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
MARCH 31, 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. 1-8796
QUESTAR CORPORATION
(Exact name of registrant as specified in its charter)
STATE OF UTAH 87-0407509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 45433, 180 East 100 South, Salt Lake City, Utah 84145-0433
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(801) 324-5000
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 April 30, 1999
Common Stock, without par value 82,624,252 shares
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1999 1998 1999 1998
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
REVENUES $277,814 $300,083 $883,987 $878,042
OPERATING EXPENSES
Natural gas and other product purchases 116,005 142,042 339,131 352,551
Operating and maintenance 52,405 50,902 213,861 201,658
Depreciation and amortization 33,632 30,072 128,717 118,265
Write-down of oil and gas properties 34,000 6,000
Other taxes 8,410 10,011 35,191 34,279
TOTAL OPERATING EXPENSES 210,452 233,027 750,900 712,753
OPERATING INCOME 67,362 67,056 133,087 165,289
INTEREST AND OTHER INCOME 12,068 6,328 23,942 24,383
EARNINGS FROM UNCONSOLIDATED
AFFILIATES 1,460 352 4,025 4,457
DEBT EXPENSE (12,971) (11,514) (49,428) (44,393)
INCOME BEFORE INCOME TAXES 67,919 62,222 111,626 149,736
INCOME TAXES 24,555 21,340 32,245 45,033
NET INCOME $43,364 $40,882 $79,381 $104,703
EARNINGS PER COMMON SHARE
Basic $0.52 $0.50 $0.95 $1.27
Diluted 0.52 0.49 0.95 1.26
Average common shares outstanding
Basic 82,655 82,208 82,605 82,206
Diluted 82,772 82,867 82,921 82,781
Dividends per common share $0.165 $0.1575 $0.66 $0.625
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 1998
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $3,240 $17,489
Accounts receivable 148,409 $166,203 177,630
Inventories 21,649 13,617 37,817
Purchased-gas adjustments 5,587 2,067
Other current assets 10,097 12,249 11,864
Total current assets 183,395 197,656 246,867
Property, plant and equipment 3,121,559 2,765,272 3,104,522
Less allowances for depreciation and
amortization 1,390,608 1,240,173 1,356,881
Net property, plant and equipment 1,730,951 1,525,099 1,747,641
Securities available for sale,
approximates fair value 75,392 66,182 56,910
Investment in unconsolidated affiliates 61,880 32,729 58,638
Other assets 45,058 42,236 51,225
$2,096,676 $1,863,902 $2,161,281
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $1,216
Short-term loans $127,000 27,000 $221,100
Accounts payable and accrued expenses 181,124 166,898 209,756
Purchased-gas adjustments 12,598
Current portion of long-term debt 6,006 6,096 6,006
Total current liabilities 326,728 201,210 436,862
Long-term debt, less current portion 614,168 542,683 615,770
Other liabilities 27,666 26,162 27,450
Deferred income taxes and investment
tax credits 205,562 211,622 203,241
Common shareholders' equity
Common stock 300,508 292,405 298,888
Retained earnings 594,705 569,644 564,958
Other comprehensive income 31,294 30,349 18,067
Note receivable from ESOP (3,955) (10,173) (3,955)
Total common shareholders' equity 922,552 882,225 877,958
$2,096,676 $1,863,902 $2,161,281
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended
March 31,
1999 1998
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $43,364 $40,882
Depreciation and amortization 34,958 31,507
Deferred income taxes and
investment tax credits (5,955) (14,198)
Income from unconsolidated affiliates, net
of cash distributions (557) (277)
Gain from the sales of securities (9,391) (4,083)
62,419 53,831
Changes in operating assets and liabilities 39,437 65,584
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 101,856 119,415
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant and equipment (22,258) (30,614)
Other investments (3,707) (3,023)
Total capital expenditures (25,965) (33,637)
Proceeds from disposition of property,
plant and equipment 4,734 5,324
Proceeds from the sales of securities 13,569 5,800
NET CASH USED IN INVESTING
ACTIVITIES (7,662) (22,513)
FINANCING ACTIVITIES
Issuance of common stock 1,847 1,611
Common stock repurchased (227) (528)
Issuance of long-term debt 3,640 1,000
Repayment of long-term debt (5,986) (371)
Decrease in short-term loans (94,100) (104,200)
Checks outstanding in excess of cash balances 1,216
Payment of dividends (13,636) (12,950)
Other 19 49
NET CASH USED IN FINANCING
ACTIVITIES (108,443) (114,173)
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($14,249) ($17,271)
</TABLE>
See notes to consolidated financial statements
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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-month period ended
March 31, 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 consolidated 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 - Comprehensive Income
Comprehensive income is defined as any nonowner change in common
equity. Generally, comprehensive income includes earnings reported
on the income statement plus changes in common equity formerly
reported on the balance sheet only. Questar's other comprehensive
income, which are noncash transactions, includes changes in the
market value of the investments in securities available for sale and
foreign currency translation adjustments.
<TABLE>
<CAPTION>
3 Months Ended
March 31,
1999 1998
(In thousands)
<S> <C> <C>
Comprehensive Income:
Net income $43,364 $40,882
Other comprehensive income
Unrealized gain on securities
available for sale 21,636 11,974
Foreign currency translation adjustments (76) (16)
Other comprehensive income before
income taxes 21,560 11,958
Income taxes on other
comprehensive income 8,240 4,575
Other comprehensive income after
income taxes 13,320 7,383
Total comprehensive income $56,684 $48,265
</TABLE>
Note 3 - Operations by Line of Business
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1999 1998 1999 1998
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
REVENUES FROM UNAFFILIATED CUSTOMERS
Market Resources $94,643 $98,126 $379,308 $374,843
Regulated Services
Natural gas distribution 172,093 191,789 456,058 463,251
Natural gas transmission 9,021 9,065 37,112 36,277
Other 549 436 2,468 1,009
Total Regulated Services 181,663 201,290 495,638 500,537
Other operations 1,508 667 9,041 2,662
$277,814 $300,083 $883,987 $878,042
REVENUES FROM AFFILIATES
Market Resources $21,203 $16,868 $81,658 $63,678
Regulated Services
Natural gas distribution 209 1,278 1,448
Natural gas transmission 18,145 18,184 71,362 69,688
Other 28 20 107 114
Other operations 12,435 10,561 41,851 38,886
$52,020 $45,633 $196,256 $173,814
OPERATING INCOME (LOSS)
Market Resources $14,343 $14,355 $21,517 $55,570
Regulated Services
Natural gas distribution 37,807 38,211 57,046 56,426
Natural gas transmission 13,064 12,806 53,456 49,831
Other (68) (216) (933) (1,665)
Total Regulated Services 50,803 50,801 109,569 104,592
Other operations 2,216 1,900 2,001 5,127
OPERATING INCOME $67,362 $67,056 $133,087 $165,289
NET INCOME (LOSS)
Market Resources $8,253 $10,019 $11,971 $40,315
Regulated Services
Natural gas distribution 20,258 20,714 26,952 27,419
Natural gas transmission 6,962 6,554 28,299 26,800
Other (96) (376) (917)
Total Regulated Services 27,220 27,172 54,875 53,302
Other operations 7,891 3,691 12,535 11,086
NET INCOME $43,364 $40,882 $79,381 $104,703
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
QUESTAR CORPORATION AND SUBSIDIARIES
March 31, 1999
(Unaudited)
Results of Operations
Questar Market Resources
Questar Exploration and Production, Celsius Energy Resources Ltd.,
Wexpro, Questar Gas Management and Questar Energy Trading,
collectively, (Market Resources) conduct the Company's exploration
and production, gas gathering and processing, and energy marketing
operations. Celsius Energy Co. and Universal Resources Corp. were
combined effective April 1, 1999 and named Questar Exploration and
Production Company. Following is a summary of Market Resources'
financial results and operating information.
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31 March 31
1999 1998 1999 1998
(Dollars in Thousands)
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $94,643 $98,126 $379,308 $374,843
From affiliated companies 21,203 16,868 81,658 63,678
Total revenues $115,846 $114,994 $460,966 $438,521
Operating income $14,343 $14,355 $21,517 $55,570
Net income 8,253 10,019 11,971 40,315
OPERATING STATISTICS
Production volumes
Natural gas (in million
cubic feet) 15,048 12,094 54,263 47,762
Oil and natural gas liquids
(in thousands of barrels) 747 654 2,987 2,826
Production revenue
Natural gas (per thousand
cubic feet) $1.86 $1.96 $1.89 $1.88
Oil and natural gas liquids
(per barrel) $10.65 $14.51 $11.78 $16.83
Marketing volumes in energy
equivalent decatherms (in MDths) 34,159 28,343 119,329 125,496
Natural gas gathering volumes (in
thousands of decatherms)
For unaffiliated customers 20,291 18,523 74,676 61,790
For Questar Gas 8,237 8,551 29,579 27,771
For other affiliated customers 4,559 4,269 18,010 17,775
Total gathering 33,087 31,343 122,265 107,336
Gathering revenue (per decatherm) $0.16 $0.16 $0.16 $0.19
</TABLE>
Revenues from Market Resource operations increased slightly in the
first quarter of 1999 when compared with the first quarter of 1998.
Increases from natural gas production and revenues from operating
cost-of-service gas wells were reduced by the effect of lower prices
for oil and natural gas liquids (NGL), energy-marketing volumes sold
and processing plant revenues.
Production of natural gas was 24% higher in the first quarter of 1999
as a result of reserve acquisitions in 1998 and development of
producing properties in the U. S. Midcontinent region. Higher
production more than offset the effect of 5% lower gas prices.
Production of oil and NGL also was higher in the first quarter of
1999, but the 14% increase was overcome by prices that averaged 27%
less than the prior year. The average selling price of oil has since
improved. Questar Exploration and Production has an active drilling
program planned in the Rocky Mountains and Midcontinent for 1999 to
further enhance future production.
Market Resources uses hedging to secure commodity prices. At
present, approximately 66% of its gas production from April to July
is hedged at a price of about $2.02 per Mcf, net back to the well.
From August through the end of 1999, the hedges decline to an average
of 45% of production with prices ranging between $1.87 and $1.92 per
Mcf, net back to the well. Approximately 57% of oil production,
excluding oil produced by Wexpro, is hedged at $14.55 per bbl, net
back to the well, from April through the end of 1999.
Wexpro Co., which manages and develops cost-of-service gas reserves
for Questar Gas, reported a 27% increase in earnings in the first
quarter. Wexpro benefited from an increase in investment base in
1998.
Lower oil and NGL prices resulted in reduced margins generated by
processing plants in the first quarter of 1999. Under utilization of
contracted transportation capacity reduced marketing margins in the
first quarter of 1999. Marketing volumes, on an energy equivalent
basis, were 21% higher in the first quarter of 1999 compared to the
prior year.
Questar Regulated Services
Questar Gas and Questar Pipeline conduct the Company's regulated
services of natural gas distribution, transmission and storage.
Natural Gas Distribution
Questar Gas conducts the Company's natural gas distribution
operations. Following is a summary of financial results and
operating information.
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1999 1998 1999 1998
(Dollars In Thousands)
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $172,093 $191,789 $456,058 $463,251
From affiliates 209 1,278 1,448
Total revenues 172,302 191,789 457,336 464,699
Natural gas purchases 98,722 118,098 261,628 269,820
Revenues less natural gas
purchases $73,580 $73,691 $195,708 $194,879
Operating income $37,807 $38,211 $57,046 $56,426
Net income 20,258 20,714 26,952 27,419
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Residential and commercial sales 32,425 34,314 81,342 83,656
Industrial sales 2,940 2,830 9,791 9,451
Transportation for industrial
customers 13,351 14,832 53,980 53,193
Total deliveries 48,716 51,976 145,113 146,300
Natural gas revenue (per decatherm)
Residential and commercial $4.87 $5.20 $4.98 $4.96
Industrial sales 3.01 3.10 3.02 2.79
Transportation for industrial
customers 0.13 0.11 0.13 0.12
Heating degree days
Actual 2,296 2,392 5,366 5,402
Normal 2,743 2,743 5,801 5,801
Warmer than normal 16% 13% 7% 7%
Number of customers at March 31,
Residential and commercial 666,301 643,891
Industrial 1,329 1,242
Total 667,630 645,133
</TABLE>
Revenues less natural gas purchases, or the margin, was unchanged in
the first quarter of 1999 compared with the first quarter of 1998.
The additional margin resulting from adding customers was offset by
lower usage per customer and the expiration of a surcharge for
extending service into southern Utah in 1988. Temperatures, as
measured in degree days, were warmer than normal in all periods
presented. Questar Gas' rates include a weather-normalization
adjustment that reduces the revenue impact of weather fluctuations.
The number of customers served by Questar Gas grew by 22,497 or 3.5%
from a year ago to 667,630 at March 31, 1999. Customer additions in
1999 are expected to reach 20,000 or 21,000.
Volumes delivered to industrial customers decreased 8% in the first
quarter 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 and
therefore, the reduced volumes did not have a significant effect on
the margin earned.
Questar Gas' natural gas purchases decreased in the 1999 periods
presented primarily as a result of lower gas costs. Commodity or gas
costs in Utah rates decreased from $2.27 per decatherm in the first
quarter of 1998 to $1.72 per decatherm in the first quarter of 1999.
The reduction reflects lower prices paid to producers. Questar Gas
files for adjustment of purchased-gas costs with the Utah and Wyoming
Public Service Commissions on a semiannual basis.
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. Both agencies have filed a motion for summary
judgement with the PSCU. Hearings on the issues are scheduled for
June 1999. The contract's annual cost of service ranges between $7.5 -
$8.5 million.
Natural Gas Transmission
Questar Pipeline conducts the Company's natural gas transmission and
storage operations. Following is a summary of financial results and
operating information.
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1999 1998 1999 1998
(Dollars In Thousands)
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $9,021 $9,065 $37,112 $36,277
From affiliates 18,145 18,184 71,362 69,688
Total revenues $27,166 $27,249 $108,474 $105,965
Operating income $13,064 $12,806 $53,456 $49,831
Net income 6,962 6,554 28,299 26,800
OPERATING STATISTICS
Natural gas transportation volumes (in
thousands of decatherms)
For unaffiliated customers 25,946 32,778 113,915 115,690
For Questar Gas 35,635 38,331 104,805 106,378
For other affiliated customers 3,380 4,858 25,400 35,839
Total transportation 64,961 75,967 244,120 257,907
Transportation revenue (per
decatherm) $0.27 $0.24 $0.29 $0.27
</TABLE>
Net income increased 6% in 1999 compared with the first quarter and
12-month period of 1998. Questar Pipeline benefited from higher
storage revenues, lower operating expenses and higher earnings from
unconsolidated affiliates.
Storage revenues were higher in the 3- and 12-month periods of 1999
due primarily to increased firm-storage reservation charges because
of the expansion of the Clay Basin storage complex in the first half
of 1998. However, the full impact was offset in the first quarter of
1999 by lower firm-transportation revenues. Average daily demand in
the first quarter of 1999 was 84,000 decatherms or 7% lower as a
result of the expiration of several firm-transportation contracts.
Questar Pipeline amended its transportation agreement with Questar
Gas extending the term of the agreement for three years to June 2002.
The terms of the amended contract are identical to the former
agreement with the exception of the expiration date. Prior to the
amendment, the agreement was scheduled to expire in June of 1999.
Earnings from unconsolidated affiliates in the 1999 periods include
the Company's share of income reported by TransColorado Gas
Transmission Co. The noncash earnings are the result of capitalizing
interest and equity costs (AFUDC) associated with the construction of
the TransColorado Pipeline. AFUDC amounted to $1,265,000 in the first
quarter of 1999 compared with $318,000 in the corresponding 1998
period. Phase II of the TransColorado Pipeline was placed in service
March 31, 1999, with the pipeline currently flowing approximately 85
MMcf of gas per day at a discounted rate. With the completion of
construction of Phase II, Questar Pipeline will complete its
acquisition of the smaller Phase I. Phase I has been in service
since December 1996 and is fully subscribed.
Consolidated Results of Operations
Consolidated revenues were 7% lower in the first quarter of 1999 when
compared with the first quarter of 1998 due primarily to reduced
rates for gas-distribution customers. The lower rates reflect a
reduction of the gas-cost component collected from gas-distribution
customers. Lower oil, NGL and gas prices also contributed to the
decline in revenues in the first quarter partially offset by higher
gas production.
An 18% drop in natural gas and other product purchases reflects a
lower gas costs allowed in distribution rates and lower sales
distribution volumes in the first quarter of 1999. The rate declined
from $2.27 per decatherm in 1998 to $1.72 per decatherm in 1999.
Operating and maintenance (O & M) expenses increased $1,503,000 or 3%
in the first quarter of 1999 compared with the first quarter of 1998.
O & M expenses increased primarily as a result of adding gas and oil
properties through acquisitions, adding gas-distribution customers
and incurring data processing and communications related costs for
such programs as Year 2000 compliance. The increases more than
offset the effect of lower labor costs resulting from an early
retirement program at Regulated Services effective August 1998.
Depreciation expenses were higher in the first quarter of 1999 when
compared to the 1998 first quarter because of increased investment in
property, plant and equipment and increased gas and oil production.
The full-cost amortization rate for combined U.S. and Canadian
operations was $.83 per equivalent Mcf for the first quarter of 1999
and $.84 in 1998.
Other taxes, primarily production and property taxes, were lower in
the first quarter of 1999 resulting from lower oil and gas prices.
Interest and other income was 91% higher in the first quarter of 1999
compared with the prior year primarily due to increased selling
prices and the number of shares of Nextel Communications sold.
Questar sold 392,469 shares in the 1999 period and realized a pretax
gain of $9.4 million compared with 190,000 shares and a pretax gain
of $4.1 million a year earlier. The sales resulted in after-tax
gains of $5.7 million or $.07 per share in 1999 and $2.4 million and
$.03 per share in 1998. Management continues to sell shares of
Nextel into the second quarter of 1999 because of the attractive
price. Questar currently holds 1.3 million shares.
Debt expense was 13% higher in the first quarter of 1999 as a result
of increased borrowings in the second half of 1998 to fund capital
projects. Market Resources completed acquisitions of gas and oil
properties and Questar Pipeline completed an acquisition of a former
oil pipeline in the second half of 1998.
The effective income tax rate for the first quarter was 36.2% in 1999
and 34.3% in 1998. The Company recognized $1,810,000 of
production-related tax credits in the 1999 period and $2,048,000 in
the 1998 period.
Liquidity and Capital Resources
Operating Activities
Net cash provided from operating activities of $101,856,000 for the
first quarter of 1999 was $17,559,000 less than was generated in the
same period of 1998. The decrease in cash flow resulted primarily
from timing differences in the collection of gas costs by
gas-distribution operations and payment on accounts to vendors.
Investing Activities
Capital expenditures amounted to $25,965,000 in the first quarter of
1999 compared with $33,637,000 reported for the same period a year
ago. A comparison of capital expenditures for the first quarter of
1999 and 1998 plus an estimate for calendar year 1999 is below.
<TABLE>
<CAPTION>
Estimate
Actual 12 Months
3 Months Ended Ended
March 31, Dec. 31,
1999 1998 1999
(In Thousands)
<S> <C> <C> <C>
Market Resources $14,113 $16,923 $353,600
Regulated Services
Natural gas distribution and othe 5,109 9,514 60,000
Natural gas transmission 4,880 5,084 89,100
Other 39 13 3,800
Total Regulated Services 10,028 14,611 152,900
Other operations 1,824 2,103 39,000
$25,965 $33,637 $545,500
</TABLE>
Financing Activities
Cash flow generated in the first quarter of 1999 allowed the Company
to reduce short-term borrowings by $94.1 million and long-term
borrowings, net of increases, by $2.3 million, to fund capital
expenditures and to pay cash dividends. The Company intends to
finance 1999 capital expenditures through net cash provided from
operating activities, bank borrowings and issuing long-term debt. If
the Company completes a large gas and oil reserve acquisition, it may
issue equity to pay for a portion of the transaction.
Short-term borrowings amounted to $127 million of commercial paper at
March 31, 1999 and $27 million at March 31, 1998. The Company has
short-term bank lines of credit, which serve as backup to borrowings
made under the commercial paper program. The Company's lines of
credit borrowing capacity as of April 1, 1999 is $235 million.
Borrowing capacity was previously $275 million to accommodate interim
financing needs in the second half 1998. The Market Resources' group
entered into a senior credit facility having a $250 million capacity
with a syndication of banks in April of 1999. Market Resources had
borrowed $188.7 million as of April 30, 1999.
The Company annouced plans in April 1999 to repurchase up to $50
million worth of its shares over the next two years. The Company
intends to use the proceeds from the sales of Nextel shares to fund a
portion of the repurchases. Through the end of April, $2 million was
spent to repurchase 121,000 shares.
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 59 projects that are in varying stages of remediation
and the scope 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. Questar estimates that Y2K costs
will be $5.1 million and expects to be Y2K compliant 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 adversly 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 19
projects identified: 1 in start-up, 8 in assessment, 6 in
remediation, 0 in testing and 4 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 39 projects in this section: 10 in start-up, 7
in assesssment, 4 in remediation, 4 in testing and 14 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 charateristics and is large,
the Company has employed the services of a consultant to assist in
the effort. The project is in the assessment phase and is expected
to be completed by year-end 1999.
Inquiries of critical third parties have been taking place with more
contacts scheduled. Contacting parties is scheduled to be completed
by mid-year. Contingency plans for dealing with third-party issues
will be developed by the end of 1999.
The complete text of Questar's Y2K disclosure can be viewed in Form
10-K for December 31, 1998, filed with the Securities and Exchange
Commission.
Forward-Looking Statements
This 10-Q contains forward-looking statements about future
operations, capital spending, regulatory matters and expectations of
Questar. 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 and oil prices and supplies, competition, regulatory
issues, weather conditions, availability of gas and oil properties
for sale 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, quoted price of securities
available for sale 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.
The Department of Justice (Department) has determined not to
intervene and assume prosecution of the case against Questar
Corporation (Questar or the Company) and some of its affiliates filed
by a producer under the federal False Claims Act. This case, which is
substantially similar to 75 other cases filed against pipelines and
their affiliates, is pending in the United States District Court for
the District of Colorado. In response to the Department's decision,
the court has lifted the seal and directed the producer to serve the
complaint.
Although the Company has not been formally served with the
complaint, it received a copy from the Department in August of 1998.
The complaint alleges that the defendants mismeasured the heating
content of natural gas volumes and understated the value of gas on
which royalty payments are due the federal government. It also claims
treble damages and seeks imposition of civil penalties, but does not
include a request for any specific monetary damages.
The Company and its affiliates have been involved with the
producer in other litigation and currently plan to actively contest
the newest round of allegations and claims.
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 CORPORATION
(Registrant)
May 13, 1999 /s/R. D. Cash
(Date) R. D. Cash
Chairman of the Board, President
and Chief Executive Officer
May 13, 1999 /s/ S. E. Parks
(Date) S. E. Parks
Vice President, Treasurer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summarized financial information extracted
from the Questar Corporation Consolidated Statements of Income and Balance
Sheets for the period ended March 31, 1999, and is qualified in its entirety
by reference to such unaudited financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,240
<SECURITIES> 0
<RECEIVABLES> 148,409
<ALLOWANCES> 0
<INVENTORY> 21,649
<CURRENT-ASSETS> 183,395
<PP&E> 3,121,559
<DEPRECIATION> 1,390,608
<TOTAL-ASSETS> 2,096,676
<CURRENT-LIABILITIES> 326,728
<BONDS> 614,168
0
0
<COMMON> 300,508
<OTHER-SE> 622,044
<TOTAL-LIABILITY-AND-EQUITY> 2,096,676
<SALES> 0
<TOTAL-REVENUES> 277,814
<CGS> 0
<TOTAL-COSTS> 168,410
<OTHER-EXPENSES> 42,042
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,971
<INCOME-PRETAX> 67,919
<INCOME-TAX> 24,555
<INCOME-CONTINUING> 43,364
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,364
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
