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, 1999
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 July 31, 1999
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.
<PAGE>
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,
1999 1998 1999 1998 1999 1998
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ 70,174 $ 74,387 $ 242,476 $266,176 $ 453,123 $ 475,763
OPERATING EXPENSES
Natural gas purchases 36,741 41,965 135,463 160,063 256,404 282,116
Operating and maintenance 25,131 23,735 50,012 49,012 97,923 97,525
Depreciation 8,619 7,697 17,285 15,528 35,018 31,386
Other taxes 2,153 2,531 4,379 4,903 7,661 7,788
TOTAL OPERATING EXPENSES 72,644 75,928 207,139 229,506 397,006 418,815
OPERATING INCOME (LOSS) (2,470) (1,541) 35,337 36,670 56,117 56,948
INTEREST AND OTHER INCOME 1,466 1,296 1,971 2,028 3,509 3,677
DEBT EXPENSE (4,743) (4,570) (9,848) (9,696) (19,944) (20,008)
INCOME (LOSS) BEFORE
INCOME TAXES (5,747) (4,815) 27,460 29,002 39,682 40,617
INCOME TAXES (CREDITS) (2,911) (2,434) 10,038 10,669 13,185 12,976
NET INCOME (LOSS) $ (2,836) $ (2,381) $ 17,422 $ 18,333 $ 26,497 $ 27,641
</TABLE>
See notes to financial statements
<PAGE>
QUESTAR GAS COMPANY
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998 1998
(Unaudited)
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $ 3,326
Accounts receivable $ 29,117 $ 36,871 80,512
Inventories 13,357 13,233 22,296
Purchased-gas adjustments 12,506 2,067
Other current assets 1,593 2,929 2,838
Total current assets 44,067 65,539 111,039
Property, plant and equipment 965,535 900,082 948,280
Less allowances for depreciation 401,343 365,909 382,657
Net property, plant and equipment 564,192 534,173 565,623
Other assets 20,833 23,089 23,853
$629,092 $622,801 $ 700,515
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $ 2,398 $ 5,259
Notes payable to Questar
Corporation 5,600 25,000 $ 96,700
Accounts payable and accrued
expenses 42,259 55,515 71,288
Purchased-gas adjustments 1,453
Total current liabilities 51,710 85,774 167,988
Long-term debt 225,000 225,000 225,000
Other liabilities 1,582 5,568 330
Deferred income taxes and investment
tax credits 77,704 77,110 80,023
Common shareholder's equity
Common stock 22,974 22,974 22,974
Additional paid-in capital 81,875 41,875 41,875
Retained earnings 168,247 164,500 162,325
Total common shareholder's equity 273,096 229,349 227,174
$629,092 $622,801 $ 700,515
</TABLE>
See notes to financial statements
<PAGE>
QUESTAR GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
6 Months Ended
June 30,
1999 1998
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 17,422 $ 18,333
Depreciation 18,646 16,668
Deferred income taxes and investment
tax credits (2,319) (9,999)
33,749 25,002
Change in operating assets and
liabilities 40,342 71,908
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 74,091 96,910
INVESTING ACTIVITIES
Capital expenditures (19,960) (24,974)
Proceeds from disposition of property,
plant and equipment 2,745 2,308
NET CASH USED IN INVESTING
ACTIVITIES (17,215) (22,666)
FINANCING ACTIVITIES
Checks outstanding in excess of
cash balances 2,398 5,259
Decrease in notes payable
to Questar Corporation (91,100) (75,000)
Capital contribution 40,000
Payment of dividends (11,500) (11,250)
NET CASH USED IN FINANCING
ACTIVITIES (60,202) (80,991)
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS $ (3,326) $ (6,747)
</TABLE>
See notes to financial statements
<PAGE>
QUESTAR GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
Note 1 - Basis of Presentation
The interim financial statements 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, 1999, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999.
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, 1998.
Note 2 - Receipt of Contribution of Capital
On June 30, 1999, Questar Gas received a $40 million contribution of
capital from its parent company that was used to repay short-term
debt owed to Questar Corporation.
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
QUESTAR GAS COMPANY
June 30, 1999
(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,
1999 1998 1999 1998 1999 1998
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $ 69,952 $ 74,268 $ 242,045 $266,057 $ 451,742 $ 474,887
From affiliates 222 119 431 119 1,381 876
Total revenues 70,174 74,387 242,476 266,176 453,123 475,763
Natural gas purchases 36,741 41,965 135,463 160,063 256,404 282,116
Revenues less natural gas
purchases $ 33,433 $ 32,422 $ 107,013 $106,113 $ 196,719 $ 193,647
Operating income (loss) $ (2,470) $ (1,541) $ 35,337 $ 36,670 $ 56,117 $ 56,948
Net income (loss) (2,836) (2,381) 17,422 18,333 26,497 27,641
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Residential and commercial sales 14,145 13,178 46,570 47,492 82,309 84,677
Industrial sales 2,282 2,267 5,222 5,097 9,806 9,614
Transportation for industrial
customers 11,800 13,115 25,151 27,947 52,665 54,683
Total deliveries 28,227 28,560 76,943 80,536 144,780 148,974
Natural gas revenue (per decatherm)
Residential and commercial $ 4.15 $ 4.70 $ 4.65 $ 5.06 $ 4.88 $ 5.02
Industrial sales 2.83 2.90 2.93 3.01 3.01 2.92
Transportation for industrial
customers 0.13 0.11 0.13 0.11 0.13 0.12
Heating degree days
Actual 946 899 3,242 3,291 5,413 5,623
Normal 741 741 3,484 3,484 5,801 5,801
Colder (warmer) than normal 28% 21% (7%) (6%) (7%) (3%)
Number of customers at June 30,
Residential and commercial 665,221 642,399
Industrial 1,356 1,297
Total 666,577 643,696
</TABLE>
Revenues less natural gas purchases, or nongas-cost margin, increased
3% in the second quarter and 1% in the first half of 1999 compared
with the same periods of 1998. The increase in the margin resulted
primarily from gas volumes delivered to new customers and more than
offset the effect of lower usage per customer. Temperature adjusted
usage per customer was approximately 3 decatherms lower in the first
half of 1999 compared with the prior year period. Temperatures, as
measured in degree days, were warmer than normal in the 6-and
12-months periods and colder than normal in the second quarter.
However, the impact on earnings of temperature variations from normal
has been mitigated by a weather-normalization adjustment.
The number of customers served by Questar Gas grew by 22,881 or 3.6%
from a year ago to 666,577 as of June 30, 1999. The number of
customer additions for the year ending December 31, 1999 is expected
to be between 20,000 to 22,000.
Volumes delivered to industrial customers decreased 8% in the first
half of 1999 when compared with the same period of 1998 because a
major steel-producing customer reduced operations. The margin earned
from gas delivered to industrial customers is substantially lower
than from gas delivered to residential and commercial customers.
Questar Gas' natural gas purchases decreased in the 1999 periods when
compared with the 1998 periods due to lower sales volumes and lower
gas costs. Sales volumes were 2% lower in the first half of 1999 due
to lower usage per customer. The commodity or gas costs in Utah
rates decreased from $2.27 per Decatherm in the first half of 1998 to
$1.72 per Decatherm in the first half of 1999. The reduction
reflects lower prices paid to producers. The Company files for
adjustment of purchased-gas costs with the Utah and Wyoming Public
Service Commissions on a semiannual basis.
Operating and maintenance expenses were 6% higher in the second
quarter of 1999 and 2% higher in the first half of 1999. Higher
information-technology costs more than offset the effect of
labor-cost savings from an early retirement program effective August
1998. In 1999, the savings amounted to approximately $1.3 million per
quarter. Information technology costs have been rising due to
various projects, such as, enhanced communications, improvements in
accounting and customer information systems, testing for Year 2000
contingencies and changes in billing procedures from its
information-technology provider.
Depreciation expense was higher in the 1999 periods presented when
compared with the 1998 periods primarily as a result of continuing
investment in property, plant and equipment, including data
processing systems. Other taxes, which include payroll taxes, were
lower in 1999 as a result of the early retirement program.
The effective income tax rate was 36.6% in the first half of 1999 and
36.8% in the first half of 1998. The Company realized $939,000 of
tight-sands gas-production credits in the 1999 period and $1,089,000
in the 1998 period.
Liquidity and Capital Resources
Operating Activities
Net cash provided from operating activities in the first half of 1999
was $22,819,000 less than was generated in the first half of 1998.
The decrease in cash flow resulted primarily from timing differences
in the collection of purchased gas costs and payment on accounts to
vendors.
Investing Activities
Capital expenditures were $19,960,000 in the first half of 1999
compared with $24,974,000 in the first half of 1998. Capital
expenditures for calendar year 1999 are estimated at $62.5 million.
Financing Activities
On June 30, 1999, Questar Gas received a $40 million contribution of
capital from its parent company. The proceeds of the capital
contribution plus cash generated from operations allowed the Company
to repay $91.1 million of short-term debt borrowed from Questar
Corporation. Loan balances owed to Questar as of June 30, amounted
to $5.6 million in 1999 after the contribution of capital and $25
million in 1998. Capital expenditures for the remainder of 1999 are
expected to be financed with net cash flow provided from operating
activities and borrowings from Questar.
Regulatory and Other Matters
Questar Gas filed an application on November 25, 1998 with the Public
Service Commission of Utah (PSCU) to recover the costs associated
with a contract for the removal of carbon dioxide from the gas
stream. The contract covers the costs of a new plant being
constructed and operated by an affiliate of Questar Gas. The
Division of Public Utilities and the Committee of Consumer Services
have filed testimony questioning the Company's decision to enter into
the contract and opposing pass-through rate coverage for the costs
under the contract. The Committee objected to any cost recovery in
rates for the plant processing costs. Hearings were held on the
issues June 22 and 23. Briefs are to be filed by August 27 and reply
briefs are due September 13. The contract's annual cost of service
ranges between $7.5 - $8.5 million.
Declining usage of gas per customer and increasing operating costs
may cause Questar Gas to file a general rate case. The last general
rate case filed by the Company was in 1995.
Cost savings from consolidating operations enabled Questar Gas to
file on June 10, 1999 for a decrease in general rates in Wyoming.
The decrease is in effect on an interim basis pending hearings and
will reduce annualized revenues by $735,000.
Questar Gas requested pass-through commodity cost increases in Utah
and Wyoming in the second quarter of 1999. The Company was authorized
to collect on an interim basis beginning in the third quarter of
1999, annualized revenues of $16,865,000 in Utah rates and $380,262
in Wyoming rates.
Year 2000 Issues
Questar Corporation 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 56 projects that are in varying stages of remediation
and a scope that includes Questar and its affiliated companies. The
projects fit into the general classifications of application
software, infrastructure, non-information technology equipment and
critical third-party associations. The estimated cost of the Y2K
project is $5.1 million. Questar Gas' portion of Y2K costs are
estimated to be $2.3 million. The Company expects to be Y2K ready
before the end of 1999. Failure to correct a material Y2K problem
could result in an interruption, or a failure of, certain normal
business activities or operations. Such failures could materially and
adversely affect the Company's results of operations, liquidity and
financial condition.
The infrastructure section of the plan addresses hardware and systems
software other than applications software. Currently, there are 20
projects identified: 0 in start-up, 4 in assessment, 3 in
remediation, 1 in testing and 12 completed and deemed to be Y2K
ready.
The applications software section addresses either the conversion or
replacement of applications software that is not Y2K compliant.
Currently, there are 35 projects in this section: 4 in start-up, 1 in
assessment, 3 in remediation, 3 in testing and 24 completed and
deemed to be Y2K compliant.
Non-information technology equipment is considered to be one project
and addresses hardware, software and associated embedded computer
chips used in the operation of all facilities operated by the
Company. Because this section has unique characteristics and is
large, the Company has employed the services of a consultant to
assist in the effort. The project is currently scheduled to be
completed by September 30, 1999.
Inquiries of critical third parties have been taking place with more
contacts scheduled. Contacting parties is scheduled to be completed
by the end of the third quarter 1999. Contingency plans for dealing
with third-party issues will be developed by the end of 1999.
Additional information regarding Questar Gas' Y2K program can be
viewed in Form 10-K for December 31, 1998, filed with the Securities
and Exchange Commission or on Questar's website at
www.questarcorp.com.
Forward-Looking Statements
This 10-Q contains forward-looking statements about future
operations, capital spending, regulatory matters 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.
Important assumptions and other significant factors that could cause
actual results to differ materially from those discussed in
forward-looking statements include changes in: general economic
conditions, gas prices and availability of gas supplies, competition,
regulatory issues, weather conditions and other factors beyond the
control of the Company. These other factors include the rate of
inflation, the adverse effects of failure to achieve Y2K compliance
and adverse changes in the business or financial condition of the
Company.
These factors are not necessarily all of the important factors that
could cause actual results to differ significantly from those
expressed in any forward-looking statements. Other unknown or
unpredictable factors could also have a significant adverse effect on
future results. The Company does not undertake an obligation to
update forward-looking information contained herein or elsewhere to
reflect actual results, changes in assumptions or changes in other
factors affecting such forward-looking information.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
a. On June 7, 1999, the Public Service Commission of Utah
(PSCU) denied a motion for summary judgment in the application filed
by Questar Gas Company (Questar Gas or the Company) seeking
pass-through treatment of processing costs incurred to remove carbon
dioxide from gas volumes. The Division of Public Utilities and the
Committee of Consumer Services filed the motion seeking a legal
determination that such costs were not eligible for pass-through
treatment. After holding hearings on June 22 and 23, 1999, the PSCU
requested the Company and state agencies to file briefs on the merits
of the issues. See the Company's Report on Form 10-Q for the quarter
ended March 31, 1999, Item 1. Legal Proceedings.
b. On June 11, 1999, the Company filed concurrent applications
with the Public Service Commission of Wyoming (the PSCW), requesting a
general rate decrease of $735,000 and a pass-through commodity cost
increase of $380,262. The PSCW, at an open meeting held on July 29,
1999, authorized Questar Gas to reflect the overall decrease in its
rates on an interim basis effective August 1, 1999. The PSCW has
scheduled an audit of Questar Gas's records in conjunction with the
rate case and will hold hearings after the audit is completed. The
PSCW is monitoring the Company's case before the PSCU involving the
appropriate treatment of costs incurred to remove carbon dioxide and
has indicated that this issue will also be reviewed by it in
conjunction with Questar Gas's pass-through and general rate cases.
c. Questar Gas filed a semi-annual gas cost pass-through
application with the PSCU on June 16, 1999. The Company's
application, which reflects an increase of commodity costs, results in
an annual revenue increase of $16,865,000. The PSCU, by an interim
order, authorized Questar Gas to reflect the requested increase in
rates effective July 1, 1999.
d. The PSCU has scheduled public hearings for September 29,
1999, to consider the merits of a municipality's request that the
Company be required to transport gas to it for resale to residents of
the community. Although it previously ruled that it had the
jurisdiction to determine whether Questar Gas could be required to
offer such service, the PSCU has not determined whether "public
interest" supports it.
e. Questar Gas and several other affiliates of Questar
Corporation are named defendants in an action filed by Jack J.
Grynberg, an independent producer, in Colorado's federal district
court and have officially been served copies of the complaint. The
action was filed under the Federal False Claims Act in early 1998, but
the complaint was sealed until the Department of Justice declined to
prosecute it. The complaint is one of approximately 76 actions filed
by the producer against pipelines and their affiliates. The district
court granted the motion filed by the Questar defendants to stay the
proceedings pending a determination of procedural issues relating to
the consolidation of the cases. The producer's complaints allege
mismeasurement of the heating content of natural gas volumes and
understatement of the value of gas on which royalty payments are due
the federal government. The complaint filed against the Questar
defendants does not include a claim for specific monetary damages.
f. Questar Gas is also involved in two other actions filed by
Mr. Grynberg. One case is currently on appeal to the Tenth Circuit
Court of Appeals, which has not yet scheduled a hearing date. As a
result of acquiring gas purchase contracts from its affiliate, the
Company is responsible for any judgment rendered in a lawsuit that was
tried before a Wyoming district court jury in late 1994. The jury
awarded several million dollars to Mr. Grynberg, but the presiding
federal district court judge, in June of 1998, entered a judgment that
overturned most provisions of the jury verdict. Mr. Grynberg is
appealing the trial judge's action.
Pending the resolution of the appeal by the Tenth Circuit, the
same federal district court judge has stayed action in another case
filed by Mr. Grynberg against Questar Gas and its affiliates alleging
fraud and antitrust violations in addition to the same claims heard in
the first case for a subsequent period of time.
Item 6. Exhibits and Reports on Form 8-K
a. The following exhibit has been filed as part of this report.
Exhibit No. Exhibit
10.1. Joint Annual Management Incentive Plan adopted by
Questar Gas Company, Questar Pipeline Company and
Questar Regulated Services Company as amended and
restated effective May 18, 1999.
b. The Company did not file a Current Report on Form 8-K during
the quarter.
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 13, 1999 /s/ D. N. Rose
D. N. Rose
President and Chief Executive
Officer
August 13, 1999 /s/ S. E. Parks
S. E. Parks
Vice President, Treasurer, and
Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Exhibit
10.1. Joint Annual Management Incentive Plan adopted by Questar
Gas Company, Questar Pipeline Company and Questar Regulated
Services Company as amended and restated effective May 18,
1999.
QUESTAR REGULATED SERVICES COMPANY,
QUESTAR GAS COMPANY, AND
QUESTAR PIPELINE COMPANY
ANNUAL MANAGEMENT INCENTIVE PLAN
(As Amended and Restated Effective May 18, 1999)
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, or a reduction in force, 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. A reduction in force, for the purpose of
this Plan, shall mean any involuntary termination of employment due to
the Company's economic condition, sale of assets, shift in focus, or
other reasons independent of the Participant's performance.
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,
approved retirement, or a reduction in force, 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, approved retirement, or a reduction
in force, 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summarized financial information extracted
from the Questar Gas Company Income Statement and Balance Sheet for the
period ended June 30, 1999, 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-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 29,117
<ALLOWANCES> 0
<INVENTORY> 13,357
<CURRENT-ASSETS> 44,067
<PP&E> 965,535
<DEPRECIATION> 401,343
<TOTAL-ASSETS> 629,092
<CURRENT-LIABILITIES> 51,710
<BONDS> 225,000
0
0
<COMMON> 22,974
<OTHER-SE> 250,122
<TOTAL-LIABILITY-AND-EQUITY> 629,092
<SALES> 0
<TOTAL-REVENUES> 242,476
<CGS> 0
<TOTAL-COSTS> 185,475
<OTHER-EXPENSES> 21,664
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,848
<INCOME-PRETAX> 27,460
<INCOME-TAX> 10,038
<INCOME-CONTINUING> 17,422
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,422
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
