<PAGE> 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 March 31, 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 0-1284-1
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 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 April 30, 1996, 12,831,577 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 March 31, 1996
Table of Contents
<TABLE>
<CAPTION>
Item Page
Number PART I -- FINANCIAL INFORMATION Number
- ------ ------
<S> <C> <C>
1 Financial Statements:
Consolidated Statements of Income (Unaudited) for the Three and 3
Twelve Months Ended March 31, 1996 and March 31, 1995.
Consolidated Statements of Cash Flows (Unaudited) for the Three and 4
Twelve Months Ended March 31, 1996 and March 31, 1995.
Consolidated Balance Sheets at March 31, 1996 (Unaudited) and 5
December 31, 1995.
Consolidated Statements of Capitalization at March 31, 1996 6
(Unaudited) and December 31, 1995.
Notes to Consolidated Financial Statements. 7
2 Management's Discussion and Analysis of Financial Condition 8
and Results of Operations.
PART II -- OTHER INFORMATION
1 Legal Proceedings. 12
6 Exhibits and Reports on Form 8-K. 12
List of Exhibits. 13
Signature 14
</TABLE>
2
<PAGE> 3
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ -------------------
(Unaudited, in thousands, except per share amounts) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
UTILITY OPERATING REVENUES............................. $143,847 $106,006 $309,701 $262,798
Natural gas cost.................................... 93,267 61,922 190,521 154,888
-------- -------- -------- --------
UTILITY OPERATING MARGIN............................... 50,580 44,084 119,180 107,910
-------- -------- -------- --------
OTHER UTILITY OPERATING EXPENSES:
Operations and maintenance.......................... 16,125 15,240 62,713 57,653
Depreciation and amortization....................... 4,220 3,664 15,675 14,170
Federal and state income taxes...................... 8,676 6,878 5,848 3,511
Other taxes......................................... 3,459 3,419 12,339 11,099
-------- -------- -------- --------
Total other utility operating expenses............ 32,480 29,201 96,575 86,433
-------- -------- -------- --------
UTILITY OPERATING INCOME............................... 18,100 14,883 22,605 21,477
OTHER UTILITY INCOME (EXPENSE), NET OF TAX............. 159 (42) 856 (228)
-------- -------- -------- --------
18,259 14,841 23,461 21,249
-------- -------- -------- --------
UTILITY INTEREST EXPENSE:
Interest on long-term debt.......................... 3,313 3,037 12,308 12,242
Other interest expense.............................. 422 701 1,988 2,164
-------- -------- -------- --------
Total utility interest expense.................... 3,735 3,738 14,296 14,406
-------- -------- -------- --------
UTILITY INCOME......................................... 14,524 11,103 9,165 6,843
-------- -------- -------- --------
OTHER INCOME:
Operations of UCG Energy Corporation-
Revenues......................................... 18,672 12,383 40,722 37,024
Operating expenses............................... (14,604) (8,762) (31,467) (27,962)
Interest expense................................. (363) (238) (1,317) (826)
Depreciation and amortization.................... (914) (984) (4,308) (3,675)
Other income, net................................ 1,531 941 2,920 1,506
Federal and state income taxes................... (1,641) (1,267) (2,492) (2,302)
-------- -------- -------- --------
2,681 2,073 4,058 3,765
-------- -------- -------- --------
Operations of United Cities Gas Storage Company-
Revenues......................................... 2,989 1,883 8,549 5,994
Operating expenses............................... (2,392) (1,313) (5,984) (3,755)
Interest expense................................. (222) (231) (955) (929)
Depreciation..................................... (98) (92) (374) (367)
Federal and state income taxes................... (108) (96) (477) (367)
-------- -------- -------- --------
169 151 759 576
-------- -------- -------- --------
COMMON STOCK EARNINGS.................................. $ 17,374 $ 13,327 $ 13,982 $ 11,184
======== ======== ======== ========
COMMON STOCK EARNINGS PER SHARE........................ $ 1.36 $ 1.25 $ 1.14 $ 1.07
======== ======== ======== ========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING............ 12,755 10,673 12,306 10,493
======== ======== ======== ========
COMMON STOCK DIVIDENDS PER SHARE....................... $ 0.255 $ 0.255 $ 1.02 $ 1.01
======== ======== ======== ========
</TABLE>
3
<PAGE> 4
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ -------------------
(Unaudited, in thousands) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Common stock earnings.................................................. $ 17,374 $ 13,327 $ 13,982 $ 11,184
-------- -------- -------- --------
Adjustments to reconcile common stock earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization........................................ 5,232 4,740 20,357 18,212
Deferred taxes....................................................... (46) 6 1,728 1,379
Investment tax credits, net.......................................... (90) (91) (363) (369)
Investment income from Woodward Marketing, L.L.C..................... (1,267) (574) (2,047) (574)
Changes in current assets and current liabilities:
Receivables........................................................ (6,349) 7,038 (24,574) 10,541
Materials and supplies............................................. (70) (239) 435 (118)
Gas in storage..................................................... 9,384 15,738 3,454 (387)
Gas costs to be billed in the future............................... 4,432 4,724 (48) (2,115)
Prepayments and other.............................................. 871 1,065 (176) 1,110
Accounts payable................................................... 1,610 (8,058) 9,812 (7,893)
Customer deposits and advance payments............................. (4,612) (3,214) (3,493) 2,903
Accrued interest................................................... 2,741 2,203 805 (296)
Supplier refunds due customers..................................... 2,953 5,622 (1,656) 1,262
Accrued taxes...................................................... 13,004 5,330 5,719 451
Other, net......................................................... 1,623 (1,299) 1,827 (2,233)
-------- -------- -------- --------
Total adjustments................................................ 29,416 32,991 11,780 21,873
-------- -------- -------- --------
Net cash provided by operating activities...................... 46,790 46,318 25,762 33,057
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property - utility........................................ (7,047) (9,713) (32,494) (33,267)
Additions to property - non-utility.................................... (1,607) (1,148) (5,385) (4,781)
Investment in Woodward Marketing, L.L.C., net.......................... 215 - (617) -
-------- -------- -------- --------
Net cash used in investing activities.......................... (8,439) (10,861) (38,496) (38,048)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings - net............................................ (24,010) (28,127) (9,758) 18,061
Proceeds from issuance of long-term debt............................... - - 27,000 4,220
Proceeds from issuance of common stock................................. 583 1,310 22,587 (7,780)
Long-term debt retirements............................................. (3,359) (4,498) (5,208) (9,302)
Dividends paid......................................................... (2,745) (2,367) (10,584) -
-------- -------- -------- --------
Net cash provided by (used in) financing activities............ (29,531) (33,682) 24,037 5,199
-------- -------- -------- --------
NET INCREASE IN CASH AND TEMPORARY INVESTMENTS........................... 8,820 1,775 11,303 208
CASH AND TEMPORARY INVESTMENTS AT BEGINNING OF PERIOD.................... 7,002 2,744 4,519 4,311
-------- -------- -------- --------
CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD.......................... $ 15,822 $ 4,519 $ 15,822 $ 4,519
======== ======== ======== ========
CASH PAID DURING THE PERIOD FOR:
Interest, net of amounts capitalized................................... $ 1,414 $ 1,999 $ 15,579 $ 16,478
======== ======== ======== ========
Income taxes........................................................... $ 278 $ 2,168 $ 6,733 $ 5,525
======== ======== ======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Dividends reinvested................................................... $ 507 $ 360 $ 1,946 $ 1,311
======== ======== ======== ========
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 -
======== ======== ======== ========
</TABLE>
4
<PAGE> 5
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(In thousands) 1996 1995
-------- --------
ASSETS (Unaudited)
<S> <C> <C>
UTILITY PLANT:
Plant in service, at cost................................ $451,766 $445,058
Less-accumulated depreciation.......................... 162,407 157,968
-------- --------
289,359 287,090
-------- --------
NON-UTILITY PROPERTY:
Property, plant, and equipment........................... 72,215 67,423
Less-accumulated depreciation.......................... 20,120 19,501
-------- --------
52,095 47,922
-------- --------
CURRENT ASSETS:
Cash and temporary investments........................... 15,822 7,002
Receivables, less allowance for uncollectible accounts
of $1,944 in 1996 and $1,352 in 1995................... 60,866 54,517
Materials and supplies................................... 4,984 4,914
Gas in storage........................................... 7,259 16,643
Gas costs to be billed in the future..................... 11,281 15,713
Prepayments and other.................................... 1,157 2,028
-------- --------
101,369 100,817
-------- --------
DEFERRED CHARGES:
Unamortized debt discount and expense, net............... 2,852 2,896
Investment in Woodward Marketing, L.L.C., net............ 7,968 7,012
Non-compete agreements, net.............................. 3,341 3,259
Deferred system improvement costs, net................... 661 814
Other deferred charges................................... 10,865 10,567
-------- --------
25,687 24,548
-------- --------
$468,510 $460,377
======== ========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock equity...................................... $161,283 $146,071
Long-term debt........................................... 162,998 163,160
-------- --------
324,281 309,231
-------- --------
CURRENT LIABILITIES:
Current portion of long-term obligations................. 8,915 9,155
Notes payable............................................ 8,303 32,313
Accounts payable for gas costs........................... 26,391 24,433
Other accounts payable................................... 4,536 4,884
Accrued taxes............................................ 17,424 4,420
Customer deposits and advance payments................... 7,466 12,078
Accrued interest......................................... 6,353 3,612
Supplier refunds due customers........................... 9,407 6,454
Other.................................................... 10,183 8,580
-------- --------
98,978 105,929
-------- --------
DEFERRED CREDITS:
Accumulated deferred income tax.......................... 31,567 31,599
Deferred investment tax credits.......................... 4,191 4,281
Income taxes due customers............................... 5,129 5,190
Other.................................................... 4,364 4,147
-------- --------
45,251 45,217
-------- --------
$468,510 $460,377
======== ========
</TABLE>
5
<PAGE> 6
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(In thousands, except share amounts) 1996 1995
COMMON STOCK EQUITY: (UNAUDITED)
-------------------- -------------------
<S> <C> <C> <C> <C>
Common stock without par value, authorized
40,000,000 shares, outstanding 12,796,606 in
1996 and 12,727,280 in 1995........................................ $102,825 $101,735
Capital surplus...................................................... 22,462 22,462
Retained earnings.................................................... 35,996 21,874
-------- --------
Total common stock equity.......................................... 161,283 49.7% 146,071 47.2%
-------- ------ -------- ------
LONG-TERM DEBT:
First mortgage bonds ................................................ 122,000 125,000
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......................................... 9,785 9,926
Rental property adjustable rate term notes due in
installments through 1999......................................... 5,573 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...................................................... 5,000 5,000
Other long-term obligations due in installments through 2004......... 5,263 2,406
-------- --------
171,913 172,315
Less-current requirements........................................ 8,915 9,155
-------- --------
Total long-term debt, excluding amounts due within one year...... 162,998 50.3% 163,160 52.8%
-------- ------ -------- ------
TOTAL CAPITALIZATION..................................................... $324,281 100.0% $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 month period
ended March 31, 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 (SFAS 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.
Certain reclassifications were made conforming prior year's financial
statements with 1996 financial statement presentation.
7
<PAGE> 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 1996 first quarter common stock earnings were
$17,374,000 compared to the first quarter 1995 earnings of $13,327,000.
The earnings per common share in the first quarter of 1996 was $1.36 on
an additional 2,082,000 average number of share outstanding compared to
$1.25 for the first quarter of 1995. Common stock earnings for the
twelve month period ended March 31, 1996, were $13,982,000 compared to
$11,184,000 for the twelve month period ended March 31, 1995. Common
stock earnings per share increased from $1.07 in the twelve month
period in 1995 to $1.14 in the twelve month period in 1996. Average
shares outstanding increased by 1,813,000 for the twelve month period
ended March 31, 1996. The increase in average number of shares
outstanding in the three and twelve month periods includes the June
1995 issuance of 1,380,000 shares of common stock in an underwritten
public offering.
The following table summarizes certain information regarding the
operation of each segment of the Company's business for the periods
ended March 31:
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
------------------ -------------------
(Unaudited, in thousands) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Utility............................. $143,847 $106,006 $309,701 $262,798
-------- -------- -------- --------
Subsidiaries:
UCG Energy Corporation-
Propane Division................ 16,868 9,018 32,500 20,375
Rental Division................. 1,119 1,531 5,548 6,336
Utility Services Division....... 685 1,834 2,674 10,313
-------- -------- -------- --------
Total UCG Energy Corporation.. 18,672 12,383 40,722 37,024
United Cities Gas Storage Company. 2,989 1,883 8,549 5,994
-------- -------- -------- --------
Total Subsidiaries............ 21,661 14,266 49,271 43,018
-------- -------- -------- --------
Total Operating Revenues............ $165,508 $120,272 $358,972 $305,816
======== ======== ======== ========
COMMON STOCK EARNINGS:
Utility............................. $ 14,524 $ 11,103 $ 9,165 $ 6,843
-------- -------- -------- --------
Subsidiaries:
UCG Energy Corporation-
Propane Division................ 1,583 1,186 1,521 914
Rental Division................. 359 434 1,617 1,944
Utility Services Division....... 739 453 920 907
-------- -------- -------- --------
Total UCG Energy Corporation.. 2,681 2,073 4,058 3,765
United Cities Gas Storage Company. 169 151 759 576
-------- -------- -------- --------
Total Subsidiaries............ 2,850 2,224 4,817 4,341
-------- -------- -------- --------
Total Common Stock Earnings......... $ 17,374 $ 13,327 $ 13,982 $ 11,184
======== ======== ======== ========
</TABLE>
OPERATING RESULTS-UTILITY
The utility earnings increased by $3,421,000 and $2,322,000,
respectively, for the three and twelve month periods in 1996 from the
comparable 1995 periods due predominantly to the factors mentioned
below:
The operating margin for the first quarter increased from
$44,084,000 in 1995 to $50,580,000 in 1996. The operating margin for
the twelve month period ended March 31, 1996, was $119,180,000 compared
to $107,910,000 for the twelve month period ended March 31, 1995. The
increase in both periods is a result of the colder weather in 1996 as
compared to 1995; rate increases in South Carolina, Kansas, Virginia,
Missouri and Tennessee; volumes sold to new residential and commercial
natural gas customers; and the additional revenues from certain
interruptible customers who did not go off the Company's system when
curtailed during the first quarter of 1996.
Operations and maintenance expenses other than natural gas cost
increased $885,000 in the first quarter and $5,060,000 in the twelve
month period ended March 31, 1996, as compared to the previous year
periods, primarily due to increased payroll and related
benefits. In addition, the increase in operations and maintenance
expenses in the twelve month period can be
8
<PAGE> 9
ITEM 2. CONTINUED
attributed to increased outside services expense and additional
expenses resulting from the consolidation of operations in the
Company's Virginia/East Tennessee Division in the third quarter of
1995. The increase in outside services expense is primarily a result
of incremental expenses related to addressing labor and personnel
related activities, strategic planning and the 1995 Internal Revenue
Service audit.
Depreciation and amortization expense and other taxes increased in
the first quarter and twelve month period from the previous year
periods primarily due to additional plant in service. Federal and
state income taxes varied in both periods in relation to changes in
income.
Other income (expense), net of tax increased in the first quarter
and twelve month period from the previous year periods primarily as a
result of revenues from the incentive rate program in Tennessee and, as
allowed by certain regulatory commissions in the states in which the
Company operates, there was an increased amount of revenues recognized
by the Company related to the release of its excess firm capacity on
the pipelines which serve the Company. In addition, the increase in
Other income (expense), net of tax in both periods can be attributed to
increased interest income on deferred gas costs that are to be billed
in the future. In the twelve month period, the increase 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 28 mile main in Middle Tennessee.
Interest expense in the first quarter of 1996 varied only slightly
from the previous year period. 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 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 28 mile main in Middle Tennessee. This increase was
somewhat offset by increased interest on miscellaneous liabilities
outstanding during the period and interest on increased long-term debt.
The table below reflects operating revenues, natural gas
through-put and weather data for the periods ended March 31:
<TABLE>
<CAPTION>
OPERATING STATISTICS-UTILITY
THREE MONTHS ENDED TWELVE MONTHS ENDED
------------------ -------------------
(Unaudited, in thousands) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
UTILITY OPERATING REVENUES:
--------------------------
Residential....................... $74,808 $54,666 $147,745 $119,501
Commercial........................ 40,322 29,237 82,053 67,558
Industrial........................ 21,778 19,024 63,529 66,388
Transportation.................... 2,850 2,101 8,851 7,656
Other Revenues.................... 4,089 978 7,523 1,695
-------- -------- -------- --------
Total........................ $143,847 $106,006 $309,701 $262,798
======== ======== ======== ========
NATURAL GAS THROUGH-PUT (MCF):
-----------------------------
Residential....................... 12,526 10,366 25,061 20,749
Commercial........................ 7,200 6,245 16,120 13,922
Industrial-
Firm............................ 2,440 2,439 7,371 7,898
Interruptible................... 3,024 3,347 11,551 11,492
-------- -------- -------- --------
25,190 22,397 60,103 54,061
Transportation.................... 4,358 4,283 17,259 14,190
-------- -------- -------- --------
Total........................ 29,548 26,680 77,362 68,251
======== ======== ======== ========
WEATHER DATA-COLDER (WARMER)
THAN NORMAL*...................... 6.2% (11.7%) 7.3% (14.7%)
======== ======== ======== ========
</TABLE>
*Based on system weighted average. Data for 1996 is preliminary.
9
<PAGE> 10
ITEM 2. CONTINUED
OPERATING RESULTS-NON-UTILITY
Revenues of UCG Energy Corporation (UCG Energy) increased from
$12,383,000 in the first quarter of 1995 to $18,672,000 in the first
quarter of 1996. Revenues increased from $37,024,000 for the twelve
months ended March 31, 1995, to $40,722,000 for the twelve months ended
March 31, 1996. The propane division's revenues increased in the first
quarter and twelve month periods due to increased retail and wholesale
volumes sold and increased transport revenues, both due to colder than
normal weather and the acquisitions of Harrell Propane, Inc. in January
1995, Transpro South, Inc. in May 1995 and Duncan Gas Service in
January 1996. Revenues in the utility services division decreased from
1995 in both periods as a result of decreased gas brokerage sales to
certain industrial customers and others primarily because of the
transfer of certain gas brokerage contracts to Woodward Marketing,
L.L.C. (WMLLC) and the discontinuance of the distribution of energy
related products. The rental division's revenues decreased from the
first quarter and twelve months ended 1995 due to the elimination of
certain revenues as a result of the transfer of certain rental units to
the utility company.
Expenses of UCG Energy, including cost of sales, increased from
$8,762,000 in the first quarter of 1995 to $14,604,000 in the first
quarter of 1996 and from $27,962,000 in the twelve month period ended
March 31, 1995, to $31,467,000 in the twelve month period ended March
31, 1996. Expenses increased in both periods in the propane division
as a result of the cost of increased propane volumes sold and increased
administrative and general expenses. These increases were due to
colder than normal weather and the acquisitions of Harrell Propane,
Inc., Transpro South, Inc. and Duncan Gas Service. Expenses of the
utility services division decreased in both periods as a result of
lower cost of sales from decreased brokerage activities and the
discontinuance of the distribution of energy-related products. Expenses
increased only slightly in both periods from the previous year in the
rental division.
Other income, net of UCG Energy increased $590,000 and $1,414,000,
respectively, in the first quarter and twelve month periods primarily
as a result of increased investment income from WMLLC in the amounts of
$693,000 and $1,473,000, respectively, for those periods.
UCG Energy's net income increased from $2,073,000 and $3,765,000,
respectively, in the first quarter and twelve month periods ended March
31, 1995, to $2,681,000 and $4,058,000, respectively, for those same
periods ended March 31, 1996. The increase in net income for the first
quarter can be attributed to increased sales in the propane division
and increased investment income from WMLLC. 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
revenues in the rental division. The increase in investment income
from WMLLC for the same 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, to be paid over a ten year period. This
acquisition added approximately 2,000 customers in the Johnson City,
Tennessee area.
United Cities Gas Storage Company had net income for the three and
twelve month periods of $169,000 and $759,000, respectively, as
compared to $151,000 and $576,000 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 and twelve month
periods ended March 31, 1996 was $46,790,000 and $25,762,000,
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.
10
<PAGE> 11
ITEM 2. CONTINUED
The financing activities for the three 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. The financing
activities of the twelve month period also included the issuance in
June 1995 of 1,380,000 shares of common stock in an underwritten public
offering with net proceeds from the sale amounting to approximately
$18,900,000. In addition, $22,000,000 of medium-term notes and a
$5,000,000 term note in UCPT 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 March 31, 1996, specific
purchases and construction projects amounting to $7,805,000 of its 1996
utility capital budget of $29,000,000 and $6,194,000 of its non-utility
capital budget of $7,800,000. Total capital expenditures for 1997,
1998 and 1999 are anticipated to be approximately $32,000,000 in each
year, based on information currently available, which is subject to
change.
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 (SFAS 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.
The Company believes its short-term lines of credit are sufficient
to meet anticipated short-term requirements. At March 31, 1996, 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 the prime rate or a negotiated rate during the term of each
borrowing. Under these arrangements, $8,303,000 in short-term debt was
outstanding at March 31, 1996.
11
<PAGE> 12
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See December 31, 1995 Form 10-K and Part I of this filing.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits-See list of Exhibits on page 13 hereof.
(b) The following Form 8-K was filed during the quarter ended
March 31, 1996:
1. Form 8-K, Item 5 dated February 16, 1996.
12
<PAGE> 13
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
LIST OF EXHIBITS
12.01 Computation of Ratio of Consolidated Earnings to Fixed Charges.
(Page 15).
27 Financial Data Schedule (for SEC use only).
13
<PAGE> 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: May 13, 1996
14
<PAGE> 1
EXHIBIT 12.01
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES
FOR THE TWELVE MONTHS ENDED
<TABLE>
<CAPTION>
(Unaudited, in thousands, except ratio amounts)
3-31-96 12-31-95 12-31-94 12-31-93 12-31-92 12-31-91
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges, as defined:
Interest on long-term debt...................... $14,038 $13,697 $14,026 $14,553 $12,965 $11,111
Amortization of debt discount................... 237 227 227 220 181 233
------- ------- ------- ------- ------- -------
Total........................................ $14,275 $13,924 $14,253 $14,773 $13,146 $11,344
======= ======= ======= ======= ======= =======
Earnings, as defined:
Net income...................................... $13,982 $9,935 $12,093 $12,150 $10,218 $7,875
Taxes on income................................. 9,258 6,970 6,503 5,681 5,171 2,564
Fixed charges, as above......................... 14,275 13,924 14,253 14,773 13,146 11,344
------- ------- ------- ------- ------- -------
Total........................................ $37,515 $30,829 $32,849 $32,604 $28,535 $21,783
======= ======= ======= ======= ======= =======
Ratio of Consolidated Earnings to Fixed Charges.... 2.63 2.21 2.30 2.21 2.17 1.92
======= ======= ======= ======= ======= =======
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF INCOME, CASH
FLOWS AND CAPITALIZATION, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 289,359
<OTHER-PROPERTY-AND-INVEST> 52,095
<TOTAL-CURRENT-ASSETS> 101,369
<TOTAL-DEFERRED-CHARGES> 25,687
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 468,510
<COMMON> 102,825
<CAPITAL-SURPLUS-PAID-IN> 22,462
<RETAINED-EARNINGS> 35,996
<TOTAL-COMMON-STOCKHOLDERS-EQ> 161,283
0
0
<LONG-TERM-DEBT-NET> 162,998
<SHORT-TERM-NOTES> 8,303
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 8,915
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 127,011
<TOT-CAPITALIZATION-AND-LIAB> 468,510
<GROSS-OPERATING-REVENUE> 143,847
<INCOME-TAX-EXPENSE> 8,676
<OTHER-OPERATING-EXPENSES> 117,071
<TOTAL-OPERATING-EXPENSES> 125,747
<OPERATING-INCOME-LOSS> 18,100
<OTHER-INCOME-NET> 3,009
<INCOME-BEFORE-INTEREST-EXPEN> 21,109
<TOTAL-INTEREST-EXPENSE> 3,735
<NET-INCOME> 17,374
0
<EARNINGS-AVAILABLE-FOR-COMM> 17,374
<COMMON-STOCK-DIVIDENDS> 3,252
<TOTAL-INTEREST-ON-BONDS> 2,959
<CASH-FLOW-OPERATIONS> 46,790
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.36
</TABLE>
