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, 1995
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. 1-8796
QUESTAR CORPORATION
(Exact name of registrant as specified in its charter)
STATE OF UTAH 87-0407509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 45433, 180 East First South, Salt Lake City, Utah 84145-0433
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 534-5000
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, 1995
Common Stock, without par value 40,519,169 shares
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1995 1994 1995 1994
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
REVENUES $215,932 $223,309 $662,941 $638,202
OPERATING EXPENSES
Natural gas purchases 85,588 93,784 204,332 209,159
Operating and maintenance 46,344 41,935 178,489 166,663
Depreciation and amortization 24,449 21,875 95,611 88,541
Other taxes 9,199 10,240 34,974 33,644
TOTAL OPERATING EXPENSES 165,580 167,834 513,406 498,007
OPERATING INCOME 50,352 55,475 149,535 140,195
INTEREST AND OTHER INCOME 1,715 1,579 5,093 4,442
WRITE-DOWN OF INVESTMENT IN
NEXTEL COMMUNICATIONS (61,743)
DEBT EXPENSE (11,257) (8,970) (42,098) (34,253)
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 40,810 48,084 50,787 110,384
INCOME TAXES 13,737 16,991 5,390 30,848
INCOME FROM CONTINUING
OPERATIONS 27,073 31,093 45,397 79,536
DISCONTINUED OPERATIONS
Gain from sale 38,126
Loss from operations (1,874)
NET INCOME $27,073 $31,093 $83,523 $77,662
EARNINGS PER COMMON SHARE
Income from continuing
operations $0.67 $0.77 $1.11 $1.97
Gain from sale of
discontinued operations 0.95
Loss from discontinued
operations (0.05)
Net income $0.67 $0.77 $2.06 $1.92
Dividends per common share $0.285 $0.275 $1.14 $1.10
Average common shares outstanding 40,455 40,199 40,379 40,145
</TABLE>
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994 1994
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $516 $7,549
Accounts receivable $127,960 139,360 143,081
Inventories 26,532 20,781 30,098
Other current assets 12,129 9,727 12,397
Total current assets 166,621 170,384 193,125
Property, plant and equipment 2,277,711 2,126,011 2,263,170
Less allowances for depreciation
and amortization 980,466 893,861 955,536
Net property, plant and
equipment 1,297,245 1,232,150 1,307,634
Securities available-for-resale,
approximates fair value 52,810 37,578
Investment in discontinued
operations 30,667
Other assets 44,825 48,448 47,238
$1,561,501 $1,481,649 $1,585,575
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Checks outstanding in excess
of cash balances $5,562
Short-term loans 31,700 $119,300 $94,900
Accounts payable and
accrued expenses 108,365 114,311 108,243
Purchased-gas adjustments 37,082 42,468 17,071
Total current liabilities 182,709 276,079 220,214
Long-term debt 486,688 377,672 494,684
Other liabilities and
deferred credits 41,116 45,910 46,223
Deferred income taxes and
investment tax credits 163,563 150,085 164,541
Redeemable cumulative
preferred stock 6,324 7,524 6,324
Common shareholders' equity
Common stock 312,073 305,546 310,402
Retained earnings 417,106 379,651 401,577
Treasury stock, at cost (33,434) (34,016) (33,847)
Note receivable from ESOP (24,050) (26,802) (24,543)
Unrealized gain on securities,
net of income taxes 9,406
Total common shareholders'
equity 681,101 624,379 653,589
$1,561,501 $1,481,649 $1,585,575
</TABLE>
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended
March 31,
1995 1994
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $27,073 $31,093
Depreciation and amortization 25,577 22,915
Deferred income taxes and
investment tax credits (6,804) (11,285)
45,846 42,723
Change in operating assets and liabilities 36,831 19,677
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 82,677 62,400
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant and equipment (17,178) (114,930)
Investment in discontinued operations (1,169)
Other investments (437) (63)
Total capital expenditures (17,615) (116,162)
Proceeds from disposition of property,
plant and equipment 1,990 9,611
CASH USED IN INVESTING ACTIVITIES (15,625) (106,551)
FINANCING ACTIVITIES
Issuance of common stock 2,375 2,612
Purchase of treasury stock (291) (189)
Redemption of preferred stock (1)
Issuance of long-term debt 2,000 13,000
Repayment of long-term debt (9,996) (7,041)
Increase (decrease) in short-term loans (63,200) 41,000
Checks outstanding in excess of
cash balances 5,562
Payment of dividends (11,661) (11,211)
Other 610 132
CASH (USED IN) PROVIDED FROM
FINANCING ACTIVITIES (74,601) 38,302
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($7,549) ($5,849)
</TABLE>
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1995
Note A - 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, 1995, are not necessarily indicative of the results that may
be expected for the year ending December 31, 1995. For further
information refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1994.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS
March 31, 1995
Exploration and Production Operations --
Celsius Energy, Universal Resources and Wexpro (E&P group) conduct the
Company's exploration and production operations. Following is a
summary of financial results and operating information.
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1995 1994 1995 1994
(Dollars in Thousands)
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $64,588 $66,061 $253,091 $226,060
From affiliates 16,580 19,844 74,085 64,275
Total revenues $81,168 $85,905 $327,176 $290,335
Operating income $11,810 $15,081 $56,023 $53,022
Net income 7,852 10,477 37,591 38,521
OPERATING STATISTICS
Production volumes -
Natural gas (in million
cubic feet) 8,924 7,858 38,725 32,576
Oil and natural gas liquids
(in thousands of barrels) 620 512 2,550 2,058
Production revenue
Natural gas (per thousand
cubic feet) $1.49 $2.10 $1.65 $1.91
Oil and natural gas liquids
(per barrel) $15.52 $12.85 $15.33 $15.44
Gas marketing volumes (in
thousands of decatherms) 23,928 21,739 91,130 68,336
</TABLE>
Lower selling prices for natural gas more than offset the effect of
increased production resulting in a $3,248,000 decrease in natural gas
sales in the quarter to quarter comparison. Average selling prices
were lower for the 3- and 12-month periods of 1995 when compared with
the same periods of the prior year. Demand for natural gas fell
because of warmer than normal winter temperatures across the United
States.
Revenues from the sale of oil and natural gas liquids were higher in
the 1995 periods presented. First quarter 1995 selling prices for oil
and natural gas liquids were 21% higher than the average price
received in the first quarter of 1994 and 5% higher than the average
selling price for calendar year 1994. Spot market oil prices are
presently near $20 per bbl compared with $15 to 17 per bbl a year
earlier.
The E & P group currently has contracts hedging selling prices of 57.8
million cubic feet per day of gas production at an average price of
$1.63 per Mcf and 2,000 bbl of oil production per day at an average
price of $17.34 per bbl. Both gas and oil contracts cover varying
time periods.
Volumes of gas and oil produced in the 3- and 12-month periods of 1995
show increases due to reserve acquisitions in 1994. First quarter
1995 gas production was 2.4 Bcf higher because of production from the
acquired properties; while oil and natural gas liquids production was
100,000 bbl higher.
Gas marketing volumes were higher in the 1995 periods; however, lower
margins were realized from gas marketing transactions in large part
due to increased competition.
Natural Gas Transmission Operations --
Questar Pipeline conducts the Company's natural gas transmission,
gathering and storage operations. Following is a summary of financial
results and operating information.
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1995 1994 1995 1994
(Dollars in Thousands)
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $10,859 $8,587 $42,684 $39,908
From affiliates 18,706 19,163 74,739 81,319
Total revenues $29,565 $27,750 $117,423 $121,227
Operating income $12,853 $11,663 $54,068 $46,176
Net income 6,274 5,508 26,595 21,401
OPERATING STATISTICS
Natural gas volumes (in thousands of
of decatherms)
Transportation
For unaffiliated customers 38,569 24,538 143,281 107,880
For Mountain Fuel 29,199 34,510 70,630 86,312
For other affiliated
customers 6,226 9,015 42,304 35,990
Total transportation 73,994 68,063 256,215 230,182
Sales for resale to
Mountain Fuel 3,298
Total system throughput 73,994 68,063 256,215 233,480
Gathering
For unaffiliated customers 9,621 10,199 39,222 38,091
For Mountain Fuel 9,390 10,564 30,924 34,007
For other affiliated
customers 1,280 3,085 10,280 15,939
Total gathering 20,291 23,848 80,426 88,037
Natural gas revenues (per decatherm)
Transportation $0.21 $0.23 $0.24 $0.24
Gathering 0.28 0.23 0.29 0.22
Sales for resale 7.57
</TABLE>
Revenues were higher in the first quarter of 1995 when compared to the
first quarter of 1994 due primarily to increased firm-storage service
at Questar Pipeline's Clay Basin storage reservoir. This increased
storage service was responsible for $1,782,000 of the improvement in
revenues. Working gas storage capacity increased from 31 Bcf to 41.8
Bcf in May 1994 and contracts are in place to increase capacity to
46.3 Bcf beginning May 1995. Storage capacity is fully subscribed.
Revenues reported for the 12-month period of 1995 were lower than was
reported in the comparable 1994 period due largely to the
discontinuance of sales for resale effective September 1, 1993 with
the adoption of FERC Order No. 636.
Transportation revenues were slightly lower in the first quarter of
1995 because of lower interruptible- transportation volumes. Most of
Questar Pipeline's transportation capacity is reserved by
firm-transportation customers.
Volumes gathered in the 1995 periods were lower than the quantities
gathered in the same periods of 1994 primarily because of imputed
volumes used for rate design and warmer weather. Billings for gas
gathered for Mountain Fuel in 1993 and 1992 were based on imputed
volumes, which were substantially higher than volumes gathered.
Higher average gathering rates more than offset the decrease in
volumes and resulted in increased revenues in the 1995 periods. The
higher revenues were the product of a shift in rates to the usage
component. Under current gathering agreements about 55% of revenues
are collected through the usage component of rates and about 45% in
the reservation component.
Questar Pipeline currently plans to file a general rate case in either
the second quarter or third quarter of 1995 because of its capital
expenditure program, recent adoption of new accounting rules for
postretirement and postemployment costs, and loss of
interruptible-transportation revenues.
Natural Gas Distribution --
Mountain Fuel conducts the Company's natural gas distribution
operations. Following is a summary of financial results and operating
information.
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1995 1994 1995 1994
(Dollars in Thousands)
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $139,823 $148,318 $365,745 $371,021
From affiliates 992 697 4,315 2,402
Total revenues $140,815 $149,015 $370,060 $373,423
Operating income $24,477 $27,776 $36,022 $37,551
Net income 13,061 15,098 21,315 19,702
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Residential and commercial
sales 29,578 30,138 73,673 73,074
Industrial sales 3,185 2,217 9,850 6,993
Transportation for industrial
customers 17,609 13,271 55,720 49,362
Total deliveries 50,372 45,626 139,243 129,429
Natural gas revenue (per decatherm)
Residential and commercial $4.31 $4.54 $4.35 $4.53
Industrial sales 2.59 3.23 2.59 3.11
Transportation for industrial
customers 0.10 0.12 0.10 0.12
Heating degree days
Actual 2,217 2,307 5,200 5,213
Normal 2,743 2,743 5,801 5,583
Warmer than normal 19% 16% 10% 7%
Number of customers at end of
period 575,424 553,507
</TABLE>
Temperatures were 19% warmer than normal in the first quarter of 1995
and 4% warmer than temperatures reported in the first quarter of 1994.
This resulted in a 2% decrease in natural gas volumes sold to
residential and commercial customers. The effect of warmer weather
was partially offset by a 4.0% increase in the number of customers.
Revenues from the sale of natural gas to residential and commercial
customers was $9,344,000 lower in the 1995 quarter.
Volumes delivered to industrial customers increased 34% in the first
quarter of 1995 compared with the same quarter of 1994 resulting in
$1,189,000 more revenues. Natural gas demand was higher for customers
in the metals, electric generation and chemical industries. Margins
from gas delivered to industrial customers are substantially lower
than from gas sold to residential and commercial customers.
Mountain Fuel filed a general rate case in the State of Utah on March
3, 1995 requesting a $9.6 million increase in revenues and a 12.5%
return on equity based on a $372 million rate base and a future test
year. Management believes the rate increase is necessary to secure an
appropriate allowed rate of return and to recover the costs of record
customer growth.
The Public Service Commission of Utah subsequently ruled that a future
test year was inappropriate and ordered Mountain Fuel to adjust its
rate case accordingly. On April 13, 1995, Mountain Fuel submitted a
compliance filing showing an $11.4 million increase in revenues based
on a 1994 historical test year with a $354 million rate base and a
12.5% return on equity.
Mountain Fuel's plans to consolidate and restructure operations
continue as 109 of the 169 eligible employees accepted the Company's
offer of an early retirement effective April 30, 1995. The labor
savings are expected to exceed the costs of the early retirement
program. Mountain Fuel is also proceeding with plans to close four
regional offices and reduce functions at six other offices. Mountain
Fuel predicts that its investment in customer information system
technology will enable it to increase its efficiency in serving
customers with fewer employees and offices.
Consolidated Results of Operations --
Consolidated revenues decreased in the first quarter of 1995 compared
with the first quarter of 1994 due to lower prices received on natural
gas produced by the E & P group and lower gas costs included in
average selling prices of natural gas sold by Mountain Fuel. These
decreases were partially offset by increased exploration and
production revenues from oil and natural gas liquids production and
increased natural gas transmission revenues from firm-storage
activities. Consolidated revenues increased in the 12 months ended
March 31, 1995, compared with the prior year period primarily because
of increased oil and natural gas liquids production, plant processing
and gathering revenues by the E&P group and firm-storage, transmission
and gathering activities by the natural gas transmission line of
business.
Natural gas purchases were lower in the 3- and 12-month period of 1995
compared with the same periods of 1994 primarily because of lower
natural gas purchase prices.
Operating and maintenance expenses were 11% higher in the first
quarter of 1995 and 7% higher in the 12 months ended March 31, 1995,
when compared with the same periods in the prior year. The increases
resulted from a gain in the number of properties owned by the E & P
group through its 1994 acquisitions and drilling programs and higher
costs associated with serving a growing number of natural gas
distribution customers.
Depreciation and amortization increased in the periods ended March 31,
1995, because of increased natural gas and oil production and
increased investment in property, plant and equipment by all lines of
business. Other taxes were lower in the first quarter of 1995
compared with the first quarter of 1994 because of lower natural gas
revenues. Other taxes were higher for the 12-month period of 1995
compared with the prior year period because of increased oil and
natural gas liquids revenues.
In the third quarter of 1994, Questar Corporation sold Questar Telecom
to Nextel Communications in exchange for 3.9 million shares of Nextel
common stock and reported a $38,126,000 after-tax gain from the sale.
At year end 1994, the Company wrote down its investment in Nextel
Communications by $61,743,000. This amounted to $38,126,000, or $.95
per share, after income taxes.
Debt expense was higher in the 3- and 12-month periods of 1995
compared with the 1994 periods because of increased debt balances and
higher interest rates.
The effective income tax rate for the first quarter was 33.7 % in 1995
and 35.3% in 1994. The Company recognized $2,155,000 of tight-sands
gas production tax credits in the 1995 period and $2,260,000 in the
1994 period.
Liquidity and Capital Resources --
Operating Activities:
Net cash provided from operating activities was $82,677,000 for the
first quarter of 1995 compared with $62,400,000 for the same period of
1994. The increase was due to higher sources of cash from changes in
working capital accounts, primarily from lower natural gas selling
prices, and depreciation, resulting from increased production.
Investing Activities:
Capital expenditures of $17,615,000 in the first three months of 1995,
were $98,547,000 lower than for the same period a year ago due largely
to E&P reserve and property acquisitions amounting to $95,591,000 in
1994. A comparison of capital expenditures for the first three
months of 1995 and 1994 plus an estimate for the calendar year 1995
are as follows:
<TABLE>
<CAPTION>
Estimate
Actual 12 months
Three months Ended Ended
March 31, Dec. 31,
1995 1994 1995
(In Thousands)
<S> <C> <C> <C>
Exploration and production $6,781 $103,885 $92,000
Natural gas transmission 3,171 5,089 41,000
Natural gas distribution 6,843 6,244 50,000
Other operations 820 944 43,500
$17,615 $116,162 $226,500
</TABLE>
Financing Activities:
Financing activities in 1995 have largely amounted to repayment of
debt from the proceeds of cash flows from operations. Short-term debt
decreased $63,200,000 and long-term debt decreased $7,996,000 in the
first quarter of 1995. The increase in borrowings in the first
quarter of 1994 were used to finance the E & P group's acquisitions.
Questar borrowed $50 million in 1994 as a bridge loan to finance the E
& P property acquisitions.
Short-term borrowings at March 31, consisted of the following:
1995 1994
(In Thousands)
Commercial paper $31,700 $49,100
Short-term bank loans 70,200
$31,700 $119,300
The Company had the capacity at March 31, 1995, to borrow an
additional $103,300,000 under commercial paper agreements. That
capacity reduces to $68,300,000 at April 1, 1995, to match seasonal
cash flow requirements. Its affiliates had the capacity to borrow an
additional $35,700,000 through short-term credit lines with banks.
Questar plans to finance 1995 capital expenditures with cash flow from
operations, borrowings under the expanded production-based credit
facility and proceeds from its dividend reinvestment plan. In
addition, Questar may issue common stock, or sell or monetize a
portion of its investment in Nextel common stock to fund capital
expenditures.
<PAGE>
PART II
OTHER INFORMATION
Questar Corporation has nothing to disclose in this section of the
report.
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 CORPORATION
(Registrant)
May 12, 1995 /s/ R. D. Cash
(Date) R. D. Cash
Chairman of the Board,
President and Chief
Executive Officer
May 12, 1995 /s/ W. F. Edwards
(Date) W. F. Edwards
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summarized financial information extracted from the
Questar Corporation Statements of Income and Balance Sheet for the period
ended March 31, 1995, 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-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 127,960
<ALLOWANCES> 0
<INVENTORY> 26,532
<CURRENT-ASSETS> 166,621
<PP&E> 2,277,711
<DEPRECIATION> 980,466
<TOTAL-ASSETS> 1,561,501
<CURRENT-LIABILITIES> 182,709
<BONDS> 486,688
<COMMON> 312,073
6,324
0
<OTHER-SE> 369,028
<TOTAL-LIABILITY-AND-EQUITY> 1,561,501
<SALES> 0
<TOTAL-REVENUES> 215,932
<CGS> 0
<TOTAL-COSTS> 131,932
<OTHER-EXPENSES> 33,648
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,257
<INCOME-PRETAX> 40,810
<INCOME-TAX> 13,737
<INCOME-CONTINUING> 27,073
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $27,073
<EPS-PRIMARY> $.67
<EPS-DILUTED> $.67
</TABLE>
