SECURITIES AND EXCHANGE COMMISSION
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. 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.
Class Outstanding as of March 31, 1997
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>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
QUESTAR PIPELINE COMPANY
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1997 1996 1997 1996
(In Thousands)
<S> <C> <C> <C> <C>
REVENUES $26,721 $26,076 $104,823 $97,188
OPERATING EXPENSES
Operating and maintenance 8,908 10,261 38,606 35,701
Depreciation 3,597 3,378 14,425 13,100
Other taxes 751 1,042 2,228 3,396
TOTAL OPERATING EXPENSES 13,256 14,681 55,259 52,197
OPERATING INCOME 13,465 11,395 49,564 44,991
INTEREST AND OTHER INCOME 5 544 1,259 597
INCOME (LOSS) FROM UNCONSOLIDATED
AFFILIATES (68) 37 77 1,172
DEBT EXPENSE (3,351) (3,394) (13,373) (13,460)
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 10,051 8,582 37,527 33,300
INCOME TAXES 3,729 3,331 13,813 12,144
INCOME FROM CONTINUING
OPERATIONS 6,322 5,251 23,714 21,156
DISCONTINUED OPERATIONS - QUESTAR
GAS MANAGEMENT COMPANY 1,139 356 3,608
NET INCOME $6,322 $6,390 $24,070 $24,764
</TABLE>
See notes to financial statements
<PAGE>
QUESTAR PIPELINE COMPANY
CONDENSED 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 $220 $2,550
Notes receivable from Questar
Gas Management 15,500
Accounts receivable $11,523 12,706 8,229
Inventories 2,373 2,332 2,301
Other current assets 1,953 1,817 1,938
Total current assets 15,849 32,575 15,018
Property, plant and equipment 561,025 547,776 562,711
Less allowances for depreciation 197,763 186,971 194,396
Net property, plant and equipment 363,262 360,805 368,315
Investment in discontinued operations 28,894
Investment in unconsolidated affiliates 14,279 9,121 14,347
Other assets 10,843 12,165 11,070
$404,233 $443,560 $408,750
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $752
Notes payable to Questar Corporation 4,000 $1,800 $11,800
Accounts payable and accrued expenses 17,033 21,373 14,823
Total current liabilities 21,785 23,173 26,623
Long-term debt 134,549 134,530 134,544
Other liabilities 4,197 4,920 4,322
Deferred income taxes 58,637 54,942 58,768
Common shareholder's equity
Common stock 6,551 6,551 6,551
Additional paid-in capital 82,034 82,034 82,034
Retained earnings 96,480 137,410 95,908
Total common shareholder's equity 185,065 225,995 184,493
$404,233 $443,560 $408,750
</TABLE>
See notes to financial statements
<PAGE>
QUESTAR PIPELINE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended
March 31,
1997 1996
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $6,322 $6,390
Depreciation 3,891 3,839
Deferred income taxes (131) (1,207)
Income from discontinued operation (1,139)
Loss (income) from unconsolidated
affiliates 68 (37)
10,150 7,846
Change in operating assets
and liabilities (1,064) 9,222
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 9,086 17,068
INVESTING ACTIVITIES
Capital expenditures
Purchase of property, plant
and equipment (3,270) (1,047)
Other investments
Total capital expenditures (3,270) (1,047)
Proceeds from disposition of property,
plant and equipment 4,432 394
NET CASH PROVIDED FROM (USED IN)
INVESTING ACTIVITIES 1,162 (653)
FINANCING ACTIVITIES
Decrease in note receivable from
Questar Gas Management 1,192
Decrease in note payable
to Questar Corporation (7,800) (13,400)
Checks outstanding in excess
of cash balances 752
Payment of dividends (5,750) (5,000)
NET CASH USED IN FINANCING
ACTIVITIES (12,798) (17,208)
DECREASE IN CASH AND SHORT-TERM
INVESTMENTS ($2,550) ($793)
</TABLE>
See notes to financial statements
<PAGE>
QUESTAR PIPELINE COMPANY
NOTES TO CONDENSED 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. 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 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 - 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 FERC February
28, 1996 and was effective March 1, 1996. Questar Gas Management
was subsequently transferred to the nonregulated Market Resources
group of Questar on July 1, 1996. The transaction was in the form
of a stock dividend payable to Questar with no gain or loss
recorded. Questar Pipeline's financial statements for prior
periods were restated reflecting gas-gathering operations as a
discontinued business segment.
The Company submitted an application to the FERC to transfer
approximately $1.5 million of additional facilities to Questar Gas
Management. The facilities consist of several miles of
non-mainline laterals, a portion of a mainline pipeline and a
compressor station. The application requests that the transfer be
effective May 31, 1997.
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
QUESTAR PIPELINE COMPANY
March 31, 1997
(Unaudited)
Operating Results
Following is a summary of financial and operating information for
the Company:
<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
Income from continuing operations 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 primarily due 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%.
Operating and maintenance expenses decreased 13% in the first
quarter of 1997 when compared to the first quarter of 1996 due
primarily to reduced labor and related costs, non-recurring
one-time charges from 1996 and some operating efficiencies.
Operating efficiencies resulted from the consolidation of certain
administrative, marketing, financial, technical and related
services under Questar Regulated Services Co. These services were
previously staffed and performed within each Questar Pipeline and
its affiliated company, Mountain Fuel. Operating and maintenance
expenses were 8% higher for the 12-month period ended March 31,
1997 when compared with the same period of 1996 primarily because
of some one-time costs associated with the spin down of Questar Gas
Management Company and settlement issues in the rate case.
Depreciation expense was higher in the 1997 periods as a result of
increased investment in property, plant and equipment. Interest
and other income decreased in the first quarter of 1997 because of
lower interest income. Loans made to Questar Gas Management were
repaid at the time ownership was transferred. Other taxes were
lower in the first quarter of 1997 when compared with the first
quarter of 1996 primarily due to reduced payroll taxes as the
number of employees has decreased from a year ago.
Overthrust Pipeline Company, an unconsolidated affiliate of the
Company, 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.
The effective income tax rate for the first quarter was 37.1% in
1997 compared with 38.8% in 1996.
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 that 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.
Liquidity and Capital Resources
Operating Activities:
Net cash provided from operating activities of $9,086,000 for the
first three months of 1997 was $7,982,000 less than the amount
provided during the first quarter of 1996. An increase in cash
flow from net income was more than offset by increased use of cash
in operating assets and liabilities. The Company experienced an
increase in receivables and a decrease in accrued liabilities in
the first quarter of 1997. The first quarter of 1996 included the
collection of rates subject to refund.
Investing Activities:
Capital expenditures were $3,270,000 in the first three months of
1997 compared with $1,047,000 in the corresponding 1996 period.
Capital expenditures for calendar year 1997 are estimated at
$34,800,000.
Financing Activities:
The Company has a short-term line-of-credit arrangement with a bank
totaling $200,000. In addition, Questar Corporation loans funds to
the Company under a short-term arrangement. As of March 31,
amounts borrowed from Questar were $4,000,000 in 1997 and
$1,800,000 in 1996. No amounts were borrowed under the short-term
line-of-credit arrangement at March 31, 1997. First quarter
financing activities in 1997 and 1996 included payment of dividends
and a partial repayment of the Company's notes payable to Questar.
Capital expenditures for 1997 are expected to be financed from net
cash flow provided from operations and borrowings from Questar.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
On May 9, 1997, the Federal Energy Regulatory Commission (the
FERC) issued an Order Instituting Proceedings to Questar Pipeline
Company (Questar Pipeline or the Company). The order was issued after a
preliminary investigation was conducted by the FERC's staff. It
contains allegations that the Company may have violated a provision of
the Natural Gas Act and its FERC tariff by charging gathering rates
higher than the rates specified in its tariff to an affiliated customer,
Mountain Fuel Supply Company (Mountain Fuel), for the period from
November 1, 1988 through September 30, 1992. Specifically, the FERC is
ordering Questar Pipeline to show why the allegations are not correct
and why it should not be obligated to refund the amount of the alleged
overcharge (approximately $3.4 million) plus interest to Mountain Fuel.
Questar Pipeline believes that it did not overcharge Mountain
Fuel. The Company believes that the gathering charges were justified
and is fully consistent with its contractual commitments, FERC-approved
rate settlements, and then-applicable FERC orders and judicial decisions
concerning its gathering jurisdiction. The Company believes that rates
charged to Mountain Fuel were designed and approved to provide Questar
Pipeline the opportunity to recover its costs of providing gathering
services to Mountain Fuel. Questar Pipeline will contest the
allegations and emphasize that any gathering-rate issues were resolved
by FERC-approved rate settlements that involved Mountain Fuel and the
state agencies that monitor Mountain Fuel's rates.
The Company transferred its gathering assets to Questar Gas
Management Company, an affiliated entity, effective March 1, 1996.
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 14, 1997 /s/ D. N. Rose
(Date) D. N. Rose
President and Chief
Executive Officer
May 14, 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 Pipeline Company Statements of Income and Balance Sheet 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> 11,523
<ALLOWANCES> 0
<INVENTORY> 2,373
<CURRENT-ASSETS> 15,849
<PP&E> 561,025
<DEPRECIATION> 197,763
<TOTAL-ASSETS> 404,233
<CURRENT-LIABILITIES> 21,785
<BONDS> 134,549
0
0
<COMMON> 6,511
<OTHER-SE> 178,514
<TOTAL-LIABILITY-AND-EQUITY> 404,233
<SALES> 0
<TOTAL-REVENUES> 26,721
<CGS> 0
<TOTAL-COSTS> 8,908
<OTHER-EXPENSES> 4,348
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,351
<INCOME-PRETAX> 10,051
<INCOME-TAX> 3,729
<INCOME-CONTINUING> 6,322
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,322
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
