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, 1996
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, 1996
Common Stock, without par value 40,780,674 shares
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1996 1995 1996 1995
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
REVENUES $225,723 $215,932 $659,078 $662,941
OPERATING EXPENSES
Natural gas purchases 80,468 85,588 194,299 204,332
Operating and maintenance 49,178 46,344 182,559 178,489
Depreciation and amortization 25,721 24,449 97,564 95,611
Other taxes 9,295 9,199 31,921 34,974
TOTAL OPERATING EXPENSES 164,662 165,580 506,343 513,406
OPERATING INCOME 61,061 50,352 152,735 149,535
INTEREST AND OTHER INCOME 4,036 1,715 19,635 5,093
WRITE-DOWN OF INVESTMENT IN
NEXTEL COMMUNICATIONS (61,743)
DEBT EXPENSE (11,125) (11,257) (42,683) (42,098)
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 53,972 40,810 129,687 50,787
INCOME TAXES 19,376 13,737 38,378 5,390
INCOME FROM CONTINUING
OPERATIONS 34,596 27,073 91,309 45,397
GAIN FROM SALE OF
DISCONTINUED OPERATIONS 38,126
NET INCOME $34,596 $27,073 $91,309 $83,523
EARNINGS PER COMMON SHARE
Income from continuing operations $0.85 $0.67 $2.23 $1.11
Gain from sale of discontinued
operations 0.95
Net income $0.85 $0.67 $2.23 $2.06
Dividends per common share $0.295 $0.285 $1.17 $1.14
Average common shares outstanding 40,721 40,455 40,645 40,379
</TABLE>
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995 1995
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $5,122
Accounts receivable $144,049 $127,960 126,528
Inventories 11,867 26,532 28,110
Other current assets 10,296 12,129 10,965
Total current assets 166,212 166,621 170,725
Property, plant and equipment 2,341,157 2,277,711 2,330,900
Less allowances for depreciation and
amortization 1,045,206 980,466 1,020,779
Net property, plant and equipment 1,295,951 1,297,245 1,310,121
Securities available for resale,
approximates fair value 63,910 52,810 52,745
Other assets 49,927 44,825 50,962
$1,576,000 $1,561,501 $1,584,553
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $5,267 $5,562
Short-term loans 27,200 31,700 $77,200
Accounts payable and accrued expenses 114,230 108,365 117,240
Purchased-gas adjustments 21,792 37,082 9,182
Current portion of long-term debt 19,004 19,004
Total current liabilities 187,493 182,709 222,626
Long-term debt, less current portion 411,700 486,688 421,695
Other liabilities and deferred credits 38,410 41,116 34,700
Deferred income taxes and investment
tax credits 187,445 163,563 187,900
Redeemable cumulative preferred stock 4,957 6,324 4,957
Common shareholders' equity
Common stock 285,292 278,639 283,776
Retained earnings 460,865 417,106 438,284
Note receivable from ESOP (20,550) (24,050) (21,238)
Unrealized gain on securities available
for resale, net of income taxes 20,388 9,406 11,853
Total common shareholders' equity 745,995 681,101 712,675
$1,576,000 $1,561,501 $1,584,553
</TABLE>
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended
March 31,
1996 1995
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $34,596 $27,073
Depreciation and amortization 26,948 25,577
Deferred income taxes and
investment tax credits (5,742) (6,804)
Gain from sales of securities (1,765)
54,037 45,846
Change in operating assets
and liabilities 13,853 36,831
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 67,890 82,677
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (12,983) (17,178)
Other investments (158) (437)
Total capital expenditures (13,141) (17,615)
Proceeds from disposition of property,
plant and equipment 246 1,990
Proceeds from the sales of securities 4,422
NET CASH USED IN INVESTING
ACTIVITIES (8,473) (15,625)
FINANCING ACTIVITIES
Issuance of common stock 2,255 2,375
Common stock repurchased (739) (291)
Issuance of long-term debt 2,000
Repayment of long-term debt (9,995) (9,996)
Increase (decrease) in short-term loans (50,000) (63,200)
Checks outstanding in excess of cash bal 5,267 5,562
Payment of dividends (12,114) (11,661)
Other 787 610
NET CASH USED IN FINANCING
ACTIVITIES (64,539) (74,601)
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($5,122) ($7,549)
</TABLE>
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1996
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, 1996, are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1996. 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, 1995.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS
March 31, 1996
Market Resources Operations -
Celsius Energy, Universal Resources and Wexpro (market resources
group) conduct the Company's exploration, production and energy
marketing operations. Following is a summary of financial results and
operating information.
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1996 1995 1996 1995
(Dollars in Thousands)
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $71,123 $64,588 $251,799 $253,091
From affiliates 17,603 16,580 65,225 74,085
Total revenues $88,726 $81,168 $317,024 $327,176
Operating income $13,071 $11,810 $45,586 $56,023
Net income 8,117 7,852 32,180 37,591
OPERATING STATISTICS
Production volumes -
Natural gas (in million
cubic feet) 9,145 8,924 32,884 38,725
Oil and natural gas liquids
(in thousands of barrels) 572 620 2,388 2,550
Production revenues
Natural gas (per thousand
cubic feet) $1.58 $1.49 $1.36 $1.65
Oil and natural gas liquids
(per barrel) $16.45 $15.52 $16.19 $15.33
Gas marketing volumes (in
thousands of decatherms) 29,675 23,928 115,121 91,130
</TABLE>
Revenues were 9% higher in the first quarter of 1996 when compared
with the same period of 1995, but were 3% lower in the 12-month period
of 1996 when compared with the prior year period. Revenues from sales
of natural gas increased 9% in the first quarter of 1996, but were 30%
lower in the 12-month period ended March 31, 1996 when compared with
the year earlier periods. Both production and selling prices of
natural gas were higher in the first quarter of 1996. Gas production
and revenues were lower for the 12 months ended March 31, 1996 when
compared with the prior year period. Celsius Energy shut in a portion
of its gas production in the second half of 1995 in response to
extremely low gas prices. Most of this gas was producing during the
first quarter of 1996.
Revenues from sales of oil and natural gas liquids were lower in the
3- and 12-month periods of 1996 when compared with the same periods
of 1995. The decrease in revenues was the result of lower production
volumes that more than offset the effects of higher average selling
prices.
Gas marketing volumes increased 24% in the first quarter and 26% in
the 12 months period ended March 31, 1996. In other hedging
activities, about 40% of equity gas production and equity oil production is
being sold under hedged or fixed-price contracts. The contracts for oil
production terminate at the end of 1996.
Revenues for cost-of-service operation of Mountain Fuel's gas wells
were 6% higher in the 3- and 12-month periods ended March 31, 1996
primarily due to the settlement of a Minerals Management Service
royalty valuation issue.
Regulated Services Operations -
Mountain Fuel and Questar Pipeline conduct the Company's regulated
services of natural gas distribution, transmission and storage.
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,
1996 1995 1996 1995
(Dollars in Thousands)
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $144,567 $139,823 $363,502 $365,745
From affiliates 336 992 3,355 4,315
Total revenues $144,903 $140,815 $366,857 $370,060
Operating income $33,797 $24,477 $53,042 $36,022
Net income 18,851 13,061 29,458 21,315
OPERATING STATISTICS
Natural gas volumes (in thousands
of decatherms)
Residential and commercial
sales 34,417 29,578 78,789 73,673
Industrial sales 2,494 3,185 8,519 9,850
Transportation for industrial
customers 13,729 17,609 55,689 55,720
Total deliveries 50,640 50,372 142,997 139,243
Natural gas revenues (per
decatherm) $3.93 $4.31 $4.11 $4.35
Residential and commercial 2.14 2.59 2.30 2.59
Industrial sales
Transportation for industria 0.11 0.10 0.11 0.10
customers
Heating degree days
Actual 2,596 2,217 5,426 5,200
Normal 2,743 2,743 5,801 5,801
Warmer than normal 5% 19% 6% 10%
Number of customers at end of
period 597,234 575,424
</TABLE>
Revenues, net of gas costs, increased $9,968,000 or 17% in the first
quarter and $15,894,000 or 10% in the 12 months ended March 31, 1996
when compared with the same periods in 1995. The increases resulted
from colder temperatures, the benefits of a rate case settlement
reached in the third quarter of 1995 and a 3.8% customer growth rate.
Temperatures in the first quarter of 1996 were 5% warmer than normal
but 17% colder than was reported in the first quarter of 1995.
Temperatures were 4% colder in the 12-month period ended March 31,
1996 when compared with the same period in the prior year.
The effect of the warmer-than-normal weather in 1996 was partially
offset by a weather-normalization adjustment. In addition, the rate
case settlement could add about $3.7 million in annual revenues from a
new-premises fee and the sharing of capacity-release credits.
Mountain Fuel's allowed return on rate base increased from 10.08% to
between 10.22% and 10.34%.
Volumes delivered to industrial customers decreased 22% in the first
quarter of 1996 when compared with the same quarter of 1995 due to an
abundance of low-cost hydroelectric power. Margins from gas delivered
to industrial customers are substantially lower than from gas sold to
residential and commercial customers.
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,
1996 1995 1996 1995
(Dollars in Thousands)
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $9,673 $10,859 $42,130 $42,684
From affiliates 22,095 18,706 77,428 74,739
Total revenues $31,768 $29,565 $119,558 $117,423
Operating income $13,071 $12,853 $52,155 $54,068
Net income 6,390 6,274 24,764 26,595
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Transportation
For unaffiliated customers 36,873 38,569 150,247 143,281
For Mountain Fuel 37,156 29,199 87,829 70,630
For other affiliated custo 4,598 6,226 37,211 42,304
Total transportation 78,627 73,994 275,287 256,215
Gathering
For unaffiliated customers 10,834 9,621 40,241 39,222
For Mountain Fuel 9,818 9,390 32,119 30,924
For other affiliated custo 1,916 1,280 6,585 10,280
Total gathering 22,568 20,291 78,945 80,426
Natural gas revenues (per decatherm)
Transportation $0.21 $0.21 $0.23 $0.24
Gathering 0.24 0.28 0.27 0.29
</TABLE>
Revenues were higher in the 1996 periods presented due to a rate
increase for transportation and storage activities. Questar Pipeline
filed for a rate increase July 31, 1995 that became effective on
February 1, 1996, subject to refund pending approval by the Federal
Energy Regulatory Commission (FERC). The proposed settlement includes
a stated return on equity of 11.75% and, could if approved, add about
$6 million to annual revenues. The Company has fully reserved for the
differences between the filed rates and the settlement rates. In
addition, the Company reported higher revenues from its expanded firm
gas-storage activities.
Volumes from gathering, now conducted by nonregulated subsidiary
Questar Gas Management Company, increased 11% in the first quarter of
1996 over the year earlier period. Revenues in the 1996 periods were
less than was reported in the prior year periods because of lower
reservation charges on Mountain Fuel's firm-gathering contract.
Questar Pipeline transferred approximately $55 million of
gas-gathering assets to Questar Gas Management Company, a wholly owned
subsidiary. The transfer was approved by the FERC February 28, 1996,
and was effective March 1, 1996. Questar Corporation (Questar), in
its continuing efforts to realign its operations into the two primary
functions of regulated services and nonregulated market resources,
plans to transfer Questar Gas Management Company to its market
resources group. Questar Pipeline currently intends to complete the
transfer by mid-1996.
Questar announced plans of becoming more of an energy-services company
that can operate effectively in the new energy market place. Mountain
Fuel and Questar Pipeline make up the regulated services group of
Questar. To improve efficiency and coordination, various financial,
technical, administrative and other support functions of these two
companies will be consolidated. The regulated services group also is
creating a new planning and business development area to focus on new
business opportunities in gas distribution, transmission and storage,
both foreign and domestic.
Consolidated Results of Operations --
Consolidated revenues increased in the first quarter of 1996 when
compared with the first quarter of 1995 due to increases in gas
marketing volumes sold and deliveries of gas to residential and
commercial customers for heating purposes, the benefits of a rate case
settlement by Mountain Fuel in the third quarter of 1995, and higher
gas production prices and quantities. Revenues were lower in the
12-month period ended March 31, 1996, when compared with the prior
year because of lower selling prices for gas produced and lower gas
distribution deliveries.
Natural gas purchases were lower in the 3- and 12-month periods of
1996 when compared with the same periods of 1995 primarily because of
lower natural gas purchase prices.
Operating and maintenance expenses were 6% higher in the first quarter
of 1996 and 2% higher in the 12 months ended March 31, 1996, when
compared with the same periods in the prior year. The increases
resulted from inflation, some one-time expenses from gas transmission
operations related to the gathering division spin down and rate case,
and an increase in the number of distribution customers.
Depreciation and amortization increased in the periods ended March 31,
1996, because of increased investment in property, plant and equipment
by all lines of business and the effect of reserve adjustments on
depreciation expenses for some cost-of-service gas properties. The
first quarter full cost amortization rate was $.78 per equivalent Mcf
in 1996, down from $.80 in the prior year period. Other taxes were
lower in the 12-months ended March 31, 1996 as a result of shutting in
gas production for half of 1995.
Interest and other income was higher in the first quarter of 1996
because of a $1,765,000 pretax gain from the sales of securities and a
$340,000 pretax gain from selling real estate. The increase in
interest and other income for the 12-months ended March 31, 1996 was
due primarily to gains from selling Nextel and other securities,
settlement of gas contracts and equity earnings of unconsolidated
affililates.
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.
The effective income tax rate for the first quarter was 35.9 % in 1996
and 33.7% in 1995. The Company recognized $2,106,000 of tight-sands
gas production tax credits in the 1996 period and $2,155,000 in the
1995 period.
Liquidity and Capital Resources --
Operating Activities:
Net cash provided from operating activities was $67,890,000 for the
first quarter of 1996, compared with $82,677,000 for the same period
of 1995. A refund of gas costs in the first quarter of 1996 and lower
gas purchase costs collected in rates from gas distribution customers
resulted in a decrease in net cash flow from operating activities.
Investing Activities:
Capital expenditures were $13,141,000 in the first three months of
1996, compared with $17,615,000 in the same period a year ago.
Proceeds from the sales of securities of $4,422,000 primarily resulted
from selling shares of Nextel Communications. A comparison of capital
expenditures for the first three months of 1996 and 1995 plus an
estimate for the calendar year 1996 are as follows:
<TABLE>
<CAPTION>
Estimate
Actual 12 Months
Three Months Ended Ended
March 31, Dec. 31,
1996 1995 1996
(In Thousands)
<S> <C> <C> <C>
Exploration and production $3,343 $6,781 $88,700
Natural gas distribution 3,837 6,843 55,000
Natural gas transmission 2,537 3,171 40,900
Other operations 3,424 820 50,200
$13,141 $17,615 $234,800
</TABLE>
Financing Activities:
Net cash used in financing activities was $64,539,000 in the first
quarter of 1996 and $74,601,000 in the same period of 1995. Net cash
flow from operating activities provided for repayment of short-term
and long-term debt and payment of dividends.
Commercial paper borrowings were $17,200,000 and short-term debt was
$10,000,000 at March 31, 1996. The Company had the capacity at March
31, 1996, to borrow an additional $117,800,000 under commercial paper
agreements. That capacity declined to $82,800,000 at April 1, 1996,
to match seasonal cash flow requirements. Questar and its affiliated
companies had the capacity to borrow an additional $10,700,000 through
short-term credit lines and $84,000,000 under long-term credit lines
with banks.
Questar plans to finance 1996 capital expenditures with cash flow from
operations, bank borrowings, and proceeds from its dividend
reinvestment plan. In addition, Questar plans to sell up to one third
of its investment in Nextel common stock to fund capital expenditures.
PART II
OTHER INFORMATION
Item 5. Other Information.
Questar Corporation (Questar or the Company) has announced
additional details of its reorganization into two primary lines of
business regulated services and market resources. The Company's
regulated services segment, which is under the direction of D. N. Rose,
Executive Vice President, includes Mountain Fuel Supply Company (retail
distribution) and Questar Pipeline Company (interstate transmission and
storage). Some administrative functions will be integrated between
these two regulated entities. Questar's second segment market
resources is under the leadership of G. L. Nordloh, Executive Vice
President. It includes the Company's three exploration and production
companies and new entities to handle energy trading and nonregulated
energy services. The market resources group will also include Questar
Gas Management Company, currently a wholly-owned subsidiary of Questar
Pipeline that is engaged in gathering and field service activities.
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 13, 1996 /s/ R. D. Cash
(Date) R. D. Cash
Chairman of the Board,
President and Chief
Executive Officer
May 13, 1996 /s/ S. E. Parks
(Date) S. E. Parks
Vice President, Treasurer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summarized financial information extracted
from the Questar Corporation Statements of Income and Balance Sheets for
the period ended March 31, 1996, 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-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 144,049
<ALLOWANCES> 0
<INVENTORY> 11,867
<CURRENT-ASSETS> 166,212
<PP&E> 2,341,157
<DEPRECIATION> 1,045,206
<TOTAL-ASSETS> 1,576,000
<CURRENT-LIABILITIES> 187,493
<BONDS> 411,700
4,957
0
<COMMON> 285,292
<OTHER-SE> 460,703
<TOTAL-LIABILITY-AND-EQUITY> 1,576,000
<SALES> 0
<TOTAL-REVENUES> 225,723
<CGS> 0
<TOTAL-COSTS> 129,646
<OTHER-EXPENSES> 35,016
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,125
<INCOME-PRETAX> 53,972
<INCOME-TAX> 19,376
<INCOME-CONTINUING> 34,596
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,596
<EPS-PRIMARY> .85
<EPS-DILUTED> .85
</TABLE>
