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, 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 October 31, 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 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
1995 1994 1995 1994 1995 1994
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $39,831 $39,866 $247,942 $243,766 $382,436 $356,657
OPERATING EXPENSES
Natural gas purchases 16,524 17,816 131,799 132,395 209,911 197,264
Operating and maintenance 22,763 23,124 71,333 70,850 94,577 94,521
Depreciation 5,847 6,064 18,644 18,191 25,202 25,222
Other taxes 2,191 2,752 8,369 9,439 8,519 10,484
TOTAL OPERATING EXPENSES 47,325 49,756 230,145 230,875 338,209 327,491
OPERATING INCOME (LOSS) (7,494) (9,890) 17,797 12,891 44,227 29,166
INTEREST AND OTHER INCOME 1,853 757 3,573 2,033 9,360 3,099
DEBT EXPENSE (3,998) (3,781) (12,157) (11,734) (16,309) (15,631)
INCOME (LOSS) BEFORE
INCOME TAXES (9,639) (12,914) 9,213 3,190 37,278 16,634
INCOME TAXES (CREDITS) (4,714) (7,166) 925 (2,311) 11,139 1,793
NET INCOME (LOSS) ($4,925) ($5,748) $8,288 $5,501 $26,139 $14,841
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994 1994
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $295 $624 $2,529
Federal income taxes receivable 4,510 10,343
Accounts receivable 23,829 22,389 74,220
Inventories 24,698 27,489 24,941
Other current assets 4,662 5,170 4,279
Total current assets 57,994 66,015 105,969
Property, plant and equipment 769,398 722,467 739,945
Less allowances for depreciation 300,028 276,567 280,162
Net property, plant
and equipment 469,370 445,900 459,783
Other assets 23,982 25,593 24,523
$551,346 $537,508 $590,275
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Notes payable to
Questar Corporation $32,700 $18,000 $53,500
Accounts payable and
accrued expenses 36,686 44,635 49,070
Purchased-gas adjustments 16,537 6,262 17,071
Total current liabilities 85,923 68,897 119,641
Long-term debt 175,000 175,000 175,000
Other liabilities and
deferred credits 21,169 27,116 21,283
Deferred income taxes and
investment tax credits 64,678 66,358 62,566
Redeemable cumulative
preferred stock 6,211 7,524 6,324
Common shareholder's equity
Common stock 22,974 22,974 22,974
Additional paid-in capital 41,875 41,875 41,875
Retained earnings 133,516 127,764 140,612
Total common shareholder's
equity 198,365 192,613 205,461
$551,346 $537,508 $590,275
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
9 Months Ended
September 30,
1995 1994
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $8,288 $5,501
Depreciation 20,709 20,073
Deferred income taxes and
investment tax credits 2,112 8,494
31,109 34,068
Change in operating assets
and liabilities 33,249 5,320
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 64,358 39,388
INVESTING ACTIVITIES
Capital expenditures (30,505) (33,072)
Proceeds from the disposition of
property, plant and equipment 209 9,885
CASH USED IN INVESTING
ACTIVITIES (30,296) (23,187)
FINANCING ACTIVITIES
Capital contribution 20,000
Issuance of long-term debt 17,000
Redemption of preferred stock (113) (1)
Decrease in notes payable
to Questar Corporation (20,800) (39,800)
Payment of dividends (15,383) (15,088)
CASH USED IN FINANCING
ACTIVITIES (36,296) (17,889)
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($2,234) ($1,688)
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 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-and nine-month periods
ended September 30, 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
September 30, 1995
Operating Results --
Following is a summary of financial results and operating information
for the Company:
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
1995 1994 1995 1994 1995 1994
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $38,842 $38,594 $244,649 $240,294 $378,595 $352,477
From affiliates 989 1,272 3,293 3,472 3,841 4,180
Total revenues $39,831 $39,866 $247,942 $243,766 $382,436 $356,657
Operating income (loss) ($7,494) ($9,890) $17,797 $12,891 $44,227 $29,166
Net income (loss) (4,925) (5,748) 8,288 5,501 26,139 14,841
OPERATING STATISTICS
Natural gas volumes (in thousands
of decatherms)
Natural gas volumes (in Mdth)
Residential and commercial sales 6,826 5,969 50,339 45,875 78,697 68,331
Industrial sales 1,736 1,743 6,989 5,652 10,219 7,744
Transportation for industrial
customers 13,585 12,031 45,146 35,322 61,206 49,457
Total deliveries 22,147 19,743 102,474 86,849 150,122 125,532
Natural gas revenue (per dth)
Residential and commercial sales $4.57 $4.92 $4.25 $4.59 $4.20 $4.55
Industrial sales 2.27 2.56 2.48 2.85 2.50 2.91
Transportation for industrial
customers 0.10 0.12 0.10 0.12 0.10 0.12
Heating degree days
Actual 77 24 3,189 2,854 5,625 4,720
Normal 110 110 3,594 3,594 5,801 5,332
Warmer than normal 30% 78% 11% 21% 3% 11%
Number of customers at end of
period 579,352 558,734
</TABLE>
Revenues were higher in the 9- and 12-month periods of 1995 when
compared with the 1994 periods because of colder temperatures, a 3.7%
increase in the number of customers, and increased sales and
transportation to industrial customers. The colder temperatures,
although warmer than normal for the 1995 periods ended September 30,
1995, caused an increase in the volumes of gas sold to residential and
commercial customers, primarily for space heating purposes. Revenues
were flat in a comparison of third quarter 1995 with the third quarter
of 1994 as lower gas costs in rates offset an 11% increase in the
volumes sold.
Volumes of gas delivered to industrial customers increased 27% in the
first nine months of 1995 compared with the same period of 1994
resulting in $1,717,000 more revenues. Natural gas demand was higher
for customers in the chemical, metals and electric generation
industries. Margins from gas delivered to industrial customers are
substantially lower than from gas sold to residential and commercial
customers.
Mountain Fuel's natural gas purchases were lower in the 3- and 9-month
periods of 1995 when compared to the 1994 periods because the effect of
lower gas prices more than offset the effect of increased volumes
purchased. A comparison of natural gas purchases for the 12 months
ended September 30, 1995 with the same period in 1994 includes the
fourth quarter of 1994 which posted temperatures that were 10% colder
than normal. Operating and maintenance expenses were 2% lower in the
third quarter of 1995 compared to the third quarter of 1994 primarily
due to lower labor costs as a result of an early retirement program.
Operating and maintenance expenses were 1% higher in the first nine
months of 1995 compared to the same period in 1994 because of the costs
of serving more customers and inflation more than offset lower labor
cost savings from the early retirement program, which occurred April 30,
1995.
Depreciation expense was 4% lower in the third quarter of 1995,
primarily as the result of transferring an office building to an
affiliated company. Depreciation expense was 2% higher in the
nine-month period of 1995 when compared to the same period in the prior
year primarily because of increased spending for distribution assets.
Interest and other income increased in the 3- and 9-month periods of
1995 as a result of recording a regulatory asset for the health and
salary costs of long-term disabled employees that amounted to about $1
million and carrying charges earned on an increasing volume of stored
gas. Interest and other income for the 12-month period ended September
30, 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 10% for the first nine months of 1995,
primarily because of tight-sands income tax credits. Income taxes were a
credit in the first nine months of 1994 because of the combined effect
of a low pretax income and tight-sands income tax credits. The Company
recognized $3,227,000 of tight-sands income tax credits in the first
nine months of 1995 and $4,224,000 in the first nine months of 1994.
On August 11, 1995, the Public Service Commission of Utah approved a
settlement of Mountain Fuel's general rate case. Mountain Fuel received
a $3.7 million increase in revenues. The settlement, which became
effective September 1, allows the Company to implement a weather
normalization adjustment, provides about $2 million in additional
revenues through a new-premise fee and adds about $1.7 million from
sharing capacity-release revenues. The settlement does not specify an
authorized return on equity, but Mountain Fuel's allowed return on rate
base increased from 10.08% to between 10.22% and 10.34%. These rate
changes did not have a material effect on year-to-date 1995 revenues.
Mountain Fuel has closed four regional offices and reduced functions at
six other offices in an effort to consolidate and restructure
operations. In addition, the Company's offer of early retirement was
accepted by 109 employees effective April 30, 1995. The labor savings
are expected to average $400,000 per month. The Company predicts that
its investment in customer information system technology will continue
to enable it to increase efficiency in serving customers.
Both Moody's and Standard & Poors plan to reevaluate debt ratings of
Mountain Fuel's senior unsecured debt as a result of Questar Pipeline's
bid for a 50% ownership in the Kern River pipeline.
Liquidity and Capital Resources -
Operating Activities:
Net cash provided from operating activities was $64,358,000 in the first
nine months of 1995 compared with $39,388,000 for the same period of
1994. The increase was due to the effect of lower gas costs on the
purchased-gas-cost-adjustment account and higher net income. Instead of
a normal third and fourth quarter amortization of the 1994 balance in
the purchased-gas-cost-adjustment account, customers will receive a
one-time credit early in 1996.
Investing Activities:
Capital expenditures were $30,505,000 in the first nine months of 1995,
compared with $33,072,000 in the corresponding 1994 period. Capital
expenditures are estimated at $50,000,000 for 1995 and $55,000,000 for
1996. 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:
Financing activities in the first nine months of 1995 included the
funding of capital expenditures and repayment of loans to Questar
Corporation from the proceeds of net cash provided from operations. In
the 1994 nine-month period, Mountain Fuel applied cash flow from
operations, a capital contribution and an issuance of 30-year notes
toward funding of capital expenditures and repayment of debt from
Questar Corporation. Estimated 1995 capital expenditures of $50 million
will be financed from cash flow from operations and borrowings from
Questar Corporation. In October 1995, Mountain Fuel redeemed the
remaining balance of $1.2 million of its 8.625% preferred stock.
The Company has a short-term line-of-credit arrangement with a bank
totaling $500,000. No amounts were borrowed under the short-term
line-of-credit arrangement at September 30, 1995. In addition, its
parent company loans funds to the Company under a short-term borrowing
arrangement.
<PAGE>
PART II
OTHER INFORMATION
Mountain Fuel Supply Company has nothing to disclose in this section of
the report.
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 8, 1995 /s/D. N. Rose
(Date) D. N. Rose
President and Chief
Executive Officer
November 8, 1995 /s/W. F. Edwards
(Date) W. F. Edwards
Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summarized financial information extracted
from the Mountain Fuel Supply Company Statements of Income and Balance Sheet
for the nine-months ended September 30, 1995, and is qualified in its entirety
by reference to such unauditied financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 295
<SECURITIES> 0
<RECEIVABLES> 28,339
<ALLOWANCES> 0
<INVENTORY> 24,698
<CURRENT-ASSETS> 57,994
<PP&E> 769,398
<DEPRECIATION> 300,028
<TOTAL-ASSETS> 23,982
<CURRENT-LIABILITIES> 85,923
<BONDS> 175,000
<COMMON> 22,974
0
6,211
<OTHER-SE> 175,391
<TOTAL-LIABILITY-AND-EQUITY> 551,346
<SALES> 0
<TOTAL-REVENUES> 247,942
<CGS> 0
<TOTAL-COSTS> 203,132
<OTHER-EXPENSES> 27,013
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,157
<INCOME-PRETAX> 9,213
<INCOME-TAX> 925
<INCOME-CONTINUING> 8,288
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,288
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
