-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KKdP164SAf4EEJwh5F7J4w1oOSEXhp5f8KIGX8+ZpDsE/CQXYTTsI88Xw7h2rjaP SxYy8JUEG2c8BMo5OuGV4Q== 0000764044-98-000011.txt : 19980817 0000764044-98-000011.hdr.sgml : 19980817 ACCESSION NUMBER: 0000764044-98-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUESTAR PIPELINE CO CENTRAL INDEX KEY: 0000764044 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 870307414 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14147 FILM NUMBER: 98688178 BUSINESS ADDRESS: STREET 1: 180 E 100 SOUTH STREET STREET 2: P O BOX 45360 CITY: SALT LAKE CITY STATE: UT ZIP: 84145 BUSINESS PHONE: 8013242400 MAIL ADDRESS: STREET 1: 180 EAST 100 SOUTH STREET STREET 2: P O BOX 45360 CITY: SALT LAKE CITY STATE: UT ZIP: 84145 FORMER COMPANY: FORMER CONFORMED NAME: MOUNTAIN FUEL RESOURCES INC DATE OF NAME CHANGE: 19880331 10-Q 1 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)
3 Months Ended 6 Months Ended 12 Months Ended June 30, June 30, June 30, 1998 1997 1998 1997 1998 1997 (In Thousands) 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
QUESTAR PIPELINE COMPANY CONDENSED BALANCE SHEETS (Unaudited)
June 30, December 31, 1998 1997 1997 (In Thousands) 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
QUESTAR PIPELINE COMPANY CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
6 Months Ended June 30, 1998 1997 (In Thousands) 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
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:
3 Months Ended 6 Months Ended 12 Months Ended June 30, June 30, June 30, 1998 1997 1998 1997 1998 1997 (Dollars In Thousands) 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
EX-10.1 2 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 EX-10.2 3 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. EX-10.3 4 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. EX-27 5
5 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. 1,000 6-MOS DEC-31-1998 JUN-30-1998 0 0 17,284 0 1,958 20,962 591,487 209,610 455,749 81,721 114,573 0 0 6,551 186,874 455,749 0 53,848 0 19,493 7,503 0 6,934 20,992 7,378 13,614 0 0 0 13,614 0 0
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