UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2016
 
 
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___ to ___
(Exact name of registrant as specified in its charter)
Commission File Number:
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer
Identification No.)
Questar Corporation
001-08796
Utah
87-0407509
Questar Gas Company
333-69210
Utah
87-0155877
Questar Pipeline Company
000-14147
Utah
87-0307414
333 South State Street, P.O. Box 45433, Salt Lake City, Utah 84145-0433
(Address of principal executive offices)
Registrants' telephone number, including area code (801) 324-5900
Web site http://www.questar.com

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.
Questar Corporation
Yes [X]   No [   ]
Questar Gas Company
Yes [X]   No [   ]
Questar Pipeline Company
Yes [X]   No [   ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Questar Corporation
Yes [X]   No [   ]
Questar Gas Company
Yes [X]   No [   ]
Questar Pipeline Company
Yes [X]   No [   ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Do not check non-accelerated filer if a smaller reporting company (Check one).
Questar Corporation
Large accelerated filer
[X]
Accelerated filer
[   ]
Non-accelerated filer
[   ]
Smaller reporting company [   ]
Questar Gas Company
Large accelerated filer
[   ]
Accelerated filer
[   ]
Non-accelerated filer
[X]
Smaller reporting company [   ]
Questar Pipeline Company
Large accelerated filer
[   ]
Accelerated filer
[   ]
Non-accelerated filer
[X]
Smaller reporting company [   ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Questar Corporation
Yes [   ]   No [X]
Questar Gas Company
Yes [   ]   No [X]
Questar Pipeline Company
Yes [   ]   No [X]


Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of June 30, 2016.
Questar Corporation
without par value
175,440,133
Questar Gas Company
$2.50 per share par value
9,189,626
Questar Pipeline Company
$1.00 per share par value
6,550,843

Questar Gas Company and Questar Pipeline Company, as wholly-owned subsidiaries of a reporting company, meet the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format.




QUESTAR CORPORATION
QUESTAR GAS COMPANY
QUESTAR PIPELINE COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2016

TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FILING FORMAT
This Quarterly Report on Form 10-Q is a combined report being filed by three separate registrants: Questar Corporation (Questar or the Company), Questar Gas Company and Questar Pipeline Company. Questar Gas Company and Questar Pipeline Company are wholly-owned subsidiaries of Questar. Separate financial statements for Wexpro Company have not been included since Wexpro is not a registrant. See Note 9 to the accompanying financial statements for a summary of operations by line of business. Information contained herein related to any individual registrant is filed by such registrant solely on its own behalf. Each registrant makes no representation as to information relating exclusively to the other registrants.

Item 1 of Part I of this Quarterly Report on Form 10-Q includes separate financial statements (i.e. statements of income, statements of comprehensive income, balance sheets and statements of cash flows, as applicable) for Questar Corporation, Questar Gas Company and Questar Pipeline Company. The notes accompanying the financial statements are presented on a combined basis for all three registrants. Management's Discussion and Analysis of Financial Condition and Results of Operations included under Item 2 of Part I is presented by line of business.

Questar 2016 Form 10-Q
2
 



PART I—FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

QUESTAR CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
3 Months Ended
 
6 Months Ended
 
12 Months Ended
 
June 30,
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
(in millions, except per-share amounts)
REVENUES
 
 
 
 
 
 
 
 
 
 
 
Questar Gas
$
128.2

 
$
141.7

 
$
536.1

 
$
516.5

 
$
937.2

 
$
936.1

Wexpro
1.9

 
10.1

 
5.4

 
16.4

 
11.9

 
31.9

Questar Pipeline
42.9

 
46.5

 
85.9

 
93.3

 
180.5

 
187.4

Other
1.1

 
1.0

 
3.0

 
1.7

 
7.8

 
3.6

Total Revenues
174.1

 
199.3

 
630.4

 
627.9

 
1,137.4

 
1,159.0

 
 
 
 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Cost of sales (excluding operating expenses shown separately)
(27.7
)
 
(9.0
)
 
130.8

 
122.8

 
183.2

 
185.2

Operating and maintenance
39.9

 
40.5

 
90.3

 
92.8

 
179.1

 
187.6

General and administrative
26.0

 
27.4

 
55.6

 
56.8

 
107.8

 
120.0

Pension settlement costs

 

 

 

 
16.7

 

Merger and restructuring costs
3.7

 

 
18.3

 

 
18.3

 

Production and other taxes
11.4

 
12.8

 
23.1

 
26.6

 
47.8

 
56.2

Depreciation, depletion and amortization
56.4

 
53.6

 
112.3

 
107.9

 
220.4

 
209.5

Abandonment and impairment
0.1

 
0.1

 
0.3

 
0.1

 
12.7

 
0.1

Total Operating Expenses
109.8

 
125.4

 
430.7

 
407.0

 
786.0

 
758.6

Net gain from asset sales
0.1

 
1.4

 
0.4

 
1.4

 
0.8

 
2.5

OPERATING INCOME
64.4

 
75.3

 
200.1

 
222.3

 
352.2

 
402.9

Interest and other income
1.1

 
1.5

 
2.1

 
2.9

 
3.4

 
6.5

Income from unconsolidated affiliate
0.9

 
1.0

 
1.9

 
1.9

 
3.7

 
3.6

Interest expense
(15.5
)
 
(15.8
)
 
(31.3
)
 
(31.7
)
 
(62.6
)
 
(63.2
)
INCOME BEFORE INCOME TAXES
50.9

 
62.0

 
172.8

 
195.4

 
296.7

 
349.8

Income taxes
(17.8
)
 
(21.4
)
 
(61.2
)
 
(70.2
)
 
(101.6
)
 
(123.5
)
NET INCOME
$
33.1

 
$
40.6

 
$
111.6

 
$
125.2

 
$
195.1

 
$
226.3

 
 
 
 
 
 
 
 
 
 
 
 
Earnings Per Common Share
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.19

 
$
0.23

 
$
0.64

 
$
0.71

 
$
1.11

 
$
1.29

Diluted
0.19

 
0.23

 
0.64

 
0.71

 
1.11

 
1.28

Weighted-average common shares outstanding
 
 
 
 
 
 
 
 
 
 
 
Used in basic calculation
176.0

 
176.4

 
175.9

 
176.3

 
175.9

 
176.1

Used in diluted calculation
176.2

 
176.6

 
176.2

 
176.5

 
176.1

 
176.4

Dividends per common share
$
0.22

 
$
0.21

 
$
0.44

 
$
0.42

 
$
0.86

 
$
0.80


See notes accompanying the financial statements

Questar 2016 Form 10-Q
3
 



QUESTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
3 Months Ended
 
6 Months Ended
 
12 Months Ended
 
June 30,
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
(in millions)
Net income
$
33.1

 
$
40.6

 
$
111.6

 
$
125.2

 
$
195.1

 
$
226.3

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Pension and other postretirement benefits
4.0

 
6.0

 
8.0

 
12.0

 
21.6

 
(93.7
)
Interest rate cash flow hedge amortization
0.1

 
0.2

 
0.3

 
0.4

 
0.5

 
0.6

Commodity cash flow hedge
(0.9
)
 
(0.3
)
 
(1.1
)
 
(0.3
)
 
(1.0
)
 
(0.3
)
Income taxes
(1.1
)
 
(2.2
)
 
(2.7
)
 
(4.6
)
 
(8.1
)
 
35.9

Net other comprehensive income (loss)
2.1

 
3.7

 
4.5

 
7.5

 
13.0

 
(57.5
)
COMPREHENSIVE INCOME
$
35.2

 
$
44.3

 
$
116.1

 
$
132.7

 
$
208.1

 
$
168.8


See notes accompanying the financial statements

Questar 2016 Form 10-Q
4
 



QUESTAR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
June 30, 2016
 
June 30, 2015
 
Dec. 31, 2015
 
(in millions)
ASSETS
 
 
 
 
 
Current Assets
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
25.0

Accounts receivable, net
56.6

 
53.3

 
168.0

Unbilled gas accounts receivable
11.0

 
11.6

 
91.3

Gas stored underground
26.2

 
30.6

 
45.1

Materials and supplies
27.8

 
30.7

 
28.4

Current regulatory assets
21.0

 
57.1

 
70.0

Prepaid expenses and other
20.0

 
10.2

 
12.3

Total Current Assets
162.6

 
193.5

 
440.1

Property, Plant and Equipment
6,313.4

 
6,057.2

 
6,182.0

Accumulated depreciation, depletion and amortization
(2,424.2
)
 
(2,272.5
)
 
(2,333.3
)
Net Property, Plant and Equipment
3,889.2

 
3,784.7

 
3,848.7

Investment in unconsolidated affiliate
23.5

 
24.3

 
23.9

Noncurrent regulatory assets
19.7

 
23.7

 
14.9

Other noncurrent assets
45.6

 
43.9

 
44.2

TOTAL ASSETS
$
4,140.6

 
$
4,070.1

 
$
4,371.8

 

 

 

LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
 
 
 
 
 
Current Liabilities
 
 
 
 
 
Checks outstanding in excess of cash balances
$
4.0

 
$
2.5

 
$

Short-term debt
459.0

 
228.0

 
457.6

Accounts payable and accrued expenses
159.7

 
201.0

 
224.8

Current regulatory liabilities
34.2

 
2.6

 
6.4

Current portion of long-term debt and capital lease obligation
1.3

 
277.0

 
251.3

Total Current Liabilities
658.2

 
711.1

 
940.1

Long-term debt and capital lease obligation, less current portion
997.9

 
998.6

 
998.2

Deferred income taxes
783.7

 
707.3

 
779.5

Asset retirement obligations
71.4

 
70.6

 
67.6

Defined benefit pension plan and other postretirement benefits
108.7

 
125.1

 
123.0

Noncurrent regulatory liabilities
85.1

 
74.9

 
75.6

Customer contributions in aid of construction
23.1

 
27.4

 
23.7

Other noncurrent liabilities
52.2

 
46.3

 
49.0

 
 
 
 
 
 
COMMON SHAREHOLDERS' EQUITY
 
 
 
 
 
Common stock
475.6

 
480.8

 
469.0

Retained earnings
1,065.5

 
1,021.8

 
1,031.4

Accumulated other comprehensive (loss)
(180.8
)
 
(193.8
)
 
(185.3
)
Total Common Shareholders' Equity
1,360.3

 
1,308.8

 
1,315.1

TOTAL LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
$
4,140.6

 
$
4,070.1

 
$
4,371.8

See notes accompanying the financial statements

Questar 2016 Form 10-Q
5
 



QUESTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
6 Months Ended
 
June 30,
 
2016
 
2015
 
(in millions)
OPERATING ACTIVITIES
 
 
 
Net income
$
111.6

 
$
125.2

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
118.2

 
111.3

Deferred income taxes
1.1

 
(7.2
)
Abandonment and impairment
0.3

 
0.1

Share-based compensation
5.4

 
6.3

Net (gain) from asset sales
(0.4
)
 
(1.4
)
(Income) from unconsolidated affiliate
(1.9
)
 
(1.9
)
Distributions from unconsolidated affiliate and other
2.8

 
2.6

Changes in operating assets and liabilities
207.8

 
66.2

NET CASH PROVIDED BY OPERATING ACTIVITIES
444.9

 
301.2

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Property, plant and equipment purchased
(146.2
)
 
(127.3
)
Questar Gas acquisition of gas distribution system

 
(11.4
)
Cash used in disposition of assets
(1.5
)
 
(1.8
)
Proceeds from disposition of assets
0.4

 
1.1

NET CASH USED IN INVESTING ACTIVITIES
(147.3
)
 
(139.4
)
 
 
 
 
FINANCING ACTIVITIES
 
 
 
Common stock issued
3.9

 
1.5

Common stock repurchased
(2.8
)
 
(4.1
)
Short-term debt issued
250.0

 

Change in commercial paper, net
(248.6
)
 
(119.0
)
Checks outstanding in excess of cash balances
4.0

 
2.5

Long-term debt repaid
(250.0
)
 

Capital lease obligation repaid
(0.6
)
 
(0.6
)
Revolver issuance costs paid
(1.2
)
 

Dividends paid
(77.5
)
 
(74.1
)
Tax benefits from share-based compensation
0.2

 

NET CASH USED IN FINANCING ACTIVITIES
(322.6
)
 
(193.8
)
Change in cash and cash equivalents
(25.0
)
 
(32.0
)
Beginning cash and cash equivalents
25.0

 
32.0

Ending cash and cash equivalents
$

 
$


See notes accompanying the financial statements

Questar 2016 Form 10-Q
6
 




QUESTAR GAS COMPANY
STATEMENTS OF INCOME
(Unaudited)
 
3 Months Ended
 
6 Months Ended
 
12 Months Ended
 
June 30,
 
June 30,
 
June 30,

2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
(in millions)
REVENUES
$
128.2

 
$
141.7

 
$
536.1

 
$
516.5

 
$
937.2

 
$
936.1

 
 
 
 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Cost of natural gas sold (excluding operating expenses shown separately)
67.8

 
84.0

 
324.7

 
317.6

 
565.2

 
580.6

Operating and maintenance
24.9

 
24.8

 
59.5

 
57.9

 
113.5

 
114.3

General and administrative
11.4

 
12.8

 
24.4

 
26.2

 
48.8

 
52.3

Depreciation and amortization
15.0

 
13.6

 
29.7

 
27.1

 
57.7

 
53.9

Other taxes
5.3

 
5.1

 
10.6

 
9.7

 
20.2

 
17.6

Total Operating Expenses
124.4

 
140.3

 
448.9

 
438.5

 
805.4

 
818.7

OPERATING INCOME
3.8

 
1.4

 
87.2

 
78.0

 
131.8

 
117.4

Interest and other income
0.9

 
1.2

 
1.9

 
2.3

 
4.4

 
5.6

Interest expense
(7.5
)
 
(7.1
)
 
(15.2
)
 
(14.2
)
 
(29.3
)
 
(28.3
)
INCOME (LOSS) BEFORE INCOME TAXES
(2.8
)
 
(4.5
)
 
73.9

 
66.1

 
106.9

 
94.7

Income taxes
1.2

 
1.7

 
(27.9
)
 
(25.1
)
 
(37.6
)
 
(34.8
)
NET INCOME (LOSS)
$
(1.6
)
 
$
(2.8
)
 
$
46.0

 
$
41.0

 
$
69.3

 
$
59.9


See notes accompanying the financial statements



Questar 2016 Form 10-Q
7
 



QUESTAR GAS COMPANY 
CONDENSED BALANCE SHEETS 
(Unaudited)
 
June 30, 2016
 
June 30, 2015
 
Dec. 31, 2015
 
(in millions)
ASSETS 
 
 
 
 
 
Current Assets 
 
 
 
 
 
Cash and cash equivalents 
$

 
$

 
$
10.5

Accounts receivable, net 
36.6

 
29.6

 
112.0

Unbilled gas accounts receivable 
11.0

 
11.6

 
91.0

Accounts receivable from affiliates 
72.1

 
68.3

 
69.2

Gas stored underground 
23.1

 
26.1

 
43.9

Materials and supplies 
16.7

 
18.7

 
17.1

Current regulatory assets 
20.6

 
56.3

 
69.8

Prepaid expenses and other 
4.2

 
3.8

 
3.5

Total Current Assets 
184.3

 
214.4

 
417.0

Property, Plant and Equipment 
2,684.8

 
2,455.4

 
2,570.3

Accumulated depreciation and amortization 
(827.6
)
 
(799.9
)
 
(812.2
)
Net Property, Plant and Equipment 
1,857.2

 
1,655.5

 
1,758.1

Noncurrent regulatory assets 
16.5

 
19.8

 
11.9

Other noncurrent assets 
5.7

 
5.7

 
5.7

TOTAL ASSETS 
$
2,063.7

 
$
1,895.4

 
$
2,192.7

 

 

 

LIABILITIES AND COMMON SHAREHOLDER'S EQUITY 
 
 
 
 
 
Current Liabilities 
 
 
 
 
 
Checks outstanding in excess of cash balances
$
5.1

 
$
4.1

 
$

Notes payable to Questar
129.0

 
59.7

 
273.3

Accounts payable and accrued expenses 
81.2

 
106.7

 
122.5

Accounts payable to affiliates 
69.7

 
77.8

 
74.5

Customer advances 
13.7

 
18.0

 
34.3

Current regulatory liabilities 
32.8

 
1.0

 
4.0

Total Current Liabilities 
331.5

 
267.3

 
508.6

Long-term debt
531.4

 
531.0

 
531.2

Deferred income taxes 
449.2

 
382.0

 
436.7

Noncurrent regulatory liabilities
74.7

 
65.5

 
65.6

Customer contributions in aid of construction
23.1

 
27.4

 
23.7

Other noncurrent liabilities 
2.3

 
2.5

 
2.2

COMMON SHAREHOLDER'S EQUITY 
 
 
 
 
 
Common stock 
23.0

 
23.0

 
23.0

Additional paid-in capital 
267.6

 
266.1

 
266.8

Retained earnings 
360.9

 
330.6

 
334.9

Total Common Shareholder's Equity 
651.5

 
619.7

 
624.7

TOTAL LIABILITIES AND COMMON SHAREHOLDER'S EQUITY 
$
2,063.7

 
$
1,895.4

 
$
2,192.7


See notes accompanying the financial statements

Questar 2016 Form 10-Q
8
 



QUESTAR GAS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 
6 Months Ended June 30,
 
2016
 
2015
 
(in millions)
OPERATING ACTIVITIES
 
 
 
Net income
$
46.0

 
$
41.0

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
32.6

 
29.9

Deferred income taxes
12.5

 
(1.8
)
Share-based compensation
0.8

 
0.7

Changes in operating assets and liabilities
182.3

 
95.0

NET CASH PROVIDED BY OPERATING ACTIVITIES
274.2

 
164.8

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Property, plant and equipment purchased
(124.3
)
 
(88.3
)
Acquisition of gas distribution system

 
(11.4
)
Cash used in disposition of assets
(1.2
)
 
(1.4
)
Proceeds from disposition of assets
0.1

 
0.1

Affiliated-company property, plant and equipment transfers
(0.1
)
 
(0.1
)
NET CASH USED IN INVESTING ACTIVITIES
(125.5
)
 
(101.1
)
 
 
 
 
FINANCING ACTIVITIES
 
 
 
Change in notes payable to Questar
(144.3
)
 
(59.6
)
Checks outstanding in excess of cash balances
5.1

 
4.1

Dividends paid to Questar
(20.0
)
 
(28.0
)
NET CASH USED IN FINANCING ACTIVITIES
(159.2
)
 
(83.5
)
Change in cash and cash equivalents
(10.5
)
 
(19.8
)
Beginning cash and cash equivalents
10.5

 
19.8

Ending cash and cash equivalents
$

 
$


See notes accompanying the financial statements


Questar 2016 Form 10-Q
9
 




QUESTAR PIPELINE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
3 Months Ended
 
6 Months Ended
 
12 Months Ended
 
June 30,
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
(in millions)
REVENUES
 
 
 
 
 
 
 
 
 
 
 
From unaffiliated customers
$
42.9

 
$
46.5

 
$
85.9

 
$
93.3

 
$
180.5

 
$
187.4

From affiliated companies
17.5

 
17.8

 
36.8

 
37.2

 
74.7

 
73.9

Total Revenues
60.4

 
64.3

 
122.7

 
130.5

 
255.2

 
261.3

 
 
 
 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Operating and maintenance
9.0

 
8.9

 
17.6

 
19.0

 
36.2

 
39.8

General and administrative
8.9

 
10.5

 
19.2

 
21.0

 
37.1

 
40.1

Depreciation and amortization
13.7

 
13.7

 
27.4

 
27.7

 
54.3

 
55.0

Other taxes
2.2

 
2.1

 
4.5

 
4.4

 
8.9

 
8.8

Cost of sales (excluding operating expenses shown separately)
0.3

 
(0.2
)
 
0.4

 
1.7

 
7.6

 
3.3

Total Operating Expenses
34.1

 
35.0

 
69.1

 
73.8

 
144.1

 
147.0

Net gain (loss) from asset sales
0.1

 

 
0.4

 

 
0.6

 
(0.5
)
OPERATING INCOME
26.4

 
29.3

 
54.0

 
56.7

 
111.7

 
113.8

Interest and other income
0.2

 
0.2

 
0.3

 
0.4

 
0.8

 
1.2

Income from unconsolidated affiliate
0.9

 
1.0

 
1.9

 
1.9

 
3.7

 
3.6

Interest expense
(6.2
)
 
(6.5
)
 
(12.4
)
 
(13.1
)
 
(25.3
)
 
(26.1
)
INCOME BEFORE INCOME TAXES
21.3

 
24.0

 
43.8

 
45.9

 
90.9

 
92.5

Income taxes
(7.7
)
 
(8.8
)
 
(16.0
)
 
(16.8
)
 
(32.6
)
 
(34.2
)
NET INCOME
$
13.6

 
$
15.2

 
$
27.8

 
$
29.1

 
$
58.3

 
$
58.3


See notes accompanying the financial statements


Questar 2016 Form 10-Q
10
 



QUESTAR PIPELINE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
3 Months Ended
 
6 Months Ended
 
12 Months Ended
 
June 30,
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
(in millions)
Net income
$
13.6

 
$
15.2

 
$
27.8

 
$
29.1

 
$
58.3

 
$
58.3

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Interest rate cash flow hedge amortization
0.1

 
0.2

 
0.3

 
0.4

 
0.5

 
0.6

Commodity cash flow hedge
(0.9
)
 
(0.3
)
 
(1.1
)
 
(0.3
)
 
(1.0
)
 
(0.3
)
Income taxes
0.4

 

 
0.3

 
(0.1
)
 
0.2

 
(0.1
)
Net other comprehensive income (loss)
(0.4
)
 
(0.1
)
 
(0.5
)
 

 
(0.3
)
 
0.2

COMPREHENSIVE INCOME
$
13.2

 
$
15.1

 
$
27.3

 
$
29.1

 
$
58.0

 
$
58.5


See notes accompanying the financial statements


Questar 2016 Form 10-Q
11
 



QUESTAR PIPELINE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
June 30, 2016
 
June 30, 2015
 
Dec. 31, 2015
 
(in millions)
ASSETS
 
 
 
 
 
Current Assets
 
 
 
 
 
Cash and cash equivalents
$
1.6

 
$
1.0

 
$
10.2

Notes receivable from Questar
34.6

 
34.0

 
6.0

Accounts receivable, net
16.6

 
17.0

 
29.6

Accounts receivable from affiliates
51.9

 
47.1

 
49.8

Gas stored underground, at lower of average cost or market
3.1

 
4.5

 
1.2

Materials and supplies, at lower of average cost or market
6.5

 
7.4

 
6.7

Current regulatory assets
0.4

 
0.8

 
0.2

Prepaid expenses and other
3.0

 
2.8

 
4.4

Total Current Assets
117.7

 
114.6

 
108.1

Property, Plant and Equipment
1,860.4

 
1,843.6

 
1,851.1

Accumulated depreciation and amortization
(732.8
)
 
(697.8
)
 
(709.7
)
Net Property, Plant and Equipment
1,127.6

 
1,145.8

 
1,141.4

Investment in unconsolidated affiliate
23.5

 
24.3

 
23.9

Noncurrent regulatory and other assets
7.4

 
8.0

 
7.1

TOTAL ASSETS
$
1,276.2

 
$
1,292.7

 
$
1,280.5

 

 

 

LIABILITIES AND COMMON SHAREHOLDER'S EQUITY
 
 
 
 
 
Current Liabilities
 
 
 
 
 
Accounts payable and accrued expenses
$
16.8

 
$
21.8

 
$
16.1

Accounts payable to affiliates
12.3

 
9.1

 
15.8

Current regulatory liabilities
1.4

 
1.6

 
2.4

Current portion of long-term debt

 
25.1

 

Total Current Liabilities
30.5

 
57.6

 
34.3

Long-term debt, less current portion
431.2

 
430.9

 
431.0

Deferred income taxes
251.6

 
238.6

 
249.9

Noncurrent regulatory and other liabilities
17.7

 
16.0

 
16.3

 
 
 
 
 
 
COMMON SHAREHOLDER'S EQUITY
 
 
 
 
 
Common stock
6.6

 
6.6

 
6.6

Additional paid-in capital
354.3

 
352.7

 
353.4

Retained earnings
207.1

 
212.8

 
211.3

Accumulated other comprehensive (loss)
(22.8
)
 
(22.5
)
 
(22.3
)
Total Common Shareholder's Equity
545.2

 
549.6

 
549.0

TOTAL LIABILITIES AND COMMON SHAREHOLDER'S EQUITY
$
1,276.2

 
$
1,292.7

 
$
1,280.5


See notes accompanying the financial statements

Questar 2016 Form 10-Q
12
 



QUESTAR PIPELINE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

6 Months Ended June 30,
 
2016
 
2015
 
(in millions)
OPERATING ACTIVITIES
 
 
 
Net income
$
27.8

 
$
29.1

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
28.6

 
28.9

Deferred income taxes
1.6

 
(1.1
)
Share-based compensation
0.9

 
1.3

Net (gain) from asset sales
(0.4
)
 

(Income) from unconsolidated affiliate
(1.9
)
 
(1.9
)
Distributions from unconsolidated affiliate and other
2.6

 
2.4

Changes in operating assets and liabilities
6.9

 
(5.9
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
66.1

 
52.8

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Property, plant and equipment purchased
(14.2
)
 
(17.1
)
Cash used in disposition of assets
(0.3
)
 
(0.4
)
Proceeds from disposition of assets
0.3

 
0.1

Affiliated-company property, plant and equipment transfers
0.1

 
0.1

NET CASH USED IN INVESTING ACTIVITIES
(14.1
)
 
(17.3
)
 
 
 
 
FINANCING ACTIVITIES
 
 
 
Change in notes receivable from Questar
(28.6
)
 
6.1

Dividends paid to Questar
(32.0
)
 
(48.0
)
NET CASH USED IN FINANCING ACTIVITIES
(60.6
)
 
(41.9
)
Change in cash and cash equivalents
(8.6
)
 
(6.4
)
Beginning cash and cash equivalents
10.2

 
7.4

Ending cash and cash equivalents
$
1.6

 
$
1.0


See notes accompanying the financial statements


Questar 2016 Form 10-Q
13
 



QUESTAR CORPORATION
QUESTAR GAS COMPANY
QUESTAR PIPELINE COMPANY
NOTES ACCOMPANYING THE FINANCIAL STATEMENTS
(Unaudited)

The notes accompanying the financial statements apply to Questar Corporation, Questar Gas Company and Questar Pipeline Company unless otherwise noted.

Note 1 - Nature of Business

Questar Corporation (the Company) is a Rockies-based integrated natural gas company with three principal complementary and wholly-owned lines of business:

Questar Gas Company (Questar Gas) provides retail natural gas distribution in Utah, Wyoming and Idaho.
Wexpro Company (Wexpro) develops and produces natural gas from cost-of-service reserves for Questar Gas customers.
Questar Pipeline Company (Questar Pipeline) operates interstate natural gas pipelines and storage facilities in the western United States and provides other energy services.

Questar is headquartered in Salt Lake City, Utah. Shares of Questar common stock trade on the New York Stock Exchange (NYSE:STR).

Note 2 - Proposed Merger with Dominion Resources

On January 31, 2016, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Dominion Resources, Inc., a Virginia corporation (“Parent”) and Diamond Beehive Corp., a Utah corporation and a direct wholly-owned subsidiary of Parent (“Merger Sub”).

The Merger Agreement provides for the merger of Merger Sub with and into the Company on the terms and subject to the conditions set forth in the Merger Agreement (the “Merger”), with the Company continuing as the surviving corporation in the Merger and becoming a direct, wholly-owned subsidiary of Parent. At the effective time of the Merger (the “Effective Time”), by virtue of the Merger and without any action on the part of the Company, Parent or Merger Sub or any holder of any shares of common stock, no par value per share, of the Company (the “Company Common Stock”) or any shares of capital stock of Merger Sub, each share of the Company Common Stock issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares and shares of Company Common Stock that are owned by Parent or Merger Sub or any of their respective subsidiaries, in each case immediately prior to the Effective Time) will be converted automatically into the right to receive $25.00 in cash, without interest.

Closing of the Merger is subject to the satisfaction or waiver of specified closing conditions, including (i) the approval of the Merger by the holders of a majority of the outstanding shares of Company Common Stock, (ii) the receipt of regulatory approvals required to close the Merger, including approvals from the Public Service Commission of Utah (if required) and the Public Service Commission of Wyoming, (iii) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (iv) the absence of any law, statute, ordinance, code, rule, regulation, ruling, decree, judgment, injunction or order of a governmental authority that prohibits the consummation of the Merger, and (v) other customary closing conditions, including (a) the accuracy of each party’s representations and warranties (subject to customary materiality qualifiers), (b) each party’s compliance in all material respects with its obligations and covenants contained in the Merger Agreement, and (c) the absence of a material adverse effect on the Company. In addition, the obligations of Parent and Merger Sub to consummate the Merger are subject to the required regulatory approvals not imposing or requiring any undertakings, terms, conditions, liabilities, obligations, commitments or sanctions, or any structural or remedial actions that constitute a Company Material Adverse Effect.

On February 23, 2016, the Federal Trade Commission granted early termination of the 30-day waiting period under the federal Hart-Scott-Rodino Antitrust Improvements Act with regards to the Merger. On March 3, 2016, Questar and Parent jointly filed merger applications with the Public Service Commission of Utah and the Wyoming Public Service Commission and provided notice of the proposed Merger to the Idaho Public Utilities Commission. Hearings are scheduled in Utah and Wyoming during the third quarter. A shareholder vote was held and approval of the Merger was granted on May 12, 2016.


Questar 2016 Form 10-Q
14
 



The Merger Agreement also contains customary representations, warranties and covenants of both the Company and Parent. These covenants include, among others, an obligation on behalf of the Company to use reasonable best efforts to conduct its business in all material respects in the ordinary course until the Merger is consummated, subject to certain exceptions. The Company has made certain additional customary covenants, including, among others, subject to certain exceptions, (a) causing a meeting of the Company’s shareholders to be held to consider approval of the Merger Agreement, and (b) a customary non-solicitation covenant prohibiting the Company from soliciting, providing non-public information or entering into discussions or negotiations concerning proposals relating to alternative business combination transactions, except as permitted under the Merger Agreement. In addition, the parties are required to use reasonable best efforts to obtain any required regulatory approvals.

The Merger Agreement may be terminated by each of the Company and Parent under certain circumstances, including if the Merger is not consummated by February 28, 2017 (subject to certain extension rights, up to a maximum of nine months, as specified in the Merger Agreement). The Merger Agreement contains certain termination rights for both Parent and the Company, and provides that, upon termination of the Merger Agreement under specified circumstances, Parent would be required to pay a termination fee of $154 million to the Company (the “Parent Termination Fee”) and the Company would be required to pay Parent a termination fee of $99 million (the “Company Termination Fee”). The Company Termination Fee is payable under certain specified circumstances, including (i) termination of the Merger Agreement by the Company in order to enter into a definitive agreement with respect to certain business combinations, and (ii) termination of the Merger Agreement by Parent following a withdrawal by the Company Board of its recommendation of the Merger Agreement. The Company will also be required to pay Parent the Company Termination Fee in the event the Company signs an alternative transaction within twelve months following the termination of the Merger Agreement under certain specified circumstances. In addition, upon termination of the Merger Agreement in certain specified circumstances, the Company would be required to reimburse Parent for certain expenses incurred by Parent and its affiliates and representatives in connection with transaction, in an amount not to exceed $5 million. The Parent Termination Fee is payable by the Parent in certain specified circumstances if the Merger Agreement is terminated under certain circumstances due to the failure to obtain certain regulatory approvals as a result of the imposition of a Burdensome Condition or the material breach by Parent of its obligations to obtain certain regulatory approvals.

Note 3 - Basis of Presentation of Interim Financial Statements

The interim financial statements contain the accounts of Questar and its wholly-owned subsidiaries. The financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP), the instructions for Quarterly Reports on Form 10-Q and SEC Regulations S-X and S-K. All significant intercompany accounts and transactions have been eliminated in consolidation.

The financial statements reflect all normal, recurring adjustments and accruals that are, in the opinion of management, necessary for a fair presentation of financial position and results of operations for the interim periods presented. Interim financial statements do not include all of the information and notes required by GAAP for audited annual financial statements. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

The preparation of financial statements and notes in conformity with GAAP requires that management make estimates and assumptions that affect the amounts of revenues, expenses, assets and liabilities, and disclosure of contingent assets and liabilities. Actual results could differ from estimates. The results of operations for the three, six and 12 months ended June 30, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

Certain reclassifications were made to prior year information to conform to the current year presentation. See Note 13 for further information.

Questar and Questar Pipeline use the equity method to account for an investment in an unconsolidated affiliate where they do not have control, but have significant influence. The investment in the unconsolidated affiliate on the Condensed Consolidated Balance Sheets equals Questar Pipeline's proportionate share of equity reported by the unconsolidated affiliate. The investment is assessed for possible impairment when events indicate that the fair value of the investment may be below Questar Pipeline's carrying value. When such a condition is deemed to be other-than-temporary, the carrying value of the investment is written down to its fair value, and the amount of the write-down is included in the determination of net income. White River Hub, LLC, a limited liability company and FERC-regulated transporter of natural gas, is the sole unconsolidated affiliate. Questar Pipeline owns 50% of White River Hub, LLC, and is the operator.

Questar Gas obtains the majority of its gas supply from Wexpro's cost-of-service production and pays Wexpro an operator service fee based on the terms of the Wexpro Agreement and the Wexpro II Agreement (Wexpro agreements). Questar Gas also

Questar 2016 Form 10-Q
15
 



obtains transportation and storage services from Questar Pipeline. These intercompany revenues and expenses are eliminated in the Questar Consolidated Statements of Income by reducing revenues and cost of sales. The underlying costs of Wexpro's production and Questar Pipeline's transportation and storage services are disclosed in other categories in the Consolidated Statements of Income, including operating and maintenance expense and depreciation, depletion and amortization expense. During the second and third quarters of the year, a significant portion of the natural gas from Wexpro production is injected into underground storage. This gas is withdrawn from storage as needed during the heating season in the first and fourth quarters. The cost of natural gas sold is credited with the value of natural gas as it is injected into storage and debited as it is withdrawn from storage. The reported balance in consolidated cost of sales may be a negative amount during the second and third quarters because of the entries to record injection of gas into storage and the elimination of intercompany transactions. The details of Questar's consolidated cost of sales are as follows:
 
3 Months Ended
 
6 Months Ended
 
12 Months Ended
 
June 30,
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
(in millions)
Questar Gas
 
 
 
 
 
 
 
 
 
 
 
Gas purchases
$
2.3

 
$
2.2

 
$
49.1

 
$
43.2

 
$
88.4

 
$
83.1

Operator service fee
78.9

 
75.5

 
158.7

 
160.3

 
317.4

 
326.5

Transportation and storage
17.4

 
18.1

 
39.7

 
40.3

 
78.6

 
79.2

Gathering
5.6

 
5.6

 
11.4

 
11.0

 
22.5

 
22.3

Royalties
4.6

 
6.9

 
10.3

 
18.8

 
24.8

 
43.3

Storage (injection) withdrawal, net
(15.9
)
 
(16.7
)
 
20.8

 
14.2

 
3.1

 
1.7

Purchased-gas account adjustment
(26.5
)
 
(8.9
)
 
32.1

 
27.3

 
25.3

 
19.6

Other
1.4

 
1.3

 
2.6

 
2.5

 
5.1

 
4.9

Total Questar Gas cost of natural gas sold
67.8

 
84.0

 
324.7

 
317.6

 
565.2

 
580.6

Elimination of Questar Gas cost of natural gas sold - affiliated companies
(96.2
)
 
(93.2
)
 
(195.2
)
 
(197.2
)
 
(391.5
)
 
(399.9
)
Total Questar Gas cost of natural gas sold - unaffiliated parties
(28.4
)
 
(9.2
)
 
129.5

 
120.4

 
173.7

 
180.7

Questar Pipeline
 
 
 
 
 
 
 
 
 
 
 
Questar Pipeline cost of sales
0.3

 
(0.2
)
 
0.4

 
1.7

 
7.6

 
3.3

Other cost of sales
0.4

 
0.4

 
0.9

 
0.7

 
1.9

 
1.2

Total cost of sales
$
(27.7
)
 
$
(9.0
)
 
$
130.8

 
$
122.8

 
$
183.2

 
$
185.2


Note 4 - Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period, which includes vested undistributed restricted stock units (RSUs) and vested undistributed deferred RSUs. Diluted EPS includes the potential increase in the number of outstanding shares that could result from the exercise of in-the-money stock options, the vesting of RSUs with forfeitable dividend equivalents and the distribution of performance shares that are part of the Company's Long-Term Stock Incentive Plan (LTSIP), less shares repurchased under the treasury stock method. Restricted shares and RSUs with nonforfeitable dividends or dividend equivalents are participating securities for the computation of basic EPS under the two-class method. The application of the two-class method has an insignificant impact on the calculation of Questar's basic and diluted EPS. A reconciliation of the components of basic and diluted shares used in the EPS calculation follows:

Questar 2016 Form 10-Q
16
 



 
3 Months Ended
 
6 Months Ended
 
12 Months Ended
 
June 30,
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
(in millions)
Weighted-average basic common shares outstanding
176.0

 
176.4

 
175.9

 
176.3

 
175.9

 
176.1

Potential number of shares issuable under the Company's LTSIP
0.2

 
0.2

 
0.3

 
0.2

 
0.2

 
0.3

Weighted-average diluted common shares outstanding
176.2

 
176.6

 
176.2

 
176.5

 
176.1

 
176.4



Note 5 - Accumulated Other Comprehensive Income

Comprehensive income, as reported in Questar's Condensed Consolidated Statements of Comprehensive Income, is the sum of net income as reported in the Questar Consolidated Statements of Income and net other comprehensive income (loss) (OCI). OCI includes recognition of the under-funded position of pension and other postretirement benefit plans, interest rate and commodity-based cash flow hedges, changes in the fair value of long-term investment, and the related income taxes. Income or loss is recognized when the pension and other postretirement benefit (OPB) costs are accrued, as the Company records interest expense for hedged interest payments, as the Company reaches settlement of commodity-based hedges and when the long-term investment is sold.

Details of the changes in the components of consolidated accumulated other comprehensive income (loss) (AOCI), net of income taxes, as reported in Questar's Condensed Consolidated Balance Sheets, are shown in the tables below. The tables also disclose details of income taxes related to each component of OCI.

 
Pension and OPB
 
Interest rate cash flow hedges
 
Commodity cash flow hedges
 
Long-term investment
 
Total
3 Months Ended June 30, 2016
 
(in millions)
AOCI at beginning of period
$
(160.6
)
 
$
(22.1
)
 
$
(0.3
)
 
$
0.1

 
$
(182.9
)
OCI before reclassifications

 

 
(0.9
)
 

 
(0.9
)
Reclassified from AOCI(1)
4.0

 
0.1

 

 

 
4.1

Income taxes
 
 
 
 
 
 
 
 
 
OCI before reclassifications

 

 
0.4

 

 
0.4

Reclassified from AOCI(2)
(1.5
)
 

 

 

 
(1.5
)
Total income taxes
(1.5
)
 

 
0.4

 

 
(1.1
)
Net other comprehensive income (loss)
2.5

 
0.1

 
(0.5
)
 

 
2.1

AOCI at end of period
$
(158.1
)
 
$
(22.0
)
 
$
(0.8
)
 
$
0.1

 
$
(180.8
)


Questar 2016 Form 10-Q
17
 



 
Pension and OPB
 
Interest rate cash flow hedges
 
Commodity cash flow hedges
 
Long-term investment
 
Total
3 Months Ended June 30, 2015
 
(in millions)
AOCI at beginning of period
$
(175.2
)
 
$
(22.4
)
 
$

 
$
0.1

 
$
(197.5
)
OCI before reclassifications

 

 
(0.3
)
 

 
(0.3
)
Reclassified from AOCI(1)
6.0

 
0.2

 

 

 
6.2

Income taxes
 
 
 
 
 
 
 
 
 
OCI before reclassifications

 

 
0.1

 

 
0.1

Reclassified from AOCI(2)
(2.2
)
 
(0.1
)
 

 

 
(2.3
)
Total income taxes
(2.2
)
 
(0.1
)
 
0.1

 

 
(2.2
)
Net other comprehensive income (loss)
3.8

 
0.1

 
(0.2
)