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, 2001.
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. 1-935
QUESTAR GAS COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
STATE OF UTAH 87-0155877
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 45360, 180 East 100 South, Salt Lake City, Utah 84145-0360
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 324-5555
--------------
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, 2001
- ----------------------------- --------------------------------
Common Stock, $2.50 par value 9,189,626 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 GAS COMPANY
STATEMENTS OF INCOME
(Unaudited)
3 Months Ended 12 Months Ended
March 31, March 31,
2001 2000 2001 2000
------------------------------------------------------
(In Thousands)
REVENUES $ 310,129 $ 200,520 $ 646,371 $ 478,155
OPERATING EXPENSES
Cost of natural gas sold 230,154 122,430 441,917 280,973
Operating and maintenance 25,089 26,171 100,404 104,598
Depreciation 8,761 9,181 34,030 36,941
Other taxes 2,798 3,989 9,022 9,388
------------------------------------------------------
TOTAL OPERATING EXPENSES 266,802 161,771 585,373 431,900
------------------------------------------------------
OPERATING INCOME 43,327 38,749 60,998 46,255
INTEREST AND OTHER INCOME 1,408 429 2,652 2,904
DEBT EXPENSE (5,883) (5,177) (21,747) (20,134)
------------------------------------------------------
INCOME BEFORE INCOME
TAXES 38,852 34,001 41,903 29,025
INCOME TAXES 15,132 13,286 14,735 9,349
------------------------------------------------------
NET INCOME $ 23,720 $ 20,715 $ 27,168 $ 19,676
======================================================
See note to financial statements
2
QUESTAR GAS COMPANY
CONDENSED BALANCE SHEETS
March 31, December 31,
2001 2000 2000
(Unaudited)
-----------------------------------------
(In Thousands)
ASSETS
Current assets
Cash and cash equivalents $ 882
Accounts receivable $ 146,799 $ 94,086 120,120
Inventories, at lower of average
cost or market
Gas stored underground 24,280 7,450 22,444
Materials and supplies 5,196 3,239 3,542
Purchased-gas adjustments 48,178 35,565
Prepaid expenses and other 521 2,533 773
-----------------------------------------
Total current assets 224,974 107,308 183,326
Property, plant and equipment 1,076,569 1,023,075 1,067,362
Less accumulated depreciation 456,039 430,474 447,496
-----------------------------------------
Net property, plant and equipment 620,530 592,601 619,866
Other assets 27,051 19,326 27,134
-----------------------------------------
$ 872,555 $ 719,235 $ 830,326
=========================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $ 2,759 $ 2,456
Notes payable to Questar Corporation 151,200 39,700 $ 105,600
Accounts payable and accrued expenses 108,638 78,943 136,183
Deferred income taxes - current 18,308 13,515
Purchased-gas adjustments 15,065
-----------------------------------------
Total current liabilities 280,905 136,164 255,298
Long-term debt 225,000 225,000 225,000
Other liabilities 464 1,314 507
Deferred income taxes and investment
tax credits 84,410 78,524 85,465
Common shareholder's equity
Common stock 22,974 22,974 22,974
Additional paid-in capital 81,875 81,875 81,875
Retained earnings 176,927 173,384 159,207
-----------------------------------------
Total common shareholder's equity 281,776 278,233 264,056
-----------------------------------------
$ 872,555 $ 719,235 $ 830,326
=========================================
See note to financial statements
3
QUESTAR GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
3 Months Ended
March 31,
2001 2000
----------------------------
(In Thousands)
OPERATING ACTIVITIES
Net income $ 23,720 $ 20,715
Depreciation 9,564 10,024
Deferred income taxes and investment
tax credits 3,738 (6,819)
----------------------------
37,022 23,920
Change in operating assets and
liabilities (70,035) 27,528
----------------------------
NET CASH (USED IN) PROVIDED FROM
OPERATING ACTIVITIES (33,013) 51,448
INVESTING ACTIVITIES
Capital expenditures (12,765) (10,167)
Proceeds from disposition of
property, plant and equipment 2,537 30
----------------------------
NET CASH USED IN INVESTING
ACTIVITIES (10,228) (10,137)
FINANCING ACTIVITIES
Checks outstanding in excess of
cash balance 2,759 2,456
Change in notes payable to Questar Corp. 45,600 (39,600)
Payment of dividends (6,000) (5,875)
----------------------------
NET CASH PROVIDED FROM (USED IN)
FINANCING ACTIVITIES 42,359 (43,019)
----------------------------
Change in cash and cash equivalents (882) (1,708)
Beginning cash and cash equivalents 882 1,708
----------------------------
Ending cash and cash equivalents $ - $ -
============================
See note to financial statements
4
QUESTAR GAS COMPANY
NOTE TO FINANCIAL STATEMENTS
March 31, 2001
(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. Due to the seasonal nature of the business, the results of operations
for the three-month period ended March 31, 2001, are not necessarily indicative
of the results that may be expected for the year ending December 31, 2001. 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, 2000.
5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
QUESTAR GAS COMPANY
March 31, 2001
(Unaudited)
Operating Results
Following is a summary of financial and operating information for the Company:
3 Months Ended 12 Months Ended
March 31, March 31,
2001 2000 2001 2000
------------------------------------------------------
FINANCIAL RESULTS - (dollars in thousands)
Revenues
From unaffiliated customers $ 308,939 $ 199,527 $ 641,400 $ 475,040
From affiliates 1,190 993 4,971 3,115
------------------------------------------------------
Total revenues 310,129 200,520 646,371 478,155
Cost of natural gas sold 230,154 122,430 441,917 280,973
------------------------------------------------------
Margin $ 79,975 $ 78,090 $ 204,454 $ 197,182
======================================================
Operating income $ 43,327 $ 38,749 $ 60,998 $ 46,255
Net income 23,720 20,715 27,168 19,676
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Residential and commercial sales 36,704 33,908 86,169 83,684
Industrial sales 3,267 3,204 10,377 10,087
Transportation for industrial
customers 14,714 14,017 55,533 52,309
------------------------------------------------------
Total deliveries 54,685 51,129 152,079 146,080
======================================================
Natural gas revenue (per decatherm)
Residential and commercial $ 7.73 $ 5.41 $ 6.58 $ 5.05
Industrial sales 5.64 3.27 4.52 3.03
Transportation for industrial
customers $ 0.13 $ 0.13 $ 0.13 $ 0.13
Heating degree days
Colder (warmer) than normal 1% (14)% 1% (7)%
Number of customers at March 31,
Residential and commercial 704,424 687,985
Industrial 1,323 1,363
--------------------------
Total 705,747 689,348
==========================
The margin increased 2% in the first quarter of 2001 and 4% in the twelve months
ended March 31, 2001 compared with the same periods of 2000. The higher margin
resulted primarily from a 3.9% Utah general rate increase which went into effect
August 11, 2000 and higher volumes delivered to new customers. Usage per
customer fell by 3 decatherm (Dth) or 5.5% in the first quarter of 2001. Volumes
delivered were 7% higher in the first quarter and were 4% higher for the
6
twelve-month periods of 2001 compared with the same periods in 2000. Weather was
colder than normal in the 2001 periods presented.
Questar Gas' cost of natural gas sold increased 88% in the first quarter and
57% for the twelve-month periods of 2001 compared with the 2000 periods due
to higher gas costs. Gas costs in rates for the three-month period of 2001
were $4.67 per Dth compared to $2.23 per Dth in 2000. Effective January 1,
2001, the PSCU approved on an interim basis a $167 million pass-through
filing that increased Utah natural gas rates 29%. Also effective January 1,
2001, the Wyoming Public Service Commission approved a $7 million
pass-through filing for Wyoming natural gas rates. The Company files for
adjustment of purchased-gas costs with the Utah and Wyoming Public Service
Commissions on a semiannual basis.
Operating and maintenance (O & M) expenses decreased 4% in the first quarter of
2001 compared with the prior year primarily from early retirement cost savings
of $1.3 million. The cost savings were partially offset by higher costs from
adding new customers and increased bad debt expenses. Bad debt expenses
increased by $700,000 over the first quarter of 2000 because of the effect of
higher selling prices on customer collections. O & M expenses decreased 4% for
the twelve months of 2001 compared with 2000 due to the early retirement, lower
information technology costs and decreased legal expenses. Depreciation expenses
were 5% lower in the three-month period of 2001 compared with the 2000 period as
a result of computer equipment and software being fully depreciated. Other taxes
decreased 30% in the first quarter comparisons because of an adjustment of prior
year taxes.
Interest and other income was 228% higher in the first quarter of 2001 compared
with the prior year as a result of interest earned on the purchased-gas
adjustment balance and gas stored underground.
The effective income tax rate for the three-month period was 38.9% in 2001 and
39.1% in 2000. The Company realized $463,000 of tight-sands gas-production
credits in the 2001 period and $467,000 in the 2000 period.
Liquidity and Capital Resources
Operating Activities
Operating activities in the first three months of 2001 resulted in a $33.0
million use of funds compared to a $51.4 million source of funds in the same
period of 2000. The decrease in cash flows resulted primarily from the timing of
collection and payment of operating assets and liabilities between the quarters.
In 2001, higher gas costs charged by suppliers were not yet recovered from
customers resulting in increases in unrecovered purchased-gas costs and customer
receivables. In addition, accounts payable were paid down and inventory costs
increased.
Investing Activities
Capital expenditures were $12.8 million for the first quarter of 2001. Capital
expenditures for calendar year 2001 are estimated at $76.1 million.
Financing Activities
The Company borrowed $45.6 million from Questar to fund operating and investing
activities. Loan balances owed to Questar as of March 31, amounted to $151.2
million in 2001 and $39.7 million in 2000. Capital expenditures for the
remainder of 2001 are expected to be financed with net cash flow provided from
operating activities and borrowings from Questar.
7
Regulatory Matters
Effective January 1, 2001, the PSCU approved on an interim basis a $167 million
increase in its Utah natural gas rates that resulted in a 29 percent increase
for the typical residential Utah customer. The increase was based on recent
significant increases in natural gas prices at the wellhead and was part of
Questar Gas' gas-cost-adjustment or "pass-through" filings. Such filings enable
the company to adjust rates at least twice each year to reflect changes in
gas-supply costs. These costs are passed on to the customer on a
dollar-for-dollar basis with no markup. The impact of the gas cost increase on
customers was lessened by the fact that approximately 50% of the Company's
annual supply comes from its own wells and is priced to customers at cost of
service prices rather than market prices. Also, effective January 1, 2001, the
Wyoming Public Service Commission approved a $7 million pass-through filing for
Wyoming natural gas rates.
Forward-Looking Statements
This report includes "forward-looking statements" within the meaning of Section
27(a) of the Securities Act of 1933, as amended, and Section 21(e) of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included or incorporated by reference in this
report, including, without limitation, statements regarding the Company's future
financial position, business strategy, budgets, projected costs and plans and
objectives of management for future operations, are forward-looking statements.
In addition, forward-looking statements generally can be identified by the use
of forward-looking terminology such as "may", "will", "could", "expect",
"intend", "project", "estimate", "anticipate", "believe", "forecast", or
"continue" or the negative thereof or variations thereon or similar terminology.
Although 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.
Important assumptions and other significant factors that could cause actual
results to differ materially from those expressed or implied in forward-looking
statements include changes in general economic conditions, gas and oil prices
and supplies, competition, rate-regulatory issues and other factors beyond the
control of the Company. These other factors include the rate of inflation,
quoted prices of securities available for sale, the weather and other natural
phenomena, the effect of accounting policies issued periodically by accounting
standard-setting bodies, and adverse changes in the business or financial
condition of the Company.
8
Part II
Other Information
ITEM 1. LEGAL PROCEEDINGS.
a. The Public Service Commission of Wyoming (the "PSCW"), at an open
meeting held on April 13, 2001, determined that it was appropriate to issue a
final order concerning the most recent pass-on application filed by Questar Gas
Company ("Questar Gas" or the "Company"). The Company's application requested
permission to reflect $19,529,523 in annualized gas costs in its rates for
Wyoming customers effective January 1, 2001. Questar Gas was previously
authorized to reflect the costs in its rates as of January 1, 2001, subject to
refund.
b. The Public Service Commission of Utah (the PSCU") has scheduled a
public hearing for May 14, 2001, in conjunction with the Company's Utah
pass-through application. Questar Gas has been reflecting annualized gas costs
of $504,865,533, in its Utah rates as of January 1, 2001, subject to refund. Two
state agencies involved with utility regulation--the Division of Public
Utilities and the Committee of Consumer Services--have not opposed the
pass-through application or challenged the prudence of the Company's gas
purchases. Consequently, Questar Gas does not have any reason to believe that
the PSCU will not issue a final order approving the pass-through application.
Questar Gas, the Division of Public Utilities, and the Committee of
Consumer Services have signed a stipulation concerning means to provide more
price stability to sales customers and will request that the PSCU approve the
stipulation in conjunction with the current pass-through application. The
stipulation expressly recognizes that price stability, reliability and cost are
three factors to consider when obtaining gas supplies, that costs associated
with hedging activities can be included in the Company's balancing account for
pass-through treatment, and that rules promulgated by the Financial Accounting
Standards Board for the accounting treatment of derivatives (specifically SFAS
No. 133, as amended) should not apply to Questar Gas's purchased gas portfolio
since the costs and benefits are passed through to customers. The stipulation
further provides that if any entries are required by SFAS No. 133, as amended,
they should be made in the balancing account in a manner that does not affect
customer rates or the Company's net income.
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 GAS COMPANY
(Registrant)
May 11, 2001 /s/ D. N. Rose
- -------------------- -------------------------------------
D. N. Rose
President and Chief Executive Officer
May 11, 2001 /s/ S. E. Parks
- -------------------- -------------------------------------
S. E. Parks
Vice President, Treasurer, and
Chief Financial Officer