1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1996
-----------------
Commission File No. 0-234
-----
MOBILE GAS SERVICE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Alabama 63-0142930
------------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2828 Dauphin Street, Mobile, Alabama 36606
-----------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 334-476-2720
---------------
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.
Common stock ($2.50 par value) outstanding at January 31, 1997 - 3,227,880
shares.
2
MOBILE GAS SERVICE CORPORATION
INDEX
Page No.
--------
PART I. Financial Information:
Consolidated Balance Sheets - December 31,
1996 and 1995 and September 30, 1996 3 - 4
Consolidated Statements of Income - Three and
Twelve Months Ended December 31, 1996 and 1995 5
Consolidated Statements of Retained Earnings -
Three and Twelve Months Ended December 31, 1996
and 1995 6
Consolidated Statements of Cash Flows - Three
Months Ended December 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 10
PART II. Other Information 11
Exhibit Index 12
2
3
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, September 30,
Assets 1996 1995 1996
---------------------- -------------
(Unaudited)
Property, Plant, and Equipment $ 154,032 $ 146,579 $ 153,000
Less Accumulated Depreciation and Amortization 37,338 33,090 36,099
--------- --------- ---------
Property, Plant, and Equipment in Service - Net 116,694 113,489 116,901
Construction Work in Progress 3,604 1,223 2,579
--------- --------- ---------
Total Property, Plant, and Equipment 120,298 114,712 119,480
--------- --------- ---------
Current Assets:
Cash and Cash Equivalents 3,722 1,548 12,030
Receivables:
Gas 6,819 6,038 3,151
Merchandise 1,659 1,468 1,530
Other 941 225 566
Allowance for Doubtful Accounts (502) (331) (349)
Materials, Supplies, and Merchandise 1,107 1,045 1,163
Gas Stored Underground 1,875 1,094 1,951
Deferred Gas Costs 1,584 1,335 186
Deferred Income Taxes 1,316 3,146 2,063
Prepayments 2,020 1,292 1,847
--------- --------- ---------
Total Current Assets 20,541 16,860 24,138
--------- --------- ---------
Regulatory Assets 1,310 1,738 1,367
--------- --------- ---------
Merchandise Receivables Due After One Year 5,998 5,448 5,670
--------- --------- ---------
Deferred Charges 1,537 1,701 1,463
--------- --------- ---------
Total $ 149,684 $ 140,459 $ 152,118
========= ========= =========
See Accompanying Notes to Consolidated Financial Statements.
3
4
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Data)
December 31, September 30,
Capitalization and Liabilities 1996 1995 1996
----------------------- -------------
(Unaudited)
Capitalization:
Stockholders' Equity
Common Stock, $2.50 Par Value
(Authorized 4,000,000 Shares;
Outstanding: December 1996 -
3,225,000 Shares; December 1995 -
3,213,000 Shares; September 1996 -
3,222,000 Shares) $ 8,064 $ 8,033 $ 8,055
Capital in Excess of Par Value 9,419 9,166 9,341
Retained Earnings 34,139 28,849 33,004
---------- ---------- ----------
Total Stockholders' Equity 51,622 46,048 50,400
Minority Interest 2,722 2,240 2,451
Long-Term Debt (Less Current Maturities) 65,274 56,129 54,509
---------- ---------- ----------
Total Capitalization 119,618 104,417 107,360
---------- ---------- ----------
Current Liabilities:
Current Maturities of Long-Term Debt 2,105 2,003 2,818
Notes Payable 3,600 15,000
Accounts Payable 5,329 4,005 3,687
Dividends Declared 903 867 902
Customer Deposits 1,550 1,495 1,549
Taxes Accrued 2,517 2,348 3,075
Interest Accrued 1,556 1,537 1,641
Deferred Purchased Gas Adjustment 5,889 638
Other Liabilities 2,329 2,241 2,380
---------- ---------- ----------
Total Current Liabilities 16,289 23,985 31,690
---------- ---------- ----------
Accrued Pension Cost 1,814 1,672 1,778
Accrued Postretirement Benefit Cost 1,337 1,510 1,312
Deferred Income Taxes 10,163 8,385 9,508
Deferred Investment Tax Credits 463 490 470
---------- ---------- ----------
Total $ 149,684 $ 140,459 $ 152,118
========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements.
4
5
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Data)
Three Months Twelve Months
Ended December 31, Ended December 31,
---------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Operating Revenues
Gas Revenues $ 16,942 $ 15,933 $ 69,343 $ 59,321
Merchandise Sales and Jobbing 1,019 883 3,177 2,835
--------- --------- --------- ---------
Total Operating Revenues 17,961 16,816 72,520 62,156
--------- --------- --------- ---------
Operating Expenses
Cost of Gas 5,248 4,739 20,061 19,203
Cost of Merchandise and Jobbing 746 668 2,421 2,087
Operations 4,391 4,211 18,281 16,027
Maintenance 435 397 1,983 1,443
Depreciation 1,451 1,354 5,503 5,143
Taxes, Other Than Income Taxes 1,151 1,332 5,393 4,941
--------- --------- --------- ---------
Total Operating Expenses 13,422 12,701 53,642 48,844
--------- --------- --------- ---------
Operating Income 4,539 4,115 18,878 13,312
--------- --------- --------- ---------
Other Income and (Expense)
Interest Expense (1,401) (1,353) (5,349) (5,497)
Allowance for Borrowed Funds Used
During Construction 37 3 69 41
Interest Income 231 193 925 469
Minority Interest (143) (95) (479) (323)
--------- --------- --------- ---------
Total Other Income (Expense) (1,276) (1,252) (4,834) (5,310)
--------- --------- --------- ---------
Income Before Income Taxes 3,263 2,863 14,044 8,002
--------- --------- --------- ---------
Income Taxes 1,225 1,059 5,179 2,910
--------- --------- --------- ---------
Net Income $ 2,038 $ 1,804 $ 8,865 $ 5,092
========= ========= ========= =========
Earnings Per Share of Common Stock $ 0.63 $ 0.56 $ 2.74 $ 1.59
========= ========= ========= =========
Cash Dividends Per Share of Common Stock $ 0.28 $ 0.27 $ 1.11 $ 1.07
========= ========= ========= =========
Average Common Shares Outstanding 3,241 3,213 3,231 3,210
========= ========= ========= =========
See Accompanying Notes to Consolidated Financial Statements.
5
6
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
(In Thousands)
Three Months Twelve Months
Ended December 31, Ended December 31,
--------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Balance at Beginning of Period $ 33,004 $ 27,912 $ 28,849 $ 27,191
Net Income 2,038 1,804 8,865 5,092
--------- --------- --------- ---------
Total 35,042 29,716 37,714 32,283
Less: Dividends 903 867 3,575 3,434
--------- --------- --------- ---------
Balance at End of Period $ 34,139 $ 28,849 $ 34,139 $ 28,849
========= ========= ========= =========
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
(In Thousands)
Three Months
Ended December 31,
----------------------
1996 1995
--------- ---------
Cash Flows (Used) Provided by Operating Activities $ (231) $ 1,660
--------- ---------
Cash Flows Used In Investing Activities-
Capital Expenditures (2,312) (1,201)
--------- ---------
Cash Flows From Financing Activities:
Repayment of Long-Term Debt (1,948) (915)
Proceeds From Issuance of Long-Term Debt 12,000
Changes in Short-Term Borrowings (15,000) 1,800
Payment of Dividends, Net of Dividend Reinvestment (817) (819)
--------- ---------
Net Cash (Used) Provided by Financing Activities (5,765) 66
--------- ---------
Net (Decrease) Increase in Cash and Cash Equivalents (8,308) 525
--------- ---------
Cash & Cash Equivalents at Beginning of Period 12,030 1,023
--------- ---------
Cash & Cash Equivalents at End of Period $ 3,722 $ 1,548
========= =========
See Accompanying Notes to Consolidated Financial Statements.
6
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The consolidated financial statements include the accounts of
Mobile Gas Service Corporation, its wholly-owned subsidiaries, MGS Energy
Services, Inc., MGS Storage Services, Inc., MGS Marketing Services, Inc., its
87.5% owned partnership, Bay Gas Storage Company, Ltd. (Bay Gas), and its 51%
owned partnership, Southern Gas Transmission Company (collectively the
"Company"). Minority interest represents the respective other owner's
proportionate share of the equity of Bay Gas and Southern Gas Transmission
Company. All significant intercompany balances and transactions have been
eliminated.
Note 2. The Company issued $12,000,000 of 7.27% First Mortgage bonds on
November 26, 1996. The bonds mature beginning November 1, 2000 and ending
November 1, 2006.
Note 3. At the Annual Meeting of Stockholders held on January 31, 1997,
stockholders approved a proposed amendment to the Restated Articles of
Incorporation of the Company to increase the authorized number of shares of
common stock of the Company to eight million and to reduce the par value of
such common stock from $2.50 per share to $.01 per share. The effect of this
change on the Company's financial sttements at January 31, 1997 is a reduction
in the Common Stock Par Value of $8,037,421 and an increase in the Capital in
Excess of Par Value of the same amount.
Note 4. Due to the high percentage of customers using gas for heating,
the Company's operations are seasonal in nature. Therefore, the results of
operations for the three month periods ended December 31, 1996 and 1995 are not
indicative of the results to be expected for the full year.
Note 5. The accompanying unaudited condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. All adjustments,
consisting of normal and recurring accruals, which are, in the opinion of
management, necessary to present fairly the results for the interim periods
have been made and are of a recurring nature. The statements should be read in
conjunction with the summary of accounting policies and notes to financial
statements included in the Company's annual report on Form 10-K for the fiscal
year ended September 30, 1996.
7
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Mobile Gas Service Corporation (Mobile Gas), an investor owned natural gas
utility incorporated under the laws of the State of Alabama, is engaged
principally in the distribution of natural gas to customers in southwest
Alabama. Mobile Gas serves over 100,000 residential, commercial, and
industrial customers. Gas deliveries to these customers are regulated by the
Alabama Public Service Commission (APSC).
Bay Gas Storage Company, Ltd. (Bay Gas) is a limited partnership in which MGS
Storage Services, Inc., a wholly owned subsidiary of Mobile Gas, is general
partner and 87.5% owner. Bay Gas operates an underground gas storage cavern
which is used to provide storage and delivery of natural gas for Mobile Gas and
other customers. Bay Gas is a separate utility with rates regulated by the
APSC for intrastate contracts. By Federal Energy Regulatory Commission order,
Bay Gas is permitted to charge market-based rates for interstate storage
contracts.
Unregulated operations include the sale and financing of appliances, jobbing
work, and contract and consulting work for utilities and industrial customers.
Financial Condition
The Company relies on funds provided by operations and short-term borrowings to
meet working capital requirements and to finance capital expenditures on a
temporary basis. During the first quarter of fiscal 1997, operating activities
used cash of $231,000 compared to operating activities providing cash of
$1,660,000 for the first quarter of fiscal 1996. The decrease in cash provided
by operating activities is attributed primarily to higher receivables resulting
from increased revenues particularly during the month of December 1996. Net
cash used by financing activities for the fiscal 1997 first quarter was
$5,765,000 compared to financing activities providing cash of $66,000 for the
fiscal 1996 first quarter. Several components of financing activities
contributed to this decrease. The increase in the repayment of long-term debt
is attributed primarily to the Company exercising its option to retire an
additional $750,000 of the 10.25% First Mortgage Bonds. Changes in short-term
borrowings represent the net of borrowings and payments on the Company's
revolving credit agreement. Of the $15,000,000 net pay-down since September
30, 1996, $11,000,000 is related to the maturity of short-term investments
which were purchased with funds drawn on the revolving credit agreement. The
proceeds from the maturity of these investments were applied to the balance
owed on the revolving credit agreement. In order to fund on-going capital
projects, the Company issued $12,000,000 of 7.27% First Mortgage Bonds in
November 1996.
The Company's capital needs are due primarily to its construction program. The
increase in cash flows used in investing activities for the fiscal 1997 first
quarter compared to the fiscal 1996 first quarter is due primarily to the
completion of additional dehydration equipment which more than doubled the
daily withdrawal capacity of Bay Gas' storage facility and to increased
construction activity for an on-going capital project which is adding
facilities to service a large industrial customer by mid-1997. An estimated $10
million in new facilities related to this capital project is under construction
by the Company. At December 31, 1996 $2.2 million had been expended on these
facilities. Capital expenditures related to the Company's other construction
for the remainder of fiscal 1997 are estimated to be $ 5.5 million.
Funds for the Company's working capital and capital needs are expected to come
from cash provided by operations, the November 1996 bond issue, and draws upon
the Company's revolving credit agreement of which $20 million is available at
December 31, 1996. Management believes it has adequate financial flexibility to
meet its expected cash needs in the foreseeable future.
8
9
Results of Operations
Net income for the three months ended December 31, 1996 and 1995 was $2,038,000
or $.63 per share and $1,804,000 or $.56 per share, respectively. Net income
for the twelve months ended December 31, 1996 and 1995 was $8,865,000 or $2.74
per share and $5,092,000 or $1.59 per share, respectively. Earnings per share
for both current year periods reflect the full impact of a general rate
increase which was approved by the APSC and became effective on December 1,
1995. The first quarter increase in earnings per share was offset $.05 per
share due to weather which was 13% warmer than the fiscal 1996 first quarter
and close to normal. Weather during the twelve months ended December 31, 1996
was 27% colder than the prior twelve month period and 20% colder than normal
resulting in a $.47 per share and $.40 per share increase in earnings,
respectively.
The effect of weather will continue to be a factor in comparing earnings per
share to the prior year until the Company has experienced a full year's impact
of utilizing a temperature rate adjustment, which was implemented on November
1, 1996. The temperature rate adjustment is applied to residential and small
commercial customers' gas bills during the months of November through April and
is designed to level out the effects of temperature extremes on Company
earnings by reducing high gas bills to customers in colder than normal weather
and increasing gas revenues received by the Company in warmer than normal
weather. The temperature rate adjustment had a minimal effect on Company
earnings during the first quarter of fiscal 1997 as weather was close to
normal.
Gas revenues increased 6% for the three months ended December 31, 1996 compared
to the same prior year period. The increase in gas revenues is attributed
primarily to two factors: the increase in purchased gas adjustment components
included within customer rates which was in response to increased gas costs
incurred by the Company; and the general rate increase which was in effect for
the entire fiscal 1997 first quarter as compared to one month in the fiscal
1996 first quarter. Other factors affecting growth in gas revenues included
increases in the transported gas volumes and in natural gas storage revenues
resulting from additional firm and interruptible storage contracts. The effects
of warmer weather during the first quarter of fiscal 1997 offset partially the
above impacts as volumes sold to temperature-sensitive customers declined 11%
from the fiscal 1996 first quarter. In addition, the volume of gas sold to
large industrial and commercial customers decreased for the current quarter.
Gas revenues for the twelve months ended December 31, 1996 increased 17%
compared to the corresponding period in fiscal 1996. In addition to the
impacts of the general rate increase, the purchased gas adjustment increase,
and increased transportation and storage revenues during the current twelve-
month period, colder weather resulted in a 12% increase in deliveries to
temperature-sensitive customers.
Merchandise sales and jobbing revenues have increased 15% and 12%,
respectively, for the three and twelve month periods ended December 31, 1996.
Higher unit sales volumes and pricing contributed to increases for both current
year periods.
Cost of gas for the three months ended December 31, 1996 increased 11% although
total volumes of gas sold decreased 14%. The Company's rate tariffs allow a
pass through to customers of the incurred cost of gas. The Company's cost of
gas per MMBtu for the fiscal
9
10
1997 first quarter increased compared to the fiscal 1996 first quarter
resulting in increased billings to customers under the Company's purchased gas
adjustment provision. The increased cost of gas for the twelve months ended
December 31, 1996 is attributed primarily to increased gas volumes resulting
from the colder weather during the current twelve month period as compared to
the prior year period.
The fluctuation in the cost of merchandise and jobbing for both current year
periods is attributed to increased unit sales volume and manufacturers' cost.
Operations and maintenance expense increased 16% for the twelve months ended
December 31, 1996. A variety of factors contributed to this increase. Bay Gas
operations and maintenance expense increased $90,000 in conjunction with
serving new storage customers. For Mobile Gas, certain non-routine maintenance
projects totaling $450,000 were initiated and completed in calendar 1996. Bad
debt expense increased $225,000 primarily due to higher customer bills
resulting from increased usage during the cold 1995-96 heating season.
Overtime expenses during calendar 1996 were $115,000 higher than calendar 1995
due primarily to responding to customer and system needs during the extremely
cold winter of 1996. Expenses in calendar 1996 also rose from increased
advertising, contributions and additional personnel hired in late fiscal 1995
in order to improve responsiveness to customers.
Taxes, other than income taxes, decreased $181,000 for the three months ended
December 31, 1996 compared to the prior year quarter. During the fiscal 1997
first quarter, the State of Alabama approved the Company's claim for refund of a
business license tax. As a result of this approval, the Company recorded a
reduction in other taxes of $246,000 which had been previously recorded.
Interest income increased $456,000 for the twelve month period ending December
31, 1996. Improved cash flow during the current twelve month period provided
the Company more opportunities to invest in short-term financial instruments.
Income tax expense changed primarily in relation to changes in pre-tax income
for the periods ended December 31, 1996.
10
11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
11 Computation of Earnings Per Share
27 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
During the quarter for which this report is filed, there were no
reports on Form 8-K.
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.
MOBILE GAS SERVICE CORPORATION
-------------------------------------
(Registrant)
Date: February 12, 1997 /s/ John S. Davis
------------------------- -------------------------------------
John S. Davis
President and
Chief Executive Officer
Date: February 12, 1997 /s/ Charles P. Huffman
------------------------- -------------------------------------
Charles P. Huffman
Vice President, Chief Financial
Officer, and Treasurer
11
12
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
11 Computation of Earnings Per Share
27 Financial Data Schedule (EDGAR version only)
12