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, 1996
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) 324-5555
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, 1996
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,
1996 1995 1996 1995 1996 1995
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $57,927 $67,296 $202,830 $208,111 $357,488 $382,471
OPERATING EXPENSES
Natural gas purchases 25,144 33,930 100,609 115,275 175,940 211,203
Operating and maintenance 23,746 23,807 49,167 48,570 93,981 94,938
Depreciation 6,842 5,924 13,943 12,797 26,615 25,419
Other taxes 2,732 2,821 5,851 6,178 9,261 9,080
TOTAL OPERATING EXPENSES 58,464 66,482 169,570 182,820 305,797 340,640
OPERATING INCOME (LOSS) (537) 814 33,260 25,291 51,691 41,831
INTEREST AND OTHER INCOME 1,890 1,019 2,599 1,720 5,111 8,264
DEBT EXPENSE (3,901) (3,992) (8,173) (8,159) (16,594) (16,092)
INCOME BEFORE INCOME TAXES (2,548) (2,159) 27,686 18,852 40,208 34,003
INCOME TAXES (CREDITS) (1,931) (2,311) 9,452 5,639 11,519 8,687
NET INCOME (LOSS) ($617) $152 $18,234 $13,213 $28,689 $25,316
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995 1995
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $1,466
Accounts receivable $34,841 $40,315 67,642
Inventories 12,299 19,590 20,915
Other current assets 4,124 5,026 3,843
Total current assets 51,264 64,931 93,866
Property, plant and equipment 792,134 755,633 784,466
Less allowances for depreciation 312,921 293,512 302,619
Net property, plant and equipment 479,213 462,121 481,847
Other assets 21,389 22,375 24,548
$551,866 $549,427 $600,261
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $1,638 $2,406
Notes payable to Questar Corporation 28,500 8,400 $56,100
Accounts payable and accrued expenses 36,390 38,052 61,800
Purchased-gas adjustments 1,559 32,372 9,182
Total current liabilities 68,087 81,230 127,082
Long-term debt 175,000 175,000 175,000
Other liabilities and deferred credits 16,056 21,126 16,029
Deferred income taxes and investment
tax credits 71,588 57,436 68,548
Redeemable cumulative preferred stock 4,954 6,218 4,957
Common shareholder's equity
Common stock 22,974 22,974 22,974
Additional paid-in capital 41,875 41,875 41,875
Retained earnings 151,332 143,568 143,796
Total common shareholder's equity 216,181 208,417 208,645
$551,866 $549,427 $600,261
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
6 Months Ended
June 30,
1996 1995
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $18,234 $13,213
Depreciation 15,312 14,132
Deferred income taxes and investment
tax credits 3,040 (5,130)
36,586 22,215
Change in operating assets and
liabilities 11,289 44,783
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 47,875 66,998
INVESTING ACTIVITIES
Capital expenditures (15,969) (16,952)
Proceeds from disposition of property,
plant and equipment 3,291 482
NET CASH USED IN INVESTING
ACTIVITIES (12,678) (16,470)
FINANCING ACTIVITIES
Decrease in notes payable
to Questar Corporation (27,600) (45,100)
Checks outstanding in excess
of cash balances 1,638 2,406
Redemption of preferred stock (3) (106)
Dividends paid (10,698) (10,257)
NET CASH USED IN FINANCING
ACTIVITIES (36,663) (53,057)
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($1,466) ($2,529)
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1996
(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, 1996, are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1996. 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, 1995.
MOUNTAIN FUEL SUPPLY COMPANY
MANAGEMENT'S ANALYSIS
June 30, 1996
Operating Results -- Following is a summary of financial and
operating information for the Company:
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended 12 Months Ended
June 30, June 30, June 30,
1996 1995 1996 1995 1996 1995
(Dollars in Thousands)
<S> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $57,064 $65,984 $201,631 $205,807 $354,582 $378,347
From affiliates 863 1,312 1,199 2,304 2,906 4,124
Total revenues $57,927 $67,296 $202,830 $208,111 $357,488 $382,471
Operating income (loss) ($537) $814 $33,260 $25,291 $51,691 $41,831
Net income (loss) (617) 152 18,234 13,213 28,689 25,316
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Residential and commercial sales 11,991 13,935 46,408 43,513 76,845 77,840
Industrial sales 1,858 2,068 4,352 5,253 8,309 10,226
Transportation for industrial
customers 11,046 13,952 24,775 31,561 52,783 59,652
Total deliveries 24,895 29,955 75,535 80,327 137,937 147,718
Natural gas revenue (per decatherm)
Residential and commercial $3.93 $3.97 $3.93 $4.20 $4.10 $4.25
Industrial sales 2.14 2.49 2.14 2.55 2.21 2.56
Transportation for industrial
customers 0.13 0.10 0.12 0.10 0.11 0.10
Heating degree days
Actual 617 895 3,213 3,112 5,148 5,572
Normal 741 741 3,484 3,484 5,801 5,801
Colder (warmer) than normal (17%) 21% (8%) (11%) (11%) (4%)
Number of customers at end of period 597,143 575,450
</TABLE>
Revenues, net of gas costs, decreased $583,000 or 2% in the second
quarter as a result of lower sales volumes caused by warmer weather
that more than offset the affects of a rate case settlement.
Temperatures, as measured in degree days, were 17% warmer than
normal for the second quarter of 1996 compared with 21% colder than
normal for the same quarter in 1995. Revenues, net of gas costs,
were $9,385,000 or 10% higher for the first half of 1996 when
compared with the first half of 1995 due to colder temperatures in
the first quarter of 1996, the benefits of a rate case settlement
and a 3.8% annual rate of growth in the number of customers.
Temperatures in the first quarter of 1996 were 5% warmer than normal
compared with 19% warmer than normal reported in the first quarter
of 1995.
The effect of the warmer-than-normal weather in 1996 was partially
offset by the provisions of the 1995 rate settlement that provides
for a weather-normalization adjustment, new-premises fee and sharing
of capacity release revenues. About 40 to 50% of Mountain Fuel's
residential and commercial sales volumes were subjected to
temperature-adjusted rates. Under the provisions of the Utah rate
settlement, the weather-normalization adjustment will be extended to
all residential and commercial volumes beginning October 1 unless
customers inform the Company that they desire to be treated
otherwise. The terms of the Utah rate case are expected to add
about $3.7 million in annual revenues from a new-premises fee and
the sharing of capacity-release credits. In addition to the other
rate case items, Mountain Fuel's allowed return on rate base
increased from 10.08% to between 10.22% and 10.34%. The Company
also received approval from the Public Service Commission of Wyoming
to implement a weather-normalization adjustment for all residential
and commercial customers beginning September 1.
Volumes delivered to industrial customers were 19% less in the
second quarter of 1996 and 21% less in the first half of 1996 when
compared with the same periods of 1995 due to a continued abundance
of low-cost hydroelectric power. Margins from gas delivered to
industrial customers are substantially lower than from gas sold to
residential and commercial customers.
Mountain Fuel's natural gas purchase expenses were lower in the 1996
periods primarily due to lower natural gas purchase costs allowed in
rates. The lower gas purchase prices were reflected in semi-annual
gas cost adjustments filed in February each year, which included gas
costs of $1.04 per decatherm in 1996 compared with $1.43 in 1995.
Operating and maintenance expenses were 1% higher in the first half
of 1996 when compared with the same period of 1995 because of the
costs of serving more customers and inflation partially offset by
the benefits of consolidation of operations and early retirement
programs. Operating and maintenance expenses decreased by 1% in the
12-month period of 1996 compared with the same period in 1995.
Depreciation expenses were higher in the 1996 periods as a result of
increased investment in property, plant and equipment. Surplus
properties were sold in the second quarter of 1996 resulting in a
$1.2 million pretax gain recorded in other income.
The effective income tax rate was 34.1% for the first half of 1996
compared with 29.9% for the first half of 1995. The Company
recognized $1,898,000 of tight-sands gas-production credits in the
first half of 1996 and $2,258,000 in the first half of 1995.
Mountain Fuel and affiliated company, Questar Pipeline, have
consolidated various financial, technical, administrative and other
support functions in an ongoing effort to improve efficiency and
coordination. Questar Pipeline and Mountain Fuel comprise the
Regulated Services group within Questar Corporation.
Liquidity and Capital Resources -
Operating Activities:
Net cash provided from operating activities was $47,875,000 in the
first half of 1996 compared with $66,998,000 for the same period of
1995. Lower gas cost collected in rates and a first quarter
refund of gas costs were the primary reasons for a reduction in net
cash flow from operating activities in 1996.
Investing Activities:
Capital expenditures were $15,969,000 in the first six months of
1996 compared with $16,952,000 in the corresponding 1995 period.
Capital expenditures for calendar year 1996 are estimated at
$55,000,000. Construction has begun on a $4.8 million extension of
service to the 1,000 residents of the Ogden Valley. The area is about
45 miles north of Salt Lake City and the site of several 2002 Winter
Olympics venues.
Financing Activities:
The Company has short-term line-of-credit arrangements with banks
totaling $500,000. In addition, its parent company, Questar
Corporation, loans funds to the Company under a short-term borrowing
arrangement. At of June 30, Mountain Fuel had loans outstanding of
$28,500,000 in 1996 and $8,400,000 in 1995 payable to Questar. No
amounts were borrowed under the short-term line-of-credit
arrangements at June 30, 1996. Mountain Fuel's net cash provided
from operating activities for the first six months of 1996 and 1995
funded capital expenditures, cash dividends and repayment of debt.
Funding of 1996 capital expenditures is expected to be supplied from
net cash flow provided from operations and borrowings from Questar
Corporation.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
a. On June 1, 1996, 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 $7,971,571 of costs in
its Wyoming rates, reflecting an annualized revenue decrease of
approximately $548,000 to customers. Mountain Fuel noted that its rates
for natural gas service, under the proposed rate schedules, were the
lowest they had been since August of 1986. The PSCW authorized the
Company to reflect the decreased costs in its rates to core customers as
of July 1, 1996.
b. The Company filed a comparable application with the Public
Service Commission of Utah (the PSCU) on June 12, 1996. In this
application, Mountain Fuel requested authorization to reflect
$208,924,241 of costs in its Utah rates, reflecting an annualized
revenue decrease of approximately $469,000. The PSCU authorized the
Company to reflect the requested decrease in its rates effective July 1,
1996.
c. On July 10, 1996, the PSCW approved Mountain Fuel's
application to implement a weather normalization adjustment for Wyoming
general service customers. The new mechanism, which will be effective
for service as of September 1, 1996, adjusts the non-gas cost portion of
a customer's monthly bill as the actual degree days in the billing cycle
are warmer or colder than normal.
d. The PSCU has not issued a final order in the Company's
semi-annual portion of the balancing account application that became
effective January 1, 1996. Other parties to the proceedings have raised
questions about gathering costs and a gas imbalance situation. See the
Company's Form 10-K Report for 1995, Items 1. and 2. Business and
Properties, "Regulation and Deregulation."
e. Mountain Fuel and 69 other domestic companies have been named
as defendants in a federal "false claims" lawsuit brought by Jack J.
Grynberg on behalf of the federal government. The suit, which was filed
in a federal district court in Washington, D.C., claims that pipelines
and other companies have systematically reported less than the actual
heating content of natural gas entering their systems, ultimately
resulting in an underpayment of royalties to the federal government.
The complaint does not allege any specific undermeasurements for
individual defendants or for the group of defendants. The Company
believes that the lawsuit, which the Department of Justice determined
not to prosecute, has no merit.
Item 5. Other Information.
Effective June 1, 1996, Mountain Fuel reorganized some
administrative functions. Four of the Company's executive officers have
responsibilities for both the Company and Questar Pipeline Company
(Questar Pipeline), an affiliated transmission entity. Mr. Michael E.
Benefield, age 57, was named to the new position as Vice President,
Planning and Business Development and has responsibility for strategic
planning, pricing, packaging, marketing, supply, alliances, acquisitions
and new ventures. (Mr. Benefield had been serving as Vice President,
Gas Supply.) Mr. Gary W. DeBernardi, age 53, was appointed to serve as
Vice President, Technical Support and has responsibility for
engineering, gas control, and codes and standards. (Mr. DeBernardi had
been serving as Questar Pipeline's Vice President, Engineering and
Transmission Services.) Ms. Susan Glasmann, age 48, formerly Vice
President, Marketing, was named to serve as Vice President, Business
Support, and has responsibility for administration, employee and public
communication, continuous improvement, and marketing support. Mr. Glenn
H. Robinson, age 46, was appointed to serve as Vice President of Questar
Pipeline, in addition to his responsibilities as Vice President and
Controller for the Company, and has responsibility for accounting,
budgeting, load forecasting, and financial planning.
Mr. S. C. Yeager, age 49, formerly Vice President, Customer
Service, was named to the new position of Vice President and General
Manager for the Company. He has responsibility for Mountain Fuel's
distribution operations, customer service, and state regulatory affairs.
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 13, 1996 /s/D. N. Rose
(Date) D. N. Rose
President and Chief
Executive Officer
August 13, 1996 /s/S. E. Parks
(Date) S. E. Parks
Vice President, Treasurer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summarized information extracted from the Mountain
Fuel Supply Company Statements of Income and Balance Sheets for the period
ended June 30, 1996, and is qualified in its entirety by reference to such
unaudited financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 34,841
<ALLOWANCES> 0
<INVENTORY> 12,299
<CURRENT-ASSETS> 51,264
<PP&E> 792,134
<DEPRECIATION> 312,921
<TOTAL-ASSETS> 551,866
<CURRENT-LIABILITIES> 68,087
<BONDS> 175,000
4,954
0
<COMMON> 22,974
<OTHER-SE> 193,207
<TOTAL-LIABILITY-AND-EQUITY> 551,866
<SALES> 0
<TOTAL-REVENUES> 202,830
<CGS> 0
<TOTAL-COSTS> 149,776
<OTHER-EXPENSES> 19,794
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,173
<INCOME-PRETAX> 27,686
<INCOME-TAX> 9,452
<INCOME-CONTINUING> 18,234
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,234
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
