<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 March 31, 1996 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 334-476-2720
------------------------------
No Change
- --------------------------------------------------------------------------------
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 - 3,215,394 shares.
Total pages in this report 12
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1
<PAGE> 2
MOBILE GAS SERVICE CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. Financial Information:
Consolidated Balance Sheets - March 31,
1996 and 1995 and September 30, 1995 3 - 4
Consolidated Statements of Income - Three, Six,
and Twelve Months Ended March 31, 1996 and 1995 5
Consolidated Statements of Retained Earnings -
Three, Six, and Twelve Months Ended March 31, 1996
and 1995 6
Consolidated Statements of Cash Flows - Six
Months Ended March 31, 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 1. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 31, September 30,
Assets 1996 1995 1995
-------------------------- -------------
(Unaudited)
<S> <C> <C> <C>
Property, Plant, and Equipment $148,961 $142,942 $146,589
Less: Accumulated Depreciation and Amortization 34,073 30,226 31,853
-------- -------- --------
Property, Plant, and Equipment in Service - Net 114,888 112,716 114,736
Construction Work in Progress 1,144 974 188
-------- -------- --------
Total Property, Plant, and Equipment 116,032 113,690 114,924
-------- -------- --------
Current Assets:
Cash and Cash Equivalents 1,791 1,736 1,023
Receivables:
Gas 7,131 4,814 2,809
Merchandise 1,503 1,673 1,444
Other 384 388 208
Less Allowance for Doubtful Accounts (438) (280) (266)
Materials, Supplies, and Merchandise 1,216 1,142 1,206
Gas Stored Underground for Current Use 525 778 1,352
Deferred Gas Costs 942 366 156
Deferred Income Taxes 2,708 3,438 3,540
Prepayments 931 697 1,456
-------- -------- --------
Total Current Assets 16,693 14,752 12,928
-------- -------- --------
Regulatory Asset 1,578 1,688 1,780
-------- -------- --------
Merchandise Receivables Due After One Year 5,326 4,991 5,305
-------- -------- --------
Deferred Charges 1,629 1,582 1,630
-------- -------- --------
Total $141,258 $136,703 $136,567
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
March 31, 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: March, 1996 -
3,215,000 Shares; March, 1995 -
3,207,000 Shares; September, 1995 -
3,211,000 Shares) $ 8,038 $ 8,016 $ 8,028
Capital in Excess of Par Value 9,206 9,041 9,123
Retained Earnings 33,295 29,150 27,912
---------- ----------- -----------
Total Stockholders' Equity 50,539 46,207 45,063
Minority Interest in Consolidated Subsidiary 2,327 1,927 2,011
Long-Term Debt (Less Current Maturities) 55,989 58,007 57,328
---------- ----------- -----------
Total Capitalization 108,855 106,141 104,402
---------- ----------- -----------
Current Liabilities:
Current Maturities of Long-Term Debt 2,013 1,666 1,719
Notes Payable 900 1,800
Accounts Payable 4,327 1,692 2,249
Dividends Declared 868 833 867
Customer Deposits 1,568 1,539 1,558
Taxes Accrued 3,752 3,744 2,273
Interest Accrued 1,763 1,819 1,673
Deferred Purchased Gas Adjustment 3,547 5,596 5,960
Other Liabilities 2,308 1,978 2,237
---------- ----------- -----------
Total Current Liabilities 20,146 19,767 20,336
---------- ----------- -----------
Accrued Pension Cost 1,705 1,597 1,639
Accrued Postretirement Benefit Cost 1,563 1,708 1,480
Accumulated Deferred Income Taxes 8,504 6,981 8,213
Accumulated Deferred Investment Tax Credits 485 509 497
---------- ----------- -----------
Total $ 141,258 $ 136,703 $ 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 Six Months Twelve Months
Ended March 31, Ended March 31, Ended March 31,
---------------------- ----------------------- ----------------------
1996 1995 1996 1995 1996 1995
---------- --------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
Gas Revenues $ 27,527 $ 22,505 $ 43,459 $ 35,334 $ 64,373 $ 55,278
Merchandise Sales and Jobbing 695 651 1,578 1,605 2,879 2,998
-------- -------- -------- -------- -------- --------
Total Operating Revenues 28,222 23,156 45,037 36,939 67,252 58,276
-------- -------- -------- -------- -------- --------
Operating Expenses
Cost of Gas 9,264 9,299 14,003 13,150 19,194 19,587
Cost of Merchandise and Jobbing 503 487 1,171 1,216 2,102 2,298
Operations 5,045 4,265 9,256 8,279 16,810 15,604
Maintenance 400 335 796 707 1,508 1,549
Depreciation 1,354 1,278 2,708 2,543 5,220 4,595
Taxes, Other Than Income Taxes 1,956 1,675 3,288 2,824 5,222 4,621
-------- -------- -------- -------- -------- --------
Total Operating Expenses 18,522 17,339 31,222 28,719 50,056 48,254
-------- -------- -------- -------- -------- --------
Operating Income 9,700 5,817 13,815 8,220 17,196 10,022
-------- -------- -------- -------- -------- --------
Other Income and (Expense)
Interest Expense (1,331) (1,424) (2,684) (2,772) (5,404) (5,605)
Allowance for Borrowed Funds Used
During Construction 5 29 8 48 17 1,180
Interest Income 192 184 385 346 478 601
Minority Interest (118) (85) (213) (169) (357) (308)
-------- -------- -------- -------- -------- --------
Total Other Income (Expense) (1,252) (1,296) (2,504) (2,547) (5,266) (4,132)
-------- -------- -------- -------- -------- --------
Income Before Income Taxes 8,448 4,521 11,311 5,673 11,930 5,890
-------- -------- -------- -------- -------- --------
Income Taxes 3,133 1,729 4,192 2,141 4,315 2,263
-------- -------- -------- -------- -------- --------
Net Income $ 5,315 $ 2,792 $ 7,119 $ 3,532 $ 7,615 $ 3,627
======== ======== ======== ======== ======== ========
Earnings Per Share of Common Stock $ 1.65 $ 0.87 $ 2.21 $ 1.10 $ 2.37 $ 1.21
======== ======== ======== ======== ======== ========
Cash Div. Per Share of Common Stock $ 0.27 $ 0.26 $ 0.54 $ 0.52 $ 1.08 $ 1.04
======== ======== ======== ======== ======== ========
Average Common Shares Outstanding 3,215 3,207 3,214 3,205 3,212 2,986
======== ======== ======== ======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Six Months Twelve Months
Ended March 31, Ended March 31, Ended March 31,
----------------------- --------------------- -------------------
1996 1995 1996 1995 1996 1995
------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Period $28,848 $27,191 $27,912 $27,284 $29,150 $28,734
Net Income for Period 5,315 2,792 7,119 3,532 7,615 3,627
------- ------- ------- ------- ------- -------
Total 34,163 29,983 35,031 30,816 36,765 32,361
Less: Dividends 868 833 1,736 1,666 3,470 3,211
------- ------- ------- ------- ------- -------
Balance at End of Period $33,295 $29,150 $33,295 $29,150 $33,295 $29,150
======= ======= ======= ======= ======= =======
</TABLE>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Six Months
Ended March 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Cash Provided by Operating Activities $ 9,138 $ 4,408
------- -------
Cash Flows From Investing Activities:
Capital Expenditures (3,882) (7,198)
Net Change in Temporary Investments 1,900
------- -------
Net Cash Used in Investing Activities (3,882) (5,298)
------- -------
Cash Flows From Financing Activities:
Repayment of Debts (1,046) (743)
Short-Term Borrowings, Net (1,800) 900
Payment of Dividends, Net of Dividend Reinvestment (1,642) (1,576)
------- -------
Net Cash Used In Financing Activities (4,488) (1,419)
------- -------
Net Increase (Decrease) in Cash and Cash Equivalents 768 (2,309)
------- -------
Cash & Cash Equivalents at Beginning of Period 1,023 4,045
------- -------
Cash & Cash Equivalents at End of Period $ 1,791 $ 1,736
======= =======
</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 six month periods ended March 31, 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 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, 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 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 second quarter of fiscal 1996 have been met
through internally generated funds. Cash flow from operations was $9.1 million
and $4.4 million, respectively, for the six months ended March 31, 1996 and
1995. The increase in cash flow from operations is due to increased net income
and changes in asset and liability account balances.
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 by mid-1997. In order to service
Tuscaloosa Steel, the Company will construct five miles of new high pressure
pipeline and upgrade other segments of the system, representing a capital
commitment of nearly $10 million. At March 31, 1996, the Company has expended
$454,000 on this capital project. When Tuscaloosa Steel's facility becomes
operational, it will become the largest single user of natural gas in the
Company's service area. Bay Gas has begun engineering work to increase the
peak day withdrawal capacity of its storage facility from 100,000 MMBtu to
260,000 MMBtu at an estimated cost of $1.2 million. Once complete in December
1996, the expansion will enable Bay Gas to meet effectively its existing and
potential customer withdrawal needs. Capital expenditures for the remainder of
fiscal 1996 are estimated to be $6.9 million. Funds for the Company's capital
needs are expected to come from internal cash generation and drawings upon the
Company's unused lines of credit totaling $20 million at March 31, 1996.
Management believes it has adequate financial flexibility to meet its
anticipated cash needs in the foreseeable future.
8
<PAGE> 9
RESULTS OF OPERATIONS
Earnings per share for the three, six and twelve month periods ended March
31, 1996 were $1.65, $2.21 and $2.37, respectively. Earnings per share for the
same prior year periods were $.87, $1.10 and $1.21, respectively. The
increase in earnings per share 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 $.41, $.67 and $.62,
respectively, for the three, six and twelve month periods and $.27, $.34 and
$.31, respectively, compared to earnings that would have occurred with normal
weather.
Gas revenues increased 22%, 23% and 16%, respectively, for the three, six
and twelve month periods ended March 31, 1996 compared to the corresponding
periods in fiscal 1995. The increase in gas revenues was primarily due to
weather which was 37%, 46% and 39%, respectively, colder than the prior year
three, six and twelve months periods and 21%, 19% and 16%, respectively, colder
than normal. As a result of the colder weather, volumes of gas sold and
delivered to temperature sensitive customers increased 25%, 27% and 19%,
respectively, during the current three, six and twelve month periods. The
general rate increase, which was approved by the Alabama Public Service
Commission, provided additional gross margin of $3,031,000 during the second
quarter of fiscal 1996.
Increases or decreases in the cost of gas are passed through to customers
in accordance with the Purchased Gas Adjustment Rider provision in the
Company's rate schedules. Any over or under recoveries of gas costs are charged
or credited to cost of gas and included in current assets or liabilities. In
conjunction with the general rate increase, the Purchased Gas Adjustment Rider
component of rates was reduced, the cost of gas was underrecovered, and
therefore the recorded cost of gas and a current liability for previously
over-recovered gas costs were reduced by $2,215,000 in the second quarter of
fiscal 1996. As a result, the cost of gas was flat compared to the second
quarter of fiscal 1995 since an increase due to higher gas volumes sold was
offset by a reduction due to the underrecovery of gas costs from customers.
Cost of gas decreased 2% for the twelve months ended March 31, 1996 compared to
the same prior year period. This decrease is attributed to the above impacts
and due to the Company's use of the Bay Gas storage facility as opposed to
interstate pipeline companies for storage of gas to ensure that sufficient
supplies are available during peak demand periods. Bay Gas commenced
operations on September 12, 1994; therefore, a full year effect of utilizing
Bay Gas is reflected in the cost of gas for the twelve months ended March 31,
1996.
Operations and maintenance expense in the aggregate increased 18%, 12%
and 7%, respectively, for the three, six and twelve month periods ended March
31, 1996 as a result of increased payroll expenses, sales promotion and
advertising expenses, maintenance costs, and Bay Gas operational activities.
Depreciation expense increased 14% for the twelve month period ended March
31, 1996. The increase for this period was due to continued growth in
depreciable plant in service and as a result of the commencement of Bay Gas
operations in September 1994.
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.
9
<PAGE> 10
The allowance for borrowed funds used during construction has decreased
$1,163,000 for the twelve months ended March 31, 1996 compared to the 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.
Income tax expense changed primarily in relation to changes in pretax
income for the periods ending March 31, 1996.
10
<PAGE> 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
3(i)-c Articles of Amendment to the Restated
Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3(i)-c
to Form 8-K Current Report filed February 7,
1996.)
10(g) Deferred Compensation Agreement with John S.
Davis dated January 26, 1996 (incorporated by
reference to Exhibit 10(g) to Form 8-K
Current Report filed February 7, 1996.)
27 Financial Data Schedule
(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 Under Item 5 Financial Statement
-------------- --------------------------- --------------------
<S> <C> <C>
January 26, 1996 (filed Adoption of an amendment None
February 7, 1996) to the Restated Articles
of Incorporation of the
Company and election of
Directors of the Company.
Entering into a Deferred
Compensation Agreement with
John S. Davis dated January
26, 1996.
</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 May 15, 1996 /s/ John S. Davis
------------------------------
John S. Davis
President and
Chief Executive Officer
Date May 15, 1996 s/s Charles P. Huffman
------------------------------
Charles P. Huffman
Vice President, Chief Financial
Officer and Treasurer
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
- ----------
<S> <C>
3(i)-c Articles of Amendment to the Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3(i)-c to Form 8-K Current Report filed February 7, 1996.)
10(g) Deferred Compensation Agreement with John S. Davis dated January 26, 1996 (incorporated by reference to
Exhibit 10(g) to Form 8-K Current Report filed February 7, 1996.)
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 SIX MONTHS ENDED MARCH 31,
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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 114,888
<OTHER-PROPERTY-AND-INVEST> 1,144
<TOTAL-CURRENT-ASSETS> 16,693
<TOTAL-DEFERRED-CHARGES> 1,629
<OTHER-ASSETS> 6,904
<TOTAL-ASSETS> 141,258
<COMMON> 8,038
<CAPITAL-SURPLUS-PAID-IN> 9,206
<RETAINED-EARNINGS> 33,295
<TOTAL-COMMON-STOCKHOLDERS-EQ> 50,539
0
0
<LONG-TERM-DEBT-NET> 55,989
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 2,013
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 32,717
<TOT-CAPITALIZATION-AND-LIAB> 141,258
<GROSS-OPERATING-REVENUE> 45,037
<INCOME-TAX-EXPENSE> 4,192
<OTHER-OPERATING-EXPENSES> 31,222
<TOTAL-OPERATING-EXPENSES> 35,414
<OPERATING-INCOME-LOSS> 9,623
<OTHER-INCOME-NET> 180
<INCOME-BEFORE-INTEREST-EXPEN> 9,803
<TOTAL-INTEREST-EXPENSE> 2,684
<NET-INCOME> 7,119
0
<EARNINGS-AVAILABLE-FOR-COMM> 7,119
<COMMON-STOCK-DIVIDENDS> 1,736
<TOTAL-INTEREST-ON-BONDS> 4,521<F1>
<CASH-FLOW-OPERATIONS> 9,138
<EPS-PRIMARY> 2.21
<EPS-DILUTED> 2.21
<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>
