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,
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) 324-2400
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 September 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
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
1996 1995 1996 1995 1996 1995
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $26,186 $23,243 $77,988 $70,925 $101,835 $94,955
OPERATING EXPENSES
Operating and maintenance 9,577 8,062 29,152 25,491 37,664 33,515
Depreciation 3,637 3,203 10,449 9,615 13,745 12,800
Other taxes 549 941 2,493 2,906 2,957 3,749
TOTAL OPERATING EXPENSES 13,763 12,206 42,094 38,012 54,366 50,064
OPERATING INCOME 12,423 11,037 35,894 32,913 47,469 44,891
INTEREST AND OTHER INCOME 365 464 1,169 1,200 493 243
INCOME FROM UNCONSOLIDATED
AFFILIATES 140 94 212 275 1,157 317
DEBT EXPENSE (3,189) (3,348) (10,035) (10,115) (13,392) (13,483)
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 9,739 8,247 27,240 24,273 35,727 31,968
INCOME TAXES 3,619 3,062 10,334 8,703 13,123 10,173
INCOME FROM CONTINUING
OPERATIONS 6,120 5,185 16,906 15,570 22,604 21,795
DISCONTINUED OPERATIONS - QUESTAR
GAS MANAGEMENT COMPANY 704 1,495 2,404 2,471 3,534
NET INCOME $6,120 $5,889 $18,401 $17,974 $25,075 $25,329
</TABLE>
See notes to financial statements.
<PAGE>
QUESTAR PIPELINE COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995 1995
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $904 $1,578 $1,013
Notes receivable 18,725 16,692
Accounts receivable 8,579 8,432 13,706
Inventories 2,183 2,319 2,310
Other current assets 1,663 2,157 2,157
Total current assets 13,329 33,211 35,878
Property, plant and equipment 557,630 542,241 547,831
Less allowances for depreciation 193,030 184,664 183,840
Net property, plant and equipment 364,600 357,577 363,991
Investment in unconsolidated affiliates 12,146 8,038 9,084
Other assets 11,276 10,997 11,903
Investment in net assets of
discontinued operations 26,376 27,752
$401,351 $436,199 $448,608
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Notes payable to Questar Corporation $9,200 $3,000 $15,200
Accounts payable and accrued expenses 13,341 15,249 12,783
Total current liabilities 22,541 18,249 27,983
Long-term debt 134,539 134,520 134,525
Deferred credits 4,898 4,636 5,346
Deferred income taxes 56,117 56,113 56,149
Common shareholder's equity
Common stock 6,551 6,551 6,551
Additional paid-in capital 82,034 82,034 82,034
Retained earnings 94,671 134,096 136,020
Total common shareholder's equity 183,256 222,681 224,605
$401,351 $436,199 $448,608
</TABLE>
See notes to financial statements.
<PAGE>
QUESTAR PIPELINE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
9 Months Ended
September 30,
1996 1995
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $18,401 $17,974
Depreciation 12,214 9,564
Deferred income taxes (32) (199)
Income from unconsolidated affiliates (212) (275)
Income from discontinued operations (1,495) (2,404)
28,876 24,660
Changes in operating assets and liabilities 6,496 11,073
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 35,372 35,733
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (11,478) (13,700)
Investments in partnerships (2,850) (406)
Investment in discontinued
operations (1,176)
Total capital expenditures (14,328) (15,282)
Costs of deposition of property, plant
and equipment (1,345) (959)
NET CASH USED IN INVESTING
ACTIVITIES (15,673) (16,241)
FINANCING ACTIVITIES
Decrease in notes receivable 16,692 6,488
Decrease in notes payable
to Questar Corporation (6,000) (11,600)
Dividends paid (30,500) (14,250)
NET CASH USED IN FINANCING
ACTIVITIES (19,808) (19,362)
INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS ($109) $130
</TABLE>
See notes to financial statements.
<PAGE>
QUESTAR PIPELINE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 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- and nine-month
periods ended September 30, 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 - Discontinued Operations - Gathering Division Spin Down
and Transfer
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. Questar Gas Management was subsequently
transferred to the nonregulated Market Resources group of Questar
Corporation on July 1, 1996. The transaction was in the form of
a stock dividend payable to Questar Corporation with no gain or
loss recorded. Beginning in the third quarter of 1996, Questar
Pipeline's prior-period financial statements were restated,
showing gas-gathering operations as a discontinued business
segment.
<PAGE>
QUESTAR PIPELINE COMPANY
MANAGEMENT'S ANALYSIS
September 30, 1996
(Unaudited)
Operating Results --
Following is a summary of financial and operating information for
the Company:
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
1996 1995 1996 1995 1996 1995
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $9,539 $8,525 $28,986 $27,052 $38,714 $34,093
From affiliates 16,647 14,718 49,002 43,873 63,121 60,862
Total revenues $26,186 $23,243 $77,988 $70,925 $101,835 $94,955
Operating income $12,423 $11,037 $35,894 $32,913 $47,469 $44,891
Income from continuing operations 6,120 5,185 16,906 15,570 22,604 21,795
OPERATING STATISTICS
Natural gas transportation volumes (in
thousands of decatherms)
For unaffiliated customers 30,502 36,580 103,533 114,127 141,349 146,484
For Mountain Fuel 14,035 10,888 67,617 55,640 91,849 78,998
For other affiliated customers 13,498 10,941 28,367 27,300 39,906 40,217
Total transportation 58,035 58,409 199,517 197,067 273,104 265,699
Transportation revenues (per decatherm) $0.29 $0.26 $0.25 $0.24 $0.24 $0.24
</TABLE>
A rate increase and expanded firm gas-storage activities resulted
in higher revenues in the 1996 periods presented. Questar
Pipeline filed for a rate increase with the Federal Energy
Regulatory Commission (FERC) on July 31, 1995. The Company began
collecting revenues under the new rate structure, subject to
refund, February 1, 1996. The FERC approved a rate settlement
July 1, 1996. The settlement included a stated return on equity
of 11.75% and allowed the Company to collect a greater share of
costs from firm transportation customers. As a result of the new
rate structure, Questar Pipeline is expected to add approximately
$5.9 million to annual revenues or $3 million in after-tax
income. The Company had fully reserved for the differences
between the filed rates and the settlement rates and as a result
there was no significant impact on net income. In addition to
the rate increase, the Company reported higher revenues from its
expanded firm gas-storage activities. Firm-storage capacity
increased from 41.8 Bcf to 46.3 Bcf in May 1995.
Operating and maintenance expenses were higher in all of the 1996
periods presented primarily because of increased
maintenance-related activities, higher costs for communication
and data processing activities and expenses associated with the
rate case settlement. Depreciation expenses were higher in the
1996 periods as a result of increased investment in property,
plant and equipment. A successful third quarter 1996 settlement
of issues related to state property tax assessments spanning from
1988 through 1992 resulted in a $410,000 reduction of expense
reported in other taxes.
The increase in earnings from unconsolidated affiliates for the
12-month period ended September 30, 1996 includes Questar
Pipeline's share of the proceeds received by Overthrust Pipeline
Company from a buy-out of a shipper's transportation contract.
In addition, Questar Pipeline increased its ownership of
Overthrust to 36% with the purchase of Columbia Gulf
Transmission's 18% interest in August of 1996 effective January
1, 1996.
The effective income tax rate for the first nine months was 37.9%
in 1996 compared with 35.9% in 1995.
Questar Pipeline and an affiliated company, Mountain Fuel,
continue work to consolidate various financial, technical,
administrative and other support functions in an ongoing effort
to improve efficiency and coordination. Questar Pipeline and
Mountain Fuel comprise the Regulated Services group of Questar
Corporation.
Liquidity and Capital Resources --
Operating Activities:
Net cash provided from operating activities was $35,372,000 for
the first nine months of 1996 compared with $35,733,000 for the
same period of 1995. An increase in cash flow from higher net
income before depreciation expense was more than offset by less
cash flow from operating assets and liabilities.
Investing Activities:
Capital expenditures were $14,328,000 in the first nine months of
1996, compared with $15,282,000 in the corresponding 1995 period.
Capital expenditures for calendar year 1996 are estimated at
$24,300,000.
Financing Activities:
The Company has a short-term line-of-credit arrangement with a
bank totaling $200,000. In addition, Questar Corporation, its
parent company, loans funds to the Company under a short-term
arrangement. As of September 30, amounts borrowed from Questar
Corporation were $9,200,000 in 1996 and $3,000,000 in 1995. No
amounts were borrowed under the line-of-credit arrangement at
either September 30, 1996 or September 30, 1995. Questar
Pipeline's net cash provided from operating activities for the
first nine months of 1996 and 1995 plus collection of notes
receivable from an affiliated company funded capital
expenditures, cash dividends and repayment of debt. Questar
Pipeline paid a special dividend of $16,000,000 to Questar
Corporation after collecting a note receivable from Questar Gas
Management. Funding for 1996 capital expenditures is expected to
be supplied from net cash flow provided from operations and
borrowings from Questar Corporation.
PART II
OTHER INFORMATION
Questar Pipeline Company 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 PIPELINE COMPANY
(Registrant)
November 12, 1996 /s/ A. J. Marushack
(Date) A. J. Marushack
President and Chief
Executive Officer
November 12, 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 Statements of Income and Balance Sheets for the
periods ended September 30, 1996 and 1995, and is qualified in its entirety
by reference to such unaudited financial statements. Prior-period statements
have been restated for the reporting of a discontinued operations.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 904 1,578
<SECURITIES> 0 0
<RECEIVABLES> 8,579 27,157
<ALLOWANCES> 0 0
<INVENTORY> 2,183 2,319
<CURRENT-ASSETS> 13,329 33,211
<PP&E> 557,630 542,241
<DEPRECIATION> 193,030 184,664
<TOTAL-ASSETS> 401,351 436,199
<CURRENT-LIABILITIES> 22,541 18,249
<BONDS> 134,539 134,520
0 0
0 0
<COMMON> 6,551 6,551
<OTHER-SE> 176,705 216,130
<TOTAL-LIABILITY-AND-EQUITY> 401,351 436,199
<SALES> 0 0
<TOTAL-REVENUES> 77,988 70,925
<CGS> 0 0
<TOTAL-COSTS> 29,152 25,491
<OTHER-EXPENSES> 12,942 12,521
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 10,035 10,115
<INCOME-PRETAX> 27,240 24,273
<INCOME-TAX> 10,334 8,703
<INCOME-CONTINUING> 16,906 15,570
<DISCONTINUED> 1,495 2,404
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 18,401 17,974
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
