SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_____ TO _____
Commission File No. 1-935
QUESTAR GAS COMPANY
(Exact name of registrant as specified in its charter)
STATE OF UTAH 87-0155877
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 45360, 180 East 100 South, Salt Lake City, Utah 84145-0360
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(801) 324-5555
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes x No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of March 31, 1998
Common Stock, $2.50 par value 9,189,626 shares
Registrant meets the conditions set forth in General Instruction
H(a)(1) and (b) of Form 10-Q and is filing this Form 10-Q with the
reduced disclosure format.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
QUESTAR GAS COMPANY
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1998 1997 1998 1997
(In Thousands)
<S> <C> <C> <C> <C>
REVENUES $191,789 $175,313 $464,699 $402,338
OPERATING EXPENSES
Natural gas purchases 118,098 97,211 269,820 204,146
Operating and maintenance 25,277 27,404 99,592 99,093
Depreciation 7,831 7,933 31,058 29,141
Other taxes 2,372 2,743 7,803 7,695
TOTAL OPERATING EXPENSES 153,578 135,291 408,273 340,075
OPERATING INCOME 38,211 40,022 56,426 62,263
INTEREST AND OTHER INCOME 732 723 3,397 3,047
DEBT EXPENSE (5,126) (4,342) (19,903) (16,707)
INCOME BEFORE INCOME TAXES 33,817 36,403 39,920 48,603
INCOME TAXES 13,103 14,094 12,501 16,157
NET INCOME $20,714 $22,309 $27,419 $32,446
</TABLE>
See note to financial statements
<PAGE>
QUESTAR GAS COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997 1997
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $6,747
Accounts receivable $91,842 $79,441 86,487
Inventories 7,738 8,154 20,347
Purchased-gas adjustments 5,587 29,331 37,251
Other current assets 3,643 3,653 4,356
Total current assets 108,810 120,579 155,188
Property, plant and equipment 887,403 827,208 882,936
Less allowances for depreciation 361,225 333,171 354,761
Net property, plant and equipment 526,178 494,037 528,175
Other assets 19,732 20,736 21,488
$654,720 $635,352 $704,851
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $1,194 $2,924
Notes payable to Questar Corporation 35,700 58,700 $100,000
Accounts payable and accrued expenses 75,593 68,559 64,487
Total current liabilities 112,487 130,183 164,487
Long-term debt 225,000 175,000 225,000
Other liabilities 5,593 10,922 5,989
Deferred income taxes and investment
tax credits 74,285 82,234 87,109
Redeemable cumulative preferred stock 4,808
Common shareholder's equity
Common stock 22,974 22,974 22,974
Additional paid-in capital 41,875 41,875 41,875
Retained earnings 172,506 167,356 157,417
Total common shareholder's equity 237,355 232,205 222,266
$654,720 $635,352 $704,851
</TABLE>
See note to financial statements
<PAGE>
QUESTAR GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended
March 31,
1998 1997
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $20,714 $22,309
Depreciation 8,419 8,641
Deferred income taxes and investment
tax credits (12,824) 923
16,309 31,873
Change in operating assets and
liabilities 52,097 (9,428)
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 68,406 22,445
INVESTING ACTIVITIES
Capital expenditures (9,514) (3,974)
Proceeds from disposition of property,
plant and equipment 3,092 596
NET CASH USED IN INVESTING
ACTIVITIES (6,422) (3,378)
FINANCING ACTIVITIES
Decrease in notes payable
to Questar Corporation (64,300) (17,500)
Redemption of preferred stock (20)
Checks outstanding in excess of
cash balances 1,194 2,924
Payment of dividends (5,625) (6,346)
NET CASH USED IN FINANCING
ACTIVITIES (68,731) (20,942)
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($6,747) ($1,875)
</TABLE>
See note to financial statements
<PAGE>
QUESTAR GAS COMPANY
NOTE TO CONDENSED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
Note 1 - Basis of Presentation
The interim financial statements furnished reflect all
adjustments which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods
presented. All such adjustments are of a normal recurring
nature. Due to the seasonal nature of the business, the results
of operations for the three-month period ended March 31, 1998,
are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. For further
information refer to the financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1997.
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
QUESTAR GAS COMPANY
March 31, 1998
(Unaudited)
Operating Results
Following is a summary of financial and operating information
for the Company:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1998 1997 1998 1997
(Dollars In Thousands)
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $191,789 $174,222 $463,251 $398,560
From affiliates 1,091 1,448 3,778
Total revenues 191,789 175,313 464,699 402,338
Natural gas purchases 118,098 97,211 269,820 204,146
Revenues less natural gas purchases $73,691 $78,102 $194,879 $198,192
Operating income $38,211 $40,022 $56,426 $62,263
Net income 20,714 22,309 27,419 32,446
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Residential and commercial sales 34,314 36,405 83,656 82,832
Industrial sales 2,830 2,902 9,451 8,992
Transportation for industrial
customers 14,832 12,952 53,193 48,722
Total deliveries 51,976 52,259 146,300 140,546
Natural gas revenue (per decatherm)
Residential and commercial $5.20 $4.47 $4.96 $4.30
Industrial sales 3.10 2.37 2.79 2.21
Transportation for industrial
customers 0.11 0.14 0.12 0.13
Heating degree days
Actual 2,392 2,455 5,402 5,166
Normal 2,743 2,743 5,801 5,801
Warmer than normal 13% 10% 7% 11%
Number of customers at March 31 645,133 623,184
</TABLE>
Revenues, less natural gas purchases, were $4,411,000 lower in
the first quarter of 1998 and $3,313,000 lower in the 12-month
period ended March 31, 1998 when compared with the same periods
in 1997 because of several rate changes affecting the first
quarter of 1998. A rate surcharge, associated with construction
of a distribution pipeline into southern Utah and in effect for
the past 10 years, was discontinued in September 1997. Some
general-service customers, who met higher load factor standards,
shifted to firm commercial rates, which have a lower margin.
Retail usage of gas per customer has returned to a more-normal
quantity after reaching an unusually high mark in the first
quarter of 1997. The Company agreed to a negotiated annual rate
reduction of $2.8 million of revenues in Utah that went into
effect February 18, 1997.
The growth rate in the number of customers served by Questar Gas
continued at a strong pace. The number of customers served
grew by 3.5% from a year ago to 645,133 at March 31, 1998.
Temperatures, as measured in degree days, were warmer than
normal in the 1998 and 1997 periods. However, Questar Gas'
rates include a weather-normalization adjustment that reduces
the revenue impact of weather fluctuations. Virtually all of
Questar Gas' residential and commercial volumes were covered
under the weather-normalization adjustment in the first quarters
of 1998 and 1997.
In March 1998, the Public Service Commission of Wyoming approved
Questar Gas' gas-merchant unbundling proposal that was filed in
Wyoming in 1997. Under this plan, a transportation service
option is extended to residential and commercial customers as
well as industrial customers. Customers choosing transportation
service are allowed to secure gas supplies directly from
producers and marketers and pay Questar Gas a fee for
transportation services. Questar Gas continues to offer a
traditional bundled sales service as well. The unbundling
proposal called for an open enrollment period to be held from
March 1 through April 30. However, no suppliers signed up to
provide gas to Wyoming customers. Another open enrollment will
be held next year. Questar expects that the option of unbundled
service in Wyoming, will not have a material effect on earnings.
Volumes delivered to industrial customers increased 11% in the
first quarter of 1998 when compared with the same quarter of
1997 due to additions and expanded operations with several
ongoing customers. Margins from gas delivered to industrial
customers are substantially lower than from gas delivered to
residential and commercial customers.
Questar Gas' natural gas purchases were higher in the 3- and
12-month periods of 1998 compared with the same periods of 1997.
Higher gas purchase prices were paid by the Company as natural
gas prices increased sharply during the 1996-1997 winter heating
season. The increase in gas costs was first noted as an
increase in the purchased-gas cost account, but was ultimately
collected in rates. Questar Gas' rates include the recovery of
gas costs which amount to $2.27 per decatherm (dth) in 1998
compared with $1.54 per dth in 1997. The Company routinely
files for adjustment of purchased-gas costs with the Utah and
Wyoming Public Service Commissions on a semiannual basis.
Operating and maintenance expenses were 8% lower in the first
quarter of 1998 because of cost reductions as a result of
sharing services with an affiliated company, capitalizing labor
costs associated with construction projects, lower bad debt
costs and because of a write-off of obsolete inventory in 1997.
Questar Gas and Questar Pipeline share the costs of certain
administrative, marketing, accounting, technical and related
services under Questar Regulated Services Co.
Depreciation expense was lower in the first quarter of 1998 when
compared with the 1997 first quarter primarily as a result of
less gas production. The average depreciation rate was
unchanged from year to year. Others taxes, primarily property
taxes, were lower in the first quarter of 1998 after a refund
from a local taxing agency. Interest expense was higher in
the 3- and 12-month periods of 1998 due primarily to an issuance
of $50 million of medium-term notes with an average interest
rate of 6.88 % in the second and third quarters of 1997.
The effective income tax rate was 38.7% in the both the first
quarter of 1998 and 1997. The Company recognized $577,000 of
tight-sands gas-production credits in the 1998 period and
$608,000 in the 1997 period.
Liquidity and Capital Resources
Operating Activities
Net cash provided from operating activities of $68,406,000 was
$45,961,000 more than was generated in the same period of 1997.
The increase in cash flow was primarily due to collection of gas
costs, which were under-collected in the first quarter of 1997.
Investing Activities
Capital expenditures were $9,514,000 in the first three months
of 1998 compared with $3,974,000 in the corresponding 1997
period. Capital expenditures for calendar year 1998 are
estimated at $65,400,000.
Financing Activities
The Company has a short-term borrowing arrangement with its
parent company, Questar Corporation. As of March 31, Questar Gas
had loan balances outstanding of $35,700,000 in 1998 and
$58,700,000 in 1997. Financing activities in the first quarters
of 1998 and 1997 included payment of dividends and a partial
repayment of loans from Questar using net cash provided from
operations. Capital expenditures for 1998 will be financed with
net cash flow provided from operating activities and borrowings
from Questar.
Forward Looking Statements
This 10-Q contains forward-looking statements about the future
operations and expectations of Questar Gas. According to
management, these statements are made in good faith and are
reasonable representations of the Company's expected performance
at the time. Actual results may vary from management's stated
expectations and projections due to a variety of factors.
PART II
OTHER INFORMATION
Item 3. Legal Proceedings.
(a) On May 6, 1998, the Public Service Commission of Wyoming
(PSCW) issued a written order officially approving the application
filed by Questar Gas Company (the Company) to offer choice of
commodity suppliers to its general service (commercial and
residential) customers in Wyoming. As of the close of the open season
on April 30, 1998, no commodity supplier had signed up to provide
service to Wyoming customers.
(b) On May 6, 1998, the Public Service Commission of Utah
(PSCU), requested that the Company and other parties file supplemental
briefs in a pending case involving the Company's gathering rates.
(See the Company's Annual Report on Form 10-K for 1997, page 7, for a
discussion of the case.) The PSCU also set the matter for additional
hearings in June. In the case, which involves potential refunds of up
to $7.8 million, the Division of Public Utilities, a state agency,
claims that a reduction in gathering rates charged to the Company by
an affiliate should be extended retroactively to March of 1996.
Item 6. Exhibits and Reports on Form 8-K.
a. The following exhibit has been filed as part of this report:
Exhibit No.Exhibit
12. Ratio of Earnings to Fixed Charges.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
QUESTAR GAS COMPANY
(Registrant)
May 14, 1998 /s/ D. N. Rose
D. N. Rose
President and Chief Executive
Officer
May 14, 1998 /s/S. E. Parks
(Date) S. E. Parks
Vice President, Treasurer and
Chief Financial Officer
Exhibit No. 12.
Questar Gas Company
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
12 Months Ended
March 31,
1997 1998
(Dollars in Thousands)
<S> <C> <C>
Earnings
Income before income taxes $48,603 $39,920
Plus debt expense 16,707 19,903
Plus allowance for borrowed
funds used during construction 265 317
Plus interest portion of rental expense 170 306
$65,745 $60,446
Fixed Charges
Debt expense $16,707 $19,903
Plus allowance for borrowed
funds used during construction 265 317
Plus interest portion of rental expense 170 306
$17,142 $20,526
Ratio of Earnings to Fixed Charges 3.84 2.94
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summarized financial information extracted
from the Questar Gas Company Statements of Income and Balance Sheets for
the period ended March 31, 1998, and is qualified in its entirety by
reference to such unaudited financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 91,842
<ALLOWANCES> 0
<INVENTORY> 7,738
<CURRENT-ASSETS> 108,810
<PP&E> 887,403
<DEPRECIATION> 361,225
<TOTAL-ASSETS> 654,720
<CURRENT-LIABILITIES> 112,487
<BONDS> 225,000
0
0
<COMMON> 22,974
<OTHER-SE> 214,381
<TOTAL-LIABILITY-AND-EQUITY> 654,720
<SALES> 0
<TOTAL-REVENUES> 191,789
<CGS> 0
<TOTAL-COSTS> 143,375
<OTHER-EXPENSES> 10,203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,126
<INCOME-PRETAX> 33,817
<INCOME-TAX> 13,103
<INCOME-CONTINUING> 20,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,714
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
