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
MARCH 31, 1994
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. 1-935
MOUNTAIN FUEL SUPPLY COMPANY
(Exact name of registrant as specified in its charter)
STATE OF UTAH 87-0155877
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 45360, 180 East First South, Salt Lake City, Utah 84145-0360
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 534-5555
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 April 30, 1994
Common Stock, $2.50 par value 9,189,626 shares
MOUNTAIN FUEL SUPPLY COMPANY
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1994 1993 1994 1993
(In Thousands)
<S> <C> <C> <C> <C>
REVENUES $149,015 $177,983 $373,423 $383,396
OPERATING EXPENSES
Natural gas purchases 88,029 109,020 209,148 221,769
Operating and maintenance 23,741 23,290 92,937 81,655
Depreciation 5,959 5,569 23,634 21,077
Other taxes 3,510 3,370 10,153 9,921
TOTAL OPERATING EXPENSES 121,239 141,249 335,872 334,422
OPERATING INCOME 27,776 36,734 37,551 48,974
INTEREST AND OTHER INCOME 633 229 2,096 1,650
DEBT EXPENSE (4,221) (3,954) (15,690) (15,264)
INCOME BEFORE INCOME TAXES 24,188 33,009 23,957 35,360
INCOME TAXES 9,090 12,544 4,255 8,554
NET INCOME $15,098 $20,465 $19,702 $26,806
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993 1993
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $1,118 $2,570 $2,312
Accounts receivable 77,111 55,804 81,668
Inventories 15,738 2,961 23,972
Other current assets 4,276 5,017 4,739
Total current assets 98,243 66,352 112,691
Property, plant and equipment 716,122 672,432 710,100
Less allowances for depreciation 273,527 253,575 267,314
Net property, plant and equipment 442,595 418,857 442,786
Other assets 25,264 23,765 25,550
$566,102 $508,974 $581,027
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Notes payable to parent company $27,300 $2,300 $57,800
Accounts payable and accrued
expenses 60,622 61,368 64,748
Purchased-gas adjustments 42,468 33,511 25,727
Total current liabilities 130,390 97,179 148,275
Long-term debt, less current portion 158,000 158,000 158,000
Other liabilities and deferred
credits 26,525 17 27,163
Deferred income taxes and investment
tax credits 51,394 53,441 57,864
Redeemable cumulative preferred stock 7,524 8,726 7,525
Common shareholder's equity
Common stock 22,974 22,974 22,974
Additional paid-in capital 21,875 21,875 21,875
Retained earnings 147,420 146,762 137,351
Total common shareholder's equity 192,269 191,611 182,200
$566,102 $508,974 $581,027
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended
March 31,
1994 1993
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $15,098 $20,465
Depreciation 6,524 6,116
Deferred income taxes and investment
tax credits (6,470) (6,741)
15,152 19,840
Change in operating assets and
liabilities 25,517 14,536
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 40,669 34,376
INVESTING ACTIVITIES
Capital expenditures (6,244) (6,227)
Uses from disposition of
property, plant and equipment (89) (135)
CASH USED IN INVESTING
ACTIVITIES (6,333) (6,362)
FINANCING ACTIVITIES
Issuance of long-term debt 91,000
Repayment of long-term debt (99,126)
Redemption of preferred stock (1)
Decrease in notes payable
to parent company (30,500) (16,600)
Payment of dividends (5,029) (4,680)
CASH USED IN FINANCING
ACTIVITIES (35,530) (29,406)
CHANGE IN CASH AND
SHORT-TERM INVESTMENTS ($1,194) ($1,392)
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1994
(Unaudited)
Note A - Basis of Presentation
The interim financial statements furnished reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation of
the results for the interim periods presented. All such adjustments are
of a normal recurring nature. Due to the seasonal nature of the
business, the results of operations for the three-month period ended
March 31, 1994, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1994. 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,
1993.
Note B - Accounting for Postemployment Benefits
Effective January 1, 1994, the Company recorded a liability for
postemployment disability and health care benefits in compliance with the
Statement of Financial Accounting Standards No. 112. This did not have
an effect on net income since the $1,538,000 liability was offset with a
regulatory asset because the Company expects to include these costs in
future rates.
MOUNTAIN FUEL SUPPLY COMPANY
MANAGEMENT'S ANALYSIS
March 31, 1994
Operating Results --
Following is a summary of operating information for the Company:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Natural gas volumes (in thousands of
decatherms)
Residential and commercial sales 30,138 36,433 73,074 73,194
Industrial sales 2,217 1,738 6,993 5,440
Transportation for industrial
customers 13,271 17,014 49,362 53,694
Total deliveries 45,626 55,185 129,429 132,328
Natural gas revenue (per decatherm)
Residential and commercial $4.54 $4.56 $4.53 $4.67
Industrial sales 3.23 4.08 3.11 3.64
Transportation for industrial
customers 0.12 0.10 0.12 0.11
Heating degree days
Actual 2,307 3,167 5,213 5,649
Normal 2,743 2,963 5,583 5,803
Number of customers at end of
period 553,507 533,881
</TABLE>
Heating degree days were 16% warmer than normal in the first quarter of
1994 compared with 7% colder than normal in the first quarter of 1993.
This resulted in a 17% decrease in natural gas volumes sold to
residential and commercial customers. The effect of warmer weather was
partially offset by a 3.7% increase in the number of customers.
Volumes delivered to industrial customers decreased 17% in the first
quarter of 1994 compared with the same quarter of 1993. Natural gas
demand for electric generation and some other customers was lower because
of the warmer weather. Usage by several major metal and chemical
customers was also lower during the quarter.
Mountain Fuel's allowed return on equity for Utah operations was reduced
from 12.1% to 11% effective January 1, 1994, by the Public Service
Commission of Utah in a general rate case order. The Company also changed
the way that revenues for residential and commercial customers are
recorded from an "as-billed" to an "as-delivered" basis. This had the
effect of decreasing earnings in the first quarter of 1994 by
approximately $2 million, and is expected to increase earnings for the
remainder of the year.
Mountain Fuel's natural gas purchases were lower in the first quarter of
1994 compared with the first quarter of 1993 due to reduced volumes sold
to residential and commercial customers. Natural gas purchases were
lower in the 12 months ended March 31, 1994, compared with the
year-earlier period due to reduced cost per decatherm of purchased and
produced gas. Operating and maintenance expenses were level in the first
quarter of 1994 compared with the first quarter of 1993; however, these
expenses increased 14% in the 12 months ended March 31, 1994, over the
1993 period because of additional customers, expanded service territory
and recording of postretirement medical expenses on an accrual basis.
The effective income tax rate was 37.6% in the first quarter of 1994,
compared with 38.0% in the first quarter of 1993. The Company recognized
$999,000 of tight-sands gas-production credits in the first quarter of
1994 and $589,000 in the first quarter of 1993. The increased credits
were partially offset by an increase in the federal income tax rate to
35%.
Effective January 1, 1994, the Company recorded a liability for
postemployment disability and health care benefits in compliance with the
Statement of Financial Accounting Standards No. 112. This did not have
an effect on net income since the $1,538,000 liability was offset with a
regulatory asset because the Company expects to include these costs in
future rates. Another utility has requested authorization from the
Public Service Commission of Utah to amortize the liability over a
five-year period. That docket is pending before the Commission.
Mountain Fuel anticipates requesting similar regulatory treatment.
Liquidity and Capital Resources -
Net cash provided from operating activities was $40,669,000 in the first
quarter of 1994 compared with $34,376,000 for the same period of 1993.
The increase was due to changes in operating assets and liabilities,
primarily gas stored underground. Increases in cash flow from changes in
operating assets and liabilities were partially offset by reduced net
income.
Capital expenditures were $6,244,000 in the first quarter of 1994,
compared with $6,227,000 in the corresponding 1993 period. Capital
expenditures for the calendar year 1994 are estimated at $51,400,000.
These capital expenditures will be financed with funds from operations,
borrowings under the medium-term note program, equity investment from
Questar, and short-term borrowings from banks or Questar.
The Company had short-term line-of-credit arrangements with banks
totaling $500,000. As of March 31, 1994, $27,300,000 was borrowed from
Questar Corporation.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
On April 18, 1994, the Public Service Commission of Utah
(the PSCU) held a public hearing to consider issues raised by
Mountain Fuel Supply Company (Mountain Fuel or the Company)
concerning the PSCU's order in the Company's general rate case.
See the Company's Current Report on Form 8-K dated January 10,
1994 for details concerning the PSCU's order that authorized a
return on equity of 11.0 percent and specified an annual decrease
in the Company's rates of $1.6 million. As a result of an
approved stipulation, approximately $2.1 million of costs
reflected in Mountain Fuel's general rate case were added to its
gas balancing account. Consequently, the net effect of the order
and the transfer of general rate case costs was an annualized
rate increase of $500,000.
The PSCU's order required the Company to recognize
$2,011,000 in unbilled revenues each year for five years for
ratemaking purposes. The PSCU did not allow any testimony on
return on equity, but agreed to review the record on that issue.
As of the date of this report, the PSCU has not issued a
decision with respect to the issues raised by Mountain Fuel on
rehearing.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibit has been filed as part of this
report.
Exhibit No. Exhibit
12.01. Ratio of Earnings to Fixed Charges
(b) The Company filed a Current Report on Form 8-K dated
January 10, 1994, disclosing the PSCU's order. No financial
statements were filed with this Form 8-K.
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.
MOUNTAIN FUEL SUPPLY COMPANY
(Registrant)
May 11, 1994 /s/ D. N. Rose
D. N. Rose
President and Chief
Executive Officer
May 11, 1994 /s/ W. F. Edwards
W. F. Edwards
Vice President and Chief
Financial Officer
Exhibit 12.01
MOUNTAIN FUEL SUPPLY COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
12 Months Ended
March 31,
1994 1993
(Dollars in Thousands)
EARNINGS
Income before income taxes $23,957 $35,360
Plus debt expense 15,690 15,264
Plus allowance for
borrowed funds used
during construction 189 281
Plus interest portion of rental
expense 121 99
$39,957 $51,004
FIXED CHARGES
Debt expense $15,690 $15,264
Plus allowance for
borrowed funds used
during construction 189 281
Plus interest portion of rental
expense 121 99
$16,000 $15,644
RATIO OF EARNINGS TO
FIXED CHARGES 2.50 3.26
