-----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, ToQmZhYgVSf8dNvEuCkP8KSul45RCzLINSaxHqZ+h9ESwNLZ/VzbuJ+smT7mTmHU 3CeEK010ilcpOcCCDvRSFQ== 0000764044-99-000004.txt : 19990517 0000764044-99-000004.hdr.sgml : 19990517 ACCESSION NUMBER: 0000764044-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUESTAR PIPELINE CO CENTRAL INDEX KEY: 0000764044 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 870307414 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14147 FILM NUMBER: 99623168 BUSINESS ADDRESS: STREET 1: 180 E 100 SOUTH STREET STREET 2: P O BOX 45360 CITY: SALT LAKE CITY STATE: UT ZIP: 84145 BUSINESS PHONE: 8013242400 MAIL ADDRESS: STREET 1: 180 EAST 100 SOUTH STREET STREET 2: P O BOX 45360 CITY: SALT LAKE CITY STATE: UT ZIP: 84145 FORMER COMPANY: FORMER CONFORMED NAME: MOUNTAIN FUEL RESOURCES INC DATE OF NAME CHANGE: 19880331 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 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 45360, 180 East 100 South, Salt Lake City, Utah 84145-0360 (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 April 30, 1999 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. PART I FINANCIAL INFORMATION Item 1. Financial Statements QUESTAR PIPELINE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
3 Months Ended 12 Months Ended March 31, March 31, 1999 1998 1999 1998 (In Thousands) REVENUES $27,166 $27,249 $108,474 $105,965 OPERATING EXPENSES Operating and maintenance 9,389 9,927 38,294 38,353 Depreciation 3,976 3,843 14,060 15,043 Other taxes 737 673 2,664 2,738 TOTAL OPERATING EXPENSES 14,102 14,443 55,018 56,134 OPERATING INCOME 13,064 12,806 53,456 49,831 INTEREST AND OTHER INCOME (EXPENSE) 809 (86) 973 1,232 EARNINGS FROM UNCONSOLIDATED AFFILIATES 1,491 407 5,095 5,104 DEBT EXPENSE (4,177) (3,434) (15,199) (13,619) INCOME BEFORE INCOME TAXES 11,187 9,693 44,325 42,548 INCOME TAXES 4,225 3,139 16,026 15,748 NET INCOME $6,962 $6,554 $28,299 $26,800
See notes to consolidated financial statements QUESTAR PIPELINE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, 1999 1998 1998 (In Thousands) ASSETS Current assets Cash and short-term investments $9,990 Accounts receivable $4,893 $10,406 21,304 Inventories 2,890 2,092 2,203 Other current assets 1,572 1,877 1,714 Total current assets 9,355 14,375 35,211 Property, plant and equipment 671,908 581,877 670,456 Less allowances for depreciation 219,630 207,154 215,589 Net property, plant and equipment 452,278 374,723 454,867 Investment in unconsolidated affiliates 58,054 29,884 54,712 Other assets 9,683 11,039 12,506 $529,370 $430,021 $557,296 LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities Checks outstanding in excess of cash balances $820 $879 Notes payable to Questar Corporation 20,500 19,100 $38,000 Accounts payable and accrued expenses 40,506 18,581 51,047 Total current liabilities 61,826 38,560 89,047 Long-term debt 203,007 134,568 202,991 Other liabilities 1,562 3,359 4,546 Deferred income taxes 64,185 61,919 63,510 Common shareholder's equity Common stock 6,551 6,551 6,551 Additional paid-in capital 82,034 82,034 82,034 Retained earnings 110,205 103,030 108,617 Total common shareholder's equity 198,790 191,615 197,202 $529,370 $430,021 $557,296
See notes to consolidated financial statements QUESTAR PIPELINE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
3 Months Ended March 31, 1999 1998 (In Thousands) OPERATING ACTIVITIES Net income $6,962 $6,554 Depreciation 4,063 4,502 Deferred income taxes 675 (379) Earnings from unconsolidated affiliates, net of cash distributions (642) (407) 11,058 10,270 Change in operating assets and liabilities 5,181 (2,725) NET CASH PROVIDED FROM OPERATING ACTIVITIES 16,239 7,545 INVESTING ACTIVITIES Capital expenditures Purchase of property, plant and equipment (2,180) (2,584) Investment in unconsolidated affiliates (2,700) (2,500) Total capital expenditures (4,880) (5,084) Proceeds from disposition of property, plant and equipment 706 1,535 NET CASH USED IN INVESTING ACTIVITIES (4,174) (3,549) FINANCING ACTIVITIES Checks outstanding in excess of cash balances 820 879 Decrease in notes payable to Questar Corporation (17,500) (6,700) Payment of dividends (5,375) (5,250) NET CASH USED IN FINANCING ACTIVITIES (22,055) (11,071) DECREASE IN CASH AND SHORT- TERM INVESTMENTS ($9,990) ($7,075)
See notes to consolidated financial statements QUESTAR PIPELINE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 (Unaudited) Note 1 - Basis of Presentation The interim financial statements 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, 1999, are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. 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, 1998. Note 2 - Investment in Unconsolidated Affiliates Questar Pipeline has interests in partnerships accounted for on an equity basis. Transportation of natural gas is the primary business activity of these partnerships. Summarized operating results of the partnerships are listed below. Income before income taxes includes capitalized financing charges or AFUDC. 3 Months Ended March 31, 1999 1998 (In Thousands) Revenues $1,055 $1,055 Operating income 282 190 Income before income taxes 2,665 876 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations QUESTAR PIPELINE COMPANY AND SUBSIDIARIES March 31, 1999 (Unaudited) Operating Results Following is a summary of financial and operating information for the Company:
3 Months Ended 12 Months Ended March 31, March 31, 1999 1998 1999 1998 (Dollars In Thousands) FINANCIAL RESULTS Revenues From unaffiliated customers $9,021 $9,065 $37,112 $36,277 From affiliates 18,145 18,184 71,362 69,688 Total revenues $27,166 $27,249 $108,474 $105,965 Operating income $13,064 $12,806 $53,456 $49,831 Net income 6,962 6,554 28,299 26,800 OPERATING STATISTICS Natural gas transportation volumes (in thousands of decatherms) For unaffiliated customers 25,946 32,778 113,915 115,690 For Questar Gas 35,635 38,331 104,805 106,378 For other affiliated customers 3,380 4,858 25,400 35,839 Total transportation 64,961 75,967 244,120 257,907 Transportation revenue (per decatherm) $0.27 $0.24 $0.29 $0.27 Net income increased 6% in 1999 compared with the first quarter and 12-month period of 1998. The Company benefited from higher storage revenues, lower operating expenses and higher earnings from unconsolidated affiliates. Storage revenues were higher in the 3- and 12-month periods of 1999 due primarily to increased firm-storage reservation charges because of the expansion of the Clay Basin storage complex in the first half of 1998. However, the full impact was offset in the first quarter of 1999 by lower firm-transportation revenues. Average daily demand in the first quarter of 1999 was 84,000 decatherms or 7% lower as a result of the expiration of several firm-transportation contracts. Questar Pipeline amended its transportation agreement with Questar Gas extending the term of the agreement for three years to June 2002. The terms of the amended contract are identical to the former agreement with the exception of the expiration date. Prior to the amendment, the agreement was scheduled to expire in June 1999. Operating and maintenance expenses were lower in the 1999 periods presented when compared with the 1998 periods due to the effects of an early retirement program effective August 1998. Labor costs savings amounted to $700,000 in the first quarter of 1999. Higher costs incurred in 1999 for telecommunications and data processing have partially offset the effect of lower labor cost. Increased investment in capital projects has resulted in higher depreciation charges in the first quarter of 1999. The full impact of increased investment was partially offset in the 12 months of 1999 by a downward adjustment of depreciation expense in the second quarter of 1998. Other taxes were higher in the first quarter of 1999 when compared with the same period of 1998 as a result of higher property tax. Generally, property taxes have been increasing in conjunction with the expansion of plant assets. Earnings from unconsolidated affiliates in the 1999 periods include the Company's share of income reported by TransColorado Gas Transmission Co. The noncash earnings are the result of capitalizing interest and equity costs (AFUDC) associated with the construction of the TransColorado Pipeline. AFUDC amounted to $1,265,000 in the first quarter of 1999 compared with $318,000 in the corresponding 1998 period. Phase II of the TransColorado Pipeline was placed in service March 31, 1999, with the pipeline currently flowing approximately 85 MMcf of gas per day at a discounted rate. With the completion of construction of Phase II, Questar Pipeline will complete its acquisition of the smaller Phase I. Phase I has been in service since December 1996 and is fully subscribed. Interest and other income in the first quarter of 1999 includes AFUDC from other capital projects of Questar Pipeline. Debt expense was higher in the first quarter of 1999 as a result of borrowing $88.4 million in the fourth quarter of 1998. The medium-term notes have a weighted average coupon rate of 6.14% and a weighted average life of 12.6 years. The effective income tax rate was 37.8% in the first quarter of 1999 compared with 32.4% for the same period in 1998 due to adjustments that reduced first quarter 1998 tax expenses. Liquidity and Capital Resources Operating Activities Net cash provided from operating activities of $16,239,000 in the first quarter of 1999 was $8,694,000 more than the amount reported for the same period in 1998 due primarily to changes in operating assets and liabilities. The changes were associated with timing differences in paying costs of construction projects. Investing Activities Capital expenditures were $4,880,000 in the first quarter of 1999 compared with $5,084,000 in the corresponding 1998 period. Capital expenditures for calendar year 1999 are estimated to be $89.1 million. Financing Activities Questar Corporation loans funds to the Company under a short-term arrangement. As of March 31, amounts borrowed from Questar were $20.5 million in 1999 and $19.1 million in 1998. Capital expenditures for 1999 are expected to be financed with net cash provided from operating activities and short- and long-term debt including borrowings on an active medium-term note program and from Questar. Year 2000 Issues Questar Corporation established a team to address the issue of computer programs and embedded computer chips being unable to distinguish between the year 1900 and the year 2000 (Y2K). The team has identified 59 projects that are in varying stages of remediation and the scope includes Questar and its affiliated companies. The projects fit into the general classifications of application software, infrastructure, noninformation technology equipment and critical third-party associations. Questar Pipeline estimates that Y2K costs will be $1.0 million and expects to be Y2K compliant before the end of 1999. Failure to correct a material Y2K problem could result in an interruption, or a failure of, certain normal business activities or operations. Such failures could materially and adversly affect the Company's results of operations, liquidity and financial condition. The infrastructure section of the plan addresses hardware and systems software other than applications software. Currently, there are 19 projects identified: 1 in start-up, 8 in assessment, 6 in remediation, 0 in testing and 4 completed and deemed to be Y2K ready. The applications software section addresses either the conversion or replacement of applications software that is not Y2K compliant. Currently, there are 39 projects in this section: 10 in start-up, 7 in assesssment, 4 in remediation, 4 in testing and 14 completed and deemed to be Y2K compliant. Non-information technology equipment is considered to be one project and addresses hardware, software and associated embedded computer chips used in the operation of all facilities operated by the Company. Because this section has unique charateristics and is large, the Company has employed the services of a consultant to assist in the effort. The project is in the assessment phase and is expected to be completed by year-end 1999. Inquiries of critical third parties have been taking place with more contacts scheduled. Contacting parties is scheduled to be completed by mid-year. Contingency plans for dealing with third-party issues will be developed by the end of 1999. The complete text of Questar Pipeline's Y2K disclosure can be viewed in Form 10-K for December 31, 1998, filed with the Securities and Exchange Commission. Forward-Looking Statements This 10-Q contains forward-looking statements about future operations, capital spending, regulatory matters and expectations of Questar Pipeline. According to management, these statements are made in good faith and are reasonable representations of the Company's expected performance at the time. Actual results may vary from management's stated expectations and projections due to a variety of factors. Important assumptions and other significant factors that could cause actual results to differ materially from those discussed in forward-looking statements include changes in: general economic conditions, gas prices and availability of gas supplies, competition, regulatory issues, weather conditions and other factors beyond the control of the Company. These other factors include the rate of inflation, the adverse effects of failure to achieve Y2K compliance and adverse changes in the business or financial condition of the Company. These factors are not necessarily all of the important factors that could cause actual results to differ significantly from those expressed in any forward-looking statements. Other unknown or unpredictable factors could also have a significant adverse effect on future results. The Company does not undertake an obligation to update forward-looking information contained herein or elsewhere to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking information. PART II OTHER INFORMATION Item 1. Legal Proceedings. a. Questar Southern Trails Pipeline Company, a wholly-owned subsidiary of Questar Pipeline Company (Questar Pipeline or the Company), is seeking the necessary certification from the Federal Energy Regulatory Commission (FERC) to convert and operate a 700-mile crude oil line to natural gas. (See the Company's Form 10-K Annual Report for 1998, pages 3 and 6.) The California Public Utilities Commission and Southern California Gas Company have intervened in the FERC proceedings and are protesting the application. b. The Department of Justice (Department) has determined not to intervene and assume prosecution of the case against Questar Corporation (Questar) and some of its affiliates, including Questar Pipeline, filed by a producer under the federal False Claims Act. This case, which is substantially similar to 75 other cases filed against pipelines and their affiliates, is pending in the United States District Court for the District of Colorado. In response to the Department's decision, the court has lifted the seal and directed the producer to serve the complaint. Although the Company has not been formally served with the complaint, it received a copy from the Department in August of 1998. The complaint alleges that the defendants mismeasured the heating content of natural gas volumes and understated the value of gas on which royalty payments are due the federal government. It also claims treble damages and seeks imposition of civil penalties, but does not include a request for any specific monetary damages. The Company and its affiliates have been involved with the producer in other litigation and currently plan to actively contest the newest round of allegations and claims. Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits have been filed as part of this report: Exhibit No. Exhibits 10.14. Firm Transportation Service Amendment with Questar Gas Company under Rate Schedule T-1 to extend the term of the basic agreement to June 30, 2002. 10.14. No Notice Service Agreement with Questar Gas Company under Rate Schedule NNT to extend the term of the basic agreement to June 30, 2002. 12. Ratio of earnings to fixed charges. (b) The Company did not file a Current Report on Form 8-K during the quarter. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. QUESTAR PIPELINE COMPANY (Registrant) May 13, 1999 /s/ D. N. Rose D. N. Rose President and Chief Executive Officer May 13, 1999 /s/ S. E. Parks S. E. Parks Vice President, Treasurer, and Chief Financial Officer Exhibits Index Exhibit No. Exhibits 10.14. Firm Transportation Service Amendment with Questar Gas Company under Rate Schedule T-1 to extend the term of the basic agreement to June 30, 2002. 10.14. No Notice Service Agreement with Questar Gas Company under Rate Schedule NNT to extend the term of the basic agreement to June 30, 2002. 12. Ratio of earnings to fixed charges.
EX-10.14 2 Exhibit 10.14 Contract No. MT 241 Amendment No. _______ 19____ FIRM TRANSPORTATION SERVICE AMENDMENT Rate Schedule T-1 Amended Terms 1. SHIPPER'S NAME AND ADDRESS: Questar Gas Company 180 East First South P.O. Box 45360 Salt Lake City, UT 84145-0360 2. RATE SCHEDULE T-1 QUANTITY: Reserved Daily Capacity _______ Dth/day 3. TERM OF THE AGREEMENT: November 1, 1989, to June 30, 2002 4. RENEWAL TERM: ___________ None ___________ Month _____X_____ Other year to year 5. PRIMARY RECEIPT POINTS: Add Permanent Release Receipt Pt. Map Nos. Capacity 6. PRIMARY DELIVERY POINTS: Add Permanent Release Delivery Pt. Map No. Capacity 7. RATES: Reservation Charge: The maximum rate on Questar's Statement of Rates A discounted rate of $ /Dth Usage Charge: The rate on Questar's Statement of Rates Other 8. EFFECTIVE DATE OF CHANGES: June 30, 1999 9. ADDITIONAL TERMS: This Agreement includes all the terms and conditions of Questar's FERC Gas Tariff, First Revised Volume No. 1 and the terms, conditions and signatures of Shipper's access agreement with Questar. QUESTAR PIPELINE COMPANY QUESTAR GAS COMPANY By: By: L. F. Gill, Vice President and D. N. Rose, President and CEO General Manager EX-10.14 3 Exhibit 10.14 Contract No. 987 AMENDMENT NO. 2 NO-NOTICE SERVICE AGREEMENT Rate Schedule NNT Amended Terms 1. SHIPPER'S NAME AND ADDRESS: Questar Gas Company 180 East First South P.O. Box 45360 Salt Lake City, UT 84145-0360 2. NO-NOTICE SERVICE LEVEL: _____________________ Dth/day 3. APPLICABLE RECEIPT POINTS: 4. APPLICABLE DELIVERY POINTS: 5. RATES: Reservation Charge: __________The maximum rate on Questar's Statement of Rates __________A discounted rate of $___________/dth __________See additional terms 6. TERM OF SERVICE: September 1, 1993, to June 30, 2002 7. RENEWAL TERM: ___________ None ___________ Month to month _______X___ Other year to year 8. ADDITIONAL TERMS: This Agreement includes all the terms and conditions of Questar's FERC Gas Tariff, First Revised Volume No. 1 and the terms, conditions and signatures of Shipper's access agreement with Questar. QUESTAR PIPELINE COMPANY QUESTAR GAS COMPANY By:______________________________ By:_____________________________ L. F. Gill, Vice President and D. N. Rose, President and CEO General Manager EX-12 4 Exhibit No. 12. Questar Pipeline Company Ratio of Earnings to Fixed Charges
Year ended March 31, 1998 1999 (Dollars in Thousands) Earnings Income before income taxes $39,920 $40,614 Plus debt expense 19,903 19,771 Plus allowance for borrowed funds used during construction 226 1,326 Plus interest portion of rental expense 263 377 $60,312 $62,088 Fixed Charges Debt expense $19,903 $19,771 Plus allowance for borrowed funds used during construction 226 1,326 Plus interest portion of rental expense 263 377 $20,392 $21,474 Ratio of Earnings to Fixed Charges 2.96 2.89
EX-27 5
5 The following schedule contains summarized financial information extracted from the Questar Pipeline Company Consolidated Statements of Income and Balance Sheets for the period ended March 31, 1999, and is qualified in its entirety by reference to such unaudited financial statements. 1,000 3-MOS DEC-31-1999 MAR-31-1999 0 0 4,893 0 2,890 9,355 671,908 219,630 529,370 61,826 203,007 0 0 6,551 192,239 529,370 0 27,166 0 9,389 4,713 0 4,177 11,187 4,225 6,962 0 0 0 6,962 0 0
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