<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
_________________
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the Transition Period from _____________________ to_________________________
Commission File Number 1-7414
NORTHWEST PIPELINE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 87-0269236
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
295 Chipeta Way, Salt Lake City, Utah 84108
(Address of principal executive offices) (Zip Code)
(801) 583-8800
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
---------------------------------- ----------------------------
10.65% Debentures due 2018 New York Stock Exchange
9% Debentures due 2022 New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
----------
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
No voting stock of registrant is held by non-affiliates.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Class Outstanding at February 28, 1995
- ---------------------------------------- --------------------------------
Common stock, $1 par value 1,000 shares
Documents Incorporated by References:
None
The registrant meets the conditions set forth in General Instruction (J)(1)(a)
and (b) of Form 10-K and is therefore filing this form 10-K with the reduced
disclosure format.
<PAGE> 2
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Heading Page
- ------- ----
<S> <C> <C>
Items 1.
and 2. BUSINESS AND PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Omitted) . . . . . . . . . . . . . . . . 5
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK-
HOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 6. SELECTED FINANCIAL DATA (Omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Omitted) . . . . . . . . . . . . . . . . 31
Item 11. EXECUTIVE COMPENSATION (Omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (Omitted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Omitted) . . . . . . . . . . . . . . . . . . 31
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
<PAGE> 3
NORTHWEST PIPELINE CORPORATION
FORM 10-K
PART I
ITEMS 1 AND 2 . BUSINESS AND PROPERTIES
BUSINESS ENVIRONMENT
Northwest Pipeline Corporation ("Pipeline") is wholly owned by The
Williams Companies, Inc. ("Williams").
Pipeline owns and operates an interstate natural gas pipeline system,
including facilities for mainline transmission and gas storage. Pipeline's
transmission and storage activities are subject to regulation by the Federal
Energy Regulatory Commission ("FERC") under the Natural Gas Act of 1938
("Natural Gas Act") and under the Natural Gas Policy Act of 1978 ("NGPA"), and,
as such, its rates and charges for the transportation of natural gas in
interstate commerce, the extension, enlargement or abandonment of its
jurisdictional facilities, and its accounting, among other things, are subject
to regulation.
Pipeline has significant future opportunities to provide service to meet
the demands of growing gas markets. Pipeline's geographical position allows
access to the incremental sources of supply required for these markets.
TRANSMISSION
Pipeline owns and operates a pipeline system for the mainline
transmission of natural gas. This system extends from the San Juan Basin in
northwestern New Mexico and southwestern Colorado through Colorado, Utah,
Wyoming, Idaho, Oregon and Washington to a point on the Canadian border near
Sumas, Washington. At December 31, 1994, Pipeline's system, having an
aggregate mainline deliverability of almost 2.5 Bcf* of gas per day, was
composed of approximately 3,900 miles of mainline and branch transmission
pipelines, and 43 mainline compressor stations with a combined capacity of
approximately 291,000 horsepower.
Pipeline operates under an open-access transportation certificate wherein
gas is transported for third party shippers. Pipeline's transportation
services represented 100% of its total throughput in 1994, reflecting the
implementation of FERC's Order No. 636 during 1993.
- --------------------
* The term "Mcf" means thousand cubic feet, "MMcf" means million cubic feet
and "Bcf" means billion cubic feet. All volumes of natural gas are stated at a
pressure base of 14.73 pounds per square inch absolute at 60 degrees
Fahrenheit. The term "MMBtu" means one million British Thermal Units and
"TBtu" means one trillion British Thermal Units.
-1-
<PAGE> 4
In 1994, Pipeline transported natural gas for a total of 101 customers.
Pipeline provides services for markets in California, New Mexico, Colorado,
Utah, Nevada, Wyoming, Idaho, Oregon and Washington. Transportation customers
include distribution companies, municipalities, interstate and intrastate
pipelines, gas marketers and direct industrial users. The three largest
transportation customers of Pipeline in 1994 accounted for approximately 14.4%,
11.4% and 10.3%, respectively, of total transportation volumes. No other
customer accounted for more than 10% of total volumes moved on Pipeline's
mainline system. Pipeline's firm transportation agreements are generally
long-term agreements with various expiration dates and account for the major
portion of Pipeline's business. Additionally, Pipeline offers interruptible
transportation service under agreements that are generally short term.
No other interstate natural gas pipeline company presently provides
significant service to Pipeline's primary gas consumer market area. However,
competition with other interstate carriers exists for expansion markets.
Competition also exists with alternate fuels. Electricity and distillate fuel
oil are the primary alternate energy sources in the residential and commercial
markets. In the industrial markets, high sulfur residual fuel oil is the main
alternate fuel source.
Pipeline believes that strong economies in the Pacific Northwest and the
growing preference for natural gas in response to environmental concerns
support future expansions of its mainline capacity. In August 1993, Pipeline
filed applications for FERC approval to build additional mainline expansions
totaling 360 MMcf of gas per day of system capacity. In order to assure
unneeded capacity was not constructed, in March 1994 Pipeline allowed expansion
shippers to reduce their contracted level of service. As a result, Pipeline
filed an amended certificate reducing the expansions to 164 MMcf of gas per day
of increased system capacity at an estimated cost of $99.5 million to be in
service by the end of 1995. Most of the expansion shippers reducing their
contracted level of service were able to obtain needed service through readily
available firm segmented capacity releases under FERC Order No. 636 which
Pipeline implemented on November 1, 1993. Other opportunities include the
construction of $15 million of lateral and meter station expansions to meet
existing customers' shifting demand patterns under FERC Order No. 636.
GAS STORAGE
Underground gas storage facilities enable Pipeline to balance daily
receipts and deliveries and provide storage services to certain major
customers.
Pipeline has a contract with a third party, under which gas storage
services are provided to Pipeline in an underground storage reservoir in the
Clay Basin Field located in Daggett County, Utah. Pipeline injects its own gas
into the storage reservoir and is authorized to utilize the Clay Basin Field
at a seasonal storage level of 6.1 Bcf of working gas, with a firm delivery
capability of 51 MMcf of gas per day.
Pipeline owns a one-third interest in the Jackson Prairie underground
storage facility located near Chehalis, Washington, with the remaining
interests owned by two of Pipeline's distribution customers. The authorized
seasonal storage capacity of the facility is 15.1 Bcf of working gas. The
facility provides peak day deliveries to Pipeline of up to 450 MMcf per day on
a firm basis and up to an additional 72 MMcf per day on a best-efforts basis.
Certain of Pipeline's major customers own the working gas stored at the
facility.
Pipeline also owns and operates a liquefied natural gas ("LNG") storage
facility located near Plymouth, Washington, which provides standby service for
Pipeline's customers during extreme peaks in demand. The facility has a total
LNG storage capacity equivalent to 2.4 Bcf of gas, liquefaction capability of
12 MMcf per day and regasification capability of 300 MMcf per day. Certain of
Pipeline's major customers own the gas stored at the LNG plant.
-2-
<PAGE> 5
CONTRACT REFORMATION AND GAS SUPPLY CONTRACT ISSUES
Pursuant to FERC policy, Pipeline filed to recover a portion of contract
reformation costs through direct bills to former sales customers and through
surcharges to transportation as well as sales commodity rates. The total
amount of contract reformation costs authorized by FERC to be collected by
Pipeline by means of a direct bill mechanism was $34 million. All amounts have
been recovered at December 31, 1994.
FERC initially approved Pipeline's use of a mechanism to direct bill
Pipeline's contract reformation costs, but when challenged on appeal, sought a
remand to reassess its order concerning the billing mechanism. Pipeline has
received an order from FERC that requires Pipeline to reallocate such contract
reformation costs using a different method. Although reallocation will require
refunds of certain amounts, it is expected that Pipeline will be permitted to
recover substantially all of these costs from other customers.
In 1989, the FERC issued an order to Pipeline instituting a formal
investigation related to the assignment by Pipeline of certain gas supply
contracts to an affiliate. Pipeline was ordered to show cause why the
assignments did not violate certain federal statutes and FERC regulations. By
order dated October 5, 1992, the FERC set the matter for an expedited hearing
before an Administrative Law Judge ("ALJ"). The ALJ issued a decision in favor
of Pipeline on May 13, 1993. On April 6, 1994, the FERC issued an order
terminating all proceedings and affirming the ALJ's May 13, 1993 decision in
favor of Pipeline.
OPERATING STATISTICS
The following table summarizes volumes and average rates for the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Gas Volumes (TBtu):
Gas sales . . . . . . . . . . . . . . . . . . . - 18 19
Transportation . . . . . . . . . . . . . . . . . 679 606 591
---- ---- ----
Total throughput . . . . . . . . . . . . . . . 679 624 610
==== ==== ====
Average Daily Transportation Volumes (TBtu) . . . . 1.9 1.7 1.6
Average Daily Firm Reserved Capacity (TBtu) . . . . 2.4 ** **
</TABLE>
** Not applicable
-3-
<PAGE> 6
OTHER REGULATORY MATTERS
Pipeline's transportation of natural gas in interstate commerce is
subject to regulation by FERC under the Natural Gas Act or the NGPA. Pipeline
holds certificates of public convenience and necessity issued by FERC
authorizing it to own and operate all pipelines, facilities and properties
considered jurisdictional for which certificates are required under the Natural
Gas Act.
Pipeline is subject to the Natural Gas Pipeline Safety Act of 1968, as
amended by Title I of the Pipeline Safety Act of 1979, which regulates safety
requirements in the design, construction, operation and maintenance of
interstate gas transmission facilities.
On April 1, 1993, Pipeline began collecting new rates, subject to refund,
under the provisions of its rate case filed October 1, 1992. On July 28, 1994,
Pipeline received an initial decision from an ALJ on this rate case. This
decision will be considered by the FERC prior to its issuance of a final order.
Pipeline has raised exceptions with the FERC to the ALJ decision and is
awaiting the FERC's final order. Pipeline believes the outcome of the final
order is not likely to have a significant effect on net income.
On November 1, 1994, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed April 29, 1994. This new
filing seeks a revenue increase for a projected deficiency caused by increased
costs and loss of cost recovery assigned to a transportation contract
terminated subsequent to the rate case filed on October 1, 1992.
OWNERSHIP OF PROPERTY
Pipeline's system is owned in fee. However, a substantial portion of
Pipeline's system is constructed and maintained pursuant to rights-of-way,
easements, permits, licenses or consents on and across properties owned by
others. The compressor stations of Pipeline, with appurtenant facilities, are
located in whole or in part upon lands owned by Pipeline and upon sites held
under leases or permits issued or approved by public authorities. The LNG
plant is located on lands owned in fee by Pipeline. Pipeline's debt indentures
restrict the sale or disposal of a major portion of its pipeline system.
EMPLOYEES
At December 31, 1994, Pipeline employed 540 persons, none of whom are
represented under collective bargaining agreements. No strike or work stoppage
in any of Pipeline's operations has occurred in the past and relations with
employees are good.
ENVIRONMENTAL MATTERS
Pipeline is subject to the National Environmental Policy Act and other
federal and state legislation regulating the environmental aspects of its
business. Management believes that Pipeline is in substantial compliance with
existing environmental requirements. Pipeline believes that, with respect to
any capital expenditures required to meet applicable standards and regulations,
FERC would grant the requisite rate relief so that, for the most part, such
expenditures and a return thereon would be permitted to be recovered. Pipeline
believes that compliance with applicable environmental requirements is not
likely to have a material effect upon Pipeline's earnings or competitive
position. Refer to Note 1 of Notes to Financial Statements for a summary of
accounting policy on environmental matters.
-4-
<PAGE> 7
ITEM 3. LEGAL PROCEEDINGS
Various suits and claims, including those referred to in Note 10 of Notes
to Financial Statements and above under "Contract Reformation and Gas Supply
Contract Issues" and "Other Regulatory Matters", arising in the ordinary course
of business, are pending against Pipeline. While the ultimate effect of such
actions cannot be ascertained at this time, in the opinion of management of
Pipeline and its counsel, the possible liabilities (after consideration of
amounts accrued, insurance coverage or other indemnification arrangements)
which may result from such actions are not likely to have a materially adverse
financial effect upon Pipeline in the future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Since Pipeline meets the conditions set forth in General Instruction
(J)(1)(a) and (b) of Form 10-K, this information is omitted.
-5-
<PAGE> 8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Pipeline is wholly owned by Williams.
The payment of dividends by Pipeline on its common stock is restricted
under various debt agreements. Under the most restrictive provisions, the
amount of Pipeline's retained earnings available for dividends on its common
stock as of December 31, 1994, was approximately $150.5 million. In 1994 and
1993, Pipeline paid cash dividends on common stock of $30 million and $18
million, respectively.
ITEM 6. SELECTED FINANCIAL DATA
Since Pipeline meets the conditions set forth in General Instruction
(J)(1)(a) and (b) of Form 10-K, this information is omitted.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This analysis discusses financial results of Pipeline's operations for
the years 1992 through 1994.
RESULTS OF OPERATIONS
Year Ended December 31, 1994 vs. Year Ended December 31, 1993
Operating revenues decreased $38.1 million, or 14% due primarily to the
absence of natural gas sales and completion of contract reformation surcharge
billings early in 1994, partially offset by expanded firm transportation
service. Natural gas sales were eliminated following the implementation,
during the fourth quarter of 1993, of FERC Order No. 636 which converted
remaining sales customers to firm transportation service.
Operating expenses decreased $44.5 million, or 25%, primarily due to the
absence of gas purchase volumes as a result of implementation of FERC Order No.
636, the completion of contract reformation and lower maintenance expenses,
partially offset by higher operation expenses, depreciation and amortization,
and taxes other than income taxes.
Operating income increased $6.5 million, or 7%, primarily due to higher
revenues from expanded firm transportation service and lower maintenance
expenses partially offset by higher operation expenses, depreciation and
amortization, and taxes other than income taxes.
Other income decreased $6.9 million, or 86%, primarily due to a decrease
in the allowance for equity funds used during construction associated with
Pipeline's mainline expansion completed and placed into service April 1, 1993,
a decrease in interest income from short-term investing and a reserve related
to rate issues.
Interest on long-term debt decreased $1.8 million as the result of
retiring certain sinking fund debt obligations in 1994. Other interest expense
decreased $1.8 million primarily due to the absence of deferred carrying
charges on contract reformation costs.
-6-
<PAGE> 9
Year Ended December 31, 1993 vs. Year Ended December 31, 1992
Operating revenues increased $25.1 million, or 10%, due primarily to
increased firm transportation service and higher average transportation rates,
partially offset by lower natural gas sales volumes arising from conversion to
transportation service. Firm transportation service increased due primarily to
a mainline expansion, supported by 15- year firm transportation service
contracts being placed into service on April 1, 1993. Additionally, Pipeline
placed new, increased transportation rates into effect on April 1, 1993
(subject to refund) that reflected the new mainline expansion and a straight
fixed variable rate design that tends to moderate seasonal swings in operating
revenues.
Operating expenses decreased $6.8 million, or 4%, primarily due to lower
natural gas purchase volumes and lower amortization of contract reformation
costs, partially offset by increased operation and maintenance expenses,
increased depreciation and amortization expenses and increased taxes other than
income taxes. Operation and maintenance expenses increased $3 million due
primarily to higher employee related expenses and pipeline maintenance costs.
Depreciation and amortization increased $6.8 million as a result of completion
of the mainline expansion and other capital projects. Taxes other than income
taxes increased $1.6 million due primarily to higher property taxes reflecting
the completion of the mainline expansion and other capital projects.
Amortization of contract reformation costs decreased $3.9 million due to full
amortization of the balance of direct billed contract reformation in 1992 and
disallowance of certain contract reformation costs by the FERC, offset by a
similar decrease in operating revenues.
Operating income increased $31.9 million, or 47%, primarily due to
increased firm transportation service and higher average transportation rates.
Other income reflects a $4 million decrease in the equity component of
the allowance for funds used during construction attributed to the completion
of Pipeline's mainline expansion and other capital projects.
Interest on long-term debt increased $12 million due to issuance of $150
million in debentures during the third quarter of 1992 and the allocation of
interest expense to discontinued operations in 1992. Other interest expense
increased $2.6 million primarily due to the amortization of previously deferred
carrying costs on contract reformation.
The increase in the effective tax rate is a result of the cumulative
effect of the 1% increase in the Federal income tax rate.
FINANCIAL CONDITION AND LIQUIDITY
Capital Expenditures and Financing
Pipeline's expenditures for property, plant and equipment additions for
continuing operations amounted to $62.6 million, $175.7 million and $297.6
million for 1994, 1993 and 1992, respectively. Funds necessary to complete
capital projects are expected to come from several sources, including
Pipeline's operations and available cash. In addition, Pipeline expects to be
able to obtain financing, when necessary, on reasonable terms. To allow
flexibility in the timing of issuance of long-term securities, financing may be
provided on an interim basis with bank debt and from sources discussed below.
-7-
<PAGE> 10
Pipeline believes that strong economies in the Pacific Northwest and the
growing preference for natural gas in response to environmental concerns
support future expansions of its mainline capacity. In August 1993, Pipeline
filed applications for FERC approval to build additional mainline expansions
totaling 360 MMcf of gas per day of system capacity. In order to assure
unneeded incremental capacity was not constructed, in March 1994 Pipeline
allowed expansion shippers to reduce their contracted level of service. As a
result, Pipeline filed an amended certificate reducing the expansions to 164
MMcf of gas per day of increased system capacity at an estimated cost of $99.5
million to be in service by the end of 1995. Most of the expansion shippers
reducing their contracted level of service were able to obtain needed service
through readily available firm segmented capacity releases under FERC Order No.
636 that Pipeline implemented on November 1, 1993. Other opportunities include
the construction of $15 million of lateral and meter station expansions to meet
existing customer's shifting demand patterns under Order No. 636.
Pipeline participated in a $600 million Revolving Credit Agreement with
Williams and two affiliated companies. Pipeline's maximum borrowing
availability, subject to prior borrowing by other affiliated companies, was
$300 million, none of which was used by Pipeline at December 31, 1994 or 1993.
Interest rates vary with current market conditions. The agreement contains
restrictions that limit, under certain circumstances, the issuance of
additional debt, the attachment of liens on any assets and any change of
ownership of Pipeline. Effective February 23, 1995, this agreement was
renegotiated to an $800 million Revolving Credit Agreement with Williams and
three affiliated companies, with Pipeline's maximum borrowing availability,
subject to prior borrowing by other affiliated companies, increasing to $400
million. Other terms and restrictions remain essentially the same.
Pipeline has also arranged various uncommitted lines-of-credit at market
interest rates. Pipeline's credit facilities are subject to Pipeline's
continued credit worthiness.
OTHER
Pipeline owns and operates an interstate natural gas pipeline system
including facilities for mainline transmission and gas storage. Pipeline's
transmission and storage activities are subject to regulation by the FERC under
the Natural Gas Act of 1938 and under the Natural Gas Policy Act of 1978, and,
as such, its rates and charges for the transportation, the extension,
enlargement or abandonment of its jurisdictional facilities, and its
accounting, among other things, are subject to regulation.
Pipeline is also subject to the National Environmental Policy Act and
other Federal and state legislation regulating the environmental aspects of its
business. Management believes that Pipeline is in substantial compliance with
existing environmental requirements. Pipeline believes that, with respect to
any capital expenditures required to meet applicable standards and regulations,
FERC would grant the requisite rate relief so that, for the most part, such
expenditures and a return thereon would be permitted to be recovered. Pipeline
believes that compliance with applicable environmental requirements is not
likely to have a material effect upon Pipeline's earnings or competitive
position.
On April 1, 1993, Pipeline began collecting new rates, subject to refund,
under the provisions of its rate case filed October 1, 1992. On July 28, 1994,
Pipeline received an initial decision from an ALJ on this rate case. This
decision will be considered by the FERC prior to its issuance of a final order.
Pipeline has raised exceptions with the FERC to the ALJ decision and is
awaiting the FERC's final order. Pipeline believes the outcome of the final
order is not likely to have a significant effect on net income.
-8-
<PAGE> 11
On November 1, 1994, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed April 29, 1994. This new
filing seeks a revenue increase for a projected deficiency caused by increased
costs and loss of cost recovery assigned to a transportation contract
terminated subsequent to the rate case filed on October 1, 1992.
See Note 3 of Notes to Financial Statements for fair value of financial
instruments and Note 8 for the effects of a new accounting standard on other
postretirement and postemployment benefits.
Effect of Inflation
Pipeline generally has experienced increased costs in recent years due to
the effect of inflation on the cost of labor, material and supplies, and plant
and equipment. A portion of the increased labor and material and supplies cost
can directly affect income through increased maintenance and operating costs.
The cumulative impact of inflation over a number of years has resulted in
increased costs for current replacement of productive facilities. The majority
of Pipeline's plant and equipment and inventory is subject to ratemaking
treatment, and under current FERC practices, recovery is limited to historical
costs. While amounts in excess of historical cost are not recoverable under
current FERC practices, Pipeline believes it will be allowed to recover and
earn a return based on increased actual cost incurred when existing facilities
are replaced. Cost based regulation along with competition and other market
factors limit Pipeline's ability to price services or products based upon
inflation's effect on costs.
Contingencies
Reference is made to Note 10 of Notes to Financial Statements for
information about regulatory and judicial developments which cause operating
and financial uncertainties.
-9-
<PAGE> 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of independent auditors . . . . . . . . . . . . . . . . . . . . . . . . 11
Covered by report of independent auditors:
Statement of income for the years ended December 31, 1994,
1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Balance sheet at December 31, 1994 and 1993 . . . . . . . . . . . . . . . . 13
Statement of cash flows for the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . 15
Statement of capitalization for the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . 16
Notes to financial statements . . . . . . . . . . . . . . . . . . . . . . . 17
Not covered by report of independent auditors:
Quarterly financial data (unaudited) . . . . . . . . . . . . . . . . . . . 30
</TABLE>
All other schedules have been omitted since the required information is
not present or is not present in amounts sufficient to require submission of
the schedule or because the information required is included in the financial
statements and notes thereto.
-10-
<PAGE> 13
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Northwest Pipeline Corporation
We have audited the accompanying balance sheet of Northwest Pipeline
Corporation as of December 31, 1994 and 1993, and the related statements of
income, cash flows and capitalization for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Northwest Pipeline
Corporation at December 31, 1994 and 1993, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Tulsa, Oklahoma
February 10, 1995
-11-
<PAGE> 14
NORTHWEST PIPELINE CORPORATION
STATEMENT OF INCOME
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1994 1993 1992
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUES (Notes 1, 4, 9 and 10) . . . . . $238,473 $276,543 $251,395
-------- -------- --------
OPERATING EXPENSES:
Gas purchases . . . . . . . . . . . . . . . . . - 41,122 55,466
Amortization of contract reformation
costs (Note 10) . . . . . . . . . . . . . . . 4,053 14,114 17,964
Operation . . . . . . . . . . . . . . . . . . . 75,894 73,987 68,979
Maintenance . . . . . . . . . . . . . . . . . . 10,136 11,745 13,714
Depreciation and amortization (Note 1) . . . . . 29,607 26,457 19,672
Taxes, other than income taxes . . . . . . . . . 12,844 9,648 8,050
-------- -------- --------
132,534 177,073 183,845
-------- -------- --------
Operating income . . . . . . . . . . . . . . 105,939 99,470 67,550
-------- -------- --------
OTHER INCOME - net (Note 1) . . . . . . . . . . . . 1,117 7,970 12,749
-------- -------- --------
INTEREST CHARGES:
Interest on long-term debt . . . . . . . . . . . 29,798 31,565 19,589
Other interest . . . . . . . . . . . . . . . . . 6,391 8,226 5,593
Allowance for borrowed funds used
during construction (Note 1) . . . . . . . . (978) (4,655) (5,111)
-------- -------- --------
35,211 35,136 20,071
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES . . . . . . . . . . . . . . . 71,845 72,304 60,228
PROVISION FOR INCOME TAXES
(Notes 1 and 5) . . . . . . . . . . . . . . . . . 26,947 28,405 22,038
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS . . . . . . . . . 44,898 43,899 38,190
INCOME FROM DISCONTINUED
OPERATIONS, NET OF INCOME
TAXES (Note 2) . . . . . . . . . . . . . . . . . - - 29,092
-------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . 44,898 43,899 67,282
Less - Preferred stock dividend
requirements . . . . . . . . . . . . . . . . . - - 210
-------- -------- --------
INCOME APPLICABLE TO COMMON STOCK . . . . . . . . . $ 44,898 $ 43,899 $ 67,072
======== ======== ========
CASH DIVIDENDS ON COMMON STOCK . . . . . . . . . . $ 30,000 $ 18,000 $ -
======== ======== ========
</TABLE>
_______________________
See accompanying notes.
-12-
<PAGE> 15
NORTHWEST PIPELINE CORPORATION
BALANCE SHEET
================================================================================
ASSETS
<TABLE>
<CAPTION>
December 31,
--------------------------------
1994 1993
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT, at cost (Note 6) . . . . . . . . . . . . . $1,264,539 $1,235,124
Less - Accumulated depreciation and amortization . . . . . . . . . . 497,075 477,114
---------- ----------
767,464 758,010
Construction work in progress . . . . . . . . . . . . . . . . . . . . 43,429 25,013
---------- ----------
810,893 783,023
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . 1,818 24,675
Advances to Parent . . . . . . . . . . . . . . . . . . . . . . . . . 11,909 -
Accounts receivable -
Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,578 31,335
Affiliated companies . . . . . . . . . . . . . . . . . . . . . . . 2,055 427
Gas stored underground (principally at average cost) . . . . . . . . 8,354 12,105
Materials and supplies (principally at average cost) . . . . . . . . 10,826 10,373
Current recoverable contract reformation costs (Note 10) . . . . . . - 5,920
Exchange gas due from others . . . . . . . . . . . . . . . . . . . . 6,821 7,989
Costs recoverable through rate adjustments . . . . . . . . . . . . . 2,148 5,643
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . - 2,398
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 2,368 3,140
Prepayments and other . . . . . . . . . . . . . . . . . . . . . . . . 2,795 383
---------- ----------
84,672 104,388
---------- ----------
OTHER ASSETS:
Deferred charges (Note 1) . . . . . . . . . . . . . . . . . . . . . . 23,207 23,240
---------- ----------
$ 918,772 $ 910,651
========== ==========
</TABLE>
____________________
See accompanying notes.
-13-
<PAGE> 16
NORTHWEST PIPELINE CORPORATION
BALANCE SHEET
================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1993
-------- --------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION:
Common stockholder's equity -
Common stock, par value $1 per share, authorized
and outstanding, 1,000 shares . . . . . . . . . . . . . . . . . $ 1 $ 1
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 262,440 262,440
Retained earnings (Note 6) . . . . . . . . . . . . . . . . . . . . 164,536 151,301
-------- --------
426,977 413,742
Long-term debt, less current maturities (Note 7) . . . . . . . . . . 297,705 310,682
-------- --------
724,682 724,424
-------- --------
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 7) . . . . . . . . . . . . 8,591 8,591
Accounts payable -
Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,301 20,986
Affiliated companies . . . . . . . . . . . . . . . . . . . . . . . 371 638
Accrued liabilities -
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,779 -
Taxes, other than income taxes . . . . . . . . . . . . . . . . . . 6,724 5,344
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,890 9,669
Employee costs . . . . . . . . . . . . . . . . . . . . . . . . . . 6,950 9,737
Exchange gas due to others . . . . . . . . . . . . . . . . . . . . 11,007 11,751
Other, including rate refunds . . . . . . . . . . . . . . . . . . 42,702 23,334
-------- --------
105,315 90,050
-------- --------
DEFERRED INCOME TAXES (Notes 1 and 5) . . . . . . . . . . . . . . . . . . 78,183 75,549
-------- --------
OTHER DEFERRED CREDITS (Note 1) . . . . . . . . . . . . . . . . . . . . 10,592 20,628
-------- --------
CONTINGENT LIABILITIES AND COMMITMENTS (Note 10) . . . . . . . . . . . .
-------- --------
$918,772 $910,651
======== ========
</TABLE>
____________________
See accompanying notes.
-14-
<PAGE> 17
NORTHWEST PIPELINE CORPORATION
STATEMENT OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1994 1993 1992
--------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Income from continuing operations . . . . . . . . . . $ 44,898 $ 43,899 $ 38,190
Adjustments to reconcile to cash provided by
operations -
Depreciation and amortization . . . . . . . . . . . 29,607 26,457 19,672
Provision (credit) for deferred income taxes . . . 223 (2,627) (5,457)
Amortization of deferred charges and credits . . . 1,212 (768) (1,782)
Changes in receivables sold . . . . . . . . . . . . - - (35,000)
Allowance for equity funds used during construction (1,323) (6,077) (10,097)
Increase (decrease) from changes in:
Accounts receivable . . . . . . . . . . . . . . (2,305) 14,166 (7,262)
Inventory . . . . . . . . . . . . . . . . . . . 10,029 7,054 21,032
Other current assets . . . . . . . . . . . . . . 7,188 6,185 7,859
Other assets and deferred charges . . . . . . . (362) 10,597 14,676
Accounts payable . . . . . . . . . . . . . . . . (7,898) 22,487 (19,906)
Other current liabilities . . . . . . . . . . . 14,144 11,234 15,750
Other deferred credits . . . . . . . . . . . . . - (1) 1,195
Other . . . . . . . . . . . . . . . . . . . . . . . 8 575 1,666
Net cash provided by discontinued operations . . . - - 38,200
--------- -------- --------
Net cash provided by operating activities . . . . . . 95,421 133,181 78,736
--------- -------- --------
INVESTING ACTIVITIES:
Property, plant and equipment -
Capital expenditures . . . . . . . . . . . . . . . (62,583) (175,726) (297,649)
Asset removal cost . . . . . . . . . . . . . . . . (1,973) (1,774) -
Proceeds from sales . . . . . . . . . . . . . . . . - - 1,851
Changes in accounts payable . . . . . . . . . . . . 1,202 (65,625) 62,682
Property purchases related to discontinued operations,
net of proceeds from sales . . . . . . . . . . . . - - (46,185)
Advances to parent . . . . . . . . . . . . . . . . . . (11,909) - 80,227
--------- -------- --------
Net cash used by investing activities . . . . . . . . (75,263) (243,125) (199,074)
--------- -------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt . . . . . . . - - 174,222
Principal payments on long-term debt . . . . . . . . . (13,015) (29,165) (78,736)
Premium on early retirement of long-term debt . . . . - (170) (499)
Capital contributions from parent . . . . . . . . . . - - 125,000
Advances from parent . . . . . . . . . . . . . . . . . - - 85,000
Redemption of preferred stock . . . . . . . . . . . . - - (4,450)
Dividends paid . . . . . . . . . . . . . . . . . . . . (30,000) (18,000) (210)
--------- -------- --------
Net cash (used) provided by financing activities . . . (43,015) (47,335) 300,327
--------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (Note 1) . . . . . . . . . . . . . . . . . (22,857) (157,279) 179,989
--------- -------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . 24,675 181,954 1,965
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . $ 1,818 $ 24,675 $181,954
========= ======== ========
</TABLE>
_______________________
See accompanying notes.
-15-
<PAGE> 18
NORTHWEST PIPELINE CORPORATION
STATEMENT OF CAPITALIZATION
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1994 1993 1992
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
COMMON STOCKHOLDER'S EQUITY:
Common stock, par value $1 per share,
authorized and outstanding, 1,000 shares . . . . . $ 1 $ 1 $ 1
-------- -------- --------
Additional paid-in capital -
Balance at beginning of period . . . . . . . . . . 262,440 262,440 133,950
Change in capital structure . . . . . . . . . . - - 3,490
Capital contributions from parent . . . . . . . - - 125,000
-------- -------- --------
Balance at end of period . . . . . . . . . . . . . 262,440 262,440 262,440
-------- -------- --------
Retained earnings (Note 6) -
Balance at beginning of period . . . . . . . . . . 151,301 126,797 222,783
Net income . . . . . . . . . . . . . . . . . . . 44,898 43,899 67,282
Cash dividends . . . . . . . . . . . . . . . . . (30,000) (18,000) (210)
Noncash dividend (Note 6) . . . . . . . . . . . (1,663) (1,395) (163,058)
-------- -------- --------
Balance at end of period . . . . . . . . . . . . . 164,536 151,301 126,797
-------- -------- --------
Total common stockholder's equity . . . . . . . 426,977 413,742 389,238
-------- -------- --------
REDEEMABLE PREFERRED STOCK:
Balance at beginning of period . . . . . . . . . . . . - - 2,100
Redeemed . . . . . . . . . . . . . . . . . . . . . - - (2,100)
-------- -------- --------
Balance at end of period . . . . . . . . . . . . . . . - - -
-------- -------- --------
LONG-TERM DEBT (Note 7):
Debentures -
8.75% . . . . . . . . . . . . . . . . . . . . . . . - - 11,664
9%, payable through 2001 . . . . . . . . . . . . . 17,500 25,000 35,000
9%, payable 2003 through 2022 . . . . . . . . . . . 149,313 149,275 149,237
9.25%, payable 1994 through 2006 . . . . . . . . . 19,228 23,076 25,000
10.65%, payable 1999 through 2018 . . . . . . . . . 100,000 100,000 100,000
Adjustable rate notes, payable through 2002 . . . . . 11,664 13,331 14,998
-------- -------- --------
Total long-term debt . . . . . . . . . . . . . . 297,705 310,682 335,899
-------- -------- --------
Total capitalization . . . . . . . . . . . . . . $724,682 $724,424 $725,137
======== ======== ========
</TABLE>
____________________
See accompanying notes.
-16-
<PAGE> 19
NORTHWEST PIPELINE CORPORATION
NOTES TO FINANCIAL STATEMENTS
================================================================================
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Northwest Pipeline Corporation ("Pipeline") is wholly owned by The
Williams Companies, Inc. ("Williams").
Property, Plant and Equipment
Property, plant and equipment ("plant"), consisting principally of
natural gas transmission facilities, is recorded at original cost.
Expenditures which materially increase values or capacities or extend useful
lives of plant are capitalized. Routine maintenance, repairs and renewal costs
are charged to income as incurred. Gains or losses from the ordinary sale or
retirement of plant are charged or credited to accumulated depreciation and
amortization ("D&A").
Depreciation is provided by the straight-line method for transmission
plant over its useful life. The composite annual D&A rate was 2%, 2.13% and
3.05% for 1994, 1993 and 1992, respectively.
Allowance for Borrowed and Equity Funds Used During Construction
Allowance for funds used during construction ("AFUDC") represents the
estimated cost of borrowed and equity funds applicable to utility plant in
process of construction. Recognition is made of this item as a cost of utility
plant because it constitutes an actual cost of construction under established
regulatory practices. The Federal Energy Regulatory Commission ("FERC") has
prescribed a formula to be used in computing separate allowances for borrowed
and equity AFUDC.
The composite rate used to capitalize AFUDC was approximately 11.8% for
1994 and 1993 and 12.2% for 1992. Equity AFUDC of $1.3 million, $6.1 million
and $10.1 million for 1994, 1993 and 1992, respectively, is reflected in other
income.
Income Taxes
Pipeline is included in Williams' consolidated federal income tax return.
Pipeline's Federal income tax provisions are computed as though separate tax
returns are filed. Deferred income taxes are computed using the liability
method and are provided on all temporary differences between the financial
basis and the tax basis of Pipeline's assets and liabilities.
Deferred Charges
Pipeline amortizes deferred charges over varying periods consistent with
FERC approved accounting treatment for such deferred items. Unamortized debt
expense, debt discount and gains or losses on reacquired long-term debt are
amortized by the bonds outstanding method over the related debt repayment
periods.
-17-
<PAGE> 20
NORTHWEST PIPELINE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
Deferred Credits
The regulatory liability, recorded as a result of new accounting
principles for income taxes was adjusted to reflect the increase in the Federal
income tax rate from 34 percent to 35 percent in 1993. This liability of $10.2
million and $11.3 million at December 31, 1994 and 1993, respectively, is
reflected in other deferred credits. The regulatory liability is being
amortized over the lives of the related depreciable assets.
Cash and Cash Equivalents
Cash and cash equivalents include demand and time deposits, certificates
of deposit and other marketable securities with a term to maturity of three
months or less when acquired.
Revenue Recognition
Pipeline recognizes revenues for the transportation of natural gas based
upon contractual terms and the related transported volume through month end.
Pursuant to FERC regulations, a portion of the revenues being collected may be
subject to possible refunds upon final orders in pending cases. Pipeline
establishes financial reserves for such contingencies based on the facts and
circumstances of the pending case.
Environmental Matters
Pipeline is subject to Federal, state, and local environmental laws and
regulations. Environmental expenditures are expensed or capitalized depending
on their future economic benefit and potential for rate recovery. Pipeline
believes that, with respect to any expenditures required to meet applicable
standards and regulations, FERC would grant the requisite rate relief so that,
for the most part, such expenditures would be permitted to be recovered.
Pipeline believes that compliance with applicable environmental requirements is
not likely to have a material effect upon Pipeline's financial position.
Interest Payments
Cash payments for interest were $28.9 million, $26.8 million and $16.5
million, net of $1 million, $4.7 million and $5.7 million of interest
capitalized in 1994, 1993 and 1992, respectively. Of these amounts, $4.5
million, net of $1.6 million of interest capitalized was allocated to
discontinued operations in 1992.
-18-
<PAGE> 21
NORTHWEST PIPELINE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
(2) DISCONTINUED OPERATIONS
The following results of operations of the gathering and processing
activities, transferred to Williams Gas Processing Company ("Processing") on
December 31, 1992, are included in Income from Discontinued Operations, Net of
Income Taxes, on the accompanying Statement of Income for the year ended
December 31, 1992:
<TABLE>
<CAPTION>
(Thousands of
Dollars)
<S> <C>
Operating revenues . . . . . . . . . . . . $149,747
Operating expenses and other . . . . . . . 95,083
Interest charges . . . . . . . . . . . . . 8,784
Provision for income taxes . . . . . . . . 16,788
--------
Income from discontinued
operations . . . . . . . . . . . . . . . $ 29,092
========
</TABLE>
Pipeline's long-term debt for this period cannot be specifically sourced
to gathering and processing even though these assets were financed
historically, at least in part, with overall debt obligations of Pipeline.
Therefore, the amount of interest allocated to discontinued operations for
purposes of this restatement is based on the ratio of all gathering and
processing assets, net of all gathering and processing liabilities to total
assets, net of total liabilities (except long-term debt).
(3) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. The estimated fair
value amounts have been determined by Pipeline, using available market
information and appropriate valuation methodologies. However, considerable
judgement is necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that Pipeline could realize in a current
market exchange. The use and complexity of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
-19-
<PAGE> 22
NORTHWEST PIPELINE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and cash equivalents, advances to parent, accounts receivable, and
accounts payable - The carrying amount of these items are assumed to be
indicative of their fair value.
Long-term debt - The fair value of Pipeline's publicly traded long-term debt is
valued using year-end traded market prices. Private debt is valued based on
the prices of similar securities with similar terms and credit ratings.
Pipeline used the expertise of an outside investment banking firm to estimate
the fair value of long-term debt.
The carrying amount and estimated fair value of Pipeline's long term
debt, including current maturities, were $306.3 million and $314.3 million,
respectively, at December 31, 1994, and $319.3 million and $351.5 million,
respectively, at December 31, 1993.
(4) REVENUES ATTRIBUTABLE TO MAJOR CUSTOMERS
During some or all of the periods presented, more than 10% of Pipeline's
operating revenues were generated from each of the following customers who are
large distribution companies.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1994 1993 1992
------- ------- -------
(Thousands of Dollars)
<S> <C> <C> <C>
Washington Natural Gas Co. $48,658 $71,661 $64,540
Northwest Natural Gas Co. 29,911 31,450 17,807
Cascade Natural Gas Corp. 25,709 33,594 30,839
</TABLE>
Pipeline's major customers are located in the Pacific Northwest. As a
general policy, collateral is not required for receivables, but customers'
financial condition and credit worthiness are regularly evaluated and
historical losses have been minimal. A portion of the revenues reflected above
(subsequent to April 1, 1993) may be subject to refund due to Pipeline's
pending rate cases as discussed in Note 10.
-20-
<PAGE> 23
NORTHWEST PIPELINE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
(5) INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
(Thousands of Dollars)
1994 1993
-------- --------
<S> <C> <C>
Property, plant and equipment $ 93,871 $ 83,810
Other - net 6,920 5,590
-------- --------
Deferred tax liabilities 100,791 89,400
-------- --------
Rate refunds (14,638) (7,422)
Regulatory liabilities (4,464) (2,965)
Accrued liabilities (3,051) (3,908)
State deferred taxes (2,823) (2,696)
-------- --------
Deferred tax assets (24,976) (16,991)
-------- --------
Net deferred tax liabilities $ 75,815 $ 72,409
======== ========
Reflected as:
Deferred income taxes - asset $ (2,368) $ (3,140)
Deferred income taxes - liability 78,183 75,549
-------- --------
$ 75,815 $ 72,409
======== ========
</TABLE>
-21-
<PAGE> 24
NORTHWEST PIPELINE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
The provision for income taxes includes:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1994 1993 1992
------------ ------------- -----------
(Thousands of Dollars)
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . $ 23,811 $ 28,127 $ 43,321
State . . . . . . . . . . . . . . . . . . . . 2,913 2,905 5,119
---------- ---------- ---------
26,724 31,032 48,440
---------- ---------- ---------
Deferred:
Federal . . . . . . . . . . . . . . . . . . . 200 (1,113) (8,598)
State . . . . . . . . . . . . . . . . . . . . 23 (1,514) (1,016)
---------- ---------- ---------
223 (2,627) (9,614)
---------- ---------- ---------
Total provision . . . . . . . . . . . . . . . . . $ 26,947 $ 28,405 $ 38,826
========== ========== =========
Relates to:
Continuing operations . . . . . . . . . . . . $ 26,947 $ 28,405 $ 22,038
Discontinued operations . . . . . . . . . . . - - 16,788
---------- ---------- ---------
$ 26,947 $ 28,405 $ 38,826
========== ========== =========
</TABLE>
Deferred income taxes, accounted for under SFAS No. 109, result from
temporary differences in the book basis and tax basis of assets and
liabilities. Temporary differences primarily result from depreciation of
property, plant and equipment and estimated liabilities.
-22-
<PAGE> 25
NORTHWEST PIPELINE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
A reconciliation of the statutory Federal income tax rate to the
provision for income taxes on continuing operations is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1994 1993 1992
------- ------- -------
(Thousands of Dollars)
<S> <C> <C> <C>
Provision at statutory Federal income tax
rate of 35% for 1994 and 1993 and 34% for 1992 . . . $25,146 $25,306 $36,076
Increase (decrease) in tax provision resulting from -
Increase in Federal rates on beginning of year
deferred tax balances . . . . . . . . . . . . . . . - 1,936 -
State income taxes, net of Federal tax benefit . . . 1,908 904 2,708
Other - net . . . . . . . . . . . . . . . . . . . . . (107) 259 42
------- ------- -------
Provision for income taxes . . . . . . . . . . . . 26,947 28,405 38,826
Less - Provision for income taxes from
discontinued operations . . . . . . . . . . . . . . . - - 16,788
------- ------- -------
Provision for income taxes from
continuing operations . . . . . . . . . . . . . . . . $26,947 $28,405 $22,038
======= ======= =======
Effective tax rate . . . . . . . . . . . . . . . . . . . 37.51% 39.29% 36.59%
======= ======= =======
</TABLE>
The provision for income taxes from discontinued operations was allocated
based on Pipeline's overall effective tax rate for the respective periods. Net
cash payments, including discontinued operations, made to Williams for income
taxes were $22.7 million, $36.2 million and $47.3 million in 1994, 1993 and
1992, respectively.
(6) RETAINED EARNINGS
Noncash Dividends
On December 31, 1992, Pipeline transferred its gathering and processing
properties and certain other assets and liabilities to Processing. On the same
date, the stock of Processing was transferred by dividend to Pipeline's parent,
Williams. The assets and liabilities transferred consisted of all the
gathering and processing properties of Pipeline and related liabilities, net of
associated deferred income tax liabilities. The total amount of this dividend
was $163.1 million.
On December 31, 1993, Pipeline transferred certain aircraft and computer
assets, net of associated deferred income tax liabilities, to Williams by
dividend. These assets, which are not included in the accompanying balance
sheet as of December 31, 1993, had a net book value of $1.4 million.
-23-
<PAGE> 26
NORTHWEST PIPELINE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
On January 31, 1994, Pipeline transferred certain telecommunication and
measurement assets, net of associated deferred income tax liabilities, to
Williams by dividend. These assets, which are not included in the accompanying
balance sheet as of December 31, 1994, had a net book value of $.9 million.
On September 30, 1994, Pipeline transferred certain gas transmission
assets located in Oklahoma, net of associated deferred income tax liabilities,
to Williams by dividend. These assets, which are not included in the
accompanying balance sheet as of December 31, 1994, had a net book value of $.7
million.
Restrictions
Pipeline's debt indentures contain provisions limiting common stock
dividends. Under the most restrictive provisions, the amount of Pipeline's
retained earnings available for dividends on its common stock as of December
31, 1994, was approximately $150.5 million.
(7) LONG-TERM DEBT, LEASES AND BANKING ARRANGEMENTS
Debt Covenants
The terms of Pipeline's debt indentures preclude the issuance of mortgage
bonds. The indentures contain provisions for the acceleration of repayment or
the reset of interest rates under certain conditions. Pipeline's debt
indentures also contain restrictions which, under certain circumstances, limit
the issuance of additional debt, restrict the payment of cash dividends and
restrict the disposal of a major portion of its natural gas pipeline system.
Long-Term Debt
On April 29, 1993, Pipeline called the balance of its outstanding 8.75%
Series A Debentures, due 1996, under terms of the optional prepayment
provisions in the debenture agreement. On the prepayment date of June 1, 1993,
the debenture holders were paid the principal amount of $8.7 million plus early
redemption premiums of $.2 million. The prepayment was in addition to the May
31, 1993 sinking fund payment of $5.8 million and an optional, partial sinking
fund payment of $2.9 million. The redemption premium and the unamortized debt
expense associated with the 8.75% Series A Debentures, totaling approximately
$.2 million, will be amortized over the original life of the debt as required
by the FERC.
On April 29, 1993, Pipeline also called $5 million of its outstanding 9%
Series B Debentures, due 2001, under terms of the optional prepayment
provisions in the debenture agreement. No early redemption premium was
required. The prepayment was in addition to the May 31, 1993 sinking fund
payment of $5 million.
On April 27, 1994, Pipeline called $2.5 million of its outstanding 9%
Series B Debentures and $1.9 million of its outstanding 9.25% Series C
Debentures, due 2001 and 2006, respectively, under terms of the optional
prepayment provisions in the debenture agreement. No early redemption premium
was required. The prepayment was in addition to the May 31, 1994 sinking fund
payments of $5 million for the 9% Series and $1.9 million for the 9.25% Series.
-24-
<PAGE> 27
NORTHWEST PIPELINE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
Adjustable Interest Rate Notes
The interest rate on these notes will be adjusted periodically, but will
never exceed 25% or be less than 9% per annum. The interest rate at December
31, 1994 was 9%.
Sinking Fund Requirements and Maturities
As of December 31, 1994, cumulative sinking fund requirements and other
maturities of long-term debt for each of the next five years are as follows:
<TABLE>
<CAPTION>
(Thousands of
Dollars)
----------------
<S> <C>
1995 . . . . $ 8,591
1996 . . . . 8,591
1997 . . . . 8,591
1998 . . . . 8,591
1999 . . . . 11,091
</TABLE>
Line-of-Credit Arrangements
Pipeline participated in a $600 million Revolving Credit Agreement with
Williams and two affiliated companies. Pipeline's maximum borrowing
availability, subject to prior borrowing by other affiliated companies, was
$300 million, none of which was used by Pipeline at December 31, 1994 or 1993.
Interest rates vary with current market conditions. The agreement contains
restrictions that limit, under certain circumstances, the issuance of
additional debt, the attachment of liens on any assets and any change of
ownership of Pipeline. Effective February 23, 1995, this agreement was
renegotiated to an $800 million Revolving Credit Agreement with Williams and
three affiliated companies, with Pipeline's maximum borrowing availability,
subject to prior borrowing by other affiliated companies, increasing to $400
million. Other terms and restrictions remain essentially the same.
Pipeline has also arranged various uncommitted lines-of-credit at market
interest rates. Pipeline's credit facilities are subject to Pipeline's
continued credit worthiness.
-25-
<PAGE> 28
NORTHWEST PIPELINE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
Leases
Pipeline's leasing arrangements include mostly premise and equipment
leases that are classified as operating leases.
The major operating lease is a leveraged lease which became effective
during 1982 for Pipeline's headquarters building. The agreement has an initial
term of approximately 27 years, with options for consecutive renewal terms of
approximately 9 years and 10 years. The major component of the lease payment
is set through the initial and first renewal terms of the lease except for a
potential one time adjustment in 1995 to track an allowed interest rate change
on a portion of the lessor's debt. Various purchase options exist under the
building lease, including options involving adverse regulatory development.
Following are the estimated future minimum yearly rental payments
required under operating leases which have initial or remaining noncancelable
lease terms in excess of one year:
<TABLE>
<CAPTION>
(Thousands
of Dollars)
-----------
<S> <C>
1995 . . . . . . $ 6,070
1996 . . . . . . 8,647
1997 . . . . . . 8,608
1998 . . . . . . 8,759
1999 . . . . . . 8,761
Thereafter . . . 79,563
---------
Total . . . . $ 120,408
=========
</TABLE>
Operating lease rental expense, net of amounts applicable to discontinued
operations for 1992 amounted to $4.6 million, $4.3 million and $3.4 million for
1994, 1993 and 1992, respectively. Capital lease payments for the periods
presented are not significant.
(8) EMPLOYEE BENEFIT PLANS
Pipeline's employees are covered by Williams' noncontributory defined
benefit pension plan. Benefits are based on years of service and average final
compensation. Pension costs are funded to satisfy minimum requirements
prescribed by the Employee Retirement Income Security Act of 1974. Pipeline
accrued pension expense of $.5 million in 1994 and $1.1 million in each of the
years 1993 and 1992. Such accrued expenses have been or are being funded
currently.
-26-
<PAGE> 29
NORTHWEST PIPELINE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
Substantially all retirees who were hired prior to January 1, 1992, are
provided medical benefits. Employees hired after January 1, 1992 will not be
provided postretirement medical benefits. As of January 1, 1993, Northwest
Pipeline adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions". During 1994, 1993 and 1992 the expense of
providing medical benefits to retirees was approximately $2.8 million, $2.8
million and $1.7 million, respectively. Included in 1994 and 1993 expenses is
the amortization of Pipeline's estimated transition obligation of $19.2 million
which is being amortized prospectively over 20 years.
In December 1992, FERC issued a Statement of Policy allowing natural gas
pipelines to recognize, as a component of jurisdictional cost-based rates,
prudently incurred SFAS No. 106 costs, provided that amounts accrued under SFAS
No. 106 are fully funded with an irrevocable external trust fund and that
income tax deductions for contributions to the trust fund are maximized.
Northwest Pipeline has complied with this Statement of Policy.
Effective January 1, 1994 Pipeline adopted Statement of Financial
Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
Postemployment Benefits", which requires the accrual of benefits provided to
former or inactive employees after regular employment but before retirement.
The adoption of the new standard had no effect on Pipeline's net income and had
no significant effect on Pipeline's balance sheet.
Williams maintains various defined contribution plans covering
substantially all employees. Company contributions are based on employees'
compensation and, in part, match employee contributions. All Company
contributions are invested in Williams stock. Contributions by Pipeline to
these plans totaled $1.8 million for each of the years 1994, 1993 and 1992.
(9) RELATED PARTY TRANSACTIONS
Williams' corporate overhead expenses allocated to Pipeline were $4.6
million, $4.2 million and $6.4 million for 1994, 1993 and 1992, respectively,
of which $2.4 million was allocated to discontinued operations for 1992. Such
expenses have been allocated to Pipeline by Williams, primarily based on the
Massachusetts formula, which is a FERC approved method utilizing a combination
of operating revenues, gross payroll and gross plant for the allocation base.
In addition, Williams or an affiliate has provided executive, data processing,
legal, aviation, internal audit and other administrative services to Pipeline
on a direct charge basis which amounted to $3.4 million, $4.9 million and $5.4
million for 1994, 1993 and 1992, respectively, of which $2 million was charged
to discontinued operations in 1992. Corporate overhead allocated and direct
administrative services, representative of the amounts allocated/charged to
discontinued operations, continue to be allocated/charged to Processing since
the transfer described in Note 2. In addition, Pipeline received interest
income from advances to parent of $1.2 million and $2.3 million during 1994 and
1992, respectively. There were no advances to parent during 1993.
-27-
<PAGE> 30
NORTHWEST PIPELINE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
During the periods presented, Pipeline's revenues reflect gas sales,
transportation and exchange transactions with subsidiaries of Williams.
Combined revenues for these activities totaled $3.4 million, $4.8 million and
$16.8 million for 1994, 1993 and 1992, respectively. Liquids products
extracted from Pipeline's gas processing plants (discontinued operations) were
marketed by a subsidiary of Williams for a fee. Such commissions were $2.1
million in 1992.
Pipeline has entered into various other transactions with certain related
parties, the amounts of which were not significant. These transactions and the
above described transactions are charged on the basis of commercial
relationships and prevailing market prices or general industry practices.
(10) CONTINGENT LIABILITIES AND COMMITMENTS
Contract Reformation
Pursuant to FERC policy, Pipeline filed to recover a portion of contract
reformation costs through direct bills to former sales customers and through
surcharges to transportation as well as sales commodity rates. The total
amount of contract reformation costs authorized by FERC to be collected by
Pipeline by means of a direct bill mechanism was $34 million. All amounts have
been recovered at December 31, 1994.
FERC initially approved Pipeline's use of a mechanism to direct bill
Pipeline's contract reformation costs, but when challenged on appeal, sought a
remand to reassess its order concerning the billing mechanism. Pipeline has
received an order from FERC that requires Pipeline to reallocate such contract
reformation costs using a different method. Although reallocation will require
refunds of certain amounts, it is expected that Pipeline will be permitted to
recover substantially all of these costs from other customers.
Pending Rate Cases
On April 1, 1993, Pipeline began collecting new rates, subject to refund,
under the provisions of its rate case filed October 1, 1992. On July 28, 1994,
Pipeline received an initial decision from an Administrative Law Judge ("ALJ")
on this rate case. This decision will be considered by the FERC prior to its
issuance of a final order. Pipeline has raised exceptions with the FERC to the
ALJ decision and is awaiting the FERC's final order. Pipeline believes the
outcome of the final order is not likely to have a significant effect on net
income.
On November 1, 1994, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed April 29, 1994. This new
filing seeks a revenue increase for a projected deficiency caused by increased
costs and loss of cost recovery assigned to a transportation contract
terminated subsequent to the rate case filed on October 1, 1992.
-28-
<PAGE> 31
NORTHWEST PIPELINE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
================================================================================
Other Regulatory Matters
In 1989, the FERC issued an order to Pipeline instituting a formal
investigation related to the assignment by Pipeline of certain gas supply
contracts to an affiliate. Pipeline was ordered to show cause why the
assignments did not violate certain federal statutes and FERC regulations. By
order dated October 5, 1992, the FERC set the matter for an expedited hearing
before an Administrative Law Judge ("ALJ"). The ALJ issued a decision in favor
of Pipeline on May 13, 1993. On April 6, 1994, the FERC issued an order
terminating all proceedings and affirming the ALJ's May 13, 1993 decision in
favor of Pipeline.
Other Legal Matters
In addition to the foregoing, various other proceedings are pending
against Pipeline incidental to its operations.
Summary of Contingent Liabilities
Management believes that the ultimate resolution of the foregoing
matters, after consideration of amounts accrued, insurance coverage or other
indemnification arrangements, is not likely to have a materially adverse
financial effect upon Pipeline in the future.
Other Matters
Commitments for construction and acquisition of property, plant and
equipment are approximately $19.1 million at December 31, 1994.
During 1994 Pipeline sold, with limited recourse, certain receivables.
Until the expiration of the arrangement in July 1994, net proceeds to Pipeline
were limited to $40 million, none of which was utilized at the expiration date
or at December 31, 1993. During 1994, Pipeline utilized this facility at
varying times up to $18 million.
-29-
<PAGE> 32
NORTHWEST PIPELINE CORPORATION
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly financial data for 1994 and 1993:
<TABLE>
<CAPTION>
Quarter of 1994
-----------------------------------------------------------
First Second Third Fourth
------- ------- ------- -------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating revenues . . . . . . . . . . . . $ 64,686 $ 57,816 $ 57,022 $ 58,949
Operating income . . . . . . . . . . . . . 30,475 26,673 24,110 24,681
Income from continuing operations,
net of tax . . . . . . . . . . . . . . . 12,894 12,282 10,217 9,505
Income applicable to common stock . . . . . 12,894 12,282 10,217 9,505
</TABLE>
<TABLE>
<CAPTION>
Quarter of 1994
-----------------------------------------------------------
First Second Third Fourth
------- ------- ------- -------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating revenues . . . . . . . . . . . . $ 65,459 $ 73,959 $ 74,623 $ 62,502
Operating income . . . . . . . . . . . . . 20,977 28,828 29,103 20,562
Income from continuing operations,
net of tax . . . . . . . . . . . . . . . 13,565 11,998 10,212 8,124
Income applicable to common stock . . . . . 13,565 11,998 10,212 8,124
</TABLE>
Operating results since April 1, 1993 reflect a straight fixed variable
rate design that tends to moderate seasonal swings in operating revenues.
However, fourth quarter results include additions to certain rate reserves and,
effective November 1, 1993, the final conversion of sales customers to
transportation service.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-30-
<PAGE> 33
PART III
Since Pipeline meets the conditions set forth in General Instruction
(J)(1)(a) and (b) of Form 10-K, this information is omitted.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)1 AND 2. FINANCIAL STATEMENTS AND SCHEDULES (included in Parts II and IV
of this report).
The financial statements are listed in the Index to
Financial Statements on page 10. No schedules are required
to be filed.
(A)3. EXHIBITS:
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession:
*(a) Merger Agreement, dated as of September 20, 1983, between Williams
and Energy (Exhibit 18 to Energy schedule 14D-9 (Amendment No. 3)
dated September 22, 1983).
*(b) The Plan of Merger, dated as of November 7, 1983, between Energy and
a subsidiary of Williams (Exhibit 2(b) to Pipeline report on Form
10-K, No. 1-7414, filed March 22, 1984).
(3) Articles of incorporation and by-laws:
*(a) Restated Certificate of Incorporation (Exhibit 3a to Amendment No. 1
to Registration Statement on Form S-1, No. 2-55-273, filed January
13, 1976).
*(b) By-laws, as amended (Exhibit 3c to Registration Statement on Form
S-1, No. 2-55273, filed December 30, 1975).
(4) Instruments defining the rights of security holders, including
indentures:
*(a) Note Purchase Agreement, dated as of April 15, 1982, between
Pipeline and Teachers Insurance and Annuity Association of America
relating to Adjustable Rate Notes, due March 31, 2002 (Exhibit
(a)4(e) to Energy Report on Form 10-Q for the quarter ended June 30,
1982, No. 1-7987).
*(b) Debenture Purchase Agreement, dated as of June 6, 1986, between
Pipeline and certain institutional investors relating to the 8.75%
Series A Debentures, due 1996, 9.0% Series B Debentures, due 2001
and 9.25% Series C Debentures, due 2006 (Exhibit 4(n) to Pipeline
Report on Form 10-K, No. 1-7414, filed March 31, 1987.)
*(c) Indenture, dated as of November 15, 1988, between Pipeline and The
Chase Manhattan Bank, relating to Pipeline's 10.65% Debentures
(Exhibit 4.1 to Amendment No. 1 to Registration Statement on Form
S-3, No. 33- 25512, filed November 18, 1988).
*(d) Senior Indenture, dated as of August 1, 1992, between Pipeline and
Continental Bank, N.A., relating to Pipeline's 9% Debentures, due
2022 (Exhibit 4.1 to Registration Statement on Form S-3, No.
33-49150, filed July 2, 1992).
-31-
<PAGE> 34
(10) Material contracts:
(c) *(1) Form of Transfer Agreement, dated July 1, 1991, between
Pipeline and Gas Processing (Exhibit 10(c)(8) to
Pipeline Report on Form 10-K, No. 1-7414, filed March
26, 1992).
*(2) Form of Operating Agreement, dated July 1, 1991, between
Pipeline and Williams Field Services Company (Exhibit
10(c)(9) to Pipeline Report on Form 10-K, No. 1-7414,
filed March 26, 1992).
(23) Consent of Independent Auditors
(27) Financial Data Schedule (submitted to the SEC for its information).
(B) REPORTS ON FORM 8-K:
No reports on Form 8-K have been filed by Pipeline during the last
quarter of the period covered by this report.
______________________
*Exhibits so marked have heretofore been filed with the Securities and
Exchange Commission as part of the filing indicated and are incorporated herein
by reference.
-32-
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NORTHWEST PIPELINE CORPORATION
(Registrant)
By /s/Brian E. O'Neill
------------------------------
Brian E. O'Neill, President
Date: February 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/Keith E. Bailey Chairman of the Board and Director
- --------------------------------
Keith E. Bailey
/s/Brian E. O'Neill President (Principal Executive Officer) and Director
- --------------------------------
Brian E. O'Neill
/s/J. Douglas Whisenant Sr. Vice President and General Manager and Director
- --------------------------------
J. Douglas Whisenant
/s/Timothy J. Hausler Vice President - Finance and Administration, Treasurer and Director
- -------------------------------- (Principal Financial Officer)
Timothy J. Hausler
/s/Matt J. Gillis Vice President - Operations and Director
- --------------------------------
Matt J. Gillis
/s/Ronald M. Mucci Vice President - Marketing and Director
- --------------------------------
Ronald M. Mucci
/s/Curtis C. Kennedy Controller (Principal Accounting Officer)
- --------------------------------
Curtis C. Kennedy
/s/Cuba Wadlington, Jr. Director
- --------------------------------
Cuba Wadlington, Jr.
</TABLE>
Date: February 28, 1995
-33-
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-49150) of Northwest Pipeline Corporation and in the related
Prospectus of our report dated February 9, 1995, with respect to the financial
statements of Northwest Pipeline Corporation included in this Annual Report
(Form 10-K) for the year ended December 31, 1994.
Ernst & Young LLP
Tulsa, Oklahoma
February 28, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,818
<SECURITIES> 0
<RECEIVABLES> 35,578
<ALLOWANCES> 0
<INVENTORY> 19,180
<CURRENT-ASSETS> 84,672
<PP&E> 1,264,539
<DEPRECIATION> 497,075
<TOTAL-ASSETS> 918,772
<CURRENT-LIABILITIES> 105,315
<BONDS> 297,705
<COMMON> 1
0
0
<OTHER-SE> 426,976
<TOTAL-LIABILITY-AND-EQUITY> 918,772
<SALES> 0
<TOTAL-REVENUES> 238,473
<CGS> 0
<TOTAL-COSTS> 132,534
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,211
<INCOME-PRETAX> 71,845
<INCOME-TAX> 26,947
<INCOME-CONTINUING> 44,898
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,898
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
