<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, 1999
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 12,1999
- -------------------------- --------------------------
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 -
Condensed Consolidated Statement of Income, three months
ended March 31, 1999 and 1998.................................................... 1
Condensed Consolidated Balance Sheet as of March 31, 1999 and
December 31, 1998 ............................................................... 2
Condensed Consolidated Statement of Cash Flows, three
months ended March 31, 1999 and 1998 ............................................ 4
Notes to Condensed Consolidated Financial Statements ............................... 5
Item 2. Management's Narrative Analysis of the Results of Operations ................. 8
PART II. OTHER INFORMATION .............................................................. 11
</TABLE>
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.
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NORTHWEST PIPELINE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 1998
------------ ------------
(Thousands)
<S> <C> <C>
OPERATING REVENUES ......................................... $ 70,141 $ 71,218
------------ ------------
OPERATING EXPENSES:
General and administrative .............................. 13,344 11,845
Operation and maintenance ............................... 8,890 8,267
Depreciation and amortization ........................... 13,174 13,099
Taxes, other than income taxes .......................... 4,752 3,763
------------ ------------
40,160 36,974
------------ ------------
Operating income ................................... 29,981 34,244
------------ ------------
OTHER INCOME - net ......................................... 733 1,247
------------ ------------
INTEREST CHARGES:
Interest on long-term debt .............................. 6,544 7,214
Other interest .......................................... 1,836 2,599
Allowance for borrowed funds used during construction ... (143) (71)
------------ ------------
8,237 9,742
------------ ------------
INCOME BEFORE INCOME TAXES ................................. 22,477 25,749
PROVISION FOR INCOME TAXES ................................. 9,201 9,559
------------ ------------
NET INCOME ................................................. $ 13,276 $ 16,190
============ ============
CASH DIVIDENDS ON COMMON STOCK ............................. $ 18,000 $ 12,000
============ ============
</TABLE>
- ---------------
See accompanying notes.
-1-
<PAGE> 4
NORTHWEST PIPELINE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
================================================================================
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(Thousands)
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT, at cost ..................... $ 1,580,130 $ 1,573,593
Less - Accumulated depreciation and amortization ........ 680,451 667,163
------------ ------------
899,679 906,430
Construction work in progress ........................... 24,141 21,258
------------ ------------
923,820 927,688
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents ............................... 295 1,164
Advances to parent ...................................... 35,874 26,734
Accounts receivable -
Trade .............................................. 14,800 16,023
Affiliated companies ............................... 1,422 3,395
Materials and supplies (principally at average cost) .... 10,521 10,575
Exchange gas due from others ............................ 10,586 19,792
Deferred income taxes ................................... 20,525 20,261
Prepayments and other ................................... 1,263 1,763
------------ ------------
95,286 99,707
------------ ------------
OTHER ASSETS:
Deferred charges ........................................ 51,409 52,876
------------ ------------
$ 1,070,515 $ 1,080,271
============ ============
</TABLE>
- ---------------
See accompanying notes.
-2-
<PAGE> 5
NORTHWEST PIPELINE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(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 ................................... 185,784 190,507
------------ ------------
448,629 453,352
Long-term debt, less current maturities ................. 370,778 372,440
------------ ------------
819,407 825,792
------------ ------------
CURRENT LIABILITIES:
Current maturities of long-term debt .................... 1,667 1,667
Accounts payable -
Trade ............................................... 7,815 12,576
Affiliated companies ................................ 9,593 7,900
Accrued liabilities -
Taxes, other than income taxes ...................... 6,811 4,138
Interest ............................................ 16,902 11,225
Employee costs ...................................... 8,559 10,602
Exchange gas due to others .......................... 11,275 20,481
Reserves for estimated rate refunds ................. 38,224 38,958
Other ............................................... 3,139 818
------------ ------------
103,985 108,365
------------ ------------
DEFERRED INCOME TAXES ...................................... 137,434 135,920
------------ ------------
OTHER DEFERRED CREDITS ..................................... 9,689 10,194
------------ ------------
CONTINGENT LIABILITIES AND COMMITMENTS .....................
------------ ------------
$ 1,070,515 $ 1,080,271
============ ============
</TABLE>
- ---------------
See accompanying notes.
-3-
<PAGE> 6
NORTHWEST PIPELINE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 1998
------------ ------------
(Thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ................................................... $ 13,276 $ 16,190
Adjustments to reconcile to cash provided by operations -
Depreciation and amortization ............................. 13,174 13,099
Provision for deferred income taxes ....................... 1,250 3,395
Amortization of deferred charges and credits .............. 559 170
Allowance for equity funds used during construction ....... (255) (111)
Increase (decrease) from changes in:
Accounts receivable and exchange gas due from others..... 12,402 12,207
Inventory ............................................... 54 (37)
Other current assets .................................... 3,511 1,483
Other assets and deferred charges ....................... 635 (295)
Accounts payable and exchange gas due to others ......... (10,616) (17,035)
Other accrued liabilities ............................... 7,894 9,151
Other deferred credits .................................. (227) (111)
Other ..................................................... 1 (7)
------------ ------------
Net cash provided by operating activities .................... 41,658 38,099
------------ ------------
INVESTING ACTIVITIES:
Property, plant and equipment -
Capital expenditures ...................................... (9,177) (10,942)
Proceeds from sales ....................................... 126 1,234
Changes in accounts payable ............................... (4,669) (704)
Advances to parent ........................................... (9,140) (14,207)
------------ ------------
Net cash used by investing activities ........................ (22,860) (24,619)
------------ ------------
FINANCING ACTIVITIES:
Principal payments on long-term debt ......................... (1,667) (1,867)
Premium on early retirement of long-term debt ................ -- (19)
Dividends paid ............................................... (18,000) (12,000)
------------ ------------
Net cash used by financing activities ........................ (19,667) (13,886)
------------ ------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS .................................................. (869) (406)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................. 1,164 627
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................... $ 295 $ 221
============ ============
</TABLE>
- --------------
See accompanying notes.
-4-
<PAGE> 7
NORTHWEST PIPELINE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
================================================================================
(1) General
The accompanying, unaudited interim condensed consolidated 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, 1999 and
December 31, 1998, and the results of operations and cash flows for the three
month periods ended March 31, 1999 and 1998. 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, notes thereto and
management's narrative analysis included in Pipeline's 1998 Annual Report on
Form 10-K.
Pipeline is a wholly-owned subsidiary of Williams Gas Pipeline Company
("WGP") (formerly Williams Interstate Natural Gas Systems, Inc.). WGP is a
wholly-owned subsidiary of The Williams Companies, Inc. ("Williams").
(2) Basis of Presentation
The financial position of Pipeline as of March 31, 1999 and December 31,
1998 and the results of operations and cash flows for the three month periods
ended March 31, 1999 and 1998 include the operating results of NWP Enterprises
("Enterprises"), a wholly owned subsidiary of Pipeline.
(3) Long-Term Debt and Banking Arrangements
Pipeline shares in a $1 billion Revolving Credit Facility with Williams
and five 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, 1999. Interest rates vary with
current market conditions. The Facility 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 under this Facility 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
its rate case filed October 1, 1992 ("1993 Rate Case"). On May 31, 1995,
Pipeline received an 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. In a further order issued on July 19, 1996, FERC
required an Administrative Law Judge ("ALJ") to reconsider the long-term growth
component of the equity rate of return formula, and upheld its May 31, 1995
decision on all other issues. On October 22, 1996, the ALJ issued an initial
decision, which recommended an equity rate of return of 11.62 percent. Pipeline
took exception to this decision before the FERC. On June 11, 1997, the FERC
issued an order revising its approved equity rate of return to 12.59 percent
based on a new policy for industry-wide application that requires the use of
forecasts of growth in the gross domestic product as the long-term growth
component of the rate of return formula. On July 11, 1997, Pipeline and several
parties in the case sought rehearing of the June 11 rate of return on equity
decision, seeking to have the FERC reconsider various aspects of its new rate of
return on equity policy. On October 16, 1997, the FERC issued an opinion denying
rehearing and reaffirming its previous policy pronouncements concerning rate of
return on equity, but convened a conference on January 30, 1998 to consider, on
an industry-wide basis, issues with
-5-
<PAGE> 8
NORTHWEST PIPELINE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
================================================================================
respect to pipeline rates of return. Pipeline made refunds to customers in June
1998 totaling $27 million, including interest, settling all disputed matters in
this case. Pipeline also sought judicial review of the FERC's decision
concerning rate of return on equity. In July 1998, FERC issued orders concerning
its rate of return on equity policy in rate proceedings of other pipelines
adopting a formula that gives less weight to the long-term growth component. If
this most recent formula modification were to be applied in this rate
proceeding, the rate of return result would be somewhat higher. Any additional
revenues to which Pipeline might be entitled would be collected through a
special FERC-authorized refund adjustment. In April 1999, the Court of Appeals
for the D.C. Circuit remanded the 1993 Rate Case to the FERC for application of
its revised rate of return on equity policy. The FERC should rule in the near
future.
On February 1, 1996, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 1, 1995 ("1995 Rate
Case"). 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. 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. During the first quarter of 1998, the
ALJ issued an Initial Decision. The ALJ found that the facts of this case
continue to support Pipeline's capital structure of 55% equity and 45% debt. The
ALJ also determined that Pipeline fits within the average risk range for
determining pipeline return on equity and allowed a return on equity of 11.2
percent. Pipeline is seeking review of this and other aspects of the ALJ
decision. If the FERC applies its recently announced modifications to the rate
of return formula giving less weight to long-term growth factors, the resulting
rate of return on equity would be somewhat higher. Pipeline has not yet made any
changes to its accounting reserves pending FERC action in this proceeding.
On March 1, 1997, Pipeline began collecting new rates, subject to
refund, under the provisions of its rate case filed August 30, 1996 ("1996 Rate
Case"). The application sought 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. On July 22, 1997, Pipeline filed a settlement, which
would resolve all issues in this rate case. On November 25, 1997, the FERC, over
the objection of one dissenting party, issued an order approving all aspects of
the settlement. The one dissenting party sought and was denied rehearing of the
FERC's order. That party has now sought judicial review of certain aspects of
the FERC's decisions. Pipeline made refunds to customers in August 1998 totaling
$16.7 million, including interest, in this rate case.
Significant Litigation
In 1998, the United States Department of Justice informed Williams that
Jack Grynberg, an individual, had filed claims in the United States District
Court for the District of Colorado under the False Claims Act against Williams
and certain of its wholly-owned subsidiaries including Pipeline. Mr. Grynberg
had also filed claims against approximately 300 other energy companies and
alleged that the defendants violated the False Claims Act in connection with the
measurement and purchase of hydrocarbons. The relief sought was an unspecified
amount of royalties allegedly not paid to the Federal government, treble
damages, a civil penalty, attorneys' fees and costs. On April 9, 1999, the
United States Department of Justice announced that it was declining to intervene
in any of the Grynberg qui tam cases; including the action filed against the
Williams entities in the United States District Court for the District of
Colorado.
Other Legal and Regulatory Matters
In addition to the foregoing, various other proceedings are pending
against Pipeline incidental to its operations.
-6-
<PAGE> 9
NORTHWEST PIPELINE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
================================================================================
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.
Other Matters
Enterprises participates in an 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, 1999.
-7-
<PAGE> 10
Item 2. Management's Narrative
Analysis of the
Results of Operations
This analysis discusses financial results of Pipeline's operations for
the quarters ended March 31, 1999 and 1998. Variances due to changes in price
and volume have little impact on revenues, because under Pipeline's rate design
methodology, the majority of overall cost of service is recovered through firm
capacity reservation charges in its transportation rates.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1999 vs. Quarter Ended March 31, 1998
Operating revenues decreased $1.1 million, or 2%, due primarily to lower
short-term firm and interruptible transportation revenues and the $.4 million
gain on the sale of system balancing gas in 1998.
Pipeline's transportation service accounted for 96% and 95% of operating
revenues for the quarters ended March 31, 1999 and 1998, respectively.
Additionally, gas storage service represented 3% of operating revenues in each
of the quarters ended March 31, 1999 and 1998.
Operating expenses increased $3.2 million, or 9%, due primarily to $2.3
million in accruals for damages associated with pipeline ruptures and higher
taxes, other than income taxes.
Operating income decreased $4.3 million, or 12%, primarily due to
increased accruals for damages associated with pipeline ruptures, higher taxes,
other than income taxes, lower short-term firm and interruptible transportation
revenues and a 1998 gain on the sale of system balancing gas.
Interest on long-term debt decreased $.7 million as a result of the
early retirement of the 10.65% Debentures in November of 1998. Other interest
decreased $.8 million due to lower revenues subject to refund as a result of
rate case settlements in 1998.
The following table summarizes volumes and capacity for the periods
indicated:
<TABLE>
<CAPTION>
Quarter Ended March 31,
---------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Total Gas volumes throughput (TBtu) 192 208
Average Daily Transportation Volumes (TBtu) 2.1 2.6
Average Daily Firm Reserved Capacity (TBtu) 2.7 2.5
</TABLE>
FINANCIAL CONDITION AND LIQUIDITY
Pipeline anticipates 1999 capital expenditures will total approximately
$89.9 million, of which $9.2 million has been expended through March 31, 1999.
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 $1 billion Revolving Credit Facility with Williams
and five 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, 1999. Interest rates vary with
current market conditions. The Facility 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 under this Facility 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 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.
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.
Year 2000 Compliance
Williams and its wholly-owned subsidiaries, which include Pipeline,
initiated an enterprise-wide project in 1997 to address the year 2000 compliance
issue for both traditional information technology areas and non-traditional
areas, including embedded technology which is prevalent throughout the company.
This project focuses on all technology hardware and software, external
interfaces with customers and suppliers, operations process control, automation
and instrumentation systems, and facility items. The phases of the project are
awareness, inventory and assessment, renovation and replacement, testing and
validation. The awareness and inventory/assessment phases of this project as
they relate to both traditional and non-traditional information technology areas
have been completed. During the inventory and assessment phase, all systems with
possible year 2000 implications were inventoried and classified into five
categories: 1) highest, business critical; 2) high, compliance necessary within
a short period of time following January 1, 2000; 3) medium, compliance
necessary within 30 days from January 1, 2000; 4) low, compliance desirable but
not required; and 5) unnecessary. Categories 1 through 3 were designated as
critical and are the major focus of this project. Renovation/replacement and
testing/validation of critical systems are expected to be completed by June 30,
1999, except for replacement of certain critical systems scheduled for
completion by September 1, 1999. Some non-critical systems may not be compliant
by January 1, 2000.
Testing and validation activities have begun and will continue
throughout the process. Year 2000 test labs are in place and operational. As
expected, few problems have been detected during testing for items believed to
be compliant. The following table indicates the project status for traditional
information technology and non-traditional areas as of March 31, 1999. The
tested category indicates the percentage that has been fully tested or otherwise
validated as compliant. The untested category includes items that are believed
to be compliant but which have not yet been validated. The not compliant
category includes items, which have been identified as not year 2000 compliant.
<TABLE>
<CAPTION>
Tested Untested Not Compliant
------ -------- -------------
<S> <C> <C> <C>
Traditional Information Technology 97% 3% 5%
Non-Traditional Information Technology 96% 4% 5%
</TABLE>
Pipeline initiated a formal communications process with other companies
in 1998 to determine the extent to which those companies are addressing year
2000 compliance. In connection with this process, Pipeline has sent
approximately 270 letters and questionnaires to third parties including
customers, vendors and service providers. Additional communications are being
mailed during 1999. Pipeline is evaluating responses as they are received or
otherwise investigating the status of these companies' year 2000 compliance
efforts. As of March 31, 1999, approximately 55% of the companies contacted have
responded and virtually all of these have indicated that they are already
compliant or will be compliant on a timely basis. Where necessary, Pipeline will
be working with key business partners to reduce the risk of a break in service
or supply and with non-compliant companies to mitigate any material adverse
effect on Pipeline.
Pipeline expects to utilize both internal resources and external
contractors to complete the year 2000 compliance project. Pipeline has a core
group of 30 people involved in this enterprise-wide project. This includes 1
individual responsible for coordinating, organizing, managing, communicating,
and monitoring the project and another 29 staff members responsible for
completing the project. Depending on which phase the project is in and what area
is being focused on at any given point in time, there can be an additional 20 to
25 employees who are also contributing a portion of their time to the completion
of this project.
Several previously planned system implementations are scheduled for
completion on or before September 1, 1999, which will lessen possible year 2000
impacts. For example, a new year 2000 compliant
-9-
<PAGE> 12
payroll/human resources system was implemented January 1, 1999. It replaced
multiple human resources administration and payroll processing systems
previously in place. WGP completed implementation of a new telephone system in
1998, and an upgrade to the financial system is scheduled for completion July 1,
1999. In situations where planned system implementations will not be in service
timely, alternative steps are being taken to make existing systems compliant.
Although all critical systems over which Pipeline has control are
planned to be compliant and tested before the year 2000, Pipeline has identified
two areas that would equate to a most reasonably likely worst case scenario.
First is the possibility of service interruptions due to non-compliance by third
parties. For example, power failures along the transportation system would cause
service interruptions. This risk should be minimized by the enterprise-wide
communications effort and evaluation of third-party compliance plans. Another
area of risk for non-compliance is the delay of system replacements scheduled
for completion during 1999. The status of these systems is being closely
monitored to reduce the chance of delays in completion dates. It is not possible
to quantify the possible financial impact if this most reasonably likely worst
case scenario were to come to fruition.
Initial contingency planning began during 1998. Significant focus on
that phase of the project is taking place in 1999. Guidelines for that process
were issued in January 1999. Contingency plans are being developed for critical
business processes, critical business partners, suppliers and system
replacements that experience significant delays. These plans are expected to be
defined by July 31, 1999, and implemented where appropriate by September 30,
1999.
Costs incurred for new software and hardware purchases are being
capitalized and other costs are being expensed as incurred. Pipeline currently
estimates the total cost of the project, including any accelerated system
replacements, to be approximately $1.6 million. Prior to 1998 and during the
first quarter of 1998, Pipeline was conducting the project awareness and
inventory/assessment phases of the project. The second quarter of 1998 was spent
on the renovation/replacement and testing/validation phases and completion of
the inventory/assessment phase. The third and fourth quarters of 1998 focused on
the renovation/replacement and testing/validation phases. During the first
quarter 1999, renovation/replacement and testing/validation continued and
contingency planning began. During the second quarter of 1999 the primary focus
is expected to shift to testing/validation and contingency planning. The third
and fourth quarters of 1999 will focus mainly on contingency planning and final
testing. Of the $1.1 million incurred to date, approximately $.3 million has
been expensed, and approximately $.8 million has been capitalized. Of the $.5
million of future costs necessary to complete the project, approximately $.2
million will be expensed and the remainder capitalized. This estimate does not
include Pipeline's potential share of year 2000 costs that may be incurred by
partnerships and joint ventures in which the company participates but is not the
operator. The costs of previously planned system replacements are not considered
to be year 2000 costs and are, therefore, excluded from the amounts discussed
above.
The preceding discussion contains forward-looking statements including,
without limitation, statements relating to Pipeline's plans, strategies,
objectives, expectations, intentions and adequate resources, that are made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned that such forward-looking statements
contained in the year 2000 update are based on certain assumptions, which may
vary from actual results. Specifically, the dates on which Pipeline believes the
year 2000 project will be completed and computer systems will be implemented are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third-party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved, or that there will not be
a delay in, or increased costs associated with, the implementation of the year
2000 project. Other specific factors that might cause differences between the
estimates and actual results include but are not limited to, the availability
and cost of personnel trained in these areas, the ability to locate and correct
all relevant computer code, timely responses to and corrections by third-parties
and suppliers, the ability to implement interfaces between the new systems and
the systems not being replaced, and similar uncertainties. Due to the general
uncertainty inherent in the year 2000 problem, resulting in large part from the
uncertainty of the year 2000 readiness of third-parties, Pipeline cannot ensure
its ability to timely and cost-effectively resolve problems associated with the
year 2000 issue that may affect its operations and business, or expose it to
third-party liability.
-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/ Jeffrey R. Valentine
------------------------------
Jeffrey R. Valentine
Controller
(Duly Authorized Officer and
Chief Accounting Officer)
Date: May 12, 1999
-12-
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 295
<SECURITIES> 0
<RECEIVABLES> 16,222
<ALLOWANCES> 0
<INVENTORY> 10,521
<CURRENT-ASSETS> 95,286
<PP&E> 1,604,271
<DEPRECIATION> 680,451
<TOTAL-ASSETS> 1,070,515
<CURRENT-LIABILITIES> 103,985
<BONDS> 370,778
0
0
<COMMON> 1
<OTHER-SE> 448,628
<TOTAL-LIABILITY-AND-EQUITY> 1,070,515
<SALES> 0
<TOTAL-REVENUES> 70,141
<CGS> 0
<TOTAL-COSTS> 40,160
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,237
<INCOME-PRETAX> 22,477
<INCOME-TAX> 9,201
<INCOME-CONTINUING> 13,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,276
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
