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 MARCH 31, 1995
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, 1995
Common Stock, $2.50 par value 9,189,626 shares
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1995 1994 1995 1994
(In Thousands)
<S> <C> <C> <C> <C>
REVENUES $140,815 $149,015 $370,060 $373,423
OPERATING EXPENSES
Natural gas purchases 81,345 88,029 203,823 209,148
Operating and maintenance 24,763 23,741 95,116 92,937
Depreciation 6,873 5,959 25,663 23,634
Other taxes 3,357 3,510 9,436 10,153
TOTAL OPERATING EXPENSES 116,338 121,239 334,038 335,872
OPERATING INCOME 24,477 27,776 36,022 37,551
INTEREST AND OTHER INCOME 701 633 7,888 2,096
DEBT EXPENSE (4,167) (4,221) (15,832) (15,690)
INCOME BEFORE INCOME TAXES 21,011 24,188 28,078 23,957
INCOME TAXES 7,950 9,090 6,763 4,255
NET INCOME $13,061 $15,098 $21,315 $19,702
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994 1994
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $1,118 $2,529
Accounts receivable $69,993 77,111 74,220
Inventories 21,769 15,738 24,941
Other current assets 4,463 4,276 4,279
Total current assets 96,225 98,243 105,969
Property, plant and equipment 745,361 716,122 739,945
Less allowances for depreciation 287,332 273,527 280,162
Net property, plant and
equipment 458,029 442,595 459,783
Other assets 22,327 25,264 24,523
$576,581 $566,102 $590,275
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $1,539
Notes payable to Questar
Corporation 12,300 $27,300 $53,500
Accounts payable and
accrued expenses 54,892 60,622 49,070
Purchased-gas adjustments 37,082 42,468 17,071
Total current liabilities 105,813 130,390 119,641
Long-term debt 175,000 158,000 175,000
Other liabilities and
deferred credits 21,296 26,525 21,283
Deferred income taxes and
investment tax credits 54,754 51,394 62,566
Redeemable cumulative
preferred stock 6,324 7,524 6,324
Common shareholder's equity
Common stock 22,974 22,974 22,974
Additional paid-in capital 41,875 21,875 41,875
Retained earnings 148,545 147,420 140,612
Total common shareholder's
equity 213,394 192,269 205,461
$576,581 $566,102 $590,275
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended
March 31,
1995 1994
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $13,061 $15,098
Depreciation 7,504 6,524
Deferred income taxes and investment
investment tax credits (7,812) (6,470)
12,753 15,152
Change in operating assets and
liabilities 35,257 25,517
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 48,010 40,669
INVESTING ACTIVITIES
Capital expenditures (6,843) (6,244)
Proceeds from (costs of) disposition of
property, plant and equipment 1,093 (89)
CASH USED IN INVESTING
ACTIVITIES (5,750) (6,333)
FINANCING ACTIVITIES
Redemption of preferred stock (1)
Decrease in notes payable
to Questar Corporation (41,200) (30,500)
Checks outstanding in excess of
cash balances 1,539
Payment of dividends (5,128) (5,029)
CASH USED IN FINANCING
ACTIVITIES (44,789) (35,530)
CHANGE IN CASH AND
SHORT-TERM INVESTMENTS ($2,529) ($1,194)
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1995
(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, 1995, are not necessarily indicative of the results that may
be expected for the year ending December 31, 1995. 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, 1994.
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
MANAGEMENT'S ANALYSIS
March 31, 1995
Operating Results --
Following is a summary of operating information for the Company:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Natural gas volumes (in thousands of
decatherms)
Residential and commercial
sales 29,578 30,138 73,673 73,074
Industrial sales 3,185 2,217 9,850 6,993
Transportation for industrial
customers 17,609 13,271 55,720 49,362
Total deliveries 50,372 45,626 139,243 129,429
Natural gas revenue (per decatherm)
Residential and commercial $4.31 $4.54 $4.35 $4.53
Industrial sales 2.59 3.23 2.59 3.11
Transportation for industrial
customers 0.10 0.12 0.10 0.12
Heating degree days
Actual 2,217 2,307 5,200 5,213
Normal 2,743 2,743 5,801 5,583
Warmer than normal 19% 16% 10% 7%
Number of customers at end of
period 575,424 553,507
</TABLE>
Temperatures were 19% warmer than normal in the first quarter of 1995
and 4% warmer than temperatures reported in the first quarter of 1994.
This resulted in a 2% decrease in natural gas volumes sold to
residential and commercial customers. The effect of warmer weather was
partially offset by a 4.0% increase in the number of customers. Revenue
from the sale of natural gas to residential and commercial customers was
$9,344,000 lower in the 1995 quarter.
Volumes delivered to industrial customers increased 34% in the first
quarter of 1995 compared with the same quarter of 1994 resulting in
$1,189,000 more revenues. Natural gas demand was higher for customers
in the metals, electric generation and chemical industries. Margins from
gas delivered to industrial customers are substantially lower than from
gas sold to residential and commercial customers.
Mountain Fuel filed a general rate case in the state of Utah on March 3,
1995 requesting a $9.6 million increase in revenues and a 12.5% return
on equity based on a $372 million rate base and a future test year.
Management believes the rate increase is necessary to secure an
appropriate allowed rate of return and to recover the costs of record
customer growth.
The Public Service Commission of Utah subsequently ruled that a future
test year was inappropriate and ordered Mountain Fuel to adjust its rate
case accordingly. On April 13, 1995, Mountain Fuel submitted a
compliance filing showing an $11.4 million increase in revenues based on
a 1994 historical test year with a $354 million rate base and a 12.5%
return on equity.
Mountain Fuel's plans to consolidate and restructure operations
continue. Of the 169 eligible employees 109 accepted the Company's
offer of an early retirement effective April 30, 1995. The labor
savings are expected to exceed the costs of the early retirement
program. Mountain Fuel is proceeding with plans to close four regional
offices and reduce functions at six other offices. Mountain Fuel
predicts that its investment in customer information system technology
will enable it to increase its efficiency in serving customers with
fewer employees and offices.
Mountain Fuel's natural gas purchases were lower in the 3- and 12-month
periods of 1995 compared with the same periods of 1994 primarily due to
lower natural gas purchase prices. The lower gas purchase prices were
reflected in semiannual gas cost adjustments filed in February each
year, which included gas costs of $2.46 per decatherm in 1995 compared
with $2.69 in 1994. Operating and maintenance expenses were slightly
higher in the 1995 periods because of the costs of serving more
customers and inflation. Depreciation expense was 15% higher in the
first quarter of 1995 and 9% higher in the 12-month period ended March
31, 1995 when compared to the same periods in the prior year as a result
of increased production of cost-of-service gas reserves, a 6% increase
in the unit-of-production depreciation rate and capital spending.
Interest and other income for the 12-month period ended March 31, 1995
includes a $5,589,000 one-time reduction of gas costs recorded in the
fourth quarter of 1994.
The effective income tax rate was 37.8% in the first quarter of 1995,
compared with 37.6% in the first quarter of 1994. The Company
recognized $902,000 of tight-sands gas-production credits in the first
quarter of 1995 and $999,000 in the first quarter of 1994.
Liquidity and Capital Resources -
Operating Activities:
Net cash provided from operating activities was $48,010,000 in the first
three months of 1995 compared with $40,669,000 for the same period of
1994. The increase was due to lower gas costs partially offset by lower
net income.
Investing Activities:
Capital expenditures were $6,843,000 in the first three months of 1995,
compared with $6,244,000 in the corresponding 1994 period. Capital
expenditures for calendar year 1995 are estimated at $50,000,000.
Financing Activities:
Financing activities in the first quarters of 1995 and 1994 largely
included repayment of loans to Questar Corporation from net cash
provided from operations. 1995 capital expenditures will be financed
from cash flow from operations and borrowings from Questar Corporation.
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 March 31,
Mountain Fuel had loans outstanding of $12,300,000 in 1995 and
$27,300,000 in 1994 payable to Questar Corporation. No amounts were
borrowed under the short-term line-of-credit arrangement at March 31,
1995.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
On April 13, 1995, Mountain Fuel Supply Company (Mountain Fuel or the
Company) made a "compliance" filing in its general rate case application
before the Public Service Commission of Utah (the PSCU). The Company made
this filing in response to the PSCU's order issued April 10, 1995, requiring
Mountain Fuel to use a historic, rather than a future, test year. The
compliance filing reflects an annualized revenue deficiency of $11,389,000,
compared to $9,559,000 in the original application, and a 1994 average rate
base of $354,006,000, compared to the 1995 average rate base of $372,134,000.
(The increase in the revenue deficiency reflected in Mountain Fuel's
compliance filing is primarily attributable to the labor cost savings to be
realized in 1995 as a result of the Company's organizational restructuring and
early retirement program, which were reflected in Mountain Fuel's original
application.) The Company, in its compliance filing, did not modify its
earlier requests for a return on equity of 12.5 percent and regulatory
approval of a new weather normalization adjustment mechanism.
Public hearings to consider Mountain Fuel's general rate case
application are scheduled to begin on August 9, 1995.
Item 5. Other Information.
Mountain Fuel's enhanced retirement offer was accepted by 109 employees
who retired on or before April 30, 1995. The Company does not expect to hire
new employees to replace the employees who elected to take advantage of the
offer and does expect its total workforce to decrease from 1486 (at year end
1994) to approximately 1375.
The Company is consolidating some customer service functions such as
dispatching, telephone service, sales, and engineering and currently plans to
phase out or significantly reduce the size of 10 customer service offices in
Utah and Wyoming.
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 12, 1995 /s/ D. N. Rose
(Date) D. N. Rose
President and Chief
Executive Officer
May 12, 1995 /s/ W. F. Edwards
(Date) W. F. Edwards
Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summarized financial information extracted from the
Mountain Fuel Supply Company Statement of Income and Balance Sheet for the
period ended March 31, 1995, and is qualified in its entirety by reference
to such unaudited financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> $69,993
<ALLOWANCES> 0
<INVENTORY> 21,769
<CURRENT-ASSETS> 96,225
<PP&E> 745,361
<DEPRECIATION> 287,332
<TOTAL-ASSETS> 576,581
<CURRENT-LIABILITIES> 105,813
<BONDS> 175,000
<COMMON> 22,974
6,324
0
<OTHER-SE> 190,420
<TOTAL-LIABILITY-AND-EQUITY> 576,581
<SALES> 0
<TOTAL-REVENUES> 140,815
<CGS> 0
<TOTAL-COSTS> 106,108
<OTHER-EXPENSES> 10,230
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,167
<INCOME-PRETAX> 21,011
<INCOME-TAX> 7,950
<INCOME-CONTINUING> 13,061
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,061
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
