraged shares. The notes are collateralized by the unreleased leveraged shares. The 8.28% Senior ESOP Notes-Series B had an outstanding balance of $3,955,225 and $10,172,947 as of December 31, 1998 and 1997, respectively. Under the terms of the notes, the Plan is obligated to make principal payments annually, which, in aggregate, must meet or exceed cumulative minimum principal payments as of each payment date. The remaining balance of $3,955,225 will be paid off in 1999. Any shares remaining at the end of the year in excess of those that are required to make the monthly matching allocations will be allocated to: (i) participants who are Questar employees on the last day of the year, (ii) participants who are on leave under the federal Family and Medical Leave Act of 1993 on the last day of such Plan year, and (iii) to former participants (or their beneficiaries) who become disabled, retire, or die during the year of 1999. At year-end 1998 and 1997, a special distribution of excess shares was allocated to the accounts of the eligible participants who contributed to the Plan during the year. Depending on the market price of Questar stock and the matching requirements for 1999, there could be a final special distribution of shares at the end of 1999. 4. Year 2000 (Unaudited) Questar established a team to address the issue of computer programs and embedded computer chips being unable to distinguish between the year 1900 and the year 2000 (Y2K). The team has identified 60 projects that are in varying stages of remediation from assessing to testing. The projects fit into the general classifications of application software, infrastructure, noninformation-technology equipment and critical third-party associations. For the Plan, both internal and external resources are being utilized to replace or modify existing software applications, and test the software and equipment for the year 2000 modifications. It is anticipated that this phase of the project will be substantially completed by mid-1999. Costs associated with modifying software and equipment are not estimated to be significant and will be paid by the Plan Sponsor. The complete text of Questar's Y2K disclosure can be viewed in Questar Corporation's annual report on Form 10-K for December 31, 1998, filed with the Securities and Exchange Commission, or on Questar's website, www.questarcorp.com. 5. Investments First Security Bank, N.A., is the Plan Trustee. Investments in common stock of Questar for the two years ended December 31, 1998, were as follows: Allocated Unallocated Shares Cost Shares Cost Balances at January 1, 1997 6,563,698 78,029,006 1,281,878 11,256,491 Purchases 333,574 6,533,839 Allocation of shares 475,976 9,479,216 (475,978) (4,179,682) Withdrawals (534,226) (6,417,195) Balances at December 31, 1997 6,839,022 87,624,866 805,900 7,076,809 Purchases 331,419 6,555,742 Allocation of shares 502,941 9,857,179 (502,941) (4,416,362) Withdrawals (1,129,086)(14,310,440) Balances at December 31, 1998 6,544,296 89,727,347 302,959 2,660,447 Average cost per share of allocated stock was $13.63 and $12.82 as of December 31, 1998 and 1997, respectively. Balances for 1997 have been adjusted to reflect the two-for-one stock split on June 15, 1998. Market price per share of stock, both allocated and unallocated, was $19.38 and $22.31 as of December 31, 1998 and 1997, respectively. The cost of allocated shares is based on the average market purchase price for shares for each quarter, whereas the cost of unallocated shares is shown as the original purchase price of the shares which was $8.7813 per share. Statement amounts that were attributable to allocated and unallocated shares during 1998 and 1997, were as follows: Allocated Unallocated 1998 1997 1998 1997 Changes in net realized and unrealized appreciation (depreciation) (15,541,516) 31,789,566 (7,695,375) (1,393,176) Security acquisition loans 3,955,225 10,172,947 Dividends 4,437,272 4,130,776 374,357 659,608 Interest expense was entirely attributable to shares that were unreleased during 1998 and 1997. Employer contributions receivable, employer contributions, and distributions were entirely attributable to allocated shares. The market values for the Investment Funds are shown below: December 31, 1998 Merrill Fidelity Fidelity Fidelity Vanguard Vanguard Total Lynch Magellan Puritan Intermediate500 Total Retirement Fund Fund Bond Fund Portfolio International Preservation Index Fund Portfolio Trust Fund 2,158,833 11,807,522 6,060,489 309,144 5,640,040 594,852 26,570,880 December 31, 1997 Merrill Fidelity Fidelity Fidelity Vanguard Vanguard Total Lynch Magellan Puritan Intermediate500 Total Retirement Fund Fund Bond Fund Portfolio International Preservation Index Fund Portfolio Trust Fund 2,874,782 9,745,725 5,393,716 144,182 3,201,842 408,114 21,768,361 The changes in net assets by Fund are shown below: Year ended December 31, 1998 (1) Merrill Fidelity Fidelity Fidelity Vanguard Vanguard Questar Total Lynch Magellan Puritan Intermediate500 Total Stock RPT Fund Fund Bond Fund Portfolio International Index Fund Portfolio Fund Additions: Employee contributions 108,120 977,047 683,635 53,232 1,364,196 180,398 3,890,342 7,256,970 Employer contributions 5,013,820 5,013,820 Dividend and Interest income 153,245 572,475 631,056 15,582 116,107 19,111 4,840,454 6,348,030 261,365 1,549,522 1,314,691 68,814 1,480,303 199,509 13,744,616 18,618,820 Withdrawals (1,083,647) (1,434,205) (847,174) (81,547) (614,773) (66,125)(21,230,529)(25,358,000) Distribution of dividends (328,001) (328,001) Trustee fees (16,847) (16,847) Interest expense (622,900) (622,900) Net transfers in (out) 103,785 (650,653) (85,939) 174,287 475,204 (16,684) Net realized and unrealized appreciation (depreciation) of investments 2,554,731 263,219 2,842 1,034,126 57,280 (23,236,892)(19,324,694) Net additions (deductions) (718,497) 2,019,395 644,797 164,396 2,374,860 173,980 (31,690,553)(27,031,622) Net assets held by trustee at beginning of year 2,879,215 9,798,467 5,419,930 144,748 3,268,075 420,872 160,406,689 182,337,996 Net assets held by trustee at end of year 2,160,718 11,817,862 6,064,727 309,144 5,642,935 594,852 128,716,136 155,306,374 (1) The above statement differs from the Statement of Net Assets Available for Plan Benefits because the above statement excludes receivables, and includes the cash value held in the Fund accounts hat is intended to be used to purchase Fund shares. Year ended December 31, 1997 (1) Fidelity Merrill Fidelity Fidelity Fidelity Equitable Money Lynch Magellan Puritan Intermediate GIC Market Fund RPT Fund Fund Bond Fund Additions: Employee contributions 77,194 51,166 893,072 595,681 37,946 Employer contributions Dividend and Interest income 4,508 109,372 71,605 628,173 429,725 8,781 4,508 186,566 122,771 1,521,245 1,025,406 46,727 Withdrawals (148,523) (237,494) (715,103) (351,476) (11,018) Distribution of dividends Trustee fees Interest expense Net transfers in (out) (209,631) (3,494,851) 2,993,938 (269,823) 99,137 (9,823) Net realized and unrealized appreciation (depreciation) of investments 1,433,222 526,640 1,630 Net additions (deductions) (205,123) (3,456,808) 2,879,215 1,969,541 1,299,707 27,516 Net assets held by trustee at beginning of year 205,123 3,456,808 7,828,926 4,120,223 117,232 Net assets held by trustee at end of year 0 0 2,879,215 9,798,467 5,419,930 144,748 <CATION> Year ended December 31, 1997 (1) (continued) Questar Vanguard Vanguard Stock 500 PortfoliTotal International Index Fund Portfolio Fund Total Additions: Employee contributions 881,388 174,776 3,846,179 6,557,402 Employer contributions 4,676,224 4,676,224 Dividend and Interest income 40,220 2,560 4,816,974 6,111,918 921,608 177,336 13,339,377 17,345,544 Withdrawals (254,025) (12,595)(10,515,397)(12,245,631) Distribution of dividends (311,714) (311,714) Trustee fees (18,550) (18,550) Interest expense (1,093,416) (1,093,416) Net transfers in (out) 758,170 132,883 Net realized and unrealized appreciation (depreciation) of investments 562,726 (25,111) 30,396,390 32,895,497 Net additions (deductions) 1,988,479 272,513 31,796,690 36,571,730 Net assets held by trustee at beginning of year 1,279,596 148,359 128,609,999 145,766,266 Net assets held by trustee at end of year 3,268,075 420,872 160,406,689 182,337,996 (1) The above statement differs from the Statement of Net Assets Available for Plan Benefits because the above statement excludes receivables, and includes the cash value held in the Fund accounts that is intended to be used to purchase Fund shares. EIN 87-0407509 PLAN #002 Questar Corporation Employee Investment Plan Line 27a-Schedule of Assets Held for Investment December 31, 1998 Assets Held in Trust by First Security Bank, N.A. Description of Investments Cost Fair Value Questar Corporation Common Stock Allocated - 6,544,296 shares 89,727,347 126,795,730 Unallocated - 302,959 shares 2,660,447 5,869,895 Fidelity Magellan Fund - 97,728 units 9,006,302 11,807,522 Fidelity Puritan Fund - 301,968 units 5,582,188 6,060,489 Fidelity Intermediate Bond Fund - 30,102 units 332,500 309,144 Vanguard 500 Portfolio Index Fund - 49,496 units 4,255,007 5,640,040 Vanguard Total International Portfolio Fund - 53,159 units 566,658 594,852 Merrill Lynch Retirement Preservation Trust 2,158,833 units 2,158,833 2,158,833 114,289,282 159,236,505 EIN 87-0407509 PLAN #002 Questar Corporation Employee Investment Plan Line 27d-Schedule of Reportable Transactions Year ended December 31, 1998 Description Purchase Selling Net Gain Identity of Issuer of Assets Price Price or Loss Category (i) - Single Transaction in Excess of 5% of Plan Assets None Category (ii) - Series of Transactions (Other than Securities Transactions) with the Same Person Aggregating 5% of Plan Assets None Category (iii) - A Series of Transactions in a Security Issue Aggregating 5% of Plan Assets Questar Corporation Common Stock - 201 Withdrawals 14,310,440 21,230,529 6,920,089 Category (iv) - Transactions in Securities with a Person if Any Single Transaction with that Person was in Excess of 5% of Plan Assets None EXHIBIT INDEX Exhibit Number Exhibit 23. Consent of Independent Auditors.