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. 0-14147
QUESTAR PIPELINE COMPANY
(Exact name of registrant as specified in its charter)
STATE OF UTAH 87-0307414
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 11450, 79 South State Street, Salt Lake City, Utah 84147
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 530-2400
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, $1.00 par value 6,550,843 shares
Registrant meets the conditions set forth in General Instruction H(a)(1)
and (b) of Form 10-Q and is filing this Form 10-Q with the reduced
disclosure format.
<PAGE>
QUESTAR PIPELINE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1996 1995 1996 1995
(In Thousands)
<S> <C> <C> <C> <C>
REVENUES $31,768 $29,565 $119,558 $117,423
OPERATING EXPENSES
Operating and maintenance 13,156 11,364 46,426 42,863
Depreciation 4,282 4,114 16,782 15,893
Other taxes 1,259 1,234 4,195 4,599
TOTAL OPERATING EXPENSES 18,697 16,712 67,403 63,355
OPERATING INCOME 13,071 12,853 52,155 54,068
INTEREST AND OTHER
INCOME (EXPENSE) 100 (44) (1,742) (1,394)
INCOME FROM UNCONSOLIDATED
AFFILIATES 432 85 1,881 245
DEBT EXPENSE (3,394) (3,406) (13,460) (13,310)
INCOME BEFORE INCOME TAXES 10,209 9,488 38,834 39,609
INCOME TAXES 3,819 3,214 14,070 13,014
NET INCOME $6,390 $6,274 $24,764 $26,595
</TABLE>
<PAGE>
QUESTAR PIPELINE COMPANY
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 $1,386 $1,677
Accounts receivable 13,858 $18,837 13,845
Inventories 2,880 2,569 2,858
Other current assets 2,278 2,523 2,552
Total current assets 20,402 23,929 20,932
Property, plant and equipment 633,828 618,240 632,393
Less allowances for depreciation 216,311 207,407 212,898
Net property, plant and equipment 417,517 410,833 419,495
Investment in unconsolidated affiliates 11,230 8,208 11,010
Other assets 12,221 11,024 11,913
$461,370 $453,994 $463,350
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $2,652
Notes payable to Questar Corporation $1,800 7,800 $15,200
Accounts payable and accrued expenses 24,326 14,751 13,025
Total current liabilities 26,126 25,203 28,225
Long-term debt 134,530 134,511 134,525
Deferred credits 4,920 4,812 5,346
Deferred income taxes 69,799 68,987 70,649
Common shareholder's equity
Common stock 6,551 6,551 6,551
Additional paid-in capital 82,034 82,034 82,034
Retained earnings 137,410 131,896 136,020
Total common shareholder's equity 225,995 220,481 224,605
$461,370 $453,994 $463,350
</TABLE>
<PAGE>
QUESTAR PIPELINE COMPANY
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 $6,390 $6,274
Depreciation 4,743 4,523
Deferred income taxes (850) 173
Income from unconsolidated affiliates (432) (85)
9,851 10,885
Change in operating assets
and liabilities 11,023 (249)
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 20,874 10,636
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (2,537) (3,036)
Other investments (135)
Total capital expenditures (2,537) (3,171)
Costs of deposition of property, plant
and equipment (228) (15)
CASH USED IN INVESTING
ACTIVITIES (2,765) (3,186)
FINANCING ACTIVITIES
Decrease in notes payable
to Questar Corporation (13,400) (6,800)
Checks outstanding in excess of
cash balances 2,652
Payment of dividends (5,000) (4,750)
NET CASH USED IN FINANCING
ACTIVITIES (18,400) (8,898)
DECREASE IN CASH AND SHORT-TERM
INVESTMENTS ($291) ($1,448)
<PAGE>
QUESTAR PIPELINE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
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. 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
financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December
31, 1995.
Note B - Gathering Division Spin Down
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 Federal Energy
Regulatory Commission February 28, 1996, and was effective March 1,
1996. The financial statements of Questar Pipeline and Questar Gas
Management have been consolidated for reporting purposes. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Questar Corporation, 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 PIPELINE COMPANY
MANAGEMENT'S ANALYSIS
March 31, 1996
Operating Results --
Following is a summary of financial and operating information for
the Company:
</TABLE>
<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 customers 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 customers 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.
Operating and maintenance expenses increased 16% in the first
quarter of 1996 and 8% in the 12-month period ended March 31, 1996
when compared with the same periods of 1995 primarily because of
higher costs of doing business and some one-time costs associated
with the spin down of Questar Gas Management Company and settlement
issues in the pending rate case.
Depreciation expense was higher in the 1996 periods as a result of
increased investment in property, plant and equipment. Interest and other
income (expense) increased in the first quarter of 1996 because of
higher interest income. The increase in other expense reported
for the 12 months ended March 31, 1996 reflects project costs that
were expensed in 1995.
The increase in earnings from unconsolidated affiliated companies
in the first quarter of 1996 resulted primarily from operations of
Blacks Fork Processing Company, which began operations in June of
1995. The Company's 50% interest in the Blacks Fork Processing
Company will be transferred to the market resources group as a part
of Questar Gas Management Company. The increase in earnings from
unconsolidated affiliates for the 12 months ended March 31, 1996
includes the proceeds received by Overthrust Pipeline Company from
a buyout of a shipper's transportation contract.
The effective income tax rate for the first quarter was 37.4% in
1996 compared with 33.9% in 1995. Income tax expense was reduced
for a revision of estimated income taxes in the 1995 period.
Questar Corporation (Questar) announced plans to become more of an
energy-services company that can operate effectively in the new
energy market place. Questar Pipeline and affiliated company,
Mountain Fuel, 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 transmission, distribution and
storage, both foreign and domestic.
Liquidity and Capital Resources --
Operating Activities:
Net cash provided from operating activities was $20,874,000 for the
first three months of 1996 compared with $10,636,000 for the same
period of 1995. An increase in cash flow from changes in
operating assets and liabilities was due primarily to the
collection of construction costs receivable from the Blacks Fork
Processing Company and collection of rates subject to refund.
Investing Activities:
Capital expenditures were $2,537,000 in the first three months of
1996, compared with $3,171,000 in the corresponding 1995 period.
Capital expenditures for calendar year 1996 are estimated at
$40,900,000.
Financing Activities:
The Company has a short-term line-of-credit arrangement with a bank
totaling $200,000. In addition, Questar, its parent company, loans
funds to the Company under a short-term arrangement. As of March
31, amounts borrowed from Questar were $1,800,000 in 1996 and
$7,800,000 in 1995. No amounts were borrowed under the short-term
line-of-credit arrangement at March 31, 1996. First quarter
financing activities in 1996 and 1995 included payment of dividends
and a partial repayment of the Company's notes payable to Questar.
1996 capital expenditures are expected to be financed from net cash
flow provided from operations and borrowings from Questar.
PART II
OTHER INFORMATION
Item 5. Other Information.
a. Effective March 1, 1996, John B. Carricaburu resigned his
position as Vice President, Marketing and Transportation, of Questar
Pipeline Company (Questar Pipeline or the Company) to accept a new
position as Vice President and General Manager of Questar Gas Management
Company (Questar Gas Management). The Company transferred its gathering
assets and activities to Questar Gas Management, a wholly owned
subsidiary, as of the same date. Approximately 115 employees were also
transferred from Questar Pipeline to Questar Gas Management. See
Questar Pipeline's 1995 Annual Report on Form 10-K, Items 1 and 2,
Business and Properties, "Gathering."
b. Questar Pipeline currently intends to transfer ownership of
Questar Gas Management by mid-1996. Questar Gas Management's operations
will be included in Questar Corporation's business segment described as
nonregulated or market resources.
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 PIPELINE COMPANY
(Registrant)
May 13, 1996 /s/ A. J. Marushack
(Date) A. J. Marushack
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 Pipeline Company Consolidated Statements of Income and
Consolidated Balance Sheet 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> 1,386
<SECURITIES> 0
<RECEIVABLES> 13,858
<ALLOWANCES> 0
<INVENTORY> 2,880
<CURRENT-ASSETS> 20,402
<PP&E> 633,828
<DEPRECIATION> 216,311
<TOTAL-ASSETS> 461,370
<CURRENT-LIABILITIES> 26,126
<BONDS> 134,530
0
0
<COMMON> 6,551
<OTHER-SE> 219,444
<TOTAL-LIABILITY-AND-EQUITY> 461,370
<SALES> 0
<TOTAL-REVENUES> 31,768
<CGS> 0
<TOTAL-COSTS> 13,156
<OTHER-EXPENSES> 5,541
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,394
<INCOME-PRETAX> 10,209
<INCOME-TAX> 3,819
<INCOME-CONTINUING> 6,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,390
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
