<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 June 30, 1995 Commission File No. 0-234
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MOBILE GAS SERVICE CORPORATION
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(Exact name of registrant as specified in its charter)
Alabama 63-0142930
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
2828 Dauphin Street, Mobile, Alabama 36606
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 205-476-2720
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No Change
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Former name, former address and former fiscal year, if changed since last report
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 - 3,208,806 shares.
Total pages in this report 13
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MOBILE GAS SERVICE CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. Financial Information:
Consolidated Balance Sheets - June 30,
1995 and 1994 and September 30, 1994 3 - 4
Consolidated Statements of Income - Three, Nine,
and Twelve Months Ended June 30, 1995 and 1994 5
Consolidated Statements of Retained Earnings -
Three, Nine, and Twelve Months Ended June 30, 1995
and 1994 6
Consolidated Statements of Cash Flows - Nine
Months Ended June 30, 1995 and 1994 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 10
PART II. Other Information 11
Exhibit Index 12
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
June 30, September 30,
Assets 1995 1994 1994
------------------------------- --------
<S> <C> <C> <C>
Property, Plant, and Equipment - At Cost $142,765 $101,326 $136,592
Less Accumulated Depreciation and Amortization 31,100 28,403 28,657
-------- -------- --------
Net Property, Plant, and Equipment in Service 111,665 72,923 107,935
Construction Work in Progress 2,327 29,841 1,154
-------- -------- --------
Total Property, Plant, and Equipment 113,992 102,764 109,089
-------- -------- --------
Current Assets:
Cash and Cash Equivalents 731 2,838 4,045
Temporary Investments (at cost which
approximates market) 1,900
Special Deposits 1,717
Receivables:
Gas 2,960 2,658 2,484
Merchandise 1,579 1,705 1,611
Other 245 187 240
Less Allowance for Doubtful Accounts (217) (217) (215)
Refundable Income Taxes 15
Materials, Supplies, and Merchandise (at avg. cost) 1,041 1,004 978
Gas Stored Underground for Current Use (at avg. cost) 1,357 896
Deferred Gas Costs 211 250 195
Deferred Income Taxes 3,721 2,492 2,408
Prepayments 1,246 1,836 1,163
-------- -------- --------
Total Current Assets 12,874 12,753 17,437
-------- -------- --------
Regulatory Asset 1,663 1,815 1,736
-------- -------- --------
Merchandise Receivables Due After One Year 5,188 3,994 4,365
-------- -------- --------
Deferred Charges 1,666 2,041 1,902
-------- -------- --------
Total $135,383 $123,367 $134,529
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
(In Thousands, Except Share Data )
<TABLE>
<CAPTION>
June 30, September 30,
Capitalization and Liabilities 1995 1994 1994
------------------------------- --------
<S> <C> <C> <C>
Capitalization:
Stockholders' Equity
Common Stock, $2.50 Par Value
(Authorized 4,000,000 Shares;
Outstanding: June, 1995 -
3,209,000 Shares; June, 1994 -
2,740,000 Shares; September, 1994 -
3,202,000 Shares) 8,022 6,851 8,005
Capital in Excess of Par Value 9,081 753 8,962
Retained Earnings 28,722 28,362 27,284
-------- -------- --------
Total Stockholders' Equity 45,825 35,966 44,251
Minority Interest 1,962 648 1,835
Long Term Debt (Less Current Maturities) 57,463 59,461 59,047
-------- -------- --------
Total Capitalization 105,250 96,075 105,133
-------- -------- --------
Current Liabilities:
Long-Term Debt Due Within One Year 1,710 1,074 1,369
Accounts Payable 1,450 1,816 3,236
Take or Pay Costs 1,252 1,150
Dividends Declared 866 713 833
Customer Deposits 1,549 1,528 1,549
Taxes Accrued 3,983 3,014 2,207
Interest Accrued 1,412 1,421 1,698
Overcollected Costs 6,118 2,718 3,085
Other Liabilities 1,938 1,713 1,777
-------- -------- --------
Total Current Liabilities 19,026 15,249 16,904
-------- -------- --------
Accrued Pension Cost 1,642 1,469 1,507
Accrued Postretirement Benefit Cost 1,737 1,708 1,652
Accumulated Deferred Income Taxes 7,225 6,431 6,753
Accumulated Deferred Investment Tax Credits 503 527 521
Other Liabilities 1,908 2,059
-------- -------- --------
Total $135,383 $123,367 $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 Nine Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
--------------------- --------------------- --------------------
1995 1994 1995 1994 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
Gas Revenues $11,337 $10,792 $46,671 $51,317 $55,823 $60,680
Merchandise Sales and Jobbing 702 703 2,308 2,135 2,998 2,715
-------- -------- -------- -------- -------- --------
Total Operating Revenues 12,039 11,495 48,979 53,452 58,821 63,395
-------- -------- -------- -------- -------- --------
Operating Expenses
Cost of Gas 3,081 3,879 16,230 22,693 18,788 26,109
Cost of Merchandise and Jobbing 568 538 1,784 1,653 2,327 2,112
Operations 3,673 3,560 11,951 11,147 15,718 14,904
Maintenance 345 391 1,053 1,039 1,504 1,399
Depreciation 1,278 981 3,821 2,942 4,892 3,876
Taxes, Other Than Income Taxes 1,061 904 3,886 3,708 4,778 4,540
-------- -------- -------- -------- -------- --------
Total Operating Expenses 10,006 10,253 38,725 43,182 48,007 52,940
-------- -------- -------- -------- -------- --------
Operating Income 2,033 1,242 10,254 10,270 10,814 10,455
-------- -------- -------- -------- -------- --------
Other Income and (Expense)
Interest Expense (1,346) (1,343) (4,118) (3,930) (5,608) (5,219)
Allowance for Borrowed Funds Used
During Construction 4 526 52 1,398 658 1,785
Interest Income 78 184 423 488 494 865
Minority Interest (74) (65) (243) (210) (317) (256)
-------- -------- -------- -------- -------- --------
Total Other (Expense) (1,338) (698) (3,886) (2,254) (4,773) (2,825)
-------- -------- -------- -------- -------- --------
Income Before Income Taxes 695 544 6,368 8,016 6,041 7,630
-------- -------- -------- -------- -------- --------
Income Taxes 256 203 2,397 2,877 2,316 2,699
-------- -------- -------- -------- -------- --------
Net Income 439 341 3,971 5,139 3,725 4,931
Preferred Stock Div. Requirements 5 12
-------- -------- -------- -------- -------- --------
Earnings Applicable to Common Stock 439 341 3,971 5,134 3,725 4,919
======== ======== ======== ======== ======== ========
Earnings Per Share of Common Stock $0.14 $0.12 $1.24 $1.87 $1.20 $1.80
======== ======== ======== ======== ======== ========
Cash Div. Per Share of Common Stock $0.27 $0.26 $0.79 $0.76 $1.05 $1.01
======== ======== ======== ======== ======== ========
Average Common Shares Outstanding 3,209 2,740 3,206 2,739 3,103 2,738
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE> 6
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Nine Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
------------------- ------------------- -------------------
1995 1994 1995 1994 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Period $29,149 $28,734 $27,284 $25,352 $28,362 $26,252
Net Income for Period 439 341 3,971 5,139 3,725 4,931
-------- -------- -------- -------- -------- --------
Total 29,588 29,075 31,255 30,491 32,087 31,183
Less: Dividends 866 713 2,533 2,087 3,365 2,779
Premium on Redemption of
Preferred Stock 42 42
-------- -------- -------- -------- -------- --------
Balance at End of Period $28,722 $28,362 $28,722 $28,362 $28,722 $28,362
======== ======== ======== ======== ======== ========
</TABLE>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Nine Months
Ended June 30,
------------------------------
1995 1994
-------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Cash Provided by Operating Activities $7,238 $12,304
-------- ---------
Cash Flows From Investing Activities:
Capital Expenditures (8,813) (21,989)
Decrease in Temporary Investments 1,900 12,900
-------- ---------
Net Cash Used in Investing Activities (6,913) (9,089)
-------- ---------
Cash Flows From Financing Activities:
Repayment of Debts (1,242) (1,429)
Payment of Dividends, Net of Dividend Reinvestment (2,397) (1,961)
Redemption of Preferred Stock (642)
-------- ---------
Net Cash Used In Financing Activities (3,639) (4,032)
-------- ---------
Net Decrease in Cash and Cash Equivalents (3,314) (817)
Cash & Cash Equivalents at Beginning of Period 4,045 3,655
-------- ---------
Cash & Cash Equivalents at End of Period $731 $2,838
======== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<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 and nine month periods ended June 30, 1995 and 1994
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.
Note 4. The Company on April 28, 1995 filed a petition with the Alabama Public
Service Commission (APSC) requesting $7,863,000 in increased annual revenues.
The Company has not had a general rate increase since January 1, 1991. On May
1, 1995 the APSC routinely suspended the proposed new rates in order to perform
an investigation. A decision on the increase is required by law on or before
December 1, 1995.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Mobile Gas Service Corporation (Mobile Gas), an investor owned 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 approximately 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 at market-based rates for interstate contracts.
Unregulated operations include the sale and financing of appliances,
jobbing work, and contract and consulting work for utilities and industrial
customers.
FINANCIAL CONDITION
Normal cash requirements in the third quarter of the fiscal year have
been met through internally generated funds. Funds for the Company's capital
needs are due primarily to its on-going construction program. Normal
construction in fiscal year 1996 is estimated to be $6.5 million, but the
Company has significant construction projects on-going which are in addition to
its normal construction program. The Company has begun engineering work on an
estimated $10 million in new facilities required to provide gas transportation
service to Tuscaloosa Steel. On April 12, 1995, representatives of Tuscaloosa
Steel announced plans to construct a $100 million facility in Mobile, Alabama
which will utilize natural gas as a feedstock in its production process. When
it goes into operation in early 1997, the facility will become the largest
single user of natural gas in the Company's service area. Mobile Gas has
entered into a long-term contract to transport gas to the new facility. Also, a
pipeline interconnect between Bay Gas and Koch Gateway Pipeline Company is
anticipated to be completed this fall at a cost of $1 million. This follows the
interconnect completed with Florida Gas Transmission on July 25, 1995 at a cost
of $385,000. These interconnects mark Bay Gas' entry into the interstate gas
storage markets. Funds for the Company's working capital and capital needs in
the near future, including for the engineering and construction described
above, are expected to come from internal cash generation and drawings upon
the Company's unused lines of credit which were increased to $20 million in
July 1995.
RESULTS OF OPERATIONS
Earnings applicable to common stock for the three, nine and twelve
month periods ended June 30, 1995 were, respectively, $439,000, $3,971,000, and
$3,725,000. The figures for the same periods a year ago were $341,000,
$5,134,000, and $4,919,000. The
8
<PAGE> 9
increase in earnings for the three month period resulted primarily from an
increase in gas revenues from industrial customers and a decrease in operating
expenses. The decrease in earnings for the nine and twelve month periods
resulted primarily from warmer weather which affects gas sales and deliveries
to our temperature sensitive customers.
Operating revenues increased 5%, for the three month period ended June
30, 1995, when compared to the same period last year, while operating revenues
for the nine and twelve month periods decreased 8% and 7%, respectively. The
increase in operating revenues for the three month period resulted from an
increase in gas volumes sold and delivered to industrial interruptible
customers and volumes transported for industrial customers. The decrease in
operating revenues for the nine and twelve month periods ended June 30, 1995
was due to warmer weather which affects our temperature sensitive customers.
Based on heating degree days billed, temperature in our service area during the
nine and twelve month periods was 28% warmer than the same periods last year
and 22% warmer than normal. As a result, volumes of gas sold and delivered to
temperature sensitive customers decreased 14% and 12% during these periods as
compared to the prior year.
Merchandise and jobbing revenues decreased less than 1% for the three
month period ending June 30, 1995 and increased 8% and 10%, respectively, for
the nine and twelve month periods when compared to the same periods in the
prior year. Increased sales volumes in the nine and twelve month periods
resulted in increased revenues and related costs.
Changes in the cost of gas for the three, nine and twelve month
periods ended June 30, 1995 were primarily due to the same factors affecting
gas 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 the cost of gas has
decreased, operations and maintenance expense, depreciation expense and
interest expense related to the new storage facilities have increased.
Operations and maintenance expense, in the aggregate, increased 2%, 7%
and 6%, respectively, for the three, nine and twelve month periods ended June
30, 1995. The commencement of operations of Bay Gas was the primary factor in
these increases. Other factors were increases in employee benefits and
administration and general expenses.
Depreciation expense increased 30% for the three and nine months ended
June 30, 1995 and 26% for the twelve months ended June 30, 1995. Increases
were due to continued growth in depreciable plant in service and a result of
the commencement of Bay Gas operations.
Taxes, other than income taxes, have increased for the periods ended
June 30, 1995. The increases were primarily a result of increased property
taxes resulting from an increase in depreciable plant in service.
9
<PAGE> 10
Net interest expense has increased 65%, 61% and 44%, respectively, for
the three, nine and twelve month periods ended June 30, 1995. As a result of
the commencement of Bay Gas operations, 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.
Income tax expense changed primarily in relation to changes in pre-tax
income for the periods ending June 30, 1995.
10
<PAGE> 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. 27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter for which this report is filed, there were
no reports on Form 8-K.
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 August 14, 1995 /s/ JOHN S. DAVIS
----------------------- ------------------------------
John S. Davis
President
Date August 14, 1995 /s/ CHARLES P. HUFFMAN
----------------------- -----------------------------
Charles P. Huffman
Treasurer
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
27 Financial Data Schedule
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT FOR THE COMPANY FOR THE THREE MONTHS ENDED JUNE 30,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S FORM 10Q FOR
THE NINE MONTHS ENDED JUNE 30, 1995.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 111,665
<OTHER-PROPERTY-AND-INVEST> 2,327
<TOTAL-CURRENT-ASSETS> 12,874
<TOTAL-DEFERRED-CHARGES> 1,666
<OTHER-ASSETS> 6,851
<TOTAL-ASSETS> 135,383
<COMMON> 8,022
<CAPITAL-SURPLUS-PAID-IN> 9,081
<RETAINED-EARNINGS> 28,722
<TOTAL-COMMON-STOCKHOLDERS-EQ> 45,825
0
0
<LONG-TERM-DEBT-NET> 57,463
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,710
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 30,385
<TOT-CAPITALIZATION-AND-LIAB> 135,383
<GROSS-OPERATING-REVENUE> 48,979
<INCOME-TAX-EXPENSE> 2,397
<OTHER-OPERATING-EXPENSES> 38,725
<TOTAL-OPERATING-EXPENSES> 38,725
<OPERATING-INCOME-LOSS> 10,254
<OTHER-INCOME-NET> 180
<INCOME-BEFORE-INTEREST-EXPEN> 8,037
<TOTAL-INTEREST-EXPENSE> 4,066
<NET-INCOME> 3,971
0
<EARNINGS-AVAILABLE-FOR-COMM> 3,971
<COMMON-STOCK-DIVIDENDS> 2,533
<TOTAL-INTEREST-ON-BONDS> 4,671<F1>
<CASH-FLOW-OPERATIONS> 7,238
<EPS-PRIMARY> 1.24
<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>
