-----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, EYODW24Wsi/nOoLN6yc04l1g83xS79yNS06zlcdP6hQbnL4mO6pms4MYWSwqQVaS KhnuSx25COX8nJ96rMrzFA== 0000912057-01-528116.txt : 20010814 0000912057-01-528116.hdr.sgml : 20010814 ACCESSION NUMBER: 0000912057-01-528116 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 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: 1706828 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 E 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 a2056815z10-q.txt FORM 10-Q 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, 2001 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. Common Stock, $1.00 par value Class Outstanding as of July 31, 2001 - ----------------------------- ------------------------------------- 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 6 Months Ended 12 Months Ended June 30, June 30, June 30, ------------------------ ------------------------ ------------------------ 2001 2000 2001 2000 2001 2000 --------- --------- --------- --------- --------- --------- (In Thousands) REVENUES $ 30,912 $ 29,407 $ 61,947 $ 59,265 $ 121,758 $ 117,223 OPERATING EXPENSES Operating and maintenance 11,071 9,768 22,208 19,733 46,236 40,547 Depreciation 4,158 4,271 8,224 8,451 15,164 17,120 Other taxes 779 684 1,575 1,362 3,284 2,414 --------- --------- --------- --------- --------- --------- TOTAL OPERATING EXPENSES 16,008 14,723 32,007 29,546 64,684 60,081 --------- --------- --------- --------- --------- --------- OPERATING INCOME 14,904 14,684 29,940 29,719 57,074 57,142 INTEREST AND OTHER INCOME 1,471 705 2,741 1,585 4,181 2,564 OPERATIONS OF UNCONSOLIDATED AFFILIATES Income (loss) (1,385) 176 (1,320) 396 (496) (4,649) Write-down of investment in partnership (49,700) --------- --------- --------- --------- --------- --------- (1,385) 176 (1,320) 396 (496) (54,349) DEBT EXPENSE (4,046) (4,392) (8,315) (9,091) (16,808) (18,342) --------- --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES 10,944 11,173 23,046 22,609 43,951 (12,985) INCOME TAXES 4,093 4,097 8,538 8,409 13,818 (4,800) --------- --------- --------- --------- --------- --------- NET INCOME (LOSS) $ 6,851 $ 7,076 $ 14,508 $ 14,200 $ 30,133 $ (8,185) ========= ========= ========= ========= ========= =========
See notes to consolidated financial statements 2 QUESTAR PIPELINE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31, 2001 2000 2000 (Unaudited) -------- -------- ------------ (In Thousands) ASSETS Current assets Cash and cash equivalents $ 1,366 $ 1,662 $ 1,855 Notes receivable from Questar Corporation 20,700 Accounts receivable 7,582 9,428 11,667 Inventories - materials and supplies, at lower of average cost or market 2,533 2,451 2,276 Prepaid expenses and other 190 1,491 477 -------- -------- -------- Total current assets 11,671 15,032 36,975 Property, plant and equipment 765,485 715,523 731,246 Less accumulated depreciation 249,189 236,247 243,006 -------- -------- -------- Net property, plant and equipment 516,296 479,276 488,240 Investment in unconsolidated affiliates 21,768 19,144 19,088 Regulatory and other assets 20,177 14,788 16,428 -------- -------- -------- $569,912 $528,240 $560,731 ======== ======== ======== LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities Notes payable to Questar Corporation $ 16,900 $ 14,600 Accounts payable and accrued expenses 11,785 11,308 $ 10,103 -------- -------- -------- Total current liabilities 28,685 25,908 10,103 Long-term debt 230,035 245,011 245,020 Other liabilities 4,548 5,098 7,231 Deferred income taxes 67,750 51,462 62,741 Common shareholder's equity Common stock 6,551 6,551 6,551 Additional paid-in capital 142,034 112,034 142,034 Retained earnings 90,309 82,176 87,051 -------- -------- -------- Total common shareholder's equity 238,894 200,761 235,636 -------- -------- -------- $569,912 $528,240 $560,731 ======== ======== ========
See notes to consolidated financial statements 3 QUESTAR PIPELINE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
6 Months Ended June 30, 2001 2000 --------- --------- (In Thousands) OPERATING ACTIVITIES Net income $ 14,508 $ 14,200 Depreciation 8,820 9,002 Deferred income taxes 5,009 1,571 (Income) loss from unconsolidated affiliates, net of cash distributions 1,320 (396) --------- --------- 29,657 24,377 Change in operating assets and liabilities (620) 8,298 --------- --------- NET CASH PROVIDED FROM OPERATING ACTIVITIES 29,037 32,675 INVESTING ACTIVITIES Capital expenditures Purchase of property, plant and equipment (36,865) (18,210) Investment in unconsolidated affiliates (4,000) (7,024) --------- --------- Total capital expenditures (40,865) (25,234) Costs of disposition of property, plant and equipment (11) (616) --------- --------- NET CASH USED IN INVESTING ACTIVITIES (40,876) (25,850) FINANCING ACTIVITIES Issuance of long-term debt 100,000 Repayment of long-term debt (115,000) Change in notes receivable from Questar Corp. 20,700 1,100 Change in notes payable to Questar Corp. 16,900 (27,900) Equity investment 30,000 Payment of dividends (11,250) (10,750) --------- --------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 11,350 (7,550) --------- --------- Decrease in cash and cash equivalents (489) (725) Beginning cash and cash equivalents 1,855 2,387 --------- --------- Ending cash and cash equivalents $ 1,366 $ 1,662 ========= =========
See notes to consolidated financial statements 4 QUESTAR PIPELINE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2001 (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-, six- and twelve-month periods ended June 30, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. 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, 2000. Note 2 - Investment in Unconsolidated Affiliates Questar Pipeline, directly or indirectly through subsidiaries, 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.
6 Months Ended June 30, 2001 2000 -------- -------- (In Thousands) Revenues $ 6,250 $ 5,006 Operating loss (4,379) (4,570) Loss before income taxes (10,470) (10,840)
Note 3 - Financing Activities On March 30, 2001, Questar Pipeline redeemed $30 million of its 9 7/8% debentures. The redemption price was equal to 104.67% of the principal amount plus interest from December 1, 2000. In addition, the Company redeemed $85 million of its 9 3/8% debentures on June 25, 2001. The redemption price was equal to 104.51% of the principal amount plus twenty-four days of interest. On May 11, 2001, the Company filed a Form S-3 with the Securities and Exchange Commission to issue up to $250 million of medium-term notes, Series B, with maturities of nine months to 30 years. On May 29, 2001, Questar Pipeline issued $100 million of 10-year medium-term notes with a 7.09% coupon rate to refinance of debentures and reduce short-term debt. The Company plans to apply additional proceeds from the sale of notes to finance a portion of capital expenditures and partnership investments, estimated at $180.3 million in 2001. 5 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations QUESTAR PIPELINE COMPANY AND SUBSIDIARIES June 30, 2001 (Unaudited) 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, 2001 2000 2001 2000 2001 2000 --------- --------- --------- --------- --------- --------- FINANCIAL RESULTS - (dollars in thousands) Revenues From unaffiliated customers $ 12,252 $ 10,305 $ 23,094 $ 19,901 $ 45,693 $ 38,048 From affiliates 18,660 19,102 38,853 39,364 76,065 79,175 --------- --------- --------- --------- --------- --------- Total revenues $ 30,912 $ 29,407 $ 61,947 $ 59,265 $ 121,758 $ 117,223 ========= ========= ========= ========= ========= ========= Operating income $ 14,904 $ 14,684 $ 29,940 $ 29,719 $ 57,074 $ 57,142 Net income (loss) 6,851 7,076 14,508 14,200 30,133 (8,185) OPERATING STATISTICS Natural gas transportation volumes (in thousands of decatherms) For unaffiliated customers 47,572 35,803 90,006 64,898 183,712 140,073 For Questar Gas 25,746 24,046 64,432 60,361 112,254 104,141 For other affiliated customers 94 1,676 2,005 3,001 7,374 6,696 --------- --------- --------- --------- --------- --------- Total transportation 73,412 61,525 156,443 128,260 303,340 250,910 ========= ========= ========= ========= ========= ========= Transportation revenue (per decatherm) $ 0.25 $ 0.29 $ 0.24 $ 0.28 $ 0.24 $ 0.29
Revenues were higher in the 2001 periods compared with the 2000 periods due primarily to increased firm-transportation demand, higher gas processing revenues, and increased selling prices for hydrocarbon liquids. Transportation revenues increased 8% in the second quarter and 6% in the first half of 2001 compared with the 2000 periods primarily from increased firm-transportation volumes. Firm-transportation volumes increased 12.5 million decatherms or 22% in the 2001 quarter and 28.8 million decatherms or 24% in the first half of 2001 compared with the prior-year periods as a result of increased demand for gas for electricity generation. Operating and maintenance (O & M) expenses were higher in the 2001 periods compared with the respective 2000 periods. The higher O & M expenses in the first half of 2001 were due to increased legal costs of $1.2 million, fuel gas expenses of $.7 million at a gas processing plant, and maintenance expenses of $.5 million for the Southern Trails Pipeline. Labor cost savings from the early retirement program effective October 31, 2000, totaled about $1.2 million pretax in the six-month period of 2001. Depreciation expense declined in the 2001 periods compared with the 2000 periods. The lower depreciation was primarily due to several information systems being fully depreciated and an extension in the estimated useful life of a gas processing plant in third quarter of 2000. Other taxes were higher in each of the 2001 periods compared with the 2000 periods primarily due to increases in use or sales taxes on compressor fuel. 6 Interest and other income for the 2001 periods were higher than the 2000 periods primarily from increased AFUDC (capitalized financing costs) associated with Questar Pipeline's construction projects. Earnings from unconsolidated affiliates in the second quarter of 2001 include the Company's share of operating losses from the TransColorado Pipeline partnership of $1.7 million. Debt expense was lower in the 2001 periods compared with the 2000 periods because of a $60 million equity investment from its parent company in 2000 used to repay debt owed to Questar. In addition, $115 million of long-term debt was replaced with less expensive debt from a note offering in May 2001. The weighted average interest rate of the new notes was 7.09%. Interest expense capitalized in connection with construction projects in the first half of 2001 was unchanged from the prior-year period at $1.5 million. The effective income tax rate was 37% in the first half of 2001 compared with 37.2% in the first half of 2000. Liquidity and Capital Resources Operating Activities Net cash provided from operating activities of $29.0 million in the first half of 2001 was $3.6 million less than the amount reported for the same period of 2000 due to changes in operating assets and liabilities. The decline resulted from a $5.2 million premium incurred to redeem debentures and from a reduction in regulatory liabilities. This was partially offset by higher deferred income taxes. Investing Activities Capital expenditures were $40.9 million in the first half of 2001 compared with $25.2 million in the corresponding 2000 period. The increase in the 2001 period is primarily due to expenditures for transmission, storage, the Southern Trails pipeline and Questar TransColorado's investment in the TransColorado partnership. Capital expenditures for calendar year 2001 are estimated to be $180.3 million and include two major pipeline projects. The Company received final approvals on July 10, 2001 to begin construction on Main Line No. 104, a 75-mile pipeline located in central Utah at an estimated cost of $80 million with $77.5 million being spent in 2001. In addition, $38 million is estimated for the eastern segment of the Questar Southern Trails Pipeline that runs from Blanco, New Mexico, to the California border. Financing Activities Net cash flow from operating activities, and funds from the note offering, plus the collection of notes from Questar enabled Questar Pipeline to fund capital expenditures and to refinance $115 million of its debentures. Questar makes loans to the Company under a short-term credit arrangement. Borrowing from Questar as of June 30, amounted to $16.9 million in 2001 and $14.6 million in 2000. Remaining 2001 capital expenditures are expected to be financed with net cash provided from operating activities, and from funds received from the debt offering. 7 Regulatory Matters Questar Southern Trails (QTS), a Questar Pipeline subsidiary, has secured a long-term gas-transportation contract for the entire initial capacity on the east segment of the Southern Trails Pipeline project. The east segment has the capacity to transport 80,000 decatherms (Dth) per day from multiple receipt points in the San Juan Basin near the Four Corners area (where Utah, Arizona, Colorado and New Mexico meet) to multiple delivery points at or near the California border. QTS is also currently seeking customers for Southern Trails' west zone, which runs from near the California state line to the Long Beach area. The west zone has a capacity of up to 120,000 Dth per day. However, QTS's efforts to place the west zone in service have been slowed by California regulatory issues. Specifically, the Residual Load Service (RLS) tariff penalty imposed by Southern California Gas, the dominant gas-transportation company in the region, deters existing customers from using alternate natural gas suppliers if they elect to switch part of their transportation to a competing pipeline in Southern California Gas' service area. On August 2, 2001, the California Public Utilities Commission (CPUC) issued an order replacing the RLS with a peaking rate. While the peaking rate is less punitive than the RLS, it does not go far enough to remove the obstacles faced by Southern Trails. QTS has urged California officals to seek expedited remedy in this situation. In light of the CPUC decision, QTS will continue its efforts to market pipeline capacity on Southern Trails, while evaluating alternative uses of the line. Business Development The Company announced several growth initiatives to address the western U.S. need for expanding natural gas transportation and storage services. These growth initiatives include the following: Expand the interstate transmission system - the Company held "open seasons" to confirm support for expanding its core pipeline system, which serves gas-producing basins in Utah, Wyoming and the western slope of Colorado. The open seasons will determine needed system expansions, optimal size of the expansions, preferred in-service dates, and receipt and delivery points shippers would utilize. Depending on customer response and federal approval, significant expansion could be put in place in 2002. Salt cavern storage facility - the Company also held an open season with good initial response for its proposed salt-cavern storage facility. The Company is working with potential customers to obtain the necessary market support for this project. The storage facility, which has been under development for several years is a high deliverability natural gas storage facility. Each of the four caverns will hold up to 3.5 billion cubic feet of gas and could be cycled up to 12 times a year. This facility is ideal for peaking power generation and other flexible services, which rely on immediate delivery of supplies. Major trading hub - the Company has announce its intention to leverage on its unique hub and spoke pipeline system by developing new hub services such as "parking" (temporary storage) and "balancing" (matching additions and withdrawals). Development of a hub will increase liquidity, trading and transportation on and between Questar Pipeline and other interstate pipelines. Forward-Looking Statements This report includes "forward-looking statements" within the meaning of Section 27(a) of the Securities Act of 1933, as amended, and Section 21(e) of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding the Company's future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "could", "expect", "intend", "project", "estimate", "anticipate", "believe", "forecast", or "continue" or the negative thereof or variations thereon or similar terminology. Although 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 8 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 expressed or implied in forward-looking statements include changes in general economic conditions, gas prices and supplies, competition, rate and regulatory issues, and other factors beyond the control of the Company. These other factors include the rate of inflation, the effect of natural phenomena, the effect of accounting policies issued periodically by accounting standard-setting bodies, and adverse changes in the business or financial condition of the Company. 9 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. a. On July 19, 2001, the trial court judge granted the motion for partial summary judgment filed by KN TransColorado, Inc.("KNTC") against Questar TransColorado, Inc. ("QTC"), which is a subsidiary of Questar Pipeline Company (the "Company"), the Company, and Questar Corporation, the Company's ultimate parent. The judge ruled, as a matter of law, that KNTC and QTC, as the partners in the TransColorado Gas Transmission Company ("TC Partnership"), owed fiduciary duties to each other and to the partnership, that the partners did not waive or limit their fiduciary responsibilities, and that the Company's officers and directors who also served as officers and directors of QTC had fiduciary obligations to disclose to KNTC and TC Partnership any information they learned with the Company that affected TC Partnership's fundamental business purposes. The Questar defendants do not agree with the judge's ruling and have filed a motion asking the judge to reconsider the portion of his order finding that the partners had not waived or modified their fiduciary duties. The basic question in the lawsuit is the validity of a contractual 9right claimed by QTC to sell or put its 50 percent interest in the TransColorado pipeline project to KNTC during the 12-month period beginning March 31, 2001. KNTC alleges that the Company and its affiliates breached their fiduciary duties to KNTC and TC Partnership by developing a plan to construct and operate a new pipeline that would compete with the TransColorado pipeline, rendering it economically unviable. This allegation is the basis for KNTC's contention that its obligation to purchase QTC's interest in the project be declared void and unenforceable. The Questar defendants continue to maintain that QTC's right to sell its interest to KNTC is binding and enforceable. b. The Company and other Questar defendants are involved in three separate actions filed by an independent producer, Jack Grynberg. One of these cases is pending in Wyoming's federal district court and was stayed pending the outcome of Grynberg's appeal to the Tenth Circuit Court of Appeals involving an earlier case. On June 29, 2001, the presiding federal district court entered an order in this case granting a motion for partial summary judgment filed by the Company and other named Questar defendants that dismissed Grynberg's antitrust claims. The Questar defendants had filed this motion before the case was stayed. The Company and other Questar affiliates are named defendants in a case filed by Grynberg under the federal False Claims Act. This case against the Questar defendants is one of approximately 76 cases filed by Grynberg against pipelines and their affiliates that have been consolidated for discovery and pre-trial motions in Wyoming's federal district court. (The judge assigned to this court is different than the judge presiding over the case described above.) On May 18, 2001, the judge denied the motion filed by defendants to dismiss Grynberg's complaints for failure to plead fraud with particularity. He also denied the motion filed by a group of defendants, including the Questar defendants, to certify a question of law on this issue that could be heard as an interlocutory appeal by the Tenth Circuit Court of Appeals. 10 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. The following exhibit has been filed as part of this report.
Exhibit No. Exhibit ----------- ------- 12. Ratio of earnings to fixed charges.
b. The Company did not file any Current Reports 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) August 10, 2001 /s/ D. N. Rose --------------------------------- D. N. Rose President and Chief Executive Officer August 10, 2001 /s/ S. E. Parks --------------------------------- S. E. Parks Vice President, Treasurer, and Chief Financial Officer 11 EXHIBIT INDEX
Exhibit Number Exhibit - ------- ------- 12. Ratio of earnings to fixed charges.
12 EX-12 3 a2056815zex-12.txt EXHIBIT 12 Exhibit No. 12. Questar Pipeline Company and Subsidiaries Ratio of Earnings to Fixed Charges (Unaudited)
12 months ended June 30, 2001 2000 -------- -------- (Dollars in Thousands) Earnings Income (loss) before income taxes $ 43,951 ($12,985) Plus debt expense 16,808 18,342 Plus allowance for borrowed funds used during construction 3,296 2,796 Plus interest portion of rental expense 370 273 -------- -------- $ 64,425 $ 8,426 ======== ======== Fixed Charges Debt expense $ 16,808 $ 18,342 Plus allowance for borrowed funds used during construction 3,296 2,796 Plus interest portion of rental expense 370 273 -------- -------- $ 20,474 $ 21,411 ======== ======== Ratio of Earnings to Fixed Charges 3.15 0.39
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