SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1994
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 First South, Salt Lake City, Utah84145-0433
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(801) 534-5000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of April 30, 1994
Common Stock, without par value 40,256,423 shares
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
3 Months Ended 12 Months Ended
March 31, March 31,
1994 1993 1994 1993
(In Thousands, Except Per Share Amounts)
REVENUES $223,309 $245,537 $638,202 $613,752
OPERATING EXPENSES
Natural gas purchases 93,784 109,125 209,159 206,880
Operating and maintenance 41,935 44,107 166,663 159,103
Depreciation and amortization 21,875 20,092 88,541 75,749
Other taxes 10,240 8,639 33,644 27,623
TOTAL OPERATING EXPENSES 167,834 181,963 498,007 469,355
OPERATING INCOME 55,475 63,574 140,195 144,397
INTEREST AND OTHER INCOME 1,579 769 4,442 5,216
DEBT EXPENSE (8,970) (8,701) (34,253) (35,756)
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 48,084 55,642 110,384 113,857
INCOME TAXES 16,991 19,621 30,848 34,928
INCOME FROM CONTINUING OPERATIONS 31,093 36,021 79,536 78,929
LOSS FROM DISCONTINUED OPERATIONS (898) (1,874) (2,626)
NET INCOME $31,093 $35,123 $77,662 $76,303
EARNINGS PER COMMON SHARE
Income from continuing operations $0.77 $0.90 $1.97 $1.97
Loss from discontinued operations (0.02) (0.05) (0.06)
Net income $0.77 $0.88 $1.92 $1.91
Dividends per common share $0.275 $0.265 $1.10 $1.05
Average common shares outstanding 40,199 39,845 40,145 39,729
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1994 1993 1993
(In Thousands)
ASSETS
Current assets
Cash and short-term investments $516 $6,365
Accounts receivable 139,360 $124,326 138,866
Inventories 20,781 14,473 29,928
Other current assets 9,727 13,413 11,384
Total current assets 170,384 152,212 186,543
Property, plant and equipment 2,126,011 1,901,677 2,024,394
Less allowances for depreciation and
amortization 893,861 816,536 871,734
Net property, plant and equipment 1,232,150 1,085,141 1,152,660
Investment in discontinued
operations 30,667 26,872 29,498
Other assets 48,448 38,722 48,986
$1,481,649 $1,302,947 $1,417,687
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $2,180
Short-term loans $119,300 14,000 $78,300
Accounts payable and accrued
expenses 114,311 97,373 119,064
Purchased-gas adjustments 42,468 45,901 25,727
Total current liabilities 276,079 159,454 223,091
Long-term debt 377,672 377,473 371,713
Other liabilities and deferred
credits 45,910 13,577 45,632
Deferred income taxes and investment
tax credits 150,085 162,527 167,784
Redeemable cumulative preferred
stock 7,524 8,726 7,525
Common shareholders' equity
Common stock 305,546 296,388 303,503
Retained earnings 379,651 346,207 359,637
Treasury stock, at cost (34,016) (32,986) (34,396)
Note receivable from ESOP (26,802) (28,419) (26,802)
Total common shareholders' equity 624,379 581,190 601,942
$1,481,649 $1,302,947 $1,417,687
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
3 Months Ended
March 31,
1994 1993
(In Thousands)
OPERATING ACTIVITIES
Net income $31,093 $35,123
Depreciation and amortization 22,915 21,173
Deferred income taxes and investment
tax credits (11,285) (4,717)
Loss from discontinued operations 898
42,723 52,477
Change in operating assets and liabilities 19,677 24,938
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 62,400 77,415
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant and equipment (114,930) (19,179)
Investment in discontinued operations (1,169) (800)
Other investments (63) (153)
Total capital expenditures (116,162) (20,132)
Proceeds from disposition of property,
plant and equipment 9,611 413
CASH USED IN INVESTING ACTIVITIES (106,551) (19,719)
FINANCING ACTIVITIES
Issuance of common stock 2,612 3,225
Purchase of treasury stock (189) (362)
Redemption of preferred stock (1)
Issuance of long-term debt 13,000 102,000
Repayment of long-term debt (7,041) (105,121)
Increase (decrease) in short-term loans 41,000 (56,000)
Payment of dividends (11,211) (10,744)
Other 132 138
CASH USED IN FINANCING ACTIVITIES 38,302 (66,864)
CHANGE IN CASH AND SHORT-TERM
INVESTMENTS, AND CHECKS OUTSTANDING
IN EXCESS OF CASH BALANCES ($5,849) ($9,168)
QUESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1994
Note A - Basis of Presentation
The interim financial statements furnished reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation of
the results for the interim periods presented. All such adjustments are
of a normal recurring nature. Due to the seasonal nature of the business,
the results of operations for the three-month period ended March 31, 1994,
are not necessarily indicative of the results that may be expected for the
year ended December 31, 1994. 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, 1993.
Note B - Discontinued Operations
In October 1993, Questar reached an agreement with Nextel Communications
to sell Questar's entire interest in Questar Telecom for approximately 3.9
million shares of Nextel common stock. This sale is expected to close in
the first half of 1994. Since Questar Telecom represented all of
Questar's specialized mobile radio operations, these operations have been
disclosed as discontinued operations on Questar's financial statements.
Prior financial statements have been reclassified to present the
discontinued operations as a single line on both the income statement and
balance sheet. Losses subsequent to September 1993 have been deferred
until the sale is recorded since the Company expects to report a gain on
the transaction.
Note C - Acquisitions of Oil and Gas Properties
The Company completed two acquisitions of oil and natural gas reserves for
$95,591,000 in the first quarter of 1994. These acquisitions added a net
113.5 Bcfe of oil and natural gas reserves. Questar borrowed $50 million
under a bridge-loan agreement with a bank to finance a portion of the oil
and gas reserve acquisitions. This loan expires December 31, 1994, and is
expected to be repaid with proceeds from borrowing under an expansion of
the existing production-based credit facility. Other sources of funds for
the reserve acquisitions included $15 million short-term and $6 million
long-term borrowings under the E&P group's production-based credit
facility, and other short-term bank and commercial paper borrowings.
Note D - Accounting for Postemployment Benefits
Effective January 1, 1994, the Company recorded a liability for
postemployment disability and health care benefits in compliance with the
Statement of Financial Accounting Standards No. 112. The effect on net
income was not significant since the majority of the $3,268,000 liability
was offset with a regulatory asset because both Questar Pipeline and
Mountain Fuel expect to include these costs in future rates.
QUESTAR CORPORATION AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS
March 31, 1994
Exploration and Production Operations --
Celsius Energy, Universal Resources and Wexpro (E&P group) conduct the
Company's exploration and production operations. Following is a summary
of financial results and operating information.
3 Months Ended 12 Months Ended
March 31, March 31,
1994 1993 1994 1993
(Dollars in Thousands)
FINANCIAL RESULTS
Revenues
From unaffiliated customers $66,061 $57,670 $226,060 $191,545
From affiliates 19,844 14,347 64,275 56,022
Total revenues $85,905 $72,017 $290,335 $247,567
Operating income $15,081 $11,446 $53,022 $44,648
Net income 10,477 8,281 38,521 29,780
OPERATING STATISTICS
Production volumes -
Natural gas (in million
cubic feet) 7,858 7,581 32,576 26,496
Oil and natural gas liquids
(in thousands of barrels) 512 429 2,058 2,014
Production revenue
Natural gas (per thousand
cubic feet) $2.10 $1.87 $1.91 $1.70
Oil and natural gas liquids
(per barrel) 12.85 18.04 15.44 18.58
Gas marketing volumes (in
thousands of decatherms) 21,739 18,546 68,336 66,026
Natural gas production volumes increased 4% in the first quarter of 1994
over the same quarter of 1993 because of the acquisition of natural gas
reserves and cold weather in the eastern United States, which increased
demand from the mid-continent producing area.
The E&P group received revenue of $2.10 per Mcf of gas production in the
first quarter of 1994 compared with $1.87 in the first quarter of 1993.
The price of natural gas increased because of strong demand for gas
throughout the eastern United States.
Oil and natural gas liquid production increased 19% in the first quarter
of 1994 over the 1993 quarter due to the completion of several natural gas
liquid processing plants that were not on line in the first quarter of
1993. The increased production was offset by reduced oil and natural gas
liquid prices, which were down 29% from the 1993 quarter to $12.85 per
barrel.
Universal Resources completed two acquisitions of oil and natural gas
reserves for $95,591,000 in the first quarter of 1994. These acquisitions
added a net 113.5 Bcfe of oil and natural gas reserves, or a 45% increase
over the nonutility reserves at December 31, 1993. Because of these
acquisitions, the E&P group expects to increase production volumes during
the remainder of 1994.
Gas marketing volumes increased 17% in the first quarter of 1994 over the
first quarter of 1993 as a result of increased national demand for natural
gas.
Natural Gas Transmission Operations --
Questar Pipeline conducts the Company's natural gas transmission,
gathering and storage operations. Following is a summary of financial
results and operating information.
3 Months Ended 12 Months Ended
March 31, March 31,
1994 1993 1994 1993
(Dollars in Thousands)
FINANCIAL RESULTS
Revenues
From unaffiliated customers $8,587 $10,033 $39,908 $41,645
From affiliates 19,163 68,118 81,319 169,248
Total revenues $27,750 $78,151 $121,227 $210,893
Operating income $11,663 $14,738 $46,176 $48,113
Net income 5,508 7,382 21,401 22,849
OPERATING STATISTICS
Natural gas volumes (in thousands
of decatherms)
Transportation
For Mountain Fuel 36,860 13,259 88,662 35,432
For other customers 31,203 38,871 141,520 168,153
Total transportation 68,063 52,130 230,182 203,585
Sales for resale to Mountain
Fuel 21,039 3,298 42,285
Total system throughput 68,063 73,169 233,480 245,870
Gathering
For Mountain Fuel 12,065 20,989 35,508 44,252
For other customers 11,783 7,590 52,529 31,020
Total gathering 23,848 28,579 88,037 75,272
Natural gas revenues (per decatherm)
Transportation $0.23 $0.23 $0.24 $0.22
Sales for resale 2.70 7.57 3.22
Gathering 0.23 0.22 0.22 0.24
Questar Pipeline began operating under Federal Energy Regulatory
Commission (FERC) Order 636 effective September 1, 1993. At that time
Questar Pipeline unbundled its transportation, gathering and storage
services and eliminated its sales-for-resale function. Under the Order
636 operating environment, firm transportation and gathering volumes do
not have a significant impact on current operating results since 94% of
the cost of service is recovered in the demand component of rates using
the straight fixed-variable rate design. Since this demand component is
collected equally each month of the year, revenues collected using the
straight fixed-variable rate design in the high-volume first quarter are
less than those collected under the rate design in effect during the first
quarter of 1993. The straight fixed-variable rate design should result in
increased revenues during the second and third quarters of 1994, compared
to the same quarters of 1993.
Deliveries to Mountain Fuel (including transportation and sales for
resale) were higher in the periods ended March 31, 1994, due to gas
transported to storage reservoirs. Transportation for other customers was
lower in the 1994 periods because Order 636 rate design changes reduced
volumes for interruptible customers.
Gathering volumes for Mountain Fuel decreased in the first quarter of
1994; however, gathering for other customers increased. In April 1994,
the FERC approved a gathering agreement between Questar Pipeline and
Mountain Fuel, which will allocate 60% of the gathering cost of service to
the demand component of rates and 40% to the commodity component.
Gathering revenues will be increased in the second quarter of 1994,
retroactive to September 1, 1993.
Natural Gas Distribution --
Mountain Fuel conducts the Company's natural gas distribution operations.
Following is a summary of financial results and operating information.
3 Months Ended 12 Months Ended
March 31, March 31,
1994 1993 1994 1993
(Dollars in Thousands)
FINANCIAL RESULTS
Revenues
From unaffiliated customers $148,318 $177,522 $371,021 $379,651
From affiliates 697 461 2,402 3,745
Total revenues $149,015 $177,983 $373,423 $383,396
Operating income $27,776 $36,734 $37,551 $48,974
Net income 15,098 20,465 19,702 26,806
OPERATING STATISTICS
Natural gas volumes (in thousands
of decatherms)
Residential and commercial sales 30,138 36,433 73,074 73,194
Industrial sales 2,217 1,738 6,993 5,440
Transportation for industrial
customers 13,271 17,014 49,362 53,694
Total deliveries 45,626 55,185 129,429 132,328
Natural gas revenue (per
decatherm)
Residential and commercial $4.54 $4.56 $4.53 $4.67
Industrial sales 3.23 4.08 3.11 3.64
Transportation for industrial
customers 0.12 0.10 0.12 0.11
Heating degree days
Actual 2,307 3,167 5,213 5,649
Normal 2,743 2,963 5,583 5,803
Number of customers at end of
period 553,507 533,881
Heating degree days were 16% warmer than normal in the first quarter of
1994 compared with 7% colder than normal in the first quarter of 1993.
This resulted in a 17% decrease in natural gas volumes sold to residential
and commercial customers. The effect of warmer weather was partially
offset by a 3.7% increase in the number of customers.
Volumes delivered to industrial customers decreased 17% in the first
quarter of 1994 compared with the same quarter of 1993. Natural gas
demand for electric generation and some other customers was lower because
of the warmer weather. Usage by several major metal and chemical
customers was also lower during the quarter.
Mountain Fuel's allowed return on equity for Utah operations was reduced
from 12.1% to 11% effective January 1, 1994, by the Public Service
Commission of Utah in a general rate case order. The Company also changed
the way that revenues for residential and commercial customers are
recorded from an "as-billed" to an "as-delivered" basis. This had the
effect of decreasing earnings in the first quarter of 1994 by
approximately $2 million, and is expected to increase earnings for the
remainder of the year.
Discontinued Operations -
In October 1993, Questar reached an agreement with Nextel Communications
to sell Questar's entire interest in Questar Telecom for approximately 3.9
million shares of Nextel common stock. This sale is expected to close in
the first half of 1994. Since Questar Telecom represented all of
Questar's specialized mobile radio operations, these operations have been
disclosed as discontinued operations on Questar's financial statements.
Prior financial statements have been reclassified to present the
discontinued operations as a single line on both the income statement and
balance sheet. Losses subsequent to September 1993 have been deferred
until the sale is recorded since the Company expects to report a gain on
the transaction.
Consolidated Results of Operations --
Consolidated revenues decreased in the first quarter of 1994 compared with
the first quarter of 1993 because of reduced natural gas deliveries by
Mountain Fuel and other factors noted in the natural gas transmission and
natural gas distribution sections. These decreases were partially offset
by increased exploration and production revenues from natural gas
production and marketing. Consolidated revenues increased in the 12 months
ended March 31, 1994, compared with the prior year period primarily
because of increased natural gas production and prices by the E&P group.
Natural gas purchases were lower in the first quarter of 1994 compared
with the first quarter of 1993 because of reduced deliveries by Mountain
Fuel. Natural gas purchases were higher in the 12 months ended March 31,
1994, compared with the same 1993 period because of increased natural gas
marketing by the E&P group and higher sales volumes by Mountain Fuel.
Operating and maintenance expenses were 5% lower in the first quarter of
1994 compared with the first quarter of 1993. The decrease was a result
of a credit received by the E&P group from the recovery of injected gas in
the Powell field and lower variable costs due to lower natural gas
transmission throughput and natural gas distribution deliveries.
Operating and maintenance expenses increased 5% in the 12 months ended
March 31, 1994, compared with the 1993 period because of increased
customers and service territory for Mountain Fuel, the recording of
postretirement medical and life insurance benefits on an accrual basis,
increased natural gas production by the E&P group and new activities
required of Questar Pipeline and Mountain Fuel as a result of
restructuring under FERC Order 636.
Depreciation and amortization increased in the periods ended March 31,
1994, because of increased natural gas and oil production and increased
investment in property, plant and equipment by all lines of business.
Other taxes were higher in the periods ended March 31, 1994, because of
the increased production volumes.
The effective income tax rate was 35.3% in both the first quarter of 1994
and 1993. The Company recognized $2,260,000 of tight-sands gas production
tax credits in the 1994 period and $1,709,000 in the 1993 period.
Effective January 1, 1994, the Company recorded a liability for
postemployment disability and health care benefits in compliance with the
Statement of Financial Accounting Standards No. 112. The effect on net
income was not significant since the majority of the $3,268,000 liability
was offset with a regulatory asset because both Questar Pipeline and
Mountain Fuel expect to include these costs in future rates.
Liquidity and Capital Resources --
Net cash provided from operating activities was $62,400,000 for the first
quarter of 1994 compared with $77,415,000 for the same period of 1993.
The decrease was due to lower net income, a larger reduction in deferred
income taxes and lower sources of cash from changes in working capital
accounts.
Capital expenditures were $116,162,000 in the first quarter of 1994,
compared with $20,132,000 in the first quarter of 1993. Capital
expenditures for the calendar year 1994 are estimated as follows:
(In Millions)
Exploration and production $160.0
Natural gas transmission 70.9
Natural gas distribution 51.4
Other operations 17.7
$300.0
The first quarter capital expenditures included purchases of oil and gas
reserves and related properties by Universal Resources as follows:
(In Thousands)
Purchase of properties from Petroleum Inc. $21,804
Purchase of Amax Oil and Gas Northern Division
properties from Union Pacific Resources Corporation 88,087
Exercise of option to purchase Amax's Colorado properties
by the Southern Ute Indian Tribe (14,300)
$95,591
Questar borrowed $50 million under a bridge-loan agreement with a bank to
finance a portion of the oil and gas reserve acquisitions. This loan
expires December 31, 1994, and is expected to be repaid with proceeds from
borrowing under an expansion of the existing production-based credit
facility. Other sources of funds for the reserve acquisitions included
$15 million short-term and $6 million long-term borrowings under the E&P
group's production-based credit facility, and other short-term bank and
commercial paper borrowings.
Questar plans to finance the remaining 1994 capital expenditures with cash
flow from operations, borrowings under an expanded production-based credit
facility, additional $17 million of medium-term notes to be issued by
Mountain Fuel and short-term borrowings. In addition, Questar may issue
common stock, or sell or monetize a portion of its investment in Nextel
common stock to fund capital expenditures.
Short-term borrowings at March 31, 1994, consisted of the following:
(In Thousands)
Bridge loan to finance reserve acquisitions $50,000
Production-based credit facility 15,000
Other bank loans 5,200
Commercial paper 49,100
$119,300
The Company had the capacity at March 31, 1994, to borrow an additional
$81,400,000 under existing short-term credit lines with banks.
PART II
OTHER INFORMATION
Questar Corporation has nothing to disclose in this section
of the report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
QUESTAR CORPORATION
(Registrant)
May 11, 1994 /s/ W. F. Edwards
W. F. Edwards
Senior Vice President and Chief
Financial Officer (Duly authorized
officer and principal financial
officer)