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, 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) 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, 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 12 Months Ended
March 31, March 31,
1996 1995 1996 1995
(In Thousands)
<S> <C> <C> <C> <C>
REVENUES $144,903 $140,815 $366,857 $370,060
OPERATING EXPENSES
Natural gas purchases 75,465 81,345 184,726 203,823
Operating and maintenance 25,421 24,763 94,042 95,116
Depreciation 7,101 6,873 25,697 25,663
Other taxes 3,119 3,357 9,350 9,436
TOTAL OPERATING EXPENSES 111,106 116,338 313,815 334,038
OPERATING INCOME 33,797 24,477 53,042 36,022
INTEREST AND OTHER INCOME 709 701 4,240 7,888
DEBT EXPENSE (4,272) (4,167) (16,685) (15,832)
INCOME BEFORE INCOME TAXES 30,234 21,011 40,597 28,078
INCOME TAXES 11,383 7,950 11,139 6,763
NET INCOME $18,851 $13,061 $29,458 $21,315
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995 1995
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $1,466
Accounts receivable $76,251 $69,993 67,642
Inventories 7,129 21,769 20,915
Other current assets 3,520 4,463 3,843
Total current assets 86,900 96,225 93,866
Property, plant and equipment 787,646 745,361 784,466
Less allowances for depreciation 309,748 287,332 302,619
Net property, plant and equipment 477,898 458,029 481,847
Other assets 22,079 22,327 24,548
$586,877 $576,581 $600,261
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $3,613 $1,539
Notes payable to Questar Corporation 27,100 12,300 $56,100
Accounts payable and accrued expenses 52,742 54,892 61,800
Purchased-gas adjustments 21,792 37,082 9,182
Total current liabilities 105,247 105,813 127,082
Long-term debt 175,000 175,000 175,000
Other liabilities and deferred credits 16,053 21,296 16,029
Deferred income taxes and investment
tax credits 63,473 54,754 68,548
Redeemable cumulative preferred stock 4,957 6,324 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 157,298 148,545 143,796
Total common shareholder's equity 222,147 213,394 208,645
$586,877 $576,581 $600,261
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended
March 31,
1996 1995
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $18,851 $13,061
Depreciation 7,790 7,504
Deferred income taxes and investment
tax credits (5,075) (7,812)
21,566 12,753
Change in operating assets and
liabilities 11,545 35,257
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 33,111 48,010
INVESTING ACTIVITIES
Capital expenditures (3,837) (6,843)
Proceeds from (costs of) disposition of
property, plant and equipment (4) 1,093
NET CASH USED IN INVESTING
ACTIVITIES (3,841) (5,750)
FINANCING ACTIVITIES
Decrease in notes payable
to Questar Corporation (29,000) (41,200)
Checks outstanding in excess of
cash balances 3,613 1,539
Payment of dividends (5,349) (5,128)
NET CASH USED IN FINANCING
ACTIVITIES (30,736) (44,789)
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($1,466) ($2,529)
</TABLE>
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 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-month period ended March 31, 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
March 31, 1996
Operating Results --
Following is a summary of financial and operating information for
the Company:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1996 1995 1996 1995
(Dollars in Thousands)
<S> <C> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $144,567 $139,823 $363,502 $365,745
From affiliates 336 992 3,355 4,315
Total revenues $144,903 $140,815 $366,857 $370,060
Operating income $33,797 $24,477 $53,042 $36,022
Net income 18,851 13,061 29,458 21,315
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Residential and commercial sales 34,417 29,578 78,789 73,673
Industrial sales 2,494 3,185 8,519 9,850
Transportation for industrial
customers 13,729 17,609 55,689 55,720
Total deliveries 50,640 50,372 142,997 139,243
Natural gas revenue (per decatherm)
Residential and commercial $3.93 $4.31 $4.11 $4.35
Industrial sales 2.14 2.59 2.30 2.59
Transportation for industrial
customers 0.11 0.10 0.11 0.10
Heating degree days
Actual 2,596 2,217 5,426 5,200
Normal 2,743 2,743 5,801 5,801
Warmer than normal 5% 19% 6% 10%
Number of customers at end of
period 597,234 575,424
</TABLE>
Revenues, net of gas costs, increased $9,968,000 or 17% in the first
quarter and $15,894,000 or 10% in the 12 months ended March 31, 1996
when compared with the same periods in 1995. The increase resulted
from colder temperatures, the benefits of a rate case settlement
reached in the third quarter of 1995 and a 3.8% customer growth
rate. Temperatures in the first quarter of 1996 were 5% warmer than
normal but 17% colder than was reported in the first quarter of
1995. Temperatures were 4% colder in the 12-month period ended
March 31, 1996 when compared with the same period in the prior year.
The effect of the warmer-than-normal weather in 1996 was partially
offset by a weather-normalization adjustment. In addition, the rate
case settlement could add about $3.7 million in annual revenues from
a new-premises fee and the sharing of capacity-release credits.
Mountain Fuel's allowed return on rate base increased from 10.08% to
between 10.22% and 10.34%.
Volumes delivered to industrial customers decreased 22% in the first
quarter of 1996 when compared with the same quarter of 1995 due to
an 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 purchases were lower in the 3- and
12-month periods of 1996 compared with the same periods of 1995
primarily due to lower natural gas purchase prices allowed in rates.
The lower gas purchase prices were reflected in semiannual 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 3% higher in the first
quarter of 1996 because of the costs of serving more customers and
inflation. Operating and maintenance expenses decreased by 1% in
the 12-month period of 1996 compared with the same period in 1995.
Mountain Fuel continues to streamline and consolidate operations
announcing recently the closing of two more regional business
offices. The Company is able to make productivity improvement gains
by investing in technology. Depreciation expense was 3% higher in
the first quarter of 1996 when compared to the same period in the
prior year as a result of increased property, plant and equipment
caused by spending for capital projects.
The effective income tax rate was 37.6% in the first quarter of 1996
compared with 37.8% in the first quarter of 1995. The Company
recognized $937,000 of tight-sands gas-production credits in the
first quarter of 1996 and $902,000 in the first quarter of 1995.
Questar Corporation (Questar) announced plans of becoming more of an
energy-services company that can operate effectively in the new
energy market place. Mountain Fuel and affiliated company, Questar
Pipeline, make up the regulated services group of Questar. To
improve efficiency and coordination, various financial, technical,
administrative and other support functions of these two companies
will be consolidated. The regulated services group also is creating
a new planning and business development area to focus on new
business opportunities in gas distribution, transmission and
storage, both foreign and domestic.
Liquidity and Capital Resources -
Operating Activities:
Net cash provided from operating activities was $33,111,000 in the
first three months of 1996 compared with $48,010,000 for the same
period of 1995. A 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 $3,837,000 in the first three months of
1996, compared with $6,843,000 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, loans
funds to the Company under a short-term borrowing arrangement. As
of March 31, Mountain Fuel had loans outstanding of $27,100,000 in
1996 and $12,300,000 in 1995 payable to Questar. No amounts were
borrowed under the short-term line-of-credit arrangements at March
31, 1996. Financing activities in the first quarters of 1996 and
1995 included payment of dividends and a partial repayment of loans
to Questar from net cash provided from operations. 1996 capital
expenditures will be financed with net cash flow from operating
activities and borrowings from Questar.
<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)
May 10, 1996 /s/D. N. Rose
(Date) D. N. Rose
President and Chief
Executive Officer
May 10, 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 financail information extracted
from the Mountain Fuel Supply Company Statements of Income and Balance Sheet
for the period ended March 31, 1996, and is qualified in its entirety by
reference to such unaudited financial statement.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 76,251
<ALLOWANCES> 0
<INVENTORY> 7,129
<CURRENT-ASSETS> 86,900
<PP&E> 787,646
<DEPRECIATION> 309,748
<TOTAL-ASSETS> 586,877
<CURRENT-LIABILITIES> 105,247
<BONDS> 175,000
4,957
0
<COMMON> 22,974
<OTHER-SE> 199,173
<TOTAL-LIABILITY-AND-EQUITY> 586,877
<SALES> 0
<TOTAL-REVENUES> 144,903
<CGS> 0
<TOTAL-COSTS> 100,886
<OTHER-EXPENSES> 10,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,272
<INCOME-PRETAX> 30,234
<INCOME-TAX> 11,383
<INCOME-CONTINUING> 18,851
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,851
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
