<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 Quarterly Period Ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
-------------------- --------------------
Commission File 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 May 12, 1997
------------------------------ ---------------------------
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
PAGE
----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements -
Consolidated Statement of Income, three months
ended March 31, 1997 and 1996.................................... 1
Consolidated Balance Sheet as of March 31, 1997 and
December 31, 1996 ............................................... 2
Consolidated Statement of Cash Flows, three
months ended March 31, 1997 and 1996 ............................ 4
Notes to Consolidated Financial Statements ......................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ...................... 8
PART II. OTHER INFORMATION .............................................. 10
Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Although Northwest Pipeline Corporation
believes such forward-looking statements are based on reasonable assumptions,
no assurance can be given that every objective will be reached. Such statements
are made in reliance on the "safe harbor" protections provided under the
Private Securities Reform Act of 1995. Additional information about issues that
could lead to material changes in performance is contained in Northwest
Pipeline Corporation's annual report on Form 10-K.
ii
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NORTHWEST PIPELINE CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
===============================================================================
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1997 1996
------------ ------------
(Thousands)
<S> <C> <C>
OPERATING REVENUES ............................................... $ 67,206 $ 67,584
------------ ------------
OPERATING EXPENSES:
General and administrative .................................... 12,418 12,146
Operation and maintenance ..................................... 8,940 10,187
Depreciation and amortization ................................. 11,989 8,769
Taxes, other than income taxes ................................ 4,418 3,994
------------ ------------
37,765 35,096
------------ ------------
Operating income ......................................... 29,441 32,488
------------ ------------
OTHER INCOME - net ............................................... 783 783
------------ ------------
INTEREST CHARGES:
Interest on long-term debt .................................... 8,369 8,608
Other interest ................................................ 1,285 866
Allowance for borrowed funds used during construction ......... (215) (23)
------------ ------------
9,439 9,451
------------ ------------
INCOME BEFORE INCOME TAXES ....................................... 20,785 23,820
PROVISION FOR INCOME TAXES ....................................... 6,292 8,642
------------ ------------
NET INCOME ....................................................... $ 14,493 $ 15,178
============ ============
CASH DIVIDENDS ON COMMON STOCK ................................... $ 8,763 $ 7,000
============ ============
</TABLE>
- --------------
See accompanying notes.
- 1 -
<PAGE> 4
NORTHWEST PIPELINE CORPORATION
CONSOLIDATED BALANCE SHEET
===============================================================================
ASSETS
<TABLE>
<CAPTION>
March 31,
1997 December 31,
(Unaudited) 1996
-------------- --------------
(Thousands)
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT, at cost ..................... $ 1,474,390 $ 1,452,181
Less - Accumulated depreciation and amortization ........ 555,553 550,104
-------------- --------------
918,837 902,077
Construction work in progress ........................... 10,642 24,040
-------------- --------------
929,479 926,117
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents ............................... 641 240
Advances to parent ...................................... 41,596 16,676
Accounts receivable -
Trade .............................................. 20,083 31,189
Affiliated companies ............................... 677 1,229
Materials and supplies (principally at average cost) .... 15,530 10,510
Exchange gas due from others ............................ 11,139 8,264
Costs recoverable through rate adjustments .............. 2,031 11,998
Deferred income taxes ................................... 22,319 23,306
Prepayments and other ................................... 5,129 5,051
-------------- --------------
119,145 108,463
-------------- --------------
OTHER ASSETS:
Deferred charges ........................................ 17,852 22,607
-------------- --------------
$ 1,066,476 $ 1,057,187
============== ==============
</TABLE>
- --------------
See accompanying notes.
- 2 -
<PAGE> 5
NORTHWEST PIPELINE CORPORATION
CONSOLIDATED BALANCE SHEET
===============================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
March 31,
1997 December 31,
(Unaudited) 1996
-------------- --------------
(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 ...................... 262,844 262,844
Retained earnings ............................... 185,215 179,485
-------------- --------------
448,060 442,330
Long-term debt, less current maturities ............. 359,769 361,424
-------------- --------------
807,829 803,754
-------------- --------------
CURRENT LIABILITIES:
Current maturities of long-term debt ................ 8,591 8,591
Accounts payable -
Trade ........................................... 13,338 16,313
Affiliated companies ............................ 195 2,805
Accrued liabilities -
Income taxes .................................... 10,289 6,048
Taxes, other than income taxes .................. 7,376 3,890
Interest ........................................ 16,844 14,676
Employee costs .................................. 7,766 7,763
Exchange gas due to others ...................... 12,727 19,817
Reserve for estimated rate refunds .............. 52,541 46,795
Other ........................................... 7,866 7,821
-------------- --------------
137,533 134,519
-------------- --------------
DEFERRED INCOME TAXES .................................. 111,763 110,699
-------------- --------------
OTHER DEFERRED CREDITS ................................. 9,351 8,215
-------------- --------------
CONTINGENT LIABILITIES AND COMMITMENTS
-------------- --------------
$ 1,066,476 $ 1,057,187
============== ==============
</TABLE>
- -----------------
See accompanying notes.
- 3 -
<PAGE> 6
NORTHWEST PIPELINE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
===============================================================================
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1997 1996
------------ ------------
(Thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................................ $ 14,493 $ 15,178
Adjustments to reconcile to cash provided by operations -
Depreciation and amortization .................................. 11,989 8,769
Provision for deferred income taxes ............................ 2,051 2,033
Amortization of deferred charges and credits ................... (392) 86
Sale of receivables ............................................ 10,000 --
Allowance for equity funds used during construction ............ (199) (29)
Increase (decrease) from changes in:
Accounts receivable .......................................... (1,217) 5,145
Inventory .................................................... (5,020) (229)
Other current assets ......................................... 9,889 2,389
Other assets and deferred charges ............................ 4,869 286
Accounts payable ............................................. (2,962) (7,918)
Other current liabilities .................................... 15,689 13,200
Other deferred credits ....................................... 1,426 (2)
Other .......................................................... (112) (12)
------------ ------------
Net cash provided by operating activities ......................... 60,504 38,896
------------ ------------
INVESTING ACTIVITIES:
Property, plant and equipment -
Capital expenditures ........................................... (15,030) (15,621)
Asset removal cost ............................................. (10) (307)
Changes in accounts payable .................................... (9,713) (11,554)
Advances to parent ................................................ (24,920) (2,772)
------------ ------------
Net cash used by investing activities ............................. (49,673) (30,254)
------------ ------------
FINANCING ACTIVITIES:
Principal payments on long-term debt .............................. (1,667) (1,667)
Dividends paid .................................................... (8,763) (7,000)
------------ ------------
Net cash used by financing activities ............................. (10,430) (8,667)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ....................................................... 401 (25)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 240 570
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 641 $ 545
============ ============
</TABLE>
- ---------------
See accompanying notes.
- 4 -
<PAGE> 7
NORTHWEST PIPELINE CORPORATION
NOTES TO CONSOLIDATED 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 March 31, 1997 and December 31, 1996, and
the results of operations and cash flows for the three month periods ended
March 31, 1997 and 1996. 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
1996 Annual Report Form 10-K.
Cash payments for interest were $7 million and $7.3 million, net of
interest capitalized, in the three month periods ended March 31, 1997 and 1996,
respectively.
No payments were made to The Williams Companies, Inc. ("Williams") for
income taxes in the three month periods ended March 31, 1997 and 1996.
(2) BASIS OF PRESENTATION
Financial position of Pipeline as of March 31, 1997 and the results of
operations and cash flows for the three month period ended March 31, 1997
include the operating results of NWP Enterprises ("Enterprises") a wholly owned
subsidiary of Pipeline, since its incorporation on January 2, 1997.
(3) LONG-TERM DEBT AND BANKING ARRANGEMENTS
Pipeline shares in a $1 billion 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 March 31, 1997. 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.
(4) 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 Federal Energy Regulatory
Commission (" 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 has taken 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.
- 5 -
<PAGE> 8
NORTHWEST PIPELINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
===============================================================================
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 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 balance sheet. The settlement resolved substantially all
the issues in this rate case except one regarding Pipeline's postage stamp rate
design. A hearing was conducted in July 1996; and subsequently, a decision
upholding Pipeline's position was issued by the ALJ. Pipeline is awaiting the
FERC's approval of the ALJ's decision.
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 hydrocarbon products extracted from Pipeline's
transportation stream at Ignacio, Colorado. The litigation of all remaining
issues took place in late 1996 and Pipeline is awaiting the initial decision of
the presiding ALJ. 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 March 1, 1997, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 30, 1996. 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, higher operating costs and a redesign of Pipeline's
rates because of impacts relating to the sale of Pipeline's south-end
facilities in the third quarter of 1996.
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 recorded charges to "other expenses"
and "other interest charges" in 1995, Pipeline is appealing the decision.
On July 18, 1996, an individual 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
claimed, on behalf of the United States under the False Claims Act, that the
pipelines had incorrectly measured the heating value or volume of gas purchased
by the defendants. The plaintiff claimed that the United States had lost
royalty payments as a result of these practices. The court recently dismissed
the claims against the pipelines and most of the other defendants.
Other Legal and Regulatory 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, will not have a materially adverse effect upon
Pipeline's future financial position, results of operations, and future cash
flow requirements.
- 6 -
<PAGE> 9
NORTHWEST PIPELINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
===============================================================================
Other Matters
In February 1997, Enterprises entered into a new agreement for the
sale, with limited recourse, of certain receivables of Pipeline. Net proceeds
to Enterprises are limited to $15 million of which $10 million was utilized at
March 31, 1997. The Financial Accounting Standards Board has issued a new
accounting standard, FAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," effective for
transactions occurring after December 31, 1996. The adoption of this standard
is not expected to impact Pipeline's consolidated results of operations,
financial position or cash flows.
- 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 ended March 31, 1997 and 1996. Variances due to changes in gas
price and volume no longer 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 March 31, 1997 vs. Quarter Ended March 31, 1996
Operating revenues decreased $.4 million, or 1 percent, due primarily
to the 1996 sale of the south-end facilities offset by new transportation rates
that became effective March 1 of this year.
Pipeline's transportation service accounted for 95% and 94% of
operating revenues in the first quarter of 1997 and 1996, respectively.
Additionally, 4% of revenues represented gas storage service for each of the
first quarters of 1997 and 1996, respectively.
Operating expenses increased $2.7 million, or 8%, due primarily to
increased depreciation expenses associated with Pipeline's new rates that went
into effect on March 1, 1997.
Operating income decreased $3 million, or 9%, primarily due to
adjustments to rate refund accruals and the impact of the sale of the south-end
facilities not reflected in rates until March 1, 1997, when new transportation
rates went into effect.
The following table summarizes year-to-date volumes and average daily
volumes for the periods indicated:
<TABLE>
<CAPTION>
Quarter Ended March 31,
-------------------------
1997 1996
------- -------
<S> <C> <C>
Total Gas volumes throughput (TBtu) 200 237
Average Daily Transportation Volumes (TBtu) 2.2 2.6
Average Daily Firm Reserved Capacity (TBtu) 2.4 2.6
</TABLE>
FINANCIAL CONDITION AND LIQUIDITY
Pipeline anticipates 1997 capital expenditures will total approximately
$48.1 million, of which $15 million has been expended through March 31, 1997.
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 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, although no significant
expansions are in the development stage at the present time.
Pipeline shares in a $1 billion 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 March 31, 1997. 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.
- 8 -
<PAGE> 11
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, cash flow or
competitive position.
Reference is made to Note 4 of Notes to Consolidated Financial
Statements for information about regulatory, judicial and business developments
which cause operating and financial uncertainties.
- 9 -
<PAGE> 12
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.
- 10 -
<PAGE> 13
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: May 12, 1997
- 11 -
<PAGE> 14
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 641
<SECURITIES> 0
<RECEIVABLES> 20,760
<ALLOWANCES> 0
<INVENTORY> 15,530
<CURRENT-ASSETS> 119,145
<PP&E> 1,485,032
<DEPRECIATION> 555,553
<TOTAL-ASSETS> 1,066,476
<CURRENT-LIABILITIES> 137,533
<BONDS> 359,769
1
0
<COMMON> 0
<OTHER-SE> 448,059
<TOTAL-LIABILITY-AND-EQUITY> 1,066,476
<SALES> 0
<TOTAL-REVENUES> 67,206
<CGS> 0
<TOTAL-COSTS> 37,765
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,439
<INCOME-PRETAX> 20,785
<INCOME-TAX> 6,292
<INCOME-CONTINUING> 14,493
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,493
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
