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, 1995
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, Utah 84145-0433
(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 July 31, 1995
Common Stock, without par value 40,575,615 shares
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1995 1994 1995 1994 1995 1994
(In Thousands, Except Per Share Amounts)
REVENUES $138,569 $135,397 $354,501 $358,706 $666,113 $641,943
OPERATING EXPENSES
Natural gas purchases 34,559 30,453 120,147 124,237 208,438 203,814
Operating and maintenance 45,861 43,703 92,205 85,638 180,647 169,781
Depreciation and amortization 24,784 24,249 49,233 46,124 96,146 91,826
Other taxes 8,401 10,760 17,600 21,000 32,615 36,287
TOTAL OPERATING EXPENSES 113,605 109,165 279,185 276,999 517,846 501,708
OPERATING INCOME 24,964 26,232 75,316 81,707 148,267 140,235
INTEREST AND OTHER INCOME 4,322 1,424 6,037 3,003 7,991 4,937
WRITE-DOWN OF INVESTMENT IN
NEXTEL COMMUNICATIONS (61,743)
DEBT EXPENSE (10,825) (9,390) (22,082) (18,360) (43,533) (35,363)
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAX 18,461 18,266 59,271 66,350 50,982 109,809
INCOME TAXES 3,899 4,338 17,636 21,329 4,951 32,374
INCOME FROM CONTINUING
OPERATIONS 14,562 13,928 41,635 45,021 46,031 77,435
DISCONTINUED OPERATIONS
Gain from sale 38,126
Loss from operations (1,110)
NET INCOME $14,562 $13,928 $41,635 $45,021 $84,157 $76,325
EARNINGS PER COMMON SHARE
Income from continuing operation $0.35 $0.34 $1.02 $1.11 $1.12 $1.92
Gain from sale of discontinued
operations 0.95
Loss from discontinued operations (0.03)
Net income $0.35 $0.34 $1.02 $1.11 $2.07 $1.89
Dividends per common share $0.285 $0.285 $0.57 $0.56 $1.14 $1.11
Average common shares outstanding 40,529 40,269 40,490 40,232 40,422 40,197
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1995 1994 1994
(In Thousands)
ASSETS
Current assets
Cash and short-term investments $7,549
Accounts receivable $94,470 $115,095 143,081
Inventories 25,659 23,616 30,098
Other current assets 13,570 10,313 12,397
Total current assets 133,699 149,024 193,125
Property, plant and equipment 2,296,778 2,169,918 2,263,170
Less allowances for depreciation
and amortization 1,004,792 916,665 955,536
Net property, plant and
equipment 1,291,986 1,253,253 1,307,634
Securities available-for-resale,
approximates fair value 54,748 37,578
Investment in discontinued
operations 30,667
Other assets 45,042 49,231 47,238
$1,525,475 $1,482,175 $1,585,575
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Checks outstanding in excess
of cash balances $5,134 $3,810
Short-term loans 18,000 119,900 $94,900
Accounts payable and accrued
expenses 91,500 94,723 108,243
Purchased-gas adjustments 32,372 26,106 17,071
Total current liabilities 147,006 244,539 220,214
Long-term debt 477,692 394,677 494,684
Other liabilities and deferred
credits 39,963 48,172 46,223
Deferred income taxes and
investment tax credits 167,939 158,667 164,541
Redeemable cumulative
preferred stock 6,218 7,524 6,324
Common shareholders' equity
Common stock 313,572 307,354 310,402
Retained earnings 420,102 382,084 401,577
Treasury stock, at cost (33,569) (34,040) (33,847)
Note receivable from ESOP (24,050) (26,802) (24,543)
Unrealized gain on securities,
net of income taxes 10,602
Total common shareholders'
equity 686,657 628,596 653,589
$1,525,475 $1,482,175 $1,585,575
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
6 Months Ended
June 30,
1995 1994
(In Thousands)
OPERATING ACTIVITIES
Net income $41,635 $45,021
Depreciation and amortization 51,540 48,259
Deferred income taxes and
investment tax credits (3,170) (2,703)
90,005 90,577
Change in operating assets
and liabilities 46,862 6,308
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 136,867 96,885
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (38,724) (161,692)
Investment in discontinued
operations (1,169)
Other investments (657) (459)
Total capital expenditures (39,381) (163,320)
Proceeds from disposition of
property, plant and equipment 2,998 10,064
CASH USED IN INVESTING
ACTIVITIES (36,383) (153,256)
FINANCING ACTIVITIES
Issuance of common stock 3,874 4,420
Purchase of treasury stock (426) (213)
Redemption of preferred stock (106) (1)
Issuance of long-term debt 2,000 40,000
Repayment of long-term debt (18,992) (17,036)
Increase (decrease) in
short-term loans (76,900) 41,600
Checks outstanding in excess of
cash balances 5,134 3,810
Payment of dividends (23,339) (22,838)
Other 722 264
CASH (USED IN) PROVIDED FROM
FINANCING ACTIVITIES (108,033) 50,006
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($7,549) ($6,365)
QUESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1995
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- and six-month periods
ended June 30, 1995, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1995. 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, 1994.
QUESTAR CORPORATION AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS
JUNE 30, 1995
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 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1995 1994 1995 1994 1995 1994
(Dollars in Thousands)
FINANCIAL RESULTS
Revenues
From unaffiliated customers $60,843 $72,354 $125,431 $138,415 $241,580 $246,993
From affiliates 14,501 18,502 31,081 38,346 70,084 71,210
Total revenues $75,344 $90,856 $156,512 $176,761 $311,664 $318,203
Operating income $10,737 $16,087 $22,547 $31,168 $50,673 $56,907
Net income 8,896 10,969 16,748 21,446 35,518 40,501
OPERATING STATISTICS
Production volumes -
Natural gas (in million
cubic feet) 8,785 10,442 17,709 18,300 37,068 35,017
Oil and natural gas liquids
(in thousands of barrels) 640 638 1,260 1,150 2,552 2,193
Production revenue
Natural gas (per thousand
cubic feet) $1.26 $1.91 $1.37 $1.99 $1.48 $1.92
Oil and natural gas liquids
(per barrel) $16.52 $14.63 $16.03 $13.84 $15.80 $14.55
Gas marketing volumes (in
thousands of decatherms) 24,651 23,059 48,579 44,798 92,722 77,700
Selling prices for natural gas were lower in the 1995 periods when
compared with the same periods in 1994 resulting in lower revenues.
In response to the lower selling prices, Celsius Energy, which
operates in the Rocky Mountain region, began shutting in gas
production. By the end of the second quarter, this amounted to about
8 to 10 million cubic feet (MMcf) per day and has subsequently risen
to about 20 to 25 MMcf per day. This represents approximately 50% of
Celsius' gas production. The shut in wells are those that do not
qualify for income tax credits under the tight sands production
provisions of the income tax code. Already low selling prices of
natural gas were further weakened by an abundance of hydroelectric
power in the West this past spring which reduced demand for natural
gas. In addition increasing imports of gas from Canada have put
downward pressure on gas selling prices.
To fulfill fixed-price contract obligations, E & P is purchasing
low-cost gas on the open market and delivering it through its
gas-marketing program. Net income should be about the same, but cash
flow will be lower.
Revenues from the sale of oil and natural gas liquids were higher in
the 1995 periods presented due to higher selling prices and increased
production volumes. First half selling prices of oil and natural gas
liquids were 16% higher in 1995 when compared with the same period in
1994.
Celsius has hedge contracts in place through April 1996 on 30% to 50%
of its gas production with prices ranging from $1.35 to $1.80 per Mcf.
Universal Resources has hedges in place for 25% to 30% of its gas
production at prices ranging from $1.85 to $2.00 per Mcf. In addition,
the E & P group has hedged the price of 2,000 bbl of oil production
per day at an average price of $17.34 per bbl with no contracts
extending beyond the end of 1995.
Gas marketing volumes were higher in the 1995 periods; however, lower
margins were realized from gas marketing transactions.
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 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1995 1994 1995 1994 1995 1994
(Dollars in Thousands)
FINANCIAL RESULTS
Revenues
From unaffiliated customers $11,285 $9,614 $22,144 $18,201 $44,355 $39,709
From affiliates 18,550 19,805 37,256 38,968 73,484 75,888
Total revenues $29,835 $29,419 $59,400 $57,169 $117,839 $115,597
Operating income $12,883 $13,884 $25,736 $25,547 $53,067 $49,682
Net income 5,811 6,869 12,085 12,377 25,537 23,492
OPERATING STATISTICS
Natural gas volumes (in
thousands of decatherms)
Transportation
For unaffiliated customers 38,978 33,130 77,547 57,668 149,129 109,118
For Mountain Fuel 15,553 8,702 44,752 43,212 77,481 85,236
For other affiliated customers 10,133 12,101 16,359 21,116 40,336 38,447
Total transportation 64,664 53,933 138,658 121,996 266,946 232,801
Gathering
For unaffiliated customers 10,126 9,887 19,747 20,086 39,461 39,069
For Mountain Fuel 7,470 7,638 16,860 18,202 30,756 35,364
For other affiliated customers 1,815 3,736 3,095 6,821 8,359 16,775
Total gathering 19,411 21,261 39,702 45,109 78,576 91,208
Natural gas revenues (per decatherm)
Transportation $0.25 $0.28 $0.23 $0.25 $0.24 $0.25
Gathering 0.28 0.34 0.28 0.28 0.28 0.25
Revenues reported in the 1995 periods were higher than the amounts
reported in the 1994 periods primarily because of increased storage
activities. Storage revenues improved as a result of increased firm
commitments at the Clay Basin storage reservoir. Contracts for gas
storage services at Clay Basin were boosted from 31 Bcf to 41.8 Bcf in
May 1994 and to 46.3 Bcf in May 1995. Storage services have remained
fully subscribed.
Transportation revenues from customers paying interruptible rates were
lower in 1995 due to decreasing volumes. Questar Pipeline's
interruptible transportation service competes with a lower priced
service offered as released capacity from firm transportation
customers.
The amount of gas volumes gathered decreased in the 1995 periods
primarily because of lower gas production from Questar Pipeline's
affiliated customers. In addition, gathering revenues were higher in
1994 because of a one-time adjustment. In April 1994, the Federal
Energy Regulatory Commission (FERC) approved a gathering agreement
between Questar Pipeline and Mountain Fuel retroactive to September 1,
1993, which allocated 60% of gathering costs to the reservation
component of rates and 40% to the usage component. Gathering revenues
were increased $1,335,000 in the second quarter of 1994, to
retroactively reflect the FERC approved gathering agreement.
The Blacks Fork gas processing plant in southwestern Wyoming began
operations in June of 1995. Its results of operations are included
with income from unconsolidated affiliates.
Questar Pipeline filed a general rate case with the FERC on July 31,
1995 seeking a $23.3 million increase in revenues. The request for
additional revenues is intended to recover the costs of enhanced
service to customers, meet regulatory requirements and collect the
costs associated with employee postretirement benefits. Questar
Pipeline, currently earning about a 13% return on equity, asked for a
14.5% return on equity. Included in the filing are requests to
recover $2.8 million of transition costs associated with FERC Order
No. 636, $1.6 million for employee postretirement long-term disability
costs and $1 million of increased labor. Questar Pipeline requested
that the new rates become effective by January 1, 1996 to coincide
with its request to spin-down gathering assets.
Questar Pipeline concurrently filed a plan with the FERC to transfer
about $60 million of gathering assets, an amount which is net of
accumulated depreciation, to Questar Gas Management Company, a
wholly-owned subsidiary. Questar Pipeline requested an effective date
of January 1, 1996, for the transaction.
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 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1995 1994 1995 1994 1995 1994
(Dollars in Thousands)
FINANCIAL RESULTS
Revenues
From unaffiliated customers $65,984 $53,382 $205,807 $201,700 $378,347 $354,167
From affiliates 1,312 1,503 2,304 2,200 4,124 3,064
Total revenues $67,296 $54,885 $208,111 $203,900 $382,471 $357,231
Operating income (loss) $814 ($4,995) $25,291 $22,781 $41,831 $30,116
Net income (loss) 152 (3,849) 13,213 11,249 25,316 13,703
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Residential and commercial sales 13,935 9,768 43,513 39,906 77,840 68,840
Industrial sales 2,068 1,692 5,253 3,909 10,226 7,321
Transportation for industrial
customers 13,952 10,020 31,561 23,291 59,652 47,558
Total deliveries 29,955 21,480 80,327 67,106 147,718 123,719
Natural gas revenue (per decatherm)
Residential and commercial $3.97 $4.55 $4.20 $4.54 $4.25 $4.55
Industrial sales 2.49 2.65 2.55 2.98 2.56 3.01
Transportation for industrial
customers 0.10 0.12 0.10 0.12 0.10 0.11
Heating degree days
Actual 895 523 3,112 2,830 5,272 4,786
Normal 741 741 3,484 3,484 5,801 5,282
Colder (warmer) than normal 21% (29%) (11%) (19%) (4%) (9%)
Number of customers at end of
period 575,450 553,350
Revenues were higher in the 1995 periods when compared with the 1994
periods because of colder temperatures, a 4% increase in the number of
customers, and increased sales and transportation to industrial
customers. The colder temperatures, although warmer than normal for
the 6- and 12-month periods ended June 30, 1995, caused an increase in
the volumes of gas sold to residential and commercial customers,
primarily for space heating purposes.
Volumes delivered to industrial customers increased 35% in the first
half of 1995 compared with the same period of 1994 resulting in
$2,019,000 more revenues. Natural gas demand was higher for customers
in the metals, chemical and electric generation industries. Margins
from gas delivered to industrial customers are substantially lower than
from gas sold to residential and commercial customers.
On August 11, 1995, the Public Service Commission of Utah approved a
settlement of Mountain Fuel's general rate case subject to issuance of
a final order. Mountain Fuel originally requested a $9.6 million
increase in rates. The settlement, which is scheduled to be in effect
September 1, will allow the Company to implement a weather
normalization adjustment and will provide about $3.7 million in
additional revenue through a new-premise fee and changes in the way
capacity release revenues are recorded. The settlement does not specify
an authorized return on equity, but increases Mountain Fuel's allowed
return on rate base from 10.08% to between 10.22% and 10.34%.
Mountain Fuel continues to consolidate and restructure operations. Of
the 169 eligible employees, 109 accepted the Company's offer of an
early retirement effective April 30, 1995. The labor savings are
expected to average $400,000 per month. Mountain Fuel is proceeding
with plans to close four regional offices and reduce functions at six
other offices. The Company predicts that its investment in customer
information system technology will enable it to increase efficiency in
serving customers with fewer employees and offices.
Consolidated Results of Operations --
Consolidated revenues for the second quarter of 1995 were 2% higher
than the amount reported for the same period in 1994 primarily as a
result of increased gas sales and deliveries by the natural gas
distribution business segment. Colder temperatures, a 4% increase in
the number of customers and increase sales and transportation to
industrial customers were the main causes. Consolidated revenues for
the first half of 1995 were 1% lower when compared with the same period
of 1994 primarily because of lower gas selling prices and a decrease in
quantities of gas produced. Consolidated revenues for the 12-months
ended June 30, 1995 were 4% higher than the revenues reported in the
same period of the prior year primarily because of increased natural
gas distribution sales and higher oil selling prices and increased
production.
Natural gas purchases were higher in the 3- and 12-month periods of
1995 because increased quantities purchased more than offset lower gas
prices at the wellhead. However, in the first half of 1995 the
increase in quantities purchased was more than offset by lower gas
prices.
Operating and maintenance expense was 5% higher in the second quarter
of 1995 when compared to the same period of the 1994 primarily due to
increased costs of serving more distribution customers and inflation.
These increases more than offset the effect of lower labor cost as a
result of Mountain Fuel's early retirement program. Operating and
maintenance expenses were 8% higher in the first half of 1995 and 6%
higher in the 12 months ended June 30, 1995, when compared with the
same periods in the prior year. The increases resulted from a gain in
the number of properties owned by the E & P group through its 1994
acquisition and drilling programs and higher costs associated with
serving a growing number of natural gas distribution customers.
Depreciation and amortization increased in the periods ended June 30,
1995, because of increased investment in property, plant and equipment
by all lines of business. Other taxes were lower in the 1995 periods
compared with the1994 periods because of lower revenues from the
production of natural gas.
Interest and other income was higher in the 1995 periods primarily due
to cash received in the second quarter of 1995 for buy-out of gas-sales
agreements. Questar has not been reporting the losses from FuelMaker's
operations beginning in the first half of 1995 after writing off its
investment in 1994.
In the third quarter of 1994, Questar Corporation sold Questar Telecom
to Nextel Communications in exchange for 3.9 million shares of Nextel
common stock and reported a $38,126,000 after-tax gain from the sale.
At year-end 1994, the Company wrote down its investment in Nextel
Communications by $61,743,000. This amounted to $38,126,000, or $.95
per share, after income taxes.
The Company sold 250,000 shares of Nextel stock in July 1995 through an
equity-swap arrangement that resulted in a $1.2 million after-tax gain.
Depending upon the market conditions for Nextel stock, the Company may
sell up to 25% of its investment this year.
Debt expense was higher in the 3-, 6- and 12-month periods of 1995 compared
with the 1994 periods because of higher interest rates on variable rate debt.
The effective income tax rate for the first half was 29.8% in 1995 and
32.1% in 1994. The effective income tax rate was lower than the
statutory income tax rate primarily due to income tax credits. The
Company recognized $4,759,000 of tight-sands gas production tax credits
in the 1995 period and $4,810,000 in the 1994 period.
Liquidity and Capital Resources --
Operating Activities:
Net cash provided from operating activities was $136,867,000 for the
first half of 1995 compared with $96,885,000 for the same period of
1994. The increase was due to higher sources of cash from changes in
working capital accounts, primarily from the collection of accounts
receivable and lower natural gas purchase prices.
Investing Activities:
Capital expenditures of $39,381,000 in the first six months of 1995,
were $123,939,000 lower than for the same period a year ago due largely
to E&P reserve and property acquisitions amounting to $96,528,000 in
1994. A comparison of capital expenditures for the first six months
of 1995 and 1994 plus an estimate for the calendar year 1995 is below.
The other operations line of the estimated 1995 capital expenditures
includes about $66,300,000 for possible special projects.
Estimate
Actual 12 months
Six months Ended Ended
June 30 Dec. 31,
1995 1994 1995
(In Thousands)
Exploration and production $10,911 $113,641 $72,500
Natural gas transmission 9,535 27,356 30,300
Natural gas distribution 16,952 19,075 50,000
Other operations 1,983 3,248 79,700
$39,381 $163,320 $232,500
Financing Activities:
Financing activities in 1995 have largely been focused on repayment of
debt from the proceeds of cash flows from operations. Short-term debt
decreased $76,900,000 and long-term debt decreased $16,992,000 in the
first half of 1995. Questar borrowed $50 million in 1994 as a bridge
loan to finance the E & P group's reserve acquisitions. This loan was
repaid in August 1994 from the proceeds of an existing production-based
credit facility, that was expanded to $135,000,000.
Short-term borrowings at June 30, consisted of the following:
1995 1994
(In Thousands)
Commercial paper $69,900
Bridge loan to finance reserve acquisitions 50,000
Short-term bank loans $18,000
$18,000 $119,900
Questar Corporation had borrowed $18,000,000 on an uncommitted line at
June 30, 1995. It had the capacity at June 30, 1995, to borrow an
additional $100,000,000 under commercial paper agreements. Its
affiliates had the capacity to borrow an additional $35,700,000 through
short-term credit lines with banks.
Questar plans to finance 1995 capital expenditures with cash flow from
operations, borrowings under the existing production-based credit
facility, receipts from the sales of Nextel shares and proceeds from
its dividend reinvestment plan.
PART II
OTHER INFORMATION
Item 5. Other Information.
Patrick J. Early, age 62, a recently-retired executive officer with
Amoco Corporation, was appointed to serve as a director of Questar
Corporation (Questar or the Company) as of August 1, 1995. Mr. Early
was appointed to fill a vacancy for the remainder of a three-year term
that will end in May of 1996. In his years of service with Amoco, Mr.
Early served in a number of operating and management positions, most
recently as Vice Chairman (1992 to April 1995), and as President of
Amoco Production Company (1987 to 1992).
Item 6. Exhibits and Reports on Form 8-K.
The following exhibits are filed as part of this report.
Exhibit No. Exhibit
10.3 Questar Corporation Executive Incentive Retirement
Plan, as amended and restated effective August 1,
1995.
10.8 Questar Corporation Supplemental Executive
Retirement Plan, as amended and restated effective
August 1, 1995.
10.9 Questar Corporation Equalization Benefit Plan, as
amended and restated effective August 1, 1995.
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)
August 11, 1995 /s/R. D. Cash
(Date) R. D. Cash
Chairman of the Board,
President and Chief
Executive Officer
August 11, 1995 /s/W. F. Edwards
(Date) W. F. Edwards
Senior Vice President and Chief
Financial Officer