-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ERNHmhRTDyXVcJwkXQ4UgAbpQSJLmd8e08s+2PiRl4IWwPEIJrlTKceuXU4K0J5H ozL9PToJ6C6GGAzE/xcNuA== 0000068589-97-000020.txt : 19971117 0000068589-97-000020.hdr.sgml : 19971117 ACCESSION NUMBER: 0000068589-97-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOUNTAIN FUEL SUPPLY CO CENTRAL INDEX KEY: 0000068589 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 870155877 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-55866 FILM NUMBER: 97718232 BUSINESS ADDRESS: STREET 1: 180 E FIRST SOUTH ST STREET 2: PO BOX 11368 CITY: SALT LAKE CITY STATE: UT ZIP: 84147 BUSINESS PHONE: 8015345555 MAIL ADDRESS: STREET 1: 180 EAST FIRST SOUTH ST STREET 2: P O BOX 11150 CITY: SALT LAKE CITY STATE: UT ZIP: 84147 10-Q 1 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, 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 100 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, 1997 Common Stock, $2.50 par value 9,189,626 shares Registrant meets the conditions set forth in General Instruction H(a)(1) and (b) of Form 10-Q and is filing this Form 10-Q with the reduced disclosure format. PART I FINANCIAL INFORMATION Item 1. Financial Statements MOUNTAIN FUEL SUPPLY COMPANY STATEMENTS OF INCOME (Unaudited) 3 Months Ended 9 Months Ended 12 Months Ended September 30, September 30, September 30, 1997 1996 1997 1996 1997 1996 (In Thousands) REVENUES $47,479 $42,197 $286,115 $245,027 $413,016 $359,854 OPERATING EXPENSES Natural gas purchases 21,716 16,559 148,596 117,168 213,828 175,975 Operating and maintenance 23,103 22,600 76,309 71,767 101,652 93,818 Depreciation 7,189 6,445 22,491 20,388 30,412 27,213 Other taxes 2,085 1,434 7,374 7,285 8,160 8,504 TOTAL OPERATING EXPENSES 54,093 47,038 254,770 216,608 354,052 305,510 OPERATING INCOME (LOSS) (6,614) (4,841) 31,345 28,419 58,964 54,344 INTEREST AND OTHER INCOME 902 608 2,641 3,207 2,467 3,866 DEBT EXPENSE (4,886) (4,087) (13,693) (12,260) (18,070) (16,683) INCOME (LOSS) BEFORE INCOME TAXES (10,598) (8,320) 20,293 19,366 43,361 41,527 INCOME TAXES (CREDITS) (4,824) (3,873) 6,361 5,579 14,228 12,360 NET INCOME (LOSS) ($5,774) ($4,447) $13,932 $13,787 $29,133 $29,167
See notes to financial statements MOUNTAIN FUEL SUPPLY COMPANY CONDENSED BALANCE SHEETS (Unaudited)
September 30, December 31, 1997 1996 1996 (In Thousands) ASSETS Current assets Cash and short-term investments $1,875 Accounts receivable $23,112 $21,880 63,171 Inventories 19,253 17,898 15,295 Purchased-gas adjustments 59,487 13,206 24,210 Other current assets 3,644 3,889 4,511 Total current assets 105,496 56,873 109,062 Property, plant and equipment 858,741 806,363 825,121 Less allowances for depreciation 346,947 319,183 325,821 Net property, plant and equipment 511,794 487,180 499,300 Other assets 19,471 21,126 22,707 $636,761 $565,179 $631,069 LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities Checks outstanding in excess of cash balances $1,174 $606 Notes payable to Questar Corporation 73,100 54,300 $76,200 Accounts payable and accrued expenses 37,188 30,737 66,558 Total current liabilities 111,462 85,643 142,758 Long-term debt 207,000 175,000 175,000 Other liabilities 10,756 16,072 10,930 Deferred income taxes and investment tax credits 94,859 77,237 81,311 Redeemable cumulative preferred stock 4,840 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 147,835 141,538 151,393 Total common shareholder's equity 212,684 206,387 216,242 $636,761 $565,179 $631,069
See notes to financial statements MOUNTAIN FUEL SUPPLY COMPANY CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
9 Months Ended September 30, 1997 1996 (In Thousands) OPERATING ACTIVITIES Net income $13,932 $13,787 Depreciation 24,452 22,507 Deferred income taxes and investment tax credits 13,548 8,689 51,932 44,983 Change in operating assets and liabilities (24,617) (1,253) NET CASH PROVIDED FROM OPERATING ACTIVITIES 27,315 43,730 INVESTING ACTIVITIES Capital expenditures (39,473) (30,908) Proceeds from disposition of property, plant and equipment 2,527 3,068 NET CASH USED IN INVESTING ACTIVITIES (36,946) (27,840) FINANCING ACTIVITIES Checks outstanding in excess of cash balances 1,174 606 Decrease in notes payable to Questar Corporation (3,100) (1,800) Redemption of preferred stock (4,876) (117) Issuance of long-term debt 32,000 Payment of dividends (17,442) (16,045) NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES 7,756 (17,356) DECREASE IN CASH AND SHORT-TERM INVESTMENTS ($1,875) ($1,466)
See notes to financial statements MOUNTAIN FUEL SUPPLY COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS September 30, 1997 (Unaudited) Note 1 - Basis of Presentation The interim financial statements 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, 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. Note 2 - Redemption of Preferred Stock Mountain Fuel redeemed its 8% series of preferred stock July 1, 1997, at a redemption price equal to 101% of the principal amount. The Company had 48,081 shares outstanding with a par value of $4,808,000 at the time of the transaction. Note 3 - Financing Mountain Fuel filed a registration statement with the Securities and Exchange Commission for the issuance of up to $75 million in medium-term notes. The registration statement became effective July 23, 1997. Mountain Fuel issued $32 million of medium-term notes in the third quarter of 1997 and an additional $18 million in October 1997. The notes have a weighted average coupon rate of 6.88% and a weighted average maturity of 16.5 years. Mountain Fuel intends to use the net proceeds from the sale of the notes to finance a portion of its capital expenditures and repay a portion of its short-term debt. Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations MOUNTAIN FUEL SUPPLY COMPANY September 30, 1997 (Unaudited) Operating Results Following is a summary of financial and operating information for the Company:
3 Months Ended 9 Months Ended 12 Months Ended September 30, September 30, September 30, 1997 1996 1997 1996 1997 1996 (Dollars In Thousands) FINANCIAL RESULTS Revenues From unaffiliated customers $47,027 $41,451 $283,881 $243,082 $409,704 $357,191 From affiliates 452 746 2,234 1,945 3,312 2,663 Total revenues 47,479 42,197 286,115 245,027 413,016 359,854 Natural gas purchases 21,716 16,559 148,596 117,168 213,828 175,975 Revenues less natural gas purchases $25,763 $25,638 $137,519 $127,859 $199,188 $183,879 Operating income (loss) ($6,614) ($4,841) $31,345 $28,419 $58,964 $54,344 Net income (loss) ($5,774) ($4,447) $13,932 $13,787 $29,133 $29,167 OPERATING STATISTICS Natural gas volumes (in thousands of decatherms) Residential and commercial sales 6,799 7,575 55,361 53,983 82,222 77,594 Industrial sales 1,743 1,569 6,749 5,921 9,412 8,142 Transportation for industrial customers 12,390 12,391 36,967 37,166 49,300 51,589 Total deliveries 20,932 21,535 99,077 97,070 140,934 137,325 Natural gas revenue (per decatherm) Residential and commercial $5.24 $4.29 $4.53 $3.98 $4.44 $4.08 Industrial sales 2.69 2.14 2.43 2.14 2.35 2.19 Transportation for industrial customers 0.13 0.12 0.13 0.12 0.13 0.11 Heating degree days Actual 82 144 3,215 3,357 5,165 5,215 Normal 110 110 3,594 3,594 5,801 5,801 Colder (warmer) than normal (25%) 31% (11%) (7%) (11%) (10%) Number of customers at September 30, 626,653 603,647
Revenues, less natural gas purchases, were $125,000 higher in the third quarter of 1997 and $9,660,000 higher in the nine-month period ended September 30, 1997 when compared with the respective periods in 1996. The higher net revenues resulted from the effect of a weather-normalization adjustment mechanism and an increase in the number of customers served and were partially offset by a 1997 rate reduction. Mountain Fuel's rates include a weather-normalization adjustment that normalizes 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 nine months of 1997 compared with about 50% of these volumes in the first nine months of 1996. The number of customers served by the Company reached 626,653 at September 30, 1997, representing a 3.8 % increase from a year earlier. The Company agreed to a negotiated annual rate reduction of $2.85 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 the fourth quarter of 1997. Under this proposal, a transportation service option 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 services. Mountain Fuel will continue to offer a traditional bundled service as well. The Company expects that the option of unbundled service in Wyoming, in its anticipated form, will not have a material effect on earnings. Mountain Fuel does not anticipate changes to its current structure in Utah until competition or opportunities require change. At September 30, 1997, the Company served 21,309 customers in the state of Wyoming amounting to 3% of the total number of customers served by Mountain Fuel. Volumes delivered to industrial customers were slightly higher in the first nine months of 1997 when compared with the same period of 1996. 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-, 9- and 12-month periods of 1997 when compared with the same periods of 1996 due to a higher natural gas-cost component allowed in rates and an increase in volumes sold. The gas-cost component of Mountain Fuel's Utah rates increased to $1.90 per decatherm (dth) July 1, 1997 compared with $1.08 per dth in 1996. These higher rates resulted from sharply increased natural gas prices during the 1996-1997 heating season. In addition to the gas-cost rate increase approved in July 1997, the Public Service Commission of Utah (PSCU) approved on an interim basis, a $34 million annual increase in Utah natural gas rates effective October 22, 1997. The rate increase is to allow recovery of purchased-gas costs. The gas-cost component in rates after this filing was increased to $2.27 per dth. The Public Service Commission of Wyoming approved a $1.8 million annual increase effective July 1, 1997 and a $1.4 million increase effective October 27, 1997. The Company has a purchased-gas cost adjustment mechanism whereby purchased-gas costs that are different from those provided for in present rates are accumulated and recovered or credited through future rate changes. The Company routinely files for adjustment of purchased-gas costs with Utah and Wyoming on a semiannual basis. The PSCU approved a purchased gas-cost recovery application on an interim basis, effective January 1, 1996. In connection with the application and pass-through cases filed since then, the Utah Division of Public Utilities (Division) has raised issues about the reasonableness of gas-gathering costs for Mountain Fuel-owned gas gathered by Questar Gas Management. After extensive discussions with the Division, it appears that the gathering costs issues have been resolved prospectively. The key issue remaining is whether the reduction in gathering costs should be applied retroactively to March 1996, the costs in question could amount to approximately $6 million. The Division has not formally requested the PSCU to disallow any portion of gas-gathering costs. The Company's management believes that its gathering costs are reasonable and in compliance with contract terms and applicable laws. The Company cannot predict the resolution of this dispute or any financial impact of such resolution on its balance sheet, income statement, or cash flows at the current time. The Company's subsequent applications for pass through of gas costs were also approved on an interim basis. Operating and maintenance expenses were higher in the 3-, 9- and 12-month periods ended September 30, 1997 when compared with the same periods in 1996 because of increased costs associated with serving more customers, inflation and operating and enhancing new information technology systems. 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., which wholly owns Mountain Fuel. These services were previously staffed and performed separately by Mountain Fuel and its affiliated company, Questar Pipeline. Depreciation expense was higher in the 1997 periods primarily as a result of increased investment in property, plant and equipment and estimated shorter useful lives for computer software and equipment. Interest and other income was lower in the 9- and 12-month periods of 1997 when compared with the same periods of 1996 primarily due to a sale of facilities in the second quarter of 1996 that netted a $1.2 million gain before income taxes. Debt expense was higher in the 1997 periods due primarily to an increase in debt balances, including the recent issues of medium-term notes. The effective income tax rate was 31.3% in the first nine months of 1997 compared with 28.8% in the same time period of 1996. The Company recognized $2,007,000 of tight-sands gas-production credits in the 1997 period down from $2,456,000 in the 1996 period. Liquidity and Capital Resources Operating Activities Net cash provided from operating activities of $27,315,000 was $16,415,000 less than was generated in the same period of 1996. An increase in cash flow from higher earnings and non-cash deferred income tax expense was more than offset by an under-collection of gas costs in rates and timing differences in the withdrawal of gas from underground storage. Investing Activities Capital expenditures amounted to $39,473,000 in the first nine months of 1997 compared with $30,908,000 in the corresponding 1996 period. Capital expenditures for calendar year 1997 are estimated at $61,700,000. Financing Activities The Company has a short-term borrowing arrangement with Questar Corporation. As of September 30, Mountain Fuel had loan balances outstanding of $73,100,000 in 1997 and $54,300,000 in 1996 payable to Questar. Financing activities in the first nine months of 1997 and 1996 included payment of dividends and a partial repayment of loans from Questar using net cash provided from operations. Also in the third quarter of 1997, the Company issued $32 million of medium-term notes and redeemed $4.8 million of preferred stock. The Company issued an additional $18 million of notes in October of 1997. Capital expenditures for 1997 will be financed with net cash flow provided from operating activities, the issuance of medium-term debt and borrowings from Questar. This 10-Q contains forward-looking statements about the future operations and expectations of Mountain Fuel. According to management, these statements are made in good faith and are reasonable representations of the Company's expected performance at the time. Actual results may vary from management's stated expectations and projections due to a variety of factors. PART II OTHER INFORMATION Item 5. Other Information. a. On October 8, 1997, Mountain Fuel Supply Company (Mountain Fuel or the Company) filed an application with the Public Service Commission of Utah (PSCU), seeking an interim adjustment to the commodity portion of its natural gas rates. The Company, in its application, noted that the cost of purchased gas supplies was projected to be higher than expected when it made its semi-annual application in June of 1997 and requested approval to reflect annualized gas costs of $259,153,092 in its rates. The gas costs represent a revenue increase of approximately $34 million and result in approximately 7.75 percent higher rates for residential customers. By an interim order dated October 24, 1997, the PSCU authorized Mountain Fuel to collect the requested increase. b. The Company filed a similar application with the Public Service Commission of Wyoming (PSCW) on October 15, 1997. In this application, Mountain Fuel sought approval to reflect $10,101,400 in annualized gas costs, representing a revenue increase of approximately $1.4 million. The PSCW authorized the Company to collect the requested increase in rates effective October 27, 1997. c. On November 4, 1997, the PSCU held a prehearing in conjunction with some issues from the Company's pending pass-through cases. The primary issue involves the treatment of Mountain Fuel's costs for gathering services provided by Questar Gas Management Company (Questar Gas Management), an affiliate. Questar Gas Management provides gathering services for the Company under a 1993 agreement that was transferred to it from Questar Pipeline Company, an affiliated interstate pipeline. This agreement specified that contract rates would be redetermined as of September 1, 1997. The new rates for gathering services are lower than the rates charged prior to September 1997. The Division of Public Utilities, a state agency, claims that the reduction should be extended retroactively to March of 1996, when Questar Pipeline transferred the gathering assets and agreement to Questar Gas Management. Mountain Fuel's management believes that its gathering costs are reasonable and intends to vigorously defend its position that the contract rates should not be retroactively reduced. The Company anticipates that the issue will go to public hearings. d. The Company still intends to file an unbundling proposal with the PSCW prior to the end of the year, seeking permission to offer a transportation option to residential and commercial customers. Customers choosing transportation service would be allowed to secure gas supplies directly from producers and marketers and pay Mountain Fuel for transportation service. (Transportation service is already available to Mountain Fuel's industrial customers.) The Company would continue to offer bundled sales service to its residential and commercial customers and expects that a majority of its 21,309 core customers in southwestern Wyoming would continue to choose sales service. Item 6. Exhibits and Reports on Form 8-K. a. The following exhibit has been filed as part of this report: Exhibit No.Exhibit 12. Ratio of Earnings to Fixed Charges. 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 13, 1997 /s/S. E. Parks (Date) S. E. Parks Vice President, Treasurer and Chief Financial Officer (Duly authorized officer and principal financial officer.) EX-12 2 Exhibit No. 12. Mountain Fuel Supply Company Ratio of Earnings to Fixed Charges
12 Months Ended September 30, 1996 1997 (Dollars in Thousands) Earnings Income before income taxes $41,527 $43,361 Plus debt expense 16,683 18,070 Plus allowance for borrowed funds used during construction 251 303 Plus interest portion of rental expense 224 156 $58,685 $61,890 Fixed Charges Debt expense $16,683 $18,070 Plus allowance for borrowed funds used during construction 251 303 Plus interest portion of rental expense 224 156 $17,158 $18,529 Ratio of Earnings to Fixed Charges 3.42 3.34
EX-27 3
5 The following schedule contains summarized financial information extracted from the Mountain Fuel Supply Company Statements of Income and Balance Sheet for the period ended September 30, 1997, and is qualified in its entirety by reference to such unaudited statements. 1,000 9-MOS DEC-31-1996 SEP-30-1997 0 0 23,112 0 19,253 105,496 858,741 346,947 636,761 111,462 207,000 0 0 22,974 189,710 636,761 0 286,115 0 224,905 29,865 0 13,693 20,293 6,361 13,932 0 0 0 13,932 0 0
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