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,
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 September 30, 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 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
1996 1995 1996 1995 1996 1995
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $42,197 $39,831 $245,027 $247,942 $359,854 $382,436
OPERATING EXPENSES
Natural gas purchases 16,559 16,524 117,168 131,799 175,975 209,911
Operating and maintenance 22,600 22,763 71,767 71,333 93,818 94,577
Depreciation 6,445 5,847 20,388 18,644 27,213 25,202
Other taxes 1,434 2,191 7,285 8,369 8,504 8,519
TOTAL OPERATING EXPENSES 47,038 47,325 216,608 230,145 305,510 338,209
OPERATING INCOME (LOSS) (4,841) (7,494) 28,419 17,797 54,344 44,227
INTEREST AND OTHER INCOME 608 1,853 3,207 3,573 3,866 9,360
DEBT EXPENSE (4,087) (3,998) (12,260) (12,157) (16,683) (16,309)
INCOME (LOSS) BEFORE
INCOME TAXES (8,320) (9,639) 19,366 9,213 41,527 37,278
INCOME TAXES (CREDITS) (3,873) (4,714) 5,579 925 12,360 11,139
NET INCOME (LOSS) ($4,447) ($4,925) $13,787 $8,288 $29,167 $26,139
</TABLE>
See note to the financial statements.
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<PAGE>
September 30, December 31,
1996 1995 1995
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $295 $1,466
Accounts receivable $21,880 28,339 67,642
Inventories 17,898 24,698 20,915
Purchased-gas adjustments 13,206
Other current assets 3,889 4,662 3,843
Total current assets 56,873 57,994 93,866
Property, plant and equipment 806,363 769,398 784,466
Less allowances for depreciation 319,183 300,028 302,619
Net property, plant and equipment 487,180 469,370 481,847
Other assets 21,126 23,982 24,548
$565,179 $551,346 $600,261
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $606
Notes payable to Questar Corporation 54,300 $32,700 $56,100
Accounts payable and accrued expenses 30,737 36,686 61,800
Purchased-gas adjustments 16,537 9,182
Total current liabilities 85,643 85,923 127,082
Long-term debt 175,000 175,000 175,000
Other liabilities and deferred credits 16,072 21,169 16,029
Deferred income taxes and investment
tax credits 77,237 64,678 68,548
Redeemable cumulative preferred stock 4,840 6,211 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 141,538 133,516 143,796
Total common shareholder's equity 206,387 198,365 208,645
$565,179 $551,346 $600,261
</TABLE>
See note to the financial statements.
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
9 Months Ended
September 30,
1996 1995
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $13,787 $8,288
Depreciation 22,507 20,709
Deferred income taxes and investment
tax credits 8,689 2,112
44,983 31,109
Changes in operating assets and
liabilities (1,253) 33,249
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 43,730 64,358
INVESTING ACTIVITIES
Capital expenditures (30,908) (30,505)
Proceeds from disposition of property,
plant and equipment 3,068 209
NET CASH USED IN INVESTING
ACTIVITIES (27,840) (30,296)
FINANCING ACTIVITIES
Decrease in notes payable
to Questar Corporation (1,800) (20,800)
Checks outstanding in excess
of cash balances 606
Redemption of preferred stock (117) (113)
Dividends paid (16,045) (15,383)
NET CASH USED IN FINANCING
ACTIVITIES (17,356) (36,296)
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($1,466) ($2,234)
</TABLE>
See note to the financial statements.
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 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 nine-month periods ended
September 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.
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
MANAGEMENT'S ANALYSIS
September 30, 1996
(Unaudited)
Operating Results -- Following is a summary of financial and
operating information for the Company:
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended 12 Months Ended
September 30, September 30, September 30,
1996 1995 1996 1995 1996 1995
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $41,451 $38,842 $243,082 $244,649 $357,191 $378,595
From affiliates 746 989 1,945 3,293 2,663 3,841
Total revenues 42,197 39,831 245,027 247,942 359,854 382,436
Natural gas purchases 16,559 16,524 117,168 131,799 175,975 209,911
Revenues less natural gas purchases $25,638 $23,307 $127,859 $116,143 $183,879 $172,525
Operating income (loss) ($4,841) ($7,494) $28,419 $17,797 $54,344 $44,227
Net income (loss) (4,447) (4,925) 13,787 8,288 29,167 26,139
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Residential and commercial sales 7,575 6,826 53,983 50,339 77,594 78,697
Industrial sales 1,569 1,736 5,921 6,989 8,142 10,219
Transportation for industrial
customers 12,391 13,585 37,166 45,146 51,589 61,206
Total deliveries 21,535 22,147 97,070 102,474 137,325 150,122
Natural gas revenue (per decatherm)
Residential and commercial $4.29 $4.57 $3.98 $4.25 $4.08 $4.20
Industrial sales 2.14 2.27 2.14 2.48 2.19 2.50
Transportation for industrial
customers 0.12 0.10 0.12 0.10 0.11 0.10
Heating degree days
Actual 144 77 3,357 3,189 5,215 5,625
Normal 110 110 3,594 3,594 5,801 5,801
Colder (warmer) than normal 31% (30%) (7%) (11%) (10%) (3%)
Number of customers at end of period 603,647 579,352
</TABLE>
Revenues less natural gas purchases were higher for the 1996
periods presented when compared with the same periods of 1995 due
to colder weather, an increase in the number of customers served
and a favorable late 1995 rate case settlement. With the
exception of the third quarter of 1996, temperatures were warmer
than normal in the periods presented. The number of customers
served by the Company grew 4.2% since September 30, 1995.
The provisions of the 1995 rate case settlement with the Public Service
Commission of Utah provide for a weather-normalization adjustment, a new
customer connection fee and sharing of transportation capacity release
credits. The weather-normalization adjustment results in an adjustment in
revenues for weather variations above or below normal
temperatures. Under the provisions of the Utah rate settlement,
the weather-normalization adjustment will be extended to all
residential and commercial volumes beginning October 1, 1996.
Utah residential customers could choose to be exempt from this
adjustment by notifying the Company prior to October 1. However,
less than 1 percent of the Company's residential customers chose
this exemption. The Company received approval from the Public
Service Commission of Wyoming to implement a
weather-normalization adjustment for all residential and
commercial customers beginning September 1, 1996. The other
terms of the settlement of the Utah rate case are expected to add
about $3.7 million in annual revenues and authorized an increase
in Mountain Fuel's allowed return on rate base from 10.08% to
between 10.22% and 10.34%.
Volumes delivered to industrial customers were 9% less in the
third quarter of 1996 and 17% less in the first nine months 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 for the
9-and 12-month periods of 1996 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
August of each year, which included gas costs of $1.08 per decatherm
in 1996 compared with $1.31 in 1995. The purchased gas cost
adjustment account changed from a $16,537,000 liability at
September 30, 1995 to a $13,206,000 receivable at Sepetmber 30,
1996 as a result of the lower allowed gas costs. Natural gas
purchase expenses were slightly higher for the third quarter of
1996 when compared with the third quarter of 1995 due primarily
to an increase in sales volumes.
Operating and maintenance expenses were 1% higher in the first
nine months of 1996 when compared with the same period of 1995
because of the costs of serving more customers and inflation
partially offset the benefits of consolidation of operations and
early retirement program. Operating and maintenance expenses
decreased by 1% for the 3- and 12-month periods of 1996 compared
with the same period in 1995. A successful third quarter 1996
settlement of issues related to state property tax assessments
spanning 1988 through 1992 resulted in a $900,000 reduction of
expense reported in other taxes. Depreciation expenses were
higher in the 1996 periods as a result of increased investment in
property, plant and equipment. Interest and other income for the
12 months ended September 30, 1995 includes an addition to income
of $5,589,000 for a one-time reduction in gas costs associated
with unbilled revenues from December 1994.
The effective income tax rate was 28.8% for the first nine months
of 1996 compared with 10% for the first nine months of 1995. A
lower income before income taxes combined with higher tight-sands
gas-production credits caused the lower effective tax rate for
1995. The Company recognized $2,456,000 of tight-sands
gas-production credits in the 1996 period and $3,227,000 in the
1995 period.
Mountain Fuel and an affiliated company, Questar Pipeline,
continue work to consolidate 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 of Questar
Corporation.
Liquidity and Capital Resources -
Operating Activities:
Net cash provided from operating activities was $43,730,000 for
the first nine months of 1996 compared with $64,358,000 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 $30,908,000 in the first nine months of
1996 compared with $30,505,000 in the corresponding 1995 period.
Capital expenditures for calendar year 1996 are estimated at
$55,000,000.
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 September 30, Mountain Fuel had loans
outstanding of $54,300,000 in 1996 and $32,700,000 in 1995
payable to Questar. No amounts were borrowed under the
short-term line-of-credit arrangements at September 30, 1996.
Mountain Fuel's net cash provided from operating activities for
the first nine 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.
>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 12, 1996 /s/D. N. Rose
(Date) D. N. Rose
President and Chief
Executive Officer
November 12, 1996 /s/S. E. Parks
(Date) S. E. Parks
Vice President, Treasurer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summarized financial information extracted
from the Mountain Fuel Supply Co. Statement of Income and Balance Sheet for
the period ended September 30, 1996, and is qualified in its entirety by
reference to such unaudited financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 21,880
<ALLOWANCES> 0
<INVENTORY> 17,898
<CURRENT-ASSETS> 56,873
<PP&E> 806,363
<DEPRECIATION> 319,183
<TOTAL-ASSETS> 565,179
<CURRENT-LIABILITIES> 85,643
<BONDS> 175,000
4,840
0
<COMMON> 22,974
<OTHER-SE> 183,413
<TOTAL-LIABILITY-AND-EQUITY> 565,179
<SALES> 0
<TOTAL-REVENUES> 245,027
<CGS> 0
<TOTAL-COSTS> 188,935
<OTHER-EXPENSES> 27,673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,260
<INCOME-PRETAX> 19,366
<INCOME-TAX> 5,579
<INCOME-CONTINUING> 13,787
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,787
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
