<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1994 Commission File No. 0-234
MOBILE GAS SERVICE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Alabama 63-0142930
----------------------------------------------------------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
2828 Dauphin Street, Mobile, Alabama 36606
----------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 205-476-2720
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the close of the period covered by this report.
Common Stock ($2.50 par value) outstanding - 3,204,116 shares.
Total pages in this report 12
Exhibit index on Page 11
1
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MOBILE GAS SERVICE CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. Financial Information:
Consolidated Balance Sheets - December 31,
1994 and 1993 and September 30, 1994 3 - 4
Consolidated Statements of Income - Three and
Twelve Months Ended December 31, 1994 and 1993 5
Consolidated Statements of Retained Earnings -
Three and Twelve Months Ended December 31, 1994
and 1993 6
Consolidated Statements of Cash Flows - Three
Months Ended December 31, 1994 and 1993 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 9
PART II. Other Information 10
Exhibit Index 11
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 31, September 30,
Assets 1994 1993 1994
-----------------------------------------
(Unaudited)
<S> <C> <C> <C>
Property, Plant, and Equipment - At Cost $139,071 $100,274 $136,592
Less Accumulated Depreciation and Amortization 29,412 27,305 28,657
-------- -------- --------
Net Property, Plant, and Equipment in Service 109,659 72,969 107,935
Construction Work in Progress 3,124 15,092 1,154
-------- -------- --------
Total Property, Plant, and Equipment 112,783 88,061 109,089
-------- -------- --------
Current Assets:
Cash and Cash Equivalents 409 4,891 4,045
Temporary Investments (At Cost Which
Approximates Market) 8,400 1,900
Special Deposits 1,717
Receivables:
Gas 4,424 6,463 2,484
Merchandise 1,631 1,638 1,611
Other 251 240 240
Less Allowance for Doubtful Accounts (261) (203) (215)
Materials, Supplies, and Merchandise (At Avg. Cost) 828 866 978
Gas Stored Underground for Current Use (At Avg. Cost) 1,725 896
Deferred Gas Costs 819 1,487 195
Deferred Income Taxes 2,275 1,074 2,408
Prepayments 912 862 1,178
-------- -------- --------
Total Current Assets 13,013 25,718 17,437
-------- -------- --------
Regulatory Asset 1,712 1,899 1,736
-------- -------- --------
Merchandise Receivables Due After One Year 4,767 3,632 4,365
-------- -------- --------
Deferred Charges 1,892 1,965 1,902
-------- -------- --------
Total $134,167 $121,275 $134,529
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
December 31, September 30,
Liabilities 1994 1993 1994
------------------------ -------------
(Unaudited)
<S> <C> <C> <C>
Capitalization:
Stockholders' Equity
Common Stock, $2.50 Par Value
(Authorized 4,000,000 Shares;
Outstanding: December 1994 -
3,204,000 Shares; December 1993 -
2,737,000 Shares; September 1994 -
3,202,000 Shares) $ 8,010 $ 6,843 $ 8,005
Capital in Excess of Par Value 9,001 676 8,962
Retained Earnings 27,191 26,179 27,284
-------- -------- --------
Total Stockholders' Equity 44,202 33,698 44,251
Minority Interest in Consolidated Subsidiary 1,889 598 1,835
Long-Term Debt (Less Current Maturities) 58,420 59,796 59,047
-------- -------- --------
Total Capitalization 104,511 94,092 105,133
-------- -------- --------
Current Liabilities:
Long-Term Debt Due Within One Year 1,376 1,053 1,369
Notes Payable 2,500
Accounts Payable 3,295 5,084 3,236
Take-or-Pay Costs 950 788 1,150
Dividends Declared 833 684 833
Customer Deposits 1,484 1,508 1,549
Taxes Accrued 2,023 2,177 2,207
Interest Accrued 1,541 1,555 1,698
Deferred Purchased Gas Adjustment 3,335 1,282 3,085
Other Liabilities 1,672 1,612 1,777
-------- -------- --------
Total Current Liabilities 19,009 15,743 16,904
-------- -------- --------
Accrued Pension Cost 1,552 1,379 1,507
Accrued Postretirement Benefit Cost 1,682 1,595 1,652
Accumulated Deferred Income Taxes 6,898 6,182 6,753
Accumulated Deferred Investment Tax Credits 515 539 521
Other Liabilities 1,745 2,059
-------- -------- --------
Total $134,167 $121,275 $134,529
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended December 31, Ended December 31,
-------------------- --------------------
1994 1993 1994 1993
------- ------- ------- --------
<S> <C> <C> <C> <C>
Operating Revenues
Gas Revenues $12,829 $16,407 $56,892 $56,844
Merchandise Sales and Jobbing 955 813 2,966 2,524
------- ------- ------- -------
Total Operating Revenues 13,784 17,220 59,858 59,368
------- ------- ------- -------
Operating Expenses
Cost of Gas 3,850 7,290 21,811 24,016
Cost of Merchandise and Jobbing 728 616 2,310 1,952
Operations 4,014 3,795 15,132 14,106
Maintenance 373 280 1,583 1,249
Depreciation 1,266 980 4,298 3,615
Taxes, Other Than Income Taxes 1,149 1,171 4,579 4,262
------- ------- ------- -------
Total Operating Expenses 11,380 14,132 49,713 49,200
------- ------- ------- -------
Operating Income 2,404 3,088 10,145 10,168
------- ------- ------- -------
Other Income and (Expense)
Interest Expense (1,348) (1,276) (5,490) (4,470)
Allowance for Borrowed Funds Used
During Construction 19 413 1,610 1,331
Interest Income 162 166 555 867
Minority Interest (84) (77) (292) (251)
------- ------- ------- -------
Total Other Income (Expense) (1,251) (774) (3,617) (2,523)
------- ------- ------- -------
Income Before Income Taxes 1,153 2,314 6,528 7,645
------- ------- ------- -------
Income Taxes 413 756 2,453 2,609
------- ------- ------- -------
Net Income 740 1,558 4,075 5,036
Preferred Stock Dividend Requirements 5 27
------- ------- ------- -------
Earnings Applicable to Common Stock $740 $1,553 $4,075 $5,009
======= ======= ======= =======
Earnings Per Share of Common Stock $0.23 $0.57 $1.42 $1.83
======= ======= ======= =======
Cash Dividends Per Share of Common Stock $0.26 $0.25 $1.03 $0.98
======= ======= ======= =======
Average Common Shares Outstanding 3,204 2,737 2,869 2,735
======= ======= ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended December 31, Ended December 31,
--------------------- --------------------
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance at Beginning of Period $27,284 $25,352 $26,179 $23,891
Net Income for Period 740 1,558 4,075 5,036
------- ------- ------- -------
Total 28,024 26,910 30,254 28,927
Less: Dividends 833 689 3,063 2,706
Premium on Redemption of Preferred Stock 42 42
------- ------- ------- -------
Balance at End of Period $27,191 $26,179 $27,191 $26,179
======= ======= ======= =======
</TABLE>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months
Ended December 31,
--------------------
1994 1993
------- ------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Cash Provided by (Used In) Operating Activities ($1,626) $4,416
------- ------
Cash Flows From Investing Activities:
Capital Expenditures (5,002) (5,275)
Net Change in Temporary Investments 1,900 4,500
------- ------
Net Cash Used in Investing Activities (3,102) (775)
------- ------
Cash Flows From Financing Activities:
Repayment of Debts (620) (1,115)
Short-Term Borrowings, Net 2,500
Payment of Dividends, Net of Dividend Reinvestment (788) (648)
Redemption of Preferred Stock (642)
------- ------
Net Cash Provided by (Used In) Financing Activities 1,092 (2,405)
------- ------
Net Increase (Decrease) in Cash and Cash Equivalents (3,636) 1,236
------- ------
Cash & Cash Equivalents at Beginning of Period 4,045 3,655
------- ------
Cash & Cash Equivalents at End of Period $409 $4,891
======= ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The consolidated financial statements include the accounts of Mobile
Gas Service Corporation, its wholly-owned subsidiaries, MGS Energy Services,
Inc., MGS Storage Services, Inc., MGS Marketing Services, Inc. its 87.5% owned
partnership, Bay Gas Storage Company, Ltd. (Bay Gas), and its 51% owned
partnership, Southern Gas Transmission Company (collectively the "Company").
Minority interest represents the respective other owner's proportionate share
of the equity of Bay Gas and Southern Gas Transmission Company. All
significant intercompany balances and transactions have been eliminated.
Note 2. Due to the high percentage of customers using gas for heating, the
Company's operations are seasonal in nature. Therefore, the results of
operations for the three month periods ended December 31, 1994 and 1993 are not
indicative of the results to be expected for the full year.
Note 3. The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. All adjustments, consisting of
normal and recurring accruals, which are, in the opinion of management,
necessary to present fairly the results for the interim periods have been made
and are of a recurring nature. The statements should be read in conjunction
with the summary of accounting policies and notes to financial statements
included in the Company's annual report on Form 10-K for the fiscal year ended
September 30, 1994.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Mobile Gas Service Corporation (Mobile Gas), an investor owned natural
gas utility incorporated under the laws of the State of Alabama, is engaged
principally in the distribution of natural gas to customers in Southwest
Alabama. Mobile Gas serves nearly 100,000 residential, commercial, and
industrial customers. Gas deliveries to these customers are regulated by the
Alabama Public Service Commission (APSC).
Bay Gas Storage Company, Ltd. ("Bay Gas") is a limited partnership in
which MGS Storage Services, Inc., a wholly owned subsidiary of Mobile Gas, is
general partner and 87.5% owner. Bay Gas developed and constructed an
underground cavern for the storage of natural gas which commenced operations in
September 1994. Bay Gas is a separate utility with rates independently
regulated by the APSC for intrastate contracts and by the Federal Energy
Regulatory Commission on a market-based rate basis for interstate contracts.
Unregulated operations include the sale and financing of gas
appliances, jobbing work, and contract and consulting work for utilities and
industrial customers.
FINANCIAL CONDITION
Normal cash requirements in the first quarter of the fiscal year have
been met through internally generated funds, the reduction of cash equivalents
and short-term bank borrowings. Funds for the Company's working capital needs
in the near future are expected to come from internal cash generation and
drawings upon the Company's unused lines of credit totaling $8.4 million at
December 31, 1994.
RESULTS OF OPERATIONS
Earnings applicable to common stock for the three months ended
December 31, 1994 and 1993 amounted to $740,000 and $1,553,000, respectively.
Earnings during the twelve months ended December 31, 1994 and 1993 were
$4,075,000 and $5,009,000, respectively. The decrease in earnings resulted
primarily from warmer weather.
Operating revenues decreased 20% for the three months ended December
31, 1994 when compared to the corresponding period in 1993. This decrease is
primarily due to the effect of weather which was 46% warmer than the three
months ended December 31, 1993 and 33% warmer than normal. Volumes sold and
delivered to temperature sensitive customers during the three months ended
December 31, 1994 decreased 29% from the same period last year.
Operating revenues for the twelve months ended December 31, 1994
increased less than 1% when compared to revenues for the twelve months ended
December 31, 1993. Weather during the twelve months ended December 31, 1994
was 20% warmer than the same period last year and 14% warmer than normal.
Overall volumes delivered to temperature sensitive customers during the twelve
months ended December 31, 1994 remained virtually unchanged from the prior
twelve month period. The decrease in
8
<PAGE> 9
volumes delivered to temperature sensitive customers as a result of warmer
weather was offset by the effect of a full twelve months of deliveries to such
customers acquired from the Utilities Board of the Town of Citronelle in May
1993.
Revenue from merchandise sales and jobbing increased 18% for the three
months and twelve months ended December 31, 1994 compared to the same periods
in 1993 as a result of increased sales volumes.
Changes in the cost of gas for the three and twelve months ended
December 31, 1994 were due in part to the same factors affecting revenues. The
Company has traditionally relied on interstate pipelines for its firm gas
supply with a fee paid to the pipelines to assure that a certain amount of gas
supply would be available during peak demand periods. With the commencement of
operations of Bay Gas, the Company has reduced the cost of gas paid to others
for such peaking service. However, while cost of gas has decreased,
depreciation expense and interest expense related to the new storage facilities
have increased.
Cost of merchandise and jobbing increased 18% for the three and twelve
months ended December 31, 1994 when compared to the same periods ended December
31, 1993 as a result of the increased sales volume.
Operations and maintenance expenses, in the aggregate, increased 8%
and 9% for the three and twelve month periods ended December 31, 1994 as a
result of the commencement of operations of Bay Gas and additional sales and
special promotions expenses.
Depreciation expense increased 29% and 19% for the three and twelve
months ended December 31, 1994. Increases were due to continued growth in
depreciable plant in service as a result of the Bay Gas operations and the
acquisition of certain assets acquired from the Utilities Board of the Town of
Citronelle in May 1993.
Taxes, other than income taxes, consist primarily of state and local
taxes which are based on gross revenues and fluctuate accordingly. These taxes
are passed through to customers and thus do not impact the Company's net
income.
As a result of the commencement of operations of Bay Gas on September
12, 1994, interest related to the long term debt of Bay Gas is no longer
capitalized. Such capitalized interest was previously reflected in the
allowance for borrowed funds used during construction which had the effect of
reducing interest expense. Thus, the increase in net interest expense of
$466,000, or 54%, for the three months ended December 31, 1994 is due to the
commencement of operations of Bay Gas. Net interest expense for the twelve
months ended December 31, 1994 increased $741,000, or 24%, when compared to the
twelve month period ended December 31, 1993. Such increase is due to the
commencement of operations of Bay Gas, the issuance of $12 million of 7.48%
Series First Mortgage Bonds in July 1993 and the issuance of a 20 year, $4.2
million, 9% unsecured note payable to the Utilities Board of the Town of
Citronelle in May 1993.
Income tax expense changed primarily in relation to changes in pre-tax
income for the periods ended December 31, 1994.
9
<PAGE> 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- - - -----------------------------------------
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No.
<S> <C>
10(k)-2 Amendment to Amended and Restated Supplemental Deferred Compensation Agreement dated
January 27, 1995 between the Company and Walter L. Hovell (incorporated by reference
to Exhibit 10(k)-2 to Form 8-K Current Report filed February 9, 1995)
10(y) Consulting Agreement dated January 27, 1995 between the Company and Walter L. Hovell
(incorporated by reference to Exhibit 10(y) to Form 8-K Current Report filed February
9, 1995)
10(z) Mobile Gas Service Corporation Non-Employee Directors Deferred Fee Plan (incorporated
by reference to Exhibit 10(z) to Form 8-K Current Report filed February 9, 1995)
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
-------------------
During the quarter for which this report is filed, the
Company filed one report on Form 8-K.
<TABLE>
<CAPTION>
Date of Report Items Reported Financial Statement
-------------- -------------- -------------------
<S> <C> <C>
October 7, 1994 (filed Item 5, reporting letter None
November 2, 1994) containing terms of
employment of John S.
Davis, Executive Vice
President and Chief
Operating Officer of the
Company
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOBILE GAS SERVICE CORPORATION
---------------------------------
(Registrant)
Date February 14, 1995 /s/ John S. Davis
------------------------- ---------------------------------
John S. Davis
President and
Chief Executive Officer
Date February 14, 1995 /s/ Charles P. Huffman
------------------------- ---------------------------------
Charles P. Huffman
Vice President, Chief Financial
Officer, and Treasurer
10
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Page No.
----------- --------
<S> <C> <C>
10(k)-2 Amendment to Amended and Restated Supplemental Deferred Compensation Agreement dated January
27, 1995 between the Company and Walter L. Hovell (incorporated by reference to Exhibit 10(k)-2
to Form 8-K Current Report filed February 9, 1995)
10(y) Consulting Agreement dated January 27, 1995 between the Company and Walter L. Hovell
(incorporated by reference to Exhibit 10(y) to Form 8-K Current Report filed February 9, 1995)
10(z) Mobile Gas Service Corporation Non-Employee Directors Deferred Fee Plan (incorporated by
reference to Exhibit 10(z) to Form 8-K Current Report filed February 9, 1995)
27 Financial Data Schedule 12
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT FOR MOBILE GAS SERVICE CORPORATION FOR THE THREE
MONTHS ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-Q FOR THE THREE MONTHS ENDED DECEMBER 31, 1994.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 109,659
<OTHER-PROPERTY-AND-INVEST> 3,124
<TOTAL-CURRENT-ASSETS> 13,013
<TOTAL-DEFERRED-CHARGES> 1,892
<OTHER-ASSETS> 6,479
<TOTAL-ASSETS> 134,167
<COMMON> 8,010
<CAPITAL-SURPLUS-PAID-IN> 9,001
<RETAINED-EARNINGS> 27,191
<TOTAL-COMMON-STOCKHOLDERS-EQ> 44,202
0
0
<LONG-TERM-DEBT-NET> 58,420
<SHORT-TERM-NOTES> 2,500
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,376
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 27,669
<TOT-CAPITALIZATION-AND-LIAB> 134,167
<GROSS-OPERATING-REVENUE> 13,784
<INCOME-TAX-EXPENSE> 413
<OTHER-OPERATING-EXPENSES> 11,380
<TOTAL-OPERATING-EXPENSES> 11,380
<OPERATING-INCOME-LOSS> 2,404
<OTHER-INCOME-NET> 78
<INCOME-BEFORE-INTEREST-EXPEN> 2,069
<TOTAL-INTEREST-EXPENSE> 1,329
<NET-INCOME> 740
0
<EARNINGS-AVAILABLE-FOR-COMM> 740
<COMMON-STOCK-DIVIDENDS> 833
<TOTAL-INTEREST-ON-BONDS> 1,173<F1>
<CASH-FLOW-OPERATIONS> (1,626)
<EPS-PRIMARY> .26
<EPS-DILUTED> 0
<FN>
<F1>TOTAL INTEREST ON BONDS REPRESENTS INTEREST EXPENSE RELATED TO LONG-TERM DEBT
OUTSTANDING UNDER FIRST MORTGAGE BONDS AND LONG-TERM SECURED NOTES.
</FN>
</TABLE>
