-----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, LASPubAHdyXvS9UY7Wbsi4GObqehWLrr0T/9E6vZkjD4cBY7BzM/PCeyO7JE+5Yp 70UT2FJpnuNJHlKzTiM/Tg== 0000764044-96-000009.txt : 19960816 0000764044-96-000009.hdr.sgml : 19960816 ACCESSION NUMBER: 0000764044-96-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE 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: 1934 Act SEC FILE NUMBER: 000-14147 FILM NUMBER: 96613378 BUSINESS ADDRESS: STREET 1: 79 S STATE ST STREET 2: P O BOX 11450 CITY: SALT LAKE CITY STATE: UT ZIP: 84147 BUSINESS PHONE: 8015302400 MAIL ADDRESS: STREET 1: 79 SOUTH STATE STREET STREET 2: P O BOX 11150 CITY: SALT LAKE CITY STATE: UT ZIP: 84147 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 JUNE 30, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____ Commission File No. 0-14147 QUESTAR PIPELINE COMPANY (Exact name of registrant as specified in its charter) STATE OF UTAH 87-0307414 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 11450, 79 South State Street, Salt Lake City, Utah 84147 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (801) 530-2400 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 July 31, 1996 Common Stock, $1.00 par value 6,550,843 shares Registrant meets the conditions set forth in General Instruction H(a)(1) and (b) of Form 10-Q and is filing this Form 10-Q with the reduced disclosure format. QUESTAR PIPELINE COMPANY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
3 Months Ended 6 Months Ended 12 Months Ended June 30, June 30, June 30, 1996 1995 1996 1995 1996 1995 (In Thousands) REVENUES $30,340 $29,835 $62,108 $59,400 $120,063 $117,839 OPERATING EXPENSES Operating and maintenance 12,232 11,628 25,388 22,992 47,030 43,921 Depreciation 4,294 4,148 8,576 8,262 16,928 16,313 Other taxes 1,059 1,176 2,318 2,410 4,078 4,538 TOTAL OPERATING EXPENSES 17,585 16,952 36,282 33,664 68,036 64,772 OPERATING INCOME 12,755 12,883 25,826 25,736 52,027 53,067 OTHER EXPENSE (139) (295) (39) (339) (1,586) (1,941) INCOME FROM UNCONSOLIDATED AFFILIATES 307 11 739 96 2,177 196 DEBT EXPENSE (3,452) (3,361) (6,846) (6,767) (13,551) (13,398) INCOME BEFORE INCOME TAXES 9,471 9,238 19,680 18,726 39,067 37,924 INCOME TAXES 3,580 3,427 7,399 6,641 14,223 12,387 NET INCOME $5,891 $5,811 $12,281 $12,085 $24,844 $25,537
QUESTAR PIPELINE COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1996 1995 1995 (In Thousands) ASSETS Current assets Cash and short-term investments $1,385 $1,677 Notes receivable from Notes receivable from 1,900 Accounts receivable 7,611 $14,858 13,845 Inventories 2,734 2,984 2,858 Other current assets 1,999 2,392 2,552 Total current assets 15,629 20,234 20,932 Property, plant and equipment 637,953 622,427 632,393 Less allowances for depreciation 220,458 211,009 212,898 Net property, plant and equipment 417,495 411,418 419,495 Investment in unconsolidated affiliates 11,536 7,759 11,010 Other assets 10,967 11,159 11,913 $455,627 $450,570 $463,350 LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities Checks outstanding in excess of cash balances $643 Notes payable to Questar Corporation $700 7,700 $15,200 Accounts payable and accrued expenses 12,576 12,356 13,025 Customer refund 7,413 Dividends payable to Questar Corporation 43,931 Total current liabilities 64,620 20,699 28,225 Long-term debt 134,535 134,516 134,525 Deferred credits 4,944 4,611 5,346 Deferred income taxes 68,573 69,202 70,649 Common shareholder's equity Common stock 6,551 6,551 6,551 Additional paid-in capital 82,034 82,034 82,034 Retained earnings 94,370 132,957 136,020 Total common shareholder's equity 182,955 221,542 224,605 $455,627 $450,570 $463,350
QUESTAR PIPELINE COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
6 Months Ended June 30, 1996 1995 (In Thousands) OPERATING ACTIVITIES Net income $12,281 $12,085 Depreciation 9,434 9,059 Deferred income taxes (2,076) 388 Income from unconsolidated affiliates (739) (96) 18,900 21,436 Change in operating assets and liabilities 14,642 870 NET CASH PROVIDED FROM OPERATING ACTIVITIES 33,542 22,306 INVESTING ACTIVITIES Capital expenditures Purchase of property, plant and equipment (7,381) (9,209) Other investments (326) Total capital expenditures (7,381) (9,535) Proceeds from (costs of) deposition of property, plant and equipment (53) 1,538 CASH USED IN INVESTING ACTIVITIES (7,434) (7,997) FINANCING ACTIVITIES Increase in notes receivable from Questar Corporation (1,900) Decrease in notes payable to Questar Corporation (14,500) (6,900) Checks outstanding in excess of cash balances 643 Dividends paid (10,000) (9,500) NET CASH USED IN FINANCING ACTIVITIES (26,400) (15,757) DECREASE IN CASH AND SHORT-TERM INVESTMENTS ($292) ($1,448)
QUESTAR PIPELINE COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 (Unaudited) Note A - Basis of Presentation The interim financial statements furnished reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for the three-and six-month periods ended June 30, 1996, are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1995. Note B - Gathering Division Spin Down and Transfer Questar Pipeline transferred approximately $55 million of gas-gathering assets to Questar Gas Management Company, a wholly owned subsidiary. The transfer was approved by the Federal Energy Regulatory Commission February 28, 1996 and was effective March 1, 1996. The financial statements of Questar Pipeline and Questar Gas Management have been consolidated for reporting purposes. All significant intercompany accounts and transactions have been eliminated in consolidation. Questar Gas Management was transferred to the Market Resources group of Questar Corporation on July 1, 1996. The transaction was in the form of a dividend payable to Questar Corporation. Questar Pipeline had declared a $43.9 million dividend which included the $27.9 million of net assets of Questar Gas Management and a $16 million repayment of debt by Questar Gas Management. On July 1, 1996, Questar Gas Management repaid $16 million of debt owned to Questar Pipeline. Beginning in the third quarter of 1996, prior-period financial statements will be restated to report earnings of Questar Pipeline without gas-gathering operations. QUESTAR PIPELINE COMPANY MANAGEMENT'S ANALYSIS June 30, 1996 Operating Results -- Following is a summary of financial and operating information for the Company:
3 Months Ended 6 Months Ended 12 Months Ended June 30, June 30, June 30, 1996 1995 1996 1995 1996 1995 (Dollars in Thousands) FINANCIAL RESULTS Revenues From unaffiliated customers $12,859 $11,285 $22,532 $22,144 $43,704 $44,355 From affiliates 17,481 18,550 39,576 37,256 76,359 73,484 Total revenues $30,340 $29,835 $62,108 $59,400 $120,063 $117,839 Operating income $12,755 $12,883 $25,826 $25,736 $52,027 $53,067 Net income 5,891 5,811 12,281 12,085 24,844 25,537 OPERATING STATISTICS Natural gas volumes (in thousands of decatherms) Transportation For unaffiliated customers 36,158 38,978 73,031 77,547 147,427 149,129 For Mountain Fuel 16,426 15,553 53,582 44,752 88,702 77,481 For other affiliated customers 10,271 10,133 14,869 16,359 37,349 40,336 Total transportation 62,855 64,664 141,482 138,658 273,478 266,946 Gathering For unaffiliated customers 9,725 10,126 20,559 19,747 39,840 39,461 For Mountain Fuel 4,555 7,470 14,373 16,860 29,204 30,756 For other affiliated customers 2,485 1,815 4,401 3,095 7,255 8,359 Total gathering 16,765 19,411 39,333 39,702 76,299 78,576 Natural gas revenues (per decatherm) Transportation $0.28 $0.25 $0.24 $0.23 $0.24 $0.24 Gathering 0.29 0.28 0.26 0.28 0.27 0.28
Revenues were higher in the 1996 periods presented partially as a result of a rate increase for transportation and storage activities. Questar Pipeline filed for a rate increase with the Federal Energy Regulatory Commission (FERC) on July 31, 1995. The Company began collecting revenues under the new rate structure, subject to refund, February 1, 1996. The FERC approved a rate settlement July 1, 1996. The settlement included a stated return on equity of 11.75% and is expected to add approximately $5.9 million to annual revenues or $3 million in after-tax income. The Company had fully reserved for the differences between the filed rates and the settlement rates and as a result there was no significant impact on net income. In addition to the rate increase, the Company reported higher revenues from its expanded firm gas-storage activities. Revenues for gas-gathering activities were lower for the 1996 periods presented as a result of decreased volumes gathered and a decrease in the rate charged on gas volumes gathered for Mountain Fuel. Reservation charges on Mountain Fuel's firm-gathering contract were reduced beginning in the Fall of 1995. Operating and maintenance expenses were higher in all of the 1996 periods presented primarily because of higher labor and equipment costs, and some one-time costs associated with the spin down of Questar Gas Management and settlement issues in the rate case. Depreciation expenses were higher in the 1996 periods as a result of increased investment in property, plant and equipment. The increase in earnings from unconsolidated affiliated companies in the 3- and 6-month periods ended June 30, 1996 resulted primarily from activities of Blacks Fork Processing Company, which began operations in June of 1995. The Company's 50% interest in the Blacks Fork Processing Company will be transferred to the Market Resources group as an affiliate of Questar Gas Management. The increase in earnings from unconsolidated affiliates for the 12-month period ended June 30, 1996 includes Questar Pipeline's share of the proceeds received by Overthrust Pipeline Company from a buy-out of a shipper's transportation contract. The effective income tax rate for the second quarter was 37.6% in 1996 compared with 35.5% in 1995. Questar Pipeline and affiliated company, Mountain Fuel, have consolidated various financial, technical, administrative and other support functions in an ongoing effort to improve efficiency and coordination. Questar Pipeline and Mountain Fuel comprise the Regulated Services group within Questar Corporation. Liquidity and Capital Resources -- Operating Activities: Net cash provided from operating activities was $33,542,000 for the first six months of 1996 compared with $22,306,000 for the same period of 1995. The increase in cash flow, primarily from changes in operating assets and liabilities, was due largely to the collections of rates subject to refund and receivables for transportation and storage services provided to affiliated companies. Investing Activities: Capital expenditures were $7,381,000 in the first half of 1996, compared with $9,535,000 in the corresponding 1995 period. Capital expenditures for calendar year 1996 are estimated at $37,100,000. Financing Activities: The Company has a short-term line-of-credit arrangement with a bank totaling $200,000. In addition, Questar Corporation, its parent company, loans funds to the Company under a short-term arrangement. As of June 30, amounts borrowed from Questar Corporation were $700,000 in 1996 and $7,700,000 in 1995. Questar Pipeline subsidiary, Questar Gas Management, had loaned excess funds of $1,900,000 to Questar Corporation at June 30, 1996. No amounts were borrowed under the line-of-credit arrangement at either June 30, 1996 or June 30, 1995. Questar Pipeline's net cash provided from operating activities for the first six months of 1996 and 1995 funded capital expenditures, cash dividends and repayment of debt. Funding for 1996 capital expenditures is expected to be supplied from net cash flow provided from operations and borrowings from Questar Corporation. PART II OTHER INFORMATION Item 1. Legal Proceedings. a. On July 1, 1996, the Federal Energy Regulatory Commission (the FERC) approved a proposed settlement agreement filed by Questar Pipeline Company (Questar Pipeline or the Company) on March 8, 1996. Under the agreement, the Company's new rates became effective February 1, 1996. The settlement agreement provides for a return on equity of 11.75 percent, an annualized revenue increase of approximately $5.9 million, and new sharing arrangements for interruptible transportation and storage revenues. Questar Pipeline filed its general rate case application with the FERC on July 31, 1995. b. Questar Pipeline and 69 other domestic companies have been named as defendants in a federal "false claims" lawsuit brought by Jack J. Grynberg on behalf of the federal government. The suit, which was filed in a federal district court in Washington, D.C., claims that pipelines and other companies have systematically reported less than the actual heating content of natural gas entering their systems, ultimately resulting in an underpayment of royalties to the federal government. The complaint does not allege any specific undermeasurements for individual defendants or for the group of defendants. The Company believes that the lawsuit, which the Department of Justice determined not to prosecute, has no merit. c. On August 9, 1996, the Utah Supreme Court upheld the Utah State Tax Commission's approval of a property-tax settlement involving Questar Pipeline. The Tax Commission approved an overall five percent reduction in the Company's property taxes for the five-year period 1988 through 1992 and rejected the claims filed by several Utah counties that certain gas inventories should not have been treated as tax-exempt inventory. The counties' claims involved an additional $2.0 in additional taxes, plus accrued interest. The Utah Supreme Court, in response to an appeal filed by the counties, ruled that the counties had not raised the issue of taxation of stored gas in a timely manner. The approved settlement provides for nearly $500,000 in property tax refunds to Questar Pipeline. Item 4. Submission of Matters to a Vote of Security Holders. The Company's Annual Meeting was held on May 21, 1996. As of such date, D. N. Rose and G. L. Nordloh were elected as new directors. Other directors elected include R. D. Cash, U. Edwin Garrison, A. J. Marushack, and Mary Mead. Mr. Neal A. Maxwell had previously indicated his intention to retire as of May 21, 1996, and was not nominated for reelection. Mr. W. F. Edwards, who had formerly served as the Company's Vice President and Chief Financial Officer, was not nominated for reelection. The Company is a wholly owned subsidiary of Questar Corporation (Questar), and all of the directors received 100 percent of the outstanding shares cast in favor of their election. Item 5. Other Information. a. Several management changes were announced effective May 21, 1996. Mr. Rose was appointed to serve as Vice Chairman of the Board. Mr. Rose, age 51, also serves as Executive Vice President of Questar with responsibility for regulated services and as President and Chief Executive Officer of Mountain Fuel Supply Company (Mountain Fuel), an affiliated local distribution company. Mr. Marushack, the Company's President and Chief Executive Officer, reports to Mr. Rose. As of June 1, 1996, the Company and Mountain Fuel have several common officers. Mr. Michael E. Benefield, age 57, was appointed to serve as Vice President, Planning and Business Development. Mr. Gary W. DeBernardi, age 53, was appointed to serve as Vice President, Technical Support. (Mr. DeBernardi has been serving as the Company's Vice President, Engineering and Transmission Services.) Ms. Susan Glasmann, age 48, was appointed to serve as Vice President, Business Support. Mr. Glenn H. Robinson, age 46, was appointed to serve as Vice President of the Company, in addition to his responsibilities as Vice President and Controller of Mountain Fuel. As of September 1, 1996, Mr. Robinson will also serve as Controller for the Questar Pipeline. Messrs. Benefield and Robinson and Ms. Glasmann previously served as officers of Mountain Fuel only. Mr. Lowell F. Gill, age 53, was appointed to serve as Vice President and General Manager for Questar Pipeline effective June 1, 1996. He previously served the Company as Vice President, Regulatory Affairs (March 1985 to March 1996) and as Vice President, Marketing and Regulatory Affairs (March 27, 1996 to June 1, 1996). b. On June 21, 1996, Mary Mead, a director of the Company, was killed in a horseback riding accident. Mrs. Mead, who turned 61 on the date of her death, had served as a director of the Company since February of 1990. The Company's Board of Directors has not named anyone to replace her as a director. c. Effective July 1, 1996, ownership of Questar Gas Management Company was transferred from the Company to Entrada Industries, Inc. (Entrada is a wholly owned subsidiary of Questar that owns Questar's affiliates engaged in nonregulated activities.) The Company's gathering assets and activities had been transferred to Questar Gas Management as of March 1, 1996. d. Mr. R. Paul Ord, the Company's Controller, has announced his retirement effective August 31, 1996. Mr. Ord, age 60, has served as Controller of the Company since April of 1982. As noted earlier, Mr. Robinson, the Company's Vice President, will assume the additional title of Controller as of September 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) August 13, 1996 /s/ A. J. Marushack (Date) A. J. Marushack President and Chief Executive Officer August 13, 1996 /s/ S. E. Parks (Date) S. E. Parks Vice President, Treasurer and Chief Financial Officer EX-27 2
5 This schedule contains summarized information extracted from the Questar Pipeline Company Statements of Income and Balance Sheets for the period ended June 30, 1996, and is qualified in its entirety by reference to such unaudited financial statements. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1,385 0 9,511 0 2,734 15,629 637,953 220,458 455,627 64,620 134,535 0 0 6,551 176,404 455,627 0 62,108 0 25,388 10,894 0 6,846 19,680 7,399 12,281 0 0 0 12,281 0 0
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