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. 0-14147
QUESTAR PIPELINE COMPANY
(Exact name of registrant as specified in its charter)
STATE OF UTAH 87-0307414
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 11450, 79 South State Street, Salt Lake City, Utah 84147
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 530-2400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of July 31, 1995
Common Stock, $1.00 par value 6,550,843 shares
Registrant meets the conditions set forth in General Instruction H(a)(1)
and (b) of Form 10-Q and is filing this Form 10-Q with the reduced
disclosure format.
QUESTAR PIPELINE COMPANY
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)
REVENUES $29,835 $29,419 $59,400 $57,169 $117,839 $115,597
OPERATING EXPENSES
Natural gas purchases 2,984
Operating and maintenance 11,628 10,570 22,992 21,849 43,921 44,136
Depreciation 4,148 3,728 8,262 7,402 16,313 14,531
Other taxes 1,176 1,237 2,410 2,371 4,538 4,264
TOTAL OPERATING EXPENSES 16,952 15,535 33,664 31,622 64,772 65,915
OPERATING INCOME 12,883 13,884 25,736 25,547 53,067 49,682
INTEREST AND OTHER
INCOME (EXPENSE) (295) 252 (339) 478 (1,941) (35)
INCOME FROM UNCONSOLIDATED
AFFILIATES 11 60 96 129 196 218
DEBT EXPENSE (3,361) (3,273) (6,767) (6,476) (13,398) (13,012)
INCOME BEFORE INCOME TAXES 9,238 10,923 18,726 19,678 37,924 36,853
INCOME TAXES 3,427 4,054 6,641 7,301 12,387 13,361
NET INCOME $5,811 $6,869 $12,085 $12,377 $25,537 $23,492
QUESTAR PIPELINE COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1995 1994 1994
(In Thousands)
ASSETS
Current assets
Cash and short-term investments $1,340 $1,448
Accounts receivable $13,850 12,847 15,236
Federal income tax receivable 1,008 1,080
Inventories 2,984 2,892 2,583
Other current assets 2,392 1,801 2,809
Total current assets 20,234 18,880 23,156
Property, plant and equipment 622,427 587,964 615,313
Less allowances for depreciation 211,009 197,182 203,008
Net property, plant and
equipment 411,418 390,782 412,305
Investment in unconsolidated
affiliates 7,759 7,460 7,988
Other assets 11,159 10,884 11,594
$450,570 $428,006 $455,043
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $643
Notes payable to Questar
Corporation 7,700 $21,100 $14,600
Accounts payable and accrued
expenses 12,356 12,767 13,305
Total current liabilities 20,699 33,867 27,905
Long-term debt 134,516 134,497 134,506
Deferred credits 4,611 2,540 4,861
Deferred income taxes 69,202 67,597 68,814
Common shareholder's equity
Common stock 6,551 6,551 6,551
Additional paid-in capital 82,034 57,034 82,034
Retained earnings 132,957 125,920 130,372
Total common shareholder's
equity 221,542 189,505 218,957
$450,570 $428,006 $455,043
QUESTAR PIPELINE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
6 Months Ended
June 30,
1995 1994
(In Thousands)
OPERATING ACTIVITIES
Net income $12,085 $12,377
Depreciation 9,059 8,216
Deferred income taxes 388 262
Income from unconsolidated affiliates (96) (129)
21,436 20,726
Change in operating assets
and liabilities 870 (2,472)
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 22,306 18,254
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (9,209) (27,170)
Other investments (326) (186)
Total capital expenditures (9,535) (27,356)
Proceeds from the disposition of
property, plant and equipment 1,538 1
CASH USED IN INVESTING
ACTIVITIES (7,997) (27,355)
FINANCING ACTIVITIES
Increase (decrease) in notes payable
to Questar Corporation (6,900) 18,100
Checks outstanding in excess of
cash balance 643
Payment of dividends (9,500) (9,000)
CASH (USED IN) PROVIDED FROM
FINANCING ACTIVITIES (15,757) 9,100
DECREASE IN CASH AND SHORT-TERM
INVESTMENTS ($1,448) ($1)
QUESTAR PIPELINE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1995
(Unaudited)
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 financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1994.
QUESTAR PIPELINE COMPANY
MANAGEMENT'S ANALYSIS
June 30, 1995
Operating Results --
Following is a summary of operating information for the Company:
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1995 1994 1995 1994 1995 1994
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.
Operating and maintenance expenses were higher in the 3- and 6-month
periods of 1995 when compared to the same periods of 1994 primarily
because of increased labor costs and volume-related costs. Labor costs
increased due to less construction activities, additional employees and
merit increases in 1995. The increase in volume-related costs was
offset by an increase in storage and transportation revenues. Operating
and maintenance expenses were 1% lower for the 12 months ended June 30,
1995, because of the transfer of activities to Mountain Fuel associated
with the gas-purchase function in the last half of 1993. Depreciation
expense was higher in the periods ended June 30, 1995, because of
capital spending for storage, gathering, and transmission activities.
Interest and other income (expense) was an expense in the 1995 periods
presented because of the costs of evaluating other business
opportunities, reductions in value of certain investments, less AFUDC
(cost of capital) capitalization and lower interest income.
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.
The effective income tax rate of 35.5% in the first half of 1995 was
lower than the 37.1% in the first half of 1994 after a downward revision
of tax expense estimates.
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 and 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.
Liquidity and Capital Resources --
Operating Activities:
Net cash provided from operating activities was $22,306,000 for the
first half of 1995 compared with $18,254,000 for the same period of
1994. An increase in cash flow resulted from collection of receivables
and higher depreciation.
Investing Activities:
Capital expenditures were $9,535,000 in the first half of 1995, compared
with $27,356,000 in the corresponding 1994 period. Capital expenditures
for calendar year 1995 are estimated at $30,300,000.
Financing Activities:
First half financing activities in 1995 reflect a repayment of debt
because cash flow from operating activities was more than sufficient to
fund capital expenditures. Financing activities for the first half of
1994 reflects increased debt largely due to funding a higher level of
capital expenditures. 1995 capital expenditures are expected to be
financed from cash flow provided from operations and amounts borrowed
from Questar Corporation.
The Company has a short-term line-of-credit arrangement with a bank
totaling $200,000. No amounts were borrowed under the short-term
line-of-credit arrangement at June 30, 1995. In addition, Questar
Corporation, Questar Pipeline's parent company, loans funds to the
Company under a short-term arrangement.
PART II
OTHER INFORMATION
Item 5. Other Information.
a. On July 31, 1995, Questar Pipeline Company (Questar Pipeline
or the Company) filed a general rate case application with the Federal
Energy Regulatory Commission (the FERC). In its application, the
Company is seeking authorization to increase its rates to collect an
additional $23.3 million in annualized revenues, including a return on
equity of 14.5 percent. Questar Pipeline's requested revenue increase
includes transition costs associated with Order No. 636, postemployment
costs, increased labor costs, and the costs of facilities added since
the Company's last general rate case.
Questar Pipeline requested that the new rates be effective
September 1, 1995, or at the latest January 1, 1996, to coincide with
the desired date for transferring gathering assets to a wholly-owned
subsidiary (see Item 5b below). The FERC generally permits rates to
become effective, subject to refund, six months after the filing date,
which would be February 1, 1996.
b. Questar Pipeline, on July 31, 1995, also requested that the
FERC approve its application to abandon specified gathering facilities,
which is required before it can spin-down its gathering facilities to
Questar Gas Management Company (Questar Gas Management). On August 1,
1995, Questar Gas Management, which is a wholly-owned subsidiary of the
Company, requested that the FERC issue a declaratory order acknowledging
that the gathering facilities and services to be assumed by Questar Gas
Management are, in fact, nonjurisdictional. Questar Pipeline and
Questar Gas Management have proposed that the transfer be effective
January 1, 1996.
Questar Gas Management was organized in 1993 to conduct activities
such as gas processing, field services, and gathering that are not
subject to regulation by the FERC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
QUESTAR PIPELINE COMPANY
(Registrant)
August 11, 1995 /s/A. J. Marushack
(Date) A. J. Marushack
President and Chief
Executive Officer
August 11, 1995 /s/W. F. Edwards
(Date) W. F. Edwards
Vice President and Chief
Financial Officer