Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31,1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIODFROM
_____ 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) 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
classes of common stock, as of the latest practicable date.
Class Outstanding as of March 31, 1997
Common Stock, without par value 41,095,078 shares
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
QUESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1997 1996 1997 1996
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
REVENUES $358,378 $225,723 $950,636 $659,078
OPERATING EXPENSES
Natural gas and other
product purchases 189,432 80,468 423,235 194,299
Operating and maintenance 54,078 49,178 201,289 182,559
Depreciation and amortization 29,844 25,721 109,332 97,564
Other taxes 13,102 9,295 34,296 31,921
TOTAL OPERATING EXPENSES 286,456 164,662 768,152 506,343
OPERATING INCOME 71,922 61,061 182,484 152,735
INTEREST AND OTHER INCOME 1,848 4,036 10,779 19,635
DEBT EXPENSE (10,887) (11,125) (40,845) (42,683)
INCOME BEFORE INCOME TAXES 62,883 53,972 152,418 129,687
INCOME TAXES 21,909 19,376 47,895 38,378
NET INCOME $40,974 $34,596 $104,523 $91,309
Earnings per common share $1.00 $0.85 $2.54 $2.23
Dividends per common share $0.305 $0.295 $1.20 $1.17
Average common shares outstanding 41,053 40,721 40,951 40,645
</TABLE>
See note to consolidated financial statements.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1996
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $5,703
Accounts receivable $173,742 $144,049 178,456
Inventories 12,854 11,867 22,343
Purchased-gas adjustments 29,331 24,210
Other current assets 13,231 10,296 13,555
Total current assets 229,158 166,212 244,267
Property, plant and equipment 2,591,024 2,341,157 2,574,980
Less allowances for depreciation and
amortization 1,128,681 1,045,206 1,097,644
Net property, plant and equipment 1,462,343 1,295,951 1,477,336
Securities available for resale,
approximates fair value 39,536 63,910 38,612
Other assets 52,365 49,927 56,010
$1,783,402 $1,576,000 $1,816,225
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $3,773 $5,267
Short-term loans 36,500 27,200 $77,800
Accounts payable and accrued expenses 151,312 114,230 161,811
Purchased-gas adjustments 21,792
Current portion of long-term debt 5,442 19,004 4,705
Total current liabilities 197,027 187,493 244,316
Long-term debt, less current portion 538,706 411,700 555,509
Other liabilities 35,987 38,410 35,433
Deferred income taxes and investment
tax credits 203,368 187,445 204,054
Redeemable cumulative preferred stock 4,808 4,957 4,828
Common shareholders' equity
Common stock 294,929 285,292 292,613
Retained earnings 516,228 460,865 487,799
Note receivable from ESOP (15,556) (20,550) (15,556)
Unrealized gain on securities available
for resale, net of income taxes 7,980 20,388 7,410
Foreign currency translation adjustment (75) (181)
Total common shareholders' equity 803,506 745,995 772,085
$1,783,402 $1,576,000 $1,816,225
</TABLE>
See note to consolidated financial statements.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended
March 31,
1997 1996
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $40,974 $34,596
Depreciation and amortization 31,061 26,948
Deferred income taxes and
investment tax credits (1,040) (5,742)
Gain from the sales of securities (1,765)
70,995 54,037
Changes in operating assets and liabilities 3,248 13,853
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 74,243 67,890
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant and equipment (21,146) (12,983)
Other investments (36) (158)
Total capital expenditures (21,182) (13,141)
Proceeds from disposition of property,
plant and equipment 5,078 246
Proceeds from the sales of securities 4,422
NET CASH USED IN INVESTING
ACTIVITIES (16,104) (8,473)
FINANCING ACTIVITIES
Issuance of common stock 2,776 2,255
Common stock repurchased (460) (739)
Redemption of preferred stock (20)
Issuance of long-term debt 68,430
Repayment of long-term debt (84,496) (9,995)
Decrease in short-term loans (41,300) (50,000)
Checks outstanding in excess of cash balances 3,773 5,267
Payment of dividends (12,620) (12,114)
Other 75 787
NET CASH USED IN FINANCING
ACTIVITIES (63,842) (64,539)
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($5,703) ($5,122)
</TABLE>
See note to consolidated financial statements.
<PAGE>
QUESTAR CORPORATION AND SUBSIDIARIES
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
Note 1 - 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, 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.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
QUESTAR CORPORATION AND SUBSIDIARIES
March 31, 1997
(Unaudited)
Results of Operations
Market Resources Operations
Celsius Energy, 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 12 Months Ended
March 31, March 31,
1997 1996 1997 1996
(Dollars in Thousands)
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $174,538 $72,709 $510,034 $258,046
From affiliates 27,774 21,669 81,983 81,165
Total revenues $202,312 $94,378 $592,017 $339,211
Operating income $17,492 $14,747 $67,085 $52,750
Net income 11,646 9,256 44,152 35,788
OPERATING STATISTICS
Production volumes
Natural gas (in million
cubic feet) 11,774 9,145 43,148 32,884
Oil and natural gas liquids
(in thousands of barrels) 766 572 2,696 2,388
Production revenue
Natural gas (per thousand
cubic feet) $1.99 $1.58 $1.64 $1.36
Oil and natural gas liquids
(per barrel) $20.45 $16.45 $19.77 $16.19
Marketing volumes
Gas marketing volumes (in
thousands of decatherms) 39,196 29,675 150,935 115,151
Oil (in thousands of barrels 472 348 1,595 1,123
Electricity (in thousands of
megawatt hours) 342 546
Natural gas gathering volumes (in
thousands of decatherms)
For unaffiliated customers 14,319 10,834 52,010 40,241
For Mountain Fuel 9,286 9,818 29,667 32,119
For other affiliated
customers 4,173 1,916 11,051 6,585
Total gathering 27,778 22,568 92,728 78,945
Gathering revenue (per
decatherm) $0.22 $0.24 $0.23 $0.27
</TABLE>
Revenues from Market Resource activities were higher in the 1997
periods presented when compared with the 1996 periods primarily as a
result of increased gas and oil prices and production, and energy
marketing volumes.
Gas production increased 29% in the first quarter of 1997 when
compared with the first quarter of 1996, while prices rose 26% to an
average of $1.99 per Mcf. Oil production was 34% higher and the
average sales price was 24% higher in 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 remained strong throughout most of the 1996-1997 heating
season. Rocky Mountain prices improved in the latter half of the
fourth quarter of 1996 and continued through the first quarter of 1997
in response to increased demand. Market Resources hedged the prices
of approximately 47% of its equity production at an average price of
$1.72 per Mcf in the second quarter of 1997. The portion of
production hedged raises to 49% in the third quarter and then drops to 20%
in the fourth quarter. Approximately 62% of equity oil production, excluding
Wexpro, is hedged at an average price of $18.03 per bbl. The amount of
oil that is hedged remains roughly level in the third quarter and
declines to 18% in the fourth quarter. Hedge prices assume
realization of floor prices on the collars, net revenue interest at
the wellhead and existing production.
Energy marketing activities increased significantly in the first
quarter of 1997 when compared with the same period in 1996. Marketing
of electricity has increased after its start-up in 1996. The Company
is planning to form alliances with western and eastern electric
utilities in an effort to further expand electricity marketing
expertise and gain exposure to new markets. Gas marketing volumes
were also higher in the 3- and 12-months periods of 1997. However,
energy marketing activities reported an $800,000, after tax loss, in
the first quarter of 1997 compared with income of $1,500,000 a year
earlier. The loss was primarily the result of paying higher selling
prices for affiliate production.
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,
1997 1996 1997 1996
(Dollars in Thousands)
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $174,222 $144,567 $398,560 $363,502
From affiliates 1,091 336 3,778 3,355
Total revenues 175,313 144,903 402,338 366,857
Natural gas purchases 97,211 75,465 204,146 184,726
Revenues less natural
gas purchases $78,102 $69,438 $198,192 $182,131
Operating income $40,022 $33,797 $62,263 $53,042
Net income 22,309 18,851 32,446 29,458
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Residential and commercial
sales 36,405 34,417 82,832 78,789
Industrial sales 2,902 2,494 8,992 8,519
Transportation for industrial
customers 12,952 13,729 48,722 55,689
Total deliveries 52,259 50,640 140,546 142,997
Natural gas revenue (per decatherm)
Residential and commercial $4.47 $3.93 $4.30 $4.11
Industrial sales 2.37 2.14 2.21 2.30
Transportation for industrial
customers 0.14 0.11 0.13 0.11
Heating degree days
Actual 2,455 2,596 5,166 5,426
Normal 2,743 2,743 5,801 5,801
Warmer than normal 10% 5% 11% 6%
Number of customers at end of
period 623,184 597,234
</TABLE>
Revenues, less natural gas purchases, were $8,664,000 higher in the
first quarter of 1997 and $16,061,000 higher in the 12-month period
ended March 31, 1997 when compared with the respective periods in
1996. The higher net revenues resulted from an increase in customers
served, higher usage per customer, and the effect of a
weather-normalization adjustment mechanism.
The number of customers served reached 623,184 at March 31, 1997.
This represents a 4.3% increase from a year earlier. Temperature
adjusted usage per customer was 4% higher in the 12-month period ended
March 31, 1997 when compared with the same period a year ago.
Temperatures, as measured in degree days, were warmer than normal in
the 1997 periods and warmer than the 1996 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 quarter of 1997 compared
with about half of these volumes in the 1996 first quarter.
Mountain Fuel agreed to a negotiated annual rate reduction of $2.8
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, transportation 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 the Mountain
Fuel a fee for transportation service. Mountain Fuel expects that the
opportunity to provide 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 March 31, 1997, Mountain Fuel served
21,348 customers in the state of Wyoming representing 3% of the total
number of customers served by Mountain Fuel.
Volumes delivered to industrial customers decreased 2% in the first
quarter of 1997 when compared with the same quarter of 1996 due to a
continued 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
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 12 Months Ended
March 31, March 31,
1997 1996 1997 1996
(Dollars in Thousands)
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $9,131 $8,087 $39,881 $35,883
From affiliates 17,590 17,989 64,942 61,305
Total revenues $26,721 $26,076 $104,823 $97,188
Operating income $13,465 $11,395 $49,564 $44,991
Net income 6,322 5,251 23,714 21,156
OPERATING STATISTICS
Natural gas transportation volumes
(in thousands of decatherms)
For unaffiliated customers 33,303 36,873 128,325 150,247
For Mountain Fuel 42,264 37,156 105,269 87,829
For other affiliated
customers 6,816 4,598 46,545 37,211
Total transportation 82,383 78,627 280,139 275,287
Transportation revenue
(per decatherm) $0.21 $0.21 $0.24 $0.23
</TABLE>
Revenues were higher in the 1997 periods due primarily to a rate
increase. Questar Pipeline filed for a rate increase for
transportation and storage activities on July 31, 1995. A negotiated
settlement of the case was approved by the Federal Energy Regulatory
Commission (FERC) and became effective on February 1, 1996. The final
rates included a stated return on equity of 11.75%.
Overthrust Pipeline Company, an unconsolidated affiliate of Questar
Pipeline, filed a request for a general rate increase on March 28,
1997. In the rate case, Overthrust is asking for a $6 million
increase in revenues and an 11.9% return on equity. The FERC issued
an order on April 30, 1997 accepting the filing and ordering a
prehearing conference to take place by May 20. The new rates will
become effective October 1, 1997, subject to refund.
On May 9, 1997, the FERC issued an order alleging 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 at 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 it did not overcharge
Mountain Fuel. Questar Pipeline also believes that its actions were
justified and in good faith based on its understanding of the FERC's
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 for the 3- and 12-month periods
ended March 31, 1997 when compared with the same periods of 1996 due
primarily to increased gas and oil prices and production, increased
levels of energy-marketing, and higher distribution revenues.
The expense for natural gas and other product purchases was higher in
the 1997 periods due primarily to an increase in the level of
energy-marketing activities and the gas cost included in natural gas
distribution rates. Gas marketing volumes were 32% higher in the first
quarter and 31% higher in the 12-month period ended March 31, 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 quarter 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 full
cost amortization rate for the U. S. and Canada was $.84 per
equivalent Mcf for the first quarter of 1997 compared with $.78 per
Mcfe in the year earlier quarter. 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 3- month period of 1997 due
primarily to not repeating a $1,765,000 pretax gain on the sale of
Nextel shares and not repeating a $340,000 pretax gain on the sale of
real estate. The decrease in interest and other income in the
12-months ended March 31, 1997 when compared with the prior year
period was due to several factors. The significant items affecting
the comparison of the trailing 12-month periods were the write-off of
investment in Western Market Center in the fourth quarter of 1996 and
the receipt of a settlement on gas-sales contracts in the second half
of 1995.
The effective income tax rate for the first three months was 34.9% in
1997 and 35.9% in 1996. The Company recognized $2,064,000 of
tight-sands gas production tax credits in the 1997 period and
$2,106,000 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 provided from operating activities of $74,243,000 for the
first three months of 1997 was $6,353,000 higher than was generated in
the same period of 1996. The increase in cash flow resulted primarily
from higher net income including noncash expenses. Changes in
operating assets and liabilities generated $10,605,000 less cash flow
in the 1997 quarter.
Investing Activities:
Capital expenditures were $21,182,000 for the first three months of
1997, up $8,041,000 from the $13,141,000 reported for the same period
a year ago. A comparison of capital expenditures by lines of business
for the first three months of 1997 and 1996 plus an estimate for
calendar year 1997 are as follows:
<TABLE>
<CAPTION>
Actual 12 Months
Three Months Ended Ended
March 31, Dec. 31,
1997 1996 1997
(In Thousands)
<S> <C> <C> <C>
Capital Expenditures
Market Resources $11,181 $4,833 $131,300
Regulated Services
Natural gas distribution 3,974 3,837 64,000
Natural gas transmission 3,270 1,047 34,800
Total Regulated Services 7,244 4,884 98,800
Other operations 2,757 3,424 42,700
$21,182 $13,141 $272,800
</TABLE>
Financing Activities:
For the first three months of 1997 short-term debt decreased
$41,300,000 and long-term debt decreased $16,066,000 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.
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-term borrowings amounted to $36,500,000 at March 31, 1997.
Short-term bank borrowings were $10,000,000 and commercial paper
borrowings were $17,200,000 at March 31, 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
$135,000,000 at March 31, 1997, but decreases to $100,000,000 April 1
through September 30 to match seasonal-borrowing patterns. 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, secured with an office building, due 2012.
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 13, 1997 /s/ S. E. Parks
(Date) S. E. Parks
Vice President, Treasurer and
Chief Financial Officer (Duly
authorized officer and principal
financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summarized financial information extracted from the
Questar Corporation Statements of Income and Balance Sheets for the period
ended March 31, 1997, 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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 173,742
<ALLOWANCES> 0
<INVENTORY> 12,854
<CURRENT-ASSETS> 229,158
<PP&E> 2,591,024
<DEPRECIATION> 1,128,681
<TOTAL-ASSETS> 1,783,402
<CURRENT-LIABILITIES> 197,027
<BONDS> 538,706
4,808
0
<COMMON> 294,929
<OTHER-SE> 508,577
<TOTAL-LIABILITY-AND-EQUITY> 1,783,402
<SALES> 0
<TOTAL-REVENUES> 358,378
<CGS> 0
<TOTAL-COSTS> 243,510
<OTHER-EXPENSES> 42,946
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,887
<INCOME-PRETAX> 62,883
<INCOME-TAX> 21,909
<INCOME-CONTINUING> 40,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,974
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
