<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, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
-------------- --------------
Commission file 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, 1997, 13,283,787 shares of the common stock of the Registrant
were outstanding.
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<PAGE> 2
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
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 3
Three and Twelve Months Ended March 31, 1997 and
March 31, 1996.
Consolidated Statements of Cash Flows (Unaudited) for the 4
Three and Twelve Months Ended March 31, 1997 and
March 31, 1996.
Consolidated Balance Sheets at March 31, 1997 (Unaudited) and 5
December 31, 1996.
Consolidated Statements of Capitalization at March 31, 1997 6
(Unaudited) and December 31, 1996.
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) .... 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
UTILITY OPERATING REVENUES ............................. $ 147,448 $ 144,709 $ 356,120 $ 310,563
Natural gas cost .................................... 96,886 93,803 230,448 191,057
--------- --------- --------- ---------
UTILITY OPERATING MARGIN ............................... 50,562 50,906 125,672 119,506
--------- --------- --------- ---------
OTHER UTILITY OPERATING EXPENSES:
Operations and maintenance .......................... 15,873 16,250 62,328 62,838
Depreciation and amortization ....................... 4,290 4,246 16,658 15,701
Federal and state income taxes ...................... 8,789 8,676 7,136 5,848
Other taxes ......................................... 3,656 3,471 12,776 12,350
--------- --------- --------- ---------
Total other utility operating expenses ............ 32,608 32,643 98,898 96,737
--------- --------- --------- ---------
UTILITY OPERATING INCOME ............................... 17,954 18,263 26,774 22,769
OTHER UTILITY INCOME, NET OF TAX ....................... 107 152 424 848
--------- --------- --------- ---------
18,061 18,415 27,198 23,617
--------- --------- --------- ---------
UTILITY INTEREST EXPENSE:
Interest on long-term debt .......................... 3,119 3,316 12,575 12,311
Other interest expense .............................. 933 426 2,495 1,992
--------- --------- --------- ---------
Total utility interest expense .................... 4,052 3,742 15,070 14,303
--------- --------- --------- ---------
UTILITY INCOME ......................................... 14,009 14,673 12,128 9,314
--------- --------- --------- ---------
OTHER INCOME:
Operations of UCG Energy Corporation-
Revenues ......................................... 13,748 18,672 38,977 40,722
Operating expenses ............................... (11,318) (14,604) (32,660) (31,467)
Interest expense ................................. (340) (363) (1,343) (1,317)
Depreciation and amortization .................... (1,005) (914) (3,910) (4,308)
Other income, net ................................ 2,058 1,531 3,569 2,920
Federal and state income taxes ................... (1,193) (1,641) (1,759) (2,492)
--------- --------- --------- ---------
1,950 2,681 2,874 4,058
--------- --------- --------- ---------
Operations of United Cities Gas Storage Company-
Revenues ......................................... 1,593 2,989 4,268 8,549
Operating expenses ............................... (1,027) (2,392) (1,750) (5,984)
Interest expense ................................. (213) (222) (832) (955)
Depreciation ..................................... (100) (98) (396) (374)
Federal and state income taxes ................... (98) (108) (499) (477)
--------- --------- --------- ---------
155 169 791 759
--------- --------- --------- ---------
NET INCOME ............................................. $ 16,114 $ 17,523 $ 15,793 $ 14,131
========= ========= ========= =========
NET INCOME PER SHARE ................................... $ 1.22 $ 1.35 $ 1.20 $ 1.14
========= ========= ========= =========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ............ 13,242 12,962 13,156 12,358
========= ========= ========= =========
COMMON STOCK DIVIDENDS PER SHARE ....................... $ 0.255 $ 0.255 $ 1.02 $ 1.02
========= ========= ========= =========
</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) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................... $ 16,114 $ 17,523 $ 15,793 $ 14,131
--------- --------- --------- ---------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization ............................. 5,395 5,258 20,964 20,383
Deferred taxes ............................................ (45) (46) 1,579 1,728
Investment tax credits, net ............................... (90) (90) (362) (363)
Investment income from Woodward Marketing, LLC ............ (1,868) (1,267) (2,599) (2,047)
Changes in current assets and current liabilities:
Receivables ............................................ 17,005 (6,698) 9,287 (24,923)
Materials and supplies ................................. 79 (70) (359) 435
Gas in storage ......................................... 12,322 9,367 (9,100) 3,437
Gas costs to be billed in the future ................... 4,528 4,432 2,688 (48)
Prepayments and other .................................. 640 843 (1,562) (204)
Accounts payable ....................................... (29,542) 1,863 (15,367) 10,065
Customer deposits and advance payments ................. (2,953) (4,600) 446 (3,481)
Accrued interest ....................................... 3,257 2,744 380 808
Supplier refunds due customers ......................... 7,285 2,912 (1,280) (1,697)
Accrued taxes .......................................... 7,689 13,015 1,198 5,730
Other, net ............................................. 43 2,011 (1,230) 2,215
--------- --------- --------- ---------
Total adjustments .................................. 23,745 29,674 4,683 12,038
--------- --------- --------- ---------
Net cash provided by operating activities ........ 39,859 47,197 20,476 26,169
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property - utility ............................... (7,426) (7,106) (33,087) (32,553)
Additions to property - non-utility ........................... (1,236) (1,607) (6,201) (5,385)
Investment in Woodward Marketing, LLC, net .................... 125 215 705 (617)
--------- --------- --------- ---------
Net cash used in investing activities ............ (8,537) (8,498) (38,583) (38,555)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings - net ................................... (23,631) (24,010) 33,754 (9,758)
Proceeds from issuance of long-term debt ...................... -- -- -- 27,000
Proceeds from issuance of common stock ........................ 613 583 2,670 22,587
Long-term debt retirements .................................... (2,346) (3,359) (12,804) (5,208)
Dividends paid ................................................ (2,741) (2,745) (11,058) (10,584)
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities ............................. (28,105) (29,531) 12,562 24,037
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS ........ 3,217 9,168 (5,545) 11,651
CASH AND TEMPORARY INVESTMENTS AT BEGINNING OF PERIOD ............ 7,408 7,002 16,170 4,519
--------- --------- --------- ---------
CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD .................. $ 10,625 $ 16,170 $ 10,625 $ 16,170
========= ========= ========= =========
CASH PAID DURING THE PERIOD FOR:
Interest, net of amounts capitalized .......................... $ 1,334 $ 1,414 $ 16,981 $ 15,579
========= ========= ========= =========
Income taxes .................................................. $ 1,373 $ 278 $ 8,978 $ 6,733
========= ========= ========= =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Dividends reinvested .......................................... $ 636 $ 507 $ 2,310 $ 1,946
========= ========= ========= =========
Debt incurred to acquire assets of Harlan LP Gas, Inc ......... $ 1,000 -- $ 1,000 --
========= ========= ========= =========
Debt incurred to acquire assets of Duncan Gas Service ......... -- $ 2,957 -- $ 2,957
========= ========= ========= =========
Common stock issued in investment in Woodward Marketing, LLC .. -- -- -- $ 5,000
========= ========= ========= =========
Increase in common stock equity due to acquisition of
Monarch Gas Company ........................................... -- $ 2,433 -- $ 2,433
========= ========= ========= =========
</TABLE>
4
<PAGE> 5
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(In thousands) 1997 1996
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
UTILITY PLANT:
Plant in service, at cost ................................. $485,173 $477,832
Less-accumulated depreciation ........................... 179,919 175,156
-------- --------
305,254 302,676
-------- --------
NON-UTILITY PROPERTY:
Property, plant, and equipment ............................ 77,684 76,480
Less-accumulated depreciation ........................... 21,405 21,536
-------- --------
56,279 54,944
-------- --------
CURRENT ASSETS:
Cash and temporary investments ............................ 10,625 7,408
Receivables, less allowance for uncollectible accounts
of $2,547 in 1997 and $1,746 in 1996 .................... 51,928 68,933
Materials and supplies .................................... 5,343 5,422
Gas in storage ............................................ 16,376 28,698
Gas costs to be billed in the future ...................... 8,593 13,121
Prepayments and other ..................................... 2,747 3,387
-------- --------
95,612 126,969
-------- --------
DEFERRED CHARGES:
Unamortized debt discount and expense, net ................ 2,716 2,775
Investment in Woodward Marketing, LLC, net ................ 9,706 8,062
Non-compete agreements, net ............................... 3,139 3,183
Other deferred charges .................................... 14,918 15,040
-------- --------
30,479 29,060
-------- --------
$487,624 $513,649
======== ========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock equity ....................................... $171,270 $157,284
Long-term debt ............................................ 152,364 153,859
-------- --------
323,634 311,143
-------- --------
CURRENT LIABILITIES:
Current portion of long-term obligations .................. 7,828 7,679
Notes payable ............................................. 42,057 65,688
Accounts payable for gas costs ............................ 12,831 39,486
Other accounts payable .................................... 2,982 5,869
Accrued taxes ............................................. 18,633 10,944
Customer deposits and advance payments .................... 7,924 10,877
Accrued interest .......................................... 6,736 3,479
Supplier refunds due customers ............................ 8,086 801
Other ..................................................... 10,788 11,514
-------- --------
117,865 156,337
-------- --------
DEFERRED CREDITS:
Accumulated deferred income tax ........................... 32,999 33,017
Deferred investment tax credits ........................... 3,846 3,936
Income taxes due customers ................................ 4,881 4,943
Other ..................................................... 4,399 4,273
-------- --------
46,125 46,169
-------- --------
$487,624 $513,649
======== ========
</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) 1997 1996
---------------------------- ----------------------------
(Unaudited)
<S> <C> <C> <C> <C>
COMMON STOCK EQUITY:
Common stock without par value, authorized
40,000,000 shares, outstanding 13,277,584 in
1997 and 13,220,538 in 1996.................................... $109,305 $108,056
Capital surplus.................................................. 22,462 22,462
Retained earnings................................................ 39,503 26,766
---------------- --------------
Total common stock equity...................................... 171,270 52.9% 157,284 50.6%
---------------- ----------- -------------- -------
LONG-TERM DEBT:
First mortgage bonds............................................. 113,000 115,000
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...................................... 9,200 9,353
Rental property adjustable rate term notes due in
installments through 1999...................................... 4,368 4,497
Rental property fixed rate term note, 7.90%, due in
installments through 2013...................................... 2,161 2,161
Propane term note, 6.99%, due in installments
through 2002................................................... 4,500 4,500
Other long-term obligations due in installments through 2005..... 4,963 4,027
---------------- --------------
160,192 161,538
Less-current requirements.................................... 7,828 7,679
---------------- --------------
Total long-term debt, excluding amounts due within one year.. 152,364 47.1% 153,859 49.4%
---------------- ----------- -------------- -------
TOTAL CAPITALIZATION $323,634 100.0% $311,143 100.0%
================ =========== ============== =======
</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, 1996.
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, 1997, are not necessarily indicative of the results to be
expected for the full year.
Effective February 28, 1997, United Cities Propane Gas of Tennessee, Inc.
(UCPT), a subsidiary of UCG Energy Corporation (UCG Energy), purchased
substantially all of the propane assets of Harlan LP Gas, Inc., a retail
propane distribution company, and Propane Sales and Service, Inc., a wholesale
propane distribution company, for approximately $2,040,000. In addition, UCPT
entered into four ten-year non-compete agreements with the prior owners
totaling $150,000 to be paid over a ten-year period. This acquisition added
approximately 3,100 propane customers in the Harlan, Kentucky and New Tazewell,
Tennessee areas.
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. The transaction was approved by the shareholders of the Company and
Atmos on November 12, 1996. The Company and Atmos have received regulatory
approval for the merger in all the states in which they operate that require
approval, except Illinois. In a proposed order dated April 7, 1997, the Illinois
hearing examiner recommended that the Illinois Commerce Commission deny approval
of the merger. The Company is currently working with the Illinois Commerce
Commission staff to resolve the issues in the proposed order. The Company
expects to be successful in resolving these issues and the merger to be approved
by mid-summer, 1997. Atmos is based in Dallas, Texas, and currently provides
natural gas service to approximately 680,000 customers in Texas, Colorado,
Kansas, Missouri, Louisiana and Kentucky.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (SFAS 128), "Earnings per Share." This statement establishes standards
for computing and presenting earnings per share. SFAS 128 is effective for
financial statements for both interim and annual periods ending after December
15, 1997. Earlier application is not permitted. On a proforma basis for the
periods presented herein, the net income per share as calculated under SFAS 128
is not materially different than the amounts presented.
UCG Energy and Woodward Marketing, Inc. (WMI), sole shareholders of Woodward
Marketing, L.L.C. (WMLLC), act as guarantors of a $12,500,000 credit facility
for WMLLC with a certain bank. UCG Energy's 45% portion of the amount
outstanding on this credit facility at March 31, 1997, was $4,275,000. UCG
Energy and WMI also act as guarantors on certain purchases of natural gas and
transportation services from suppliers by WMLLC. UCG Energy's 45% portion of
these outstanding obligations amounted to $4,937,000 at March 31, 1997. UCG
Energy and WMI are jointly and severally liable for the total amount outstanding
under the above obligations.
Certain reclassifications were made conforming prior year's financial
statements with 1997 financial statement presentation. The Company's 1996
financial statements and other information have been restated to reflect the
acquisition of Monarch Gas Company.
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 1997 first quarter net income was $16,114,000
compared to the first quarter 1996 net income of $17,523,000. Net
income per share in the first quarter of 1997 was $1.22 compared to
$1.35 for the first quarter of 1996. Net income for the twelve-month
period ended March 31, 1997, was $15,793,000 compared to $14,131,000
for the twelve-month period ended March 31, 1996. Net income per
share increased from $1.14 in the twelve-month period in 1996 to
$1.20 in the twelve-month period in 1997.
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) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Utility ...................................... $147,448 $144,709 $356,120 $310,563
-------- -------- -------- --------
Subsidiaries:
UCG Energy Corporation-
Propane Division ........................ 12,559 16,868 34,064 32,500
Rental Division ......................... 1,037 1,119 4,122 5,548
Utility Services Division ............... 152 685 791 2,674
-------- -------- -------- --------
Total UCG Energy Corporation .......... 13,748 18,672 38,977 40,722
United Cities Gas Storage Company ......... 1,593 2,989 4,268 8,549
-------- -------- -------- --------
Total Subsidiaries .................... 15,341 21,661 43,245 49,271
-------- -------- -------- --------
Total Operating Revenues ..................... $162,789 $166,370 $399,365 $359,834
======== ======== ======== ========
NET INCOME:
Utility ...................................... $ 14,009 $ 14,673 $ 12,128 $ 9,314
-------- -------- -------- --------
SUBSIDIARIES:
UCG Energy Corporation-
Propane Division ........................ 719 1,583 412 1,521
Rental Division ......................... 306 359 1,184 1,617
Utility Services Division ............... 925 739 1,278 920
-------- -------- -------- --------
Total UCG Energy Corporation .......... 1,950 2,681 2,874 4,058
United Cities Gas Storage Company ......... 155 169 791 759
-------- -------- -------- --------
Total Subsidiaries .................... 2,105 2,850 3,665 4,817
-------- -------- -------- --------
Total Net Income ............................. $ 16,114 $ 17,523 $ 15,793 $ 14,131
======== ======== ======== ========
</TABLE>
OPERATING RESULTS-UTILITY
The utility income for the three months ended March 31, 1997,
decreased $664,000 from the same period in 1996 and for the
twelve-month period utility income increased $2,814,000 from the
1996 period due predominantly to the factors mentioned below:
The operating margin for the first quarter decreased from
$50,906,000 in 1996 to $50,562,000 in 1997 primarily due to the
significantly warmer weather during 1997 as compared to 1996. The
effect of the warmer weather was somewhat offset by the December
1996 rate increase in Georgia, the weather normalization adjustments
(WNAs) in Tennessee and Georgia and an increased number of natural
gas customers. During the first quarter of 1997 the net effect of
the WNAs was an increase in revenues of $3,200,000 as opposed to a
decrease in revenues of $1,200,000 in the 1996 first quarter. The
operating margin for the twelve-month period increased from
$119,506,000 in 1996 to $125,672,000 in 1997. The effect of the
warmer weather during the 1997 period was more than offset by rate
increases in various states, the weather normalization adjustments,
the Monarch Gas Company acquisition and an increased number of
natural gas customers.
8
<PAGE> 9
ITEM 2. CONTINUED
Utility operating expenses other than natural gas cost
decreased $35,000 in the first quarter and increased $2,161,000 in
the twelve-month period ended March 31, 1997, as compared to the
previous year periods. The increase in the twelve-month period is
primarily a result of increased distribution expenses and increased
leasing expense on computer related equipment. In 1996, the Company
began leasing computer related equipment as opposed to purchasing
the equipment as was done in prior years. In addition, depreciation
and amortization expense increased primarily due to additional plant
in service and other taxes increased primarily as a result of
franchise taxes on additional revenues. The effect of these
increases in utility operating expenses was somewhat offset by a
decrease in certain administrative expenses primarily attributable
to the Virginia/East Tennessee Division consolidation that occurred
in the third quarter of 1995. Five of the Company's local operations
in this division were consolidated into two new operating centers.
As a result, costs of approximately $900,000 ($550,000 after income
taxes) related to early retirement and severance programs and
employee relocation expenses were recorded in September 1995. In
addition, outside services expense decreased from the twelve-month
period ended March 31, 1996, to the current year period. Outside
services expense for the 1996 period included incremental expenses
related to addressing labor and personnel related activities,
strategic planning and the IRS audit.
Other utility income, net of tax decreased $45,000 and $424,000
in the first quarter and twelve-month period ended March 31, 1997,
respectively, as compared to the previous year periods. The decrease
in the twelve-month period is primarily a result of a decreased
amount of revenues recognized by the Company related to the release
of its excess firm capacity on the pipelines which serve the
Company. The effect of this decrease in revenues from the prior year
period was somewhat offset by additional revenues during the 1997
period from the incentive rate program in Tennessee.
Utility interest expense increased in both the first quarter
and twelve months ended March 31, 1997, as compared to the previous
year periods. Other interest expense increased in both periods
primarily as a result of increased outstanding balances of
short-term debt. In addition, other interest expense for the
twelve-month period ended March 31, 1996, was impacted by a $349,000
reduction to interest expense related to the capitalization of the
debt portion of the allowance for funds used during construction
of the twenty-eight mile main in Middle Tennessee. The effect of the
increased interest expense in the twelve-month period for the
reasons set forth above was slightly offset by decreased interest on
lower outstanding balances of miscellaneous liabilities outstanding
during the 1997 period.
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) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
UTILITY OPERATING REVENUES:
Residential ............................... $ 77,569 $ 75,408 $168,083 $148,345
Commercial ................................ 41,864 40,581 96,967 82,312
Industrial ................................ 24,531 21,778 75,554 63,529
Transportation ............................ 2,675 2,850 10,390 8,851
Other Revenues ............................ 809 4,092 5,126 7,526
-------- -------- -------- --------
Total ................................ $147,448 $144,709 $356,120 $310,563
======== ======== ======== ========
NATURAL GAS THROUGH-PUT (MCF):
Residential ............................... 10,643 12,681 23,420 25,216
Commercial ................................ 6,276 7,271 15,711 16,191
Industrial-
Firm .................................... 2,442 2,440 7,085 7,371
Interruptible ........................... 2,525 3,024 10,625 11,551
-------- -------- -------- --------
21,886 25,416 56,841 60,329
Transportation ............................ 4,828 4,358 18,082 17,259
-------- -------- -------- --------
Total ................................ 26,714 29,774 74,923 77,588
======== ======== ======== ========
WEATHER DATA-COLDER (WARMER)
THAN NORMAL* .............................. (16.1%) 6.2% (6.0%) 7.3%
======== ======== ======== ========
</TABLE>
*Based on system weighted average. Data for 1997 is preliminary.
9
<PAGE> 10
ITEM 2. CONTINUED
OPERATING RESULTS-NON-UTILITY
Revenues of UCG Energy Corporation (UCG Energy) decreased from
$18,672,000 and $40,722,000, respectively, in the first quarter and
twelve-month period ended March 31, 1996, to $13,748,000 and
$38,977,000, respectively, in the first quarter and twelve-month
period ended March 31, 1997. The propane division's revenues
decreased in the first quarter due to decreased retail and wholesale
volumes sold because of warmer than normal weather as compared to
the previous year period. For the twelve-month period, revenues
increased because of an increase in annual fees billed to customers
in October 1996, and an increase in the retail and wholesale price
of propane volumes sold as compared to the previous year period.
Revenues in the utility services division decreased from 1996 in
both periods as a result of decreased gas brokerage sales due to the
transfer of certain gas brokerage contracts to Woodward Marketing,
L.L.C. (WMLLC). The rental division's revenues decreased from the
first quarter and twelve months ended March 31, 1996, due to the
elimination of rental revenues as a result of the transfer of
certain rental units to the parent company.
Expenses of UCG Energy, including cost of sales, decreased from
$14,604,000 in the first quarter of 1996 to $11,318,000 in the first
quarter of 1997 and increased from $31,467,000 in the twelve-month
period ended March 31, 1996 to $32,660,000 in the twelve-month
period ended March 31, 1997. Expenses decreased in the first quarter
in the propane division principally as a result of lower cost of
sales from decreased propane volumes sold due to warmer than normal
weather as compared to the previous year period. Expenses increased
in the twelve-month period as a result of the increased wholesale
cost of propane volumes as compared to the previous year period.
Also, contributing to the increase was increased general and
administrative expenses due to normal increases and the acquisitions
of Duncan Gas Service in January 1996, Arrow Propane, Inc. in
September 1996 and Harlan LP Gas, Inc. and Propane Sales and
Service, Inc. in February 1997. Expenses of the utility services
division decreased in both periods as a result of lower cost of
sales from decreased brokerage activities. Expenses increased only
slightly in the quarter and twelve-month periods as compared to the
previous year periods in the rental division.
Other income, net of UCG Energy increased $527,000 and
$649,000, respectively, in the first quarter and twelve-month period
ended March 31, 1997, primarily as a result of increased investment
income from WMLLC in the amounts of $601,000 and $552,000,
respectively, as compared to the previous year periods.
UCG Energy's net income decreased from $2,681,000 and
$4,058,000, respectively, in the first quarter and twelve-month
period ended March 31, 1996, to $1,950,000 and $2,874,000,
respectively, for those same periods ended March 31, 1997. The
decrease in net income for the first quarter can be attributed to
decreased sales in the propane division partially offset by
increased investment income from WMLLC. The decrease in net income
for the twelve-month period can be primarily attributed to a
combination of decreased volume sales, increased cost of sales and
increased general and administrative expenses in the propane
division. Contributing to the decrease was reduced rental revenues
in the rental division. The decrease in net income was partially
offset by increased investment income from WMLLC.
Effective February 28, 1997, United Cities Propane Gas of
Tennessee, Inc. (UCPT), a subsidiary of UCG Energy purchased
substantially all of the propane assets of Harlan LP Gas, Inc., a
retail propane distribution company, and Propane Sales and Service,
Inc., a wholesale propane distribution company, for approximately
$2,040,000. In addition, UCPT entered into four ten-year non-compete
agreements with the prior owners totaling $150,000 to be paid over a
ten-year period. This acquisition added approximately 3,100 propane
customers in the Harlan, Kentucky and New Tazewell, Tennessee areas.
United Cities Gas Storage Company had net income for the three
and twelve-month periods ended March 31, 1997, of $155,000 and
$791,000, respectively, as compared to $169,000 and $759,000 for the
same periods in 1996. 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, 1997, was $39,859,000 and
$20,476,000, 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. The financing activities for the three and twelve-
10
<PAGE> 11
ITEM 2. CONTINUED
month periods ended March 31, 1997, 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 had authorized as of March 31, 1997, specific
purchases and construction projects amounting to $9,736,000 of its
1997 utility capital budget of $33,300,000 and $465,000 of its
non-utility capital budget of $2,600,000.
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. The transaction was approved by the shareholders of the
Company and Atmos on November 12, 1996. The Company and Atmos have
received regulatory approval for the merger in all the states in
which they operate that require approval, except Illinois. In a
proposed order dated April 7, 1997, the Illinois hearing examiner
recommended that the Illinois Commerce Commission deny approval of
the merger. The Company is currently working with the Illinois
Commerce Commission staff to resolve the issues in the proposed
order. The Company expects to be successful in resolving these
issues and the merger to be approved by mid-summer, 1997. Atmos is
based in Dallas, Texas, and currently provides natural gas service
to approximately 680,000 customers in Texas, Colorado, Kansas,
Missouri, Louisiana and Kentucky.
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128 (SFAS 128), "Earnings per Share." This
statement establishes standards for computing and presenting
earnings per share. SFAS 128 is effective for financial statements
for both interim and annual periods ending after December 15, 1997.
Earlier application is not permitted. On a proforma basis for the
periods presented herein, the net income per share as calculated
under SFAS 128 is not materially different than the amounts
presented.
UCG Energy and Woodward Marketing, Inc. (WMI), sole
shareholders of WMLLC, act as guarantors of a $12,500,000 credit
facility for WMLLC with a certain bank. UCG Energy's 45% portion of
the amount outstanding on this credit facility at March 31, 1997,
was $4,275,000. UCG Energy and WMI also act as guarantors on certain
purchases of natural gas and transportation services from suppliers
by WMLLC. UCG Energy's 45% portion of these outstanding obligations
amounted to $4,937,000 at March 31, 1997. UCG Energy and WMI are
jointly and severally liable for the total amount outstanding under
the above obligations.
The Company believes its short-term lines of credit are
sufficient to meet anticipated short-term requirements. At March 31,
1997, the Company had $105,000,000 in short-term lines of credit
available, 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,
$42,057,000 in short-term debt was outstanding at March 31, 1997.
11
<PAGE> 12
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See December 31, 1996 Form 10-K.
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, 1997:
1. Form 8-K, Item 5 dated March 17, 1997.
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 (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, 1997
14
<PAGE> 1
UNITED CITIES GAS COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES
FOR THE TWELVE MONTHS ENDED
(Unaudited, in thousands, except ratio amounts)
<TABLE>
<CAPTION>
3-31-97 12-31-96 12-31-95 12-31-94 12-31-93 12-31-92
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges, as defined:
Interest on long-term debt ........................... $14,418 $14,681 $13,697 $14,026 $14,553 $12,965
Amortization of debt discount ........................ 278 285 227 227 220 181
------- ------- ------- ------- ------- -------
Total ............................................. $14,696 $14,966 $13,924 $14,253 $14,773 $13,146
======= ======= ======= ======= ======= =======
Earnings, as defined:
Net income ........................................... $15,793 $17,202 $ 9,935 $12,093 $12,150 $10,218
Taxes on income ...................................... 9,643 10,006 6,970 6,503 5,681 5,171
Fixed charges, as above .............................. 14,696 14,966 13,924 14,253 14,773 13,146
------- ------- ------- ------- ------- -------
Total ............................................. $40,132 $42,174 $30,829 $32,849 $32,604 $28,535
======= ======= ======= ======= ======= =======
Ratio of Consolidated Earnings to Fixed Charges ......... 2.73 2.82 2.21 2.30 2.21 2.17
======= ======= ======= ======= ======= =======
</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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 305,254
<OTHER-PROPERTY-AND-INVEST> 56,279
<TOTAL-CURRENT-ASSETS> 95,612
<TOTAL-DEFERRED-CHARGES> 30,479
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 487,624
<COMMON> 109,305
<CAPITAL-SURPLUS-PAID-IN> 22,462
<RETAINED-EARNINGS> 39,503
<TOTAL-COMMON-STOCKHOLDERS-EQ> 171,270
0
0
<LONG-TERM-DEBT-NET> 152,364
<SHORT-TERM-NOTES> 42,057
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 7,828
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 114,105
<TOT-CAPITALIZATION-AND-LIAB> 487,624
<GROSS-OPERATING-REVENUE> 147,448
<INCOME-TAX-EXPENSE> 8,789
<OTHER-OPERATING-EXPENSES> 120,705
<TOTAL-OPERATING-EXPENSES> 129,494
<OPERATING-INCOME-LOSS> 17,954
<OTHER-INCOME-NET> 2,212
<INCOME-BEFORE-INTEREST-EXPEN> 20,166
<TOTAL-INTEREST-EXPENSE> 4,052
<NET-INCOME> 16,114
0
<EARNINGS-AVAILABLE-FOR-COMM> 16,114
<COMMON-STOCK-DIVIDENDS> 3,377
<TOTAL-INTEREST-ON-BONDS> 2,764
<CASH-FLOW-OPERATIONS> 39,859
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
</TABLE>
