SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1998
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. 1-935
QUESTAR GAS COMPANY
(Exact name of registrant as specified in its charter)
STATE OF UTAH 87-0155877
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 45360, 180 East 100 South, Salt Lake City, Utah84145-0360
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(801) 324-5555
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of June 30, 1998
Common Stock, $2.50 par value 9,189,626 shares
Registrant meets the conditions set forth in General Instruction
H(a)(1) and (b) of Form 10-Q and is filing this Form 10-Q with the
reduced disclosure format.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
QUESTAR GAS COMPANY
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1998 1997 1998 1997 1998 1997
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $74,387 $63,323 $266,176 $238,636 $475,763 $407,734
OPERATING EXPENSES
Natural gas purchases 41,965 29,669 160,063 126,880 282,116 208,671
Operating and maintenance 23,735 25,802 49,012 53,206 97,525 101,149
Depreciation 7,697 7,369 15,528 15,302 31,386 29,668
Other taxes 2,531 2,546 4,903 5,289 7,788 7,509
TOTAL OPERATING EXPENSES 75,928 65,386 229,506 200,677 418,815 346,997
OPERATING INCOME (LOSS) (1,541) (2,063) 36,670 37,959 56,948 60,737
INTEREST AND OTHER INCOME 1,296 1,016 2,028 1,739 3,677 2,173
DEBT EXPENSE (4,570) (4,465) (9,696) (8,807) (20,008) (17,271)
INCOME (LOSS) BEFORE
INCOME TAXES (4,815) (5,512) 29,002 30,891 40,617 45,639
INCOME TAXES (CREDITS) (2,434) (2,909) 10,669 11,185 12,976 15,179
NET INCOME (LOSS) ($2,381) ($2,603) $18,333 $19,706 $27,641 $30,460
See note to financial statements
</TABLE>
QUESTAR GAS COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997 1997
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $6,747
Accounts receivable $36,871 $32,626 86,487
Inventories 13,233 10,745 20,347
Purchased-gas adjustments 12,506 48,866 37,251
Other current assets 2,929 2,975 4,356
Total current assets 65,539 95,212 155,188
Property, plant and equipment 900,082 840,247 882,936
Less allowances for depreciation 365,909 339,133 354,761
Net property, plant and equipment 534,173 501,114 528,175
Other assets 23,089 19,514 21,488
$622,801 $615,840 $704,851
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $5,259 $2,517
Notes payable to Questar
Corporation 25,000 69,900 $100,000
Accounts payable and accrued
expenses 55,515 38,625 64,487
Total current liabilities 85,774 111,042 164,487
Long-term debt 225,000 175,000 225,000
Other liabilities 5,568 11,083 5,989
Deferred income taxes and investment
tax credits 77,110 89,901 87,109
Redeemable cumulative preferred stock 4,808
Common shareholder's equity
Common stock 22,974 22,974 22,974
Additional paid-in capital 41,875 41,875 41,875
Retained earnings 164,500 159,157 157,417
Total common shareholder's equity 229,349 224,006 222,266
$622,801 $615,840 $704,851
See note to financial statements
</TABLE>
QUESTAR GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
6 Months Ended
June 30,
1998 1997
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $18,333 $19,706
Depreciation 16,668 16,637
Deferred income taxes and
investment tax credits (9,999) 8,590
25,002 44,933
Change in operating assets and
liabilities 71,908 (12,612)
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 96,910 32,321
INVESTING ACTIVITIES
Capital expenditures (24,974) (20,985)
Proceeds from disposition of
property, plant and equipment 2,308 2,534
NET CASH USED IN INVESTING
ACTIVITIES (22,666) (18,451)
FINANCING ACTIVITIES
Checks outstanding in excess of
cash balances 5,259 2,517
Decrease in notes payable
to Questar Corporation (75,000) (6,300)
Redemption of preferred stock (20)
Payment of dividends (11,250) (11,942)
NET CASH USED IN FINANCING
ACTIVITIES (80,991) (15,745)
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($6,747) ($1,875)
See note to financial statements
</TABLE>
QUESTAR GAS COMPANY
NOTE TO FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
Note 1 - Basis of Presentation
The interim financial statements furnished reflect all adjustments
which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All
such adjustments are of a normal recurring nature. Due to the
seasonal nature of the business, the results of operations for the
three-and six-month periods ended June 30, 1998, are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1998. For further information refer to the financial
statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1997.
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
QUESTAR GAS COMPANY
June 30, 1998
(Unaudited)
Operating Results
Following is a summary of financial and operating information for the
Company:
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1998 1997 1998 1997 1998 1997
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $74,268 $62,632 $266,057 $236,854 $474,887 $404,128
From affiliates 119 691 119 1,782 876 3,606
Total revenues 74,387 63,323 266,176 238,636 475,763 407,734
Natural gas purchases 41,965 29,669 160,063 126,880 282,116 208,671
Revenues less natural gas
purchases $32,422 $33,654 $106,113 $111,756 $193,647 $199,063
Operating income (loss) ($1,541) ($2,063) $36,670 $37,959 $56,948 $60,737
Net income (loss) (2,381) (2,603) 18,333 19,706 27,641 30,460
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Residential and commercial sales 13,178 12,157 47,492 48,562 84,677 82,998
Industrial sales 2,267 2,104 5,097 5,006 9,614 9,238
Transportation for industrial
customers 13,115 11,625 27,947 24,577 54,683 49,301
Total deliveries 28,560 25,886 80,536 78,145 148,974 141,537
Natural gas revenue (per decatherm)
Residential and commercial $4.70 $4.31 $5.06 $4.43 $5.02 $4.36
Industrial sales 2.90 2.30 3.01 2.34 2.92 2.25
Transportation for industrial
customers 0.11 0.12 0.11 0.13 0.12 0.12
Heating degree days
Actual 899 678 3,291 3,133 5,623 5,227
Normal 741 741 3,484 3,484 5,801 5,801
Colder (warmer) than normal 21% (9%) (6%) (10%) (3%) (10%)
Number of customers at June 30, 643,696 621,647
Revenues, less natural gas purchases, were $1,232,000 lower in the
second quarter of 1998 and $5,643,000 lower in the 6-month period
ended June 30, 1998 when compared with the same periods in 1997
because of several rate changes affecting the first half of 1998. A
rate surcharge, associated with construction of a distribution
pipeline into southern Utah and in effect for the past 10 years, was
discontinued in September 1997. Some general-service customers, who
met higher load factor standards, shifted to firm commercial rates,
which have a lower margin. Retail usage of gas per customer fell
during the first half of 1998 after reaching an unusually high mark
in the first half of 1997. This is in large part attributable to
reaction to rising gas costs included in rates during the latter part
of 1997 and first part of 1998.
Partially offsetting the rate changes and lower usage per customer
has been the effect of a strong growth rate in the number of
customers served by Questar Gas. The number of customers served grew
by 3.5% from a year ago to 643,696 at June 30, 1998.
Temperatures, as measured in degree days, were colder than normal in
the second quarter of 1998. However, the impact was slight because
temperatures are relatively mild during the second quarter in
comparison with the winter heating season that extends from November
through March. Also, Questar Gas' rates include a
weather-normalization adjustment that reduces the revenue impact of
weather fluctuations. Virtually all of Questar Gas' residential and
commercial volumes were covered under the weather-normalization
adjustment in the first half of both 1998 and 1997.
In March 1998, the Public Service Commission of Wyoming approved
Questar Gas' gas-merchant unbundling proposal that was filed in
Wyoming in 1997. Under this plan, a transportation service option
was 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. The
unbundling proposal called for an open enrollment period to be held
from March 1 through April 30. However, no suppliers signed up to
provide gas to Wyoming customers. Another open enrollment will be
held next year. Questar expects that the option of unbundled service
in Wyoming will not have a material effect on earnings.
Volumes delivered to industrial customers increased 12% in the first
half of 1998 when compared with the same half of 1997 due to
additions of new customers as well as expanded operations with
several ongoing customers. Margins from gas delivered to industrial
customers are substantially lower than from gas delivered to
residential and commercial customers.
Questar Gas' natural gas purchases were higher in the 1998 periods
presented when compared with the same periods of 1997. Higher gas
purchase prices were paid by the Company as natural gas prices
increased sharply during the 1996-1997 winter-heating season. The
increase in gas costs was first noted as an increase in the
purchased-gas cost account, but was ultimately collected in rates.
Questar Gas' rates include the recovery of gas costs which amounted
to $2.27 per decatherm (dth) in 1998 compared with $1.54 per dth in
1997. Because of lower forecasted gas prices and the fact that past
gas cost increases have been largely recovered, the Company received
approval to reduce gas costs in rates by $1.1 million in Utah and
$356,000 in Wyoming effective July 1, 1998. The Company routinely
files for adjustment of purchased-gas costs with the Utah and Wyoming
Public Service Commissions on a semiannual basis.
Operating and maintenance expenses were lower in the 3- and 6-month
periods of 1998 as a result of capitalizing labor costs associated
with installing computer systems, cost reductions as a result of
sharing services with an affiliated company, capitalizing labor costs
associated with construction projects, lower bad debt costs and not
repeating a 1997 write-off of obsolete inventory. The Company
continues efforts to resolve Year 2000 issues and expects that the
expense of becoming Year 2000 compliant will not be material. Questar
Gas and Questar Pipeline share the costs of certain administrative,
accounting, legal, engineering and related services under Questar
Regulated Services Co.
The Regulated Services group recently completed a voluntary early
retirement program that was effective July 31, 1998. The program
reduced the regulated services work force by more than 10% or 177
employees, which will decrease future operating expenses. The costs
associated with the early retirement program will be deferred and
amortized over a five-year period in accordance with past regulatory
treatment. The deferred annual charge is expected to be more than
offset by lower labor-related costs.
Depreciation expense was higher in the 1998 periods presented when
compared with the 1997 periods primarily as a result of increase
investment in property, plant and equipment. Other taxes, primarily
property taxes, were lower in the second quarter and first half of
1998 as a result of property refunds and lower tax assessments. The
Company sold surplus real estate in the second quarter of 1998
resulting in an $800,000 pretax gain. Interest expense was higher
in the 1998 periods due primarily to an issuance of $50 million of
medium-term notes with an average interest rate of 6.88 % in the
second and third quarters of 1997.
The effective income tax rate was 36.8% in the first half of 1998 and
36.2% in the first half of 1997. The Company recognized $1,089,000
of tight-sands gas-production credits in the 1998 period and
$1,296,000 in the 1997 period.
Questar Gas, as a result of acquiring Questar Pipeline's gas purchase
contracts, is responsible for any judgment rendered against Questar
Pipeline in a lawsuit that was tried before a jury in 1994. In a
ruling issued June 2, 1998, the trial judge set aside all aspects of
the jury's verdict except for $.5 million in favor of a producer
related to certain contractual, take-or-pay issues. Other than on
these take-or-pay matters, a judgment was entered on all other issues
in favor of Questar Pipeline. A notice of appeal has been filed by
the producer.
Liquidity and Capital Resources
Operating Activities
Net cash provided from operating activities of $96,910,000 was
$64,589,000 more than was generated in the same period of 1997. The
increase in cash flow was primarily due to collection of gas costs,
which were under-collected in the first half of 1997.
Investing Activities
Capital expenditures were $24,974,000 in the first half of 1998
compared with $20,985,000 in the corresponding 1997 period. Capital
expenditures for calendar year 1998 are estimated at $66,000,000.
Financing Activities
The Company has a short-term borrowing arrangement with its parent
company, Questar Corporation. As of June 30, Questar Gas had loan
balances outstanding of $25,000,000 in 1998 and $69,900,000 in 1997.
First half financing activities in 1998 and 1997 included payment of
dividends and a partial repayment of loans from Questar using net
cash provided from operations. Capital expenditures for 1998 will be
financed with net cash flow provided from operating activities and
borrowings from Questar.
Forward Looking Statements
This 10-Q contains forward-looking statements about the future
operations and expectations of Questar Gas. According to management,
these statements are made in good faith and are reasonable
representations of the Company's expected performance at the time.
Actual results may vary from management's stated expectations and
projections due to a variety of factors.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
(a) Questar Gas Company (Questar Gas or the Company), on May 29,
1998, filed a semi-annual, gas cost pass-through application with the
Public Service Commission of Wyoming (PSCW). The Company's
application reflected a decrease in its commodity costs, resulting in
an annual revenue decrease of $355,686. The PSCW authorized Questar
Gas to reflect the requested decrease in rates effective July 1, 1998.
(b) On June 12, 1998, Questar Gas filed a semi-annual, gas cost
pass-through application with the Public Service Commission of Utah
(PSCU), seeking to adjust its rates to reflect an annual revenue
decrease of approximately $1,085,000 in its rates. The Company's
application reflected annualized gas costs of $256.7 million, compared
to $259.2 million reflected in its prior gas cost application.
Questar Gas also requested authorization to reduce the surcharge
associated with prior undercollection of its gas costs. By an interim
order dated June 26, 1998, the PSCU authorized the Company to reflect
the requested decrease in its rates effective July 1, 1998.
(c) Additional public hearings in a pending case involving the
Company's gathering rates are scheduled to be held on September 2,
1998, before the PSCU. The case, which involves potential refunds of
up to $7.6 million plus interest, centers on a claim made by the
Division of Public Utilities, a state agency, that a reduction in
gathering rates charged to Questar Gas by an affiliate should be
extended retroactively to March of 1996. (See the Company's Annual
Report on Form 10-K for 1997, page 7, for a discussion of the case.)
(d) On June 2, 1998, the trial court judge entered a judgment
that basically overturned most of a jury verdict rendered against the
Company in late 1994. The case, which Questar Gas inherited when it
acquired the gas purchase contracts of its affiliate, Questar Pipeline
Company (Questar Pipeline), involved claims made by an independent
producer for take or pay, tax reimbursements, contract breach, and
tortious interference with a contract. The jury awarded the producer
approximately $5,500,000 plus interest in compensatory damages and
$200,000 in punitive damages. The judge's order reduced the jury
verdict to an amount less than $500,000. (See the Company's Annual
Report on Form 10-K for 1997, page 12, for a discussion of the case.)
The plaintiff producer has filed a notice of appeal with the Tenth
Circuit Court of Appeals.
The plaintiff producer filed a second case against the Company
and its affiliates in 1997. The second case was also filed in
Wyoming's federal district court and presents some of the same claims
heard in the first case for a subsequent period of time. It also
involves additional claims of fraud and antitrust violation. This
second case has been stayed pending the outcome of the resolution of
issues from the first case.
Item 5. Other Information.
The retirement of Michael E. Benefield, age 59, as an officer and
employee of the Company effective July 31, 1998, led to a
reorganization of responsibilities among the Company's executive
officers. At the time of his retirement, Mr. Benefield was Vice
President, Business Development and Planning, for the Company and its
affiliates, Questar Pipeline and Questar Regulated Services Company
(Regulated Services) and had served in this capacity since May of
1996. He had over 21 years of service with the Company and its
affiliates when he retired.
Ms. Susan Glasmann, age 50, was named to serve as the Company's
Vice President and General Manager, replacing Mr. S. C. Yeager who had
served in this capacity since May of 1996. Ms. Glasmann held the
position of Vice President, Business Support, for two years prior to
being appointed to her new position. Mr. Yeager, age 51, was named to
the position of Vice President, Business Development, for the Company,
Questar Pipeline, and Regulated Services. Mr. Lowell F. Gill, age 55,
was appointed to serve as Vice President, Transportation Operations
for the Company and Regulated Services. Mr. Gill also serves as Vice
President and General Manager of Questar Pipeline. Mr. Gary W.
DeBernardi, age 55, who had formerly served as Vice President,
Technical Support, was named to the position of Vice President,
Technical Services, for the Company, Questar Pipeline, and Regulated
Services.
Messrs. D. N. Rose, S. E. Parks, and Glenn H. Robinson will
continue to serve in their positions as President and Chief Executive
Officer; Vice President, Treasurer, and Chief Financial Officer; and
Vice President and Controller, respectively.
Item 6. Exhibit and Reports on Form 8-K.
(a) The following exhibits have been filed as part of this
report:
Exhibit No.
10.1 Annual Management Incentive Plan adopted by Questar Gas
Company, Questar Pipeline Company and Questar Regulated
Services Company as amended and restated effective May
19, 1998.
10.2. Questar Gas Company Deferred Compensation Plan for
Directors as amended and restated effective May 19,
1998.
(b) The Company did not file any Current Reports on Form 8-K
during the second quarter of 1998.
SIGNATURES
Pursuant to the requirements 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.
QUESTAR GAS COMPANY
(Registrant)
August 14, 1998 /s/D. N. Rose
D. N. Rose
President and Chief Executive
Officer
August 14, 1998 /s/S.E. Parks
S. E. Parks
Vice President, Treasurer, and
Chief Financial Officer
</TABLE>
QUESTAR REGULATED SERVICES COMPANY,
QUESTAR GAS COMPANY, AND
QUESTAR PIPELINE COMPANY
ANNUAL MANAGEMENT INCENTIVE PLAN
(As Amended and Restated Effective May 19, 1998)
Paragraph 1. Name. The name of this Plan is the Annual
Management Incentive Plan (the Plan) for Questar Regulated Services
Company, Questar Gas Company, and Questar Pipeline Company
(collectively referred to as Regulated Services).
Paragraph 2. Purpose. The purpose of the Plan is to
provide an incentive to officers and key employees of Regulated
Services for the accomplishment of major organizational and individual
objectives designed to further the efficiency, profitability, and
growth of Regulated Services.
Paragraph 3. Administration. The Management Performance
Committee (Committee) of the Board of Directors of Questar Corporation
(Questar) shall have full power and authority to interpret and
administer the Plan. Such Committee shall consist of no less than
three disinterested members of the Board of Directors.
Recommendations made by the Committee shall be reviewed by the Boards
of Directors of participating employers.
Paragraph 4. Participation. Within 60 days after the
beginning of each year, the Committee shall nominate Participants from
the officers and key employees for such year. The Committee shall
also establish a target bonus for the year for each Participant
expressed as a percentage of base salary or specified portion of base
salary. Participants shall be notified of their selection and their
target bonus as soon as practicable.
Paragraph 5. Determination of Performance Objectives.
Within 60 days after the beginning of each year, the Committee shall
establish target, minimum, and maximum performance objectives for
Regulated Services and for its affiliates and shall determine the
manner in which the target bonus is allocated among the performance
objectives. The Committee shall also recommend a dollar maximum for
payments to Participants for any Plan year. The Board of Directors
shall take action concerning the recommended dollar maximum within 60
days after the beginning of the Plan year. Participants shall be
notified of the performance objectives as soon as practicable once
such objectives have been established.
Paragraph 6. Determination and Distribution of Awards. As
soon as practicable, but in no event more than 90 days after the close
of each year during which the Plan is in effect, the Committee shall
compute incentive awards for eligible participants in such amounts as
the members deem fair and equitable, giving consideration to the
degree to which the Participant's performance has contributed to the
performance of Regulated Services and its affiliated companies and
using the target bonuses and performance objectives previously
specified. Aggregate awards calculated under the Plan shall not
exceed the maximum limits approved by the Board of Directors for the year
involved. To be eligible to receive a payment, the Participant must be
actively employed by Regulated Services or an affiliate as of the date
of distribution except as provided in Paragraph 8.
Amounts shall be paid (less appropriate withholding taxes
and FICA deductions) according to the following schedule:
Award Distribution Schedule
Percent of
Award Date
Initial Award 75% As soon as possible after initial
award is (First Year determined
of Participation)
25 One year after initial award is
determined
100%
Subsequent Awards 50% As soon as possible after award is
determined
25 One year after award is determined
25 Two years after award is determined
100%
Paragraph 7. Restricted Stock in Lieu of Cash.
Participants who have a target bonus of $10,000 or higher shall be
paid all deferred portions of such bonus with restricted shares of
Questar's common stock under Questar's Long-Term Stock Incentive Plan.
Such stock shall be granted to the participant when the initial award
is determined, but shall vest free of restrictions according to the
schedule specified above in Paragraph 6.
Paragraph 8. Termination of Employment.
(a) In the event a Participant ceases to be an employee
during a year by reason of death, disability or approved retirement,
an award, if any, determined in accordance with Paragraph 6 for the
year of such event, shall be reduced to reflect partial participation
by multiplying the award by a fraction equal to the months of
participation during the applicable year through the date of
termination rounded up to whole months divided by 12.
For the purpose of this Plan, approved retirement shall mean
any termination of service on or after age 60, or, with approval of
the Board of Directors, early retirement under Questar's qualified
retirement plan. For the purpose of this Plan, disability shall mean
any termination of service that results in payments under Questar's
long-term disability plan.
The entire amount of any award that is determined after the
death of a Participant shall be paid in accordance with the terms of
Paragraph 11.
In the event of termination of employment due to disability
or approved retirement, a Participant shall be paid the undistributed
portion of any prior awards in his final paycheck or in accordance
with the terms of elections to voluntarily defer receipt of awards
earned prior to February 12, 1991, or deferred under the terms of
Questar's Deferred Compensation Plan. In the event of termination due
to disability or approved retirement, any shares of common stock
previously credited to a Participant shall be distributed free of
restrictions during the last month of employment. The current market
value (defined as the closing price for the stock on the New York
Stock Exchange on the date in question) of such shares shall be
included in the Participant's final paycheck. Such Participant shall
be paid the full amount of any award (adjusted for partial
participation) declared subsequent to the date of such termination
within 30 days of the date of declaration. Any partial payments shall
be made in cash.
(b) In the event a Participant ceases to be an employee
during a year by reason of a change in control, he shall be entitled
to receive all amounts deferred by him prior to February 12, 1991, and
all undistributed portions for prior Plan years. He shall also be
entitled to an award for the year of such event as if he had been an
employee throughout such year. The entire amount of any award for
such year shall be paid in a lump sum within 60 days after the end of
the year in question. Such amounts shall be paid in cash.
For the purpose of this Plan, a "change in control" shall be
deemed to have occurred if (i) any Acquiring Person (as that term is
used in the Rights Agreement dated February 13, 1996, between Questar
and ChaseMellon 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 Questar
representing 25 percent or more of the combined voting power of
Questar, or (ii) the following individuals cease for any reason to
constitute a majority of the number of directors then serving as
directors of Questar: individuals who, as of May 19, 1998, constitute
Questar's Board of Directors (Board) and any new director (other than
a director whose initial assumption of office is in connection with an
actual or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
Questar) whose appointment of election by the Board or nomination for
election by Questar's stockholders was approved or recommended by a
vote of at least two-thirds of the directors when still in office who
either were directors on May 19, 1998, or who appointment, election or
nomination for election was previously so approved or recommended; or
(iii Questar stockholders approve a merger or consolidation of Questar
or any direct of indirect subsidiary of Questar with any other
corporation, other than a merger of consolidation that would result in
the voting securities of Questar outstanding immediately prior to such
merger or consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) at least 60 percent of the
combined voting power of the securities of Questar or such surviving
entity or its parent outstanding immediately after such merger or
consolidation, or a merger or consolidation effected to implement a
recapitalization of Questar (or similar transaction) in which no
person is or becomes the beneficial owner, directly or indirectly, of
securities of Questar representing 25 percent or more of the combined
voting power of Questar's then outstanding securities; or (iv)
Questar's stockholders approve a plan of complete liquidation or
dissolution of the Company or there is consummated an agreement for
the sale or disposition by Questar of all or substantially all of
Questar's assets, other than a sale of disposition by Questar of all
or substantially all of the Company's assets to an entity, at least 60
percent of the combined voting power of the voting securities of which
are owned by stockholders of Questar in substantially the same
proportion as their ownership of Questar immediately prior to such
sale. A change in control, however, shall not be considered to have
occurred until all conditions precedent to the transaction, including
but not limited to, all required regulatory approvals have been
obtained.
Paragraph 9. Interest on Previously Deferred Amounts.
Amounts voluntarily deferred prior to February 12, 1991, shall be
credited with interest from the date the payment was first available
in cash to the date of actual payment. Such interest shall be
calculated at a monthly rate using the typical rates paid by major
banks on new issues of negotiable Certificates of Deposit in the
amounts of $1,000,000 or more for one year as quoted in The Wall
Street Journal on the first day of the relevant calendar month or the
next preceding business day if the first day of the month is a
non-business day.
Paragraph 10. Coordination with Deferred Compensation Plan.
Some Participants are entitled to defer the receipt of their cash
bonuses under the terms of Questar's Deferred Compensation Plan, which
became effective November 1, 1993. Any cash bonuses deferred pursuant
to the Deferred Compensation Plan shall be accounted for and
distributed according to the terms of such plan and the choices made
by the Participant.
Paragraph 11. Death and Beneficiary Designation. In the
event of the death of a Participant, any undistributed portions of
prior awards shall become payable. Amounts previously deferred by the
Participant, together with credited interest to the date of death,
shall also become payable. Each Participant shall designate a
beneficiary to receive any amounts that become payable after death
under this Paragraph or Paragraph 8. In the event that no valid
beneficiary designation exists at death, all amounts due shall be paid
as a lump sum to the estate of the Participant. Any shares of
restricted stock previously credited to the Participant shall be
distributed to the Participant's beneficiary or, in the absence of a
valid beneficiary designation, to the Participant's estate, at the
same time any cash is paid.
Paragraph 12. Amendment of Plan. The Boards of Directors
for the participating employers, at any time, may amend, modify,
suspend, or terminate the Plan, but such action shall not affect the
awards and the payment of such awards for any prior years. The Boards
of Directors for the participating employers cannot terminate the Plan
in any year in which a change of control has occurred without the
written consent of the Participants. The Plan shall be deemed
suspended for any year for which the Board of Directors has not fixed
a maximum dollar amount available for award.
Paragraph 13. Nonassignability. No right or interest of
any Participant under this Plan shall be assignable or transferable in
whole or in part, either directly or by operation of law or otherwise,
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy, or in any other manner, and no right
or interest of any Participant under the Plan shall be liable for, or
subject to, any obligation or liability of such Participant. Any
assignment, transfer, or other act in violation of this provision
shall be void.
Paragraph 14. Effective Date of the Plan. The Plan shall
be effective with respect to the fiscal year beginning January 1,
1997, and shall remain in effect until it is suspended or terminated
as provided by Paragraph 12. This Plan replaces the individual plans
previously adopted by Questar Gas and Questar Pipeline that became
effective January 1, 1984. Plan participants who previously received
awards under predecessor plans or any other Annual Management
Incentive Plan adopted by an affiliate shall be treated as ongoing
participants for purposes of the distribution schedule in Paragraph 6.
QUESTAR GAS COMPANY
DEFERRED COMPENSATION PLAN FOR DIRECTORS
(As Amended and Restated May 19, 1998)
1. Purpose of Plan.
The purpose of the Deferred Compensation Plan for Directors
("Plan") is to provide Directors of Questar Gas Company (the
"Company") with an opportunity to defer compensation paid to them
for their services as Directors of the Company and to maintain a
Deferred Account Balance until they cease to serve as Directors
of the Company or its affiliates.
2. Eligibility.
Subject to the conditions specified in this Plan or
otherwise set by the Company's Board of Directors, all voting
Directors of the Company who receive compensation for their
service as Directors are eligible to participate in the Plan.
Eligible Directors are referred to as "Directors." Directors who
elect to defer receipt of fees or who have account balances are
referred to as "Participants" in this Plan.
3. Administration.
The Company's Board of Directors shall administer the Plan
and shall have full authority to make such rules and regulations
deemed necessary or desirable to administer the Plan and to
interpret its provisions.
4. Election to Defer Compensation.
(a) Time of Election. A Director can elect to defer future
compensation or to change the nature of his election for future
compensation by submitting a notice prior to the beginning of the
calendar year. A newly elected Director is entitled to make a
choice within five days of the date of his election or
appointment to serve as a Director to defer payment of
compensation for future service. An election shall continue in
effect until the termination of the Participant's service as a
Director or until the end of the calendar year during which the
Director serves written notice of the discontinuance of his
election.
All notices of election, change of election, or
discontinuance of election shall be made on forms prepared by the
Corporate Secretary and shall be dated, signed, and filed with
the Corporate Secretary. A notice of change of election or
discontinuance of election shall operate prospectively from the
beginning of the calendar year, but any compensation deferred
shall continue to be held and shall be paid in accordance with
the notice of election under which it was withheld.
(b) Amount of Deferral. A Participant may elect to defer
receipt of all or a specified portion of the compensation payable
to him for serving as a Director and attending Board and
Committee Meetings as a Director. For purposes of this Plan,
compensation does not include any funds paid to a Director to
reimburse him for expenses.
(c) Period of Deferral. When making an election to defer
all or a specified percentage of his compensation, a Participant
shall elect to receive the deferred compensation in a lump sum
payment within 45 days following the end of his service as a
Director or in a number of annual installments (not to exceed
four), the first of which would be payable within 45 days
following the end of his service as a Director with each
subsequent payment payable one year thereafter. Under an
installment payout, the Participant's first installment shall be
equal to a fraction of the balance in his Deferred Compensation
Account as of the last day of the calendar month preceding such
payment, the numerator of which is one and the denominator of
which is the total number of installments selected. The amount
of each subsequent payment shall be a fraction of the balance in
the Participant's Account as of the last day of the calendar
month preceding each subsequent payment, the numerator of which
is one and the denominator of which is the total number of
installments elected minus the number of installments previously
paid. The term "balance," as used herein, refers to the amount
credited to a Participant's Account or to the Fair Market Value
(as defined in Section 5 (a)) of the Phantom Shares of Questar
Corporation's common stock ("Common Stock") credited to his
Account.
(d) Phantom Stock Option and Certificates of Deposit
Option. When making an election to defer all or a specified
percentage of his compensation, a Participant shall choose
between two methods of determining earnings on the deferred
compensation. He may choose to have such earnings calculated as
if the deferred compensation had been invested in Common Stock at
the Fair Market Value (as defined in Section 5 (a)) of such stock
as of the date such compensation amount would have otherwise been
payable to him ("Phantom Stock Option"). Or he may choose to
have earnings calculated as if the deferred compensation had been
invested in negotiable certificates of deposit at the time such
compensation would otherwise be payable to him ("Certificates of
Deposit Option").
The Participant must choose between the two options for all
of the compensation he elects to defer in any given year. He may
change the option for future compensation by filing the
appropriate notice with the Corporate Secretary before the first
day of each calendar year, but such change shall not affect the
method of determining earnings for any compensation deferred in a
prior year.
5. Deferred Compensation Account.
A Deferred Compensation Account ("Account") shall be
established for each Participant.
(a) Phantom Stock Option Account. If a Participant elects
the Phantom Stock Option, his Account will include the number of
shares and partial shares of Common Stock (to four decimals) that
could have been purchased on the date such compensation would
have otherwise been payable to him. The purchase price for such
stock is the Fair Market Value of such stock, i.e., the closing
price of such stock as reported on the Composite Tape of the New
York Stock Exchange for such date or the next preceding day on
which sales took place if no sales occurred on the actual payable
date.
The Participant's Account shall also include the dividends
that would have become payable during the deferral period if
actual purchases of Common Stock had been made, with such
dividends treated as if invested in Common Stock as of the
payable date for such dividends.
(b) Certificates of Deposit Option Account. If a
Participant elects the Certificates of Deposit Option, his
Account will be credited with any compensation deferred by the
Participant at the time such compensation would otherwise be
payable and with interest calculated at a monthly rate using the
typical rates paid by major banks on new issues of negotiable
Certificates of Deposit on amounts of $1,000,000 or more for one
year as quoted in The Wall Street Journal under "Money Rates" on
the first day of the relevant calendar month or the next
preceding business day if the first day of the month is a
non-business day. The interest credited to each Account shall be
based on the amount held in the Account at the beginning of each
particular month.
6. Statement of Deferred Compensation Account.
Within 45 days after the end of the calendar year, a
statement will be sent to each Participant listing the balance in
his Account as of the end of the year.
7. Retirement.
Upon retirement or resignation as a Director from the Board
of Directors, a Participant shall receive payment of the balance
in his Account in accordance with the terms of his prior
instructions and the terms of the Plan unless he is still serving
as a voting director of Questar Corporation ("Questar"). Upon
retirement or resignation as a Director of Questar or upon
appointment as a non-voting Senior Director of Questar, a
Participant shall receive payment of the balance in his Account
in accordance with the terms of his prior instructions and the
terms of the Plan unless he is currently serving as a Director of
the Company.
8. Payment of Deferred Compensation.
(a) Phantom Stock Option. The amount payable to the
Participant choosing the Phantom Stock Option shall be the cash
equivalent of the stock using the Fair Market Value of such stock
on the date of withdrawal.
(b) Certificates of Deposit Option. The amount payable to
the Participant choosing the Certificate of Deposit Option shall
include the interest on all sums credited to the Account, with
such interest credited to the date of withdrawal.
(c) The date of withdrawal for both the Phantom Stock
Option Account and the Certificates of Deposit Option Account
shall be the last day of the calendar month preceding payment or
if payment is made because of death, the date of death.
(d) The payment shall be made in the manner (lump sum or
installment) chosen by the Participant. In the event of a
Participant's death, payment shall be made within 45 days of the
Participant's death to the beneficiary designated by the
Participant or, in the absence of such designation, to the
Participant's estate.
9. Payment, Change in Control.
Notwithstanding any other provisions of this Plan or
deferral elections made pursuant to Section 4 of this Plan, a
Director, in the event of a Change in Control of Questar, shall
be entitled to elect a distribution of his account balance within
60 days following the date of a Change in Control. For the
purpose of this Plan, a "Change in Control" shall be deemed to
have occurred if (i) any "Acquiring Person" (as that term is used
in the Rights Agreement dated February 13, 1996, between Questar
and ChaseMellon 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 Questar representing 25 percent or more of the
combined voting power of Questar, or (ii) the following
individuals cease for any reason to constitute a majority of the
number of directors then serving as directors of Questar:
individuals who, as of May 19, 1998, constitute Questar's Board
of Directors ("Board") and any new director (other than a
director whose initial assumption of office is in connection with
an actual or threatened election contest, including but not
limited to a consent solicitation, relating to the election of
directors of Questar) whose appointment of election by the Board
or nomination for election by Questar's stockholders was approved
or recommended by a vote of at least two-thirds of the directors
when still in office who either were directors on May 19, 1998,
or who appointment, election or nomination for election was
previously so approved or recommended; or (iii Questar
stockholders approve a merger or consolidation of Questar or any
direct of indirect subsidiary of Questar with any other
corporation, other than a merger of consolidation that would
result in the voting securities of Questar outstanding
immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or any parent
thereof) at least 60 percent of the combined voting power of the
securities of Questar or such surviving entity or its parent
outstanding immediately after such merger or consolidation, or a
merger or consolidation effected to implement a recapitalization
of Questar (or similar transaction) in which no person is or
becomes the beneficial owner, directly or indirectly, of
securities of Questar representing 25 percent or more of the
combined voting power of Questar's then outstanding securities;
or (iv) Questar's stockholders approve a plan of complete
liquidation or dissolution of the Company or there is consummated
an agreement for the sale or disposition by Questar of all or
substantially all of Questar's assets, other than a sale of
disposition by Questar of all or substantially all of the
Company's assets to an entity, at least 60 percent of the
combined voting power of the voting securities of which are owned
by stockholders of Questar in substantially the same proportion
as their ownership of Questar immediately prior to such sale. A
Change in Control, however, shall not be considered to have
occurred until all conditions precedent to the transaction,
including but not limited to, all required regulatory approvals
have been obtained.
10. Hardship Withdrawal.
Upon petition to and approval by the Company's Board of
Directors, a Participant may withdraw all or a portion of the
balance in his Account in the case of financial hardship in the
nature of an emergency, provided that the amount of such
withdrawal cannot exceed the amount reasonable necessary to meet
the financial hardship. The Board of Directors shall have sole
discretion to determine the circumstances under which such
withdrawals are permitted.
11. Amendment and Termination of Plan.
The Plan may be amended, modified or terminated by the
Company's Board of Directors. No amendment, modification, or
termination shall adversely affect a Participant's rights with
respect to amounts accrued in his Account. In the event that the
Plan is terminated, the Board of Directors has the right to make
lump-sum payments of all Account balances on such date as it may
determine.
12. Nonassignability of Plan.
The right of a Participant to receive any unpaid portion of
his Account shall not be assigned, transferred, pledged or
encumbered or be subject in any manner to alienation or
attachment.
13. No Creation of Rights.
Nothing in this Plan shall confer upon any Participant the
right to continue as a Director. The right of a Participant to
receive any unpaid portion of his Account shall be an unsecured
claim against the general assets and will be subordinated to the
general obligations of the Company.
14. Effective Date.
The Plan was effective on June 1, 1982, and shall remain in
effect until it is discontinued by action of the Company's Board
of Directors. The effective date of the amendment to the Plan
establishing a Phantom Stock Option is January 1, 1983. The Plan
was amended and restated effective April 30, 1991, was amended
and restated effective February 13, 1996, and was further amended
and restated effective May 19, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summarized financial information extracted
from the Questar Gas Company Statements of Income and Balance Sheets for
the period ended June 30, 1998, and is qualified in its entirety by
reference to such unaudited financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 36,871
<ALLOWANCES> 0
<INVENTORY> 13,233
<CURRENT-ASSETS> 65,539
<PP&E> 900,082
<DEPRECIATION> 365,909
<TOTAL-ASSETS> 622,801
<CURRENT-LIABILITIES> 85,774
<BONDS> 225,000
0
0
<COMMON> 22,974
<OTHER-SE> 206,375
<TOTAL-LIABILITY-AND-EQUITY> 622,801
<SALES> 0
<TOTAL-REVENUES> 266,176
<CGS> 0
<TOTAL-COSTS> 209,075
<OTHER-EXPENSES> 20,431
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,696
<INCOME-PRETAX> 29,002
<INCOME-TAX> 10,669
<INCOME-CONTINUING> 18,333
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,333
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
