<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, 1996 Commission File No. 0-234
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MOBILE GAS SERVICE CORPORATION
- --------------------------------------------------------------------------------
(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 334-476-2720
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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 - 3,218,383 shares.
Total pages in this report 12
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1
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MOBILE GAS SERVICE CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. Financial Information:
Consolidated Balance Sheets - June 30, 1996 and
1995 and September 30, 1995 3 - 4
Consolidated Statements of Income - Three, Nine, and
Twelve Months Ended June 30, 1996 and 1995 5
Consolidated Statements of Retained Earnings - Three,
Nine, and Twelve Months Ended June 30, 1996 and 1995 6
Consolidated Statements of Cash Flows - Nine Months
Ended June 30, 1996 and 1995 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
(In Thousands)
<TABLE>
<CAPTION>
June 30,
----------------------- September 30,
Assets 1996 1995 1995
----------------------- -------------
(Unaudited)
<S> <C> <C> <C>
Property, Plant, and Equipment $ 149,378 $ 142,765 $ 146,589
Less Accumulated Depreciation and Amortization 35,150 31,100 31,853
--------- --------- ---------
Property, Plant, and Equipment in Service - Net 114,228 111,665 114,736
Construction Work in Progress 1,916 2,327 188
--------- --------- ---------
Total Property, Plant, and Equipment 116,144 113,992 114,924
--------- --------- ---------
Current Assets:
Cash and Cash Equivalents 1,482 731 1,023
Receivables:
Gas 4,308 2,960 2,809
Merchandise 2,554 2,436 2,430
Other 423 245 208
Less Allowance for Doubtful Accounts (366) (217) (266)
Materials, Supplies, and Merchandise 1,080 1,041 1,206
Gas Stored Underground 2,069 1,357 1,352
Deferred Gas Costs 309 211 156
Deferred Income Taxes 2,441 3,721 3,540
Prepayments 1,300 1,246 1,456
--------- --------- ---------
Total Current Assets 15,600 13,731 13,914
--------- --------- ---------
Regulatory Asset 1,469 1,663 1,780
--------- --------- ---------
Merchandise Receivables Due After One Year 4,349 4,331 4,319
--------- --------- ---------
Deferred Charges 1,611 1,666 1,630
--------- --------- ---------
Total $ 139,173 $ 135,383 $ 136,567
========= ========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
June 30, September 30,
Capitalization and Liabilities 1996 1995 1995
-------------------- -------------
(Unaudited)
<S> <C> <C> <C>
Capitalization:
Stockholders' Equity
Common Stock, $2.50 Par Value
(Authorized 4,000,000 Shares;
Outstanding: June, 1996 -
3,218,000 Shares; June, 1995 -
3,209,000 Shares; September, 1995 -
3,211,000 Shares) $ 8,046 $ 8,022 $ 8,028
Capital in Excess of Par Value 9,269 9,081 9,123
Retained Earnings 33,784 28,722 27,912
-------- -------- --------
Total Stockholders' Equity 51,099 45,825 45,063
Minority Interest 2,378 1,962 2,011
Long-Term Debt (Less Current Maturities) 55,405 57,463 57,328
-------- -------- --------
Total Capitalization 108,882 105,250 104,402
-------- -------- --------
Current Liabilities:
Current Maturities of Long-Term Debt 2,058 1,710 1,719
Notes Payable 1,000 1,800
Accounts Payable 3,190 1,450 2,249
Dividends Declared 901 866 867
Customer Deposits 1,549 1,549 1,558
Taxes Accrued 3,341 3,983 2,273
Interest Accrued 1,389 1,412 1,673
Deferred Purchased Gas Adjustment 2,082 6,118 5,960
Other Liabilities 2,349 1,938 2,237
-------- -------- --------
Total Current Liabilities 17,859 19,026 20,336
-------- -------- --------
Accrued Pension Cost 1,738 1,642 1,639
Accrued Postretirement Benefit Cost 1,569 1,737 1,480
Accumulated Deferred Income Taxes 8,647 7,225 8,213
Accumulated Deferred Investment Tax Credits 478 503 497
-------- -------- --------
Total $139,173 $135,383 $136,567
======== ======== ========
</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,
---------------------- ---------------------- ----------------------
1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
Gas Revenues $ 14,333 $ 11,337 $ 57,793 $ 46,671 $ 67,380 $ 55,823
Merchandise Sales and Jobbing 784 702 2,361 2,308 2,961 2,998
-------- -------- -------- -------- -------- --------
Total Operating Revenues 15,117 12,039 60,154 48,979 70,341 58,821
-------- -------- -------- -------- -------- --------
Operating Expenses
Cost of Gas 3,569 3,081 17,573 16,230 19,682 18,788
Cost of Merchandise and Jobbing 608 568 1,778 1,784 2,142 2,327
Operations 4,395 3,673 13,652 11,951 17,552 15,718
Maintenance 437 345 1,233 1,053 1,600 1,504
Depreciation 1,354 1,278 4,062 3,821 5,296 4,892
Taxes, Other Than Income Taxes 1,279 1,061 4,567 3,886 5,432 4,778
-------- -------- -------- -------- -------- --------
Total Operating Expenses 11,642 10,006 42,865 38,725 51,704 48,007
-------- -------- -------- -------- -------- --------
Operating Income 3,475 2,033 17,289 10,254 18,637 10,814
-------- -------- -------- -------- -------- --------
Other Income and (Expense)
Interest Expense (1,287) (1,346) (3,971) (4,118) (5,345) (5,608)
Allowance for Borrowed Funds Used
During Construction 10 4 18 52 23 658
Interest Income 244 78 630 423 644 494
Minority Interest (110) (74) (324) (243) (393) (317)
-------- -------- -------- -------- -------- --------
Total Other Income (Expense) (1,143) (1,338) (3,647) (3,886) (5,071) (4,773)
-------- -------- -------- -------- -------- --------
Income Before Income Taxes 2,332 695 13,642 6,368 13,566 6,041
-------- -------- -------- -------- -------- --------
Income Taxes 941 256 5,133 2,397 5,000 2,316
-------- -------- -------- -------- -------- --------
Net Income $ 1,391 $ 439 $ 8,509 $ 3,971 $ 8,566 $ 3,725
======== ======== ======== ======== ======== ========
Earnings Per Share of Common Stock $ 0.43 $ 0.14 $ 2.65 $ 1.24 $ 2.66 $ 1.20
======== ======== ======== ======== ======== ========
Cash Div. Per Share of Common Stock $ 0.28 $ 0.27 $ 0.82 $ 0.79 $ 1.09 $ 1.05
======== ======== ======== ======== ======== ========
Average Common Shares Outstanding 3,218 3,209 3,216 3,206 3,214 3,103
======== ======== ======== ======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<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,
------------------- ------------------- -------------------
1996 1995 1996 1995 1996 1995
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Period $33,295 $29,149 $27,912 $27,284 $28,722 $28,362
Net Income for Period 1,391 439 8,509 3,971 8,566 3,725
------- ------- ------- ------- ------- -------
Total 34,686 29,588 36,421 31,255 37,288 32,087
Less: Dividends 902 866 2,637 2,533 3,504 3,365
------- ------- ------- ------- ------- -------
Balance at End of Period $33,784 $28,722 $33,784 $28,722 $33,784 $28,722
======= ======= ======= ======= ======= =======
</TABLE>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Nine Months
Ended June 30,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Cash Provided by Operating Activities $ 10,727 $ 7,238
-------- --------
Cash Flows From Investing Activities:
Capital Expenditures (5,411) (8,813)
Decrease in Temporary Investments -- 1,900
-------- --------
Net Cash Used in Investing Activities (5,411) (6,913)
-------- --------
Cash Flows From Financing Activities:
Repayment of Debts (1,584) (1,242)
Short-Term Borrowings, Net (800)
Payment of Dividends, Net of Dividend Reinvestment (2,473) (2,397)
-------- --------
Net Cash Used In Financing Activities (4,857) (3,639)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 459 (3,314)
Cash & Cash Equivalents at Beginning of Period 1,023 4,045
-------- --------
Cash & Cash Equivalents at End of Period $ 1,482 $ 731
======== ========
</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 and nine month periods ended June 30, 1996 and 1995
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 statement 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 full fiscal year
ended September 30, 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 operates an underground cavern for
the storage of natural gas, and is a regulated utility governed under the
jurisdiction of the APSC, and as such, Bay Gas' intrastate contracts are
subject to APSC approval. In addition, by Federal Energy Regulatory Commission
order, Bay Gas is permitted to charge market-based rates for interstate
storage services.
Unregulated operations include the sale and financing of appliances,
jobbing work, and contract and consulting work for utilities and industrial
customers.
FINANCIAL CONDITION
Cash requirements in the third quarter of fiscal 1996 have been met
through internally generated funds and short-term bank borrowings. Cash flow
from operations for the nine months ended June 30, 1996 increased $3.5
million, or 48%, from the comparable period in fiscal 1995. The increase in
cash flow from operations is due primarily to increased net income of $4.5
million.
The Company's capital needs are due primarily to its on-going
construction program. The Company has significant construction projects in
progress which are in addition to its normal construction program. During
1995, Mobile Gas entered into a long-term contract with Tuscaloosa Steel to
transport gas to its facility which is to be operational in the summer of
1997. In order to transport natural gas under that contract, Mobile Gas has
begun construction of five miles of new high pressure pipeline and upgrades of
certain other segments of the system. The total capital commitment to this
project is nearly $10 million of which $522,000 has been expended as of June
30, 1996. When Tuscaloosa Steel's facility becomes operational, it will become
the largest single user of natural gas in the Company's service area. In
addition, Bay Gas is installing additional equipment which will more than
double the maximum daily withdrawal capacity of its storage facility. When the
expansion is completed in December 1997, it will enable Bay Gas to meet more
effectively its existing and potential customer withdrawal needs. The
estimated cost of the expansion is $1.2
8
<PAGE> 9
million. Capital expenditures for the remainder of fiscal 1996 are estimated
to be $ 1.8 million.
Funds for the Company's working capital and capital needs are
expected to come from internal cash generation, the issuance of long-term
debt, and drawings upon the Company's unused lines of credit totaling $19
million at June 30, 1996. Management believes it has adequate financial
flexibility to meet its anticipated cash needs in the foreseeable future.
RESULTS OF OPERATIONS
Net income for the three, nine and twelve month periods ended June
30, 1996 was $1,391,000, $8,509,000 and $8,566,000, respectively. Net income
for the same prior year periods was $439,000, $3,971,000 and $3,725,000,
respectively. The increase in net income resulted primarily from colder
weather combined with a general rate increase which went into effect on
December 1, 1995. The impact of colder weather increased earnings per share
$.14 for the three month period and $.81 for the nine and twelve month periods
ended June 30, 1996. Colder weather increased earnings that would have
occurred with normal weather $.11 per share for the three month period and
$.45 per share for the nine and twelve month periods ended June 30, 1996.
Weather normalized earnings, referred to above, will be useful in
evaluating future earnings since the Alabama Public Service Commission
authorized Mobile Gas to apply, on a prospective basis, a temperature rate
adjustment to customers' gas bills for the months of November through April.
This temperature rate adjustment will help level out the effects of
temperature extremes on Company earnings by reducing high gas bills to
customers in colder than normal weather and increasing gas revenues received
by the Company in warmer than normal weather. The temperature rate adjustment
will be reflected in customers' bills beginning in November 1996.
Gas revenues increased 26%, 24% and 21%, respectively, for the three,
nine and twelve month periods ended June 30, 1996 compared to the
corresponding periods in fiscal 1995. The increase in gas revenues was
primarily due to colder weather during the 1995-96 heating season.
Temperatures in the Company's service area during the three month period were
colder than prior year and normal by 139% and 89%, respectively. For the nine
and twelve month periods, temperatures were 53% colder than prior year and 24%
colder than normal. As a result of colder weather, volumes of gas sold and
delivered to temperature sensitive customers increased 25%, 26% and 22%,
respectively, during the current three, nine and twelve month periods. The
general rate increase, which was approved by the Alabama Public Service
Commission, is designed to provide additional annual revenues of $6,890,000.
Changes in the cost of gas for the three, nine and twelve month
periods ended June 30, 1996 were due primarily to the same factors affecting
gas revenues.
9
<PAGE> 10
Operations and maintenance expense, in the aggregate increased 20%,
15% and 11%, respectively, for the three, nine and twelve month periods ended
June 30, 1996 as a result of increased payroll, pension and benefits,
maintenance costs, sales promotion and advertising, and allowance for bad debt
expenses.
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.
The allowance for borrowed funds used during construction decreased
$635,000, or 97%, for the twelve months ended June 30, 1996 compared to the
corresponding prior year period. As a result of the commencement of Bay Gas
operations in September 1994, interest related to the long term debt of Bay
Gas was 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.
Interest income increased $166,000, $207,000 and $150,000,
respectively, for the three, nine and twelve month periods ended June 30, 1996
as a result of increased cash flow from operations which provided more
opportunity to deposit excess funds in short-term investments.
Income tax expense changed primarily in relation to changes in
pre-tax income for the periods ending June 30, 1996.
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 filed filed 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 9, 1996 s/s John S. Davis
-------------------------- ------------------------------------------
John S. Davis
President and Chief Executive Officer
Date August 9, 1996 s/s Charles P. Huffman
-------------------------- ------------------------------------------
Charles P. Huffman
Vice President and Chief Financial Officer
11
<PAGE> 12
EXHIBIT INDEX
Exhibit No.
- -----------
27 Financial Data Schedule
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 NINE MONTHS ENDED JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 114,228
<OTHER-PROPERTY-AND-INVEST> 1,916
<TOTAL-CURRENT-ASSETS> 15,600
<TOTAL-DEFERRED-CHARGES> 1,611
<OTHER-ASSETS> 5,818
<TOTAL-ASSETS> 139,173
<COMMON> 8,046
<CAPITAL-SURPLUS-PAID-IN> 9,269
<RETAINED-EARNINGS> 33,784
<TOTAL-COMMON-STOCKHOLDERS-EQ> 51,099
0
0
<LONG-TERM-DEBT-NET> 55,405
<SHORT-TERM-NOTES> 1,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 2,058
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 29,611
<TOT-CAPITALIZATION-AND-LIAB> 139,173
<GROSS-OPERATING-REVENUE> 60,154
<INCOME-TAX-EXPENSE> 5,133
<OTHER-OPERATING-EXPENSES> 42,865
<TOTAL-OPERATING-EXPENSES> 47,998
<OPERATING-INCOME-LOSS> 12,156
<OTHER-INCOME-NET> 324
<INCOME-BEFORE-INTEREST-EXPEN> 12,480
<TOTAL-INTEREST-EXPENSE> 3,971
<NET-INCOME> 8,509
0
<EARNINGS-AVAILABLE-FOR-COMM> 8,509
<COMMON-STOCK-DIVIDENDS> 2,637
<TOTAL-INTEREST-ON-BONDS> 4,673<F1>
<CASH-FLOW-OPERATIONS> 10,727
<EPS-PRIMARY> 2.65
<EPS-DILUTED> 2.65
<FN>
<F1>1. Total interest on bonds represents interest expense related to long-term
debt outstanding under first mortgage bonds and long-term secured notes.
</FN>
</TABLE>
