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, 2000.
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 April 30, 2000
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.
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,
2000 1999 2000 1999
(In Thousands)
<S> <C> <C> <C> <C>
REVENUES $ 200,520 $ 172,302 $ 478,155 $ 457,336
OPERATING EXPENSES
Natural gas purchases 122,430 98,722 280,973 261,628
Operating and maintenance 26,171 24,881 104,598 96,527
Depreciation 9,181 8,666 36,941 34,096
Other taxes 3,989 2,226 9,388 8,039
TOTAL OPERATING EXPENSES 161,771 134,495 431,900 400,290
OPERATING INCOME 38,749 37,807 46,255 57,046
INTEREST AND OTHER INCOME 429 505 2,904 3,339
DEBT EXPENSE (5,177) (5,105) (20,134) (19,771)
INCOME BEFORE INCOME
TAXES 34,001 33,207 29,025 40,614
INCOME TAXES 13,286 12,949 9,349 13,662
NET INCOME $ 20,715 $ 20,258 $ 19,676 $ 26,952
</TABLE>
See note to financial statements
<PAGE>
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999 1999
(Unaudited)
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $ 1,708
Accounts receivable $ 94,086 $ 76,298 83,098
Inventories 10,689 12,996 21,680
Purchased-gas adjustments 432
Other current assets 2,533 2,231 3,168
Total current assets 107,308 91,525 110,086
Property, plant and equipment 1,023,075 950,684 1,013,599
Less allowances for
depreciation 430,474 392,018 421,111
Net property, plant and
equipment 592,601 558,666 592,488
Other assets 19,326 22,604 20,978
$ 719,235 $ 672,795 $ 723,552
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Checks outstanding in excess
of cash balances $ 2,456 $ 2,557
Notes payable to Questar
Corporation 39,700 48,800 $ 79,300
Accounts payable and accrued
expenses 78,943 67,030 69,122
Purchased-gas adjustments 15,065 12,598
Total current liabilities 136,164 130,985 148,422
Long-term debt 225,000 225,000 225,000
Other liabilities 1,314 1,603 1,394
Deferred income taxes and investment
tax credits 78,524 73,525 85,343
Common shareholder's equity
Common stock 22,974 22,974 22,974
Additional paid-in capital 81,875 41,875 81,875
Retained earnings 173,384 176,833 158,544
Total common shareholder's equity 278,233 241,682 263,393
$ 719,235 $ 672,795 $ 723,552
</TABLE>
See note to financial statements
<PAGE>
QUESTAR GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended
March 31,
2000 1999
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 20,715 $ 20,258
Depreciation 10,024 9,362
Deferred income taxes and investment
tax credits (6,819) (6,498)
23,920 23,122
Change in operating assets and
liabilities 27,528 27,050
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 51,448 50,172
INVESTING ACTIVITIES
Capital expenditures (10,167) (5,109)
Proceeds from disposition of property,
plant and equipment 30 2,704
NET CASH USED IN INVESTING
ACTIVITIES (10,137) (2,405)
FINANCING ACTIVITIES
Checks outstanding in excess of
cash balances 2,456 2,557
Decrease in notes payable
to Questar Corporation (39,600) (47,900)
Payment of dividends (5,875) (5,750)
NET CASH USED IN FINANCING
ACTIVITIES (43,019) (51,093)
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS $ (1,708) $ (3,326)
</TABLE>
See note to financial statements
<PAGE>
QUESTAR GAS COMPANY
NOTE TO FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
Note 1 - Basis of Presentation
The interim financial statements 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, 2000, are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000. 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, 1999.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
QUESTAR GAS COMPANY
March 31, 2000
(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,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
FINANCIAL RESULTS - (dollars in thousands)
Revenues
From unaffiliated
customers $ 199,527 $ 172,093 $ 475,040 $ 456,058
From affiliates 993 209 3,115 1,278
Total revenues 200,520 172,302 478,155 457,336
Natural gas purchases 122,430 98,722 280,973 261,628
Margin $ 78,090 $ 73,580 $ 197,182 $ 195,708
Operating income $ 38,749 $ 37,807 $ 46,255 $ 57,046
Net income 20,715 20,258 19,676 26,952
OPERATING STATISTICS
Natural gas volumes (in
thousands of decatherms)
Residential and commercial sales 33,908 32,425 83,684 81,342
Industrial sales 3,204 2,940 10,087 9,791
Transportation for industrial
customers 14,017 13,351 52,309 53,980
Total deliveries 51,129 48,716 146,080 145,113
Natural gas revenue
(per decatherm)
Residential and commercial $ 5.41 $ 4.87 $ 5.05 $ 4.98
Industrial sales 3.27 3.01 3.03 3.02
Transportation for
industrial customers $ 0.13 $ 0.13 $ 0.13 $ 0.13
Heating degree days
Actual 2,353 2,296 5,374 5,366
Normal 2,743 2,743 5,801 5,801
Warmer than normal 14% 16% 7% 7%
Number of customers at March 31,
Residential and commercial 687,985 666,301
Industrial 1,363 1,329
Total 689,348 667,630
</TABLE>
Questar Gas' margin increased 6% in the first quarter and 1% in the
twelve months ended March 31, 2000 compared with the same periods of
1999 resulting primarily from interim rate relief received January 1,
2000 and gas volumes delivered to new customers. The increase was
partially offset by a 2% decline in gas usage per customer.
The Public Service Commission of Utah (PSCU) granted Questar Gas'
request for $7.1 million of interim rate relief, subject to refund,
pending outcome of the Company's request for a general rate increase.
The Company is seeking approximately $22 million of rate relief to
offset higher costs. The PSCU must rule on the Company's general
rate filing by August 14, 2000. The number of customers served by
Questar Gas grew by 21,718 or 3.3% from a year ago to 689,348. The
number of customer additions for the year ending December 31, 2000 is
expected to be between 20,000 to 21,000. Temperature adjusted usage
per customer was approximately one decatherm or 2% lower in the first
quarter of 2000 compared with the same period in 1999. Temperatures
were warmer than normal for all periods presented.
Volumes delivered to industrial customers increased by 6% in the
3-month period ended March 31, 2000. Industrial deliveries were 2%
lower in the twelve months ended March 31, 2000 because a major
steel-producing customer reduced operations. The margin earned from
gas delivered to industrial customers is substantially lower than
from gas delivered to residential and commercial customers.
Questar Gas' natural gas purchase costs increased in the three-and
twelve-month periods of 2000 when compared with the 1999 periods due
to an increase in the volumes of gas sold and higher commodity costs.
The Company files for adjustment of purchased-gas costs with the Utah
and Wyoming Public Service Commissions on a semiannual basis.
Operating and maintenance expenses were higher in the 2000 periods
presented due to higher costs of serving a growing number of
customers, including increased costs for the collection of
receivables. Depreciation expense increased in the 2000 periods
presented as a result of investment in property, plant and equipment.
Other taxes increased 79% in the first quarter comparison because of
an adjustment of prior year taxes.
The effective income tax rate for the first quarter was 39.1% in 2000
and 39% in 1999. The Company realized $467,000 of tight-sands
gas-production credits in the 2000 period and $502,000 in the 1999
period.
Liquidity and Capital Resources
Operating Activities
Net cash provided from operating activities in the first quarter of
2000 was $1,276,000 more than was generated in the first quarter of
1999. The increase in cash flow resulted primarily from higher net
income and timing differences in the collection of purchased gas
costs and payments on accounts to vendors.
Investing Activities
Capital expenditures were $10.2 million in the first quarter of 2000.
Capital expenditures for calendar year 2000 are estimated at $63.3
million.
Financing Activities
Cash generated from operating activities was used to fund capital
expenditures and repay loans to Questar. Loan balances owed to
Questar as of March 31, amounted to $39.7 million in 2000 and $48.8
million in 1999. Capital expenditures for the remainder of 2000 are
expected to be financed with net cash flow provided from operating
activities and borrowings from Questar.
Regulatory Matters
Questar Gas filed a general rate case December 17, 1999 requesting
approximately $22 million of general rate relief and also asked for
$7.1 million of interim rate relief. Higher costs of serving
customers, inclusion of charges for the removal of carbon dioxide
from part of the gas supply and lower gas usage per customer were
cited among the reasons for requesting rate relief. The PSCU granted
$7.1 million of interim rate relief, subject to refund, effective
January 1, 2000. The Division of Public Utilities and the Committee
of Consumer Services, state regulatory agencies, filed direct
testimony on April 19, 2000 recommending annual revenue increases,
including the interim relief, of $10.3 million and $1.8 million,
respectively. Questar Gas is preparing rebuttal testimony, which is
due May 24, 2000. Hearings have been scheduled to begin June 5,
2000. The PSCU's final order on the rate case must be issued by
August 14, 2000.
Revenue Recognition Guideline Issued by the Securities and Exchange
Commission (SEC)
In December 1999, the SEC issued Staff Accounting Bulletin (SAB)
101, "Revenue Recognition in Financial Statements." The issue is the
timing of recording revenues given that sales transactions may
contain some conditions allowing customers to return products or
receive refunds. The effect of adopting this accounting guideline
is not known at this time because the Company has not completed its
evaluation. For the Company, the guidelines of SAB 101are
effective in the second quarter of 2000.
Forward-Looking Statements
This 10-Q contains forward-looking statements about future
operations, capital spending, regulatory matters 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.
Important assumptions and other significant factors that could cause
actual results to differ materially from those discussed in
forward-looking statements include changes in: general economic
conditions, gas prices and availability of gas supplies,
competition, regulatory issues, weather conditions and other factors
beyond the control of the Company. These other factors include the
rate of inflation and adverse changes in the business or financial
condition of the Company.
These factors are not necessarily all of the important factors that
could cause actual results to differ significantly from those
expressed in any forward-looking statements. Other unknown or
unpredictable factors could also have a significant adverse effect
on future results. The Company does not undertake an obligation to
update forward-looking information contained herein or elsewhere to
reflect actual results, changes in assumptions or changes in other
factors affecting such forward-looking information.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Questar Gas Company (Questar Gas or the Company) has a pending
general rate case before the Public Service Commission of Utah
(PSCU). In the application, Questar Gas requested a rate increase
of approximately $22 million, an interim rate increase of $7.065
million, and a return on equity of 12 percent (compared to its
current return on equity of 11.3-11.5 percent). The PSCU granted
Questar Gas's request for interim relief effective January 1, 2000,
subject to refund. On April 19, 2000, the Division of Public
Utilities and the Committee of Consumer Services two state agencies
filed testimony with the PSCU recommending that the Company be
limited to increases of $10.3 million and $1.8 million,
respectively. (These amounts are inclusive of, not in addition to,
the interim rate relief amount.) Public hearings before the PSCU
are scheduled to begin June 5, 2000. The PSCU, under Utah law, has
240 days from the filing date or August 14, 2000 in which to issue
an order concerning the Company's application.
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 12, 2000 /s/ D. N. Rose
D. N. Rose
President and Chief Executive Officer
May 12, 2000 /s/ S. E. Parks
S. E. Parks
Vice President, Treasurer, and
Chief Financial Officer
[ARTICLE] 5
[LEGEND]
The schedule contains summarized financial information extracted from the
Questar Gas Company Statements of Income and Balance Sheet for the period
ended March 31, 2000, and is qualified in its entirety by reference to
such unaudited financial statements.
[/LEGEND]
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-2000
[PERIOD-END] MAR-31-2000
[CASH] 0
[SECURITIES] 0
[RECEIVABLES] 94,086
[ALLOWANCES] 0
[INVENTORY] 10,689
[CURRENT-ASSETS] 107,308
[PP&E] 1,023,075
[DEPRECIATION] 430,474
[TOTAL-ASSETS] 719,235
[CURRENT-LIABILITIES] 136,164
[BONDS] 225,000
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 22,974
[OTHER-SE] 255,259
[TOTAL-LIABILITY-AND-EQUITY] 719,235
[SALES] 0
[TOTAL-REVENUES] 200,520
[CGS] 0
[TOTAL-COSTS] 148,601
[OTHER-EXPENSES] 13,170
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 5,177
[INCOME-PRETAX] 34,001
[INCOME-TAX] 13,286
[INCOME-CONTINUING] 20,715
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 20,715
[EPS-BASIC] 0
[EPS-DILUTED] 0
</TABLE>
