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, 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 July 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 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1994 1993 1994 1993 1994 1993
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $54,885 $71,077 $203,900 $249,060 $357,231 $395,476
OPERATING EXPENSES
Natural gas purchases 26,550 37,936 114,579 146,956 197,762 228,639
Operating and maintenance 23,985 22,366 47,726 45,656 94,556 84,039
Depreciation 6,168 5,344 12,127 10,913 24,458 21,860
Other taxes 3,177 2,991 6,687 6,361 10,339 10,004
TOTAL OPERATING EXPENSES 59,880 68,637 181,119 209,886 327,115 344,542
OPERATING INCOME (LOSS) (4,995) 2,440 22,781 39,174 30,116 50,934
INTEREST AND OTHER INCOME 643 272 1,276 501 2,467 1,539
DEBT EXPENSE (3,732) (3,764) (7,953) (7,718) (15,658) (15,069)
INCOME (LOSS) BEFORE INCOME TAXES (8,084) (1,052) 16,104 31,957 16,925 37,404
INCOME TAXES (CREDIT) (4,235) (3,202) 4,855 9,342 3,222 6,721
NET INCOME (LOSS) ($3,849) $2,150 $11,249 $22,615 $13,703 $30,683
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993 1993
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $1,347 $195 $2,312
Notes receivable from parent company 7,000
Accounts receivable 38,622 23,952 81,668
Inventories 18,249 3,910 23,972
Other current assets 4,734 5,805 4,739
Total current assets 62,952 40,862 112,691
Property, plant and equipment 727,672 679,979 710,100
Less allowances for depreciation 278,793 258,406 267,314
Net property, plant and equipment 448,879 421,573 442,786
Other assets 25,211 23,578 25,550
$537,042 $486,013 $581,027
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Notes payable to parent company $16,900 $57,800
Accounts payable and accrued
expenses 42,833 $40,817 64,748
Purchased-gas adjustments 26,106 33,224 25,727
Total current liabilities 85,839 74,041 148,275
Long-term debt 175,000 158,000 158,000
Other liabilities and deferred credits 27,110 1,472 27,163
Deferred income taxes and investment
tax credits 58,178 54,693 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 138,542 144,232 137,351
Total common shareholder's equity 183,391 189,081 182,200
$537,042 $486,013 $581,027
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
6 Months Ended
June 30,
1994 1993
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $11,249 $22,615
Depreciation 13,323 12,022
Deferred income taxes and investment
tax credits 314 (5,489)
24,886 29,148
Change in operating assets
and liabilities 27,524 25,455
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 52,410 54,603
INVESTING ACTIVITIES
Capital expenditures (19,075) (14,551)
Uses from disposition of property,
plant and equipment (341) (433)
CASH USED IN INVESTING ACTIVITIES (19,416) (14,984)
FINANCING ACTIVITIES
Issuance of long-term debt 17,000 91,000
Repayment of long-term debt (99,126)
Redemption of preferred stock (1)
Increase in notes receivable from
parent company (7,000)
Decrease in notes payable to
parent company (40,900) (18,900)
Payment of dividends (10,058) (9,360)
CASH USED IN FINANCING ACTIVITIES (33,959) (43,386)
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($965) ($3,767)
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 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 six-month periods
ended June 30, 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.
Note C - Financing
During the second quarter of 1994, Mountain Fuel issued $17,000,000 of
30-year notes with a stated interest rate of 8.12%. Mountain Fuel used
proceeds from these notes for capital expenditures and operations. On
July 1, 1994 Mountain Fuel received a $20,000,000 capital contribution
from its parent company. Proceeds of the capital contribution were used
to fund capital expenditures and to repay short-term debt.
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
MANAGEMENT'S ANALYSIS
June 30, 1994
Operating Results --
Following is a summary of operating information for the Company:
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Natural gas volumes (in thousands of
decatherms)
Residential and commercial sales 9,768 14,002 39,906 50,435 68,840 76,976
Industrial sales 1,692 1,364 3,909 3,102 7,321 5,730
Transportation for industrial
customers 10,020 11,824 23,291 28,838 47,558 54,085
Total deliveries 21,480 27,190 67,106 82,375 123,719 136,791
Natural gas revenue (per decatherm)
Residential and commercial $4.55 $4.42 $4.54 $4.52 $4.55 $4.60
Industrial sales 2.65 3.08 2.98 3.64 3.01 3.54
Transportation for industrial
customers 0.12 0.12 0.12 0.11 0.11 0.11
Heating degree days
Actual 523 950 2,830 4,117 4,786 6,047
Normal 741 1,040 3,484 4,003 5,282 5,803
Number of customers at end of
period 553,350 532,402
</TABLE>
Natural gas volumes sold to residential and commercial customers
decreased in the 3-, 6- 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 second quarter and first half of 1994. Temperatures in the first
half of 1994 were 19% warmer than normal compared with 3% colder than
normal weather in the first half of 1993. The effects of warmer weather
and the change in recording revenues was partially offset by a 3.9%
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
second half, primarily the fourth quarter.
Volumes delivered to industrial customers decreased 15% in the first half
of 1994 compared with the same period of 1993. Natural gas demand for
electric generation and for use by several major metal and chemical
customers was lower during the first half of 1994.
Mountain Fuel's natural gas purchases were lower in the 3-, 6- 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 1994 periods 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
in the last general rate case.
The effective income tax rate was 30.1% in the first half of 1994,
compared with 29.2% in the first half of 1993. The Company recognized
$2,049,000 of tight-sands gas-production credits in the first six months
of 1994 compared with $3,299,000 in the 1993 period. The federal income
tax rate increased 1% to 35% beginning in the third quarter of 1993.
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 $52,410,000 in the first
half of 1994 compared with $54,603,000 for the same period of 1993. The
decrease was due to lower net income and was partially offset by
increased cash flow from deferred income taxes.
Investing Activities:
Capital expenditures were $19,075,000 in the first six months of 1994,
compared with $14,551,000 in the corresponding 1993 period. Capital
expenditures for calendar year 1994 are estimated at $51,400,000.
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%. The proceeds were used to
fund capital expenditures and operations. On July 1, 1994 Mountain Fuel
received a $20,000,000 capital contribution from its parent company. The
Company used the capital contribution to fund capital expenditures and
repay short-term debt borrowed from its parent company.
The Company had 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 June 30, 1994,
Mountain Fuel had loans outstanding of $16,900,000 payable to its parent
company.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
a. On June 1, 1994, Mountain Fuel Supply Company (Mountain
Fuel or the Company) filed a semi-annual application with the
Public Service Commission of Wyoming (the PSCW) under the
purchased gas adjustment provisions of the Company's Wyoming
tariff. In the application, Mountain Fuel requested
authorization to reflect an annualized revenue decrease of
$572,000 in its rates effective July 1, 1994. The PSCW order
authorized the Company to reflect the decrease in its rates as of
July 1, 1994. The Company cited its growing use of its own
production, with cost-of-service prices that are lower than the
cost of field-purchased gas, as the primary reason for the
decrease.
b. The Company filed a comparable application with the
Public Service Commission of Utah (the PSCU) on June 9, 1994. In
this application, Mountain Fuel requested authorization to
reflect a revenue decrease of $12,917,000 in its rates effective
July 1, 1994. The PSCU, by an interim order, authorized Mountain
Fuel to reflect the decrease in its rates as of July 1, 1994, but
specified that the case would be held open pending further review
of minor issues. A public hearing has been scheduled for
August 30, 1994.
c. As of the date of this report, the PSCU has not issued
an order with respect to the issues that were raised by Mountain
Fuel 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)
August 11, 1994 /s/ D. N. Rose
(Date) D. N. Rose
President and Chief
Executive Officer
August 11, 1994 /s/ W. F. Edwards
(Date) W. F. Edwards
Vice President and Chief
Financial Officer
