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, 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 October 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 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
1995 1994 1995 1994 1995 1994
(In Thousands)
REVENUES $28,479 $27,948 $87,879 $85,117 $118,370 $114,228
OPERATING EXPENSES
Operating and maintenance 10,507 10,253 33,499 32,102 44,175 42,898
Depreciation 4,122 3,920 12,384 11,322 16,515 14,911
Other taxes 1,145 1,046 3,555 3,417 4,637 4,349
TOTAL OPERATING EXPENSES 15,774 15,219 49,438 46,841 65,327 62,158
OPERATING INCOME 12,705 12,729 38,441 38,276 53,043 52,070
INTEREST AND OTHER
INCOME (EXPENSE) (4) 185 (343) 663 (2,130) (219)
INCOME FROM UNCONSOLIDATED
AFFILIATES 16 58 112 187 154 254
DEBT EXPENSE (3,348) (3,263) (10,115) (9,739) (13,483) (12,983)
INCOME BEFORE INCOME TAXES 9,369 9,709 28,095 29,387 37,584 39,122
INCOME TAXES 3,480 3,612 10,121 10,913 12,255 13,992
NET INCOME $5,889 $6,097 $17,974 $18,474 $25,329 $25,130
QUESTAR PIPELINE COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994 1994
(In Thousands)
ASSETS
Current assets
Cash and short-term investments $1,669 $249 $1,448
Notes receivable from
Questar Corporation 4,600
Accounts receivable 8,435 14,281 15,236
Federal income taxes receivable 428 1,080
Inventories 2,867 2,745 2,583
Other current assets 2,621 1,979 2,809
Total current assets 16,020 23,854 23,156
Property, plant and equipment 626,681 602,129 615,313
Less allowances for depreciation 212,788 201,255 203,008
Net property, plant
and equipment 413,893 400,874 412,305
Investment in unconsolidated
affiliates 9,087 7,729 7,988
Other assets 11,007 11,363 11,594
$450,007 $443,820 $455,043
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Notes payable to Questar
Corporation $3,000 $14,600
Accounts payable and
accrued expenses 15,769 $21,247 13,305
Total current liabilities 18,769 21,247 27,905
Long-term debt 134,520 134,501 134,506
Deferred credits 4,636 4,689 4,861
Deferred income taxes 69,401 67,281 68,814
Common shareholder's equity
Common stock 6,551 6,551 6,551
Additional paid-in capital 82,034 82,034 82,034
Retained earnings 134,096 127,517 130,372
Total common shareholder's
equity 222,681 216,102 218,957
$450,007 $443,820 $455,043
QUESTAR PIPELINE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
9 Months Ended
September 30,
1995 1994
(In Thousands)
OPERATING ACTIVITIES
Net income $17,974 $18,474
Depreciation 13,584 12,539
Deferred income taxes 587 (54)
Income from unconsolidated affiliates (112) (187)
32,033 30,772
Change in operating assets and liabilities 10,291 6,217
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 42,324 36,989
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (16,042) (41,668)
Other investments (1,582) (397)
Total capital expenditures (17,624) (42,065)
Proceeds from the disposition of
property, plant and equipment 1,371 84
CASH USED IN INVESTING
ACTIVITIES (16,253) (41,981)
FINANCING ACTIVITIES
Capital contribution 25,000
Increase in notes receivable from (4,600)
Questar Corporation
Decrease in notes payable to
Questar Corporation (11,600) (3,000)
Payment of dividends (14,250) (13,500)
CASH (USED IN) PROVIDED FROM
FINANCING ACTIVITIES (25,850) 3,900
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS $221 ($1,092)
QUESTAR PIPELINE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 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. The results of operations for the
three-and nine-month periods ended September 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
September 30, 1995
Operating Results --
Following is a summary of financial results and operating information
for the Company:
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
1995 1994 1995 1994 1995 1994
(Dollars in Thousands)
FINANCIAL RESULTS
Revenues
From unaffiliated customers $10,118 $12,251 $32,262 $30,452 $42,222 $42,739
From affiliates 18,361 15,697 55,617 54,665 76,148 71,489
Total revenues $28,479 $27,948 $87,879 $85,117 $118,370 $114,228
Operating income $12,705 $12,729 $38,441 $38,276 $53,043 $52,070
Net income 5,889 6,097 17,974 18,474 25,329 25,130
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Transportation
For unaffiliated customers 36,580 39,225 114,127 96,893 146,484 120,115
For Mountain Fuel 10,888 9,371 55,640 52,583 78,998 84,050
For other affiliated customers 10,941 11,060 27,300 32,176 40,217 40,197
Total transportation 58,409 59,656 197,067 181,652 265,699 244,362
Gathering
For unaffiliated customers 10,069 10,639 29,816 30,725 38,891 40,184
For Mountain Fuel 5,083 3,022 21,943 21,224 32,817 33,057
For other affiliated customers 1,173 3,430 4,268 10,251 6,102 15,469
Total gathering 16,325 17,091 56,027 62,200 77,810 88,710
Natural gas revenues (per decatherm)
Transportation $0.26 $0.28 $0.24 $0.26 $0.24 $0.25
Gathering 0.31 0.28 0.29 0.28 0.29 0.26
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 Clay Basin following expansion of the underground storage
reservoir, which began with May 1994 billings. The latest increase in
service started in May 1995 and adds about $208,000 to revenues each
month. Storage services for the 46.3 billion cubic feet of working gas
capacity at Clay Basin are 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 higher quality
service offered as released capacity from firm transportation customers.
The amount of gas volumes gathered decreased in the 1995 periods
primarily in reaction to unusually low gas selling prices at the
well-head. The low prices reduced the incentive for producers to sell
gas or develop production facilities. In addition, gathering revenues in
1994 include a one-time $1,335,000 upward adjustment from a gathering
contract that was approved by the Federal Energy Regulatory Commission
(FERC).
Operating and maintenance expenses were higher in the 3-, 9- and
12-month periods of 1995 when compared to the same periods of 1994
primarily because of increased labor costs and volume-related costs.
Labor costs were higher in 1995 because of an increase in overtime
hours, additional employees and merit pay raises. The increase in
volume-related costs reflects higher charges for pass-through items,
such as ACA and GRI, collected in revenues. The increase in
volume-related costs was offset by higher storage and transportation
revenues. Depreciation expense was higher in the periods ended
September 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 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 and has reported a $163,000 loss through
September 30, 1995. Its results of operations are included with income
from unconsolidated affiliates.
The effective income tax rate of 36.0% in the first nine months of 1995
was lower than the 37.1% in the first nine months of 1994 after a
downward revision of tax expense estimates in the first quarter of 1995.
Bid for share of Kern River pipeline, general rate case application and
spin-down of gathering assets -
Tenneco Gas, a subsidiary of Tenneco, has entered into an agreement to
sell its 50 percent interest in the Kern River gas pipeline for $226
million to Questar Pipeline. The company hopes to close the transaction
by year-end 1995. Questar Pipeline currently is responding to the
Federal Trade Commission's request for more information on the
transaction. Questar Corporation plans to fund Questar Pipeline's
purchase by borrowing about 70% of the purchase price through debt
offerings at the Questar Pipeline level, which includes about $45
million of tax deductible preferred stock, with the remaining 30% to be
provided from an equity offering at the Questar Corporation level.
Questar Pipeline has received a commitment from a bank to borrow up to
$240 million for a term of 18 months to finance this purchase until
permanent financing can be put in place. Both Moody's and Standard's &
Poor plan to reevaluate Questar Pipeline's debt ratings as a result of
the announced acquisition.
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
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 costs. By order
issued August 31, 1995, Questar Pipeline's rate filing was accepted with
an effective date of February 1, 1996, subject to refund.
Questar Pipeline concurrently filed a plan with the FERC to transfer
100% or about $60 million of gathering assets, 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 $42,324,000 for the
first nine months of 1995 compared with $36,989,000 for the same period
of 1994. An increase in cash flow resulted primarily from collection
of receivables.
Investing Activities:
Capital expenditures were $17,624,000 in the first nine months of 1995,
compared with $42,065,000 in the corresponding 1994 period. Capital
expenditures for calendar year 1995 are estimated at $30,300,000, which
does not include the $226 million purchase of an interest in the Kern
River pipeline. Capital expenditures are estimated at $41,000,000 for
1996.
Financing Activities:
Financing activities in the first nine months of 1995 reflect repayment
of debt because net cash provided from operating activities was more
than sufficient to fund capital expenditures. Financing activities for
the first nine months of 1994 includes a $25,000,000 capital
contribution from Questar Corporation, which was used to partially fund
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 September 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. As previously reported, Questar Pipeline Company (Questar Pipeline
or the Company), a wholly owned subsidiary of Questar Corporation, signed a
Stock Purchase Agreement, on September 8, 1995, to purchase Kern River
Corporation, which is a wholly owned subsidiary of Tennessee Gas Pipeline
Company (Tennessee Gas) and which is one of two partners in the Kern River Gas
Transmission Company (Kern River). Under the terms of the agreement, the
Company is obligated to pay a purchase price of $226.2 million.
Williams Western Pipeline Company (Williams), the entity within The
Williams Companies, Inc., that is the second partner in Kern River, did not
exercise its right to match the offer made by Questar Pipeline. The Company
and Williams have reached an agreement to operate Kern River through a jointly
owned operating company. Such agreement will not become effective unless
Questar Pipeline's Kern River acquisition receives the necessary clearance
under the Hart-Scott-Rodino Antitrust Improvements Act. Both Questar Pipeline
and Tennessee Gas are responding to requests from the Federal Trade Commission
for additional information. The Company hopes to close the transaction by
December 31, 1995.
b. The Federal Energy Regulatory Commission (the FERC), on August 31,
1995, suspended the rates requested by the Company in its general rate case
until February 1, 1996. As of that date, Questar Pipeline can collect the
rates, subject to refund, until the issues raised in its pending case are
resolved. In the application, which was filed on July 31, 1995, the Company
is seeking authorization to increase its rates to collect an additional $23.3
million in annualized jurisdictional revenues, including a return on equity of
14.5 percent. The revenue increase includes transition costs associated with
Order No. 636, postemployment costs, increased labor costs, and the recovery
of costs associated with facilities added since the Company's last general
rate case.
c. The Company's application to abandon specified gathering
facilities is still pending before the FERC. Questar Pipeline filed this
application in order to spin-down its gathering facilities to Questar Gas
Management Company (Questar Gas Management), which is a wholly owned
subsidiary of the Company. Questar Gas Management concurrently requested that
the FERC issue a declaratory order acknowledging that the gathering facilities
and services are nonjurisdictional. Questar Pipeline and Questar Gas
Management have proposed that the transfer be effective January 1, 1996.
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)
November 10, 1995 /s/A. J. Marushack
(Date) A. J. Marushack
President and Chief
Executive Officer
November 10, 1995 /s/W. F. Edwards
(Date) W. F. Edwards
Vice President and Chief
Financial Officer