<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(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, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________.
Commission file number 0-1284-2
UNITED CITIES GAS COMPANY
-------------------------
(Exact name of registrant as specified in its charter)
Illinois and Virginia 36-1801540
--------------------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
5300 Maryland Way, Brentwood, TN 37027
-------------------------------- -----
(Address of principal (Zip Code)
executive offices)
(615) 373-5310
--------------
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 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. [X] Yes [ ] No
At July 31, 1996, 13,127,555 shares of the common stock of the
Registrant were outstanding.
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UNITED CITIES GAS COMPANY AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 1996
Table of Contents
<TABLE>
<CAPTION>
Item Page
Number Number
------ ------
PART I -- FINANCIAL INFORMATION
<S> <C> <C>
1 Financial Statements:
Consolidated Statements of Income (Unaudited) for the Three, Six 3
and Twelve Months Ended June 30, 1996 and June 30, 1995.
Consolidated Statements of Cash Flows (Unaudited) for the Three, Six 4
and Twelve Months Ended June 30, 1996 and June 30, 1995.
Consolidated Balance Sheets at June 30, 1996 (Unaudited) and 5
December 31, 1995.
Consolidated Statements of Capitalization at June 30, 1996 6
(Unaudited) and December 31, 1995.
Notes to Consolidated Financial Statements. 7
2 Management's Discussion and Analysis of Financial Condition 9
and Results of Operations.
PART II -- OTHER INFORMATION
1 Legal Proceedings. 14
4 Submission of Matters to a Vote of Security Holders. 14
6 Exhibits and Reports on Form 8-K. 14
List of Exhibits. 15
Signature 16
</TABLE>
2
<PAGE> 3
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
------------------ ---------------- ------------------
(Unaudited, in thousands, except per share amounts) 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
UTILITY OPERATING REVENUES...................................... $60,698 $42,246 $205,407 $148,252 $329,015 $256,693
Natural gas cost............................................. 39,872 24,023 133,675 85,945 206,906 148,879
------- ------- -------- -------- -------- --------
UTILITY OPERATING MARGIN........................................ 20,826 18,223 71,732 62,307 122,109 107,814
------- ------- -------- -------- -------- --------
OTHER UTILITY OPERATING EXPENSES:
Operations and maintenance................................... 15,097 14,524 31,347 29,764 63,410 57,423
Depreciation and amortization................................ 3,922 3,708 8,168 7,372 15,916 14,371
Federal and state income taxes............................... (1,862) (2,430) 6,802 4,448 6,403 3,416
Other taxes.................................................. 3,148 2,978 6,618 6,397 12,521 11,579
------- ------- -------- -------- -------- --------
Total other utility operating expenses..................... 20,305 18,780 52,935 47,981 98,250 86,789
------- ------- -------- -------- -------- --------
UTILITY OPERATING INCOME (LOSS)................................. 521 (557) 18,797 14,326 23,859 21,025
OTHER UTILITY INCOME, NET OF TAX................................ 95 215 234 173 717 37
------- ------- -------- -------- -------- --------
616 (342) 19,031 14,499 24,576 21,062
------- ------- -------- -------- -------- --------
UTILITY INTEREST EXPENSE:
Interest on long-term debt................................... 3,221 2,980 6,537 6,017 12,552 12,149
Other interest expense....................................... 245 490 671 1,191 1,747 2,438
------- ------- -------- -------- -------- --------
Total utility interest expense............................. 3,466 3,470 7,208 7,208 14,299 14,587
------- ------- -------- -------- -------- --------
UTILITY INCOME (LOSS)........................................... (2,850) (3,812) 11,823 7,291 10,277 6,475
------- ------- -------- -------- -------- --------
OTHER INCOME (LOSS):
Operations of UCG Energy Corporation-
Revenues.................................................. 19,890 4,444 38,562 16,827 56,168 35,485
Operating expenses........................................ (19,804) (4,015) (34,408) (12,777) (47,256) (26,834)
Interest expense.......................................... (340) (283) (703) (521) (1,374) (909)
Depreciation and amortization............................. (993) (1,007) (1,907) (1,991) (4,294) (3,819)
Other income, net......................................... 459 372 1,990 1,313 3,007 1,659
Federal and state income taxes............................ 299 185 (1,342) (1,082) (2,378) (2,119)
------- ------- -------- -------- -------- --------
(489) (304) 2,192 1,769 3,873 3,463
------- ------- -------- -------- -------- --------
Operations of United Cities Gas Storage Company-
Revenues.................................................. 882 1,145 3,871 3,028 8,286 5,398
Operating expenses........................................ (224) (527) (2,616) (1,840) (5,681) (3,076)
Interest expense.......................................... (191) (275) (413) (506) (872) (966)
Depreciation.............................................. (98) (92) (196) (184) (380) (368)
Federal and state income taxes............................ (142) (97) (250) (193) (522) (384)
------- ------- -------- -------- -------- --------
227 154 396 305 831 604
------- ------- -------- -------- -------- --------
COMMON STOCK EARNINGS (LOSS).................................... ($3,112) ($3,962) $14,411 $9,365 $14,981 $10,542
======= ======= ======== ======== ======== ========
COMMON STOCK EARNINGS (LOSS) PER SHARE.......................... ($0.24) ($0.35) $1.11 $0.86 $1.17 $0.99
======= ======= ======== ======== ======== ========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING..................... 13,053 11,197 13,007 10,937 12,819 10,700
======= ======= ======== ======== ======== ========
COMMON STOCK DIVIDENDS PER SHARE................................ $.255 $.255 $.51 $.51 $1.02 $1.015
======= ======= ======== ======== ======== ========
</TABLE>
3
<PAGE> 4
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
------------------ ---------------- ------------------
(Unaudited, in thousands) 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Common stock earnings (loss)..................................... ($3,112) ($3,962) $14,411 $9,365 $14,981 $10,542
------- ------- ------- ------- ------- -------
Adjustments to reconcile common stock earnings (loss)to net
cash provided by (used in) operating activities:
Depreciation and amortization................................... 5,013 4,807 10,271 9,547 20,590 18,558
Deferred taxes.................................................. (46) 7 (92) 13 1,675 1,458
Investment tax credits, net..................................... (90) (91) (180) (182) (345) (367)
Investment income from Woodward Marketing, L.L.C................ (116) (155) (1,383) (729) (1,989) (729)
Changes in current assets and current liabilities:
Receivables................................................... 31,077 20,073 24,379 27,111 (13,919) 3,493
Materials and supplies........................................ (147) (124) (217) (363) 412 229
Gas in storage................................................ (12,218) (7,293) (2,851) 8,445 (1,488) 2,964
Gas costs to be billed in the future.......................... 3,444 (1,901) 7,876 2,823 5,297 (2,019)
Prepayments and other......................................... (1,245) (1,391) (402) (326) (58) 564
Accounts payable.............................................. (6,099) (845) (4,236) (8,903) 4,811 (3,116)
Customer deposits and advance payments........................ 49 6 (4,551) (3,208) (3,438) 2,334
Accrued interest.............................................. (3,085) (2,542) (341) (339) 265 (264)
Supplier refunds due customers................................ (2,518) (1,487) 394 4,135 (2,728) 2,562
Accrued taxes................................................. (4,834) (4,902) 8,181 428 5,798 (193)
Other, net.................................................... 528 (1,228) 2,346 (2,527) 3,741 (2,639)
------- ------- ------- ------- ------- -------
Total adjustments........................................... 9,713 2,934 39,194 35,925 18,624 22,835
------- ------- ------- ------- ------- -------
Net cash provided by (used in) operating activities....... 6,601 (1,028) 53,605 45,290 33,605 33,377
------- ------- ------- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property - utility................................... (7,365) (8,085) (14,360) (17,798) (31,722) (34,660)
Additions to property - non-utility............................... (1,368) (1,219) (2,975) (2,367) (5,534) (5,149)
Investment in Woodward Marketing, L.L.C., net..................... 427 (832) 642 (832) 642 (832)
------- ------- ------- ------- ------- -------
Net cash used in investing activities..................... (8,306) (10,136) (16,693) (20,997) (36,614) (40,641)
------- ------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings - net....................................... 1,101 (5,109) (22,909) (33,236) (3,548) 2,332
Proceeds from issuance of long-term debt.......................... - - - - 27,000 -
Proceeds from issuance of common stock............................ 973 20,400 1,556 21,710 3,160 24,347
Long-term debt retirements........................................ (8,384) (835) (11,661) (5,333) (12,675) (7,488)
Dividends paid.................................................... (2,764) (2,391) (5,509) (4,758) (10,957) (9,409)
------- ------- ------- ------- ------- -------
Net cash provided by (used in) financing activities....... (9,074) 12,065 (38,523) (21,617) 2,980 9,782
------- ------- ------- -------- ------- -------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS........... (10,779) 901 (1,611) 2,676 (29) 2,518
CASH AND TEMPORARY INVESTMENTS AT BEGINNING OF PERIOD............... 16,170 4,519 7,002 2,744 5,420 2,902
------- ------- ------- ------- ------- -------
CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD..................... $5,391 $5,420 $5,391 $5,420 $5,391 $5,420
======= ======= ======= ======= ======= =======
CASH PAID DURING THE PERIOD FOR:
Interest, net of amounts capitalized.............................. $7,215 $6,570 $8,629 $8,574 $16,219 $16,726
======= ======= ======= ======= ======= =======
Income taxes...................................................... $2,959 $2,901 $3,237 $5,069 $6,791 $5,927
======= ======= ======= ======= ======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Dividends reinvested.............................................. $514 $444 $1,021 $804 $2,016 $1,447
======= ======= ======= ======= ======= =======
Debt incurred to acquire assets of Harrell Propane, Inc........... - - - $1,250 - $1,250
======= ======= ======= ======= ======= =======
Debt incurred to acquire assets of Duncan Gas Service............. - - $2,957 - $2,957 -
======= ======= ======= ======= ======= =======
Common stock issued in investment in Woodward Marketing, L.L.C.... - $5,000 - $5,000 - $5,000
======= ======= ======= ======= ======= =======
Increase in common stock equity due to acquisition of Monarch Gas - - $2,434 - $2,434 -
======= ======= ======= ======= ======= =======
</TABLE>
4
<PAGE> 5
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31
1996 1995
---- ----
(In thousands) (UNAUDITED)
<S> <C> <C>
ASSETS
UTILITY PLANT:
Plant in service, at cost...................................... $461,777 $445,058
Less-accumulated depreciation................................ 167,521 157,968
-------- --------
294,256 287,090
-------- --------
NON-UTILITY PROPERTY:
Property, plant, and equipment................................. 73,559 67,423
Less-accumulated depreciation................................ 20,898 19,501
-------- --------
52,661 47,922
-------- --------
CURRENT ASSETS:
Cash and temporary investments................................. 5,391 7,002
Receivables, less allowance for uncollectible accounts
of $1,747 in 1996 and $1,352 in 1995......................... 30,138 54,517
Materials and supplies......................................... 5,131 4,914
Gas in storage................................................. 19,494 16,643
Gas costs to be billed in the future........................... 7,837 15,713
Prepayments and other.......................................... 2,430 2,028
-------- --------
70,421 100,817
-------- --------
DEFERRED CHARGES:
Unamortized debt discount and expense, net..................... 2,841 2,896
Investment in Woodward Marketing, L.L.C., net.................. 7,561 7,012
Non-compete agreements,net.................................... 3,570 3,259
Other deferred charges......................................... 11,870 11,381
-------- --------
25,842 24,548
-------- --------
$443,180 $460,377
======== ========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock equity............................................ $158,963 $146,071
Long-term debt................................................. 158,192 163,160
-------- --------
317,155 309,231
-------- --------
CURRENT LIABILITIES:
Current portion of long-term obligations....................... 5,419 9,155
Notes payable.................................................. 9,404 32,313
Accounts payable for gas costs................................. 21,413 24,433
Other accounts payable......................................... 3,668 4,884
Accrued taxes.................................................. 12,601 4,420
Customer deposits and advance payments......................... 7,527 12,078
Accrued interest............................................... 3,271 3,612
Supplier refunds due customers................................. 6,848 6,454
Other.......................................................... 10,839 8,580
-------- --------
80,990 105,929
-------- --------
DEFERRED CREDITS:
Accumulated deferred income tax................................ 31,645 31,599
Deferred investment tax credits................................ 4,118 4,281
Income taxes due customers..................................... 5,067 5,190
Other.......................................................... 4,205 4,147
-------- --------
45,035 45,217
-------- --------
$443,180 $460,377
======== ========
</TABLE>
5
<PAGE> 6
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------------ ----------------
(In thousands, except share amounts) (UNAUDITED)
<S> <C> <C> <C> <C>
COMMON STOCK EQUITY:
Common stock without par value, authorized
40,000,000 shares, outstanding 13,102,913 in
1996 and 12,727,280 in 1995......................... $105,812 $101,735
Capital surplus....................................... 22,462 22,462
Retained earnings..................................... 30,689 21,874
-------- --------
Total common stock equity........................... 158,963 50.1% 146,071 47.2%
-------- ----- -------- -----
LONG-TERM DEBT:
First mortgage bonds ................................. 115,000 125,000
Medium term notes, 6.20% through 6.67%, due 2000
through 2025....................................... 22,000 22,000
Senior secured storage term notes, 7.45%, due in
installments through 2007.......................... 9,645 9,926
Rental property adjustable rate term notes due in
installments through 1999.......................... 5,275 5,691
Rental property fixed rate term note, 7.90%, due in
installments through 2013.......................... 2,292 2,292
Propane term note, 6.99%, due in installments
through 2002....................................... 4,875 5,000
Other long-term obligations due in installments
through 2004....................................... 4,524 2,406
-------- --------
163,611 172,315
Less-current requirements......................... 5,419 9,155
-------- --------
Total long-term debt, excluding amounts due
within one year............................... 158,192 49.9% 163,160 52.8%
-------- ----- -------- -----
TOTAL CAPITALIZATION...................................... $317,155 100.0% $309,231 100.0%
======== ===== ======== =====
</TABLE>
6
<PAGE> 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, 1995.
The Company's business is seasonal in nature resulting in greater
earnings during the winter months. The results of operations for the three and
six month periods ended June 30, 1996, are not necessarily indicative of the
results to be expected for the full year.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 (SFAS 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. Because of the
regulatory structure in which the Company operates, the adoption of SFAS 121
did not have a material effect on the results of operations, financial
condition or cash flows of the Company.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation." For
fiscal years beginning after December 15, 1995, this statement requires new
disclosures in the notes to the financial statements about stock-based
compensation plans based on the fair value of equity instruments granted.
Companies also may base the recognition of compensation cost for instruments
issued under stock-based compensation plans on these fair values. The Company
did not change the method of accounting for these plans.
Effective January 1, 1996, United Cities Propane Gas of Tennessee,
Inc., (UCPT), a subsidiary of UCG Energy Corporation, purchased substantially
all of the propane assets of Duncan Gas Service for approximately $4,310,000.
In addition, UCPT entered into a ten-year non-compete agreement with the prior
owners for $250,000, to be paid over a ten-year period. This acquisition added
approximately 2,000 customers in the Johnson City, Tennessee area.
Effective May 17, 1996, the Company received an annual rate increase
of $410,000 in the state of Iowa. Included in the rate increase was the
recovery of $1,787,000 over a ten-year period related to the Company's
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
pertaining to a manufactured gas plant site in Keokuk, Iowa.
On June 28, 1996, Monarch Gas Company (Monarch) was merged into the
Company. The merger was accounted for as a pooling of interests in which the
Company issued 207,366 shares of the Company's common stock in exchange for the
common stock of Monarch. In addition, the Company entered into five-year
non-compete agreements with the prior owners of Monarch totaling $400,000. The
merger added approximately 2,900 customers in the Vandalia, Illinois area. The
Company has not restated prior years' financial statements due to
immateriality.
On July 19, 1996, the Company and Atmos Energy Corporation (Atmos)
entered into a definitive agreement whereby the Company will be merged with and
into Atmos, with Atmos as the surviving corporation. Under the definitive
agreement, one share of Atmos stock will be exchanged for each share of the
Company's stock. The transaction is expected to be accounted for as a pooling
of interests. Subject to approval by the shareholders of both companies and
the appropriate regulatory bodies, the transaction is expected to be completed
by March 31, 1997. Atmos is based in Dallas, Texas, and currently provides
natural gas service to approximately 673,000 customers in Texas, Colorado,
Kansas, Missouri, Louisiana and Kentucky.
7
<PAGE> 8
On August 1, 1996, Southern Union Company (Southern Union) filed a
Schedule 13D with the Securities and Exchange Commission reporting that it
owned 6.5% of the Company's outstanding common stock. On August 6, 1996, the
Company and Atmos filed a joint complaint with the Missouri Public Service
Commission against Southern Union alleging that Southern Union's purchases of
the Company's common stock violated a Missouri statute which requires prior
approval of the Missouri Public Service Commission for any public utility in
Missouri to acquire the stock of another public utility in Missouri. The
complaint asks for a declaration, among other things, that the purchases of the
Company's stock by Southern Union be declared null and void and that Southern
Union be prohibited from further purchases of the Company's stock.
Certain reclassifications were made conforming prior year's financial
statements with 1996 financial statement presentation.
8
<PAGE> 9
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company's 1996 second quarter common stock loss was
$3,112,000 compared to the second quarter 1995 loss of $3,962,000.
The loss per common share in the second quarter of 1996 was $.24 on an
additional 1,856,000 average number of shares outstanding compared to
the loss of $.35 for the comparable period in 1995. Common stock
earnings for the six month period ended June 30, 1996, were
$14,411,000 compared to $9,365,000 for the six month period ended June
30, 1995. Common stock earnings per share increased from $.86 in the
six month period in 1995 to $1.11 in the six month period in 1996.
Average shares outstanding increased by 2,070,000 for the six month
period ended June 30, 1996. Common stock earnings for the twelve
month period ended June 30, 1996, were $14,981,000 compared to
$10,542,000 for the twelve month period ended June 30, 1995. Common
stock earnings per share increased from $.99 in the twelve month
period in 1995 to $1.17 in the twelve month period in 1996. Average
shares outstanding increased by 2,119,000 for the twelve month period
ended June 30, 1996.
The following table summarizes certain information regarding
the operation of each segment of the Company's business for the
periods ended June 30:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
------------------- ---------------- -------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
(Unaudited, in thousands)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Utility......................................... $60,698 $42,246 $205,407 $148,252 $329,015 $256,693
------- ------- -------- -------- -------- --------
Subsidiaries:
UCG Energy Corporation-
Propane Division............................ 3,124 1,825 19,992 10,843 33,801 20,548
Rental Division............................. 1,049 1,586 2,168 3,117 5,010 6,309
Utility Services Division................... 15,717 1,033 16,402 2,867 17,357 8,628
------- ------- -------- -------- -------- --------
Total UCG Energy Corporation.............. 19,890 4,444 38,562 16,827 56,168 35,485
United Cities Gas Storage Company............. 882 1,145 3,871 3,028 8,286 5,398
------- ------- -------- -------- -------- --------
Total Subsidiaries........................ 20,772 5,589 42,433 19,855 64,454 40,883
------- ------- -------- -------- -------- --------
Total Operating Revenues........................ $81,470 $47,835 $247,840 $168,107 $393,469 $297,576
======= ======= ======== ======== ======== ========
COMMON STOCK EARNINGS (LOSS):
Utility......................................... $(2,850) $(3,812) $ 11,823 $ 7,291 $ 10,277 $ 6,475
------- ------- -------- -------- -------- --------
Subsidiaries:
UCG Energy Corporation-
Propane Division............................ (813) (791) 770 395 1,499 819
Rental Division............................. 295 425 654 859 1,487 1,863
Utility Services Division................... 29 62 768 515 887 781
------- ------- -------- -------- -------- --------
Total UCG Energy Corporation.............. (489) (304) 2,192 1,769 3,873 3,463
United Cities Gas Storage Company............. 227 154 396 305 831 604
------- ------- -------- -------- -------- --------
Total Subsidiaries........................ (262) (150) 2,588 2,074 4,704 4,067
------- ------- -------- -------- -------- --------
Total Common Stock Earnings (Loss).............. $(3,112) $(3,962) $ 14,411 $ 9,365 $ 14,981 $ 10,542
======= ======= ======== ======== ======== ========
</TABLE>
OPERATING RESULTS-UTILITY
The utility loss decreased by $962,000 for the second quarter
and utility earnings increased $4,532,000 and $3,802,000,
respectively, for the six and twelve month periods in 1996 from the
comparable 1995 periods due predominantly to the factors mentioned
below.
The operating margin for the second quarter increased from
$18,223,000 in 1995 to $20,826,000 in 1996. The operating margin for
the six month period ended June 30, 1996, was $71,732,000 compared to
$62,307,000 for the same period in 1995, and the margin increased
$14,295,000 to $122,109,000 for the twelve months ended June 30, 1996.
The increase in all periods is a result of the colder weather in 1996
as compared to 1995; rate increases in Kansas, Virginia, Missouri,
Tennessee and Iowa; the acquisition of Monarch Gas Company; and
volumes sold to new residential and commercial natural gas customers.
The increase in the six and twelve month periods was also a result of
the additional revenues derived from penalties incurred by certain
interruptible customers who elected not to go off the Company's system
when curtailed during the first quarter of 1996.
9
<PAGE> 10
ITEM 2. CONTINUED
Operations and maintenance expenses other than natural gas
cost increased $573,000, $1,583,000 and $5,987,000, respectively, in
the three, six and twelve month periods ended June 30, 1996, from the
comparable 1995 periods, primarily due to increased payroll and
related benefits, expenses related to the consolidation of various
division and corporate functions, and the additional operations and
maintenance expenses of Monarch Gas Company. In addition, the
increase in operations and maintenance expenses in the twelve month
period can be attributed to additional expenses resulting from the
consolidation of operations in the Company's Virginia/East Tennessee
Division in the third quarter of 1995.
Depreciation and amortization expense and other taxes
increased in the second quarter, six and twelve month periods ended
June 30, 1996, as compared to the same periods in 1995, primarily due
to additional plant in service. Federal and state income taxes varied
in all periods in relation to changes in income.
Other utility income, net of tax decreased in the second
quarter of 1996, as compared to the same period in 1995, as a result
of an adjustment in the second quarter of 1995 to recognize revenues
related to the release over the previous several months of the
Company's excess firm capacity on the pipeline which serves the
Company's Kansas operation. The recognition of these revenues is
allowed by the Kansas Corporation Commission. This decrease was
partially offset by increased interest income on deferred gas costs
that are to be billed in the future and increased revenues from an
incentive rate program in Tennessee. Effective April 1996, the
Tennessee Public Service Commission issued an order which raised the
amount of gains or losses to be recognized by the Company as a result
of the incentive rate program from a maximum of $25,000 per month to
$600,000 per year. Other utility income, net of tax increased in the
six and twelve month periods from the previous year periods primarily
as a result of revenues from the incentive rate program in Tennessee
and increased interest income on deferred gas costs that are to be
billed in the future, partially offset by decreased revenues generated
by the release of the Company's excess firm capacity on the pipelines
which serve the Company. In the twelve month period, the increase in
other utility income, net of tax can also be attributed to a $171,000
credit made in September 1995 for the capitalization of the equity
portion of the allowance for funds used during construction (AFUDC) of
a twenty-eight mile main in Middle Tennessee.
Interest expense remained constant in the three and six month
periods ended June 30, 1996, as compared to the same periods in 1995.
In both periods the decrease in interest on short-term debt
outstanding was offset by interest on increased long-term debt.
Interest expense decreased in the twelve month period ended June 30,
1996, as compared to the same period in 1995, because of less interest
on short-term debt outstanding and a $349,000 reduction to interest
expense related to the capitalization of the debt portion of the AFUDC
of a twenty-eight mile main in Middle Tennessee. This decrease was
slightly offset by interest on increased long-term debt.
The table below reflects operating revenues, natural gas
through-put and weather data for the periods ended June 30:
OPERATING STATISTICS-UTILITY
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
------------------- ---------------- -------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
(Unaudited, in thousands)
<S> <C> <C> <C> <C> <C> <C>
UTILITY OPERATING REVENUES:
Residential.................. $23,156 $16,424 $ 98,564 $ 71,090 $155,077 $117,877
Commercial................... 15,630 9,786 56,210 39,023 88,154 65,871
Industrial................... 17,625 13,642 39,403 32,665 67,513 63,268
Transportation............... 2,381 1,815 5,231 3,917 9,418 7,788
Other Revenues............... 1,906 579 5,999 1,557 8,853 1,889
------- ------- -------- -------- -------- --------
Total................... $60,698 $42,246 $205,407 $148,252 $329,015 $256,693
======= ======= ======== ======== ======== ========
NATURAL GAS THROUGH-PUT (MCF):
Residential.................. 3,006 2,645 15,687 13,011 25,577 20,810
Commercial................... 2,507 2,143 9,778 8,388 16,555 13,944
Industrial-
Firm....................... 1,415 1,691 3,855 4,122 7,058 7,720
Interruptible.............. 2,653 2,658 5,677 6,013 11,583 11,589
------- ------- -------- -------- -------- --------
9,581 9,137 34,997 31,534 60,773 54,063
Transportation............... 4,383 3,865 8,741 8,148 17,777 14,811
------- ------- -------- -------- -------- --------
Total................... 13,964 13,002 43,738 39,682 78,550 68,874
======= ======= ======== ======== ======== ========
WEATHER DATA-COLDER (WARMER)
than normal*................. ** ** 7.5% (10.7%) 8.9% (14.4%)
======= ======= ======== ======== ======== ========
</TABLE>
*Based on system weighted average. Data for 1996 is preliminary.
**Not meaningful for second quarter.
10
<PAGE> 11
ITEM 2. CONTINUED
OPERATING RESULTS-NON-UTILITY
Revenues of UCG Energy Corporation (UCG Energy) increased
$15,446,000, $21,735,000 and $20,683,000, respectively, in the second
quarter, six and twelve month periods ended June 30, 1996, as compared
to the same periods in 1995. Revenues in the utility services
division increased in all periods as a result of increased gas
brokerage sales to Woodward Marketing, L.L.C. (WMLLC). The propane
division's revenues increased in all periods due to increased retail
and wholesale volumes sold and increased transport revenues, both due
to colder than normal weather, and as a result of the acquisitions of
Transpro South, Inc., in May 1995 and Duncan Gas Service in January
1996. The propane division's revenues also increased in the twelve
month period as a result of the acquisition of Harrell Propane, Inc.,
in January 1995. The rental division's revenues decreased in all
periods due to the transfer of certain rental units to the parent
company.
Expenses of UCG Energy, including cost of sales, increased
$15,789,000, $21,631,000 and $20,422,000, respectively, in the second
quarter, six and twelve month periods ended June 30, 1996, as compared
to the same periods in 1995. Expenses of the utility services
division increased in all periods as a result of increased cost of
sales from increased gas brokerage activities. Expenses increased in
all periods in the propane division principally as a result of the
cost of increased propane volumes sold and increased administrative
and general expenses, both due to colder than normal weather, and the
acquisitions of Transpro South, Inc., and Duncan Gas Service. In
addition, expenses of the propane division increased in the twelve
month period as a result of the acquisition of Harrell Propane, Inc.
Expenses increased only slightly in all periods from the previous year
in the rental division.
Other income, net of UCG Energy increased $87,000, $677,000
and $1,348,000, respectively, in the second quarter, six and twelve
month periods ended June 30, 1996, as compared to the previous year
periods. The increase in the second quarter was the result of
increased income from investments in natural gas and oil exploration
and production projects. The increase in the six and twelve month
periods was primarily the result of increased investment income from
WMLLC. Investment income from WMLLC, before income taxes, was
$116,000, $1,383,000 and $1,989,000, respectively, for the second
quarter, six and twelve month periods ended June 30, 1996.
UCG Energy's net loss increased $185,000 in the second quarter
while net income increased $423,000 and $410,000 in the six and twelve
month periods ended June 30, 1996, as compared to the same periods in
1995. The increase in the net loss for the second quarter can be
attributed to the transfer of certain rental units from the rental
division to the parent company at the end of 1995 and the associated
loss of rental income, partially offset by decreased depreciation
expense related to those rental units. The increase in net income in
the six month period is due to a combination of increased investment
income from WMLLC and increased sales in the propane division. The
increase in net income for the twelve month period can largely be
attributed to increased sales in the propane division, partially
offset by decreased rental income in the rental division. In the
utility services division, the increase in investment income from
WMLLC for the twelve month period was partially offset by increased
amortization and interest expenses related to that investment.
Effective January 1, 1996, United Cities Propane Gas of
Tennessee, Inc. (UCPT), a subsidiary of UCG Energy, purchased
substantially all of the propane assets of Duncan Gas Service for
approximately $4,310,000. In addition, UCPT entered into a ten-year
non-compete agreement with the prior owners for $250,000. This
acquisition added approximately 2,000 customers in the Johnson City,
Tennessee area.
United Cities Gas Storage Company had net income for the
three, six and twelve month periods of $227,000, $396,000 and
$831,000, respectively, as compared to $154,000, $305,000 and $604,000
for the same periods in 1995. The revenues of the subsidiary were
primarily derived from natural gas storage services and natural gas
provided to United Cities Gas Company.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Total cash provided by operations for the three, six and
twelve month periods ended June 30, 1996, was $6,601,000, $53,605,000
and $33,605,000, respectively. Changes in accounts receivable, gas in
storage and accounts payable were primarily a result of the weather
sensitive nature of the Company's business. Changes in gas costs to
be billed in the future and supplier refunds due customers were
primarily a result of the timing of the recoveries from, or refunds
to, customers of these costs through the Purchased Gas Adjustment
mechanism.
11
<PAGE> 12
ITEM 2. CONTINUED
The financing activities for the three, six and twelve month
periods 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. In addition, the
financing activities of the twelve month period reflect $22,000,000 of
medium-term notes and a $5,000,000 term note in UCPT that were issued
in the last quarter of 1995. The proceeds of these activities were
used to repay short-term borrowings, retire long-term debt, finance
the Company's construction program and for other corporate purposes.
The Company had authorized as of June 30, 1996, specific
purchases and construction projects amounting to $15,326,000 of its
1996 utility capital budget of $29,000,000 and $6,429,000 of its
non-utility capital budget of $7,800,000.
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121 (SFAS 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. Because of the regulatory structure in which the
Company operates, the adoption of SFAS 121 did not have a material
effect on the results of operations, financial condition or cash flows
of the Company.
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." For fiscal years beginning after December 15, 1995,
this statement requires new disclosures in the notes to the financial
statements about stock-based compensation plans based on the fair
value of equity instruments granted. Companies also may base the
recognition of compensation cost for instruments issued under
stock-based compensation plans on these fair values. The Company did
not change the method of accounting for these plans.
As a result of an election held on March 29, 1996, 20
employees in Hannibal, Missouri will be represented by a union. On
April 19, 1996, an election was held in Columbus, Georgia for 97
employees to determine whether they would be represented by a union.
The results of that election are pending the outcome of an
administrative hearing.
Effective May 17, 1996, the Company received an annual rate
increase of $410,000 in the state of Iowa. The Company had filed to
increase rates by $750,000 on an annual basis. Included in the rate
increase was the recovery of $1,787,000 over a ten-year period related
to the Company's 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 pertaining to
a manufactured gas plant site in Keokuk, Iowa.
On May 31, 1996, the Company filed to increase rates on an
annual basis by $5,000,000 in the state of Georgia. The Company
expects that any increase granted will be effective by the end of
1996.
On June 28, 1996, Monarch Gas Company (Monarch) was merged
into the Company. The merger was accounted for as a pooling of
interests in which the Company issued 207,366 shares of the Company's
common stock in exchange for the common stock of Monarch. In
addition, the Company entered into five-year non-compete agreements
with the prior owners of Monarch totaling $400,000. The merger added
approximately 2,900 customers in the Vandalia, Illinois area. The
Company has not restated prior years' financial statements due to
immateriality.
On July 19, 1996, the Company and Atmos Energy Corporation
(Atmos) entered into a definitive agreement whereby the Company will
be merged with and into Atmos, with Atmos as the surviving
corporation. Under the definitive agreement, one share of Atmos stock
will be exchanged for each share of the Company's stock. The
transaction is expected to be accounted for as a pooling of interests.
Subject to approval by the shareholders of both companies and the
appropriate regulatory bodies, the transaction is expected to be
completed by March 31, 1997. Atmos is based in Dallas, Texas, and
currently provides natural gas service to approximately 673,000
customers in Texas, Colorado, Kansas, Missouri, Louisiana and
Kentucky.
12
<PAGE> 13
ITEM 2. CONTINUED
On August 1, 1996, Southern Union Company (Southern Union)
filed a Schedule 13D with the Securities and Exchange Commission
reporting that it owned 6.5% of the Company's outstanding common
stock. On August 6, 1996, the Company and Atmos filed a joint
complaint with the Missouri Public Service Commission against Southern
Union alleging that Southern Union's purchases of the Company's common
stock violated a Missouri statute which requires prior approval of the
Missouri Public Service Commission for any public utility in Missouri
to acquire the stock of another public utility in Missouri. The
complaint asks for a declaration, among other things, that the
purchases of the Company's stock by Southern Union be declared null
and void and that Southern Union be prohibited from further purchases
of the Company's stock.
The Company believes its short-term lines of credit are
sufficient to meet anticipated short-term requirements. At June 30,
1996, the Company had $93,000,000 in short-term lines of credit,
including master and banker's acceptance notes, bearing interest
primarily at the lesser of the prime rate or a negotiated rate during
the term of each borrowing. Under these arrangements, $9,404,000 in
short-term debt was outstanding at June 30, 1996.
13
<PAGE> 14
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 1996
ITEM 1. LEGAL PROCEEDINGS.
See December 31, 1995 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 May 3, 1996. The
matters voted upon were as follows:
Proposal 1. The shareholders elected Jerry H. Ballengee,
Richard W. Cardin, Vincent J. Lewis and
Stirton Oman, Jr. to serve the Company as
directors for a three-year term. Dale A.
Keasling was elected to serve as a director
for a two-year term. Directors of the
Company who are continuing their terms are
Dwight C. Baum, Thomas J. Garland, Gene C.
Koonce, Dennis L. Mewberry, Timothy W.
Triplett and George C. Woodruff, Jr. (See
Amended By-laws of the Company filed with
this report as Exhibit 3.02)
Proposal 2. The shareholders approved an amendment to the
Company's Articles of Incorporation
concerning directors' liability. (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:
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD NON-VOTE
--- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Proposal 1. Ballengee 10,838,126 - 235,913 -
Cardin 10,835,838 - 238,200 1
Keasling 10,830,211 - 243,828 -
Lewis 10,853,059 - 220,979 1
Oman 10,844,773 - 229,266 -
Proposal 2. 10,571,702 331,691 157,190 13,456
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits-See list of Exhibits on page 15 hereof.
(b) The following Form 8-Ks were filed during the quarter
ended June 30, 1996:
1. Form 8-K, Item 5 dated May 6, 1996.
2. Form 8-K, Item 5 dated May 29, 1996.
3. Form 8-K, Item 5 dated June 3, 1996.
14
<PAGE> 15
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
LIST OF EXHIBITS
3.01* Amended Articles of Incorporation of Company as Amended May 3,
1996.
3.02* Amended By-Laws of Company as Amended May 3, 1996.
12.01* Computation of Ratio of Consolidated Earnings to Fixed Charges.
27.1* Financial Data Schedule
Restated March 31, 1996 (for SEC use only)
27.2* Financial Data Schedule (for SEC use only)
* previously filed
15
<PAGE> 16
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 22, 1996
16
