1
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UNITED STATES 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 June 30, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to .
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Commission file number 0-1284-2
UNITED CITIES GAS COMPANY
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(Exact name of registrant as specified in its charter)
Illinois and Virginia 36-1801540
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
5300 Maryland Way, Brentwood, TN 37027
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(Address of principal (Zip Code)
executive offices)
(615) 373-5310
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Registrant's telephone number, including area code
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 preceeding 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.
[X] Yes
[ ] No
At July 31, 1995, 12,571,187 shares of the common stock of the Registrant were
outstanding.
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2
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1995
TABLE OF CONTENTS
ITEM PAGE
NUMBER PART I -- FINANCIAL INFORMATION NUMBER
------ ------
1 Financial Statements:
Consolidated Statements of Income (Unaudited) for the Three, Six
and Twelve Months Ended June 30, 1995 and June 30, 1994. 3
Consolidated Statements of Cash Flows (Unaudited) for the Three,
Six and Twelve Months Ended June 30, 1995 and June 30, 1994 4
Consolidated Balance Sheets at June 30, 1995 (Unaudited) and 5
December 31, 1994.
Consolidated Statements of Capitalization at June 30, 1995
(Unaudited) and December 31, 1994. 6
Notes to Consolidated Financial Statements. 7
2 Management's Discussion and Analysis of Financial Condition
and Results of Operations. 8
PART II -- OTHER INFORMATION
1 Legal Proceedings. 12
4 Submission of Matters to a Vote of Security Holders. 12
6 Exhibits and Reports on Form 8-K. 12
List of Exhibits. 13
Signature 14
3
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
------------------ ---------------- -------------------
(Unaudited, in thousands, except per share amounts) 1995 1994 1995 1994 1995 1994
---- ----- ---- ---- ---- ----
UTILITY OPERATING REVENUES.................................... $42,246 $48,352 $148,252 $172,543 $256,693 $294,646
Natural gas cost........................................... 24,023 30,033 85,945 110,035 148,879 186,375
------- ------- -------- -------- -------- --------
UTILITY OPERATING MARGIN...................................... 18,223 18,319 62,307 62,508 107,814 108,271
------- ------- -------- -------- -------- --------
UTILITY OTHER OPERATING EXPENSES:
Operations and maintenance................................. 14,524 14,754 29,764 29,644 57,423 57,522
Depreciation and amortization.............................. 3,708 3,506 7,372 6,934 14,371 13,621
Federal and state income taxes............................. (2,430) (2,333) 4,448 4,907 3,416 3,227
Other taxes................................................ 2,978 2,498 6,397 5,557 11,579 10,448
------- ------- -------- -------- -------- --------
Total other operating expenses........................... 18,780 18,425 47,981 47,042 86,789 84,818
------- ------- -------- -------- -------- --------
UTILITY OPERATING INCOME (LOSS)............................... (557) (106) 14,326 15,466 21,025 23,453
UTILITY OTHER INCOME (LOSS), NET.............................. 215 (49) 173 (125) 37 232
------- ------- -------- -------- -------- --------
(342) (155) 14,499 15,341 21,062 23,685
------- ------- -------- -------- -------- --------
UTILITY INTEREST CHARGES:
Interest on long-term debt................................. 2,980 3,073 6,017 6,217 12,149 12,567
Other interest charges..................................... 490 216 1,191 490 2,438 2,337
------- ------- -------- -------- -------- --------
Total interest charges................................... 3,470 3,289 7,208 6,707 14,587 14,904
------- ------- -------- -------- -------- --------
UTILITY INCOME (LOSS)......................................... (3,812) (3,444) 7,291 8,634 6,475 8,781
------- ------- -------- -------- -------- --------
OTHER INCOME (LOSS):
Operations of UCG Energy Corporation-
Revenues................................................ 4,444 5,984 16,827 19,726 35,485 40,465
Operating expenses...................................... (4,015) (5,100) (12,777) (14,603) (26,834) (30,639)
Interest expense........................................ (283) (201) (521) (386) (909) (996)
Depreciation and amortization........................... (1,007) (865) (1,991) (1,752) (3,819) (3,590)
Other income, net....................................... 372 178 1,313 328 1,659 688
Federal and state income taxes.......................... 185 2 (1,082) (1,257) (2,119) (2,359)
------- ------- -------- -------- -------- --------
(304) (2) 1,769 2,056 3,463 3,569
------- ------- -------- -------- -------- --------
Operations of United Cities Gas Storage Company-
Revenues................................................ 1,145 1,741 3,028 4,757 5,398 8,805
Operating expenses...................................... (527) (1,205) (1,840) (3,715) (3,076) (6,611)
Interest expense........................................ (275) (237) (506) (488) (966) (979)
Depreciation............................................ (92) (92) (184) (183) (368) (364)
Federal and state income taxes.......................... (97) (81) (193) (145) (384) (358)
------- ------- -------- -------- -------- --------
154 126 305 226 604 493
------- ------- -------- -------- -------- --------
COMMON STOCK EARNINGS (LOSS).................................. $(3,962) $(3,320) $ 9,365 $ 10,916 $ 10,542 $ 12,843
======= ======= ======== ======== ======== ========
COMMON STOCK EARNINGS (LOSS) PER SHARE........................ $ (0.35) $ (0.32) $ 0.86 $ 1.05 $ 0.99 $ 1.25
======= ======= ======== ======== ======== ========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING................... 11,197 10,369 10,937 10,350 10,700 10,309
======= ======= ======== ======== ======== ========
COMMON STOCK DIVIDENDS PER SHARE.............................. $ 0.255 $ 0.25 $ 0.51 $ 0.50 $ 1.015 $ 0.995
======= ======= ======== ======== ======== ========
3
4
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
(Unaudited, in thousands) 1995 1994 1995 1994
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Common stock earnings (loss).................................... $ (3,962) $ (3,320) $ 9,365 $ 10,916
-------- -------- -------- --------
Adjustments to reconcile common stock earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................................. 4,807 4,463 9,547 8,869
Deferred taxes................................................ 7 (72) 13 (144)
Investment tax credits, net................................... (91) (93) (182) (185)
Investment income from Woodward Marketing, L.L.C.............. (155) - (729) -
Changes in current assets and current liabilities:
Receivables................................................. 20,073 27,121 27,111 30,650
Materials and supplies...................................... (124) (471) (363) (399)
Gas in storage.............................................. (7,293) (10,644) 8,445 5,013
Gas costs to be billed in the future........................ (1,901) (1,997) 2,823 (3,069)
Prepayments and other....................................... (1,391) (845) (326) 117
Accounts payable............................................ (845) (5,622) (8,903) (14,224)
Customer deposits and advance payments...................... 6 575 (3,208) (3,352)
Accrued interest............................................ (2,542) (2,574) (339) (1,187)
Supplier refunds due customers.............................. (1,487) (2,787) 4,135 2,800
Accrued taxes............................................... (4,902) (4,258) 428 3,110
Other, net.................................................. (627) (824) (1,926) 521
-------- -------- -------- --------
Total adjustments......................................... 3,535 1,972 36,526 28,520
-------- -------- -------- --------
Net cash provided by (used in) operating activities..... (427) (1,348) 45,891 39,436
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property - utility................................. (8,085) (6,692) (17,798) (14,026)
Additions to property - non-utility............................. (1,219) (851) (2,367) (1,446)
Investment in Woodward Marketing, L.L.C., net................... (1,433) - (1,433) -
-------- -------- -------- --------
Net cash used in investing activities................... (10,737) (7,543) (21,598) (15,472)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings - net..................................... (5,109) 10,620 (33,236) (12,243)
Proceeds from issuance of common stock.......................... 20,400 273 21,710 625
Long-term debt retirements...................................... (835) (1,127) (5,333) (5,678)
Dividends paid.................................................. (2,391) (2,284) (4,758) (4,564)
-------- -------- -------- --------
Net cash provided by (used in) financing activities..... 12,065 7,482 (21,617) (21,860)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS.......... 901 (1,409) 2,676 2,104
CASH AND TEMPORARY INVESTMENTS AT BEGINNING OF PERIOD.............. 4,519 4,311 2,744 798
-------- -------- -------- --------
CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD.................... $ 5,420 $ 2,902 $ 5,420 $ 2,902
======== ======== ======== ========
CASH PAID DURING THE PERIOD FOR:
Interest, net of amounts capitalized............................ $ 6,570 $ 6,301 $ 8,574 $ 8,768
======== ======== ======== ========
Income taxes.................................................... $ 2,901 $ 2,499 $ 5,069 $ 2,862
======== ======== ======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Dividends reinvested............................................ $ 444 $ 308 $ 804 $ 611
======== ======== ======== ========
Debt incurred to acquire assets of Harrell Propane, Inc......... - - $ 1,250 -
======== ======== ======== ========
Common stock issued in investment in Woodward Marketing, L.L.C.. $ 5,000 - $ 5,000 -
======== ======== ======== ========
TWELVE MONTHS ENDED
JUNE 30,
-------------------
(Unaudited, in thousands) 1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Common stock earnings (loss).................................... $ 10,542 $ 12,843
-------- --------
Adjustments to reconcile common stock earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................................. 18,558 17,575
Deferred taxes................................................ 1,458 485
Investment tax credits, net................................... (367) (372)
Investment income from Woodward Marketing, L.L.C.............. (729) -
Changes in current assets and current liabilities:
Receivables................................................. 3,493 (411)
Materials and supplies...................................... 229 175
Gas in storage.............................................. 2,964 (10,799)
Gas costs to be billed in the future........................ (2,019) (5,074)
Prepayments and other....................................... 564 527
Accounts payable............................................ (3,116) 7,384
Customer deposits and advance payments...................... 2,334 1,365
Accrued interest............................................ (264) (399)
Supplier refunds due customers.............................. 2,562 (4,035)
Accrued taxes............................................... (193) 63
Other, net.................................................. (2,038) (2,899)
-------- --------
Total adjustments......................................... 23,436 3,585
-------- --------
Net cash provided by (used in) operating activities..... 33,978 16,428
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property - utility................................. (34,660) (28,227)
Additions to property - non-utility............................. (5,149) (2,892)
Investment in Woodward Marketing, L.L.C., net................... (1,433) -
-------- --------
Net cash used in investing activities................... (41,242) (31,119)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings - net..................................... 2,332 10,620
Proceeds from issuance of common stock.......................... 24,347 1,496
Long-term debt retirements...................................... (7,488) (6,770)
Dividends paid.................................................. (9,409) (9,067)
-------- --------
Net cash provided by (used in) financing activities..... 9,782 (3,721)
-------- --------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS.......... 2,518 (18,412)
CASH AND TEMPORARY INVESTMENTS AT BEGINNING OF PERIOD.............. 2,902 21,314
-------- --------
CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD.................... $ 5,420 $ 2,902
======== ========
CASH PAID DURING THE PERIOD FOR:
Interest, net of amounts capitalized............................ $ 16,726 $ 17,278
======== ========
Income taxes.................................................... $ 5,927 $ 7,779
======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Dividends reinvested............................................ $ 1,447 $ 1,190
======== ========
Debt incurred to acquire assets of Harrell Propane, Inc......... $ 1,250 -
======== ========
Common stock issued in investment in Woodward Marketing, L.L.C.. $ 5,000 -
======== ========
4
5
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
(In thousands) 1995 1994
---- ----
ASSETS (UNAUDITED)
UTILITY PLANT:
Plant in service, at cost................................ $420,220 $403,121
Less-accumulated depreciation.......................... 146,262 139,715
-------- --------
273,958 263,406
-------- --------
NON-UTILITY PROPERTY:
Property, plant, and equipment........................... 74,384 71,222
Less-accumulated depreciation.......................... 23,894 22,272
-------- --------
50,490 48,950
-------- --------
CURRENT ASSETS:
Cash and temporary investments........................... 5,420 2,744
Receivables, less allowance for uncollectible accounts
of $1,070 in 1995 and $1,017 in 1994................... 16,219 43,330
Materials and supplies................................... 5,543 5,180
Gas in storage........................................... 18,006 26,451
Gas costs to be billed in the future..................... 13,134 15,957
Prepayments and other.................................... 2,372 2,046
-------- --------
60,694 95,708
-------- --------
DEFERRED CHARGES:
Unamortized debt discount and expense, net............... 2,649 2,694
Investment in Woodward Marketing, L.L.C. ................ 7,162 -
Non-compete agreements, net.............................. 3,703 3,697
Deferred system improvement costs, net................... 1,119 1,425
Other deferred charges................................... 7,430 5,320
-------- --------
22,063 13,136
-------- --------
$407,205 $421,200
======== ========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock equity...................................... $149,345 $118,028
Long-term debt........................................... 137,637 144,344
-------- --------
286,982 262,372
-------- --------
CURRENT LIABILITIES:
Current portion of long-term obligations................. 8,692 6,068
Notes payable............................................ 12,952 46,188
Accounts payable for gas costs........................... 17,210 26,185
Other accounts payable................................... 3,060 2,988
Accrued taxes............................................ 6,803 6,375
Customer deposits and advance payments................... 10,965 14,173
Accrued interest......................................... 3,006 3,345
Supplier refunds due customers........................... 9,576 5,441
Other.................................................... 8,658 8,993
-------- --------
80,922 119,756
-------- --------
DEFERRED CREDITS:
Accumulated deferred income tax.......................... 24,715 24,572
Deferred investment tax credits.......................... 4,463 4,645
Income taxes due customers............................... 6,185 6,329
Other.................................................... 3,938 3,526
-------- --------
39,301 39,072
-------- --------
$407,205 $421,200
======== ========
5
6
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
JUNE 30, DECEMBER 31,
(In thousands, except share amounts) 1995 1994
----------------- ----------------
COMMON STOCK EQUITY: (UNAUDITED)
Common stock without par value, authorized
40,000,000 shares, outstanding 12,548,476 in
1995 and 10,613,441 in 1994..................................... $ 99,136 $ 71,622
Capital surplus................................................... 22,462 22,462
Retained earnings................................................. 27,747 23,944
-------- --------
Total common stock equity....................................... 149,345 52.0% 118,028 45.0%
-------- ----- -------- -----
LONG-TERM DEBT:
First mortgage bonds ............................................. 125,000 129,000
Senior secured storage term notes, 8.67%, due in
installments through 2007...................................... 10,191 10,436
Rental property adjustable rate term notes due in
installments through 1999...................................... 6,267 6,839
Other long-term obligations due in installments through 2013...... 4,871 4,137
-------- --------
146,329 150,412
Less-current requirements..................................... 8,692 6,068
-------- --------
Total long-term debt, excluding amounts due within one year... 137,637 48.0% 144,344 55.0%
-------- ----- -------- -----
TOTAL CAPITALIZATION.................................................. $286,982 100.0% $262,372 100.0%
======== ===== ======== =====
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7
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited financial statements reflect all
adjustments (which are of a normal recurring nature) that are, in the opinion
of management, necessary for a fair statement of the results for the interim
periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to SEC rules and
regulations. The statements should be read in conjunction with the Summary of
Significant Accounting Policies and Notes to Consolidated Financial Statements
included in the Company's annual report for the year ended December 31, 1994.
The Company's business is seasonal in nature resulting in greater
earnings during the winter months. The results of operations for the three
month and six month periods ended June 30, 1995 are not necessarily indicative
of the results to be expected for the full year.
In June, 1995, the Company entered into a $1,787,000 agreement with
Union Electric Company (Union Electric) whereby Union Electric agreed to assume
responsibility for the Company's continuing investigation and environmental
response action obligations as outlined in the feasibility study related to a
former manufactured gas plant site in Keokuk, Iowa. At June 30, 1995, the
Company had $1,430,000 accrued for its remaining liability related to the
agreement. This amount is to be paid annually over a four year period
beginning July 1, 1996. The Company has deferred the accrued amount and
expects approval for recovery in its next rate proceeding in Iowa.
The Company owns former manufactured gas plant sites in Johnson City
and Bristol, Tennessee and Hannibal, Missouri. The Company is unaware of any
information which suggests that these sites give rise to a present health or
environmental risk as a result of the manufactured gas process or that any
response action will be necessary. However, the Company has accrued and
deferred for recovery $750,000 associated with the preliminary survey and
invasive study of these sites.
Management expects that expenditures related to response action at any
environmental site will be recovered through rates or insurance, or shared
among other potentially responsible parties. Therefore, the costs of
responding to these sites are not expected to materially affect the results of
operations, financial condition or cash flows of the Company.
During the first quarter of 1995, UCG Energy purchased a 45% interest
in certain contracts related to the gas marketing business of Woodward
Marketing, Inc. (WMI), a Texas corporation. In exchange for the acquired
interest, the shareholders of WMI received $5,000,000 in the Company's common
stock and $750,000 in cash in May, 1995, and may, if certain earnings targets
are met, receive an additional payment of $1,000,000 to be paid over a five
year period. In exchange for its own gas marketing contracts and the acquired
45% interest in the WMI gas marketing contracts, UCG Energy received a 45%
interest in a newly formed limited liability company, Woodward Marketing,
L.L.C. (WMLLC). WMI received a 55% interest in WMLLC in exchange for its
remaining 55% interest in the WMI gas marketing contracts. In addition, in
May, 1995, the Company paid a net $683,000 for the Company's share of certain
assets and paid-in-capital of WMLLC. WMLLC will provide gas marketing services
to industrial customers, municipalities and local distribution companies. UCG
Energy utilized equity accounting, effective January 1, 1995, for the
acquisition.
On April 6, 1995, the Company signed a letter of intent to acquire all
the outstanding common stock of Monarch Gas Company (Monarch). The acquisition
will be accounted for as a pooling of interests whereby the number of shares of
the Company's common stock issued will be calculated based on the book value of
Monarch versus the book value of the Company at December 31, 1994. In
addition, the Company will enter into a $250,000, five year non-compete
agreement with the owners of Monarch. Monarch serves approximately 3,000
customers in small communities adjacent to the Company's Vandalia, Illinois
operation. The Company will not restate prior years' consolidated financial
statements due to immateriality.
In March, 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of." This Statement imposes stricter criteria
for regulatory assets by requiring that such assets be probable of future
recovery at each balance sheet date. The Company anticipates adopting this
standard on January 1, 1996, and does not expect that adoption will have a
material impact on the results of operations, financial condition or cash flows
of the Company based on the current regulatory structure in which the Company
operates. This conclusion may change in the future as a result of a change in
regulation.
Effective May 22, 1995, United Cities Propane Gas of Tennessee, Inc.,
a subsidiary of UCG Energy, purchased all of the propane transportation assets
of Transpro South, Inc., a common carrier corporation, for approximately
$218,000. In addition, the subsidiary entered into a ten year non-compete
agreement with the prior owner for $6,000.
Certain reclassifications were made conforming prior year's financial
statements with 1995 financial statement presentation.
7
8
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Overview
The Company's 1995 second quarter common stock loss was $3,962,000
compared to the second quarter 1994 loss of $3,320,000. The loss per common
share was $.35 on an additional 828,000 average number of shares outstanding,
compared to the loss of $.32 for the comparable period in 1994. The common stock
earnings for the first six months of 1995 were $9,365,000 compared to
$10,916,000 in 1994. Common stock earnings per share decreased from $1.05 in
1994 to $.86 in 1995 on an additional 587,000 average number of shares
outstanding. Common stock earnings for the twelve month period ended June 30,
1995 were $10,542,000 compared to $12,843,000 for the twelve month period ended
June 30, 1994. Common stock earnings per share decreased from $1.25 in the
twelve month period in 1994 to $.99 in the twelve month period in 1995. Average
shares outstanding increased by 391,000 for the twelve month period ended June
30, 1995.
The following table summarizes certain information regarding the
operation of each segment of the Company's business for the periods ended June
30:
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
------------------ ---------------- -------------------
(UNAUDITED, IN THOUSANDS) 1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ----
OPERATING REVENUES:
Utility................................ $42,246 $48,352 $148,252 $172,543 $256,693 $294,646
------- ------- -------- -------- -------- --------
Subsidiaries:
UCG Energy Corporation-
Propane Division................... 1,825 1,651 10,843 11,082 20,548 20,368
Rental Division.................... 1,586 1,614 3,117 3,258 6,309 6,577
Utility Services Division.......... 1,033 2,719 2,867 5,386 8,628 13,520
------- ------- -------- -------- -------- --------
Total UCG Energy Corporation..... 4,444 5,984 16,827 19,726 35,485 40,465
United Cities Gas Storage Company.... 1,145 1,741 3,028 4,757 5,398 8,805
------- ------- -------- -------- -------- --------
Total Subsidiaries............... 5,589 7,725 19,855 24,483 40,883 49,270
------- ------- -------- -------- -------- --------
Total Revenues......................... $47,835 $56,077 $168,107 $197,026 $297,576 $343,916
======= ======= ======== ======== ======== ========
COMMON STOCK EARNINGS:
Utility................................ $(3,812) $(3,444) $ 7,291 $ 8,634 $ 6,475 $ 8,781
------- ------- -------- -------- -------- --------
Subsidiaries:
UCG Energy Corporation-
Propane Division................... (791) (695) 395 698 819 1,083
Rental Division.................... 425 506 859 1,021 1,863 1,810
Utility Services Division.......... 62 187 515 337 781 676
------- ------- -------- -------- -------- --------
Total UCG Energy Corporation..... (304) (2) 1,769 2,056 3,463 3,569
United Cities Gas Storage Company.... 154 126 305 226 604 493
------- ------- -------- -------- -------- --------
Total Subsidiaries............... (150) 124 2,074 2,282 4,067 4,062
------- ------- -------- -------- -------- --------
Total Common Stock Earnings............ $(3,962) $(3,320) $ 9,365 $ 10,916 $ 10,542 $ 12,843
======= ======= ======== ======== ======== ========
OPERATING RESULTS-UTILITY
The utility loss increased by $368,000 for the second quarter and
utility earnings decreased $1,343,000 and $2,306,000, respectively, for the six
and twelve month periods in 1995 from the comparable 1994 periods due
predominantly to the factors mentioned below:
The operating margin decreased from $18,319,000 in the second quarter of
1994 to $18,223,000 in 1995. The operating margin for the six month period
ended June 30, 1995 was $62,307,000 compared to $62,508,000 for the same period
in 1994, and the margin decreased $457,000 to $107,814,000 for the twelve months
ended June 30, 1995. The decrease in margin in the six and twelve month periods
can primarily be attributed to the warmer weather in the periods ended June 30,
1995 as compared to the previous year periods. However, the negative impact of
the warmer weather was lessened by the weather normalization adjustments (WNAs)
in Tennessee and Georgia, an increased number of natural gas customers, the
Palmyra, Missouri acquisition in March, 1994 and the rate increase effective
February, 1995 in South Carolina. In the six and twelve month periods ended
June 30, 1995, $2,328,000 and $3,852,000, respectively, in additional revenues
were generated by the WNAs. In comparison, the WNAs generated additional
revenues of $526,000 and $313,000 for the six and twelve month periods ended
June 30, 1994.
8
9
ITEM 2. CONTINUED
Operations and maintenance expenses other than natural gas cost for the
current year periods varied only slightly from the previous year periods.
Increases in payroll related expenses during the periods were primarily offset
by a reduction in medical expenses. Depreciation and amortization expense and
other taxes, which includes property taxes, increased in all periods primarily
due to additional plant in service.
Interest expense increased $181,000 and $501,000 in the three and six
month periods ended June 30, 1995 as compared to the same periods in 1994
primarily due to interest on increased short-term debt outstanding, offset
slightly by the retirement of long-term debt. Interest expense decreased
$317,000 in the twelve month period primarily due to the retirement of long-term
debt and because of the 1993 assessment of interest related to the settlement of
the Internal Revenue Service Audit for the years 1986 through 1990, partially
offset by interest on increased short-term debt outstanding during the period.
The table below reflects operating revenues, gas sales volumes and
weather data for the periods ended June 30:
OPERATING STATISTICS-UTILITY
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
------------------ ---------------- -------------------
(UNAUDITED, IN THOUSANDS) 1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ----
OPERATING REVENUES:
Residential.......................... $16,424 $18,048 $ 71,090 $ 82,732 $117,877 $138,268
Commercial........................... 9,786 11,473 39,023 46,528 65,871 77,272
Industrial........................... 12,832 16,761 30,358 38,466 60,961 70,093
Transportation....................... 2,625 1,684 6,224 3,336 10,095 6,612
Other Revenues....................... 579 386 1,557 1,481 1,889 2,401
------- ------- -------- -------- -------- --------
Total Operating Revenues.......... $42,246 $48,352 $148,252 $172,543 $256,693 $294,646
======= ======= ======== ======== ======== ========
GAS SALES (MCF):
Residential.......................... 2,645 2,585 13,011 13,553 20,810 22,828
Commercial........................... 2,144 2,120 8,389 8,560 13,944 14,634
Industrial-
Firm............................... 1,691 1,861 4,122 4,536 7,720 8,010
Interruptible...................... 2,430 2,569 5,354 5,426 10,930 11,104
------- ------- -------- -------- -------- --------
8,910 9,135 30,876 32,075 53,404 56,576
======= ======= ======== ======== ======== ========
Transported Volumes (Mcf).............. 4,092 3,244 8,806 5,911 15,470 11,628
======= ======= ======== ======== ======== ========
WEATHER DATA-COLDER (WARMER)
THAN NORMAL*......................... (3.7%) (7.4%) (10.7%) (3.8%) (14.4%) -
======= ======= ======== ======== ======== ========
*Based on system weighted average. Data for 1995 is preliminary.
OPERATING RESULTS-NON-UTILITY
Revenues of UCG Energy Corporation (UCG Energy) decreased $1,540,000,
$2,899,000 and $4,980,000 from the second quarter, six and twelve month periods
ended June 30, 1994, respectively. The propane division's revenues increased
moderately from the second quarter in 1994 due to increased jobbing and service
revenues as a result of increased appliance sales. The propane division's
revenues decreased in the six month period due to decreased propane volumes sold
as a result of warmer than normal weather, but increased in the twelve month
period as a result of a change in the billing date of the facility fee from
June, 1994 to October, 1994, partially offset by decreased propane volumes sold
due to warmer than normal weather. The utility services division's revenues
decreased in the second quarter, six and twelve month periods from 1994
primarily due to decreased gas brokerage sales to certain industrial customers
and others, and secondarily, the discontinuance of the distribution of
energy-related products. The rental division had a moderate decrease in
revenues in all periods due to lower rental rates on certain rental units in
service.
Expenses of UCG Energy, including cost of sales, decreased $1,085,000,
$1,826,000 and $3,805,000 from the second quarter, six and twelve month periods
ended June 30, 1994. Expenses increased in all periods in the propane division
due to added general and administrative expenses associated with the
acquisitions of Transpro South, Inc., Harrell Propane, Inc., and Hurley's
Propane Gas. Expenses of the utility services division decreased in all periods
as a result of decreased gas brokerage sales to certain industrial customers and
others as well as the discontinuance of the distribution of energy-related
products. Expenses of the rental division varied only slightly in all periods
from the previous year.
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10
ITEM 2. CONTINUED
Other income, net of UCG Energy increased $194,000, $985,000 and
$971,000 from the second quarter, six and twelve month periods ended June 30,
1994, respectively, primarily as a result of investment income from Woodward
Marketing, L.L.C. in the utility services division of $155,000 in the second
quarter and $729,000 in the six and twelve month periods.
UCG Energy's net loss increased $302,000 and net income decreased
$287,000 and $106,000 from the second quarter, six and twelve month periods
ended June 30, 1994. The increased loss in the second quarter is principally
due to decreased sales in the utility services division as mentioned above and
secondarily, to increased expenses in the propane division, partially offset by
increased jobbing and service revenues. The decrease in the six and twelve
month periods is the result of decreased sales in the propane division partially
offset by the investment income from Woodward Marketing, L.L.C. in both periods
and the change in the billing date of the facility fee reflected in the twelve
month periods.
Effective May 22, 1995, United Cities Propane Gas of Tennessee, Inc., a
subsidiary of UCG Energy, purchased all of the propane transportation assets of
Transpro South, Inc., a common carrier corporation, for approximately $218,000.
In addition, the subsidiary entered into a ten year non-compete agreement with
the prior owner for $6,000.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Total cash used in operations for the three month period ended June 30,
1995 was $427,000. Total cash provided by operations for the six and twelve
month periods ended June 30, 1995 was $45,891,000 and $33,978,000,
respectively. Changes in accounts receivable, gas in storage and accounts
payable are primarily a result of the seasonal nature of the Company's
business. There were no other changes in significant balance sheet accounts
which had a material effect on the cash flows of the Company. The financing
activities during the periods include the June, 1995 issuance of 1,380,000
shares of commom stock in a public stock offering with net proceeds from the
sale amounting to approximately $19,000,000 as of June 30, 1995. The net
proceeds were used to repay short-term debt and fund the Company's construction
program. The financing activities also reflect the retirement of long-term
debt, dividend payments, the issuance of stock through the Company's various
stock purchase plans and the net activity of short-term borrowings.
The Company has authorized as of June 30, 1995, specific purchases and
construction projects amounting to $19,718,000 of its 1995 utility capital
budget of $36,868,000 and $3,713,000 of its non-utility capital budget of
$4,855,000. Total capital expenditures for 1996, 1997 and 1998 are anticipated
to be approximately $28,400,000, $30,400,000 and $31,000,000, respectively. In
addition to its ongoing construction program, the Company is constructing a
twenty-eight mile main which will connect two of its fastest growing
distribution systems located in Middle Tennessee and is designed to provide the
Company's current customers with the lowest possible priced gas through
increased gas supply flexibility. Included in the 1995 utility capital budget
stated above is $5,000,000 related to this project.
In June, 1995, the Company entered into a $1,787,000 agreement with
Union Electric Company (Union Electric) whereby Union Electric agreed to assume
responsibility for the Company's continuing investigation and environmental
response action obligations as outlined in the feasibility study related to a
former manufactured gas plant site in Keokuk, Iowa. At June 30, 1995, the
Company had $1,430,000 accrued for its remaining liability related to the
agreement. This amount is to be paid annually over a four year period beginning
July 1, 1996. The Company has deferred the accrued amount and expects approval
for recovery in its next rate proceeding in Iowa.
The Company owns former manufactured gas plant sites in Johnson City and
Bristol, Tennessee and Hannibal, Missouri. The Company is unaware of any
information which suggests that these sites give rise to a present health or
environmental risk as a result of the manufactured gas process or that any
response action will be necessary. However, the Company has accrued and
deferred for recovery $750,000 associated with the preliminary survey and
invasive study of these sites.
Management expects that expenditures related to response action at any
environmental site will be recovered through rates or insurance, or shared among
other potentially responsible parties. Therefore, the costs of responding to
these sites are not expected to materially affect the results of operations,
financial condition or cash flows of the Company.
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ITEM 2. CONTINUED
During the first quarter of 1995, UCG Energy purchased a 45% interest
in certain contracts related to the gas marketing business of Woodward
Marketing, Inc. (WMI), a Texas corporation. In exchange for the acquired
interest, the shareholders of WMI received $5,000,000 in the Company's common
stock and $750,000 in cash in May, 1995, and may, if certain earnings targets
are met, receive an additional payment of $1,000,000 to be paid over a five
year period. In exchange for its own gas marketing contracts and the acquired
45% interest in the WMI gas marketing contracts, UCG Energy received a 45%
interest in a newly formed limited liability company, Woodward Marketing,
L.L.C. (WMLLC). WMI received a 55% interest in WMLLC in exchange for its
remaining 55% interest in the WMI gas marketing contracts. In addition, in
May, 1995, the Company paid a net $683,000 for the Company's share of certain
assets and paid-in-capital of WMLLC. WMLLC will provide gas marketing services
to industrial customers, municipalities and local distribution companies. UCG
Energy utilized equity accounting, effective January 1, 1995, for the
acquisition.
On April 6, 1995, the Company signed a letter of intent to acquire all
the outstanding common stock of Monarch Gas Company (Monarch). The acquisition
will be accounted for as a pooling of interests whereby the number of shares of
the Company's common stock issued will be calculated based on the book value of
Monarch versus the book value of the Company at December 31, 1994. In
addition, the Company will enter into a $250,000, five-year non-compete
agreement with the owners of Monarch. Monarch serves approximately 3,000
customers in small communities adjacent to the Company's Vandalia, Illinois
operation. The Company will not restate prior years' consolidated financial
statements due to immateriality.
In March, 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of." This Statement imposes stricter criteria
for regulatory assets by requiring that such assets be probable of future
recovery at each balance sheet date. The Company anticipates adopting this
standard on January 1, 1996, and does not expect that adoption will have a
material impact on the results of operations, financial condition or cash flows
of the Company based on the current regulatory structure in which the Company
operates. This conclusion may change in the future as a result of a change in
regulation.
On April 28, 1995, the Company filed to increase rates on an annual
basis by $810,000 in the state of Virginia. The proposed rate increase will
become effective in late September, 1995. The increase will be subject to
refund pending the final order which is expected in the second quarter of 1996.
On May 15, 1995, the Company filed to increase rates on an annual basis
by $3,950,000 in the state of Tennessee. The Company expects that any increase
granted will be effective by mid-November 1995.
In an election held on April 7, 1995, 96 employees in Columbus, Georgia
voted not to be represented by a union.
The Company believes its short-term lines of credit are sufficient to
meet anticipated short-term requirements. At June 30, 1995, the Company had
$84,000,000 in short-term lines of credit, including master and banker's
acceptance notes, bearing interest primarily at the lesser of prime or a
negotiated rate during the term of each borrowing. At June 30, 1995,
$12,952,000 was outstanding under these arrangements.
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12
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 1995
ITEM 1. LEGAL PROCEEDINGS.
See December 31, 1994 Form 10-K and Part I of this filing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of Shareholders was held April 28, 1995. The
meeting involved the election of directors. The matters voted
upon were as follows:
Proposal 1. The shareholders approved the nomination of Dwight C.
Baum, Dennis L. Newberry, and Timothy W. Triplett to
serve the Company as directors for a three-year term.
Dale A. Keasling was elected to serve as a director
for a one-year term. Directors of the Company who are
continuing their term are Vincent J. Lewis, Stirton
Oman, Jr., Thomas J. Garland, Gene C. Koonce and
George C. Woodruff, Jr.
Proposal 2. The shareholders approved a Non-Employee Director
Stock Plan. (See copy of plan filed with this report
as Exhibit 10.01.)
Proposal 3. The shareholders approved an amendment to the
Company's Articles of Incorporation to (i) delete the
provisions for Cumulative Preferred Stock and 11-1/2%
Cumulative Convertible Preference Stock and (ii)
create a class of Preferred Stock. (See Amended
Articles of Incorporation of the Company filed with
this report as Exhibit 3.01.)
The results of the voting for each proposal were as follows:
FOR AGAINST WITHHELD NON-VOTE
--- ------- -------- --------
Proposal 1. Baum 8,745,990 - 332,975 1
Keasling 8,754,255 - 324,710 1
Newberry 8,761,121 - 317,845 -
Triplett 8,757,383 321,582 1
Proposal 2. 8,147,233 597,368 334,364 1
Proposal 3. 6,036,062 670,459 2,372,443 2
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits-See list of Exhibits on page 13 hereof.
(b) Reports on Form 8-K.
None
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13
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
LIST OF EXHIBITS
3.01 Amended Articles of Incorporation of Company as Amended April 28,
1995
10.01 Non-Employee Director Stock Plan
27 Financial Data Schedule (SEC use only)
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14
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
SIGNATURE
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.
UNITED CITIES GAS COMPANY
/s/ ADRIENNE H. BRANDON
------------------------------------
ADRIENNE H. BRANDON
Vice President and Controller
On behalf of the Registrant
Date: August 11, 1995
14