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, 1997
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) 324-2400
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 June 30, 1997
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.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
QUESTAR PIPELINE COMPANY
STATEMENTS OF INCOME
(Unaudited)
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1997 1996 1997 1996 1997 1996
(In Thousands)
REVENUES $25,907 $25,726 $52,628 $51,802 $105,004 $98,892
OPERATING EXPENSES
Operating and maintenance 9,637 9,314 18,545 19,575 38,929 36,149
Depreciation 3,614 3,434 7,211 6,812 14,605 13,311
Other taxes 664 902 1,415 1,944 1,990 3,349
TOTAL OPERATING EXPENSES 13,915 13,650 27,171 28,331 55,524 52,809
OPERATING INCOME 11,992 12,076 25,457 23,471 49,480 46,083
INTEREST AND OTHER INCOME 91 260 96 804 1,090 592
INCOME (LOSS) FROM
UNCONSOLIDATED AFFILIATES (6) 35 (74) 72 36 1,111
DEBT EXPENSE (3,314) (3,452) (6,665) (6,846) (13,235) (13,551)
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 8,763 8,919 18,814 17,501 37,371 34,235
INCOME TAXES 3,303 3,384 7,032 6,715 13,732 12,566
INCOME FROM CONTINUING
OPERATIONS 5,460 5,535 11,782 10,786 23,639 21,669
DISCONTINUED OPERATIONS -
QUESTAR GAS MANAGEMENT
COMPANY 356 1,495 3,175
NET INCOME $5,460 $5,891 $11,782 $12,281 $23,639 $24,844
See notes to financial statements
QUESTAR PIPELINE COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1997 1996 1996
(In Thousands)
ASSETS
Current assets
Cash and short-term investments $5,411 $1,254 $2,550
Notes receivable from Questar
Gas Management 16,000
Accounts receivable $10,229 4,854 8,229
Inventories 2,363 2,186 2,301
Other current assets 1,754 1,513 1,938
Total current assets 19,757 25,807 15,018
Property, plant and equipment 566,777 552,372 562,711
Less allowances for depreciation 201,269 189,636 194,396
Net property, plant and equipment 365,508 362,736 368,315
Investment in discontinued operations 29,250
Investment in unconsolidated
affiliates 14,323 9,155 14,347
Other assets 10,789 10,645 11,070
$410,377 $437,593 $408,750
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Notes payable to Questar
Corporation $11,600 $700 $11,800
Accounts payable and accrued
expenses 15,869 62,438 14,823
Total current liabilities 27,469 63,138 26,623
Long-term debt 134,554 134,535 134,544
Other liabilities 4,257 4,878 4,322
Deferred income taxes 58,572 53,406 58,768
Common shareholder's equity
Common stock 6,551 6,551 6,551
Additional paid-in capital 82,034 82,034 82,034
Retained earnings 96,940 93,051 95,908
Total common shareholder's equity 185,525 181,636 184,493
$410,377 $437,593 $408,750
See notes to financial statements
QUESTAR PIPELINE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
6 Months Ended
June 30,
1997 1996
(In Thousands)
OPERATING ACTIVITIES
Net income $11,782 $12,281
Depreciation 7,768 7,670
Deferred income taxes (196) (2,743)
Income from discontinued operations (1,495)
Loss (income) from unconsolidated
affiliates 74 (72)
19,428 15,641
Change in operating assets
and liabilities (606) 30,825
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 18,822 46,466
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (4,227) (5,745)
Other investments (50)
Total capital expenditures (4,277) (5,745)
Costs of disposition of property,
plant and equipment (734) (669)
NET CASH USED IN INVESTING
ACTIVITIES (5,011) (6,414)
FINANCING ACTIVITIES
Decrease in note receivable from
Questar Gas Management 689
Decrease in note payable
to Questar Corporation (200) (14,500)
Payment of dividends (10,750) (26,000)
NET CASH USED IN FINANCING
ACTIVITIES (10,950) (39,811)
INCREASE IN CASH AND
SHORT-TERM INVESTMENTS $2,861 $241
The $29,250,000 special dividend declaration of Questar Gas Management
shares was a non-cash transaction and excluded from the Statement of
Cash Flows.
See notes to financial statements
QUESTAR PIPELINE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1997
(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 for the interim periods presented. All such adjustments are of
a normal recurring nature. The results of operations for the three-and
six-month periods ended June 30, 1997, are not necessarily indicative of
the results that may be expected for the year ending December 31, 1997.
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, 1996.
Note 2 - Discontinued Operations - Gathering Division Spin Down and
Transfer
Questar Pipeline transferred approximately $55 million of gas-gathering
assets to Questar Gas Management Company, a wholly owned subsidiary.
The transfer was approved by the Federal Energy Regulatory Commission
(FERC) February 28, 1996 and was effective March 1, 1996. Questar Gas
Management was subsequently transferred to the nonregulated Market
Resources group of Questar on July 1, 1996 and now is a wholly owned
subsidiary of Entrada Industries. The transaction was in the form of a
stock dividend payable to Questar with no gain or loss recorded.
Questar Pipeline's financial statements for prior periods were restated
reflecting gas-gathering operations as a discontinued business segment.
Questar Pipeline has submitted an application to the FERC to transfer
approximately $1.5 million of additional facilities to Questar Gas
Management. The facilities consist of several miles of non-mainline
laterals, a portion of a mainline pipeline and a compressor station.
The application requested that the transfer be effective May 31, 1997.
However, the transfer was delayed by a group of producers protesting
part of the transfer. The FERC has not yet ruled on the Company's
application.
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
QUESTAR PIPELINE COMPANY
June 30, 1997
(Unaudited)
Operating Results
Following is a summary of financial and operating information for the
Company:
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1997 1996 1997 1996 1997 1996
(Dollars In Thousands)
FINANCIAL RESULTS
Revenues
From unaffiliated customers $8,732 $11,360 $17,863 $19,447 $37,253 $37,700
From affiliates 17,175 14,366 34,765 32,355 67,751 61,192
Total revenues $25,907 $25,726 $52,628 $51,802 $105,004 $98,892
Operating income $11,992 $12,076 $25,457 $23,471 $49,480 $46,083
Income from continuing operations $5,460 $5,535 $11,782 $10,786 $23,639 $21,669
OPERATING STATISTICS
Natural gas transportation volumes (in
thousands of decatherms)
For unaffiliated customers 27,633 36,158 60,936 73,031 119,800 147,427
For Mountain Fuel 26,011 16,426 68,275 53,582 114,854 88,702
For other affiliated customers 10,993 10,271 17,809 14,869 47,267 37,349
Total transportation 64,637 62,855 147,020 141,482 281,921 273,478
Transportation revenue (per
decatherm) $0.26 $0.28 $0.23 $0.24 $0.23 $0.24
Revenues were higher in the 6- and 12-month periods of 1997 due
primarily to a rate increase, which became effective on February 1,
1996.
Operating and maintenance expenses increased 3% in the second quarter of
1997 when compared to the second quarter of 1996 due primarily to
charges for electronic field measurement services. Operating and
maintenance expenses were lower in the first half of 1997 due to reduced
labor and related costs and some operating efficiencies. Operating
efficiencies resulted from the consolidation of certain administrative,
marketing, financial, technical and related services under Questar
Regulated Services Co., which wholly owns Questar Pipeline. These
services were previously staffed and performed separately by Questar
Pipeline and its affiliated company, Mountain Fuel. Operating and
maintenance expenses were 8% higher for the 12-month period ended June
30, 1997 when compared with the same period of 1996, primarily because
of some one-time costs associated with the spin-down of certain assets
to Questar Gas Management Company and settlement issues in Questar
Pipeline's most recent rate proceeding.
Depreciation expense was higher in the 1997 periods as a result of
increased investment in property, plant and equipment. Other taxes were
lower in the 3- and 6-month periods of 1997 when compared with the same
periods of 1996 primarily due to reduced payroll taxes because the
number of employees has decreased from a year ago. Interest and other
income was lower in the 3- and 6-month periods of 1997 because Questar
Gas Management repaid a loan to the Company and the proceeds were
dividended to Questar. The effective income tax rate for the first half
was 37.4% in 1997 compared with 38.4% in 1996.
On May 9, 1997, the Federal Energy Regulatory Commission (FERC) issued an
"Order Instituting Proceeding" in Docket No. IN97-1, in which it alleges
that Questar Pipeline had overcharged its affiliated company, Mountain Fuel,
for gathering services provided from November 1988 through September 1992.
The FERC order states that Questar Pipeline may have violated the Natural Gas
Act by charging Mountain Fuel rates different from those rates specified in
the tariff. The FERC is ordering Questar Pipeline to show why the
allegations are incorrect and why it should not refund the alleged
overcharge of $3.4 million plus interest to Mountain Fuel. Questar
Pipeline believes that it did not overcharge Mountain Fuel. Questar
Pipeline also believes that its actions were fully justified and in full
compliance with applicable law and FERC orders, based on its
understanding of the issues dealing with jurisdiction over gathering
during the period in question. Management does not believe the ultimate
outcome of this order will have a material impact on results of
operations, financial position or liquidity.
Liquidity and Capital Resources
Operating Activities:
Net cash provided from operating activities of $18,822,000 for the first
half of 1997 was lower when compared with $46,466,000 for the same
period in 1996 due primarily to changes in operating assets and
liabilities. The 1996 period included a $16,000,000 special dividend
declaration associated with the loan repayment from Questar Gas
Management. Also, the first half of 1996 included the collection of
rates subject to refund amounting to $7,400,000.
Investing Activities:
Capital expenditures were $4,277,000 in the first half of 1997 compared
with $5,745,000 in the corresponding 1996 period. Capital expenditures
for calendar year 1997 are estimated to be $48,500,000, which includes
$18,600,000 earmarked for the Company's share of the second phase of the
TransColorado Pipeline. The second phase will cost approximately $200
million and includes 270 miles of 22- and 24-inch pipeline and two
compressor plants. The Company will ultimately have a 50% share of the
project after completing a purchase of 50% of El Paso Energy
Corporation's interest in Phase II and 100% of El Paso's interest in
Phase I.
Financing Activities:
The Company has a short-term line-of-credit arrangement with a bank
totaling $200,000. In addition, Questar Corporation loans funds to the
Company under a short-term arrangement. As of June 30, amounts borrowed
from Questar were $11,600,000 in 1997 and $700,000 in 1996. No amounts
were borrowed under the short-term line-of-credit arrangement at June
30, 1997. First half financing activities in 1997 and 1996 included
payment of dividends and a partial repayment of the Company's notes
payable to Questar. Capital expenditures for 1997 are expected to be
financed from net cash flow provided from operations and borrowings from
Questar.
This 10-Q contains forward-looking statements about the future
operations and expectations of Questar Pipeline. According to
management, 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.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
On August 7, 1997, Questar Pipeline Company (Questar Pipeline or
the Company) filed a formal Answer and Motion for Hearing in response to
an Order Instituting Proceeding issued by the Federal Energy Regulatory
Commission (the FERC). This order, which contains allegations that the
Company charged gathering rates higher than specified in its tariff to
Mountain Fuel Supply Company for the period from November 1, 1988
through September 30, 1992, is described in the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997. In its
answer, Questar Pipeline emphasized that the issues raised by the FERC
were treated in earlier rate settlements involving interested parties
and that all parties are bound by these settlements. In addition, the
Company denied that it overcharged Mountain Fuel when collecting rates
for gathering activities. Questar Pipeline believes that its gathering
rates were fully justified and that its activities were in full
compliance with applicable law and FERC orders. The Company requested
the FERC to dismiss the proceeding or to conduct a full hearing on the
issues.
Questar Pipeline transferred its gathering assets to Questar Gas
Management Company, an affiliated entity, effective March 1, 1996, but
is the responsible party for any ultimate outcome.
Item 6. Exhibits and Reports on Form 8-K.
a. The following exhibit has been filed as part of this report:
Exhibit No.Exhibit
3.3. Bylaws (as amended on August 12, 1997).
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 13, 1997 /s/ D. N. Rose
(Date) D. N. Rose
President and Chief
Executive Officer
August 13, 1997 /s/ S. E. Parks
(Date) S. E. Parks
Vice President, Treasurer
and Chief Financial Officer