<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, 1995 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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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
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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 - 3,213,394 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.
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<S> <C>
PART I. Financial Information:
Consolidated Balance Sheets - December 31,
1995 and 1994 and September 30, 1995 3 - 4
Consolidated Statements of Income - Three and
Twelve Months Ended December 31, 1995 and 1994 5
Consolidated Statements of Retained Earnings -
Three and Twelve Months Ended December 31, 1995
and 1994 6
Consolidated Statements of Cash Flows - Three
Months Ended December 31, 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
(In Thousands)
<TABLE>
<CAPTION>
December 31, September 30,
Assets 1995 1994 1995
------------------------ ------------
(Unaudited)
<S> <C> <C> <C>
Property, Plant, and Equipment $146,579 $139,071 $146,589
Less Accumulated Depreciation and Amortization 33,090 29,412 31,853
-------- -------- --------
Property, Plant, and Equipment in Service - Net 113,489 109,659 114,736
Construction Work in Progress 1,223 3,124 188
-------- -------- --------
Total Property, Plant, and Equipment 114,712 112,783 114,924
-------- -------- --------
Current Assets:
Cash and Cash Equivalents 1,548 409 1,023
Receivables:
Gas 6,038 4,424 2,809
Merchandise 1,468 1,631 1,444
Other 225 251 208
Allowance for Doubtful Accounts (331) (261) (266)
Materials, Supplies, and Merchandise 1,045 828 1,206
Gas Stored Underground for Current Use 1,094 1,725 1,352
Deferred Gas Costs 1,335 819 156
Deferred Income Taxes 3,146 2,275 3,540
Prepayments 1,292 912 1,456
-------- -------- --------
Total Current Assets 16,860 13,013 12,928
-------- -------- --------
Regulatory Asset 1,738 1,712 1,780
-------- -------- --------
Merchandise Receivables Due After One Year 5,448 4,767 5,305
-------- -------- --------
Deferred Charges 1,701 1,892 1,630
-------- -------- --------
Total $140,459 $134,167 $136,567
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
December 31, September 30,
Liabilities 1995 1994 1995
------------------------ ------------
(Unaudited)
<S> <C> <C> <C>
Capitalization:
Stockholders' Equity
Common Stock, $2.50 Par Value
(Authorized 4,000,000 Shares;
Outstanding: December 1995 -
3,213,000 Shares; December 1994 -
3,204,000 Shares; September 1995 -
3,211,000 Shares) $ 8,033 $ 8,010 $ 8,028
Capital in Excess of Par Value 9,166 9,001 9,123
Retained Earnings 28,849 27,191 27,912
-------- -------- --------
Total Stockholders' Equity 46,048 44,202 45,063
Minority Interest in Consolidated Subsidiary 2,240 1,889 2,011
Long-Term Debt (Less Current Maturities) 56,129 58,420 57,328
-------- -------- --------
Total Capitalization 104,417 104,511 104,402
-------- -------- --------
Current Liabilities:
Current Maturities of Long-Term Debt 2,003 1,376 1,719
Notes Payable 3,600 2,500 1,800
Accounts Payable 4,004 3,295 2,249
Take-or-Pay Costs 950
Dividends Declared 868 833 867
Customer Deposits 1,495 1,484 1,558
Taxes Accrued 2,348 2,023 2,273
Interest Accrued 1,537 1,541 1,673
Deferred Purchased Gas Adjustment 5,889 3,335 5,960
Other Liabilities 2,241 1,672 2,237
-------- -------- --------
Total Current Liabilities 23,985 19,009 20,336
-------- -------- --------
Accrued Pension Cost 1,672 1,552 1,639
Accrued Postretirement Benefit Cost 1,510 1,682 1,480
Accumulated Deferred Income Taxes 8,385 6,898 8,213
Accumulated Deferred Investment Tax Credits 490 515 497
-------- -------- --------
Total $140,459 $134,167 $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 Twelve Months
Ended December 31, Ended December 31,
------------------- ---------------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating Revenues
Gas Revenues $15,933 $12,829 $59,321 $56,892
Merchandise Sales and Jobbing 883 955 2,835 2,966
------- ------- ------- -------
Total Operating Revenues 16,816 13,784 62,156 59,858
------- ------- ------- -------
Operating Expenses
Cost of Gas 4,739 3,850 19,203 21,811
Cost of Merchandise and Jobbing 668 728 2,087 2,310
Operations 4,211 4,014 16,027 15,132
Maintenance 397 373 1,443 1,583
Depreciation 1,354 1,266 5,143 4,298
Taxes, Other Than Income Taxes 1,332 1,149 4,941 4,579
------- ------- ------- -------
Total Operating Expenses 12,701 11,380 48,844 49,713
------- ------- ------- -------
Operating Income 4,115 2,404 13,312 10,145
------- ------- ------- -------
Other Income and (Expense)
Interest Expense (1,353) (1,348) (5,497) (5,490)
Allowance for Borrowed Funds Used
During Construction 3 19 41 1,610
Interest Income 193 162 469 555
Minority Interest (95) (84) (323) (292)
------- ------- ------- -------
Total Other Income (Expense) (1,252) (1,251) (5,310) (3,617)
------- ------- ------- -------
Income Before Income Taxes 2,863 1,153 8,002 6,528
------- ------- ------- -------
Income Taxes 1,059 413 2,910 2,453
------- ------- ------- -------
Net Income $ 1,804 $ 740 $ 5,092 $ 4,075
------- ------- ------- -------
Earnings Per Share of Common Stock $ 0.56 $ 0.23 $ 1.59 $ 1.42
======= ======= ======= =======
Cash Dividends Per Share of Common Stock $ 0.27 $ 0.26 $ 1.07 $ 1.03
======= ======= ======= =======
Average Common Shares Outstanding 3,213 3,204 3,210 2,869
======= ======= ======= =======
</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,
--------------------- --------------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance at Beginning of Period $27,912 $27,284 $27,191 $26,179
Net Income 1,804 740 5,092 4,075
------- ------- ------- -------
Total 29,716 28,024 32,283 30,254
Less: Dividends 867 833 3,434 3,063
------- ------- ------- -------
Balance at End of Period $28,849 $27,191 $28,849 $27,191
======= ======= ======= =======
</TABLE>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months
Ended December 31,
-------------------
1995 1994
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<S> <C> <C>
Cash Flows from Operating Activities:
Net Cash Provided by (Used In) Operating Activities $1,660 ($1,626)
------ -------
Cash Flows From Investing Activities:
Capital Expenditures (1,201) (5,002)
Net Change in Temporary Investments 1,900
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Net Cash Used in Investing Activities (1,201) (3,102)
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Cash Flows From Financing Activities:
Repayment of Debts (915) (620)
Short-Term Borrowings, Net 1,800 2,500
Payment of Dividends, Net of Dividend Reinvestment (819) (788)
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Net Cash Provided by Financing Activities 66 1,092
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Net Increase (Decrease) in Cash and Cash Equivalents 525 (3,636)
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Cash & Cash Equivalents at Beginning of Period 1,023 4,045
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Cash & Cash Equivalents at End of Period $1,548 $ 409
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</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
6
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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, 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, 1995.
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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
Cash requirements in the first quarter of the fiscal year have been
met through internally generated funds and short-term bank borrowings. Cash
flow from operations was $1.7 million for the three months ended December 31,
1995 compared to operations using cash of $1.6 during the same period in 1994.
This increase 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
on-going 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 December 31, 1995, the Company
has expended $335,000 on this capital project. When Tuscaloosa Steel's plant
becomes operational, it will become the largest single user of natural gas in
the Company's service area. Also, a pipeline interconnect between Bay Gas and
Koch Gateway Pipeline Company was completed in February 1996 at a cost of $1
million. This interconnect and the interconnect with Florida Gas Transmission,
which was completed in July 1995, marks Bay Gas' entry into the interstate gas
storage markets. Total construction in fiscal year 1996 is estimated to be
$9.7 million. Funds for the Company's working capital and capital needs are
expected to come from internal cash generation and drawings upon the Company's
unused lines of credit totaling $16.4 million at December 31, 1995. Management
believes the Company has adequate financial flexibility to meet its anticipated
cash needs in the foreseeable future.
8
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RESULTS OF OPERATIONS
Earnings applicable to common stock for the three months ended
December 31, 1995 and 1994 amounted to $1,804,000 and $740,000, respectively.
Earnings during the twelve months ended December 31, 1995 and 1994 were
$5,092,000 and $4,075,000, respectively. The increase in earnings resulted
primarily from colder weather combined with a general rate increase which went
into effect on December 1, 1995.
Gas revenues increased 24% for the three months ended December 31,
1995 compared to the corresponding period in 1994. This increase is primarily
attributed to the effect of weather which was 83% colder than the three months
ended December 31, 1994 and 14% colder than normal. As a result of colder
weather, volumes sold and delivered to temperature sensitive customers during
the three months ended December 31, 1995 increased 31% compared to the same
prior year period. The general rate increase, which was approved by the
Alabama Public Service Commission, is designed to provide additional annual
revenues of $6,890,000. Gas revenues for the twelve months ended December 31,
1995 increased 4% compared to the corresponding period in 1994. The results of
the three months ended December 31, 1995 contributed primarily to the increase
in gas revenues for the twelve month period. In addition to the above impacts,
gas revenues increased due to industrial gas deliveries which were 5% and 11%,
respectively, higher for the three and twelve month periods ended December 31,
1995.
Cost of gas increased 23% for the three months ended December 31, 1995
compared to the same prior year period as a result of the same factors
affecting gas revenues. Cost of gas decreased 12% for the twelve months ending
December 31, 1995 compared to the prior year period despite an increase in gas
revenues. The decrease in cost of gas during the twelve month period is
attributed 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 December
31, 1995.
Operations and maintenance expense in the aggregate increased 5% for
both the three and twelve month periods ending December 31, 1995. General
inflation has contributed to the increase for both periods. Additionally, the
start- up of Bay Gas operations in September 1994, and the increase in Bay Gas
operational activity has resulted in increased operation and maintenance
expenses for both current year periods compared to the same prior year periods.
Depreciation expense increased 7% and 20% for the three and twelve
month periods ended December 31, 1995. Increases for both periods were due to
continued growth in depreciable plant in service and as a result of the
commencement of Bay Gas operations.
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
Net interest expense increased $1,576,000 for the twelve months ended
December 31, 1995 compared to the prior year period. As a result of the
commencement of Bay Gas operations, 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 pre-tax
income for the periods ending December 31, 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 February 14, 1996 /s/ John S. Davis
------------------------- ---------------------------------
John S. Davis
President and
Chief Executive Officer
Date February 14, 1996 /s/ Charles P. Huffman
------------------------- ---------------------------------
Charles P. Huffman
Vice President, Chief Financial
Officer, and Treasurer
11
<PAGE> 12
EXHIBIT INDEX
EXHIBIT NO. DESCRIIPTION
- ----------- ------------
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 THREE MONTHS ENDED DECEMBER
31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE THE COMPANY'S FORM 10-Q
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 114,712
<OTHER-PROPERTY-AND-INVEST> 1,223
<TOTAL-CURRENT-ASSETS> 16,860
<TOTAL-DEFERRED-CHARGES> 1,701
<OTHER-ASSETS> 5,963
<TOTAL-ASSETS> 140,459
<COMMON> 8,033
<CAPITAL-SURPLUS-PAID-IN> 9,166
<RETAINED-EARNINGS> 28,849
<TOTAL-COMMON-STOCKHOLDERS-EQ> 46,048
0
0
<LONG-TERM-DEBT-NET> 56,129
<SHORT-TERM-NOTES> 3,600
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 2,003
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 32,679
<TOT-CAPITALIZATION-AND-LIAB> 140,459
<GROSS-OPERATING-REVENUE> 16,816
<INCOME-TAX-EXPENSE> 1,059
<OTHER-OPERATING-EXPENSES> 12,701
<TOTAL-OPERATING-EXPENSES> 12,701
<OPERATING-INCOME-LOSS> 4,115
<OTHER-INCOME-NET> 98
<INCOME-BEFORE-INTEREST-EXPEN> 4,213
<TOTAL-INTEREST-EXPENSE> 1,350
<NET-INCOME> 1,804
0
<EARNINGS-AVAILABLE-FOR-COMM> 1,804
<COMMON-STOCK-DIVIDENDS> 867
<TOTAL-INTEREST-ON-BONDS> 4,552<F1>
<CASH-FLOW-OPERATIONS> 1,660
<EPS-PRIMARY> 0.56
<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>
