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. 0-14147
QUESTAR PIPELINE COMPANY
(Exact name of registrant as specified in its charter)
STATE OF UTAH 87-0307414
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 45360, 180 East First South, Salt Lake City, Utah 84145-0360
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(801) 324-2400
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, $1.00 par value 6,550,843 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 PIPELINE 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 $26,599 $25,907 $53,848 $52,628 $106,657 $105,004
OPERATING EXPENSES
Operating and maintenance 9,566 9,637 19,493 18,545 38,282 38,929
Depreciation 2,472 3,614 6,315 7,211 13,901 14,605
Other taxes 515 664 1,188 1,415 2,589 1,990
TOTAL OPERATING EXPENSES 12,553 13,915 26,996 27,171 54,772 55,524
OPERATING INCOME 14,046 11,992 26,852 25,457 51,885 49,480
INTEREST AND OTHER
INCOME (EXPENSE) 10 91 (76) 96 1,151 1,090
INCOME (LOSS) FROM
UNCONSOLIDATED AFFILIATES 743 (6) 1,150 (74) 5,853 36
DEBT EXPENSE (3,500) (3,314) (6,934) (6,665) (13,805) (13,235)
INCOME BEFORE INCOME TAXES 11,299 8,763 20,992 18,814 45,084 37,371
INCOME TAXES 4,239 3,303 7,378 7,032 16,684 13,732
NET INCOME $7,060 $5,460 $13,614 $11,782 $28,400 $23,639
See notes to financial statements
</TABLE>
QUESTAR PIPELINE 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 $5,411 $7,075
Accounts receivable $17,284 10,229 10,851
Inventories 1,958 2,363 2,303
Other current assets 1,720 1,754 2,035
Total current assets 20,962 19,757 22,264
Property, plant and equipment 591,487 566,777 580,603
Less allowances for depreciation 209,610 201,269 202,427
Net property, plant and equipment 381,877 365,508 378,176
Investment in unconsolidated
affiliates 40,426 14,323 26,977
Other assets 12,484 10,789 10,147
$455,749 $410,377 $437,564
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $1,304
Notes payable to Questar
Corporation 63,300 $11,600 $25,800
Accounts payable and accrued
expenses 17,117 15,869 20,069
Total current liabilities 81,721 27,469 45,869
Long-term debt 114,573 134,554 134,563
Other liabilities 3,046 4,257 4,523
Deferred income taxes 62,984 58,572 62,298
Common shareholder's equity
Common stock 6,551 6,551 6,551
Additional paid-in capital 82,034 82,034 82,034
Retained earnings 104,840 96,940 101,726
Total common shareholder's equity 193,425 185,525 190,311
$455,749 $410,377 $437,564
See notes to financial statements
</TABLE>
QUESTAR PIPELINE 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 $13,614 $11,782
Depreciation 7,128 7,768
Deferred income taxes 686 (196)
(Income) loss from unconsolidated
affiliates (1,150) 74
20,278 19,428
Change in operating assets and
liabilities (12,529) (606)
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 7,749 18,822
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (8,462) (4,227)
Investment in unconsolidated
affiliates (12,299) (50)
Total capital expenditures (20,761) (4,277)
Costs of disposition of property,
plant and equipment (2,367) (734)
NET CASH USED IN INVESTING
ACTIVITIES (23,128) (5,011)
FINANCING ACTIVITIES
Checks outstanding in excess
of cash balances 1,304
Increase (decrease) in notes
payable to Questar Corporation 37,500 (200)
Decrease in long-term debt (20,000)
Payment of dividends (10,500) (10,750)
NET CASH PROVIDED FROM (USED
IN) FINANCING ACTIVITIES 8,304 (10,950)
INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS ($7,075) $2,861
See notes to financial statements
</TABLE>
QUESTAR PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(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. 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.
Note 2 - Planned Purchase of a Pipeline
On June 25, 1998, the Company announced that it had reached an
agreement in principle with ARCO Pipe Line Company to acquire an oil
pipeline running from the Paradox producing basin of northwestern New
Mexico to Long Beach, California. The purchase price of the line is
$40 million with financial closing expected on or about September 30,
1998. The Company intends to convert this line to transport natural
gas to customers in the Los Angeles basin. Conversion costs are
expected to add up to $60 million to the total cost of the project.
Such conversion is expected to continue for 18-24 months.
Note 3 - Investment in Unconsolidated Affiliates
Questar Pipeline has interests in partnerships accounted for on an
equity basis. Transportation of natural gas is the primary business
activity of these partnerships. Summarized operating results of the
partnerships are as follows:
6 Months Ended
June 30,
1998 1997
(In Thousands)
Revenues $2,360 $1,742
Operating income (loss) 778 (117)
Income (loss) before income taxes 2,237 (206)
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
QUESTAR PIPELINE 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 $9,088 $8,732 $18,153 $17,863 $36,633 $37,253
From affiliates 17,511 17,175 35,695 34,765 70,024 67,751
Total revenues $26,599 $25,907 $53,848 $52,628 $106,657 $105,004
Operating income $14,046 $11,992 $26,852 $25,457 $51,885 $49,480
Net income 7,060 5,460 13,614 11,782 28,400 23,639
OPERATING STATISTICS
Natural gas transportation volumes (in
thousands of decatherms)
For unaffiliated customers 31,289 27,633 64,067 60,936 119,346 119,800
For Questar Gas 27,051 26,011 65,382 68,275 107,418 114,854
For other affiliated customers 7,549 10,993 12,407 17,809 32,395 47,267
Total transportation 65,889 64,637 141,856 147,020 259,159 281,921
Transportation revenue (per
decatherm) $0.26 $0.26 $0.25 $0.23 $0.27 $0.23
Revenues were higher in the 3-, 6- and 12-month periods of 1998 due
primarily to increased firm-transportation and firm-storage
reservation charges. Questar Pipeline expanded working gas capacity
by 5 Bcf at Clay Basin for a capital investment of $4 million. The
expansion is expected to add about $3 million in annual storage
revenues. Service of the new capacity began in the second quarter of
1998 and all new capacity was committed to long-term contracts.
Operating and maintenance (O & M) expenses were 1% lower in the
second quarter 1998 when compared to the same period of 1997 due to
capitalizing labor costs associated with developing computer systems.
O & M expenses were 5% higher in the first half of 1998 when compared
to the prior year period due primarily to expenses associated with
increased telecommunications and data processing for network and Year
2000 related activities among other projects. The Company continues
efforts to resolve Year 2000 issues and expects that the expense of
becoming Year 2000 compliant will not be material. O & M expenses
were lower in the 12-month period ended June 30, 1998 due to cost
efficiencies resulting from sharing services with an affiliated
company. Questar Gas Company and Questar Pipeline share the costs of
certain administrative, accounting, legal, engineering and related
services under Questar Regulated Services.
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 lower in the 1998 periods. Other taxes were
lower in the 3- and 6-month periods ended June 30, 1998 when compared
with the same periods of 1997 as a result of property tax refunds and
lower tax assessments.
Income from unconsolidated affiliates in the 1998 periods include the
Company's share of earnings reported by TransColorado Gas
Transmission Co. The noncash earnings reflect capitalization of
interest and equity costs (AFUDC) associated with the construction of
the TransColorado pipeline amounting to $405,000 in the 3-month
period, $723,000 in the 6-month period and $5,179,000 in the 12-month
period ended June 30, 1998.
The effective income tax rate was 35.1% in the first half of 1998
compared with 37.4% in the first half of 1997 due to adjustments that
reduced 1998 tax expenses.
Liquidity and Capital Resources
Operating Activities
Net cash provided from operating activities of $7,749,000 in the
first half of 1998 was 41% of the $18,822,000 reported for the same
period in 1997 due primarily to changes in operating assets and
liabilities associated with a timing difference in collecting
receivables and a premium paid to redeem long-term debt.
Investing Activities
Capital expenditures were $20,761,000 in the first half of 1998
compared with $4,277,000 in the corresponding 1997 period. Capital
expenditures for calendar year 1998 are estimated to be $162.1
million which includes $64.3 million for the Company's share of
equity investments in TransColorado Gas Transmission and $43 million
for purchase and initial reconditioning of an oil pipeline.
Construction of the 270-mile TransColorado pipeline began in late
July and Phase II is expected to be in service in the fourth quarter
of 1998.
Financing Activities
Questar Corporation loans funds to the Company under a short-term
arrangement. As of June 30, amounts borrowed from Questar were
$63,300,000 in 1998 and $11,600,000 in 1997. The Company retired
$20 million of its 9 7/8% debt in May of 1998 for a cash payment of
$23,386,000, which included a premium payment and interest due.
Capital expenditures for 1998 are expected to be financed from net
cash provided from operating activities and short- and long-term debt
including borrowings from Questar.
Forward Looking Statements
This 10-Q contains forward-looking statements about the future
operations and expectations of Questar Pipeline. 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.
Questar TransColorado, Inc. (Questar TransColorado), a subsidiary
of Questar Pipeline Company (the Company or Questar Pipeline) has
intervened in two proceedings challenging the Bureau of Land
Management's (BLM) decision to allow the TransColorado pipeline
project to proceed through a portion of the San Juan National Forest
in Colorado. The San Juan Citizens Alliance (Alliance) has an appeal
of the BLM's decision pending before the Interior Board of Land
Appeals. The appeal seeks to reverse the BLM's decision to allow the
project to proceed and requests a stay of the agency's decision. The
Alliance has also filed a complaint in federal district court in
Colorado. The complaint seeks declaratory and injunctive relief from
both the BLM and Forest Service. The Alliance requests the court to
declare that the BLM and Forest Service have violated the National
Environmental Policy Act and further requests the court to enjoin the
construction of the TransColorado pipeline and award costs and
attorney's fees to the Alliance. A recent motion made by the Alliance
for a temporary restraining order and preliminary injunction was
denied. In denying the motion, the federal judge found that the
Alliance did not have a substantial likelihood of prevailing on the
merits of the case and that the issuance of an injunction would cause
significant economic harm to the TransColorado pipeline. It is
unlikely that either action asserted by the Alliance will have any
financial impact on Questar TransColorado or on the construction of
the TransColorado pipeline. Construction of the project commenced in
late July.
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 Gas Company (Questar Gas) 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 in several capacities.
Mr. S. C. Yeager, age 51, was named to serve as Vice President,
Business Development, for the Company, Questar Gas, and Regulated
Services. Mr. Yeager had previously served Questar Gas as Vice
President and General Manager. 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 Gas and Regulated Services. Ms. Susan Glasmann, age 50,
resigned her position as Vice President, Business Support, and was
appointed to serve as Vice President and General Manager of Questar
Gas.
Messrs. D. N. Rose, Lowell F. Gill, S. E. Parks, and G. H.
Robinson will continue to serve in their positions as President and
Chief Executive Officer; Vice President and General Manager; Vice
President, Treasurer, and Chief Financial Officer; and Vice President
and Controller, respectively.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit has been filed as part of this report:
Exhibit No. Exhibits
10.1. Letter of Understanding dated July 13, 1998, on
Issues Relating to Phase II of TransColorado
between Questar TransColorado, Inc., and KN
TransColorado, Inc.
10.2. Annual Management Incentive Plan adopted by
Questar Pipeline Company, Questar Gas Company, and
Questar Regulated Services Company, as amended and
restated effective May 19, 1998.
10.3. Questar Pipeline Company Deferred Compensation
Plan for Directors, as amended and restated
effective May 19, 1998.
(b) The Company filed a Current Report on Form 8-K dated July 2,
1998 concerning its intent to purchase a crude oil pipeline from ARCO
Pipe Line Company and convert it to a natural gas pipeline.
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 PIPELINE COMPANY
(Registrant)
August 13, 1998 /s/D. N. Rose
D. N. Rose
President and Chief Executive
Officer
August 13, 1998 /s/S. E. Parks
S. E. Parks
Vice President, Treasurer, and
Chief Financial Officer
</TABLE>
EXHIBIT 10.1
July 13, 1998
Via Facsimile and Federal Express
H. Rickey Wells
President and Chief Operating Officer
KN Interstate Gas Transmission Company
370 Van Gordon Street
P.O. Box 281304
Lakewood, Colorado 80228
Dear Rick:
Re: Letter of Understanding on Issues Relating to Phase II of TransColorado
This letter is to memorialize discussions and negotiations that
you and I have had since June 26, 1998, through today, regarding the
construction of Phase II of TransColorado. You and I have agreed upon
the following points, which have been affirmed by our respective
managements:
1. Questar TransColorado (Questar) will continue to have an
election to sell its partnership interest in TransColorado to KN
TransColorado (KN) pursuant to Section 10.3 of the Partnership
Agreement, but the terms of Section 10.3 will be modified to fix the
amount KN will be obligated to pay Questar, if Questar exercises its
election to sell, at $121,000,000, or if the project is completed at a
cost of less than $242,000,000, an amount equal to 50% of the total
project cost, assuming both partners have each paid 50% of the costs
and are responsible for 50% of the debt of Phase II of TransColorado.
The $121,000,000 sale price shall be decreased by depreciation
determined by applying the FERC authorized depreciation schedule to
the $121,000,000 and by any debt obligations assumed or refinanced as
is contemplated by Section 10.3 of the Partnership Agreement. The
$121,000,000 sale price shall be increased by 50% of any cash held by
the partnership.
2. An affiliate of each of Questar and KN will each commit to
subscribe for 100,000 Dth/day of firm transportation service at $0.20
per Dth for a minimum three-year term. The term of the affiliate
capacity subscriptions will, by mutual agreement, be extended to the
minimum number of years necessary to secure a mutually agreeable level
of project financing. The parties hereto agree to exercise their best
efforts to obtain project financing for Phase II of TransColorado and
to obtain additional capacity commitments from third parties at the
highest possible rate. In the event that Questar exercises its
election to sell pursuant to Section 10.3 of the Partnership
Agreement, Questar's affiliate's capacity will remain at $0.20 per Dth
and KN shall have the option at such time to recall any and all of the
capacity subscribed by Questar's affiliate pursuant to this paragraph;
additionally KN shall have a second option two years after Questar
exercises its election to sell pursuant to Section 10.3 of the
Partnership Agreement, to recall any and all remaining capacity
subscribed by Questar's affiliate pursuant to this paragraph.
3. KN will grant to Questar a right of first refusal to
purchase KN's 18% interest in the Overthrust Pipeline partnership
(currently owned by NGPL). Questar and KN will cooperate to work out
reasonable details to implement Questar's right of first refusal and
agree to enter into a separate agreement on this issue within 60 days
after the execution of this letter by both partners.
4. If Questar does not elect to sell its TransColorado
partnership interest to KN under Section 10.3 of the Partnership
Agreement (as modified by this letter) and to the extent that the
partnership has secured project financing for at least one-third of
the total cost of Phase II, Questar will have an option to purchase
50% of KN's interest at that time in the Coyote Gulch plant,
exercisable at any time during the same 12-month period in which
Questar may exercise its election to sell its partnership interest in
TransColorado to KN. The purchase price will be set at 50% of the
book value of KN's interest in the Coyote Gulch plant at the time
Questar notifies KN that it will exercise its option. Questar's
option to purchase 50% of KN's interest in the Coyote Gulch plant
shall be subject to receipt of any necessary third party consents and
preferential rights. To the extent a third party exercises, any
preferential right in existence on the date of this letter, KN may
withdraw the option granted in this paragraph and pay to Questar 50%
of the difference between the book value and the market value of KN's
interest in the Coyote Gulch plant as determined at the time Questar
would have exercised its option. KN shall not sell or otherwise
transfer its present interest in the plant so as to impair the option
granted to Questar to acquire 50% of KN's interest in the Coyote Gulch
plant.
5. KN will execute and return to Questar by facsimile by 3:00
p.m. July 13, 1998, the below described Unanimous Consents that were
previously sent to you, that will allow Phase II of the TransColorado
Project to go forward. KN will return the originals of the Consents
to Questar by overnight mail.
(a) Unanimous Consent to mobilize contractors during the
pendency of appeal.
(b) Unanimous Consent to enter into all construction
contracts necessary for the construction of the
pipeline and for the compression facilities.
6. KN agrees to rescind its statement of revocation of consent
to go forward with Phase II of the TransColorado Project dated June
24, 1998, and to remove any conditions to consents that KN had
previously executed.
7. Questar and KN agree that this letter is effective upon its
execution by both parties and that this Letter of Understanding will
be incorporated into the TransColorado Partnership Agreement within 60
days of the date of this letter.
I appreciate the opportunity to have worked through this matter
with you and look forward to the construction of Phase II of
TransColorado and its successful operation.
Sincerely,
/s/M. E. Benefield
Michael E. Benefield
Accepted by:
KN TransColorado, Inc.
/s/H. Rickey Wells
By: H. Rickey Wells
Its: Vice President
EXHIBIT 10.2
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.
EXHIBIT 10.3
QUESTAR PIPELINE 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 Pipeline 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 Pipeline 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> 17,284
<ALLOWANCES> 0
<INVENTORY> 1,958
<CURRENT-ASSETS> 20,962
<PP&E> 591,487
<DEPRECIATION> 209,610
<TOTAL-ASSETS> 455,749
<CURRENT-LIABILITIES> 81,721
<BONDS> 114,573
0
0
<COMMON> 6,551
<OTHER-SE> 186,874
<TOTAL-LIABILITY-AND-EQUITY> 455,749
<SALES> 0
<TOTAL-REVENUES> 53,848
<CGS> 0
<TOTAL-COSTS> 19,493
<OTHER-EXPENSES> 7,503
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,934
<INCOME-PRETAX> 20,992
<INCOME-TAX> 7,378
<INCOME-CONTINUING> 13,614
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,614
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
