<Page>
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 SEPTEMBER 30, 2001.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
Commission File No. 1-8796
QUESTAR CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
STATE OF UTAH 87-0407509
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 45433, 180 East 100 South, Salt Lake City, Utah 84145-0433
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 324-5000
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF OCTOBER 31, 2001
- ------------------------------- ----------------------------------
Common Stock, without par value 81,443,447 shares
<Page>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
QUESTAR CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
<Table>
<Caption>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
2001 2000 2001 2000 2001 2000
----------- ----------- ----------- ----------- ----------- -----------
REVENUES $ 225,142 $ 245,117 $ 1,072,918 $ 814,361 $ 1,524,710 $ 1,099,838
OPERATING EXPENSES
Cost of natural gas and
other products sold 61,385 91,614 512,567 322,414 752,382 443,400
Operating and maintenance 66,348 59,988 189,178 175,568 265,087 241,284
Exploration expense 2,606 1,621 8,101 8,228 11,208 15,973
Depreciation, depletion and
amortization 36,499 35,156 108,552 107,691 143,352 142,071
Other taxes 11,259 13,218 48,040 37,046 61,648 45,295
----------- ----------- ----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 178,097 201,597 866,438 650,947 1,233,677 888,023
----------- ----------- ----------- ----------- ----------- -----------
OPERATING INCOME 47,045 43,520 206,480 163,414 291,033 211,815
INTEREST AND OTHER INCOME 3,034 11,398 22,957 34,551 27,869 76,190
OPERATIONS OF UNCONSOLIDATED
AFFILIATES
Income (loss) 367 1,151 (725) 2,852 419 441
Write-down of investment
in partnership (49,700)
----------- ----------- ----------- ----------- ----------- -----------
367 1,151 (725) 2,852 419 (49,259)
DEBT EXPENSE (17,091) (16,013) (47,013) (47,855) (62,668) (63,051)
----------- ----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 33,355 40,056 181,699 152,962 256,653 175,695
INCOME TAXES 11,513 13,650 66,094 53,833 90,700 60,657
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME $ 21,842 $ 26,406 $ 115,605 $ 99,129 $ 165,953 $ 115,038
=========== =========== =========== =========== =========== ===========
EARNINGS PER COMMON SHARE
Basic $ 0.27 $ 0.33 $ 1.43 $ 1.23 $ 2.06 $ 1.42
Diluted $ 0.27 $ 0.33 $ 1.42 $ 1.23 $ 2.04 $ 1.42
Average common shares outstanding
Basic 81,270 80,223 80,974 80,344 80,559 81,013
Diluted 81,600 80,862 81,605 80,649 81,307 81,241
Dividends per common share $ 0.175 $ 0.17 $ 0.525 $ 0.51 $ 0.70 $ 0.68
</Table>
See notes accompanying consolidated financial statements
2
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QUESTAR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<Table>
<Caption>
September 30, December 31,
2001 2000 2000
---------- ---------- ----------
(In Thousands)
ASSETS
Current assets
Cash and cash equivalents $ 25,386 $ 9,416
Accounts receivable $ 117,063 155,556 332,321
Hedging contracts 41,242
Inventories, at lower of average cost or market
Gas and oil storage 51,404 23,065 30,062
Materials and supplies 11,043 13,705 10,472
Purchased-gas adjustments 42,934 8,880 35,565
Prepaid expenses and other 14,475 11,159 9,189
---------- ---------- ----------
Total current assets 278,158 237,751 427,025
---------- ---------- ----------
Property, plant and equipment 3,924,202 3,209,587 3,287,134
Less accumulated depreciation, depletion
and amortization 1,486,754 1,378,237 1,400,159
---------- ---------- ----------
Net property, plant and equipment 2,437,448 1,831,350 1,886,975
---------- ---------- ----------
Securities available for sale 11,977 67,396 33,019
Investment in unconsolidated affiliates 38,203 35,237 34,505
Goodwill, net 91,663 21,453 20,514
Cash held in escrow 210 5,387
Regulatory and other assets 65,067 49,653 64,605
---------- ---------- ----------
$2,922,726 $2,242,840 $2,472,030
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Checks outstanding in excess of cash balance $ 13,828
Short-term loans 465,783 $ 152,458 $ 209,139
Accounts payable and accrued expenses 186,249 188,469 311,915
Deferred income taxes - current 16,315 3,374 13,515
---------- ---------- ----------
Total current liabilities 682,175 344,301 534,569
---------- ---------- ----------
Long-term debt 857,137 724,052 714,537
Other liabilities 22,549 32,412 33,680
Deferred income taxes and investment
tax credits 298,697 198,646 218,396
Minority interest 19,292 17,447 18,216
Common shareholders' equity
Common stock 279,801 261,432 268,630
Retained earnings 744,496 634,766 671,415
Other comprehensive income 18,583 29,784 12,587
---------- ---------- ----------
Total common shareholders' equity 1,042,876 925,982 952,632
---------- ---------- ----------
$2,922,726 $2,242,840 $2,472,030
========== ========== ==========
</Table>
See notes accompanying consolidated financial statements
3
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QUESTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<Table>
<Caption>
9 Months Ended
September 30,
2001 2000
--------- ---------
(In Thousands)
OPERATING ACTIVITIES
Net income $ 115,605 $ 99,129
Depreciation and amortization 105,469 112,057
Deferred income taxes and
investment tax credits 21,566 6,974
(Income) loss from unconsolidated affiliates,
net of cash distributions (328) (1,316)
(Gain) loss from securities' transactions 1,473 (23,361)
--------- ---------
243,785 193,483
Changes in operating assets and liabilities 26,704 23,765
--------- ---------
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 270,489 217,248
INVESTING ACTIVITIES
Capital expenditures
Property, plant and equipment (281,005) (211,848)
Acquisitions (413,823)
Other investments (4,700) (9,324)
--------- ---------
Total capital expenditures (699,528) (221,172)
Proceeds from the disposition of
property, plant and equipment 30,268 5,087
Proceeds from the sales of securities and other 574 36,388
--------- ---------
NET CASH USED IN INVESTING
ACTIVITIES (668,686) (179,697)
FINANCING ACTIVITIES
Issuance of common stock 23,618 7,561
Common stock repurchased (12,447) (24,566)
Issuance of long-term debt 501,501 39,793
Repayment of long-term debt (356,615) (48,425)
Change in short-term loans 256,644 7,900
Cash in escrow account 5,177 36,727
Checks outstanding in excess of cash balances 13,828
Payment of dividends (42,528) (40,981)
Other (264) 1,873
--------- ---------
NET CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES 388,914 (20,118)
Foreign currency translation adjustment (133) (338)
--------- ---------
Change in cash and cash equivalents (9,416) 17,095
Beginning cash and cash equivalents 9,416 8,291
--------- ---------
Ending cash and cash equivalents $ -- $ 25,386
========= =========
</Table>
See notes accompanying consolidated financial statements
4
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QUESTAR CORPORATION
NOTES ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
(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 of
operations for the interim periods presented. All such adjustments are of a
normal recurring nature. The results of operations for the three-, nine- and
twelve-month periods ended September 30, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2001. For further
information refer to the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 2000.
Note 2 - Change in Method of Accounting for Gas and Oil Properties
On July 1, 2001, Questar elected to change its accounting method for gas and oil
properties from the full cost method to the successful efforts method. The
change was prompted by the recent acquisition of a company that uses successful
efforts. A subsidiary, Wexpro, has always employed the successful efforts
method. Management believes that the successful efforts method is preferable and
will more accurately present the results of operations of the Company's
exploration, development and production activities, minimize asset write-downs
caused by temporary declines in gas and oil prices and reflect impairment of the
carrying value of the Company's gas and oil properties only when there has been
an other-than-temporary decline in their fair value.
As a result of this change in accounting, prior year and interim financial
statements have been retroactively restated to reflect this change in accounting
method. The effect, net of income taxes, was a reduction of retained earnings
recorded retroactively as of December 31, 1995, of $37.6 million. This resulted
from a reduction of net property, plant and equipment in the amount of $61.9
million and a reduction of deferred income taxes of $24.3 million. The effect of
the change in accounting method on previously reported earnings was an increase
in net income of $2.0 million or $.03 per diluted share for the six-month period
end June 30, 2001 and a decrease in net income of $4.6 million or $.06 per
diluted share in the nine-month period ended September 30, 2000.
Note 3 - Acquisitions
Questar Market Resources, a subsidiary of Questar, acquired 100% of the common
stock of Shenandoah Energy, Inc. (SEI) on July 31, 2001 for $403 million in cash
including assumed debt. SEI was a privately held Denver-based exploration,
production, gathering and drilling company. QMR obtained an estimated 415
billion cubic feet equivalent of proved oil and gas reserves, gas processing
capacity of 100 MMcf per day, 90 miles of gathering lines, 114,000 acres of net
undeveloped leasehold acreage and four drilling rigs. SEI operations are located
primarily in the Uintah Basin of eastern Utah. The transaction was accounted for
as a purchase business combination in accordance with accounting principles
generally accepted in the United States. The purchase price in excess of the
estimated fair value of the assets was assigned to goodwill. The acquisition was
financed through bank borrowings.
5
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Assets purchased and liabilities assumed were as follows:
<Table>
<Caption>
(In thousands)
Current assets $ 17,332
Property, plant and equipment 401,054
Goodwill 66,823
Other assets 124
Current liabilities (24,328)
Other liabilities (8,410)
Deferred income taxes (54,364)
Other comprehensive loss 4,723
---------
Purchase price, including acquisition costs $ 402,954
=========
</Table>
The following unaudited pro forma consolidated results of operations assume the
acquisition occurred on January 1, 2000. The pro forma combined financial
information reflect Questar's gas and oil operations restated using the
successful efforts method of accounting. In addition, the combined financial
information were adjusted for the following factors:
Adjust depreciation expense to reflect the new basis of SEI's fixed assets.
Adjust interest expense to reflect financing costs of the acquisition.
Reduce operating expenses to reflect the resignation of several SEI
executives.
Allocate a portion of corporate overhead costs to SEI
Exclude results of operations not purchased by QMR.
Calculate income tax expense based on pro forma income before income taxes.
<Table>
<Caption>
Nine Months Ended
September 30,
2001 2000
---------- ----------
(In thousands)
Revenues $1,121,076 $ 836,927
Net income 113,023 103,013
Earnings per diluted share $ 1.38 $ 1.28
</Table>
Questar Gas completed the purchase of 100% of the stock of Utah Gas Service
Company and Wyoming Industrial Gas in exchange for 390,000 shares of Questar
common stock on July 12, 2001. With the acquisition, Questar Gas will serve
about 10,500 customers in Moab, Monticello and Vernal in Utah and Kemmerer and
Diamondville, Wyoming. The acquisition cost $10.9 million, including $6 million
of goodwill, and was accounted for as a purchase.
Note 4 - Financing
QMR borrowed $403 million, including $280 million of bridge loans, to acquire
SEI. QMR expects to refinance $200 million of the temporary loans through an
offering of long-term notes sometime in the fourth quarter of 2001.
During the third quarter of 2001, Questar Gas filed a Form S-3 with the
Securities and Exchange Commission to issue up to $100 million of medium-term
notes, series D, with maturities of nine months to 30 years. On October 9, 2001,
Questar Gas issued $60 million of 11-year notes with a 6.3% coupon rate.
On May 11, 2001, Questar Pipeline filed a Form S-3 with the Securities and
Exchange Commission to issue up to $250 million of medium-term notes, Series B,
with maturities of nine months to 30 years. On May 29, 2001, Questar Pipeline
6
<Page>
issued $100 million of 10-year notes with a 7.09% coupon rate. On September 26,
Questar Pipeline issued $80 million of 10-year medium-term notes with a coupon
rate of 6.57%. Additional proceeds from the sale of notes will likely be used to
finance a portion of capital expenditures and partnership investments, estimated
at $270 million in 2001.
On March 30, 2001, Questar Pipeline redeemed $30 million of its 9 7/8%
debentures. The redemption price was equal to 104.67% of the principal amount
plus interest from December 1, 2000. In addition, Questar Pipeline redeemed $85
million of its 9 3/8% debentures on June 25, 2001. The redemption price was
equal to 104.51% of the principal amount plus twenty-four days of interest.
On October 12, 2001, Questar Pipeline borrowed $100 million for a 12-month
period. The proceeds were used to repay, through a wholly-owned subsidiary,
Questar TransColorado, Inc. (QTC), one-half of the outstanding and currently
maturing debt owed by TransColorado Gas Transmission Company (TransColorado).
QTC and KN TransColorado, Inc., a subsidiary of Kinder Morgan, each own 50%
of TransColorado's debt.
On March 6, 2001, QMR, in a public offering, issued $150 million of 7.5% notes
due 2011 and applied the proceeds toward repayment of a portion of its
outstanding floating-rate bank debt.
Note 5 - Operations by Line of Business
<Table>
<Caption>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
2001 2000 2001 2000 2001 2000
----------- ----------- ----------- ----------- ----------- -----------
(In Thousands)
REVENUES FROM UNAFFILIATED CUSTOMERS
Questar Market Resources $ 130,619 $ 166,163 $ 513,541 $ 429,723 $ 733,018 $ 545,892
Questar Regulated Services
Natural gas distribution 72,120 58,287 490,918 324,771 698,135 476,375
Natural gas transmission 12,754 10,454 35,848 30,355 47,993 39,639
Other 1,134 492 3,465 2,441 4,666 3,090
----------- ----------- ----------- ----------- ----------- -----------
Total Regulated Services 86,008 69,233 530,231 357,567 750,794 519,104
Corporate and other operations 8,515 9,721 29,146 27,071 40,898 34,842
----------- ----------- ----------- ----------- ----------- -----------
Total $ 225,142 $ 245,117 $ 1,072,918 $ 814,361 $ 1,524,710 $ 1,099,838
=========== =========== =========== =========== =========== ===========
REVENUES FROM AFFILIATES
Questar Market Resources $ 22,720 $ 21,240 $ 75,386 $ 64,642 $ 103,597 $ 87,716
Questar Regulated Services
Natural gas distribution 578 1,265 2,614 3,475 3,913 4,509
Natural gas transmission 17,710 17,733 56,563 57,097 76,042 77,427
Other 422 71 1,153 207 1,229 267
Corporate and other operations 6,655 8,818 22,881 25,865 31,602 35,158
----------- ----------- ----------- ----------- ----------- -----------
Total $ 48,085 $ 49,127 $ 158,597 $ 151,286 $ 216,383 $ 205,077
=========== =========== =========== =========== =========== ===========
OPERATING INCOME (LOSS)
Questar Market Resources $ 42,465 $ 37,403 $ 130,308 $ 86,238 $ 172,230 $ 106,338
Questar Regulated Services
Natural gas distribution (8,903) (8,883) 34,418 27,901 62,937 44,588
Natural gas transmission 14,052 13,739 43,992 43,458 57,387 57,453
Other (79) (150) 41 (66) 41 154
----------- ----------- ----------- ----------- ----------- -----------
Total Regulated Services 5,070 4,706 78,451 71,293 120,365 102,195
Corporate and other operations (490) 1,411 (2,279) 5,883 (1,562) 3,282
----------- ----------- ----------- ----------- ----------- -----------
Total $ 47,045 $ 43,520 $ 206,480 $ 163,414 $ 291,033 $ 211,815
=========== =========== =========== =========== =========== ===========
</Table>
7
<Page>
<Table>
<Caption>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
2001 2000 2001 2000 2001 2000
----------- ----------- ----------- ----------- ----------- -----------
(In Thousands)
NET INCOME (LOSS)
Questar Market Resources $ 23,051 $ 23,151 $ 82,030 $ 51,670 $ 108,168 $ 66,158
Questar Regulated Services
Natural gas distribution (7,827) (7,889) 13,365 9,496 28,032 17,160
Natural gas transmission 7,193 6,566 21,701 20,766 30,760 (6,087)
Other 703 8 1,075 240 1,179 453
----------- ----------- ----------- ----------- ----------- -----------
Total Regulated Services 69 (1,315) 36,141 30,502 59,971 11,526
Corporate and other operations (1,278) 4,570 (2,566) 16,957 (2,186) 37,354
----------- ----------- ----------- ----------- ----------- -----------
Total $ 21,842 $ 26,406 $ 115,605 $ 99,129 $ 165,953 $ 115,038
=========== =========== =========== =========== =========== ===========
</Table>
Note 6 - New Accounting Standard - "Accounting for Derivative Instruments and
Hedging Activities"
The Company adopted the accounting provisions of SFAS 133, as amended,
"Accounting for Derivative Instruments and Hedging Activities" beginning in
January 2001. SFAS 133 addresses the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts. Under the
standard, entities are required to carry all derivative instruments in the
balance sheet at fair value. The accounting for changes in fair value, which
result in gains or losses, of a derivative instrument depends on whether such
instrument has been designated and qualifies as part of a hedging relationship
and, if so, depends on the reason for holding it. If certain conditions are met,
entities may elect to designate a derivative instrument as a hedge of exposure
to changes in fair value, cash flows or foreign currencies. If the hedged
exposure is a fair-value exposure, the gain or loss on the derivative instrument
is recognized in earnings in the period of the change together with the
offsetting loss or gain on the hedged item attributable to the risk being
hedged. If the hedged exposure is a cash-flow exposure, the effective portion of
the gain or loss on the derivative instrument is reported initially as a
component of other comprehensive income in the shareholders' equity section of
the balance sheet and subsequently reclassified into earnings when the
forecasted transaction affects earnings. Any amounts excluded from the
assessment of hedge effectiveness, as well as the ineffective portion of the
gain or loss, is reported in earnings immediately.
As of January 1, 2001, the Company structured a majority of its energy
derivative instruments as cash flow hedges. As a result of adopting SFAS 133 in
January 2001, the Company recorded a $121 million hedging liability for
derivative instruments. Measured at September 30, 2001, the results of hedging
activities amounted to a $41.2 million current asset. Settlement of contracts
accounted for $68 million of the change, while a decrease in prices of gas and
oil on futures markets resulted in a $94.2 million change. The offset to the
hedging asset, net of income taxes, was a $19.3 million unrealized gain on
hedging activities recorded in other comprehensive income in the shareholder's
equity section of the balance sheet. The ineffective portion of hedging
transaction recognized in earnings was not significant. The fair-value
calculation does not consider changes in fair value of the corresponding
scheduled equity physical transactions.
The contracts at September 30, 2001 had terms extending through December 2003.
About 77% of those contracts, representing approximately $24.6 million, settle
and will be reclassified from other comprehensive income in the next 12 months.
Effective October 2001, the Company hedged $100 million of variable-rate debt by
entering into a fixed-rate interest swap for one year.
8
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Note 7 - Comprehensive Income
Comprehensive income is the sum of net income as reported in the Consolidated
Statement of Income and other comprehensive income transactions reported in
Shareholders' Equity. Other comprehensive income transactions that currently
apply result from changes in the market value of securities held for sale,
changes in the market value of energy-hedging contracts and changes in holding
value resulting from foreign currency translation adjustments. These
transactions are not the culmination of the earnings process, but result from
periodically adjusting historical balances to market value. Income or loss is
realized when the securities available for sale are sold or the gas or oil
underlying the hedging contracts is sold.
<Table>
<Caption>
3 Months Ended 9 Months Ended
September 30, September 30,
2001 2000 2001 2000
--------- --------- --------- ---------
(In thousands)
Comprehensive Income:
Net income $ 21,842 $ 26,406 $ 115,605 $ 99,129
Other comprehensive income
Unrealized gain on hedging
transactions 27,741 30,769
Unrealized gain on securities
available for sale (7,736) (17,491) (19,571) (14,915)
Foreign currency translation adjustment (1,953) (700) (2,391) (2,176)
--------- --------- --------- ---------
Other comprehensive income (loss) before
income taxes 18,052 (18,191) 8,807 (17,091)
Income taxes on other comprehensive
income (loss) 6,462 (7,049) 2,811 (7,413)
--------- --------- --------- ---------
Net other comprehensive income (loss) 11,590 (11,142) 5,996 (9,678)
--------- --------- --------- ---------
Total comprehensive income $ 33,432 $ 19,357 $ 121,601 $ 91,716
========= ========= ========= =========
</Table>
Note 8 - Reclassifications
Certain reclassifications were made to the 2000 financial statements to conform
with the 2001 presentation.
9
<Page>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
QUESTAR CORPORATION
September 30, 2001
(Unaudited)
Results of Operations
Questar Market Resources
Questar Market Resources (QMR or Market Resources) through its subsidiaries
conducts gas and oil exploration, development and production, gas gathering and
processing, and energy marketing operations. Wexpro, a subsidiary of QMR,
conducts cost of service development of gas reserves on behalf of affiliated
company, Questar Gas. Following is a summary of QMR's financial results and
operating information.
<Table>
<Caption>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
2001 2000 2001 2000 2001 2000
-------- -------- -------- -------- -------- --------
FINANCIAL RESULTS - (dollars in thousands)
Revenues
From unaffiliated customers $130,619 $166,163 $513,541 $429,723 $733,018 $545,892
From affiliates 22,720 21,240 75,386 64,642 103,597 87,716
-------- -------- -------- -------- -------- --------
Total revenues $153,339 $187,403 $588,927 $494,365 $836,615 $633,608
======== ======== ======== ======== ======== ========
Operating income $ 42,465 $ 37,403 $130,308 $ 86,238 $172,230 $106,338
Net income $ 23,051 $ 23,151 $ 82,030 $ 51,670 $108,168 $ 66,158
OPERATING STATISTICS
Production volumes
Natural gas (in million cubic feet) 18,451 17,361 50,082 51,985 67,060 68,751
Oil and natural gas liquids (in
thousands of barrels)
Questar E & P, SEI 715 562 1,732 1,679 2,278 2,220
Wexpro 108 126 347 395 473 531
Production revenue
Natural gas (per thousand cubic feet) $ 2.94 $ 2.98 $ 3.44 $ 2.55 $ 3.47 $ 2.46
Oil and natural gas liquids (per barrel)
Questar E & P, SEI $ 20.24 $ 20.06 $ 20.63 $ 20.48 $ 20.61 $ 19.47
Wexpro $ 24.08 $ 29.06 $ 26.12 $ 26.63 $ 27.15 $ 25.77
Wexpro investment base at September 30, net
of deferred income taxes (in millions) $ 153 $ 116
Marketing volumes in energy equivalent
decatherms (in thousands of decatherms) 20,758 26,943 68,310 79,148 94,794 104,300
Natural gas gathering volumes (in
thousands of decatherms)
For unaffiliated customers 21,474 23,205 68,085 68,244 92,810 88,720
For Questar Gas 8,083 7,500 26,989 26,588 37,192 36,381
For other affiliated customers 6,382 6,476 19,782 18,154 26,696 23,730
-------- -------- -------- -------- -------- --------
Total gathering 35,939 37,181 114,856 112,986 156,698 148,831
======== ======== ======== ======== ======== ========
Gathering revenue (per decatherm) $ 0.13 $ 0.13 $ 0.13 $ 0.13 $ 0.13 $ 0.13
</Table>
10
<Page>
REVENUES
Revenues were 18% lower in the third quarter of 2001 when compared with the
third quarter of 2000 due to a 23% reduction of energy marketing volumes and a
26% decrease in energy marketing prices. Gas production increased 6% over year
earlier levels while average selling prices declined 1%. Production of oil and
natural gas liquids (NGL) rose 27%, excluding Wexpro. Gas and oil production
increases resulted from the acquisition of Shenandoah Energy Inc (SEI) on July
31, 2001. The Company estimates production for the 12 months of 2001 in the
range of 83 to 85 billion cubic feet equivalent.
In the comparison of the nine month periods, revenues increased 19% in the 2001
period due to higher energy prices for natural gas production and energy
marketing transactions. Average realized gas prices were 35% higher. Gas
production declined 4% due, in part, to sales of assets in the first quarter and
a planned shift in expenditures to cost of service drilling by Wexpro.
The Company enters hedging transactions to support the earnings targets and to
protect earnings from downward moves in commodity prices. Currently, 62% of
projected gas production for the fourth quarter of 2001, including production
from SEI properties, is hedged at an average net-to-the-well price of $2.90 per
Mcf. For the first half of 2002, about 35% of natural gas production is hedged
at a price of $3.51 per Mcf. Approximately, 29% of second half 2002 gas
production is hedged at $3.40 per Mcf, net-to-the-well. The Company has hedged
65% of projected fourth quarter 2001 oil production, at an average price of
$20.19 per barrel, net-to-the-well. Approximately, 40% of forecast 2002 oil
production is hedged at an average price of $24.45 per barrel. The forecast
excludes Wexpro production and NGL production. Hedging activities reduced
revenues from gas sales by $55.8 million in the first nine months of 2001 and
revenues from oil sales by $8.2 million in the first nine months of 2001.
EXPENSES
Operating and maintenance expenses were higher in the 2001 periods presented
when compared with the corresponding 2000 periods. The expenses of operating
producing properties increased $5.1 million in the first nine months primarily
due to adding properties. Also, the expenses of operating a gas storage facility
that began operations in the third quarter of 2000 resulted in a $600,000
increase in the first nine months of 2001. However, legal costs were $4.9
million lower in the first nine months of 2001 following the settlement of a
major lawsuit in the second half of 2000. Exploration expenses were unchanged in
the nine month comparison.
Depreciation, depletion and amortization expense increased slightly in the
comparison of the third quarter and first nine months of 2001 with the prior
year periods. The average rate for the nine-month period was $.80 per energy
equivalent Mcf (Mcfe) in 2001 compared with $.79 in 2000. Other taxes increased
because of higher gas prices and the effect on production-related taxes.
OTHER INCOME
Other income includes a $10.4 million pretax gain from selling nonstrategic gas
and oil and gathering properties in the first quarter of 2001. Questar Energy
Trading recorded $1.9 million of capitalized interest in the third quarter of
2000 and a $1.6 million pretax gain from selling securities in the second and
third quarters of 2000.
NET INCOME
QMR's net income for the first nine months of 2001 improved 59% over the first
nine months of 2000. The increase resulted from higher natural gas prices and
increased earnings for Wexpro. Wexpro's net income was $2.5 million higher in
2001. Wexpro increased its investment in development-drilling projects resulting
in a $37 million increase in the Wexpro investment base since September 30,
2000.
Questar Regulated Services
Questar Gas and Questar Pipeline conduct the regulated services of natural gas
distribution, transmission and storage.
11
<Page>
Natural Gas Distribution
Questar Gas conducts natural gas distribution operations. Following is a summary
of financial results and operating information.
<Table>
<Caption>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
2001 2000 2001 2000 2001 2000
--------- --------- --------- --------- --------- ---------
FINANCIAL RESULTS - (dollars in thousands)
Revenues
From unaffiliated customers $ 72,120 $ 58,287 $ 490,918 $ 324,771 $ 698,135 $ 476,375
From affiliates 578 1,265 2,614 3,475 3,913 4,509
--------- --------- --------- --------- --------- ---------
Total revenues 72,698 59,552 493,532 328,246 702,048 480,884
Natural gas purchases 47,061 32,619 353,815 190,828 497,180 285,791
--------- --------- --------- --------- --------- ---------
Margin $ 25,637 $ 26,933 $ 139,717 $ 137,418 $ 204,868 $ 195,093
========= ========= ========= ========= ========= =========
Operating income (loss) $ (8,903) $ (8,883) $ 34,418 $ 27,901 $ 62,937 $ 44,588
Net income (loss) $ (7,827) $ (7,889) $ 13,365 $ 9,496 $ 28,032 $ 17,160
OPERATING STATISTICS
Natural gas volumes (in thousands
of decatherms)
Residential and commercial sales 6,285 7,462 54,411 50,567 87,217 77,946
Industrial sales 1,988 1,993 7,774 7,244 10,844 10,018
Transportation for industrial
customers 13,421 12,899 42,706 40,781 56,761 55,015
--------- --------- --------- --------- --------- ---------
Total deliveries 21,694 22,354 104,891 98,592 154,822 142,979
========= ========= ========= ========= ========= =========
Natural gas revenue (per decatherm)
Residential and commercial $ 8.79 $ 5.79 $ 7.87 $ 5.56 $ 7.04 $ 5.37
Industrial sales 5.45 4.25 5.39 3.46 5.15 3.35
Transportation for industrial
customers $ 0.13 $ 0.12 $ 0.13 $ 0.12 $ 0.13 $ 0.12
Heating degree days
Colder (warmer) than normal (67%) 22% (4%) (14%) 2% (12%)
Number of customers at September 30,
Residential and commercial 714,941 690,205
Industrial 1,329 1,345
--------- ---------
Total 716,270 691,550
========= =========
</Table>
REVENUES
Questar Gas' margin was 5% lower in the third quarter of 2001 when compared with
the third quarter of 2000. In the third quarter of 2000, the Company received a
$1.3 million refund of gas processing charges that reduced gas costs. The refund
represented charges from several previous quarters. The margin was $2.3 million
higher in the comparison of the nine-month periods ended September 30, 2001 and
2000 as a result of a 3.9% general rate increase, effective August 11, 2000,
increased gas deliveries and new customers. These factors more than offset a
4.6% decline in temperature-adjusted usage per customer in the same nine-month
comparison.
Total gas volumes delivered were 6% higher in the first nine months of 2001
compared with the same period of 2000. Volumes delivered to residential
customers were up 8% due to temperatures that were near normal in the 2001
period compared with 14% warmer than normal in the 2000 period and a 3.6%
increase in the number of customers. The third quarter 2001 acquisition of Utah
Gas and Wyoming Industrial Gas added about 10,500 customers. The Company expects
its customer base at December 31, 2001 will be 25,000 to 28,000 above the
previous year.
12
<Page>
EXPENSES
Operating and maintenance expenses were lower in the 2001 periods when compared
with the 2000 periods presented due primarily to lower labor costs resulting
from an early retirement program effective October 31, 2000. The reduction of
labor costs amounted to about $4 million in the first nine months of 2001
partially offset by a $1.3 million increase in bad debt costs. Bad debt costs
have risen in the last 12 months because of the convergence of higher gas
prices, increasing number of customers and higher frequency of personal and
business bankruptcies. Management is closely monitoring its receivables and is
enforcing its credit policies to minimize future uncollectible receivables.
Depreciation expense was lower in the 2001 periods when compared with the same
periods in 2000 due to computer equipment and software being fully depreciated.
Other taxes decreased 13% in the first nine months of 2001 due to an adjustment
of prior year taxes in 2000.
OTHER INCOME
Interest and other income was higher in the 2001 periods when compared with the
prior year periods primarily due to interest earned on the undercollected
purchased-gas adjustment balance and the investment in gas stored underground.
Natural Gas Transmission
Questar Pipeline conducts the natural gas transmission, storage and processing
operations. Following is a summary of financial results and operating
information.
<Table>
<Caption>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
2001 2000 2001 2000 2001 2000
--------- --------- --------- --------- --------- ---------
FINANCIAL RESULTS - (dollars in thousands)
Revenues
From unaffiliated customers $ 12,754 $ 10,454 $ 35,848 $ 30,355 $ 47,993 $ 39,639
From affiliates 17,710 17,733 56,563 57,097 76,042 77,427
--------- --------- --------- --------- --------- ---------
Total revenues $ 30,464 $ 28,187 $ 92,411 $ 87,452 $ 124,035 $ 117,066
========= ========= ========= ========= ========= =========
Operating income $ 14,052 $ 13,739 $ 43,992 $ 43,458 $ 57,387 $ 57,453
Net income (loss) $ 7,193 $ 6,566 $ 21,701 $ 20,766 $ 30,760 $ (6,087)
OPERATING STATISTICS
Natural gas transportation volumes (in
thousands of decatherms)
For unaffiliated customers 53,516 44,228 143,522 109,126 193,000 145,987
For Questar Gas 14,303 13,357 78,735 73,718 113,200 103,262
For other affiliated customers 1,981 2,436 3,986 5,437 6,919 8,126
--------- --------- --------- --------- --------- ---------
Total transportation 69,800 60,021 226,243 188,281 313,119 257,375
========= ========= ========= ========= ========= =========
Transportation revenue (per decatherm) $ 0.27 $ 0.28 $ 0.25 $ 0.28 $ 0.24 $ 0.28
</Table>
REVENUES
Revenues were higher in the 2001 periods compared with the 2000 periods due
primarily to increased revenues from transportation operations and gas
processing operations. Transportation revenues increased 5% in the third quarter
and first nine months of 2001 compared with the 2000 periods primarily from
increased demand for firm-transportation service. Firm-transportation volumes
reached 64.5 million decatherms (MMDth) in the third quarter of 2001, which was
20% higher than the third quarter of 2000. In the first nine months of 2001,
firm-transportation volumes were 212.9 MMDth or 23% higher when compared with
the prior-year period as a result of increased regional demand and power
13
<Page>
generation. A refund of gas processing fees reduced third quarter 2000 revenues
by $1.3 million. Processing fees are determined on a cost-of-service basis and
the refund was a result of lower depreciation expense.
EXPENSES
Operating and maintenance (O & M) expenses were higher in the 2001 periods when
compared with the 2000 periods reported primarily because of legal fees,
increased transportation activities accompanying the rise in gas volumes, gas
processing costs and expenses associated with Questar Southern Trails Pipeline
Company. The Company and its subsidiaries have incurred legal costs of $.8
million in the third quarter and $2.1 million in the nine-month period of 2001,
primarily associated with defending its position in the TransColorado lawsuit.
Fuel gas and other expenses of the gas processing activities increased $.7
million in the first nine months of 2001. Maintenance expenses for the Southern
Trails Pipeline were $.4 million higher in the 2001 period. These increases in
the first nine months of 2001 were partially offset by $1.8 million of reduced
costs resulting from an early retirement program effective October 31, 2000.
Depreciation expense was higher in the 2001 periods compared with the 2000
periods as a result of an adjustment recorded in the third quarter 2000.
OTHER INCOME
Interest and other income for the 2001 periods were higher than the 2000 periods
primarily from increased AFUDC (capitalized financing costs) associated with
Questar Pipeline's construction projects. Earnings from unconsolidated
affiliates includes the Company's share of operating losses from the
TransColorado Pipeline partnership of $.5 million in the third quarter and $2.2
million for the first nine months of 2001.
Consolidated Results of Operations
REVENUES
Revenues in the third quarter of 2001 were 8% below the amount reported in
the third quarter of 2001 due primarily to a 23% reduction of energy
marketing volumes and a 26% decrease in energy marketing prices. In the
comparison of the nine-month periods ended September 30, revenues were 32%
higher in 2001 as a result of higher prices for gas production and increased
prices and volumes associated with gas delivered to distribution customers.
EXPENSES
The cost of natural gas and other products sold, primarily includes natural
gas distribution and energy marketing activities, was lower in the third
quarter of 2001due to a decrease in energy costs and volumes. The cost of
natural gas and other products sold was higher in the nine-month period ended
September 30, 2001, primarily due to increased volumes and costs of
deliveries to gas distribution customers.
Operating and maintenance expenses were higher in the 2001 periods presented
when compared with the same periods in 2000 primarily due to adding gas and oil
properties and a storage facility, increasing the number of natural gas
customers and acquiring an internet services business. Consonus, an internet
services business acquired mid-year 2000, recorded a $1.8 million restructuring
charge in 2001. Consonus reported after tax losses of $1.7 million in the third
quarter and $5.4 million in the first nine months of 2001 due to lower internet
service revenues and higher expenses. Labor cost savings from an
early-retirement program offered to qualifying employees partially offset the
increases discussed.
Depreciation, depletion and amortization expense increased slightly in the 2001
periods presented when compared with the prior year as a result fully
depreciating several information systems in 2000 and extending the estimated
useful life of a processing plant. Amortization of goodwill was $1.0 million
higher in the first nine months of 2001when compared with the same period of
2000.
Other taxes increased because of higher gas prices and the effect on
production-related taxes. Debt expense was higher in the third quarter of
2001 because of increased borrowings, primarily to fund an acquisition, that
more than offset lower rates.
14
<Page>
OTHER INCOME
In the first quarter of 2001, the Company sold nonstrategic gas and oil and
gathering properties and realized a $10.4 million pretax gain. In the first nine
months of 2000, the Company recorded a $23.4 million pretax gain from selling
securities. The sales of securities resulted in after tax gains of $4.1 million
and $14.3 million in the third quarter and first nine months of 2000,
respectively. In the third quarter of 2001, the Company wrote down its
investment in securities by $1.5 million. There were no securities sales in the
first half of 2001.
The effective income tax rate for the first nine months was 36.4% in 2001 and
35.2% in 2000. The Company recognized $5.1 million of nonconventional fuel tax
credits in the 2001 period and $4.7 million in the 2000 period.
Liquidity and Capital Resources
Operating Activities
Net cash provided from operating activities for the first nine months of 2001
was $53.2 million higher than the amount generated in the same period of 2000.
Increased net income, collection of cash deposited as collateral for qualifying
hedges and collection of receivables were the primary explanations of the
increase.
Investing Activities
A comparison of capital expenditures for the first nine months of 2001 and 2000
plus an estimate for calendar year 2001 is presented below. Capital expenditures
for calendar year 2001 are estimated to be $987 million.
<Table>
<Caption>
Forecast
Actual 12 Months
9 Months Ended Ended
September 30, Dec. 31,
2001 2000 2001
-------- -------- -------
(In Thousands)
Questar Market Resources $547,937 $132,166 620,200
Questar Regulated Services
Natural gas distribution 53,332 46,123 76,200
Natural gas transmission 90,827 32,285 278,500
Other 1,783 588 4,800
-------- -------- -------
Total Questar Regulated Services 145,942 78,996 359,500
Corporate and other operations 5,649 10,010 7,300
-------- -------- -------
$699,528 $221,172 $987,000
======== ======== ========
</Table>
Financing Activities
In the first nine months of 2001, investing activities exceeded net cash
provided from operating activities by $398.2 million as a result of acquiring
SEI for $403 million of cash including assumed debt. The Company financed the
acquisition through bank borrowings. Financing for the remaining capital
expenditures forecasted for 2001 is expected to come from cash provided from
operating activities, bank borrowings and issuing long-term debt.
Short-term borrowings at September 30, 2001 were comprised of $355.4 million of
commercial paper and $110.4 million of short-term bank loans. A year earlier,
the Company had issued $152.5 million of commercial paper . In July 2001, QMR
borrowed $403 million to finance its acquisition of SEI. QMR expects to
refinance $200 million of temporary loans through an offering of long-term notes
sometime in the fourth quarter of 2001. On March 6, 2001, Questar Market
Resources issued $150 million of medium-term notes and used the proceeds to
repay $139 million of long-term bank
15
<Page>
loans. On May 11, 2001, Questar Pipeline filed a Form S-3 with the Securities
and Exchange Commission to issue up to $250 million of medium-term notes with
maturities from nine months to 30 years. Questar Pipeline issued $100 million of
medium-term notes on May 29 and $80 million on September 26. Questar Gas issued
$60 million of medium-term notes on October 9, 2001.
Regulatory Matters
On October 23, 2001, the Utah Supreme Court unanimously reversed a Public
Service Commission of Utah (PSCU) decision and agreed with Questar Gas' position
that certain gas processing costs should have been considered for recovery
through usual pass-through proceedings. In December 1999, PSCU denied the
Company's request to recover certain costs of processing gas to remove carbon
dioxide on procedural grounds. In denying the Company's request, the PSCU
provided guidance to seek recovery of future processing fees through other rate
making procedures. The Company filed a general rate case that, when settled in
August 2000, provided $5 million yearly toward processing costs. The Company
appealed to the Utah Supreme Court, maintaining that the gas-balancing account
and pass-through proceedings were the proper mechanisms for recovering those
processing costs. The Court's decision sends the case back to the PSCU and
allows the opportunity for the Company to seek recovery of incurred costs. The
Company does not know if its further requests for recovery will be contested on
other grounds.
On August 30, 2001, the Company filed a pass-on request with the Public Service
Commission of Wyoming (PSCW) seeking a $4.6 million reduction of future gas
costs collected in rates. The PSCW approved the request. On September 17, 2001,
Questar Gas filed a pass-through request with the PSCU that will reduce gas
costs in Utah rates by $110.9 millions over the 12 months following an October
1, 2001 effective date. The PSCU gave tentative approval of the request.
Business Development
On October 5, 2001, QMR announced an agreement with Western Gas Resources, Inc.
to form a joint venture that will provide gas gathering and compression services
to the Hoback Basin, including Pinedale Anticline and Jonah Field areas in
southwest Wyoming. A subsidiary of Questar Gas Management (QGM) and a subsidiary
of Western Gas Resources have formed Rendezvous Gas Services, L.L.C. Each entity
will contribute certain assets to the joint venture and Rendezvous will
construct and operate gas pipeline and compression facilities with the capacity
to transport approximately 275 MMcf per day of gas product from Hoback Basin. In
addition, the joint venture will deliver gas for blending and processing
services to Granger and Blacks Fork processing plants. QGM is a 50% owner and
the operator of the Blacks Fork processing plant. Western Gas Resources owns the
Granger plant.
Quantitative and Qualitative Disclosures about Market Risk
QMR's primary market-risk exposures arise from commodity-price changes for
natural gas, oil and other hydrocarbons and changes in long-term interest rates.
The Company has an investment in a foreign operation that subjects it to
exchange-rate risk. QMR also has reserved pipeline capacity for which it is
obligated to pay $3 million annually for the next several years, regardless of
whether it is able to market the capacity to others.
HEDGING POLICY
The Company has established policies and procedures for managing market risks
through the use of commodity-based derivative arrangements. Primary objectives
of these hedging transactions are to support the Company's earnings targets and
to protect earnings from downward moves in commodity prices. The Company will
target between 50 and 75% of the current year's production to be hedged at or
above budget levels by the end of March in the current year. The Company will
ladder in these hedges, to reach forward beyond the current year when price
levels are attractive. The volume of production hedged and the mix of derivative
instruments employed are regularly evaluated and adjusted
16
<Page>
by management in response to changing market conditions and reviewed
periodically by the Board of Directors. Additionally, under the terms of the
Market Resources' revolving credit facility, not more than 75% of Market
Resources' production quantities can be committed to hedging arrangements. The
Company does not enter into derivative arrangements for speculative purposes.
ENERGY-PRICE RISK MANAGEMENT
Oil and natural gas prices fluctuate in response to changes in supply and
demand. Market Resources bears a majority of the risk associated with commodity
price changes and uses hedge arrangements in the normal course of business to
limit the risk of adverse price movements. However, these same arrangements
usually limit future gains from favorable price movements.
QMR held hedge contracts covering the price exposure for about 69.1 million dth
of gas and 1.4 million barrels of oil at September 30, 2001. A year earlier the
contracts covered 49.8 million dth of natural gas and 1.3 million barrels of
oil. The hedging contracts exist for a significant share of QMR-owned gas and
oil production and for a portion of energy-marketing transactions. A portion of
the contracts at September 30, 2001 had terms extending through December 2003.
About 77% of those contracts, representing approximately $24.6 million, settle
and will be reclassified from other comprehensive income in the next 12 months.
The undiscounted mark-to-market adjustment of financial gas and oil
price-hedging contracts at September 30, 2001 was a positive $33.1 million. A
10% decline in gas and oil prices would add $12.6 million to the mark-to-market
calculation; while a 10% increase in prices would deduct $12.7 million. The
mark-to-market adjustment of gas and oil price-hedging contracts at September
30, 2000 was a negative $80.8 million. A 10% decline in gas and oil prices at
that time would decrease the mark-to-market adjustment by $18.9 million to $61.9
million. Conversely, a 10% increase in prices would have resulted in an $18.8
million negative mark-to-market adjustment to a negative $99.6 million balance
at that date. The calculations reflect energy prices posted on the NYMEX,
various "into the pipe" postings, and fixed prices on the indicated dates. These
sensitivity calculations do not consider changes in the fair value of the
corresponding scheduled physical transactions (i.e., the correlation between the
index price and the price to be realized for the physical delivery of gas or oil
production), which should largely offset the change in value of the hedge
contracts.
INTEREST-RATE RISK MANAGEMENT
As of September 30, 2001, the Company owed $172 million of variable-rate
long-term debt. The book value of variable-rate debt approximates fair value.
Effective October 2001, the Company hedged $100 million of variable-rate debt by
entering a fixed-rate interest swap for one year.
SECURITIES AVAILABLE FOR SALE
Securities available for sale represent equity securities of high-tech and
communication enterprises traded on national exchanges. In 2001, the value of
these investments has decreased dramatically and is reflected in comprehensive
income. In the third quarter of 2001, as a result of market value falling below
book basis for two consecutive quarters, the Company wrote down its investment
in XO Communications $1.5 million. A 10% change in prices of the entire
portfolio would result in a $1.2 million change of value as of September 30,
2001.
FOREIGN CURRENCY RISK MANAGEMENT
The Company does not hedge the foreign currency exposure of its foreign
operation's net assets and long-term debt. Long-term debt held by the foreign
operation, amounting to $35.5 million (U.S.), is expected to be repaid from
future operations of the foreign company.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard (SFAS) 141, "Business Combinations," which
addresses financial accounting and reporting for business combinations.
17
<Page>
SFAS 141 is effective for all business combinations initiated after June 30,
2001 and for all business combinations accounted for under the pooling method
initiated before but completed after June 30, 2001. The Company complied with
this new accounting pronouncement in recording two acquisitions closed in the
third quarter of 2001.
In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets,"
which addresses, among other things, the financial accounting and reporting for
goodwill subsequent to an acquisition. The new standard eliminates the
requirement to amortize acquired goodwill; instead, such goodwill shall be
reviewed at least yearly for impairment. SFAS 142 is effective for fiscal years
beginning after December 15, 2001. In 2001, the Company will continue to
amortize goodwill acquired prior to July 1, 2001, but will not amortize goodwill
acquired subsequent to July 1, 2001. The Company has not yet fully evaluated the
impact the remaining provisions of SFAS 142.
In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations," which addresses, among other things, the financial accounting and
reporting of the fair value of legal obligations associated with the retirement
of tangible long-lived assets. The new standard requires that retirement costs
be estimated at fair value, capitalized and depreciated over the life of the
assets. The new standard may affect the cost basis of gas and oil and
rate-regulated assets. SFAS 143 is effective for years beginning after June 15,
2002. The Company has not evaluated the impact of SFAS 143.
In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The new standard addresses financial accounting
and reporting for the impairment or disposal of long-lived assets, specifically,
for a segment of a business accounted for as a discontinued operation. SFAS 144
is effective for years beginning after December 15, 2001. The Company has not
evaluated the impact of SFAS 144.
Forward-Looking Statements
This report includes "forward-looking statements" within the meaning of Section
27(a) of the Securities Act of 1933, as amended, and Section 21(e) of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included or incorporated by reference in this
report, including, without limitation, statements regarding the Company's future
financial position, business strategy, budgets, projected costs and plans and
objectives of management for future operations, are forward-looking statements.
In addition, forward-looking statements generally can be identified by the use
of forward-looking terminology such as "may", "will", "could", "expect",
"intend", "project", "estimate", "anticipate", "believe", "forecast", or "
"continue" or the negative thereof or variations thereon or similar terminology.
Although these statements are made in good faith and are reasonable
representations of the Company's expected performance at the time, actual
results may vary from management's stated expectations and projections due to a
variety of factors.
Important assumptions and other significant factors that could cause actual
results to differ materially from those expressed or implied in forward-looking
statements include changes in general economic conditions, gas and oil prices
and supplies, competition, rate and regulatory issues, regulation of the Wexpro
settlement agreement, availability of gas and oil properties for sale or for
exploration and other factors beyond the control of the Company. These other
factors include the rate of inflation, quoted prices of securities available for
sale, the weather and other natural phenomena, the effect of accounting policies
issued periodically by accounting standard-setting bodies, possible adverse
repercussions from terrorist attacks or acts of war, and adverse changes in the
business or financial condition of the Company.
18
<Page>
Part II
Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. The following exhibit has been filed as part of this report.
<Table>
<Caption>
Exhibit No. Exhibit
----------- -------
3. Bylaws (as amended effective October 25, 2001).
</Table>
b. The Company did not file any Current Reports on Form 8-K during the
quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUESTAR CORPORATION
(Registrant)
NOVEMBER 13, 2001 /s/R. D. Cash
- ----------------- ---------------------------------------
(Date) R. D. Cash
Chairman of the Board and
Chief Executive Officer
NOVEMBER 13, 2001 /s/S. E. Parks
- ----------------- ---------------------------------------
(Date) S. E. Parks
Senior Vice President, Treasurer and
Chief Financial Officer
19
<Page>
EXHIBIT INDEX
<Table>
<Caption>
Exhibit
Number Exhibit
- ------- -------
3. Bylaws (as amended effective October 25, 2001). (Exhibit No. 3.2. Form
10-K Annual Report for 2000.)
</Table>