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, 1997
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 March 31, 1997
Common Stock, $2.50 par value 9,189,626 shares
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
MOUNTAIN FUEL SUPPLY COMPANY
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
March 31, March 31,
1997 1996 1997 1996
(In Thousands)
<S> <C> <C> <C> <C>
REVENUES $175,313 $144,903 $402,338 $366,857
OPERATING EXPENSES
Natural gas purchases 97,211 75,465 204,146 184,726
Operating and maintenance 27,404 25,421 99,093 94,042
Depreciation 7,933 7,101 29,141 25,697
Other taxes 2,743 3,119 7,695 9,350
TOTAL OPERATING EXPENSES 135,291 111,106 340,075 313,815
OPERATING INCOME 40,022 33,797 62,263 53,042
INTEREST AND OTHER INCOME 723 709 3,047 4,240
DEBT EXPENSE (4,342) (4,272) (16,707) (16,685)
INCOME BEFORE INCOME TAXES 36,403 30,234 48,603 40,597
INCOME TAXES 14,094 11,383 16,157 11,139
NET INCOME $22,309 $18,851 $32,446 $29,458
</TABLE>
See note to financial statements
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1996
(In Thousands)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and short-term investments $1,875
Accounts receivable $79,441 $76,251 63,171
Inventories 8,154 7,129 15,295
Purchased-gas adjustments 29,331 24,210
Other current assets 3,653 3,520 4,511
Total current assets 120,579 86,900 109,062
Property, plant and equipment 827,208 787,646 825,121
Less allowances for depreciation 333,171 309,748 325,821
Net property, plant and equipment 494,037 477,898 499,300
Other assets 20,736 22,079 22,707
$635,352 $586,877 $631,069
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Checks outstanding in excess of
cash balances $2,924 $3,613
Notes payable to Questar Corporation 58,700 27,100 $76,200
Accounts payable and accrued expenses 68,559 52,742 66,558
Purchased-gas adjustments 21,792
Total current liabilities 130,183 105,247 142,758
Long-term debt 175,000 175,000 175,000
Other liabilities 10,922 16,053 10,930
Deferred income taxes and investment
tax credits 82,234 63,473 81,311
Redeemable cumulative preferred stock 4,808 4,957 4,828
Common shareholder's equity
Common stock 22,974 22,974 22,974
Additional paid-in capital 41,875 41,875 41,875
Retained earnings 167,356 157,298 151,393
Total common shareholder's equity 232,205 222,147 216,242
$635,352 $586,877 $631,069
</TABLE>
See note to financial statements
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended
March 31,
1997 1996
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $22,309 $18,851
Depreciation 8,641 7,790
Deferred income taxes and investment
tax credits 923 (5,075)
31,873 21,566
Change in operating assets and
liabilities (9,428) 11,545
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 22,445 33,111
INVESTING ACTIVITIES
Capital expenditures (3,974) (3,837)
Proceeds from (costs of) disposition of
property, plant and equipment 596 (4)
NET CASH USED IN INVESTING
ACTIVITIES (3,378) (3,841)
FINANCING ACTIVITIES
Decrease in notes payable
to Questar Corporation (17,500) (29,000)
Redemption of preferred stock (20)
Checks outstanding in excess of
cash balances 2,924 3,613
Payment of dividends (6,346) (5,349)
NET CASH USED IN FINANCING
ACTIVITIES (20,942) (30,736)
DECREASE IN CASH AND
SHORT-TERM INVESTMENTS ($1,875) ($1,466)
</TABLE>
See note to financial statements
<PAGE>
MOUNTAIN FUEL SUPPLY COMPANY
NOTE TO CONDENSED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
Note 1 - 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, 1997, are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1997. 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, 1996.
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
MOUNTAIN FUEL SUPPLY COMPANY
March 31, 1997
(Unaudited)
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,
1997 1996 1997 1996
(Dollars In Thousands)
<S> <C> <C> <C>
FINANCIAL RESULTS
Revenues
From unaffiliated customers $174,222 $144,567 $398,560 $363,502
From affiliates 1,091 336 3,778 3,355
Total revenues 175,313 144,903 402,338 366,857
Natural gas purchases 97,211 75,465 204,146 184,726
Revenues less natural gas purchases $78,102 $69,438 $198,192 $182,131
Operating income $40,022 $33,797 $62,263 $53,042
Net income 22,309 18,851 32,446 29,458
OPERATING STATISTICS
Natural gas volumes (in thousands of
decatherms)
Residential and commercial sales 36,405 34,417 82,832 78,789
Industrial sales 2,902 2,494 8,992 8,519
Transportation for industrial
customers 12,952 13,729 48,722 55,689
Total deliveries 52,259 50,640 140,546 142,997
Natural gas revenue (per decatherm)
Residential and commercial $4.47 $3.93 $4.30 $4.11
Industrial sales 2.37 2.14 2.21 2.30
Transportation for industrial
customers 0.14 0.11 0.13 0.11
Heating degree days
Actual 2,455 2,596 5,166 5,426
Normal 2,743 2,743 5,801 5,801
Warmer than normal 10% 5% 11% 6%
Number of customers at end of
period 623,184 597,234
</TABLE>
Revenues, less natural gas purchases, were $8,664,000 higher in the
first quarter of 1997 and $16,061,000 higher in the 12-month period
ended March 31, 1997 when compared with the respective periods in
1996. The higher net revenues resulted from an increase in customers
served and in usage per customer, and the effect of a
weather-normalization adjustment mechanism.
The number of customers served reached 623,184 at March 31, 1997.
This represents a 4.3% increase from a year earlier. Temperature
adjusted usage per customer was 4% higher in the 12-month
period ended March 31, 1997 when compared with the same period a
year ago.
Temperatures, as measured in degree days, were warmer than normal in
the 1997 periods and warmer than the 1996 periods. However,
Mountain Fuel's rates include a weather-normalization adjustment
that reduces the revenue impact of weather fluctuations. Virtually
all of Mountain Fuel's residential and commercial volumes were
covered under the weather-normalization adjustment in the first
quarter of 1997 compared with about half of these volumes in the
1996 first quarter.
The Company agreed to a negotiated annual rate reduction of $2.8
million of revenues in Utah that went into effect February 18, 1997.
The rate reduction decreased block rates, eliminated the
new-premises fee for multifamily dwellings and reduced the
capacity-release revenues retained by Mountain Fuel from 20% to 10%.
In other rate matters, the Company currently intends to file a
gas-merchant unbundling proposal in Wyoming during 1997. Under this
proposal, transportation would be extended to residential and
commercial customers as well as industrial customers. Customers
choosing transportation service would be allowed to secure gas
supplies directly from producers and marketers and pay the Company a
fee for transportation service. The Company expects that the
opportunity to provide unbundled service in Wyoming in its
anticipated form will not have a material effect on earnings.
Mountain Fuel will maintain its current structure in Utah until
competition or opportunities require change. At March 31, 1997, the
Company served 21,348 customers in the state of Wyoming representing
3% of the total number of customers served by Mountain Fuel.
Volumes delivered to industrial customers decreased 2% in the first
quarter of 1997 when compared with the same quarter of 1996 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 purchases were higher in the 3- and
12-month periods of 1997 compared with the same periods of 1996 due
to the increase in volumes sold and a higher natural gas purchase
cost allowed in rates. The higher gas purchase cost reflects
natural gas prices which increased sharply during the 1996-1997
winter heating season. Mountain Fuel's rates include the recovery
of gas cost which amounted to $1.54 per decatherm (dth) in 1997
compared with $1.04 per dth in 1996. Mountain Fuel intends to file
gas-cost pass-through requests in Wyoming and Utah during the last
half of May and the first half of June with an effective date of
July 1, 1997. The Company routinely files for adjustment of
purchased-gas costs with both states on a semiannual basis.
Operating and maintenance expenses were 8% higher in the first
quarter of 1997 and 5% higher in the 12-month period ended March 31,
1997 when compared with the same periods in 1996 because of costs
associated with serving more customers, inflation and writing-off
obsolete inventory. The escalation of operating costs was somewhat
mitigated by cost-containment effects of consolidating certain
administrative, marketing, financial, technical and related services
under Questar Regulated Services Co. These services were previously
staffed and performed within each of Mountain Fuel and its
affiliated company, Questar Pipeline. Depreciation expense was
higher in the 3- and 12-month periods of 1997 when compared to the
same periods in the prior year primarily as a result of increased
investment in property, plant and equipment.
The effective income tax rate was 38.7% in the first quarter of 1997
compared with 37.6% in the first quarter of 1996. The Company
recognized $608,000 of tight-sands gas-production credits in the
1997 period and $937,000 in the 1996 period.
Liquidity and Capital Resources
Operating Activities:
Net cash provided from operating activities of $22,445,000 was
$10,666,000 less than was generated in the same period of 1996. An
increase in cash flow from higher earnings and non-cash deferred
income taxes was more than offset by a use of cash flow in operating
assets and liabilities. Gas purchase costs were under-collected in
the 1997 quarter in contrast to an over-collection in the 1996
quarter resulting in a decrease in year-to-year cash flow of
$17,731,000. Timing differences in the collection of receivables,
withdrawal of gas from storage and the payment of current
liabilities account for the remainder of the changes in cash flow in
1997 compared with 1996.
Investing Activities:
Capital expenditures were $3,974,000 in the first three months of
1997 compared with $3,837,000 in the corresponding 1996 period.
Capital expenditures for calendar year 1997 are estimated at
$64,000,000.
Financing Activities:
The Company has a short-term borrowing arrangement with its parent
company, Questar Corporation. As of March 31, Mountain Fuel had loan
balances outstanding of $58,700,000 at 1997 and $27,100,000 in 1996
payable to Questar. Financing activities in the first quarters of
1997 and 1996 included payment of dividends and a partial repayment
of loans from Questar using net cash provided from operations.
Capital expenditures for 1997 will be financed with net cash flow
provided from operating activities, the issuance of long-term debt
and borrowings from Questar.
PART II
OTHER INFORMATION
Item 5. Other Information.
Mountain Fuel Supply Company (Mountain Fuel or the Company)
currently intends to file an application with the Public Service
Commission of Wyoming (the PSCW) during 1997, seeking permission to
offer transportation service to residential and commercial customers.
Customers choosing transportation service would be allowed to secure gas
supplies directly from producers or marketers and pay the Company for
transportation service. (Transportation service is already available to
Mountain Fuel's industrial customers.) The Company currently has
approximately 21,350 residential and commercial customers in
southwestern Wyoming.
KN Energy, Inc., has already offered unbundled services to some of
its residential and commercial customers in Wyoming. Consequently,
Mountain Fuel expects that the PSCW will grant the necessary regulatory
approvals. The Company also expects that extending transportation
service to residential and commercial customers will not have a material
impact on its earnings.
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, 1997 /s/D. N. Rose
(Date) D. N. Rose
President and Chief
Executive Officer
May 12, 1997 /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. Statements of Income and Balance Sheets
for the period ended March 31, 1997, 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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 79,441
<ALLOWANCES> 0
<INVENTORY> 8,154
<CURRENT-ASSETS> 120,579
<PP&E> 827,208
<DEPRECIATION> 333,171
<TOTAL-ASSETS> 635,352
<CURRENT-LIABILITIES> 130,183
<BONDS> 175,000
4,808
0
<COMMON> 22,974
<OTHER-SE> 209,231
<TOTAL-LIABILITY-AND-EQUITY> 635,352
<SALES> 0
<TOTAL-REVENUES> 175,313
<CGS> 0
<TOTAL-COSTS> 124,615
<OTHER-EXPENSES> 10,676
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,342
<INCOME-PRETAX> 36,403
<INCOME-TAX> 14,094
<INCOME-CONTINUING> 22,309
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,309
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
