-----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, HikFVQR81PthdDM2AAW2uJRWnME3Un68TB07oOYbHxeEUGy77WKelYrgM5Rp95IY +NPULo6ofTLM68DMwK+AEw== 0000764044-97-000010.txt : 19971117 0000764044-97-000010.hdr.sgml : 19971117 ACCESSION NUMBER: 0000764044-97-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 000-14147 FILM NUMBER: 97717702 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 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 No. 0-14147 QUESTAR PIPELINE COMPANY (Exact name of registrant as specified in its charter) STATE OF UTAH 87-0307414 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 11450, 79 South State Street, Salt Lake City, Utah 84147 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (801) 324-2400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of September 30, 1997 Common Stock, $1.00 par value 6,550,843 shares Registrant meets the conditions set forth in General Instruction H(a)(1) and (b) of Form 10-Q and is filing this Form 10-Q with the reduced disclosure format. PART I FINANCIAL INFORMATION Item 1. Financial Statements QUESTAR PIPELINE COMPANY STATEMENTS OF INCOME (Unaudited)
3 Months Ended 9 Months Ended 12 Months Ended September 30, September 30, September 30, 1997 1996 1997 1996 1997 1996 (In Thousands) REVENUES $25,889 $26,186 $78,517 $77,988 $104,707 $101,835 OPERATING EXPENSES Operating and maintenance 8,981 9,577 27,526 29,152 38,333 37,664 Depreciation 3,758 3,637 10,969 10,449 14,726 13,745 Other taxes 705 549 2,120 2,493 2,146 2,957 TOTAL OPERATING EXPENSES 13,444 13,763 40,615 42,094 55,205 54,366 OPERATING INCOME 12,445 12,423 37,902 35,894 49,502 47,469 INTEREST AND OTHER INCOME 923 365 1,019 1,169 1,648 493 INCOME FROM UNCONSOLIDATED AFFILIATES 4,092 140 4,018 212 3,988 1,157 DEBT EXPENSE (3,349) (3,189) (10,014) (10,035) (13,395) (13,392) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 14,111 9,739 32,925 27,240 41,743 35,727 INCOME TAXES 5,549 3,619 12,581 10,334 15,662 13,123 INCOME FROM CONTINUING OPERATIONS 8,562 6,120 20,344 16,906 26,081 22,604 DISCONTINUED OPERATIONS - QUESTAR GAS MANAGEMENT COMPANY 1,495 2,471 NET INCOME $8,562 $6,120 $20,344 $18,401 $26,081 $25,075
See notes to financial statements QUESTAR PIPELINE COMPANY CONDENSED BALANCE SHEETS (Unaudited)
September 30, December 31, 1997 1996 1996 (In Thousands) ASSETS Current assets Cash and short-term investments $288 $904 $2,550 Accounts receivable 5,118 8,579 8,229 Inventories 2,273 2,183 2,301 Other current assets 1,805 1,663 1,938 Total current assets 9,484 13,329 15,018 Property, plant and equipment 574,613 557,630 562,711 Less allowances for depreciation 205,007 193,030 194,396 Net property, plant and equipment 369,606 364,600 368,315 Investment in unconsolidated affiliates 25,217 12,146 14,347 Other assets 13,404 11,276 11,070 $417,711 $401,351 $408,750 LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities Notes payable to Questar Corporation $10,600 $9,200 $11,800 Accounts payable and accrued expenses 16,922 13,341 14,823 Total current liabilities 27,522 22,541 26,623 Long-term debt 134,558 134,539 134,544 Other liabilities 5,817 4,898 4,322 Deferred income taxes 60,727 56,117 58,768 Common shareholder's equity Common stock 6,551 6,551 6,551 Additional paid-in capital 82,034 82,034 82,034 Retained earnings 100,502 94,671 95,908 Total common shareholder's equity 189,087 183,256 184,493 $417,711 $401,351 $408,750
See notes to financial statements QUESTAR PIPELINE COMPANY CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
9 Months Ended September 30, 1997 1996 (In Thousands) OPERATING ACTIVITIES Net income $20,344 $18,401 Depreciation 11,781 12,214 Deferred income taxes (45) (32) Income from discontinued operations (1,495) Income from unconsolidated affiliates (4,018) (212) 28,062 28,876 Change in operating assets and liabilities 4,762 6,496 NET CASH PROVIDED FROM OPERATING ACTIVITIES 32,824 35,372 INVESTING ACTIVITIES Capital expenditures Purchase of property, plant and equipment (11,533) (11,478) Other investments (5,064) (2,850) Total capital expenditures (16,597) (14,328) Costs of disposition of property, plant and equipment (1,539) (1,345) NET CASH USED IN INVESTING ACTIVITIES (18,136) (15,673) FINANCING ACTIVITIES Decrease in notes receivable from Questar Gas Management 16,692 Decrease in notes payable to Questar Corporation (1,200) (6,000) Payment of dividends (15,750) (30,500) NET CASH USED IN FINANCING ACTIVITIES (16,950) (19,808) DECREASE IN CASH AND SHORT-TERM INVESTMENTS ($2,262) ($109)
A $29,250,000 special dividend declaration in 1996 of Questar Gas Management shares payable to Questar Corporation was a non-cash transaction and excluded from the Statement of Cash Flows. See notes to financial statements QUESTAR PIPELINE COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS September 30, 1997 (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-and nine-month periods ended September 30, 1997, are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1996. Note 2 - Discontinued Operations - Gathering Division Spin Down and Transfer Questar Pipeline transferred approximately $55 million of gas-gathering assets to Questar Gas Management Company, a wholly owned subsidiary. The transfer was approved by the Federal Energy Regulatory Commission (FERC) February 28, 1996 and was effective March 1, 1996. Questar Gas Management was subsequently transferred to the nonregulated Market Resources group of Questar on July 1, 1996 and now is a wholly owned subsidiary of Entrada Industries. The transaction was in the form of a stock dividend payable to Questar with no gain or loss recorded. Questar Pipeline's financial statements for prior periods were restated reflecting gas-gathering operations as a discontinued business segment. Questar Pipeline has submitted an application to the FERC to transfer approximately $1.5 million of additional facilities to Questar Gas Management. The facilities consist of several miles of non-mainline laterals, a portion of a mainline pipeline and a compressor station. The application requested that the transfer be effective May 31, 1997. However, a group of producers protested part of the transfer, and the FERC has not yet ruled on the Company's application. Note 3 - Investment in Overthrust Pipeline Company The Company purchased an additional 18% ownership in Overthrust Pipeline Company in the third quarter of 1997, effective April 1, 1997, bringing its share to 54%. Overthrust functions as a joint venture and the approval of all partners is required for all substantive policy matters. The Company will continue to account for its investment in Overthrust by the equity method. Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations QUESTAR PIPELINE COMPANY September 30, 1997 (Unaudited) Operating Results Following is a summary of financial and operating information for the Company:
3 Months Ended 9 Months Ended 12 Months Ended September 30, September 30, September 30, 1997 1996 1997 1996 1997 1996 (Dollars In Thousands) FINANCIAL RESULTS Revenues From unaffiliated customers $9,238 $9,539 $27,101 $28,986 $36,952 $38,714 From affiliates 16,651 16,647 51,416 49,002 67,755 63,121 Total revenues $25,889 $26,186 $78,517 $77,988 $104,707 $101,835 Operating income $12,445 $12,423 $37,902 $35,894 $49,502 $47,469 Income from continuing operations $8,562 $6,120 $20,344 $16,906 $26,081 $22,604 OPERATING STATISTICS Natural gas transportation volumes (in thousands of decatherms) For unaffiliated customers 30,912 30,502 91,848 103,533 120,210 141,349 For Mountain Fuel 13,217 14,035 81,492 67,617 114,036 91,849 For other affiliated customers 9,753 13,498 27,562 28,367 43,522 39,906 Total transportation 53,882 58,035 200,902 199,517 277,768 273,104 Transportation revenue (per decatherm) $0.32 $0.29 $0.25 $0.25 $0.24 $0.24
Revenues were higher in the 9- and 12-month periods of 1997 due primarily to a rate increase, which became effective on February 1, 1996. Operating and maintenance expenses were 6% lower in the third quarter and first nine months of 1997 when compared to the same periods of 1996 due primarily to reduced labor and related costs and some operating efficiencies. In addition, the 1996 periods included some one-time costs associated with the spin-down of certain assets to Questar Gas Management Company and issues in Questar Pipeline's 1996 rate settlement. The number of employees has decreased and operating efficiencies have been experienced as a result of a consolidation of certain administrative, marketing, financial, technical and related services under Questar Regulated Services Co., which wholly owns Questar Pipeline. These services were previously staffed and performed separately by Questar Pipeline and its affiliated company, Mountain Fuel. Depreciation expense was higher in the 1997 periods as a result of increased investment in property, plant and equipment. A successful third quarter 1996 settlement of issues related to state property tax assessments spanning from 1988 through 1992 resulted in a $410,000 reduction of expense reported in other taxes. Other taxes were lower in the 9- and 12-month periods of 1997 when compared with the same periods of 1996 primarily due to reduced payroll taxes from a year ago. An adjustment of a regulatory liability increased other income by $642,000 and net income by approximately $400,000. The Federal Energy Regulatory Commission (FERC) approved an adjustment related to deferred taxes recorded for gathering activities, which had been transferred to Questar Gas Management. Interest and other income were lower in the nine-month period of 1997 when compared with the same period of 1996 due primarily to less interest earned in 1997. A loan to Questar Gas Management was repaid to the Company in July 1996 and the proceeds were dividended to Questar. The effective income tax rate for the first nine months was 38.2% in 1997 compared with 37.9% in 1996. Income from unconsolidated affiliates in 1997 includes the Company's $4,042,000 share of earnings reported by TransColorado Gas Transmission Co. The earnings resulted from capitalizing interest and equity costs (AFUDC) associated with the construction of the TransColorado Pipeline. On May 9, 1997, the FERC issued an order in which it alleged that Questar Pipeline had overcharged its affiliated company, Mountain Fuel, for gathering services provided from November 1988 through September 1992. The FERC order states that Questar Pipeline may have violated the Natural Gas Act by charging Mountain Fuel rates different from those rates specified in the tariff. The FERC required Questar Pipeline to show why the allegations are incorrect and why it should not refund the alleged overcharge of $3.4 million plus interest to Mountain Fuel. Questar Pipeline filed a detailed response explaining why its charges to Mountain Fuel were fully justified and in full compliance with applicable law and FERC orders. Management does not believe the ultimate outcome of this proceeding will have a material impact on results of operations, financial position or liquidity. Liquidity and Capital Resources Operating Activities Net cash provided from operating activities of $32,824,000 for the first nine months of 1997 was 7% lower when compared with $35,372,000 for the same period in 1996 due primarily to changes in operating assets and liabilities. Investing Activities Capital expenditures were $16,597,000 in the first nine months of 1997 compared with $14,328,000 in the corresponding 1996 period. Expenditures include additional investments in Overthrust Pipeline Company and TransColorado Gas Transmission Co. Capital expenditures for calendar year 1997 are estimated to be $48,500,000, which includes $18,600,000 earmarked for the Company's share of the second phase of the TransColorado pipeline. The second phase will cost approximately $200 million and includes 270 miles of 22- and 24-inch pipeline and two compressor plants, under agreements currently in effect. The Company will have a 50% share of the project after completing a purchase of 50% of El Paso Energy Corporation's interest in Phase II and 100% of El Paso's interest in Phase I. Financing Activities The Company has a short-term line-of-credit arrangement with a bank totaling $200,000. No amounts were borrowed under this arrangement at September 30, 1997. In addition, Questar Corporation loans funds to the Company under a short-term arrangement. As of September 30, amounts borrowed from Questar were $10,600,000 in 1997 and $9,200,000 in 1996. Financing activities in the first nine months of 1997 and 1996 focused on payment of dividends and a partial repayment of the Company's notes payable to Questar. Capital expenditures for 1997 are expected to be financed from net cash flow provided from operations and borrowings from Questar. This 10-Q contains forward-looking statements about the future operations 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. PART II OTHER INFORMATION Item 5. Other Information. a. On October 23, 1997, the Board of Directors of Questar Pipeline Company (Questar Pipeline or the Company) appointed Scott S. Parker to serve as a director. Mr. Parker, age 62, is the President and Chief Executive Officer of Intermountain Health Care, Inc. (IHC), a nonprofit, integrated health care system headquartered in Salt Lake City, Utah. He was appointed to fill a vacancy on the Board. IHC is Utah's largest health care system that includes health plans, 23 hospitals, affiliated physician groups, and 19,000 employees. 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) November 12, 1997 /s/ S. E. Parks (Date) S. E. Parks Vice President, Treasurer and Chief Financial Officer (Duly authorized officer and principal financial officer.) EX-27 2
5 The following schedule contains summarized financial information extracted from the Questar Pipeline Company Statements of Income and Balance Sheet for the period ended September 30, 1997, and is qualified in its entirety by reference to such unaudited financial statements. 1,000 9-MOS DEC-31-1996 SEP-30-1997 288 0 5,118 0 2,273 9,484 574,613 205,007 417,711 27,522 134,558 0 0 6,551 182,536 417,711 0 78,517 0 27,526 13,089 0 10,014 32,925 12,581 20,344 0 0 0 20,344 0 0
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