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
JUNE 30, 1997
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 100 South, Salt Lake City, Utah 84145-0433
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 324-5000
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 June 30, 1997
Common Stock, without par value 41,116,506 shares
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1997 1996 1997 1996 1997 1996
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $151,453 $148,968 $509,831 $374,691 $953,121 $669,477
OPERATING EXPENSES
Natural gas and other
product purchases 37,548 43,178 226,980 123,646 417,605 202,918
Operating and maintenance 51,349 48,036 105,427 97,214 204,602 184,734
Depreciation and amortization 29,674 24,474 59,518 50,195 114,532 97,254
Other taxes 9,434 8,111 22,536 17,406 35,619 31,631
TOTAL OPERATING EXPENSES 128,005 123,799 414,461 288,461 772,358 516,537
OPERATING INCOME 23,448 25,169 95,370 86,230 180,763 152,940
INTEREST AND OTHER INCOME 4,811 5,911 6,659 9,947 9,679 21,224
DEBT EXPENSE (10,599) (9,195) (21,486) (20,320) (42,249) (41,053)
INCOME BEFORE INCOME TAXES 17,660 21,885 80,543 75,857 148,193 133,111
INCOME TAXES 4,053 5,817 25,962 25,193 46,131 40,296
NET INCOME $13,607 $16,068 $54,581 $50,664 $102,062 $92,815
Earnings per common share $0.32 $0.39 $1.32 $1.24 $2.47 $2.27
Dividends per common share $0.305 $0.295 $0.61 $0.59 $1.21 $1.18
Average common shares outstanding 41,088 40,789 41,067 40,753 40,993 40,690
</TABLE>
See notes to consolidated financial statements.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1996
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $5,703
Accounts receivable $108,729 $105,072 178,456
Inventories 17,508 17,825 22,343
Purchased-gas adjustments 48,866 24,210
Other current assets 12,216 10,219 13,555
Total current assets 187,319 133,116 244,267
Property, plant and equipment 2,631,139 2,352,497 2,574,980
Less allowances for depreciation and
amortization 1,156,602 1,061,996 1,097,644
Net property, plant and equipment 1,474,537 1,290,501 1,477,336
Securities available for resale,
approximates fair value 49,350 59,177 38,612
Other assets 52,789 47,339 56,010
$1,763,995 $1,530,133 $1,816,225
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $174 $4,287
Short-term loans 44,100 10,000 $77,800
Accounts payable and accrued expenses 123,602 100,620 161,811
Purchased-gas adjustments 1,559
Current portion of long-term debt 10,742 23,704 4,705
Total current liabilities 178,618 140,170 244,316
Long-term debt, less current portion 520,116 404,004 555,509
Other liabilities 35,340 35,197 35,433
Deferred income taxes and investment
tax credits 213,381 195,305 204,054
Redeemable cumulative preferred stock 4,808 4,954 4,828
Common shareholders' equity
Common stock 293,947 286,880 292,613
Retained earnings 517,281 464,897 487,799
Note receivable from ESOP (15,556) (20,550) (15,556)
Unrealized gain on securities available
for resale, net of income taxes 16,134 19,276 7,410
Foreign currency translation adjustment (74) (181)
Total common shareholders' equity 811,732 750,503 772,085
$1,763,995 $1,530,133 $1,816,225
</TABLE>
See notes to consolidated financial statements.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
6 Months Ended
June 30,
1997 1996
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $54,581 $50,664
Depreciation and amortization 61,879 52,466
Deferred income taxes and
investment tax credits 3,924 2,807
Gain from the sales of securities (3,060) (4,957)
117,324 100,980
Changes in operating assets and liabilities 19,524 13,439
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 136,848 114,419
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant and equipment (62,755) (38,758)
Other investments (3,253) (1,223)
Total capital expenditures (66,008) (39,981)
Proceeds from disposition of property,
plant and equipment 3,675 6,062
Proceeds from the sales of securities 6,449 10,544
NET CASH USED IN INVESTING
ACTIVITIES (55,884) (23,375)
FINANCING ACTIVITIES
Issuance of common stock 5,776 4,108
Common stock repurchased (4,442) (1,004)
Redemption of preferred stock (20) (3)
Issuance of long-term debt 68,722 12,000
Repayment of long-term debt (98,078) (24,991)
Decrease in short-term loans (33,700) (67,200)
Checks outstanding in excess of cash balances 174 4,287
Payment of dividends (25,244) (24,245)
Other 145 882
NET CASH USED IN FINANCING
ACTIVITIES (86,667) (96,166)
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($5,703) ($5,122)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(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- and six-month
period ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997.
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, 1996.
Note 2 - Redemption of Preferred Stock
Mountain Fuel, a wholly owned subsidiary, redeemed its 8% series of
preferred stock July 1, 1997, at a redemption price equal to 101% of
the principal amount. Mountain Fuel had 48,081 shares outstanding
with a par value of $4,808,000 at the time of the transaction.
Note 3 - Financing
Mountain Fuel, a wholly owned subsidiary, filed a registration
statement with the Securities and Exchange Commission for the
issuance of up to $75 million in medium-term notes. The registration
statement became effective July 23, 1997. In August,
Mountain Fuel issued $25 million of notes maturing August 6, 2012
with an average coupon rate of 6.91%. Mountain Fuel intends to use
the net proceeds from the sale of the notes to finance a portion of
its capital expenditures and repay a portion of its short-term debt.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
QUESTAR CORPORATION AND SUBSIDIARIES
June 30, 1997
(Unaudited)
Results of Operations
Market Resources Operations
Celsius Energy (US and Canada), Universal Resources, Wexpro, Questar
Gas Management, Questar Energy Trading, and Questar Energy Services
(Market Resources group) conduct the Company's exploration and
production, gas gathering and processing, and energy marketing
operations. Following is a summary of financial results and operating
information.
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1997 1996 1997 1996 1997 1996
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated
customers $79,607 $80,115 $254,145 $152,824 $509,526 $275,576
From affiliates 16,392 15,615 44,166 37,284 82,760 78,257
Total revenues $95,999 $95,730 $298,311 $190,108 $592,286 $353,833
Operating income $11,980 $13,229 $29,472 $27,976 $65,836 $53,343
Net income $8,358 $8,912 $20,004 $18,168 $43,598 $35,015
OPERATING STATISTICS
Production volumes
Natural gas (in million
cubic feet) 11,864 9,188 23,638 18,333 45,824 33,287
Oil and natural gas liquids
(in thousands of
barrels) 748 567 1,514 1,139 2,877 2,315
Production revenue
Natural gas (per thousand
cubic feet) $1.60 $1.43 $1.79 $1.50 $1.68 $1.40
Oil and natural gas liquids
(per barrel) $18.46 $18.43 $19.46 $17.43 $19.69 $16.65
Marketing volumes
Gas marketing volumes (in
thousands of
decatherms) 26,369 26,546 65,565 56,221 150,758 117,016
Oil (in thousands of
barrels) 394 371 867 719 1,619 719
Electricity (in thousands of
megawatt hours) 189 531 735
Natural gas gathering volumes (in
thousands of decatherms)
For unaffiliated
customers 12,613 9,725 26,932 20,559 54,898 39,840
For Mountain Fuel 6,116 4,555 15,402 14,373 31,228 29,204
For other affiliated
customers 5,172 2,485 9,345 4,401 13,738 7,255
Total gathering 23,901 16,765 51,679 39,333 99,864 76,299
Gathering revenue (per
decatherm) $0.23 $0.29 $0.23 $0.26 $0.23 $0.27
</TABLE>
Net income for the Market Resources group of $8,358,000 in the second
quarter of 1997 was 6% less than net income reported for the second
quarter of 1996. Improved results from exploration and production
activities were more than offset by losses experienced by
energy-marketing and retail energy-services activities and lower income
from development drilling under the Wexpro settlement agreement.
Energy-marketing activities reported a $156,000 loss in the second
quarter due to increased competition and smaller margins.
Energy-marketing activities reported a $945,000 loss in the first half
of 1997. The retail-energy services activity incurred a $309,000 loss
in the second quarter and a first half loss of $457,000 in 1997 due to
development costs associated with new customer programs.
Market Resource's revenues were higher in the 6- and 12-month periods
of 1997 when compared with the 1996 periods primarily as a result of
increased gas and oil prices and production, and energy marketing.
Gas production increased 29% in both the second quarter and first half
of 1997 when compared with the same periods of 1996. Oil and
natural-gas liquids production was up 32% in the second quarter and 33%
in the first half of 1997. The higher production reflected two reserve
acquisitions completed in the third quarter of 1996 in Texas, Oklahoma
and Louisiana, and in the Alberta, Canada region.
Energy prices improved in 1997. Gas prices were up 12% in the second
quarter of 1997 and 19% in the first half of 1997 when compared with
the same periods in 1996. Oil and natural-gas liquids prices were flat
in the second quarter, but 12% higher in the first half. Market
Resources hedged the prices of approximately 45% of its equity-gas
production at an average price of $1.70 per Mcf in the second quarter
of 1997. The portion of production hedged is expected to remain level
in the third quarter and then drop to 24% in the fourth quarter.
Approximately 64% of equity-oil production, excluding Wexpro, was
hedged at an average price of $18.13 per bbl in the second quarter of
1996. The amount of oil that is hedged is expected to remain level in
the third quarter and decline to 6% in the fourth quarter. Hedge
prices and the portion of production that is hedged assume realization
of floor prices on the collars, net revenue interest at the wellhead
and existing production.
Exploration and production activities have increased in the Rocky
Mountain area as described in the following three areas of particular
interest. Questar subsidiaries, Celsius Energy Company and Wexpro
Company, participated in a recently completed horizontal well in the
Brady (Deep) Unit. The Brady Unit No. 41-P-H was drilled to a depth of
17,570 feet in the Phosphoria formation. Initial tests indicate a
potential production of 18 million cubic feet of gas and 2,600 barrels
of oil per day. The gas contains 2% hydrogen sulfide. Wexpro has a
40.35% interest in the well and Celsius has a 9.65% interest. Celsius
has entered into an agreement to acquire 9-10% working interest in all
formations covered by the Brady (Deep) Unit and in a processing plant.
A joint venture Vermillion Basin deep well drilled with Marathon Oil
Company began production July 29. The well has an initial production
rate potential of 11.8 million cubic feet of gas per day. Celsius
purchased Amoco's undeveloped acreage in the Moxa Arch area and has
commenced a multi-well joint exploration program with North American
Resources Company. The first well has an initial production rate of 1.8
million cubic feet of gas per day.
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 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1997 1996 1997 1996 1997 1996
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated
customers $62,632 $57,064 $236,854 $201,631 $404,128 $354,582
From affiliates 691 863 1,782 1,199 3,606 2,906
Total revenues 63,323 57,927 238,636 202,830 407,734 357,488
Natural gas purchases 29,669 25,144 126,880 100,609 208,671 175,940
Revenues less natural
gas purchases $33,654 $32,783 $111,756 $102,221 $199,063 $181,548
Operating income (loss) ($2,063) ($537) $37,959 $33,260 $60,737 $51,691
Net income (loss) ($2,603) ($617) $19,706 $18,234 $30,460 $28,689
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Residential and commercial
sales 12,157 11,991 48,562 46,408 82,998 76,845
Industrial sales 2,104 1,858 5,006 4,352 9,238 8,309
Transportation for industrial
customers 11,625 11,046 24,577 24,775 49,301 52,783
Total deliveries 25,886 24,895 78,145 75,535 141,537 137,937
Natural gas revenue (per decatherm)
Residential and commercial
sales $4.31 $3.93 $4.43 $3.93 $4.36 $4.10
Industrial sales 2.30 2.14 2.34 2.14 2.25 2.21
Transportation for industrial
customers 0.12 0.13 0.13 0.12 0.12 0.11
Heating degree days
Actual 678 617 3,133 3,213 5,227 5,148
Normal 741 741 3,484 3,484 5,801 5,801
Warmer than normal 9% 17% 10% 8% 10% 11%
Number of customers at
June 30 621,647 597,143
</TABLE>
Mountain Fuel reported a $2,603,000 net loss in the second quarter of
1997, an increase from a $617,000 loss in the second quarter of 1996.
The 1996 second quarter loss was reduced by a $1.2 million before-tax
gain from the sale of facilities. Mountain Fuel's net income for the
first half of 1997 was 8% higher than was reported for the first half
of 1996.
Revenues, less natural gas purchases, were $871,000 higher in the
second quarter of 1997 and $9,535,000 higher in the 6-month period
ended June 30, 1997 when compared with the respective periods in 1996.
The higher net revenues resulted from an increase in the number of
customers served and the effect of a weather-normalization adjustment
mechanism.
The number of customers served reached 621,647 at June 30, 1997. This
represents a 4.1% increase from a year earlier. Temperature adjusted
usage per customer was slightly higher in the 12-month period ended
June 30, 1997 when compared with the same period a year ago.
Temperatures, as measured in degree days, were warmer than normal in
the 1997 periods. However, Mountain Fuel's rates include a
weather-normalization adjustment that reduces the revenue impact of
weather fluctuations. Virtually all of Mountain Fuel's residential and
commercial volumes were covered under the weather-normalization
adjustment in the first half of 1997 compared with about 50% of these
volumes in the first half of 1996.
Mountain Fuel agreed to a negotiated annual rate reduction of $2.85
million of revenues in Utah that went into effect February 18, 1997.
The rate reduction decreased block rates, eliminated the new-premises
fee for multifamily dwellings and reduced the capacity-release revenues
retained by Mountain Fuel from 20% to 10%.
In other rate matters, Mountain Fuel currently intends to file a
gas-merchant unbundling proposal in Wyoming during 1997. Under this
proposal, a transportation service option would be extended to
residential and commercial customers as well as industrial customers.
Customers choosing transportation service would be allowed to secure
gas supplies directly from producers and marketers and pay Mountain Fuel
a fee for transportation services. Mountain Fuel will continue to
offer a traditional bundled service as well. Mountain Fuel expects that
the option of unbundled service in Wyoming, in its anticipated form,
will not have a material effect on earnings. Mountain Fuel will
maintain its current structure in Utah until competition or
opportunities require change. At June 30, 1997, Mountain Fuel served
21,147 customers in the state of Wyoming representing 3% of the total
number of customers served by it.
Volumes delivered to industrial customers increased 6% in the second
quarter of 1997 and were 2% higher in the first half of 1997 when
compared with the same periods of 1996 due to increased deliveries for
electric generation and metals refining. Margins from gas delivered to
industrial customers are substantially lower than from gas sold to
residential and commercial customers.
Mountain Fuel's natural gas purchases were higher in the 3-, 6- and
12-month periods of 1997 when compared with the same periods of 1996
due to the increase in volumes sold and a higher natural gas purchase
cost allowed in rates. Mountain Fuel's Utah rates include the recovery
of gas cost which amounted to $1.54 per decatherm (dth) in 1997
compared with $1.04 per dth in 1996. The higher gas purchase cost
reflects a combination of events. Natural gas prices increased sharply
during the 1996-1997 winter heating season and Mountain Fuel is
projecting that less low-cost gas will be supplied from utility-owned
reserves in the future.
The Public Service Commission of Utah (PSCU) approved on an interim
basis a $35.2 million annual increase in Utah natural gas rates to be
effective July 1, 1997 to allow recovery of purchased-gas costs. The
Public Service Commission of Wyoming approved a $1.8 million annual
increase also effective July 1, 1997. Mountain Fuel has a purchased-gas
cost adjustment mechanism whereby purchased-gas costs that are
different from those provided for in present rates are accumulated and
recovered or credited through future rate changes. Mountain Fuel
routinely files for adjustment of purchased-gas costs with Utah and
Wyoming on a semiannual basis.
The PSCU approved a purchased gas-cost recovery application on an
interim basis, effective January 1, 1996. In connection with the
application and pass-through cases filed since then, the Utah Division
of Public Utilities (Division) has raised issues about the
reasonableness of gas-gathering costs for field-purchased gas gathered
by Questar Gas Management. The Division has not yet formally requested
the PSCU to disallow any portion of gas gathering costs, but has
advised Mountain Fuel that the amount in question is approximately $6
million. Management believes that its gathering costs are
reasonable and in compliance with contract terms and applicable laws.
Mountain Fuel and the Division are engaged in discussions to resolve
gathering cost issues. Mountain Fuel cannot predict the resolution of
this dispute or any financial impact of such resolution on its balance
sheet, income statement, or cash flows at the current time.
A January 1997 application for pass through of gas costs was
also approved on an interim basis.
Natural Gas Transmission
Questar Pipeline conducts the Company's natural gas transmission and
storage operations. Following is a summary of financial results and
operating information.
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1997 1996 1997 1996 1997 1996
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated
customers $8,732 $11,360 $17,863 $19,447 $37,253 $37,700
From affiliates 17,175 14,366 34,765 32,355 67,751 61,192
Total revenues $25,907 $25,726 $52,628 $51,802 $105,004 $98,892
Operating income $11,992 $12,076 $25,457 $23,471 $49,480 $46,083
Net income $5,460 $5,535 $11,782 $10,786 $23,639 $21,669
OPERATING STATISTICS
Natural gas transportation volumes (in
thousands of decatherms)
From unaffiliated
customers 27,633 36,158 60,936 73,031 119,800 147,427
For Mountain Fuel 26,011 16,426 68,275 53,582 114,854 88,702
For other affiliated
customers 10,993 10,271 17,809 14,869 47,267 37,349
Total transportation 64,637 62,855 147,020 141,482 281,921 273,478
Transportation revenue (per
decatherm) $0.26 $0.28 $0.23 $0.24 $0.23 $0.24
</TABLE>
Revenues were higher in the 6- and 12-month periods of 1997 due
primarily to a rate increase, which became effective on February 1,
1996.
On May 9, 1997, the Federal Energy Regulatory Commission (FERC) issued
an "Order Instituting Proceeding" in Docket No. IN97-1, in which it
alleges that Questar Pipeline had overcharged its affiliated company,
Mountain Fuel, for gathering services provided from November 1988
through September 1992. The FERC order states that Questar Pipeline
may have violated the Natural Gas Act by charging Mountain Fuel rates
different from those rates specified in the tariff. The FERC is
ordering Questar Pipeline to show why the allegations are incorrect and
why it should not refund the alleged overcharge of $3.4 million plus
interest to Mountain Fuel. Questar Pipeline believes that it did not
overcharge Mountain Fuel. Questar Pipeline also believes that its
actions were fully justified and in full compliance with applicable law
and FERC orders, based on its understanding of the issues dealing with
jurisdiction over gathering during the period in question. Management
does not believe the ultimate outcome of this order will have a
material impact on results of operations, financial position or
liquidity.
Consolidated Results of Operations
Consolidated revenues were higher in the 6- and 12-month periods ended
June 30, 1997 when compared with the same periods of 1996 due primarily
to increased gas and oil prices and production, energy-marketing
activities, and natural gas distribution deliveries. Consolidated
revenues were higher in the second quarter of 1997 when compared with
the second quarter of 1996 as a result of increased gas and oil prices
and production, and natural gas distribution deliveries.
The expense for natural gas and other product purchases was higher in
the 6- and 12- month periods of 1997 due primarily to an increase in
the level of energy-marketing activities and the gas cost component
included in natural gas distribution rates. Gas marketing volumes were
17% higher in the first half and 29% higher in the 12-month period
ended June 30, 1997 when compared with the 1996 periods. The gas cost
included in distribution rates has increased from $1.04 per dth a year
ago to $1.54 per dth in the first half of 1997.
Operating and maintenance expenses were higher for the 1997 periods
when compared with the same periods in the prior year. The increases
resulted from the higher costs associated with serving a growing number
of distribution customers and the added operations of recently acquired
gas and oil properties. The Regulated Services group's
cost-containment efforts, including the combination of shared services,
have somewhat mitigated the escalation of operating expenses.
Depreciation expenses were higher for the 1997 periods when compared to
the 1996 periods because of increased gas and oil production and
investment in property, plant and equipment. The combined full cost
amortization rate for the U. S. and Canada was $.85 per equivalent Mcf
for the first half of 1997 compared with $.78 per Mcfe in the first
half of 1996. Other taxes, primarily production-related, were higher
in the 1997 periods because of increased production volumes and higher
prices.
Interest and other income was lower in the 1997 periods due primarily
to the sale of fewer shares of Nextel in the 1997 periods and a $1.2
million pre-tax gain from the sale of excess property by Mountain Fuel
in the second quarter of 1996.
The effective income tax rate for the first half was 32.2% in 1997 and
33.2% in 1996. The Company recognized $4,458,000 of gas production tax
credits and $459,000 of Alberta Royalty tax credits in the 1997 period
and $4,483,000 of tax credits in the 1996 period.
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." This new standard requires dual presentation of basic and
diluted earnings per share (EPS) on the face of the income statement
and requires a reconciliation of the numerators and denominators of the
basic and diluted EPS calculation. The Company's current EPS
calculation conforms to basic EPS. Diluted EPS will not be materially
different from basic EPS since potential common shares in the form of
stock options are not materially dilutive. This statement will be
effective for the Company's 1997 annual report. Early adoption of the
standard is prohibited.
Liquidity and Capital Resources
Operating Activities
Net cash flow provided from operating activities of $136,848,000 in the
first half of 1997 was $22,429,000 higher than was reported in the
first half of 1996. The increase in cash flow resulted primarily from
higher net income, including non-cash expenses, and changes in
operating assets and liabilities. A decrease in the balance of
accounts receivables was the primary source of cash from changes in
operating assets and liabilities and more than offset cash used to
reduce accounts payable. These changes reflected the seasonal nature of
energy-marketing and retail natural gas sales.
Investing Activities
Capital expenditures were $66,008,000 for the first half of 1997, up
$26,027,000 from the $39,981,000 reported for the same period a year
ago. Proceeds from the sale of Nextel related securities amounted to
$6,449,000 in 1997 and $10,544,000 in 1996. A comparison of capital
expenditures by line of business for the first half of 1997 and 1996
plus an estimate for calendar year 1997 are as follows:
<TABLE>
<CAPTION>
Estimate
Actual 12 Months
Six Months Ended Ended
June 30, Dec. 31,
1997 1996 1997
(In Thousands)
<S> <C> <C> <C>
Capital Expenditures
Market Resources $31,057 $9,881 $131,300
Regulated Services
Natural gas distribution 20,985 15,969 61,700
Natural gas transmission 4,277 5,745 48,500
Total Regulated Services 25,262 21,714 110,200
Other operations 9,689 8,386 31,300
$66,008 $39,981 $272,800
</TABLE>
Financing Activities
For the first six months of 1997 short-term debt decreased $33,700,000
and long-term debt decreased $29,356,000 as a result of using net cash
provided from operations to repay debt and to fund capital
expenditures. The Company intends to finance forecasted 1997 capital
expenditures through net cash provided from operating activities, bank
borrowings and issuing long-term debt. Questar announced the
commencement of a stock buyback program in April 1997 and has
repurchased $3.1 million worth of Questar shares through June 30,
1997. The Company may purchase up to $60 million of stock on the open
market or in privately negotiated transactions over the next two years.
Commercial paper borrowings amounted to $44,100,000 at June 30, 1997.
Short-term bank borrowings were $10,000,000 at June 30, 1996.
Short-term bank lines of credit serve as backup to borrowings made
under the commercial paper program. The Company's lines of credit
borrowing capacity was $100,000,000 at June 30, 1997. Questar finalized
two long-term debt arrangements in the first quarter of 1997; both of
which were substantially complete at December 31, 1996. The borrowing
capacity of the revolving-credit loan agreement for the Market
Resources group was increased from $130 million to $200 million. In
addition, a subsidiary of Questar issued a $31 million, 7.11% senior
note due 2012 that is secured with an office building.
This 10-Q contains forward-looking statements about the future
operations and expectations of Questar Corporation and its
subsidiaries. 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 4. Submission of Matters to Vote of Security Holders.
Questar Corporation (Questar or the Company) held its annual
meeting on May 20, 1997. Four incumbent directors - U. Edwin Garrison,
W. Whitley Hawkins, Robert E. Kadlec, and Harris H. Simmons - were
elected to serve three-year terms. The following chart lists the name
of each director nominated and elected, the number of votes cast in
favor of his election, and the number of votes withheld from his
election:
Name Votes Cast in Favor Votes Withheld
U. Edwin Garrison 34,369,792 1,575,863
W. Whitley Hawkins 34,412,276 1,533,379
Robert E. Kadlec 34,384,943 1,560,712
Harris H. Simmons 34,379,238 1,566,417
Item 5. Other Information.
a. On May 20, 1997, the Company's Board of Directors appointed
Marilyn S. Kite, age 49, to serve as a director to fill a vacancy in the
Board. Ms. Kite is a partner in the law firm of Holland & Hart in
Jackson, Wyoming.
b. Mr. James A. Harmon, age 61, resigned effective June 18, 1997
as a director of Questar. Mr. Harmon has served as a director of the
Company (or Mountain Fuel Supply Company) since August of 1976. He
resigned as a director to serve as Chairman of the Export-Import Bank in
President Clinton's administration.
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)
August 13, 1997 /s/R. D. Cash
(Date) R. D. Cash
Chairman of the Board, President and
Chief Executive Officer
August 13, 1997 /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 Consolidated Statements of Income and Balance
Sheet for the period ended June 30, 1997, and is qualified in its entirety
by reference to such unaudited financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 108,729
<ALLOWANCES> 0
<INVENTORY> 17,508
<CURRENT-ASSETS> 187,319
<PP&E> 2,631,139
<DEPRECIATION> 1,156,602
<TOTAL-ASSETS> 1,763,995
<CURRENT-LIABILITIES> 178,618
<BONDS> 520,116
4,808
0
<COMMON> 293,947
<OTHER-SE> 517,785
<TOTAL-LIABILITY-AND-EQUITY> 1,763,995
<SALES> 0
<TOTAL-REVENUES> 509,831
<CGS> 0
<TOTAL-COSTS> 332,407
<OTHER-EXPENSES> 82,054
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,486
<INCOME-PRETAX> 80,543
<INCOME-TAX> 25,962
<INCOME-CONTINUING> 54,581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,581
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
</TABLE>
