<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
-------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended September 30, 1996
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 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 and Zip Code)
(801) 583-8800
---------------------------------------------
(Registrant's telephone number, including area code)
No Change
----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 at November 12, 1996
- -------------------------- --------------------------------
Common stock, $1 par value 1,000 shares
The registrant meets the conditions set forth in General Instruction (H)(1)(a)
and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
<PAGE> 2
NORTHWEST PIPELINE CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements -
Statement of Income, three and nine months
ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 1
Balance Sheet as of September 30, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Cash Flows, nine
months ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NORTHWEST PIPELINE CORPORATION
STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
===================================================================================================================
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- -------------------------
1996 1995 1996 1995
------------ ----------- ---------- ----------
(Thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . $ 69,188 $ 75,638 $ 205,640 $ 193,763
------------ ----------- ---------- ----------
OPERATING EXPENSES:
Operation . . . . . . . . . . . . . . . . 19,347 17,979 59,919 56,502
Maintenance . . . . . . . . . . . . . . . 2,600 3,385 6,524 7,269
Depreciation and amortization . . . . . . 9,043 7,527 26,768 22,822
Taxes, other than income taxes . . . . . . 2,229 3,424 9,644 10,143
------------ ----------- ---------- ----------
33,219 32,315 102,855 96,736
------------ ----------- ---------- ----------
Operating income . . . . . . . . . . . 35,969 43,323 102,785 97,027
------------ ----------- ---------- ----------
OTHER INCOME (EXPENSES) - net . . . . . . . . 2,190 (3,829) 4,922 (2,087)
------------ ----------- ---------- ----------
INTEREST CHARGES:
Interest on long-term debt . . . . . . . . 8,302 7,094 25,413 21,655
Other interest . . . . . . . . . . . . . . 2,055 (342) 4,343 2,546
Allowance for borrowed funds used
during construction . . . . . . . . . . (202) (932) (336) (2,034)
------------ ----------- ---------- ----------
10,155 5,820 29,420 22,167
------------ ----------- ---------- ----------
INCOME BEFORE INCOME TAXES . . . . . . . . . 28,004 33,674 78,287 72,773
PROVISION FOR INCOME TAXES . . . . . . . . . 8,604 9,330 28,162 20,252
------------ ----------- ---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . $ 19,400 $ 24,344 $ 50,125 $ 52,521
============ =========== ========== ==========
CASH DIVIDEND ON COMMON STOCK . . . . . . . . $ 55,241 $ - $ 62,241 $ -
============ =========== ========== ==========
</TABLE>
- ------------------
See accompanying notes.
- 1 -
<PAGE> 4
NORTHWEST PIPELINE CORPORATION
BALANCE SHEET
(Unaudited)
================================================================================
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Thousands)
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT, at cost . . . . . . . . . . . . . . . $1,451,506 $1,402,437
Less - Accumulated depreciation and amortization . . . . . . . . 560,347 518,780
---------- ----------
891,159 883,657
Construction work in progress . . . . . . . . . . . . . . . . . . 20,471 31,040
---------- ----------
911,630 914,697
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . 610 570
Advances to parent . . . . . . . . . . . . . . . . . . . . . . . 27,344 41,215
Accounts receivable -
Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,312 36,773
Affiliated companies . . . . . . . . . . . . . . . . . . . . . 254 1,234
Materials and supplies (principally at average cost) . . . . . . 10,568 11,065
Exchange gas due from others . . . . . . . . . . . . . . . . . . 4,143 9,390
Costs recoverable through rate adjustments . . . . . . . . . . . 2,246 5,951
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . - 4,480
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 18,213 17,729
Prepayments and other . . . . . . . . . . . . . . . . . . . . . . 5,700 6,286
---------- ----------
105,390 134,693
---------- ----------
OTHER ASSETS:
Deferred charges . . . . . . . . . . . . . . . . . . . . . . . . 25,082 26,177
---------- ----------
$1,042,102 $1,075,567
========== ==========
</TABLE>
- ------------------
See accompanying notes.
- 2 -
<PAGE> 5
NORTHWEST PIPELINE CORPORATION
BALANCE SHEET
(Unaudited)
================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Thousands)
<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 . . . . . . . . . . . . . . . . . . . . . 184,903 197,019
---------- ----------
447,344 459,460
Long-term debt, less current maturities . . . . . . . . . . . 361,411 372,228
---------- ----------
808,755 831,688
---------- ----------
CURRENT LIABILITIES:
Current maturities of long-term debt . . . . . . . . . . . . . 8,591 8,591
Accounts payable -
Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,130 30,033
Affiliated companies . . . . . . . . . . . . . . . . . . . . 4,798 423
Accrued liabilities -
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 1,646 -
Taxes, other than income taxes . . . . . . . . . . . . . . . 7,833 4,404
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 15,411 12,752
Employee costs . . . . . . . . . . . . . . . . . . . . . . . 8,217 6,873
Exchange gas due to others . . . . . . . . . . . . . . . . . 9,898 14,630
Reserves for estimated rate refunds . . . . . . . . . . . . 37,846 43,883
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,584 7,228
---------- ----------
112,954 128,817
---------- ----------
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . 111,911 105,855
---------- ----------
OTHER DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . . . . 8,482 9,207
---------- ----------
CONTINGENT LIABILITIES AND COMMITMENTS . . . . . . . . . . . . . . - -
---------- ----------
$1,042,102 $1,075,567
========== ==========
</TABLE>
- ------------------
See accompanying notes.
- 3 -
<PAGE> 6
NORTHWEST PIPELINE CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
========================================================================================================================
Nine Months Ended
September 30,
---------------------------------
1996 1995
----------- ----------
(Thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,125 $ 52,521
Adjustments to reconcile to cash provided by operations -
Depreciation and amortization . . . . . . . . . . . . . . . . 26,768 22,822
Provision for deferred income taxes . . . . . . . . . . . . . 5,572 268
Amortization of deferred charges and credits . . . . . . . . . 212 716
Allowance for equity funds used during construction . . . . . (516) (2,445)
Increase (decrease) from changes in:
Accounts receivable . . . . . . . . . . . . . . . . . . . . 11,168 4,922
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 497 2,594
Other current assets . . . . . . . . . . . . . . . . . . . . 4,291 (7,217)
Other assets and deferred charges . . . . . . . . . . . . . 765 (7,408)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . (9,079) 8,988
Other current liabilities . . . . . . . . . . . . . . . . . 2,397 8,828
Other deferred credits . . . . . . . . . . . . . . . . . . . (909) (185)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (95) (88)
----------- ----------
Net cash provided by operating activities . . . . . . . . . . . . 91,196 84,316
----------- ----------
INVESTING ACTIVITIES:
Property, plant and equipment -
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (39,728) (84,745)
Proceeds from sales . . . . . . . . . . . . . . . . . . . . . 17,161 -
Asset removal cost . . . . . . . . . . . . . . . . . . . . . . (256) (191)
Changes in accounts payable . . . . . . . . . . . . . . . . . (9,448) (1,886)
Advances to parent . . . . . . . . . . . . . . . . . . . . . . . 13,871 11,909
----------- ----------
Net cash used by investing activities . . . . . . . . . . . . . . (18,400) (74,913)
----------- ----------
FINANCING ACTIVITIES:
Principal payments on long-term debt . . . . . . . . . . . . . . (10,515) (10,515)
Proceeds from notes payable to bank . . . . . . . . . . . . . . . - 12,750
Payments on notes payable to bank . . . . . . . . . . . . . . . . - (11,150)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . (62,241) -
----------- ----------
Net cash used by financing activities . . . . . . . . . . . . . . (72,756) (8,915)
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . 40 488
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570 1,818
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . $ 610 $ 2,306
=========== ==========
</TABLE>
- ------------------
See accompanying notes.
- 4 -
<PAGE> 7
NORTHWEST PIPELINE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
================================================================================
(1) GENERAL
The accompanying, unaudited interim financial statements of Northwest
Pipeline Corporation ("Pipeline"), included herein, have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations; however,
Pipeline believes that the disclosures made are adequate to make the
information presented not misleading. In the opinion of Pipeline, all
adjustments, which include only normal operating adjustments, have been made to
present fairly the financial position of Pipeline as of September 30, 1996 and
December 31, 1995, the results of operations for the three and nine months
ended September 30, 1996 and 1995, and cash flows for the nine months ended
September 30, 1996 and 1995. The results of operations for the periods
presented are not necessarily indicative of the results for the respective
complete years. It is suggested that these condensed financial statements be
read in conjunction with the statements and the notes thereto included in
Pipeline's 1995 Annual Report on Form 10-K.
Cash payments for interest were $24 million and $20 million, net of $.3
million and $2 million of interest capitalized, in the nine month periods ended
September 30, 1996 and 1995, respectively.
Net cash payments made to The Williams Companies, Inc. ("Williams") for
income taxes were $16.5 million and $11.3 million in the nine month periods
ended September 30, 1996 and 1995, respectively.
(2) SALE OF SOUTH END FACILITIES
In November 1995, Pipeline and Transwestern Pipeline Company
("Transwestern") entered into an agreement for the sale by Pipeline to
Transwestern of a 77.7% undivided ownership interest in the south end of
Pipeline's transmission line from Ignacio, Colorado to Blanco, New Mexico. On
April 29, 1996, Pipeline received an order from the Federal Energy Regulatory
Commission ("FERC") approving the abandonment and sale of the facilities to
Transwestern. Requests for rehearing of this order have been filed and
rehearing is currently pending before the FERC. On September 1, 1996,
Transwestern paid Pipeline $17.2 million, representing 77.7% of the net book
value of the South End facilities plus 77.7% of the cost of certain
modifications necessary to separate the operation of the South End facilities
from Pipeline's mainline. According to the terms of the agreement, Pipeline
reimbursed Transwestern $.8 million for Pipeline's 22.3% share of the necessary
modifications for separation of the operation paid for by Transwestern.
(3) LONG-TERM DEBT AND BANKING ARRANGEMENTS
On May 31, 1996, Pipeline called $1.9 million of its outstanding 9.25%
Series C Debentures, due 2006 under terms of the optional prepayment provisions
in the debenture agreement. The prepayment was in addition to the scheduled
May 31, 1996 sinking fund payments of $5 million for the 9% Series B and $1.9
million for the 9.25% Series C.
Pipeline shares in a $800 million Revolving Credit Agreement with
Williams and four affiliated companies. Pipeline's maximum borrowing
availability, subject to prior borrowing by other affiliated companies, is $400
million, none of which was used by Pipeline at September 30, 1996. Interest
rates vary with current market conditions. The agreement contains restrictions
which limit, under certain circumstances, the issuance of additional debt, the
attachment of liens on any assets and any change of ownership of Pipeline. Any
borrowings by Pipeline using this agreement are not guaranteed by Williams and
are based on Pipeline's financial need and credit worthiness.
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.
- 5 -
<PAGE> 8
NORTHWEST PIPELINE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
================================================================================
(4) ADOPTION OF ACCOUNTING STANDARD
Effective January 1, 1996, Pipeline adopted Statement of Financial
Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." Adoption of the standard had no
effect on Pipeline's financial position or results of operations.
(5) CONTINGENT LIABILITIES AND COMMITMENTS
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 May
31, 1995, Pipeline received a favorable order from the FERC on this rate case,
which among other issues, supported an equity rate of return of 13.2 percent.
Pipeline made certain reserve adjustments to reflect the anticipated outcome of
the May 31, 1995 order, subject to final action on rehearing before the
Commission. In an order on rehearing issued July 19, 1996, FERC required that
an Administrative Law Judge ("ALJ") reconsider one element of the rate of
return formula, but upheld its May 31, 1995 decision on all other issues.
However, on October 22, 1996, the ALJ issued an initial decision on remand
giving preference to alternative sources of data in the rate of return formula
which would result in an equity rate of return of 11.62 percent. Northwest
will take exception with this decision before the FERC. Since the ALJ decision
still needs to be reviewed by the FERC, no further reserve accrual adjustments
are being made pending a final resolution of this rate of return issue. The
final decision from the FERC is not expected until late Spring 1997.
On November 1, 1994, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed April 29, 1994. This
filing sought a revenue increase for a projected deficiency caused by increased
costs and the impact of a transportation contract terminated subsequent to the
rate case filed on October 1, 1992. On November 14, 1995, Pipeline filed an
uncontested settlement proposal with the FERC. The settlement resolved
substantially all the issues in this rate case. The FERC approved the
Settlement in a Letter Order dated February 14, 1996 and no rehearing petitions
were filed with respect to that order. During the second quarter of 1996,
Pipeline finalized and paid the settlement refunds, the effects of which are
reflected in the accompanying financial statements.
On February 1, 1996, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 1, 1995. On October
18, 1996, the Commission issued an order approving a settlement concerning
certain liquid revenue credit issues relating to Pipeline's agreement with an
affiliate to have liquid hydrocarbons products extracted from Pipeline's stream
at Ignacio, Colorado. The litigation of all remaining issues commenced in
October 1996 and is still in progress. Pipeline's rate application seeks a
revenue increase for increases in rate base related primarily to the Northwest
Natural and Expansion II facilities placed into service December 1, 1995 and
increased operating costs primarily associated with an increase in headquarters
office rent.
On August 30, 1996, Pipeline filed a general rate case seeking the
implementation of new rates that will become effective on March 1, 1997. The
application seeks an increase in rates due to a proposed use of a higher
depreciation rate which also considers a net negative salvage value for
Pipeline's facilities as well as the redesign of Pipeline's rates because of
impacts relating to the sale of Pipeline's south end facilities.
Significant Litigation
In October 1995, Pipeline received a judge's order following a non-jury
trial involving claims arising from a transportation agreement of a former
customer. In the decision, which was amended in January 1996, it was held that
Pipeline was liable to the former customer in the amount of $5.3 million, plus
interest. Although Pipeline has recorded charges to "other expenses" and
"other interest charges", Pipeline is appealing the decision.
- 6 -
<PAGE> 9
NORTHWEST PIPELINE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
================================================================================
On July 18, 1996, Jack J. Grynberg filed a lawsuit in the United States
District Court for the District of Columbia against 70 natural gas pipelines
and other gas purchasers or former gas purchasers. All of the Williams'
natural gas pipeline subsidiaries are named as defendants in the lawsuit. The
plaintiff claims, on behalf of the United States under the False Claims Act,
that the pipelines have incorrectly measured the heating value or volume of gas
purchased by the defendants. The plaintiff claims that the United States has
lost royalty payments as a result of these practices. The pipelines intend to
vigorously defend against these claims.
Other Legal and Regulatory Matters
On October 21, 1996, Pipeline received an order from the FERC with
respect to a one-time catch-up adjustment under the recovery mechanism for gas
lost, gained and unaccounted for. The order reaffirmed a previous position
that Pipeline is entitled to collect a 3.2 TBtu volume adjustment, but mandated
an offset of .8 Tbtu for volumes collected in prior years. Pipeline is
evaluating the recently issued order but anticipates that it may be at risk for
refunding approximately $1.1 million which is not reflected in the accompanying
financial statements.
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, will not have a materially adverse effect upon
Pipeline's future financial position, results of operations, and future cash
flow requirements.
- 7 -
<PAGE> 10
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations
This analysis discusses financial results of Pipeline's operations for
the quarters and nine month periods ended September 30, 1996 and 1995.
Variances due to changes in price and volume do not have a significant impact
on revenues, because under its straight-fixed-variable rate design methodology,
the majority of Pipeline's overall cost of service is recovered through fixed
demand charges in its transportation rates.
RESULTS OF OPERATIONS
Quarter Ended September 30, 1996 vs Quarter Ended September 30, 1995
Operating revenues decreased $6.4 million, or 8%, due primarily to the
1995 reversal of certain reserve accruals aggregating $16.3 million including
amounts for estimated rate refunds, partially offset by a $3.2 million
favorable 1996 regulatory decision and increased transportation rates effective
February 1, 1996 associated with the completion of Pipeline's Northwest Natural
and Expansion II facilities in December of 1995.
Pipeline's transportation service accounted for 94% and 92% of
operating revenues for the quarters ended September 30, 1996 and 1995,
respectively. Of those amounts, Pipeline's firm transportation service
accounted for 98% and 99% in the quarters ended September 30, 1996 and 1995,
respectively. The remaining 2% and 1% for each period, respectively,
represented interruptible transportation service. Additionally, 4% of
operating revenues represented gas storage service for each of the quarters
ended September 30, 1996 and 1995.
Operating expenses increased $.9 million, or 3%, due primarily to
depreciation related to Pipeline's mainline expansion and higher pension costs,
partially offset by a decrease in taxes, other than income.
Operating income decreased $7.3 million, or 17%, primarily due to the
reversal in 1995 of certain reserve accruals including amounts for estimated
rate refunds and increased depreciation related to the completion of Pipeline's
Northwest Natural and Expansion II facilities in December of 1995, partially
offset by revenues from higher rates associated with mainline expansion
facilities and a $3.2 million favorable 1996 regulatory decision.
Other income and expenses includes a $6 million reserve accrual in 1995
for a lawsuit involving a former transportation customer.
Interest on long-term debt increased $1.2 million due to the issuance of
$85 million in debentures during the fourth quarter of 1995. Other interest
expense increased $2.4 million primarily due to the 1995 reversal of previously
accrued interest on revenues subject to rate refund and the reclassification of
a previously accrued reserve.
Nine Months Ended September 30, 1996 vs. Nine Months Ended September 30, 1995
Operating revenues increased $11.9 million, or 6 percent, due primarily
to increased transportation rates effective February 1, 1996 associated with
the completion of Pipeline's Northwest Natural and Expansion II facilities in
December of 1995, a $4.6 million settlement of a previous rate case in February
1996 and a $3.2 million favorable regulatory decision, partially offset by the
1995 reversal of certain reserve accruals aggregating $16.3 million including
amounts for estimated rate refunds.
Pipeline's transportation service accounted for 94% and 93% of
operating revenues for the nine month periods ended September 30, 1996 and
1995, respectively. Of those amounts, Pipeline's firm transportation service
accounted for 99.3% and 97% in the nine month periods ended September 30, 1996
and 1995, respectively. The remaining .7% and 3% for each period,
respectively, represented interruptible transportation service. Additionally,
5% and 4% of operating revenues represented gas storage service for the nine
month periods ended September 30, 1996 and 1995, respectively.
- 8 -
<PAGE> 11
Operating expenses increased $6.1 million, or 6%, due primarily to
depreciation related to Pipeline's Northwest Natural and Expansion II
expansions and higher pension costs and headquarters office rent.
Operating income increased $5.8 million, or 6%, primarily due to
revenues from higher rates associated with Northwest Natural and Expansion II
facilities placed in service during December of 1995, the settlement of a
previous rate case and a favorable regulatory decision, partially offset by the
reversal of certain reserve accruals in 1995, increased depreciation expenses
associated with the Northwest Natural and Expansion II facilities and higher
pension costs and headquarters office rent.
Other income and expenses includes a $7 million reserve accrual in 1995
for a lawsuit involving a former transportation customer.
Interest on long term debt increased $3.7 million due to the issuance of
$85 million in debentures during the fourth quarter of 1995. Other interest
expense increased $1.8 million primarily due to the 1995 reversal of previously
reserved interest on revenues subject to rate refund. The allowance for
borrowed funds used during construction decreased $1.7 million resulting from
the completion of the mainline expansion project in 1995.
The following table summarizes year-to-date volumes and average daily
volumes for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1996 1995
------- ------
<S> <C> <C>
Total Gas volumes throughput (TBtu) 631 579
Average Daily Transportation Volumes (TBtu) 2.3 2.1
Average Daily Firm Reserved Capacity (TBtu) 2.6 2.4
</TABLE>
FINANCIAL CONDITION AND LIQUIDITY
Pipeline anticipates 1996 capital expenditures will total approximately
$78.6 million, of which $39.7 million has been expended through September 30,
1996. Funds necessary to complete capital projects are expected to come from
several sources, including Pipeline's operations and the return of funds
previously advanced to Williams. 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.
Pipeline shares in a $800 million Revolving Credit Agreement with
Williams and four affiliated companies. Pipeline's maximum borrowing
availability, subject to prior borrowing by other affiliated companies, is $400
million, none of which was used by Pipeline at September 30, 1996. Interest
rates vary with current market conditions. The agreement contains restrictions
which limit, under certain circumstances, the issuance of additional debt, the
attachment of liens on any assets and any change of ownership of Pipeline. Any
borrowings by Pipeline using this agreement are not guaranteed by Williams and
are based on Pipeline's financial need and credit worthiness.
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.
- 9 -
<PAGE> 12
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, cash flow or
competitive position.
The Financial Accounting Standards Board has issued a new accounting
standard, FAS No. 123 "Accounting for Stock-Based Compensation," effective for
fiscal years beginning after December 15, 1995. As provided for in the
standard, Pipeline will not adopt the recognition provisions and will provide
the pro forma financial statement disclosures required by the standard in its
1996 annual financial statements.
Pipeline currently follows Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees." Under this standard, because the
exercise price of Williams' fixed plan common stock options equals the market
price of the underlying stock on the date of the grant, no compensation expense
is recognized.
On August 30, 1996, Pipeline filed a general rate case seeking the
implementation of new rates that will become effective on March 1, 1997. The
application seeks an increase in rates due to a proposed use of a higher
depreciation rate which also considers a net negative salvage value for
Pipeline's facilities as well as the redesign of Pipeline's rates because of
impacts relating to the sale of Pipeline's south end facilities.
Reference is made to Note 5 of Notes to Financial Statements included in
this filing for a description of certain contingent liabilities and
commitments.
- 10 -
<PAGE> 13
PART II. OTHER INFORMATION
The information required by items in Part II is omitted because the
items are inapplicable, the answer is negative or substantially the same
information is included elsewhere in this report or has been previously
reported by the Registrant.
- 11 -
<PAGE> 14
SIGNATURE
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.
NORTHWEST PIPELINE CORPORATION
--------------------------------------
Registrant
By: /s/ Curtis C. Kennedy
--------------------------------------
Curtis C. Kennedy
Controller and Treasurer
(Duly Authorized Officer and
Chief Financial Officer)
Date: November 12, 1996
- 12 -
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 610
<SECURITIES> 0
<RECEIVABLES> 36,566
<ALLOWANCES> 0
<INVENTORY> 10,568
<CURRENT-ASSETS> 105,390
<PP&E> 1,471,977
<DEPRECIATION> 560,347
<TOTAL-ASSETS> 1,042,102
<CURRENT-LIABILITIES> 112,954
<BONDS> 361,411
0
0
<COMMON> 1
<OTHER-SE> 447,343
<TOTAL-LIABILITY-AND-EQUITY> 1,042,102
<SALES> 0
<TOTAL-REVENUES> 205,640
<CGS> 0
<TOTAL-COSTS> 102,855
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,420
<INCOME-PRETAX> 78,287
<INCOME-TAX> 28,162
<INCOME-CONTINUING> 50,125
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,125
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
