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, 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 October 31, 1994
Common Stock, $2.50 par value 9,189,626 shares
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
1994 1993 1994 1993 1994 1993
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $39,866 $40,440 $243,766 $289,500 $356,657 $397,915
OPERATING EXPENSES
Natural gas purchases 17,816 18,314 132,395 165,270 197,264 229,630
Operating and maintenance 23,124 23,159 70,850 68,815 94,521 87,895
Depreciation 6,064 5,300 18,191 16,213 25,222 22,464
Other taxes 2,752 2,607 9,439 8,968 10,484 10,153
TOTAL OPERATING EXPENSES 49,756 49,380 230,875 259,266 327,491 350,142
OPERATING INCOME (LOSS) (9,890) (8,940) 12,891 30,234 29,166 47,773
INTEREST AND OTHER INCOME 757 125 2,033 626 3,099 1,365
DEBT EXPENSE (3,781) (3,808) (11,734) (11,526) (15,631) (15,171)
INCOME (LOSS) BEFORE
INCOME TAXES (12,914) (12,623) 3,190 19,334 16,634 33,967
INCOME TAXES (CREDITS) (7,166) (5,737) (2,311) 3,605 1,793 6,957
NET INCOME (LOSS) ($5,748) ($6,886) $5,501 $15,729 $14,841 $27,010
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993 1993
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $624 $1,522 $2,312
Federal income taxes receivable 10,343
Accounts receivable 22,389 19,085 81,668
Inventories 27,489 19,497 23,972
Other current assets 5,170 5,831 4,739
Total current assets 66,015 45,935 112,691
Property, plant and equipment 722,467 687,976 710,100
Less allowances for depreciation 276,567 261,744 267,314
Net property, plant
and equipment 445,900 426,232 442,786
Other assets 25,593 25,812 25,550
$537,508 $497,979 $581,027
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Notes payable to parent company $18,000 $12,500 $57,800
Accounts payable and
accrued expenses 44,635 57,048 64,748
Purchased-gas adjustments 6,262 25,592 25,727
Total current liabilities 68,897 95,140 148,275
Long-term debt 175,000 158,000 158,000
Other liabilities and
deferred credits 27,116 166 27,163
Deferred income taxes and
investment tax credits 66,358 58,433 57,864
Redeemable cumulative
preferred stock 7,524 8,725 7,525
Common shareholder's equity
Common stock 22,974 22,974 22,974
Additional paid-in capital 41,875 21,875 21,875
Retained earnings 127,764 132,666 137,351
Total common
shareholder's equity 192,613 177,515 182,200
$537,508 $497,979 $581,027
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
9 Months Ended
September 30,
1994 1993
<S> <C> <C>
(In Thousands)
OPERATING ACTIVITIES
Net income $5,501 $15,729
Depreciation 20,073 17,862
Deferred income taxes
and investment tax credits 8,494 (1,749)
34,068 31,842
Change in operating assets
and liabilities 5,320 19,768
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 39,388 51,610
INVESTING ACTIVITIES
Capital expenditures (33,072) (25,944)
Proceeds from disposition of
property, plant and equipment 9,885 461
CASH USED IN INVESTING ACTIVITIES (23,187) (25,483)
FINANCING ACTIVITIES
Capital contribution 20,000
Issuance of long-term debt 17,000 91,000
Repayment of long-term debt (99,126)
Redemption of preferred stock (1) (1)
Decrease in notes payable
to parent company (39,800) (6,400)
Payment of dividends (15,088) (14,040)
CASH USED IN FINANCING ACTIVITIES (17,889) (28,567)
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($1,688) ($2,440)
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 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-and nine-month periods
ended September 30, 1994, are not necessarily indicative of the results
that may be expected for the year ending 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.
Note C - Financing
During the second quarter of 1994, Mountain Fuel borrowed $17,000,000 of
30-year notes with an interest rate of 8.12%. On July 1, 1994,
Mountain Fuel received a $20,000,000 capital contribution from its
parent company. The Company used the proceeds to fund capital
expenditures and repay short-term debt borrowed from its parent company.
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
MANAGEMENT'S ANALYSIS
September 30, 1994
Operating Results --
Following is a summary of operating information for the Company:
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
1994 1993 1994 1993 1994 1993
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $38,594 $40,284 $240,294 $288,042 $352,477 $394,440
From affiliates 1,272 156 3,472 1,458 4,180 3,475
Total revenues $39,866 $40,440 $243,766 $289,500 $356,657 $397,915
Operating income (loss) ($9,890) ($8,940) $12,891 $30,234 $29,166 $47,773
Net income (loss) (5,748) (6,886) 5,501 15,729 14,841 27,010
OPERATING STATISTICS
Natural gas volumes (in thousands
of decatherms)
Residential and commercial
sales 5,969 6,478 45,875 56,913 68,331 77,588
Industrial sales 1,743 1,320 5,652 4,422 7,744 6,055
Transportation for industrial
customers 12,031 10,132 35,322 38,970 49,457 53,499
Total deliveries 19,743 17,930 86,849 100,305 125,532 137,142
Natural gas revenue (per
decatherm)
Residential and commercial $4.92 $4.96 $4.59 $4.57 $4.55 $4.59
Industrial sales 2.56 3.00 2.85 3.45 2.91 3.44
Transportation for industrial
customers 0.12 0.11 0.12 0.11 0.12 0.11
Heating degree days
Actual 24 90 2,854 4,207 4,720 6,078
Normal 110 62 3,594 4,065 5,332 5,803
Actual as a percentage
of normal 22% 145% 79% 103% 89% 105%
Customer count at end of period 558,734 537,174
</TABLE>
Natural gas volumes sold to residential and commercial customers
decreased in the 3-, 9- and 12-month periods of 1994 as a result of
unseasonably warm weather and a change in the method of recording
revenues from the retail sale of natural gas. These two factors were
also largely responsible for the significantly lower earnings reported
in the first nine months of 1994. Temperatures in the first nine months
of 1994 were 21% warmer than normal compared with 3% colder than normal
weather in the same period of 1993. The effects of warmer weather and
the change in recording revenues was partially offset by a 4.0% increase
in the number of customers.
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 (PSCU) in a general rate case order. Also as a
result of actions taken by the PSCU, the Company 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 shifting
approximately $5 million of net income from the first half of 1994 to
the fourth quarter. The PSCU has not issued an order with respect to
the issues raised by Mountain Fuel on rehearing of the 11% rate of
return and the proper handling of unbilled revenues for ratemaking
purposes.
Volumes delivered to industrial customers decreased 6% in the first nine
months of 1994 compared with the same period of 1993. Natural gas usage
by several major metal and chemical customers was lower during 1994.
Mountain Fuel's natural gas purchases were lower in the 3-, 9- and
12-month periods of 1994 compared with the same periods of 1993 due to
reduced volumes sold to residential and commercial customers. Operating
and maintenance expenses were higher in the 9- and 12-month periods of
1994 because of additional customers and expanded service territory.
Interest and other income was higher in the 1994 periods largely due to
a working-gas carrying charge earned by the Company as allowed by the
PSCU. Debt expense was lower in the third quarter of 1994 compared with
the same period in 1993 because of a lower balances in the purchased-gas
adjustments account. Debt expense was higher in the 9- and 12- month
periods ended September 30, 1994, because of increasing short-term
interest rates and increasing short- and long-term debt balances.
Income taxes resulted in a credit amount for the nine months ended
September 30, 1994, because of the combined effect of low pretax income
and tights sands income tax credits. Tight sands income tax credits
amounted to $4,224,000 in 1994 compared with $4,411,000 in 1993.
Credits attributable to prior years' production totaled $1,742,000 in
1994 and $1,117,000 in 1993. The effective income tax rate for the
nine-month period of 1993 was 18.6%
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.
Liquidity and Capital Resources -
Operating Activities:
Net cash provided from operating activities was $39,388,000 in the first
nine months of 1994 compared with $51,610,000 for the same period of
1993. The decrease was due to lower net income and a $19,465,000 change
in the purchased-gas adjustments account.
Investing Activities:
Capital expenditures were $33,072,000 in the first nine months of 1994,
compared with $25,944,000 in the corresponding 1993 period. Capital
expenditures for calendar year 1994 are estimated at $51,000,000.
Mountain Fuel transferred a building with a net book value of $8,915,000
to an affiliate in the third quarter of 1994.
Financing Activities:
During the second quarter of 1994, Mountain Fuel borrowed $17,000,000 of
30-year notes with an interest rate of 8.12%. On July 1, 1994,
Mountain Fuel received a $20,000,000 capital contribution from its
parent company. The Company used the proceeds to fund capital
expenditures and repay short-term debt borrowed from its parent company.
The Company has short-term line-of-credit arrangements with banks
totaling $500,000. In addition, its parent company loans funds to the
Company under a short-term borrowing arrangement. As of September 30,
1994, Mountain Fuel had loans outstanding of $18,000,000 payable to its
parent company.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
As of the date of this report, the Public Service Commission
of Utah (the PSCU) has not issued an order with respect to the
issues that were raised by Mountain Fuel Supply Company (Mountain
Fuel or the Company) on rehearing of the PSCU's decision in the
Company's 1993 general rate case. The issues under review by the
PSCU are the 11.0 percent return on equity authorized for
Mountain Fuel and the proper handling of unbilled revenues for
ratemaking purposes.
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)
November 10, 1994 /s/ D. N. Rose
(Date) D. N. Rose
President and Chief
Executive Officer
November 10, 1994 /s/ W. F. Edwards
(Date) W. F. Edwards
Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summarized financial information extracted from the
Mountain Fuel Supply Company Statement of Income and Balance Sheet for the
period ended September 30, 1994, and is qualified in its entirety by
references to such unaudited financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 624
<SECURITIES> 0
<RECEIVABLES> 32,732
<ALLOWANCES> 0
<INVENTORY> 27,489
<CURRENT-ASSETS> 66,015
<PP&E> 722,467
<DEPRECIATION> 276,567
<TOTAL-ASSETS> 537,508
<CURRENT-LIABILITIES> 68,897
<BONDS> 175,000
<COMMON> 22,974
7,524
0
<OTHER-SE> 169,639
<TOTAL-LIABILITY-AND-EQUITY> 537,508
<SALES> 0
<TOTAL-REVENUES> 243,766
<CGS> 0
<TOTAL-COSTS> 203,245
<OTHER-EXPENSES> 27,630
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,734
<INCOME-PRETAX> 3,190
<INCOME-TAX> (2,311)
<INCOME-CONTINUING> 5,501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,501
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
