-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OdqddvKZesYCZjwUgfkYypwBVuM7Hu3n6LPLyoabLbP0HMhwPIC4GcN/vx1txmK+ sMPPiEtzaw2BlBpWpQnzzw== 0000950134-96-006195.txt : 19961118 0000950134-96-006195.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950134-96-006195 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST PIPELINE CORP CENTRAL INDEX KEY: 0000110019 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 870269236 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07414 FILM NUMBER: 96663723 BUSINESS ADDRESS: STREET 1: 295 CHIPETA WAY CITY: SALT LAKE CITY STATE: UT ZIP: 84158-0900 BUSINESS PHONE: 8015838800 MAIL ADDRESS: STREET 1: 295 CHIPETA WAY CITY: SALT LAKE STATE: UT ZIP: 84158 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1996 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q ------------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the 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 Number 1-7414 NORTHWEST PIPELINE CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 87-0269236 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 295 Chipeta Way Salt Lake City, Utah 84108 ------------------------------------------- (Address of principal executive offices and Zip Code) (801) 583-8800 --------------------------------------------- (Registrant's telephone number, including area code) No Change ---------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 at November 12, 1996 - -------------------------- -------------------------------- Common stock, $1 par value 1,000 shares The registrant meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format. 2 NORTHWEST PIPELINE CORPORATION TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements - Statement of Income, three and nine months ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 1 Balance Sheet as of September 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Statement of Cash Flows, nine months ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . 4 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 8 PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
i 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements NORTHWEST PIPELINE CORPORATION STATEMENT OF INCOME (Unaudited)
=================================================================================================================== Three Months Ended Nine Months Ended September 30, September 30, -------------------------------- ------------------------- 1996 1995 1996 1995 ------------ ----------- ---------- ---------- (Thousands) OPERATING REVENUES . . . . . . . . . . . . . $ 69,188 $ 75,638 $ 205,640 $ 193,763 ------------ ----------- ---------- ---------- OPERATING EXPENSES: Operation . . . . . . . . . . . . . . . . 19,347 17,979 59,919 56,502 Maintenance . . . . . . . . . . . . . . . 2,600 3,385 6,524 7,269 Depreciation and amortization . . . . . . 9,043 7,527 26,768 22,822 Taxes, other than income taxes . . . . . . 2,229 3,424 9,644 10,143 ------------ ----------- ---------- ---------- 33,219 32,315 102,855 96,736 ------------ ----------- ---------- ---------- Operating income . . . . . . . . . . . 35,969 43,323 102,785 97,027 ------------ ----------- ---------- ---------- OTHER INCOME (EXPENSES) - net . . . . . . . . 2,190 (3,829) 4,922 (2,087) ------------ ----------- ---------- ---------- INTEREST CHARGES: Interest on long-term debt . . . . . . . . 8,302 7,094 25,413 21,655 Other interest . . . . . . . . . . . . . . 2,055 (342) 4,343 2,546 Allowance for borrowed funds used during construction . . . . . . . . . . (202) (932) (336) (2,034) ------------ ----------- ---------- ---------- 10,155 5,820 29,420 22,167 ------------ ----------- ---------- ---------- INCOME BEFORE INCOME TAXES . . . . . . . . . 28,004 33,674 78,287 72,773 PROVISION FOR INCOME TAXES . . . . . . . . . 8,604 9,330 28,162 20,252 ------------ ----------- ---------- ---------- NET INCOME . . . . . . . . . . . . . . . . . $ 19,400 $ 24,344 $ 50,125 $ 52,521 ============ =========== ========== ========== CASH DIVIDEND ON COMMON STOCK . . . . . . . . $ 55,241 $ - $ 62,241 $ - ============ =========== ========== ==========
- ------------------ See accompanying notes. - 1 - 4 NORTHWEST PIPELINE CORPORATION BALANCE SHEET (Unaudited) ================================================================================ ASSETS
September 30, December 31, 1996 1995 ------------- ------------ (Thousands) PROPERTY, PLANT AND EQUIPMENT, at cost . . . . . . . . . . . . . . . $1,451,506 $1,402,437 Less - Accumulated depreciation and amortization . . . . . . . . 560,347 518,780 ---------- ---------- 891,159 883,657 Construction work in progress . . . . . . . . . . . . . . . . . . 20,471 31,040 ---------- ---------- 911,630 914,697 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . 610 570 Advances to parent . . . . . . . . . . . . . . . . . . . . . . . 27,344 41,215 Accounts receivable - Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,312 36,773 Affiliated companies . . . . . . . . . . . . . . . . . . . . . 254 1,234 Materials and supplies (principally at average cost) . . . . . . 10,568 11,065 Exchange gas due from others . . . . . . . . . . . . . . . . . . 4,143 9,390 Costs recoverable through rate adjustments . . . . . . . . . . . 2,246 5,951 Income taxes receivable . . . . . . . . . . . . . . . . . . . . . - 4,480 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 18,213 17,729 Prepayments and other . . . . . . . . . . . . . . . . . . . . . . 5,700 6,286 ---------- ---------- 105,390 134,693 ---------- ---------- OTHER ASSETS: Deferred charges . . . . . . . . . . . . . . . . . . . . . . . . 25,082 26,177 ---------- ---------- $1,042,102 $1,075,567 ========== ==========
- ------------------ See accompanying notes. - 2 - 5 NORTHWEST PIPELINE CORPORATION BALANCE SHEET (Unaudited) ================================================================================ LIABILITIES AND STOCKHOLDER'S EQUITY
September 30, December 31, 1996 1995 ------------- ------------ (Thousands) CAPITALIZATION: Common stockholder's equity - Common stock, par value $1 per share, authorized and outstanding, 1,000 shares . . . . . . . . . $ 1 $ 1 Additional paid-in capital . . . . . . . . . . . . . . . . . 262,440 262,440 Retained earnings . . . . . . . . . . . . . . . . . . . . . 184,903 197,019 ---------- ---------- 447,344 459,460 Long-term debt, less current maturities . . . . . . . . . . . 361,411 372,228 ---------- ---------- 808,755 831,688 ---------- ---------- CURRENT LIABILITIES: Current maturities of long-term debt . . . . . . . . . . . . . 8,591 8,591 Accounts payable - Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,130 30,033 Affiliated companies . . . . . . . . . . . . . . . . . . . . 4,798 423 Accrued liabilities - Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 1,646 - Taxes, other than income taxes . . . . . . . . . . . . . . . 7,833 4,404 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 15,411 12,752 Employee costs . . . . . . . . . . . . . . . . . . . . . . . 8,217 6,873 Exchange gas due to others . . . . . . . . . . . . . . . . . 9,898 14,630 Reserves for estimated rate refunds . . . . . . . . . . . . 37,846 43,883 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,584 7,228 ---------- ---------- 112,954 128,817 ---------- ---------- DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . 111,911 105,855 ---------- ---------- OTHER DEFERRED CREDITS . . . . . . . . . . . . . . . . . . . . . . 8,482 9,207 ---------- ---------- CONTINGENT LIABILITIES AND COMMITMENTS . . . . . . . . . . . . . . - - ---------- ---------- $1,042,102 $1,075,567 ========== ==========
- ------------------ See accompanying notes. - 3 - 6 NORTHWEST PIPELINE CORPORATION STATEMENT OF CASH FLOWS (Unaudited)
======================================================================================================================== Nine Months Ended September 30, --------------------------------- 1996 1995 ----------- ---------- (Thousands) OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,125 $ 52,521 Adjustments to reconcile to cash provided by operations - Depreciation and amortization . . . . . . . . . . . . . . . . 26,768 22,822 Provision for deferred income taxes . . . . . . . . . . . . . 5,572 268 Amortization of deferred charges and credits . . . . . . . . . 212 716 Allowance for equity funds used during construction . . . . . (516) (2,445) Increase (decrease) from changes in: Accounts receivable . . . . . . . . . . . . . . . . . . . . 11,168 4,922 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 497 2,594 Other current assets . . . . . . . . . . . . . . . . . . . . 4,291 (7,217) Other assets and deferred charges . . . . . . . . . . . . . 765 (7,408) Accounts payable . . . . . . . . . . . . . . . . . . . . . . (9,079) 8,988 Other current liabilities . . . . . . . . . . . . . . . . . 2,397 8,828 Other deferred credits . . . . . . . . . . . . . . . . . . . (909) (185) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (95) (88) ----------- ---------- Net cash provided by operating activities . . . . . . . . . . . . 91,196 84,316 ----------- ---------- INVESTING ACTIVITIES: Property, plant and equipment - Capital expenditures . . . . . . . . . . . . . . . . . . . . . (39,728) (84,745) Proceeds from sales . . . . . . . . . . . . . . . . . . . . . 17,161 - Asset removal cost . . . . . . . . . . . . . . . . . . . . . . (256) (191) Changes in accounts payable . . . . . . . . . . . . . . . . . (9,448) (1,886) Advances to parent . . . . . . . . . . . . . . . . . . . . . . . 13,871 11,909 ----------- ---------- Net cash used by investing activities . . . . . . . . . . . . . . (18,400) (74,913) ----------- ---------- FINANCING ACTIVITIES: Principal payments on long-term debt . . . . . . . . . . . . . . (10,515) (10,515) Proceeds from notes payable to bank . . . . . . . . . . . . . . . - 12,750 Payments on notes payable to bank . . . . . . . . . . . . . . . . - (11,150) Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . (62,241) - ----------- ---------- Net cash used by financing activities . . . . . . . . . . . . . . (72,756) (8,915) ----------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . 40 488 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570 1,818 ----------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . $ 610 $ 2,306 =========== ==========
- ------------------ See accompanying notes. - 4 - 7 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) ================================================================================ (1) GENERAL The accompanying, unaudited interim financial statements of Northwest Pipeline Corporation ("Pipeline"), included herein, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, Pipeline believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of Pipeline, all adjustments, which include only normal operating adjustments, have been made to present fairly the financial position of Pipeline as of September 30, 1996 and December 31, 1995, the results of operations for the three and nine months ended September 30, 1996 and 1995, and cash flows for the nine months ended September 30, 1996 and 1995. The results of operations for the periods presented are not necessarily indicative of the results for the respective complete years. It is suggested that these condensed financial statements be read in conjunction with the statements and the notes thereto included in Pipeline's 1995 Annual Report on Form 10-K. Cash payments for interest were $24 million and $20 million, net of $.3 million and $2 million of interest capitalized, in the nine month periods ended September 30, 1996 and 1995, respectively. Net cash payments made to The Williams Companies, Inc. ("Williams") for income taxes were $16.5 million and $11.3 million in the nine month periods ended September 30, 1996 and 1995, respectively. (2) SALE OF SOUTH END FACILITIES In November 1995, Pipeline and Transwestern Pipeline Company ("Transwestern") entered into an agreement for the sale by Pipeline to Transwestern of a 77.7% undivided ownership interest in the south end of Pipeline's transmission line from Ignacio, Colorado to Blanco, New Mexico. On April 29, 1996, Pipeline received an order from the Federal Energy Regulatory Commission ("FERC") approving the abandonment and sale of the facilities to Transwestern. Requests for rehearing of this order have been filed and rehearing is currently pending before the FERC. On September 1, 1996, Transwestern paid Pipeline $17.2 million, representing 77.7% of the net book value of the South End facilities plus 77.7% of the cost of certain modifications necessary to separate the operation of the South End facilities from Pipeline's mainline. According to the terms of the agreement, Pipeline reimbursed Transwestern $.8 million for Pipeline's 22.3% share of the necessary modifications for separation of the operation paid for by Transwestern. (3) LONG-TERM DEBT AND BANKING ARRANGEMENTS On May 31, 1996, Pipeline called $1.9 million of its outstanding 9.25% Series C Debentures, due 2006 under terms of the optional prepayment provisions in the debenture agreement. The prepayment was in addition to the scheduled May 31, 1996 sinking fund payments of $5 million for the 9% Series B and $1.9 million for the 9.25% Series C. Pipeline shares in a $800 million Revolving Credit Agreement with Williams and four affiliated companies. Pipeline's maximum borrowing availability, subject to prior borrowing by other affiliated companies, is $400 million, none of which was used by Pipeline at September 30, 1996. Interest rates vary with current market conditions. The agreement contains restrictions which limit, under certain circumstances, the issuance of additional debt, the attachment of liens on any assets and any change of ownership of Pipeline. Any borrowings by Pipeline using this agreement are not guaranteed by Williams and are based on Pipeline's financial need and credit worthiness. Pipeline has also arranged various uncommitted lines-of-credit at market interest rates. Pipeline's credit facilities are subject to Pipeline's continued credit worthiness. - 5 - 8 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) ================================================================================ (4) ADOPTION OF ACCOUNTING STANDARD Effective January 1, 1996, Pipeline adopted Statement of Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Adoption of the standard had no effect on Pipeline's financial position or results of operations. (5) CONTINGENT LIABILITIES AND COMMITMENTS Pending Rate Cases On April 1, 1993, Pipeline began collecting new rates, subject to refund, under the provisions of its rate case filed October 1, 1992. On May 31, 1995, Pipeline received a favorable order from the FERC on this rate case, which among other issues, supported an equity rate of return of 13.2 percent. Pipeline made certain reserve adjustments to reflect the anticipated outcome of the May 31, 1995 order, subject to final action on rehearing before the Commission. In an order on rehearing issued July 19, 1996, FERC required that an Administrative Law Judge ("ALJ") reconsider one element of the rate of return formula, but upheld its May 31, 1995 decision on all other issues. However, on October 22, 1996, the ALJ issued an initial decision on remand giving preference to alternative sources of data in the rate of return formula which would result in an equity rate of return of 11.62 percent. Northwest will take exception with this decision before the FERC. Since the ALJ decision still needs to be reviewed by the FERC, no further reserve accrual adjustments are being made pending a final resolution of this rate of return issue. The final decision from the FERC is not expected until late Spring 1997. On November 1, 1994, Pipeline began collecting new rates, subject to refund, under the provisions of its rate case filed April 29, 1994. This filing sought a revenue increase for a projected deficiency caused by increased costs and the impact of a transportation contract terminated subsequent to the rate case filed on October 1, 1992. On November 14, 1995, Pipeline filed an uncontested settlement proposal with the FERC. The settlement resolved substantially all the issues in this rate case. The FERC approved the Settlement in a Letter Order dated February 14, 1996 and no rehearing petitions were filed with respect to that order. During the second quarter of 1996, Pipeline finalized and paid the settlement refunds, the effects of which are reflected in the accompanying financial statements. On February 1, 1996, Pipeline began collecting new rates, subject to refund, under the provisions of its rate case filed August 1, 1995. On October 18, 1996, the Commission issued an order approving a settlement concerning certain liquid revenue credit issues relating to Pipeline's agreement with an affiliate to have liquid hydrocarbons products extracted from Pipeline's stream at Ignacio, Colorado. The litigation of all remaining issues commenced in October 1996 and is still in progress. Pipeline's rate application seeks a revenue increase for increases in rate base related primarily to the Northwest Natural and Expansion II facilities placed into service December 1, 1995 and increased operating costs primarily associated with an increase in headquarters office rent. On August 30, 1996, Pipeline filed a general rate case seeking the implementation of new rates that will become effective on March 1, 1997. The application seeks an increase in rates due to a proposed use of a higher depreciation rate which also considers a net negative salvage value for Pipeline's facilities as well as the redesign of Pipeline's rates because of impacts relating to the sale of Pipeline's south end facilities. Significant Litigation In October 1995, Pipeline received a judge's order following a non-jury trial involving claims arising from a transportation agreement of a former customer. In the decision, which was amended in January 1996, it was held that Pipeline was liable to the former customer in the amount of $5.3 million, plus interest. Although Pipeline has recorded charges to "other expenses" and "other interest charges", Pipeline is appealing the decision. - 6 - 9 NORTHWEST PIPELINE CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) ================================================================================ On July 18, 1996, Jack J. Grynberg filed a lawsuit in the United States District Court for the District of Columbia against 70 natural gas pipelines and other gas purchasers or former gas purchasers. All of the Williams' natural gas pipeline subsidiaries are named as defendants in the lawsuit. The plaintiff claims, on behalf of the United States under the False Claims Act, that the pipelines have incorrectly measured the heating value or volume of gas purchased by the defendants. The plaintiff claims that the United States has lost royalty payments as a result of these practices. The pipelines intend to vigorously defend against these claims. Other Legal and Regulatory Matters On October 21, 1996, Pipeline received an order from the FERC with respect to a one-time catch-up adjustment under the recovery mechanism for gas lost, gained and unaccounted for. The order reaffirmed a previous position that Pipeline is entitled to collect a 3.2 TBtu volume adjustment, but mandated an offset of .8 Tbtu for volumes collected in prior years. Pipeline is evaluating the recently issued order but anticipates that it may be at risk for refunding approximately $1.1 million which is not reflected in the accompanying financial statements. In addition to the foregoing, various other proceedings are pending against Pipeline incidental to its operations. Summary of Contingent Liabilities Management believes that the ultimate resolution of the foregoing matters, after consideration of amounts accrued, insurance coverage or other indemnification arrangements, will not have a materially adverse effect upon Pipeline's future financial position, results of operations, and future cash flow requirements. - 7 - 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This analysis discusses financial results of Pipeline's operations for the quarters and nine month periods ended September 30, 1996 and 1995. Variances due to changes in price and volume do not have a significant impact on revenues, because under its straight-fixed-variable rate design methodology, the majority of Pipeline's overall cost of service is recovered through fixed demand charges in its transportation rates. RESULTS OF OPERATIONS Quarter Ended September 30, 1996 vs Quarter Ended September 30, 1995 Operating revenues decreased $6.4 million, or 8%, due primarily to the 1995 reversal of certain reserve accruals aggregating $16.3 million including amounts for estimated rate refunds, partially offset by a $3.2 million favorable 1996 regulatory decision and increased transportation rates effective February 1, 1996 associated with the completion of Pipeline's Northwest Natural and Expansion II facilities in December of 1995. Pipeline's transportation service accounted for 94% and 92% of operating revenues for the quarters ended September 30, 1996 and 1995, respectively. Of those amounts, Pipeline's firm transportation service accounted for 98% and 99% in the quarters ended September 30, 1996 and 1995, respectively. The remaining 2% and 1% for each period, respectively, represented interruptible transportation service. Additionally, 4% of operating revenues represented gas storage service for each of the quarters ended September 30, 1996 and 1995. Operating expenses increased $.9 million, or 3%, due primarily to depreciation related to Pipeline's mainline expansion and higher pension costs, partially offset by a decrease in taxes, other than income. Operating income decreased $7.3 million, or 17%, primarily due to the reversal in 1995 of certain reserve accruals including amounts for estimated rate refunds and increased depreciation related to the completion of Pipeline's Northwest Natural and Expansion II facilities in December of 1995, partially offset by revenues from higher rates associated with mainline expansion facilities and a $3.2 million favorable 1996 regulatory decision. Other income and expenses includes a $6 million reserve accrual in 1995 for a lawsuit involving a former transportation customer. Interest on long-term debt increased $1.2 million due to the issuance of $85 million in debentures during the fourth quarter of 1995. Other interest expense increased $2.4 million primarily due to the 1995 reversal of previously accrued interest on revenues subject to rate refund and the reclassification of a previously accrued reserve. Nine Months Ended September 30, 1996 vs. Nine Months Ended September 30, 1995 Operating revenues increased $11.9 million, or 6 percent, due primarily to increased transportation rates effective February 1, 1996 associated with the completion of Pipeline's Northwest Natural and Expansion II facilities in December of 1995, a $4.6 million settlement of a previous rate case in February 1996 and a $3.2 million favorable regulatory decision, partially offset by the 1995 reversal of certain reserve accruals aggregating $16.3 million including amounts for estimated rate refunds. Pipeline's transportation service accounted for 94% and 93% of operating revenues for the nine month periods ended September 30, 1996 and 1995, respectively. Of those amounts, Pipeline's firm transportation service accounted for 99.3% and 97% in the nine month periods ended September 30, 1996 and 1995, respectively. The remaining .7% and 3% for each period, respectively, represented interruptible transportation service. Additionally, 5% and 4% of operating revenues represented gas storage service for the nine month periods ended September 30, 1996 and 1995, respectively. - 8 - 11 Operating expenses increased $6.1 million, or 6%, due primarily to depreciation related to Pipeline's Northwest Natural and Expansion II expansions and higher pension costs and headquarters office rent. Operating income increased $5.8 million, or 6%, primarily due to revenues from higher rates associated with Northwest Natural and Expansion II facilities placed in service during December of 1995, the settlement of a previous rate case and a favorable regulatory decision, partially offset by the reversal of certain reserve accruals in 1995, increased depreciation expenses associated with the Northwest Natural and Expansion II facilities and higher pension costs and headquarters office rent. Other income and expenses includes a $7 million reserve accrual in 1995 for a lawsuit involving a former transportation customer. Interest on long term debt increased $3.7 million due to the issuance of $85 million in debentures during the fourth quarter of 1995. Other interest expense increased $1.8 million primarily due to the 1995 reversal of previously reserved interest on revenues subject to rate refund. The allowance for borrowed funds used during construction decreased $1.7 million resulting from the completion of the mainline expansion project in 1995. The following table summarizes year-to-date volumes and average daily volumes for the periods indicated:
Nine Months Ended September 30, --------------------------- 1996 1995 ------- ------ Total Gas volumes throughput (TBtu) 631 579 Average Daily Transportation Volumes (TBtu) 2.3 2.1 Average Daily Firm Reserved Capacity (TBtu) 2.6 2.4
FINANCIAL CONDITION AND LIQUIDITY Pipeline anticipates 1996 capital expenditures will total approximately $78.6 million, of which $39.7 million has been expended through September 30, 1996. Funds necessary to complete capital projects are expected to come from several sources, including Pipeline's operations and the return of funds previously advanced to Williams. In addition, Pipeline expects to be able to obtain financing, when necessary, on reasonable terms. To allow flexibility in the timing of issuance of long-term securities, financing may be provided on an interim basis with bank debt and from sources discussed below. Pipeline shares in a $800 million Revolving Credit Agreement with Williams and four affiliated companies. Pipeline's maximum borrowing availability, subject to prior borrowing by other affiliated companies, is $400 million, none of which was used by Pipeline at September 30, 1996. Interest rates vary with current market conditions. The agreement contains restrictions which limit, under certain circumstances, the issuance of additional debt, the attachment of liens on any assets and any change of ownership of Pipeline. Any borrowings by Pipeline using this agreement are not guaranteed by Williams and are based on Pipeline's financial need and credit worthiness. Pipeline has also arranged various uncommitted lines-of-credit at market interest rates. Pipeline's credit facilities are subject to Pipeline's continued credit worthiness. OTHER Pipeline owns and operates an interstate natural gas pipeline system, including facilities for mainline transmission and gas storage. Pipeline's transmission and storage activities are subject to regulation by the FERC under the Natural Gas Act of 1938 and under the Natural Gas Policy Act of 1978, and, as such, its rates and charges for the transportation, the extension, enlargement or abandonment of its jurisdictional facilities, and its accounting, among other things, are subject to regulation. - 9 - 12 Pipeline is also subject to the National Environmental Policy Act and other federal and state legislation regulating the environmental aspects of its business. Management believes that Pipeline is in substantial compliance with existing environmental requirements. Pipeline believes that, with respect to any capital expenditures required to meet applicable standards and regulations, FERC would grant the requisite rate relief so that, for the most part, such expenditures and a return thereon would be permitted to be recovered. Pipeline believes that compliance with applicable environmental requirements is not likely to have a material effect upon Pipeline's earnings, cash flow or competitive position. The Financial Accounting Standards Board has issued a new accounting standard, FAS No. 123 "Accounting for Stock-Based Compensation," effective for fiscal years beginning after December 15, 1995. As provided for in the standard, Pipeline will not adopt the recognition provisions and will provide the pro forma financial statement disclosures required by the standard in its 1996 annual financial statements. Pipeline currently follows Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees." Under this standard, because the exercise price of Williams' fixed plan common stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. On August 30, 1996, Pipeline filed a general rate case seeking the implementation of new rates that will become effective on March 1, 1997. The application seeks an increase in rates due to a proposed use of a higher depreciation rate which also considers a net negative salvage value for Pipeline's facilities as well as the redesign of Pipeline's rates because of impacts relating to the sale of Pipeline's south end facilities. Reference is made to Note 5 of Notes to Financial Statements included in this filing for a description of certain contingent liabilities and commitments. - 10 - 13 PART II. OTHER INFORMATION The information required by items in Part II is omitted because the items are inapplicable, the answer is negative or substantially the same information is included elsewhere in this report or has been previously reported by the Registrant. - 11 - 14 SIGNATURE 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. NORTHWEST PIPELINE CORPORATION -------------------------------------- Registrant By: /s/ Curtis C. Kennedy -------------------------------------- Curtis C. Kennedy Controller and Treasurer (Duly Authorized Officer and Chief Financial Officer) Date: November 12, 1996 - 12 - 15 EXHIBIT INDEX
Exhibit - ------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1996 SEP-30-1996 610 0 36,566 0 10,568 105,390 1,471,977 560,347 1,042,102 112,954 361,411 0 0 1 447,343 1,042,102 0 205,640 0 102,855 0 0 29,420 78,287 28,162 50,125 0 0 0 50,125 0 0
-----END PRIVACY-ENHANCED MESSAGE-----