-----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, Dia4UCMJnKz3mnmLCOX4cb3mrobYCjIsSeygPtfj1FRFBDWV2NyV8ZyLGZ77sqQC WworBCoFtWAGaY2XlUTh6A== 0000950134-97-008394.txt : 19971113 0000950134-97-008394.hdr.sgml : 19971113 ACCESSION NUMBER: 0000950134-97-008394 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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: SEC FILE NUMBER: 001-07414 FILM NUMBER: 97715864 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, 1997 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, 1997 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, 1997 - -------------------------- -------------------------------- 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 - Consolidated Statement of Income, three and nine months ended September 30, 1997 and 1996 ......................................... 1 Consolidated Balance Sheet as of September 30, 1997 and December 31, 1996 ......................................................... 2 Consolidated Statement of Cash Flows, nine months ended September 30, 1997 and 1996 .................................. 4 Notes to Consolidated Financial Statements...................................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ....................................... 9 PART II. OTHER INFORMATION.............................................................. 11
Certain matters discussed in this report, excluding historical information, include forward-looking statements. Although Northwest Pipeline Corporation believes such forward-looking statements are based on reasonable assumptions, no assurance can be given that every objective will be reached. Such statements are made in reliance on the "safe harbor" protections provided under the Private Securities Reform Act of 1995. Additional information about issues that could lead to material changes in performance is contained in Northwest Pipeline Corporation's annual report on Form 10-K. i 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements NORTHWEST PIPELINE CORPORATION CONSOLIDATED STATEMENT OF INCOME (Unaudited)
================================================================================================== Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ------------------------- 1997 1996 1997 1996 -------- --------- --------- --------- (Thousands) OPERATING REVENUES ................. $ 71,197 $ 69,188 $ 204,453 $ 205,640 -------- --------- --------- --------- OPERATING EXPENSES: General and administrative ...... 10,262 11,208 34,501 35,662 Operation and maintenance ....... 9,178 10,739 26,080 30,781 Depreciation and amortization ... 13,222 9,043 38,490 26,768 Taxes, other than income taxes .. 2,966 2,229 10,641 9,644 -------- --------- --------- --------- 35,628 33,219 109,712 102,855 -------- --------- --------- --------- Operating income ............. 35,569 35,969 94,741 102,785 -------- --------- --------- --------- OTHER INCOME - net ................ 587 2,190 2,556 4,922 -------- --------- --------- --------- INTEREST CHARGES: Interest on long-term debt ...... 8,164 8,302 24,808 25,413 Other interest .................. 1,840 2,055 5,395 4,343 Allowance for borrowed funds used during construction .................. (168) (202) (493) (336) -------- --------- --------- --------- 9,836 10,155 29,710 29,420 -------- --------- --------- --------- INCOME BEFORE INCOME TAXES ......... 26,320 28,004 67,587 78,287 PROVISION FOR INCOME TAXES ......... 7,794 8,604 23,207 28,162 -------- --------- --------- --------- NET INCOME ......................... $ 18,526 $ 19,400 $ 44,380 $ 50,125 ======== ========= ========= ========= CASH DIVIDEND ON COMMON STOCK ...... $ 21,400 $ 55,241 $ 51,837 $ 62,241 ======== ========= ========= =========
- ----------------- See accompanying notes. - 1 - 4 NORTHWEST PIPELINE CORPORATION CONSOLIDATED BALANCE SHEET (Unaudited)
===================================================================================== ASSETS September 30, December 31, 1997 1996 ---------- ---------- (Thousands) PROPERTY, PLANT AND EQUIPMENT, at cost ........... $1,461,599 $1,452,181 Less - Accumulated depreciation and amortization.................................. 563,688 550,104 ---------- ---------- 897,911 902,077 Construction work in progress ................ 21,259 24,040 ---------- ---------- 919,170 926,117 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents .................... 839 240 Advances to parent ........................... 43,813 16,676 Accounts receivable - Trade ..................................... 22,641 31,189 Affiliated companies ...................... 246 1,229 Materials and supplies (principally at average cost) ............................. 10,613 10,510 Exchange gas due from others ................. 7,335 8,264 Costs recoverable through rate adjustments ... 5,920 11,998 Income taxes receivable ...................... 2,657 -- Deferred income taxes ........................ 22,354 23,306 Prepayments and other......................... 5,472 5,051 ---------- ---------- 121,890 108,463 ---------- ---------- OTHER ASSETS: Deferred charges ............................. 48,172 22,607 ---------- ---------- $1,089,232 $1,057,187 ========== ==========
- ----------------- See accompanying notes. - 2 - 5 NORTHWEST PIPELINE CORPORATION CONSOLIDATED BALANCE SHEET (Unaudited)
======================================================================================= LIABILITIES AND STOCKHOLDER'S EQUITY September 30, December 30, 1997 1996 ---------- ---------- (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 .................. 262,844 262,844 Retained earnings ........................... 171,603 179,485 ---------- ---------- 434,448 442,330 Long-term debt, less current maturities (Note 3)....................................... 167,395 361,424 ---------- ---------- 601,843 803,754 ---------- ---------- CURRENT LIABILITIES: Current maturities of long-term debt ........... 11,091 8,591 Notes payable to banks (Note 3) ............. 207,000 -- Accounts payable - Trade ....................................... 13,715 16,313 Affiliated companies ........................ 7,628 2,805 Accrued liabilities - Income taxes ................................ -- 6,048 Taxes, other than income taxes .............. 5,875 3,890 Interest .................................... 16,278 14,676 Employee costs .............................. 8,183 7,763 Exchange gas due to others .................. 12,811 19,817 Reserves for estimated rate refunds ......... 66,402 46,795 Other ....................................... 7,046 7,821 ---------- ---------- 356,029 134,519 ---------- ---------- DEFERRED INCOME TAXES .............................. 122,852 110,699 ---------- ---------- OTHER DEFERRED CREDITS ............................. 8,508 8,215 ---------- ---------- CONTINGENT LIABILITIES AND COMMITMENTS (Note 4) .... -- -- ---------- ---------- $1,089,232 $1,057,187 ========== ==========
- ------------------- See accompanying notes. - 3 - 6 NORTHWEST PIPELINE CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
============================================================================================ Nine Months Ended September 30, ------------------------ 1997 1996 --------- -------- (Thousands) OPERATING ACTIVITIES: Net income .................................................. $ 44,380 $ 50,125 Adjustments to reconcile to cash provided by operations - Depreciation and amortization ....................... 38,490 26,768 Provision for deferred income taxes ................. 13,105 5,572 Amortization of deferred charges and credits ........ (1,099) 212 Sale of receivables ................................. 8,000 -- Allowance for equity funds used during construction . (577) (516) Increase (decrease) from changes in: Accounts receivable ............................... (197) 11,168 Inventory ......................................... (103) 497 Other current assets .............................. 5,657 4,291 Other assets and deferred charges ................. (2,190) 765 Accounts payable .................................. 4,510 (9,079) Other current liabilities ......................... 16,791 2,397 Other deferred credits ............................ 1,203 (909) Other ............................................... (516) (95) --------- -------- Net cash provided by operating activities ............... 127,454 91,196 --------- -------- INVESTING ACTIVITIES: Property, plant and equipment - Capital expenditures ................................ (31,241) (39,728) Proceeds from sales ................................. 366 17,161 Asset removal cost .................................. -- (256) Changes in accounts payable ......................... (9,291) (9,448) Advances to parent ...................................... (27,137) 13,871 --------- -------- Net cash used by investing activities ................... (67,303) (18,400) --------- -------- FINANCING ACTIVITIES: Principal payments on long-term debt .................... (192,020) (10,515) Premium on early retirement of long-term debt ........... (22,695) -- Proceeds from notes payable to bank ..................... 207,000 -- Cash dividends paid ..................................... (51,837) (62,241) --------- -------- Net cash used by financing activities ................... (59,552) (72,756) --------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS ................... 599 40 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................................................. 240 570 --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .................. $ 839 $ 610 ========= ========
- ----------------- See accompanying notes. - 4 - 7 NORTHWEST PIPELINE CORPORATION NOTES TO CONSOLIDATED 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, 1997 and December 31, 1996, the results of operations for the three and nine month periods ended September 30, 1997 and 1996, and cash flows for the nine month periods ended September 30, 1997 and 1996. 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 1996 Annual Report on Form 10-K. Effective May 1, 1997, Pipeline became a wholly-owned subsidiary of Williams Interstate Natural Gas Systems, Inc., which is a wholly-owned subsidiary of The Williams Companies, Inc. ("Williams"). Prior to May 1, 1997, Pipeline was a wholly-owned subsidiary of Williams. Cash payments for interest were $27.4 million and $24 million, net of $.5 million and $.3 million of interest capitalized, in the nine month periods ended September 30, 1997 and 1996, respectively. Net cash payments made to Williams for income taxes were $11.4 million and $16.5 million in the nine month periods ended September 30, 1997 and 1996, respectively. (2) BASIS OF PRESENTATION Financial position of Pipeline as of September 30, 1997, the results of operations for the three and nine month periods ended September 30, 1997 and cash flows for the nine month period ended September 30, 1997 include the operating results of NWP Enterprises ("Enterprises"), a wholly owned subsidiary of Pipeline, since its incorporation on January 2, 1997. (3) LONG-TERM DEBT AND BANKING ARRANGEMENTS During October 1997, Pipeline made negotiated prepayments of the remaining $11.1 million of its 9.25% Series C Debentures, due 2006, with redemption premiums totaling $1 million. The early redemption premiums and the unamortized debt expense associated with the prepaid 9.25% Series C Debentures, totaling $1.1 million, will be amortized over the life of the retired debt. Excess funds previously advanced to Williams were used to fund the prepayment and premium. On October 15, 1997, Pipeline made an optional prepayment with a redemption premium of the remaining $7.5 million of its 9% Series B Debentures, due 2001. The early redemption premium and the unamortized debt expense associated with the 9% Series B Debentures, totaling $.2 million, will be amortized over the life of the retired debt. Excess funds previously advanced to Williams were used to fund the prepayment and premium. On September 8, 1997, Pipeline filed a registration statement for issuance of up to $350 million in public debt securities in conjunction with the announcement of Williams' debt restructuring plan to reduce annual interest expense. No securities had been issued at September 30, 1997. - 5 - 8 NORTHWEST PIPELINE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) =============================================================================== Between September 8, 1997 and September 19, 1997, Pipeline purchased, through a tender offer, $66 million of its 10.65% Debentures, due 2018, and $117 million of its 9% Debentures, due 2022, at premiums of $6.8 million and $15.9 million, respectively. The early redemption premiums and fees, the unamortized debt expenses on both issues and the unamortized debt discount on the 9% Debentures, totaling $7.3 million for the 10.65% Debentures and $17.6 million for the 9% Debentures, are being amortized over the life of the retired debt. The Revolving Credit Facility (see below) was used to fund the tender offer. On May 31, 1997, Pipeline called $.5 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, 1997 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 $1 billion Revolving Credit Agreement with Williams and five affiliated companies. Pipeline's maximum borrowing availability, subject to prior borrowing by other affiliated companies, is $400 million, $207 million of which was used by Pipeline at September 30, 1997. 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. (4) CONTINGENT LIABILITIES AND COMMITMENTS Pending Rate Cases On April 1, 1993, Pipeline began collecting new rates, subject to refund, under its rate case filed October 1, 1992 ("1993 Rate Case"). On May 31, 1995, Pipeline received an order from the Federal Energy Regulatory Commission ("FERC") on this rate case, which among other issues, supported an equity rate of return of 13.2 percent. In a further order issued on July 19, 1996, FERC required an Administrative Law Judge ("ALJ") to reconsider the long-term growth component of the equity rate of return formula, and upheld its May 31, 1995 decision on all other issues. On October 22, 1996, the ALJ issued an initial decision which recommended an equity rate of return of 11.62 percent. Pipeline took exception to this decision before the FERC. On June 11, 1997, the FERC issued an order revising its approved equity rate of return to 12.59 percent based on a new policy for industry-wide application that requires the use of forecasts of growth in the gross domestic product as the long-term growth component of the rate of return formula. On July 11, 1997, Pipeline and several parties in the case sought rehearing of the June 11 rate of return on equity decision, seeking to have the FERC reconsider several aspects of its new rate of return on equity policy. On October 16, 1997, the FERC issued an opinion denying rehearing and reaffirming its previous policy pronouncements concerning rate of return on equity. Pipeline plans to seek judicial review of the FERC's order. In addition, Pipeline expects the FERC to further scrutinize its new rate of return on equity policy in rate proceedings of other pipelines or in a further rulemaking proceeding. 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 1993 Rate Case. On November 14, 1995, Pipeline filed an uncontested settlement proposal with the FERC. 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 balance sheet. The settlement resolved substantially all the issues in this rate case except one regarding Pipeline's postage stamp rate design. A hearing was conducted in July 1996; and subsequently, a decision upholding Pipeline's position was issued by the ALJ. Pipeline is awaiting the FERC's approval of the ALJ's decision. Any change in rate design pursuant to this decision would be prospective only. - 6 - 9 NORTHWEST PIPELINE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) =============================================================================== On February 1, 1996, Pipeline began collecting new rates, subject to refund, under the provisions of its rate case filed August 1, 1995 ("1995 Rate Case"). 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 hydrocarbon products extracted from Pipeline's transportation stream at Ignacio, Colorado. The litigation of all remaining issues took place in late 1996 and Pipeline is awaiting the initial decision of the presiding ALJ. 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. As a result of the rate of return policy in Pipeline's 1993 Rate Case which was issued on June 11, 1997, the presiding ALJ on June 17, 1997, required submission of supplemental information on long-term growth for his consideration. While Pipeline filed comments with the ALJ that such growth information must not be used in deciding the rate of return on equity issues in the 1995 Rate Case without additional hearing procedures, the required growth information was submitted to the ALJ under a stipulation of the parties on July 11, 1997. On March 1, 1997, Pipeline began collecting new rates, subject to refund, under the provisions of its rate case filed August 30, 1996. The application sought 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, higher operating costs and a redesign of Pipeline's rates because of impacts relating to the sale of Pipeline's south- end facilities in the third quarter of 1996. Pipeline filed a settlement on July 22, 1997, with the Commission which, if approved, will resolve all issues in this rate case. Based on comments submitted by one producer, the ALJ certified the settlement to the FERC with respect to all but three parties which were severed for a separate hearing. Issues concerning the ALJ's action in severing the three parties have been certified to the FERC for separate review. Pipeline has reflected in its financial statements adjustments as necessary to reflect the provisions of the settlement. 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 recorded charges to "other expenses" and "other interest charges" in 1995, Pipeline is appealing the decision. On July 18, 1996, an individual 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 were named as defendants in the lawsuit. The plaintiff claimed, on behalf of the United States under the False Claims Act, that the pipelines had incorrectly measured the heating value or volume of gas purchased by the defendants. The plaintiff claimed that the United States had lost royalty payments as a result of these practices. The court dismissed the claims against the pipelines and most of the other defendants. Other Legal and Regulatory Matters 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 NORTHWEST PIPELINE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) =============================================================================== Other Matters In February 1997, Pipeline's subsidiary, Enterprises entered into a new agreement for the sale, with limited recourse, of certain receivables of Pipeline. Net proceeds to Enterprises are limited to $15 million of which $8 million was utilized at September 30, 1997. The Financial Accounting Standards Board ("FAS") has issued an accounting standard, FAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," effective for transactions occurring after December 31, 1996. The adoption of this standard did not impact Pipeline's consolidated results of operations, financial position or cash flows. The FAS has issued two new accounting standards, FAS No. 130, "Reporting Comprehensive Income," and FAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," effective for fiscal years beginning after December 15, 1997. The adoption of this standard is not expected to impact Pipeline's consolidated results of operations, financial position or cash flows. - 8 - 11 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, 1997 and 1996. 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, 1997 vs Quarter Ended September 30, 1996 Operating revenues increased $2 million, or 3%, due primarily to new transportation rates effective March 1, 1997, partially offset by the effect of a $3.2 million favorable 1996 regulatory decision. Pipeline's transportation service accounted for 94% of operating revenues for each of the quarters ended September 30, 1997 and 1996, respectively. Additionally, 4% of operating revenues represented gas storage service for each of the quarters ended September 30, 1997 and 1996. Operating expenses increased $2.4 million, or 7%, due primarily to increased depreciation expenses associated with Pipeline's new rates effective March 1, 1997, partially offset by decreases in the operation and maintenance and general and administrative expenses. Operating income decreased $.4 million, or 1%, primarily due to a 1996 favorable regulatory decision, partially offset by decreases in the operation and maintenance and general and administrative expenses. Nine Months Ended September 30, 1997 vs. Nine Months Ended September 30, 1996 Operating revenues decreased $1.2 million, or 1%, due primarily to increases in rate reserves in 1997 and the 1996 recognition of the favorable settlement of a previous rate case and a favorable regulatory decision, partially offset by new transportation rates that became effective March 1, 1997. Pipeline's transportation service accounted for 94% of operating revenues for each of the nine month periods ended September 30, 1997 and 1996, respectively. Additionally, 4% and 5% of operating revenues represented gas storage service for the nine month periods ended September 30, 1997 and 1996, respectively. Operating expenses increased $6.9 million, or 7%, due primarily to increased depreciation expenses associated with Pipeline's new rates effective March 1, 1997, partially offset by decreased operation and maintenance expense. Operating income decreased $8 million, or 8%, primarily due to increases in rate reserves in 1997 and the 1996 recognition of the favorable settlement of a previous rate case and a favorable regulatory decision, partially offset by decreased operation and maintenance expense. The following table summarizes year-to-date volumes and average daily volumes for the periods indicated:
Nine Months Ended September 30, ------------------------- 1997 1996 ----------- ----------- Total Gas Volumes Throughput (TBtu) 521 631 Average Daily Transportation Volumes (TBtu) 1.9 2.3 Average Daily Firm Reserved Capacity (TBtu) 2.4 2.6
- 9 - 12 The decrease in gas volumes throughput is a result of the sale of Pipeline's south end facilities in September 1996. FINANCIAL CONDITION AND LIQUIDITY Pipeline anticipates 1997 capital expenditures will total approximately $41.6 million, of which $31.2 million has been expended through September 30, 1997. 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 $1 billion Revolving Credit Agreement with Williams and five affiliated companies. Pipeline's maximum borrowing availability, subject to prior borrowing by other affiliated companies, is $400 million, $207 million of which was used by Pipeline at September 30, 1997. 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. 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. Reference is made to Note 4 of Notes to Consolidated Financial Statements for information about regulatory, judicial and business developments which cause operating and financial uncertainties. - 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 (Duly Authorized Officer and Chief Accounting Officer) Date: November 12, 1997 - 12 - 15 EXHIBIT INDEX
Exhibit Description - ------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1997 SEP-30-1997 839 0 22,887 0 10,613 121,890 1,482,858 563,688 1,089,232 356,029 167,395 0 0 1 434,447 1,089,232 0 204,453 0 109,712 0 0 29,710 67,587 23,207 44,380 0 0 0 44,380 0 0
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