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
SEPTEMBER 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 September 30, 1997
Common Stock, without par value 41,103,841 shares
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
1997 1996 1997 1996 1997 1996
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $138,632 $156,469 $648,463 $531,160 $935,284 $714,024
OPERATING EXPENSES
Natural gas and other
product purchases 35,665 54,896 262,645 178,542 398,374 234,023
Operating and maintenance 48,025 46,392 153,452 143,606 206,235 187,880
Depreciation and amortization 28,292 25,033 87,810 75,228 117,791 100,086
Other taxes 6,308 6,880 28,844 24,286 35,047 31,960
TOTAL OPERATING EXPENSES 118,290 133,201 532,751 421,662 757,447 553,949
OPERATING INCOME 20,342 23,268 115,712 109,498 177,837 160,075
INTEREST AND OTHER INCOME 11,709 2,372 18,368 12,319 19,016 15,023
DEBT EXPENSE (10,676) (9,206) (32,162) (29,526) (43,719) (39,910)
INCOME BEFORE INCOME TAXES 21,375 16,434 101,918 92,291 153,134 135,188
INCOME TAXES 5,649 3,647 31,611 28,840 48,133 41,526
NET INCOME $15,726 $12,787 $70,307 $63,451 $105,001 $93,662
Earnings per common share $0.39 $0.31 $1.71 $1.55 $2.55 $2.29
Dividends per common share $0.315 $0.295 $0.925 $0.885 $1.23 $1.18
Average common shares outstanding 41,127 40,860 41,089 40,787 41,027 40,728
</TABLE>
See notes to consolidated financial statements.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1996
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $1,723 $5,703
Accounts receivable 101,879 $93,975 178,456
Inventories 28,673 24,256 22,343
Purchased-gas adjustments 59,487 13,206 24,210
Other current assets 13,390 11,381 13,555
Total current assets 205,152 142,818 244,267
Property, plant and equipment 2,678,787 2,545,641 2,574,980
Less allowances for depreciation and
amortization 1,186,013 1,086,321 1,097,644
Net property, plant and equipment 1,492,774 1,459,320 1,477,336
Securities available for resale,
approximates fair value 63,552 54,685 38,612
Other assets 67,408 50,302 56,010
$1,828,886 $1,707,125 $1,816,225
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $4,629
Short-term loans $70,700 137,800 $77,800
Accounts payable and accrued expenses 134,164 83,276 161,811
Current portion of long-term debt 6,068 4,704 4,705
Total current liabilities 210,932 230,409 244,316
Long-term debt, less current portion 526,727 474,006 555,509
Other liabilities 34,164 38,768 35,433
Deferred income taxes and investment
tax credits 227,649 202,322 204,054
Redeemable cumulative preferred stock 4,840 4,828
Common shareholders' equity
Common stock 292,884 289,368 292,613
Retained earnings 520,044 465,614 487,799
Note receivable from ESOP (10,856) (16,000) (15,556)
Unrealized gain on securities available
for resale, net of income taxes 27,416 17,335 7,410
Foreign currency translation adjustment (74) 463 (181)
Total common shareholders' equity 829,414 756,780 772,085
$1,828,886 $1,707,125 $1,816,225
</TABLE>
See notes to consolidated financial statements.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
9 Months Ended
September 30,
1997 1996
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $70,307 $63,451
Depreciation and amortization 91,218 78,926
Deferred income taxes and
investment tax credits 9,199 11,027
Gain from the sales of securities (8,257) (6,265)
162,467 147,139
Changes in operating assets and liabilities 7,399 (11,123)
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 169,866 136,016
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant and equipment (114,706) (235,916)
Other investments (7,719) (4,197)
Total capital expenditures (122,425) (240,113)
Proceeds from disposition of property,
plant and equipment 4,894 7,941
Proceeds from the sales of securities 15,714 13,202
NET CASH USED IN INVESTING
ACTIVITIES (101,817) (218,970)
FINANCING ACTIVITIES
Issuance of common stock 8,818 6,814
Common stock repurchased (8,547) (1,222)
Redemption of preferred stock (4,876) (117)
Issuance of long-term debt 42,000 97,000
Repayment of long-term debt (69,419) (58,989)
Increase (decrease) in short-term loans (7,100) 60,600
Checks outstanding in excess of cash balances 4,629
Payment of dividends (38,213) (36,391)
Other 5,308 5,508
NET CASH (USED IN) PROVIDED FROM
FINANCING ACTIVITIES (72,029) 77,832
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($3,980) ($5,122)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 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
nine-month periods ended September 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 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.
Mountain Fuel issued $32 million of notes in the third
quarter of 1997 and an additional $18 million in October
1997. The notes have a weighted average coupon rate of
6.88% and a weighted average maturity of 16.5 years.
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
September 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 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
1997 1996 1997 1996 1997 1996
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated
customers $81,837 $104,896 $335,982 $257,720 $486,467 $316,356
From affiliates 12,484 15,581 56,650 52,865 79,663 76,114
Total revenues $94,321 $120,477 $392,632 $310,585 $566,130 $392,470
Operating income $13,049 $14,544 $42,521 $42,520 $64,341 $56,128
Net income $8,947 $9,651 $28,951 $27,819 $42,894 $35,610
OPERATING STATISTICS
Production volumes
Natural gas (in million
cubic feet) 11,440 9,998 35,078 28,331 47,266 36,256
Oil and natural gas liquids (in
thousands of barrels) 750 625 2,264 1,764 3,002 2,350
Production revenue
Natural gas (per thousand
cubic feet) $1.76 $1.49 $1.78 $1.50 $1.73 $1.46
Oil and natural gas liquids
(per barrel) $16.69 $18.17 $18.54 $17.69 $19.26 $17.27
Marketing volumes
Gas marketing volumes (in
thousands of decatherms) 21,185 37,819 86,750 94,040 134,124 122,452
Oil (in thousands
of barrels) 399 417 1,266 1,136 1,601 1,136
Electricity (in thousands of
megawatt hours) - 28 531 28 707 28
Natural gas gathering volumes (in
thousands of decatherms)
For unaffiliated customers 14,859 13,821 41,791 34,380 55,936 43,592
For Mountain Fuel 4,398 5,845 19,800 20,218 29,781 29,966
For other affiliated
customers 4,009 2,031 13,354 6,432 15,716 8,113
Total gathering 23,266 21,697 74,945 61,030 101,433 81,671
Gathering revenue (per
decatherm) $0.22 $0.25 $0.22 $0.25 $0.22 $0.25
</TABLE>
Net income for the Market Resources group of $8,947,000 for the
third quarter of 1997 was 7% less than net income reported for
the third quarter of 1996. An increase in earnings reported
from exploration and production activities was more than offset
by declines in gas-gathering, gas-development properties,
energy-trading and retail energy-services. Gas-gathering
activities reported a 75% drop in earnings as the result of
reduced margins from a contract with affiliated company,
Mountain Fuel, and a one-time pre-tax charge of $450,000 related
to an early retirement program. Annual revenues could decrease
approximately $5 million due to the contract changes. Income
from investment activities under the Wexpro settlement agreement
was lower in 1997 reflecting a declining investment base.
Energy-trading activities reported a 52% decrease in third
quarter due to increased competition and smaller margins. The
retail-energy services activity incurred a $273,000 loss in the
third quarter compared with a $100,000 loss in the third quarter
of 1996 due to development costs associated with new customer
programs.
Market Resources' revenues were higher in the 9- 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. Revenues were 22% lower in the third quarter
of 1997 because of decrease in energy-marketing activities.
Gas-volumes marketed were down 44% and oil-volumes marketed were
down 4% in the quarter to quarter comparison. No electricity
volumes were marketed in the third quarter of 1997.
Gas production increased 24% and oil and natural gas liquids
production was up 28% in the first nine months of 1997 when
compared with the same period of 1996. 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.
Natural gas prices increased 19%, and oil and natural gas
liquids prices improved 5% in the first nine months of 1997 when
compared with the same periods in 1996. At September 30, 1997,
Market Resources had hedges in place on approximately 50% of its
equity-gas production at an average price of $2.39 per Mcf at
the well head through March 1998.
The increase in exploration and production activities announced
during the summer continues with a second deep, horizontal well
planned for the Brady Unit in Wyoming. The partners are
constructing a $27.7 million facility designed to remove
hydrogen sulfide from the gas produced from the Brady field.
The plant is expected to be finished by the end of the year.
Gas from the existing field and recently drilled wells will be
processed by this facility. Wexpro owns approximately a 41%
interest and Celsius Energy owns approximately a 9% interest in
the Brady facility. In addition, Wexpro is proceeding with
plans to drill 10 new wells at its Island Butte field.
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 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
1997 1996 1997 1996 1997 1996
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $47,027 $41,451 $283,881 $243,082 $409,704 $357,191
From affiliates 452 746 2,234 1,945 3,312 2,663
Total revenues 47,479 42,197 286,115 245,027 413,016 359,854
Natural gas purchases 21,716 16,559 148,596 117,168 213,828 175,975
Revenues less natural
gas purchases $25,763 $25,638 $137,519 $127,859 $199,188 $183,879
Operating income (loss) ($6,614) ($4,841) $31,345 $28,419 $58,964 $54,344
Net income (loss) ($5,774) ($4,447) $13,932 $13,787 $29,133 $29,167
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Residential and commercial
sales 6,799 7,575 55,361 53,983 82,222 77,594
Industrial sales 1,743 1,569 6,749 5,921 9,412 8,142
Transportation for industrial
customers 12,390 12,391 36,967 37,166 49,300 51,589
Total deliveries 20,932 21,535 99,077 97,070 140,934 137,325
Natural gas revenue (per decatherm)
Residential and commercial
sales $5.24 $4.29 $4.53 $3.98 $4.44 $4.08
Industrial sales 2.69 2.14 2.43 2.14 2.35 2.19
Transportation for industrial
customers 0.13 0.12 0.13 0.12 0.13 0.11
Heating degree days
Actual 82 144 3,215 3,357 5,165 5,215
Normal 110 110 3,594 3,594 5,801 5,801
Colder (warmer) than nor (25%) 31% (11%) (7%) (11%) (10%)
Number of customers at Sept. 626,653 603,647
</TABLE>
Revenues, less natural gas purchases, were $125,000 higher in the
third quarter of 1997 and $9,660,000 higher in the nine-month
period ended September 30, 1997 when compared with the respective
periods in 1996. The higher net revenues resulted from the effect
of a weather-normalization adjustment mechanism and an increase in
the number of customers served and were partially offset by a 1997
rate reduction.
Mountain Fuel's rates include a weather-normalization adjustment
that normalizes 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 nine months of 1997 compared with about 50% of these
volumes in the first nine months of 1996.
The number of customers served by Mountain Fuel reached 626,653 at
September 30, 1997, representing a 3.8 % increase from a year
earlier.
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 the fourth
quarter of 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
does not anticipate changes to its current structure in Utah until
competition or opportunities require change. At September 30,
1997, the distribution company served 21,309 customers in the
state of Wyoming amounting to 3% of the total number of customers
served by Mountain Fuel.
Volumes delivered to industrial customers were slightly higher in
the first nine months of 1997 when compared with the same period
of 1996. 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-, 9-
and 12-month periods of 1997 when compared with the same periods
of 1996 due to a higher natural gas-cost component allowed in
rates and an increase in volumes sold. The gas-cost component of
Mountain Fuel's Utah rates increased to $1.90 per decatherm (dth)
July 1, 1997 compared with $1.08 per dth in 1996. These higher
rates resulted from sharply increased natural gas prices during
the 1996-1997 heating season.
In addition to the gas-cost rate increase approved in July 1997,
the Public Service Commission of Utah (PSCU) approved on an
interim basis, a $34 million annual increase in Utah natural gas
rates effective October 22, 1997. The rate increase is to allow
recovery of purchased-gas costs. The gas-cost component in rates
after this filing was increased to $2.27 per dth. The Public
Service Commission of Wyoming approved a $1.8 million annual
increase effective July 1, 1997 and a $1.4 million increase
effective October 27, 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 Mountain Fuel-owned
gas gathered by Questar Gas Management. After extensive
discussions with the Division, it appears that the gathering costs
issues have been resolved prospectively. The key issue remaining
is whether the reduction in gathering costs should be applied
retroactively to March 1996, the costs in question could amount to
approximately $6 million. The Division has not formally requested
the PSCU to disallow any portion of gas-gathering costs.
Management believes that its gathering costs are reasonable and in
compliance with contract terms and applicable laws. The Company
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. Mountain Fuel's subsequent
applications for pass through of gas costs were 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 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
1997 1996 1997 1996 1997 1996
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $9,238 $9,539 $27,101 $28,986 $36,952 $38,714
From affiliates 16,651 16,647 51,416 49,002 67,755 63,121
Total revenues $25,889 $26,186 $78,517 $77,988 $104,707 $101,835
Operating income $12,445 $12,423 $37,902 $35,894 $49,502 $47,469
Net income $8,562 $6,120 $20,344 $16,906 $26,081 $22,604
OPERATING STATISTICS
Natural gas transportation volumes (in
thousands of decatherms)
For unaffiliated customers 30,912 30,502 91,848 103,533 120,210 141,349
For Mountain Fuel 13,217 14,035 81,492 67,617 114,036 91,849
For other affiliated customers 9,753 13,498 27,562 28,367 43,522 39,906
Total transportation 53,882 58,035 200,902 199,517 277,768 273,104
Transportation revenue (per
decatherm) $0.32 $0.29 $0.25 $0.25 $0.24 $0.24
</TABLE>
Revenues were higher in the 9- and 12-month periods of 1997 due
primarily to a rate increase, which became effective on February
1, 1996.
An adjustment of a regulatory liability increased other income by
$642,000 and net income by approximately $400,000. The Federal
Energy Regulatory Commission (FERC) approved an adjustment related
to deferred taxes recorded for gathering activities, which had
been transferred to Questar Gas Management.
On May 9, 1997, the FERC issued an order in which it alleged 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
required 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
filed a detailed response explaining why its charges to Mountain
Fuel were fully justified and in full compliance with applicable
law and FERC orders. Management does not believe the ultimate
outcome of this proceeding will have a material impact on results
of operations, financial position or liquidity.
Consolidated Results of Operations
Consolidated revenues were higher in the 9- and 12-month periods
ended September 30, 1997 when compared with the same periods of
1996 due primarily to increased gas and oil prices and production,
energy-marketing activities in the first half of 1997, and natural
gas distribution deliveries, primarily in the first quarter of
1997. Consolidated revenues were lower in the third quarter of
1997 when compared with the third quarter of 1996, the result of a
decrease in energy-marketing activities which more than offset the
effects of increased gas and oil prices and production, and
natural gas distribution deliveries.
Natural gas and other product purchases were higher in the 9- 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. Energy-marketing
activities fell off significantly in the third quarter of 1997
resulting in a decrease in gas, oil and electricity purchased. The
gas-cost component included in distribution rates has increased
from $1.08 per dth a year ago to $1.90 per dth in the third
quarter of 1997. The rate subsequently rose to $2.27 per dth in
October 1997 reflecting higher market prices.
Operating and maintenance expenses were higher for the 1997
periods when compared with the same periods in the prior year.
Increases resulted from the higher costs associated with serving a
growing number of distribution customers and added operations of
gas and oil properties acquired in September 1996. 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 $.84 per equivalent
Mcf for the first nine months of 1997 compared with $.77 per Mcfe
in the 1996 period. Other taxes, primarily production-related,
were higher in the 9- and 12- month periods of 1997 because of
increased production volumes and higher prices. Other taxes were
lower in the third quarter of 1997 when compared with the third
quarter of 1996 due to timing differences and other adjustments
related to production taxes.
Interest and other income was higher in the 1997 periods due
primarily to the gain from sales of shares of Nextel in 1997 and
recording the Company's $4 million portion of capitalized interest
and equity costs associated with building the TransColorado
pipeline. Pre-tax gains from sales of Nextel shares amounted to
$5.2 million in the third quarter of 1997 compared with $1.3
million for the 1996 period. In the nine-month period, pre-tax
gains from sales of Nextel shares reached $8.3 million in 1997
compared with $6.3 million for the 1996 period.
The effective income tax rate for the first nine months was 31.0%
in 1997 and 31.2% in 1996. The Company recognized $6,721,000 of
gas production tax credits and $592,000 of Alberta Royalty tax
credits in the 1997 period and $6,498,000 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 $169,866,000
in the first nine months of 1997 was $33,850,000 higher than was
reported in the first nine months 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.
The decrease in accounts receivable more than offset cash used to
reduce accounts payable and to fund an under-collection of gas
costs in natural gas distribution rates.
Investing Activities
Capital expenditures were $122,425,000 for the first nine months of 1997,
down from the $240,113,000 reported for the same period a year ago. The
1996 amount includes two acquisitions of gas and oil reserves and
facilities totaling $164 million. Proceeds from the sale of securities
amounted to $15,714,000 in 1997 and $13,202,000 in 1996. A comparison of
capital expenditures by line of business for the first nine months of 1997
and 1996 plus an estimate for calendar year 1997 are as follows:
<TABLE>
<CAPTION>
Estimate
Actual 12 Months
Nine Months Ended Ended
September 30, Dec. 31,
1997 1996 1997
(In Thousands)
Capital Expenditures
<S> <C> <C> <C>
Market Resources $51,459 $180,410 $131,300
Regulated Services
Natural gas distribution 39,473 30,908 61,700
Natural gas transmission 16,597 14,328 48,500
Total Regulated Services 56,070 45,236 110,200
Other operations 14,896 14,467 31,300
$122,425 $240,113 $272,800
</TABLE>
Financing Activities
For the first nine months of 1997 short-term debt decreased $7,100,000 and
long-term debt decreased $27,419,000 as a result of using net cash provided
from operations to repay debt and to fund capital expenditures. Mountain
Fuel issued $32 million of medium-term notes and redeemed $4.8
million of preferred stock in the third quarter of 1997. Mountain
Fuel issued $18 million of notes in October 1997. 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 $7.1
million worth of Questar shares through September 30, 1997. More
share repurchases have occurred in the fourth quarter of 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. Short- and long-term debt increased in the nine months of
1996 primarily to fund the acquisitions of gas and oil reserves.
Commercial paper borrowings amounted to $70,700,000 at September
30, 1997. No amounts were under short-term bank borrowing
arrangement at September 30, 1997. 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
increased to $130,000,000 at September 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 5. Other Information.
On October 23, 1997, the Board of Directors of Questar Corporation
(Questar or the Company) appointed Scott S. Parker to serve as a
director. Mr. Parker, age 62, is the President and Chief Executive
Officer of Intermountain Health Care, Inc. (IHC), a nonprofit,
integrated health care system headquartered in Salt Lake City, Utah. He
was appointed to fill a vacancy created by the resignation of James A.
Harmon in June of 1997. (See the Company's Report on Form 10-Q for the
period that ended on June 30, 1997.) Mr. Parker's term on the Company's
Board expires in May of 1998.
IHC is Utah's largest health care system that includes health
plans, 23 hospitals, affiliated physician groups, and 19,000 employees.
Questar offers two health maintenance organizations and a preferred
provider organization through IHC as options available to employees and
retired employees under the Company's health plan.
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)
November 12, 1997 /s/R. D. Cash
(Date) R. D. Cash
Chairman of the Board, President and
Chief Executive Officer
November 12, 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
Sheets for the period ended September 30, 1997, and is qualified in its
entirety by reference to such unaudited financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 1,723
<SECURITIES> 0
<RECEIVABLES> 101,879
<ALLOWANCES> 0
<INVENTORY> 28,673
<CURRENT-ASSETS> 205,152
<PP&E> 2,678,787
<DEPRECIATION> 1,186,013
<TOTAL-ASSETS> 1,828,886
<CURRENT-LIABILITIES> 210,932
<BONDS> 526,727
0
0
<COMMON> 292,884
<OTHER-SE> 536,530
<TOTAL-LIABILITY-AND-EQUITY> 1,828,886
<SALES> 0
<TOTAL-REVENUES> 648,463
<CGS> 0
<TOTAL-COSTS> 416,097
<OTHER-EXPENSES> 116,654
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,162
<INCOME-PRETAX> 101,918
<INCOME-TAX> 31,611
<INCOME-CONTINUING> 70,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,307
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.71
</TABLE>
