-----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, MWCgprEeoovKnv2UdarZSKBACiTfZr2VFBksNBpzkFb+kl4EKnxqSnwPI1uMoapk 0wSo+vWxfEQtR8iUNq0ebQ== 0000912057-01-539274.txt : 20020410 0000912057-01-539274.hdr.sgml : 20020410 ACCESSION NUMBER: 0000912057-01-539274 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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: 1785346 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 a2063497z10-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 SEPTEMBER 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. Class Outstanding as of October 31, 2001 - -------------------------------------------------------------------------------- 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 9 Months Ended 12 Months Ended September 30, September 30, September 30, 2001 2000 2001 2000 2001 2000 --------- --------- --------- --------- --------- --------- (In Thousands) REVENUES $ 30,464 $ 28,187 $ 92,411 $ 87,452 $ 124,035 $ 117,066 OPERATING EXPENSES Operating and maintenance 11,841 10,783 34,049 30,516 47,294 41,891 Depreciation 3,861 2,949 12,085 11,400 16,076 15,295 Other taxes 710 716 2,285 2,078 3,278 2,427 --------- --------- --------- --------- --------- --------- TOTAL OPERATING EXPENSES 16,412 14,448 48,419 43,994 66,648 59,613 --------- --------- --------- --------- --------- --------- OPERATING INCOME 14,052 13,739 43,992 43,458 57,387 57,453 INTEREST AND OTHER INCOME 1,204 688 3,945 2,273 4,697 2,836 OPERATIONS OF UNCONSOLIDATED AFFILIATES Income (loss) (201) 324 (1,521) 720 (1,021) (2,021) Write-down of investment in partnership (49,700) --------- --------- --------- --------- --------- --------- (201) 324 (1,521) 720 (1,021) (51,721) DEBT EXPENSE (3,509) (4,295) (11,824) (13,386) (16,022) (18,250) --------- --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES 11,546 10,456 34,592 33,065 45,041 (9,682) INCOME TAXES 4,353 3,890 12,891 12,299 14,281 (3,595) --------- --------- --------- --------- --------- --------- NET INCOME (LOSS) $ 7,193 $ 6,566 $ 21,701 $ 20,766 $ 30,760 $ (6,087) ========= ========= ========= ========= ========= =========
See notes to consolidated financial statements 2 QUESTAR PIPELINE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2001 2000 2000 (Unaudited) -------- -------- ------------ (In Thousands) ASSETS Current assets Cash and cash equivalents $ 908 $ 854 $ 1,855 Notes receivable from Questar Corporation 30,100 8,400 20,700 Accounts receivable 7,315 7,687 11,667 Inventories - materials and supplies, at lower of average cost or market 2,549 2,520 2,276 Prepaid expenses and other 249 1,568 477 -------- -------- -------- Total current assets 41,121 21,029 36,975 Property, plant and equipment 815,323 721,314 731,246 Less accumulated depreciation 253,137 239,446 243,006 -------- -------- -------- Net property, plant and equipment 562,186 481,868 488,240 Investment in unconsolidated affiliates 22,267 20,029 19,088 Regulatory and other assets 18,271 17,611 16,428 -------- -------- -------- $643,845 $540,537 $560,731 ======== ======== ======== LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities Notes payable to Questar Corporation $ 9,500 Accounts payable and accrued expenses $ 21,799 22,587 $ 10,103 -------- -------- -------- Total current liabilities 21,799 32,087 10,103 Long-term debt 310,045 245,015 245,020 Other liabilities 2,908 8,717 7,231 Deferred income taxes 68,631 52,766 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 91,877 83,367 87,051 -------- -------- -------- Total common shareholder's equity 240,462 201,952 235,636 -------- -------- -------- $643,845 $540,537 $560,731 ======== ======== ========
See notes to consolidated financial statements 3 QUESTAR PIPELINE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
9 Months Ended September 30, 2001 2000 --------- --------- (In Thousands) OPERATING ACTIVITIES Net income $ 21,701 $ 20,766 Depreciation 12,988 12,233 Deferred income taxes 5,890 2,875 (Income) loss from unconsolidated affiliates, net of cash distributions 1,521 720 --------- --------- 42,100 36,594 Change in operating assets and liabilities 9,862 21,971 --------- --------- NET CASH PROVIDED FROM OPERATING ACTIVITIES 51,962 58,565 INVESTING ACTIVITIES Capital expenditures Purchase of property, plant and equipment (86,127) (23,261) Investment in unconsolidated affiliates (4,700) (9,024) --------- --------- Total capital expenditures (90,827) (32,285) Costs of disposition of property, plant and equipment (807) (1,388) --------- --------- NET CASH USED IN INVESTING ACTIVITIES (91,634) (33,673) FINANCING ACTIVITIES Issuance of long-term debt 180,000 Repayment of long-term debt (115,000) Change in notes receivable from Questar Corp. (9,400) (7,300) Change in notes payable to Questar Corp. (33,000) Equity investment 30,000 Payment of dividends (16,875) (16,125) --------- --------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 38,725 (26,425) --------- --------- Decrease in cash and cash equivalents (947) (1,533) Beginning cash and cash equivalents 1,855 2,387 --------- --------- Ending cash and cash equivalents $ 908 $ 854 ========= =========
See notes to consolidated financial statements 4 QUESTAR PIPELINE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 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 of operations for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for the three-, nine- and twelve-month periods ended September 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.
9 Months Ended September 30, 2001 2000 -------- -------- (In Thousands) Revenues $ 11,850 $ 9,113 Operating loss (1,049) (4,978) Loss before income taxes (9,546) (14,532)
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. On June 25, 2001, the Company redeemed $85 million of its 9 3/8% debentures. The redemption price was equal to 104.51% of the principal amount plus twenty-four days of interest. On May 11, 2001, Questar Pipeline 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 notes with a 7.09% coupon rate. On September 26, Questar Pipeline issued $80 million of 10-year medium-term notes with a coupon rate of 6.57%. Additional proceeds from the sale of notes will likely be used to finance a portion of capital expenditures and partnership investments, estimated at $270 million in 2001. On October 12, 2001, Questar Pipeline borrowed $100 million for a 12-month period. The proceeds were used to repay, through a wholly-owned subsidiary, Questar TransColorado, Inc. (QTC), one-half of the outstanding and currently maturing debt owed by TransColorado Gas Transmission Company (TransColorado). QTC and KN TransColorado, Inc., a subsidiary of Kinder Morgan, each own 50% of TransColorado. KN TransColorado also repaid 50% of TransColorado's debt. 5 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations QUESTAR PIPELINE COMPANY AND SUBSIDIARIES September 30, 2001 (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, 2001 2000 2001 2000 2001 2000 --------- --------- --------- --------- --------- --------- FINANCIAL RESULTS - (dollars in thousands) Revenues From unaffiliated customers $ 12,754 $ 10,454 $ 35,848 $ 30,355 $ 47,993 $ 39,639 From affiliates 17,710 17,733 56,563 57,097 76,042 77,427 --------- --------- --------- --------- --------- --------- Total revenues $ 30,464 $ 28,187 $ 92,411 $ 87,452 $ 124,035 $ 117,066 ========= ========= ========= ========= ========= ========= Operating income $ 14,052 $ 13,739 $ 43,992 $ 43,458 $ 57,387 $ 57,453 Net income (loss) 7,193 6,566 21,701 20,766 30,760 (6,087) OPERATING STATISTICS Natural gas transportation volumes (in thousands of decatherms) For unaffiliated customers 53,516 44,228 143,522 109,126 193,000 145,987 For Questar Gas 14,303 13,357 78,735 73,718 113,200 103,262 For other affiliated customers 1,981 2,436 3,986 5,437 6,919 8,126 --------- --------- --------- --------- --------- --------- Total transportation 69,800 60,021 226,243 188,281 313,119 257,375 ========= ========= ========= ========= ========= ========= Transportation revenue (per decatherm) $ 0.27 $ 0.28 $ 0.25 $ 0.28 $ 0.24 $ 0.28
Revenues were higher in the 2001 periods compared with the 2000 periods due primarily to increased revenues from transportation operations and gas processing operations. Transportation revenues increased 5% in the third quarter and first nine months of 2001 compared with the 2000 periods primarily from increased demand for firm-transportation service. Firm-transportation volumes reached 64.5 million decatherms (MMDth) in the third quarter of 2001, which was 20% higher than the third quarter of 2000. In the first nine months of 2001, firm-transportation volumes were 212.9 MMDth or 23% higher when compared with the prior-year period as a result of increased regional demand and power generation. A refund of gas processing fees reduced third quarter 2000 revenues by $1.3 million. Processing fees are determined on a cost-of-service basis and the refund was a result of lower depreciation expense. Operating and maintenance (O & M) expenses were higher in the 2001 periods when compared with the 2000 periods reported primarily because of legal fees, increased transportation activities accompanying the rise in gas volumes, gas processing costs and expenses associated with Questar Southern Trails Pipeline Company. The Company and its subsidiaries have incurred legal costs of $.8 million in the third quarter and $2.1 million in the nine-month period of 2001. Fuel gas and other expenses of the gas processing activities increased $.7 million in the first nine months of 2001. Maintenance expenses for the Southern Trails Pipeline were $.4 million higher in the 2001 period. These increases in the first nine months of 2001 were partially offset by $1.8 million of reduced costs resulting from an early retirement program effective October 31, 2000. 6 Depreciation expense was higher in the 2001 periods compared with the 2000 periods as a result of an adjustment recorded in the third quarter 2000. 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 includes the Company's share of operating losses from the TransColorado Pipeline partnership of $.5 million in the third quarter and $2.2 million for the first nine months of 2001. Debt expense was lower in the 2001 periods compared with the 2000 periods because of lower interest rates and reduced short-term debt levels in the 2001 periods. The Company refinanced $115 million of long-term debt carrying a weighted average rate of 9.5% with debt having a weighted average interest rate of 6.9%. Short-term debt balances were reduced after a $60 million equity investment from the Company's parent company in 2000. The effective income tax rate was 37% in the first nine months of 2001 and 2000. Liquidity and Capital Resources Operating Activities Net cash provided from operating activities of $52.0 million in the first nine months of 2001 was $6.6 million less than the amount reported for the same period of 2000 due to changes in operating assets and liabilities. The decline resulted primarily 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 $90.8 million in the first nine months of 2001 compared with $32.3 million in the corresponding 2000 period. The increase in the 2001 period is primarily due to expenditures for transmission projects, including Main Line 104 and the Southern Trails pipeline. Capital expenditures for calendar year 2001 are estimated to be $278.5 million and include a $100 million equity investment in Questar TransColorado, which was used to retire TransColorado debt. Financing Activities Questar Pipeline borrowed $180 million in 2001and used the proceeds along with net cash provided from operating activities to refinance $115 million of more expensive debt and fund investing activities. Questar Pipeline loaned its excess cash to Questar. 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 Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") 141, "Business Combinations," which addresses financial accounting and reporting for business combinations. SFAS 141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for under the pooling method initiated before but completed after June 30, 2001. SFAS 141 does not have an impact on the Company at the present time. In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets," which addresses, among other things, the financial accounting and reporting for goodwill subsequent to an acquisition. The new standard eliminates the requirement to amortize acquired goodwill; instead, such goodwill shall be reviewed at least annually for impairment. SFAS 142 is effective for fiscal years beginning after December 15, 2001. The Company has not evaluated the impact of the provisions of SFAS 142. In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations," which addresses, among other things, the financial accounting and reporting of the fair value of legal obligations associated with the retirement of tangible long-lived assets. The new standard requires that retirement costs be estimated at fair value, capitalized and depreciated over the life of the assets. The new standard may affect the cost basis of rate-regulated assets. SFAS 143 is effective for years beginning after June 15, 2002. The Company has not evaluated the impact of SFAS 143. In August 2001, the FASB issued SFAS 144, " Accounting for the Impairment or Disposal of Long-Lived Assets." The new standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets, specifically, for a segment of a business accounted for as a discontinued operation. The new standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets, SFAS 144 is effective for years beginning after December 15, 2001. The Company has not evaluated the impact of SFAS 144. 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 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. 8 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. a. On October 18, 2001, the Environmental Protection Agency (the "EPA") formally allowed Region VIII of the EPA to withdraw a complaint, with prejudice, that was originally filed against Questar Regulated Services Company, the parent of Questar Pipeline Company ("Questar Pipeline" or the "Company"). See the Company's Form 10-Q for the quarter ending March 31, 2001, ITEM 1. LEGAL PROCEEDINGS, paragraph b. In its complaint, the EPA alleged violations of regulations promulgated to enforce the Clean Air Act, as amended, in conjunction with the installation and operation of a gas turbine at the Company's Fidlar compressor station in eastern Utah and proposed a civil penalty of $471,568. As a result of reviewing the information submitted by Questar Pipeline, which is the real party in interest, the EPA determined that it was appropriate to voluntarily dismiss the complaint without further adjudication. b. The complex lawsuit involving the TransColorado pipeline project is set for trial beginning April 4, 2002, before a judge in a Colorado state district court. The basic question in the lawsuit filed by KN TransColorado Inc. ("KNTC") against Questar TransColorado, Inc. ("QTC") and other Questar defendants, including the Company, is the validity of a contractual right claimed by QTC to sell or "put" its 50 percent interest in the TransColorado project to KNTC during the 12- month period beginning March 31, 2001. KNTC, which is a wholly owned subsidiary of Kinder Morgan Inc., alleges that the Company and its affiliates breached their fiduciary duties to KNTC and the TransColorado Gas Transmission Company ("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 have filed a number of claims against KNTC and affiliates and continue to maintain that QTC's right to sell its interest to KNTC is binding and enforceable. 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. 9 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 13, 2001 /s/ D. N. Rose - ----------------- ------------------------------------ D. N. Rose President and Chief Executive Officer November 13, 2001 /s/ S. E. Parks - ----------------- ------------------------------------ S. E. Parks Vice President, Treasurer, and Chief Financial Officer 10 EXHIBIT INDEX
Exhibit Number Exhibit - ------- ------- 12. Ratio of earnings to fixed charges.
11 EX-12 3 a2063497zex-12.txt EXHIBIT 12 Exhibit No. 12. Questar Pipeline Company and Subsidiaries Ratio of Earnings to Fixed Charges (Unaudited)
12 months ended September 30, 2001 2000 -------- -------- (Dollars in Thousands) Earnings Income (loss) before income taxes $ 45,041 ($ 9,682) Plus debt expense 16,022 18,250 Plus allowance for borrowed funds used during construction 3,338 3,084 Plus interest portion of rental expense 373 314 -------- -------- $ 64,774 $ 11,966 ======== ======== Fixed Charges Debt expense $ 16,022 $ 18,250 Plus allowance for borrowed funds used during construction 3,338 3,084 Plus interest portion of rental expense 373 314 -------- -------- $ 19,733 $ 21,648 ======== ======== Ratio of Earnings to Fixed Charges (1) 3.28 0.55
(1) For the purposes of this presentation, earnings represent income before income taxes and fixed charges. Fixed charges consist of total interest charges, amortization of debt issuance costs and losses from reacquiring debt, and the interest portion of rental costs, estimated at 50% for the purpose of this calculation. -----END PRIVACY-ENHANCED MESSAGE-----