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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
For the fiscal year ended September 30, 1996 Commission File
Number 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 offices) (Zip Code)
Registrant's telephone number, including area code (334) 476-2720
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
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None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock ($2.50 par value)
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(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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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The aggregate market value of Common Stock, Par Value $2.50 per share,
held by non-affiliates (based upon the average of the high and low prices as
reported by NASDAQ on November 30, 1996) was approximately $79,629,500.
As of November 30, 1996, there were 3,225,499 shares of Common Stock,
Par Value $2.50 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders on January 31, 1996 are incorporated by reference into Part III.
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PART I
Item 1. Business.
GENERAL
Mobile Gas Service Corporation (together with its subsidiaries, the
"Company" or "Registrant", and exclusive of its subsidiaries, "Mobile Gas") was
incorporated under the laws of the State of Alabama in 1933. The Company is
engaged in the purchase, distribution, sale and transportation of natural gas
to over 100,000 residential, commercial and industrial customers in southwest
Alabama, including the City of Mobile and adjacent areas. The Company's
service territory covers approximately 300 square miles. Mobile Gas is also
involved in merchandise sales, specifically sales of natural gas appliances.
MGS Energy Services, Inc. ("MGS Energy"), a wholly-owned subsidiary,
was incorporated in March 1983. Through MGS Energy, the Company provides
contract and consulting work for utilities and industrial customers. MGS
Energy owns a 51% interest in Southern Gas Transmission Company ("SGT"), an
Alabama general partnership which was formed in November 1991. SGT was
established to provide transportation services to the facilities of Alabama
River Pulp Company, Inc. During fiscal year 1992, SGT constructed and began
operating a 50-mile pipeline from the facilities of Koch Gateway Pipeline
Company ("Koch"), formerly United Gas Pipe Line Company, near Flomaton, Alabama
to the facilities of Alabama River Pulp Company, Inc. in Claiborne, Alabama.
MGS Storage Services, Inc. ("MGS Storage"), a wholly-owned subsidiary,
was incorporated on December 4, 1991. MGS Storage and MGS Energy formed Bay
Gas Storage Company, Ltd. ("Bay Gas"), an Alabama limited partnership, on
January 13, 1992, with MGS Storage as general partner and MGS Energy as the
initial limited partner. Currently, MGS Storage holds a general partnership
interest of 87 1/2% in Bay Gas and a 12 1/2% limited partnership interest is
held by Olin Corporation. Bay Gas has constructed an underground gas storage
cavern which is used to provide storage and delivery of natural gas for Mobile
Gas and other customers.
MGS Marketing Services, Inc. ("MGS Marketing"), a wholly-owned
subsidiary, was incorporated on March 5, 1993 to assist existing and potential
customers in the purchase of natural gas.
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CUSTOMERS
Of the approximately 100,000 customers of the Company, approximately
95% are residential customers. In the fiscal year ended September 30, 1996,
approximately 64% of the Company's gas revenues was derived from residential
sales, 12% from small commercial and industrial sales, 12% from large
commercial and industrial sales, 10% from transportation services, and 2% from
storage and miscellaneous services. Residential sales in 1996 accounted for
approximately 16% of the total volume of gas delivered to the Company's
customers, with small commercial and industrial, large commercial and
industrial, and transportation deliveries accounting for approximately 4%, 6%
and 74%, respectively. The ten largest customers of the Company accounted for
approximately 10% of the Company's gross margin in fiscal 1996, with the
largest accounting for approximately 2%. For further information with respect
to revenues from and deliveries to the various categories of the Company's
customers, see Item 6, "Selected Financial Data".
In May 1995, the Company entered into a long-term contract with
Tuscaloosa Steel Corporation to transport natural gas to a new iron ore
reduction facility which is currently under construction on a site located
adjacent to downtown Mobile. When fully operational, that facility is expected
to use approximately 35,000 MMBTU of gas per day, making Tuscaloosa Steel the
largest volume user of natural gas on the Company's system. To fulfill its
obligations under such contract, the Company is constructing approximately five
miles of new high pressure pipeline and upgrading certain other segments of its
existing facilities, representing a capital commitment of nearly $10,000,000.
The Company expects construction to be completed in mid-1997.
GAS SUPPLY
The Company is directly connected to two natural gas processing plants
in south Mobile County. Mobile Gas has contracted for a portion of its firm
supply directly with these producers. For the fiscal year ended September 30,
1996, the Company obtained approximately 90% of its gas supply from sources
located in the Mobile Bay area, with the balance being obtained from interstate
sources.
To encourage more competition among natural gas suppliers, the Federal
Energy Regulatory Commission ("FERC") issued Order 636 in 1992. Order 636
required interstate pipelines to unbundle or separate gas sales, transportation
and storage services. With the implementation of Order 636, most pipelines
discontinued their traditional merchant function resulting in each local
distribution company becoming responsible for obtaining all of its gas supply
in the open market. While unbundling of these services allows a local
distribution company, such as Mobile Gas, more flexibility in selecting and
managing the type of services required to provide its customers with the lowest
possible priced gas while maintaining a reliable gas supply, it also places
additional responsibility on a distribution company to obtain its natural gas
supply in the open market on a timely basis to fulfill commitments during peak
demand periods. The Company believes that the Bay Gas storage facility, which
had already been planned by the Company prior to Order 636, has enhanced its
ability to respond to the changes in the industry brought about by Order 636.
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The Company has a current peak day firm requirement of 129,870 MMBtus.
Firm supply needs of 80,000 MMBtu/day are expected to be met through the
withdrawal of gas from the storage facility owned by Bay Gas. The Company also
has firm supply contracts with PanEnergy Trading and Market Services L.L.C., an
assignee of a prior contract with Mobil Natural Gas, Inc. ("Mobil"), for 10,000
MMBtu/day until October 31, 2000 and Shell Gas Trading Company ("Shell") for
13,000 MMBtu/day until December 31, 1996, through the direct connections with
Mobil and Shell's processing plants. The Company is negotiating currently with
Coral Energy Resources, L.P. to contract for 13,000 MMBtu/day which will be
supplied through the direct connection with Shell's processing plant.
Additionally, the Company has contracted for firm transportation and storage
service ("No-Notice Service") for 26,870 MMBtu/day from Koch under agreements
extending to April 1, 1999. In conjunction with the No-Notice Service, the
Company has contracted with Koch Gas Services, an affiliate of Koch, to provide
firm gas supply through April 1, 1997.
GAS STORAGE
Construction of the Bay Gas storage facility was completed in 1994.
The cavern is designed to hold up to 3.7 BCF of natural gas. At full capacity,
approximately 1.3 BCF of the gas to be injected into the storage cavern, called
"base gas," will remain in the cavern to provide sufficient pressure to
maintain cavern integrity, and the remainder, approximately 2.4 BCF, represents
working storage capacity. Bay Gas has pipeline interconnects with Florida Gas
Transmission and Koch which provide access to interstate markets.
In 1994 Mobile Gas entered into a gas storage agreement with Bay Gas
under which Bay Gas agreed to provide storage of approximately one-third of the
working storage capacity for an initial period of 20 years. Under the Mobile
Gas storage contract, injection and withdrawal capacity of 15,000 MMBtu/day and
80,000 MMBtu/day, respectively, is committed to Mobile Gas. At September 30,
1996, the storage facility's injection and withdrawal capacity was 35,000
MMBtu/day and 100,000 MMBtu/day, respectively. In November 1996, Bay Gas
completed the installation of additional dehydration equipment which increased
the withdrawal capacity to 260,000 MMBtu/day, of which 180,000 MMBtu is
available to current and prospective customers other than Mobile Gas. An
additional compressor will be added to increase the injection capacity if
significant contracts are entered into which provide for firm injection
services. There can be no assurance that Bay Gas will enter into additional
contracts.
Under its agreements with Olin, Bay Gas has the right to develop up to
2 additional caverns on the property leased from Olin. Olin has the right,
until Bay Gas makes certain required payments to Olin prior to commencement of
the construction of a second cavern, to increase its ownership interest in Bay
Gas by an additional 12 1/2%, by purchasing from MGS Storage such additional
percentage at a price based on the book equity of MGS Storage in Bay Gas. The
Company is unable to determine at this time whether additional caverns will be
developed at the storage facility, but anticipates that an additional cavern
would be considered if and when contracts are obtained for the entire capacity
of the first cavern.
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COMPETITION
Gas Distribution Competition. The Company is not in significant
direct competition with respect to the retail distribution of natural gas to
residential, small commercial and small industrial customers within its service
area. Electricity competes with natural gas for such uses as cooking, water
heating and space heating.
The Company's large commercial and industrial customers with
requirements of 200 MMBtu per day or more contract with the Company to
transport customer-owned gas while other commercial and industrial customers
buy natural gas from the Company. Some industrial customers have the
capability to use either fuel oil, coal, wood chips or natural gas, and choose
their fuel depending upon a number of factors, including the availability and
price of such fuels. In recent years, the Company has had adequate supplies so
that interruptible industrial customers that are capable of using alternative
fuels have not had supplies curtailed, and the price of natural gas has
remained at levels such that, in most cases, these industrial customers have
chosen to use natural gas rather than other fuels. The Company's rate tariffs
include a competitive fuel clause which allows the Company to adjust its rates
to certain large commercial and industrial customers in order to compete with
alternative energy sources. However, there can be no assurance that the
current competitive advantage of natural gas over alternative fuels will
continue. See "Rates and Regulation."
Due to the close proximity of various pipelines and gas processing
plants to the Company's service area, there exists the possibility that current
or prospective customers could install their own facilities and connect
directly to a supply source and thereby "bypass" the Company's service. The
Company believes that because it has worked closely with major industrial
customers to meet those customers' needs, and because of its ability to provide
competitive pricing under its rate tariffs, none of the Company's customers
have bypassed its facilities to date. Although there can be no assurance as to
future developments, the Company intends to continue its efforts to reduce the
likelihood of bypass by offering competitive rates and services to such
customers.
Gas Storage Competition. A number of types of competitors may provide
services like or in competition with those of Bay Gas. These include, among
others, natural gas storage facilities, natural gas aggregators (who rebundle
services ordered unbundled by Order 636), and natural gas pipelines. Bay Gas
believes that its strategic geographic location and its ability to charge
market-based rates for interstate storage services will enable it to
effectively compete with such competitors. See "Rates and Regulation."
RATES AND REGULATION
The Company's natural gas distribution operations are under the
jurisdiction of the Alabama Public Service Commission ("APSC"). The APSC
approves rates which are intended to permit the recovery of the cost of service
including a return on investment. Rates are determined by reference to rate
tariffs approved by the APSC in traditional rate proceedings or, for certain
large customers, on a case-by-case basis. In addition, pursuant
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to APSC order, rates for a limited number of large industrial customers are
determined on a privately negotiated basis. The Company also is allowed to
recover costs associated with the Company's replacement of cast iron mains.
This component of rates is adjusted annually through a filing with the APSC.
The rates for service rendered by the Company are on file with the APSC. The
APSC also approves the issuance of debt and equity securities and has
supervision and regulatory authority over service, equipment, accounting, and
other matters.
On June 10, 1996, the APSC authorized the Company to apply a
temperature rate adjustment to customers' gas bills for the months of November
through April. The 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 was
reflected in customers' gas bills beginning November 1996.
The Company's tariffs include a purchased gas adjustment clause which
allows the Company to pass on to certain of its customers increases or
decreases in gas costs from those reflected in its tariff charges. Adjustments
under such clauses require periodic filings with the APSC but do not require a
general rate proceeding. Under the purchased gas adjustment clause, the
Company has a competitive fuel clause which gives it the right to adjust its
rates to certain large customers in order to compete with alternative energy
sources. Any margin lost as a result of competitive fuel clause adjustments is
recoverable from its other customers.
Gas deliveries to certain industrial customers are subject to
regulation by the APSC through contract approval. The operations of SGT, which
consist only of intrastate transportation of gas, are also regulated by the
APSC.
Bay Gas is a regulated utility governed under the jurisdiction of the
APSC. As a regulated utility, Bay Gas' intrastate storage contracts are
subject to APSC approval. Operation of the storage cavern and well-head
equipment are subject to regulation by the Oil and Gas Board of the State of
Alabama. Bay Gas is allowed by FERC order to charge market-based rates for
interstate storage services. Market-based rates allow Bay Gas to respond to
market conditions and minimizes regulatory involvement in the setting of its
rates for storage services.
The Company has been granted nonexclusive franchises to construct,
maintain and operate a natural gas distribution system in the areas in which it
operates. Except for the franchise granted by Mobile County, Alabama, which
has no stated expiration date, the franchises have expiration dates, the
earliest of which is in 2007. The Company has no reason to believe that the
franchises will not be renewed upon expiration.
SEASONAL NATURE OF BUSINESS
The nature of the Company's business is highly seasonal and
temperature sensitive. As a result, the Company's operating results in any
given period have historically
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reflected, in addition to other matters, the impact of weather, with colder
temperatures resulting in increased sales by the Company. The substantial
impact of this sensitivity to seasonal conditions has been reflected in the
Company's results of operations. As discussed above under "Rates and
Regulation - Results of Operations" and below under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" the application
of a temperature rate adjustment in customers' bills beginning in November 1996
will help level out the effects of temperature extremes on results of
operations in future periods.
Due to the seasonality of the Company's business, the generation of
working capital is impaired during the summer months because of reduced gas
sales. Cash needs during this period are met generally through short-term
financing arrangements or the reduction of temporary investments as is common
in the industry.
ENVIRONMENTAL ISSUES
The Company is subject to various federal, state and local laws and
regulations relating to the environment, which have not had a material effect
on the Company's financial position or results of operations.
Like many gas distribution companies, prior to the widespread
availability of natural gas, the Company manufactured gas for sale to its
customers. In contrast to some other companies which operated multiple
manufactured gas plants, the Company and its predecessor operated only one such
plant, which discontinued operations in 1933. The process for manufacturing
gas produced by-products and residuals, such as coal tar, and certain remnants
of these residuals are sometimes found at former gas manufacturing sites.
The Company conducted a preliminary assessment in 1994 of its former
gas plant site and has tested certain waters in the vicinity of the site. The
Company developed and has implemented a plan for the site based on the advice
of its environmental consultants, which involves securing and monitoring the
site, and continued testing. Based on the results of tests to date, the
Company does not believe that the site currently poses any threat to human
health or the environment. While no conclusion can be reached at this time as
to whether any further remedial action might ultimately be required, based on
currently available information, it is believed that any costs with respect to
the site are likely to be immaterial, and the Company has therefore established
no reserve for such costs in its financial statements. The Company intends
that, should further investigation or changes in environmental laws or
regulations require material expenditures for investigation, remediation, or
clean-up with regard to the site, it would apply to the APSC for appropriate
rate recovery of such costs. However, there can be no assurance that the APSC
would approve the recovery of such costs or the amount and timing of any such
recovery.
EMPLOYEES
Mobile Gas employed 271 full-time employees as of September 30, 1996.
Of these, approximately 38% are represented by the Oil, Chemical and Atomic
Workers International
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Union, Local No. 3-541. As of September 30, 1996 Bay Gas employed five
full-time employees. The Company believes that it enjoys generally good labor
relations.
Item 2. Properties.
The Company's properties consist of distribution, general,
transmission, and storage plant. The distribution plant is located in Mobile
County, Alabama and is used in the distribution of natural gas to the Company's
customers. The distribution plant consists primarily of mains, services,
meters and regulating equipment, all of which are adequate to serve the present
customers. The distribution plant is located on property which the Company is
entitled to use as a result of franchises granted by municipal corporations, or
on easements or rights-of-way.
The general plant consists of land, structures (with aggregate floor
space of approximately 118,000 square feet), office equipment, transportation
equipment and miscellaneous equipment, all located in Mobile County, Alabama.
The transmission plant consists of a pipeline of approximately 50
miles and related surface equipment which is used in the transmission of
natural gas by SGT and is located primarily in Monroe County, Alabama. The
transmission plant is located on easements or rights-of-way.
The storage plant, consisting of an underground cavern for the storage
of natural gas and related pipeline and surface facilities, is located
primarily in Washington County, Alabama. The storage plant is constructed on a
leasehold estate with an initial term of 50 years, which will expire in 2040,
and which may be renewed at the Company's option for an additional term of 20
years.
Substantially all of the property of the Company is pledged as
collateral for the long-term debt.
Item 3. Legal Proceedings.
The Company is involved in litigation arising in the normal course of
business. Management believes that the ultimate resolution of such litigation
will not have a material adverse effect on the consolidated financial
statements of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during
the fourth quarter of fiscal year 1996.
Executive Officers of the Registrant
Pursuant to General Instruction G(3) of Form 10-K, the following list
is included as an unnumbered Item in Part I of this Report in lieu of being
included in the proxy statement to be filed with the Securities and Exchange
Commission.
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Information relating to executive officers who are also directors is
included under the caption "Election of Directors" contained in the Company's
definitive proxy statement with respect to its 1997 Annual Meeting of
Stockholders and is incorporated herein by reference.
The following is a list of names and ages of all of the executive
officers who are not also directors or nominees for election as directors of the
Registrant indicating all positions and offices with the Registrant held by each
such person and each such person's principal occupations or employment during
the past five years. All such persons have been elected for terms expiring in
January 1997. Officers are appointed by the Board of Directors of the Company.
<TABLE>
<CAPTION>
Business Experience
Name, Age, and Position During Past 5 Years
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<S> <C>
W. G. Coffeen, III, 49 Appointed in 1986
Vice President - Marketing; Director/Vice President
MGS Marketing Services, Inc.
Gerald S. Keen, 60
Vice President - Operations; Director/President - MGS Energy Appointed in December 1989
Services, Inc.; Director/President - MGS Storage Services,
Inc.
Charles P. Huffman, 43
Vice President, Chief Financial Officer, Treasurer, and Appointed in January 1995; Previously: Chief
Assistant Secretary; Vice President/Treasurer - MGS Energy Financial Officer (1993-1994); Treasurer
Services, Inc.; Director/Vice President/Treasurer - MGS (1991-1993)
Storage Services, Inc.; Director/Vice President/ Treasurer -
MGS Marketing Services, Inc.
G. Edgar Downing, Jr., 40
Vice President, Secretary and General Counsel; Director/Vice
President/Secretary - MGS Energy Services, Inc.; Appointed in January 1995; Previously:
Director/Vice President/Secretary - MGS Storage Services, Secretary and General Counsel (1993-1994);
Inc.; Vice President/ Secretary - MGS Marketing Services, Assistant Secretary (1991-1993), General
Inc. Attorney (1990-1993)*
A. H. Tenhundfeld, Jr., 48
Vice President - Administration and Planning Appointed in March 1995; Previously: Vice
President - Finance and Treasurer, Dravo
Corporation (December 1989-February 1995)
</TABLE>
* Mr. Downing is the son-in-law of Gaylord C. Lyon, a Director of the Company.
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PART II
Item 5. Market for the Registrant's Common Stock Equity and Related
Stockholder Matters.
The Registrant's Common Stock, $2.50 par value, is traded on the
NASDAQ National Market under the symbol "MBLE". As of December 18, 1996 there
were 1,624 holders of record of the Company's Common Stock. Information
regarding Common Stock dividends and the bid price range for Common Stock
during the periods indicated is as follows:
<TABLE>
<CAPTION>
Per Share
Dividends Declared Bid Price Range
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Quarter Ended 1996 1995 1996 1995
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High Low High Low
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<S> <C> <C> <C> <C> <C> <C>
December 31 $.27 $.26 $ 22 3/4 $ 20 3/4 $ 22 1/4 $ 19 1/4
March 31 .27 .26 23 21 3/4 20 19 1/4
June 30 .28 .27 25 1/4 22 1/2 21 19 1/4
September 30 .28 .27 25 1/4 21 21 1/2 20 1/4
</TABLE>
Over-the-counter quotations reflect inter-dealer prices without retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions.
While the Board of Directors intends to continue the practice of
paying dividends quarterly, amounts and dates of such dividends as may be
declared will be dependent upon the Registrant's future earnings, financial
requirements, and other factors.
The Registrant's long-term debt instruments contain certain debt to
equity ratio requirements and restrictions on the payment of cash dividends and
the purchase of shares of its capital stock. At September 30, 1996, under the
most limiting of such provisions, retained earnings in the amount of
$15,235,000 were unrestricted.
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Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Years Ended September 30, 1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
Gas Revenues $ 68,334 $ 56,204 $ 60,470 $ 54,292 $ 51,166
Merchandise Sales and Jobbing 3,044 2,907 2,824 2,525 2,366
- ----------------------------------------------------------------------------------------------------------------------
Total Operating Revenues $ 71,378 $ 59,111 $ 63,294 $ 56,817 $ 53,532
Net Income $ 8,631 $ 4,028 $ 4,893 $ 4,920 $ 5,368
Preferred Stock Dividends 5 29 29
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Earnings Applicable to Common Stock $ 8,631 $ 4,028 $ 4,888 $ 4,891 $ 5,339
Earnings Per Share of Common Stock $ 2.68 $ 1.26 $ 1.78 $ 1.79 $ 1.96
Cash Dividends Per Share of Common Stock $ 1.10 $ 1.06 $ 1.02 $ 0.96 $ 0.90
Average Common Shares Outstanding 3,225 3,208 2,752 2,733 2,726
Total Assets $ 152,118 $ 136,567 $ 134,529 $ 116,839 $ 80,531
Long-Term Debt Obligations $ 54,509 $ 57,328 $ 59,047 $ 60,416 $ 26,833
STATISTICAL
Gas Revenue (in thousands):
Sales:
Residential $ 43,929 $ 36,106 $ 40,535 $ 35,204 $ 33,023
Commercial and Industrial - Small 8,348 6,813 7,209 6,170 5,634
Commercial and Industrial - Large 7,914 6,151 6,188 6,403 6,822
Transportation 6,571 6,172 5,881 5,927 5,104
Storage (other than intercompany) 926 245 13
Other 646 717 644 588 583
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Total $ 68,334 $ 56,204 $ 60,470 $ 54,292 $ 51,166
- ----------------------------------------------------------------------------------------------------------------------
Delivery to Customers (in thousand therms):
Gas Sales:
Residential 59,403 47,992 56,100 50,046 49,986
Commercial and Industrial - Small 14,148 11,669 12,463 11,072 10,898
Commercial and Industrial - Large 23,252 19,536 19,045 23,012 28,951
Transportation 279,798 274,859 253,702 237,499 221,608
- ----------------------------------------------------------------------------------------------------------------------
Total 376,601 354,056 341,310 321,629 311,443
- ----------------------------------------------------------------------------------------------------------------------
Customers Billed (peak month):
Residential 95,338 94,822 94,424 91,936 84,640
Commercial and Industrial - Small 5,257 5,235 5,195 4,812 4,784
Commercial and Industrial - Large 105 108 106 105 104
Transportation 30 29 31 30 30
- ----------------------------------------------------------------------------------------------------------------------
Total 100,730 100,194 99,756 96,883 89,558
- ----------------------------------------------------------------------------------------------------------------------
Average Use and Revenue Per
Residential Customer:
Gas Used (therms) 632 512 602 574 597
Revenue $ 467 $ 385 $ 435 $ 404 $ 394
Revenue Per Therm $ 0.74 $ 0.75 $ 0.72 $ 0.70 $ 0.66
Degree Days (1) 2,030 1,331 1,837 1,611 1,689
NUMBER OF EMPLOYEES (END OF PERIOD) 276 275 260 243 238
</TABLE>
Note: (1) The number of degrees that the daily mean temperature falls below 65
degrees F. The Company's rates were designed assuming annual normal degree
days of 1,640 beginning December 1, 1995 and an annual normal of 1,695 for
prior periods.
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Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
THE COMPANY
The Company's natural gas distribution operations are under the
jurisdiction of the Alabama Public Service Commission (APSC). The Company's
rate tariffs allow a pass through to customers of the cost of gas supplies,
certain taxes and, beginning December 1, 1995, incremental costs associated
with the Company's replacement of cast iron mains. These costs, therefore,
ultimately have little impact on the Company's earnings. Other costs,
including a return on investment, have historically been recovered through
rates approved in traditional rate proceedings.
The nature of the Company's distribution business is highly seasonal
and temperature sensitive. As a result, the Company's operating results in any
given period reflect, in addition to other matters, the impact of weather,
through either increased or decreased sales volumes.
Bay Gas, which commenced operations in September 1994, is a regulated
utility governed under the jurisdiction of the APSC and as such, Bay Gas'
intrastate storage 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.
RESULTS OF OPERATIONS
NET INCOME
The Company's net income was $8.6 million or $2.68 per share in 1996,
$4.0 million or $1.26 per share in 1995, and $4.9 million or $1.78 per share in
1994. The 1996 increase in net income resulted primarily from colder weather
combined with a general rate increase which went into effect on December 1,
1995. The general rate increase, which was approved by the APSC, was designed
to provide additional annual revenues of $6.9 million based on normal weather.
The impact of colder weather increased 1996 earnings per share by $.81 compared
to 1995 and $.45 compared to earnings that would have occurred with normal
weather. Weather normalized earnings will be useful in evaluating future
earnings since the APSC 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 is reflected in customers' gas bills beginning November 1996. Also
contributing to the strong earnings performance in fiscal 1996 were increased
Bay Gas earnings, increased merchandising earnings and the continued growth of
industrial sales and transportation revenues.
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The 1995 decrease in net income resulted from warmer weather during
fiscal 1995 compared to fiscal 1994. Earnings per share in 1995 were impacted
also by the September 1994 issuance of 460,000 shares of Common Stock.
OPERATING REVENUES
Revenues from the sale and transportation of natural gas were $68.3
million in 1996, $56.2 million in 1995, and $60.5 million in 1994. The 1996
increase in gas revenues was due primarily to the increase in rates and to
colder weather during the 1995-96 heating season. Based on heating degree days
billed, temperatures in the Company's service area during fiscal 1996 were 53%
colder than prior year and 24% colder than normal. As a result of colder
weather, the volume of gas sold and delivered to temperature sensitive
customers, who are primarily residential, small commercial and small industrial
customers, increased 23% in 1996 compared to 1995. Revenues from temperature
sensitive customers increased $9.4 million or 21.8% in fiscal 1996 compared to
fiscal 1995. Other components of gas revenues which contributed to the 1996
increase were an increase in large commercial and industrial volumes of 19.0%
and an increase in transportation volumes of 1.8%, representing a combined gas
revenue increase of $2.2 million. Non-intercompany revenues from Bay Gas
increased $681,000 in 1996 compared to 1995.
The decrease in 1995 gas revenues compared to 1994 reflects the impact
of weather which was 27.5% warmer than 1994 and 21.8% warmer than normal.
Temperature sensitive volumes decreased 13.0% in 1995, which resulted in a $4.8
million decrease in gas revenues from these customers compared to 1994.
EXPENSES
Cost of gas increased $1.2 million or 6.8% in 1996 compared to 1995.
This increase is attributed primarily to the 1996 increase in gas volumes sold
and delivered. The effect on cost of gas of increased gas volumes was offset
partially by a reduction in the deferred purchased gas adjustment of $5.3
million. Cost of gas decreased $6.9 million, or 27.5% in 1995 compared to
1994. The 1995 decrease is attributed primarily to the Company's use of the
Bay Gas storage facility, as opposed to interstate pipeline companys'
facilities, for storage of gas which is used as a firm gas supply to ensure
that a certain amount of gas supply is available during peak demand periods.
Amounts paid to Bay Gas in 1996 and 1995 of $4.1 million for gas storage
services have been eliminated in consolidation. Another contributing factor
for the 1995 decrease is the decrease in gas volumes sold to customers during
1995 due to warmer weather.
A variety of factors caused the $2.8 million increase in operations
and maintenance expenses in 1996 as compared to 1995. Bay Gas operations and
maintenance expenses increased $160,000 in conjunction with serving new storage
customers. For Mobile Gas, certain non-routine maintenance projects totaling
$450,000 were initiated and completed in 1996. The cold 1996 winter impacted
12
<PAGE> 14
operations expense in two respects. A $190,000 increase in bad debt expense
was primarily associated with higher customer bills from increased usage caused
by the cold winter. Additionally, the Company incurred over $100,000 in
increased overtime expense responding to customer and system needs during the
extreme weather periods. Expenses in 1996 also rose from increased
advertising, contributions and additional personnel hired in late 1995 in order
to improve the responsiveness to customers. Other factors affecting expenses
were rate proceeding expenses and transition costs associated with the adoption
of Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" (see Note 9 to the Consolidated Financial
Statements), both of which are being amortized to expense over a three year
period beginning December 1, 1995 in accordance with APSC order.
Operations and maintenance expenses increased $842,000 in 1995
compared to 1994. Of this increase, $647,000 is attributed to the effect of
the first full year of Bay Gas operations.
Depreciation expense increased $351,000 or 6.9% in 1996 compared to
1995 and $1.0 million or 26.0% in 1995 compared to 1994. Increases for both
years reflect the growth in property, plant and equipment. Depreciation
attributable to Bay Gas accounted for $776,000 of the 1995 increase.
Taxes, other than income taxes, primarily consist 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 1996 increase of $816,000 or 17.2% is attributed primarily to
increased gas revenues in 1996. Property taxes are another component of other
taxes. Bay Gas property taxes and other taxes increased $362,000 in 1995
compared to 1994 as a result of the first full year of Bay Gas operations. As
a result, other taxes increased in 1995 despite lower gas revenues as compared
to 1994.
Interest expense decreased $176,000, or 3.2% in 1996 compared to 1995
as a result of decreased levels of short-term debt, lower short-term interest
rates and decreased interest on long-term debt. Interest expense was slightly
higher in 1995 compared to 1994 due to increased levels of short-term
borrowings. The allowance for borrowed funds used during construction
decreased $1.9 million in 1995 compared to 1994 as a result of the commencement
of Bay Gas operations. Prior to commencement, interest on the debt of Bay Gas
was capitalized to plant.
Interest income increased $446,000 in 1996 compared to 1995. Improved
cash flows in 1996 provided more opportunities to invest in short-term
financial instruments.
Income taxes fluctuated with the changes in pre-tax income. The
Company's effective tax rates in 1996, 1995, and 1994 were 36.7%, 36.0% and
36.4%, respectively. Income tax expense is detailed in Note 7 to the
Consolidated Financial Statements.
13
<PAGE> 15
EFFECTS OF INFLATION
Inflation impacts the prices the Company must pay for labor and other
goods and services required for operation, maintenance and capital
improvements. Changes in purchased gas costs are passed through to customers
in accordance with the approved provision of the Company's rate tariffs.
Increases in other costs must be recovered through timely filings for rate
relief.
GAS SUPPLY
A primary goal of the Company is to provide gas at the lowest possible
cost while maintaining a reliable long-term supply. To accomplish this goal,
the Company has diversified its gas supply by constructing and purchasing
pipelines to access the vast gas reserves in our area, both offshore and
onshore. The Company has also contracted with certain of these sources for
firm supply. In addition, the Company has a natural gas storage cavern which
provides for a major portion of the Company's peak day needs. The storage
cavern commenced operations in September 1994 when the Company began to inject
gas for storage. The diversification of sources gives the Company more
flexibility to obtain gas at the most favorable prices.
ENVIRONMENTAL
The Company is subject to various federal, state and local laws and
regulations relating to the environment, which have not had a material effect
on the Company's financial position or results of operations. See Note 10 to
the Consolidated Financial Statements for a discussion of certain environmental
issues.
CAPITAL RESOURCES AND LIQUIDITY
The Company's cash needs reflect the capital-intensive nature of its
business. The following table briefly describes capital expenditures in the
periods indicated:
<TABLE>
<CAPTION>
Fiscal Years Ended September 30,
--------------------------------
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
System improvement and expansion $ 8,637 $ 8,121 $ 8,187
Gas storage facility 1,503 2,917 19,810
-------- -------- --------
Total $ 10,140 $ 11,038 $ 27,997
======== ======== ========
</TABLE>
The Company generally relies on cash generated from operations and, on
a temporary basis, short-term borrowings to meet working capital requirements
and to finance normal capital expenditures. Cash provided by operating
activities was $13.0 million in 1996, $8.9 million in 1995 and $13.0 million in
1994. The increased cash flow from operating activities for fiscal 1996
primarily reflect increased net income and
14
<PAGE> 16
increased provision for deferred taxes, both of which were partially offset by
the change in operating assets and liabilities. The fluctuation in operating
assets and liabilities was impacted primarily from a one-time reduction in the
deferred purchased gas adjustment. Other fluctuations within operating assets
and liabilities are generally the result of the timing of cash receipts and
payments.
The decrease in cash flow from operating activities in fiscal 1995
compared to fiscal 1994 was attributed primarily to a decrease in net income
and a decrease in operating assets and liabilities, both of which were
partially offset by an increase in depreciation in 1995.
The Company's remaining cash needs for its distribution operations in
1996 and 1995 were obtained by drawings upon the Company's revolving credit
agreement. Of the $13.2 million increase in short-term borrowings for 1996,
$11 million is related to a purchase of short-term investments which are
reflected within the balance sheet as cash equivalents at September 30, 1996.
The Company began construction of its Bay Gas storage facility in 1992
and commenced operations in September 1994. The investment in Bay Gas as of
September 30, 1996, which includes construction work-in-progress, was $34.8
million plus an additional $2.4 million for base gas. Sources of funds for the
development and construction of the Bay Gas storage facility include the
private issuance in 1993 of $22.5 million of Bay Gas Notes, pursuant to an
Indenture of Mortgage which secures the Bay Gas Notes. A portion of the funds
from that issuance was temporarily invested and then used as construction
continued in 1994 and 1995. Additional funds have come from short-term
borrowings and Mobile Gas' issuance of 460,000 shares of common stock in
September 1994, which generated net proceeds of $9.3 million.
Bay Gas currently is adding dehydration equipment which will more than
double its maximum daily withdrawal capacity. At September 30, 1996, $312,000
had been expended on this equipment. The Company estimates that an additional
$968,000 will be expended to complete this project by November 1996. An
additional compressor at an estimated cost of $2.5 million will be required to
increase the gas injection capacity should significant contracts be entered
into which provide for firm injection services. Funding for the additional
dehydration equipment and for the additional compressor, if added, will come
from internal cash generation and an equity contribution from the Bay Gas
partners. Funds for such equity contribution by Mobile Gas would be obtained
from short-term bank borrowings.
During fiscal 1995, Mobile Gas entered into a long-term contract with
an industrial customer to transport gas to the customer's facility. In order
to service the customer by mid-1997, an estimated $10 million in new facilities
are under construction by the Company. At September 30, 1996, $1.7 million had
been expended on these facilities. Funding for this project will come from $12
million 7.27% bonds which were issued in late November 1996. The balance of
funds not used for this project will be used for general corporate and working
capital purposes.
15
<PAGE> 17
In addition to the cash requirements of Bay Gas and the above
mentioned construction project of Mobile Gas, the Company expects fiscal 1997
capital expenditures related to the Company's regular construction program to
be $6.8 million. Funds for the Company's cash needs for its regular
construction program are expected to come from cash provided by operations, the
November 1996 bond issue, and draws upon the Company's revolving credit
agreement. Management believes it has adequate financial flexibility to meet
its expected cash needs in the foreseeable future.
Item 8. Financial Statements and Supplementary Data.
The financial statements and financial statement schedules and the
Independent Auditor's Report thereon filed as part of this report are listed in
the "Mobile Gas Service Corporation and Subsidiaries Index to Financial
Statements and Schedules" at Page F-1, which follows Part IV hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There have been no disagreements on accounting and financial
disclosure with the Company's outside auditors which are required to be
disclosed.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information under the captions "Election of Directors" and
"Information Regarding the Board of Directors" contained in the Company's
definitive proxy statement with respect to its 1997 Annual Meeting of
Stockholders is incorporated herein by reference.
For information with respect to executive officers of the Registrant,
see "Executive Officers of the Registrant" at the end of Part I of this Report.
Information under the caption "Reports Under Section 16 of the
Securities and Exchange Act" contained in the Company's definitive proxy
statement with respect to its 1997 Annual Meeting of Stockholders is
incorporated herein by reference.
Item 11. Executive Compensation.
Information under the caption "Executive Compensation" contained in
the Company's definitive proxy statement with respect to its 1997 Annual
Meeting of Stockholders is incorporated herein by reference.
16
<PAGE> 18
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information under the caption "Security Ownership of Certain
Beneficial Owners and Management" contained in the Company's definitive proxy
statement with respect to its 1997 Annual Meeting of Stockholders is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
There were no transactions required to be disclosed pursuant to this
item.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a), (d) Financial Statements and Financial Statement Schedules
See "Mobile Gas Service Corporation and Subsidiaries Index to
Financial Statements and Schedules" at page F-1, which
follows Part IV hereof.
(3) Exhibits - See Exhibit Index on pages E-1 through E-4.
(b) No reports on Form 8-K were filed during the last quarter
of the fiscal year ended September 30, 1996.
(c) Exhibits filed with this report are attached hereto.
17
<PAGE> 19
Signatures
Pursuant to the requirements of Section 13 or 15 (d) 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
By: /s/ Charles P. Huffman
------------------------------
Charles P. Huffman, Vice
President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William J. Hearin Director, Chairman December 6, 1996
- ------------------------------
William J. Hearin
/s/ Walter L. Hovell Director, Vice-Chairman December 6, 1996
- ------------------------------
Walter L. Hovell
Director, President and
Chief Executive Officer
/s/ John S. Davis (Principal Executive Officer) December 6, 1996
- ------------------------------
John S. Davis
Vice President, Chief Financial
Officer and Treasurer (Principal
/s/ Charles P. Huffman Financial and Accounting Officer) December 6, 1996
- ------------------------------
Charles P. Huffman
/s/ Joseph G. Hollis Director December 6, 1996
- ------------------------------
Joseph G. Hollis
</TABLE>
18
<PAGE> 20
Signatures (Continued)
<TABLE>
<S> <C> <C>
/s/ John C. Hope Director December 6, 1996
- ------------------------------
John C. Hope
/s/ Gaylord C. Lyon Director December 6, 1996
- ------------------------------
Gaylord C. Lyon
/s/ S. Felton Mitchell, Jr. Director December 6, 1996
- ------------------------------
S. Felton Mitchell, Jr.
/s/ G. Montgomery Mitchell Director December 6, 1996
- ------------------------------
G. Montgomery Mitchell
/s/ F. B. Muhlfeld Director December 6, 1996
- ------------------------------
F. B. Muhlfeld
/s/ E. B. Peebles, Jr. Director December 6, 1996
- ------------------------------
E. B. Peebles, Jr.
/s/ Thomas B. Van Antwerp Director December 6, 1996
- ------------------------------
Thomas B. Van Antwerp
</TABLE>
19
<PAGE> 21
MOBILE GAS SERVICE CORPORATION
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<S> <C>
Independent Auditor's Report F-2
Consolidated Balance Sheets, September 30, 1996 and 1995 F-3
Consolidated Statements of Income for the years ended
September 30, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flow for the years ended
September 30, 1996, 1995 and 1994 F-6
Consolidated Statements of Common Shareholders' Equity
for the years ended September 30, 1996, 1995 and 1994 F-7
Notes to Consolidated Financial Statements F-8
Financial Statement Schedules
II Valuation and Qualifying Accounts and Reserves, Years
Ended September 30, 1996, 1995 and 1994 S-1
</TABLE>
Schedules other than that referred to above are omitted and are not applicable
or not required.
F-1
<PAGE> 22
INDEPENDENT AUDITOR'S REPORT
Mobile Gas Service Corporation:
We have audited the accompanying consolidated balance sheets of Mobile
Gas Service Corporation and subsidiaries as of September 30, 1996 and 1995 and
the related consolidated statements of income, common stockholders' equity, and
cash flows for each of the three fiscal years in the period ended September 30,
1996. Our audits also included the financial statement schedules listed in the
Index referred to in Item 14. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Mobile Gas Service
Corporation and its subsidiaries at September 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Atlanta, Georgia
November 7, 1996
F-2
<PAGE> 23
CONSOLIDATED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
========================================================================================================
September 30, (in thousands) 1996 1995
========================================================================================================
<S> <C> <C>
Property, Plant, and Equipment $153,000 $146,589
Less Accumulated Depreciation and Amortization 36,099 31,853
- --------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment - Net 116,901 114,736
Construction Work in Progress 2,579 188
- --------------------------------------------------------------------------------------------------------
Total Property, Plant, and Equipment 119,480 114,924
- --------------------------------------------------------------------------------------------------------
Current Assets:
Cash and Cash Equivalents 12,030 1,023
Receivables:
Gas 3,151 2,809
Merchandise 1,530 1,444
Other 566 208
Allowance for Doubtful Accounts (349) (266)
Materials, Supplies, and Merchandise (At Average Cost) 1,163 1,206
Gas Stored Underground For Current Use (At Average Cost) 1,951 1,352
Deferred Gas Costs 186 156
Deferred Income Taxes 2,063 3,540
Prepayments 1,847 1,456
- --------------------------------------------------------------------------------------------------------
Total Current Assets 24,138 12,928
- --------------------------------------------------------------------------------------------------------
Regulatory Assets 1,367 1,780
- --------------------------------------------------------------------------------------------------------
Merchandise Receivables Due After One Year 5,670 5,305
- --------------------------------------------------------------------------------------------------------
Deferred Charges 1,463 1,630
- --------------------------------------------------------------------------------------------------------
Total $152,118 $136,567
- --------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-3
<PAGE> 24
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
=======================================================================================================
September 30, (in thousands, except share data) 1996 1995
=======================================================================================================
<S> <C> <C>
Capitalization:
Stockholders' Equity:
Common Stock, $2.50 Par Value
(Authorized 4,000,000 Shares; Outstanding
1996 - 3,222,000; 1995 - 3,211,000 Shares) $8,055 $8,028
Capital in Excess of Par Value 9,341 9,123
Retained Earnings 33,004 27,912
- -------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 50,400 45,063
Minority Interest 2,451 2,011
Long-Term Debt (Less Current Maturities) 54,509 57,328
- -------------------------------------------------------------------------------------------------------
Total Capitalization 107,360 104,402
- -------------------------------------------------------------------------------------------------------
Current Liabilities:
Current Maturities of Long-Term Debt 2,818 1,719
Notes Payable 15,000 1,800
Accounts Payable 3,687 2,249
Dividends Declared 902 867
Customer Deposits 1,549 1,558
Taxes Accrued 3,075 2,273
Interest Accrued 1,641 1,673
Deferred Purchased Gas Adjustment 638 5,960
Other Liabilities 2,380 2,237
- -------------------------------------------------------------------------------------------------------
Total Current Liabilities 31,690 20,336
- -------------------------------------------------------------------------------------------------------
Accrued Pension Cost 1,778 1,639
Accrued Postretirement Benefit Cost 1,312 1,480
Deferred Income Taxes 9,508 8,213
Deferred Investment Tax Credits 470 497
Commitments and Contingencies (Note 10)
- -------------------------------------------------------------------------------------------------------
Total $152,118 $136,567
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 25
CONSOLIDATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
===============================================================================================================
Years Ended September 30, (in thousands, except per share data) 1996 1995 1994
===============================================================================================================
<S> <C> <C> <C>
OPERATING REVENUES
Gas Revenues $68,334 $56,204 $60,470
Merchandise Sales and Jobbing 3,044 2,907 2,824
- ---------------------------------------------------------------------------------------------------------------
Total Operating Revenues 71,378 59,111 63,294
- ---------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of Gas 19,552 18,311 25,251
Cost of Merchandise and Jobbing 2,343 2,148 2,197
Operations 18,093 15,826 14,913
Maintenance 1,945 1,419 1,490
Depreciation 5,406 5,055 4,013
Taxes, Other Than Income Taxes 5,574 4,758 4,600
- ---------------------------------------------------------------------------------------------------------------
Total Operating Expenses 52,913 47,517 52,464
- ---------------------------------------------------------------------------------------------------------------
OPERATING INCOME 18,465 11,594 10,830
- ---------------------------------------------------------------------------------------------------------------
OTHER INCOME AND (EXPENSE)
Interest Expense (5,309) (5,485) (5,419)
Allowance for Borrowed Funds Used During Construction 35 57 2,003
Interest Income 884 438 559
Minority Interest (431) (312) (284)
- ---------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) (4,821) (5,302) (3,141)
- ---------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 13,644 6,292 7,689
Income Taxes 5,013 2,264 2,796
- ---------------------------------------------------------------------------------------------------------------
NET INCOME 8,631 4,028 4,893
PREFERRED STOCK DIVIDEND REQUIREMENTS 5
- ---------------------------------------------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $8,631 $4,028 $4,888
- ---------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING 3,225 3,208 2,752
- ---------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE OF COMMON STOCK $2.68 $1.26 $1.78
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 26
CONSOLIDATED
STATEMENTS OF
CASH FLOWS
<TABLE>
<CAPTION>
==============================================================================================================
Years Ended September 30, (in thousands) 1996 1995 1994
==============================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $8,631 $4,028 $4,893
Depreciation and Amortization 5,619 5,261 4,207
Provision for Losses on Accounts Receivable 441 293 259
Provision for Deferred Income Taxes 2,939 494 (286)
Provision for Deferred Gas Cost (30) 39 74
Minority Interest 440 176 215
- ---------------------------------------------------------------------------------------------------------------
18,040 10,291 9,362
Changes in Operating Assets and Liabilities (5,080) (1,390) 3,646
- ---------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 12,960 8,901 13,008
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (10,140) (11,038) (27,997)
Net Change in Temporary Investments 1,900 11,000
- ---------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (10,140) (9,138) (16,997)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Long-Term Debt (1,719) (1,369) (1,548)
Proceeds from Issuance of Common Stock 9,318
Changes in Short-Term Borrowings 13,200 1,800
Payment of Dividends, Net of Dividend Reinvestment (3,294) (3,216) (2,749)
Redemption of Preferred Stock (642)
- ---------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities 8,187 (2,785) 4,379
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,007 (3,022) 390
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,023 4,045 3,655
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $12,030 $1,023 $4,045
- ---------------------------------------------------------------------------------------------------------------
CASH PAID DURING THE YEAR FOR:
Interest $5,187 $5,294 $5,309
- ---------------------------------------------------------------------------------------------------------------
Income Taxes $2,697 $1,938 $3,055
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 27
CONSOLIDATED
STATEMENTS OF
COMMON STOCKHOLDERS'
EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------------- Capital in
Number of Par Excess of Retained
(In thousands, except per share data) Shares Value Par Value Earnings
====================================================================================================
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1993 2,736 $6,839 $ 640 $25,352
Net Income 4,893
Dividend Reinvestment Plan 6 16 153
Cash Dividends:
Common Stock - $1.02 per share (2,914)
Preferred Stock - $.83 per share (5)
Premium on Redemption of Preferred Stock (42)
Issuance of Common Stock 460 1,150 8,168
- ----------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1994 3,202 8,005 8,961 27,284
Net Income 4,028
Dividend Reinvestment Plan 9 23 162
Cash Dividends:
Common Stock - $1.06 per share (3,400)
- ----------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1995 3,211 8,028 9,123 27,912
Net Income 8,631
Dividend Reinvestment Plan 11 27 218
Cash Dividends:
Common Stock - $1.10 per share (3,539)
- ----------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1996 3,222 $8,055 $9,341 $33,004
- ----------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
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").
All significant intercompany balances and transactions have been eliminated.
DESCRIPTION OF BUSINESS
The Company is engaged principally in the distribution of natural gas to
residential, commercial, and industrial customers in South Alabama, subject to
regulation by the Alabama Public Service Commission (APSC). For the major
portion of the Company's business, the APSC approves rates which are intended
to permit the recovery of the cost of service including a return on investment.
Gas deliveries to certain industrial customers are subject to regulation by the
APSC through contract approval. In September 1994, Bay Gas completed the
development and construction of a natural gas storage facility located in a salt
dome near the north end of the Company's service area. As a separate utility
regulated by the APSC, Bay Gas' intrastate storage contracts require APSC
approval. In addition, by Federal Energy Regulatory Commission order, Bay Gas
is permitted to charge market-based rates for interstate storage services. The
Company is also engaged in various unregulated activities including the sale and
financing of gas appliances, jobbing work, and contract and consulting work for
utilities and industrial customers.
REVENUES AND GAS COSTS
Revenues from residential and commercial customers are recorded as meters are
read on a cycle basis throughout each month. The commodity cost of purchased
gas applicable to gas delivered to customers but not yet billed under the cycle
billing method is deferred. Increases or decreases in the cost of gas and
certain other costs are passed through to customers in accordance with
provisions in the Company's rate schedules. Any over or under recoveries of
these costs are charged or credited to cost of gas and included in current
assets or liabilities.
F-8
<PAGE> 29
PROPERTY, PLANT, AND EQUIPMENT
Substantially all property, plant, and equipment is considered utility plant.
Included in property, plant, and equipment are acquisition adjustments, net of
amortization, of $8,812,000 and $9,203,000 at September 30, 1996 and 1995,
respectively. Such acquisition adjustments are being amortized to cost of
service over the lives of the assets acquired.
The cost of additions includes direct labor and materials, allocable
administrative and general expenses, pension and payroll taxes, and an
allowance for funds used during construction. The cost of depreciable property
retired, plus cost of dismantling, less salvage, is charged to accumulated
depreciation. Estimated interest cost associated with property under
construction, based upon weighted average interest rate for short-term
borrowings or the interest rate on borrowings for specific projects, is
capitalized as an allowance for borrowed funds used during construction.
Maintenance, repairs, and minor renewals and betterment of property are charged
to operations.
Provisions for depreciation are computed principally on straight-line
rates for financial statement purposes and on accelerated rates for income tax
purposes. Depreciation for financial statement purposes is provided at an
annual rate averaging approximately 4.0% of depreciable property, excluding the
gas storage facility which is depreciated at an annual rate averaging 2.7%.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
INCOME TAXES
The Company provides deferred tax liabilities and assets, as measured by
enacted tax rates, for all temporary differences caused when the tax basis of
an asset or liability differs from that reported in the financial statements.
Investment tax credits realized after 1980 are deferred and amortized over the
average life of the related property in accordance with regulatory treatment.
F-9
<PAGE> 30
EARNINGS PER SHARE
Earnings per share are computed based on weighted average number of common
shares outstanding and additional common shares assumed to be outstanding to
reflect the dilutive effect of outstanding stock options, which are common
stock equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" ("SFAS
121") was issued in March 1995 and is effective for the Company October 1,
1996. SFAS 121 established accounting standards for the impairment of
long-lived assets. The Company does not believe that it has any assets which
currently are impaired under SFAS 121.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") was issued in October 1995 and is
effective for the Company October 1, 1996. SFAS 123 established a fair value
method of accounting for stock-based compensation plans. SFAS 123 allows
companies to either measure stock-based compensation using the fair value
method or to continue to apply existing accounting standards and include
footnote disclosure of pro forma net income and earnings per share calculated
as if the fair value method had been applied. Stock options outstanding at
September 30, 1996 are not subject to the requirements of SFAS 123 since the
option grant date is prior to the effective date of pro forma disclosures. The
Company expects to continue to apply existing accounting standards for
stock-based compensation and to include disclosures required by SFAS 123 for
stock options granted in the future.
F-10
<PAGE> 31
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified
to conform with the 1996 financial statement presentation.
2. DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
The functional classifications for the cost of property, plant, and equipment
are as follows at September 30, (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Distribution plant $ 89,152 $ 85,646
General plant 13,456 12,396
Storage plant 36,908 34,954
Transmission plant 3,464 3,464
Acquisition adjustment 10,020 10,129
-------- --------
Total property, plant, and equipment $153,000 $146,589
======== ========
</TABLE>
The components of regulatory assets are as follows
at September 30, (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Income tax (Note 7) $ 1,215 $ 1,569
Postemployment benefits (Note 9) 152 211
-------- --------
Total regulatory assets $ 1,367 $ 1,780
======== ========
</TABLE>
3. CAPITAL STOCK
The Mobile Gas Service Corporation 1992 Stock Option Plan (the "Plan") provides
for the granting of incentive stock options, non-qualified stock options, and
stock appreciation rights to key employees. Under the Plan, an aggregate of
150,000 shares of the Company's authorized but unissued Common Stock have been
reserved for issuance. Stock options become 25% exercisable on the first
anniversary of the grant date and an additional 25% become exercisable each
succeeding year. No option may be exercised after the expiration of ten years
from the grant date. During the year ended September 30, 1995, 105,000 options
were granted at an option price of $21.125, representing the market price on
the date of grant. No stock options were granted or exercised during the year
ended September 30, 1996. At September 30, 1996, 26,250 stock options are
exercisable and there remains 45,000 shares for which options may be granted
under the Plan.
F-11
<PAGE> 32
At September 30, 1996, 213,000 shares of the Company's authorized but unissued
Common Stock were reserved for issuance under the Company's Dividend
Reinvestment and Stock Purchase Plan.
4. RESTRICTIONS ON RETAINED EARNINGS
The Company's long-term debt instruments contain certain debt to equity ratio
requirements and restrictions on the payment of cash dividends and the purchase
of shares of its capital stock. At September 30, 1996, under the most
limiting provisions, retained earnings in the amount of $15,235,000 was
unrestricted.
5. LONG-TERM DEBT
Long-term debt consists of the following at September 30, (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Mobile Gas Service Corporation
First Mortgage Bonds
10.25% Series, due October 1, 2003 $ 6,500 $ 7,000
8.75% Series, due July 1, 2022 12,000 12,000
7.48% Series, due July 1, 2023 12,000 12,000
9% Note, due May 13, 2013 3,819 3,914
Southern Gas Transmission Company
Revenue Note, Series A, due February 1, 1999
(Interest varies from 7.50% to 8.05%) 1,393 1,920
Bay Gas Storage Company, Ltd.
8.19% Guaranteed Senior Secured Notes
due December 1, 2014 21,615 22,213
-------- --------
57,327 59,047
Total 2,818 1,719
-------- --------
Less amounts due within one year
Total long-term debt $ 54,509 $ 57,328
======== ========
</TABLE>
Maturities and sinking fund requirements on long-term debt in each of the five
fiscal years subsequent to September 30, 1996 are as follows: 1997 -
$2,818,000; 1998 - $2,180,000; 1999 - $2,100,000; 2000 - $1,962,000; and 2001 -
$2,045,000.
Substantially all of the property of the Company is pledged as collateral for
the long-term debt.
At September 30, 1996, the Company had a $20 million revolving credit agreement
with a group of banks, which expires in July 1998. Drawings upon the agreement
may be made as needed providing that the Company
F-12
<PAGE> 33
is in compliance with certain covenants in the revolving credit agreement and
other loan agreements. The Company currently is in compliance with all such
covenants. The Company pays a fee for its committed lines of credit rather
than maintain compensating balances. The commitment fee is 0.125% of the
average daily unborrowed amount during the annual period of calculation.
Unused committed lines of credit at September 30, 1996 and 1995 were $5.0
million and $18.2 million, respectively. Short-term borrowings outstanding were
$15.0 million and $1.8 million, respectively, at September 30, 1996 and 1995.
The weighted average interest rates on short-term debt outstanding at September
30, 1996 and 1995 were 6.5% and 6.9%, respectively.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosures about fair values of financial instruments are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange.
The carrying amounts for cash and cash equivalents, gas and other receivables,
notes payable, accounts payable and other current liabilities approximate fair
value. The fair value of merchandise receivables is estimated based on market
interest rates for similar receivables at the end of each respective year. The
carrying amount of merchandise receivables (including the reserve for
uncollectible merchandise receivables) was $6,938,000 and $6,571,000 as of
September 30, 1996 and 1995, respectively. The fair value of merchandise
receivables was $7,142,000 and $6,408,000 as of September 30, 1996 and 1995,
respectively. The fair value of long-term debt is estimated based on interest
rates available to the Company at the end of each respective year for the
issuance of debt with similar terms and remaining maturities. The carrying
amount of long-term debt (including current maturities) was $57,327,000 and
$59,047,000 as of September 30, 1996 and 1995, respectively. The fair value of
long-term debt was $61,257,000 and $65,518,000 as of September 30, 1996 and
1995, respectively.
F-13
<PAGE> 34
7. INCOME TAXES
The components of income tax expense are as follows for the years ended
September 30, (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $1,897 $1,622 $2,819
State 202 172 287
------ ------ -------
2,099 1,794 3,106
------ ------ -------
Deferred:
Federal 2,667 448 (260)
State 273 46 (26)
------ ------ ------
2,940 494 (286)
------ ------ ------
Deferred investment tax credit amortization (26) (24) (24)
------ ------ ------
Total income tax expense $5,013 $2,264 $2,796
====== ====== ======
</TABLE>
A reconciliation of income tax expense and the amount computed by
multiplying income taxes by the statutory federal income tax
rate for the periods indicated is as follows for the years ended
before September 30, (in thousands) :
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income tax expense at federal statutory rate 4,639 2,139 2,614
Excess of book over tax depreciation on
pre-1981 property additions 108 109 106
State income taxes 307 144 172
Other - net (41) (128) (96)
------ ------ ------
Total income tax expense $5,013 $2,264 $2,796
====== ====== ======
Effective tax rate 36.7% 36.0% 36.4%
</TABLE>
The tax effect of differences in book and tax depreciation related to pre-1981
property additions was flowed through to income for accounting and ratemaking
purposes prior to 1981. With the adoption in fiscal 1994 of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," the
Company recorded deferred taxes related to this temporary difference and a
corresponding regulatory asset expected to be collected in customer rates when
such taxes become payable in
F-14
<PAGE> 35
accordance with the current ratemaking practices followed by the APSC. Such
future collections included in regulatory assets are $1,215,000 and $1,569,000
at September 30, 1996 and 1995, respectively.
No valuation allowance is deemed necessary, as the Company anticipates
generating adequate future taxable income to realize the benefits of all
deferred tax assets on the balance sheet.
The significant tax components of the Company's net deferred tax liability as
of September 30, are (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax liabilities:
Differences between book and
tax basis of property $ 9,296 $ 7,860
Prepaid insurance 222 318
Regulatory assets 440 568
Other 182 156
--------- ---------
Total deferred tax liabilities 10,140 8,902
--------- ---------
Deferred tax assets:
Pension 643 593
Purchased gas adjustment 231 2,158
Gross receipts taxes 571 371
Unbilled revenue 232 169
Postretirement 256 244
Other 762 694
--------- ---------
Total deferred tax assets 2,695 4,229
--------- ---------
Net deferred tax liability $ 7,445 $ 4,673
========= =========
</TABLE>
8. RETIREMENT PLANS AND OTHER BENEFITS
The Company has a noncontributory, defined benefit retirement plan covering
substantially all of its employees. Benefits are based on the greater of
amounts resulting from two different formulas: years of service and average
compensation during the last five years of employment or years of service and
compensation during the term of employment. The "projected unit credit"
actuarial method was used to determine the service cost and actuarial
liability. The Company annually contributes to the plan the amount deductible
for federal income tax purposes.
F-15
<PAGE> 36
Net periodic pension cost included the following components for the years ended
September 30, (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost $ 527 $ 431 $ 433
Interest cost 1,258 1,168 1,086
Actual return on plan assets (1,420) (3,549) (490)
Net amortization and deferral (227) 2,082 (856)
--------- -------- --------
Net pension cost $ 138 $ 132 $ 173
========= ======== ========
</TABLE>
Assumptions used in the actuarial computations for years ended September 30,
were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate 7.5% 7.5% 7.5%
Rate of increase in future
compensation 6.1% 6.1% 6.1%
Expected long-term rate of return
on plan assets 7.5% 7.5% 7.5%
</TABLE>
The following table sets forth the plan's funded status and amount recorded in
the financial statements at September 30, (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $(12,945) $(12,177)
Nonvested benefits (692) (705)
-------- --------
Accumulated benefit obligation (13,637) (12,882)
Effect of projected future compensation (3,950) (3,488)
-------- --------
Projected benefit obligation (17,587) (16,370)
Plan assets at market value, primarily
listed stocks and bonds 24,579 22,717
-------- --------
Excess of plan assets over projected
benefit obligations 6,992 6,347
Unrecognized net gain (7,831) (6,904)
Prior service cost not yet recognized 471 510
Remaining unrecognized net asset being
recognized over 16.7 years (1,410) (1,592)
-------- --------
Accrued pension cost $ (1,778) $ (1,639)
======== ========
</TABLE>
F-16
<PAGE> 37
The Company's eligible employees may participate in the Employee Savings Plan
or the Bargaining Unit Employees Savings Plan by investing a percentage of
their compensation in the Plans with the Company matching a part of the
employee investment. The Company's contributions for the years ended September
30, 1996, 1995 and 1994 were $199,000, $177,000 and $162,000, respectively.
9. OTHER POSTEMPLOYMENT BENEFITS
The Company provides certain health care and life insurance benefits for
retired employees. Substantially all employees may become eligible for such
benefits if they retire under the provisions of the Company's retirement plan.
The Company is accruing the costs over the expected service period of the
employees. The "projected unit credit" actuarial method was used to determine
the service cost and actuarial liability.
Net periodic postretirement benefit cost included the following components for
years ended September 30, (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost $ 96 $ 78 $ 96
Interest cost 256 216 231
Actual return on plan assets (169) (150) (18)
Net amortization and deferral 65 48 (48)
-------- -------- -------
Net periodic postretirement benefit cost $ 248 $ 192 $ 261
======== ======== =======
Assumptions used in the actuarial computations:
1996 1995 1994
---- ---- ----
Weighted average discount rate 7.5% 7.5% 7.5%
Rate of increase in future compensation 6.1% 6.1% 6.1%
Expected long-term rate of return on assets 7.0% 7.0% 7.0%
</TABLE>
The September 30, 1996 accumulated benefit obligation was determined using an
assumed health care cost trend rate of 9.6% in 1996, gradually declining to
5.0% in the year 2004 and thereafter. The September 30, 1995 accumulated
benefit obligation was determined using an assumed health care cost trend rate
of 10.7% in 1995 which gradually declines to 5.0% in the year 2006 and
thereafter. If the health care cost trend rate assumptions were increased by
1%, the accumulated postretirement benefit obligation as of September 30, 1996
would be increased by
F-17
<PAGE> 38
13.4%. The effect of this change on the sum of the service cost and interest
cost components would be an increase of 15.7%.
The following table sets forth the plan's funded status and amount recorded in
the financial statements at September 30, (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Portion attributable to retirees $ (2,089) $ (1,623)
Fully eligible active plan participants (397) (434)
Other active plan participants (1,167) (1,047)
--------- ---------
Accumulated postretirement benefit obligation (3,653) (3,104)
Plan assets - cash equivalents, stocks and bonds 1,790 1,421
--------- ---------
Accumulated postretirement benefit obligation
in excess of plan assets (1,863) (1,683)
Unrecognized net loss 684 375
Prior service cost not yet recognized (528) (566)
--------- ---------
Accrued postretirement benefit cost (1,707) (1,874)
Less: Current accrued postretirement benefit cost 395 394
--------- ---------
Long-term accrued postretirement benefit cost $ (1,312) $ (1,480)
========= =========
</TABLE>
The unrecognized net loss has resulted principally from a difference between
estimated and actual health care costs.
In September 1991, the Company formed two voluntary employees' beneficiary
association (VEBA) trusts to fund postretirement health and life insurance
benefits. The Company's contributions to these trusts in 1996, 1995 and 1994
were $200,000, $218,000 and $200,000, respectively.
Beginning October 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). SFAS 112 required the Company to record the cost of
providing postemployment benefits to former or inactive employees, their
beneficiaries, and covered dependents after employment but before retirement.
For the year ended September 30, 1995, the Company recorded a liability for
postemployment benefits of $211,000 with a corresponding charge to a regulatory
asset. The regulatory asset is being amortized to expense and collected from
customers over a three year period beginning December 1, 1995 as approved by
the APSC.
F-18
<PAGE> 39
10. COMMITMENTS AND CONTINGENCIES
The Company has contracts, which expire at various dates through the year 2000
for firm supplies of natural gas. A portion of firm supply requirements is
expected to be met through the withdrawal of gas from the storage facility
owned by Bay Gas. Mobile Gas Service Corporation has entered into a Gas
Storage Agreement under which Bay Gas is to provide storage services for an
initial period of 20 years which began in September 1994 with the commencement
of commercial operations of the storage facility. The purchased gas adjustment
provisions of the Company's rate schedules permit the recovery of gas costs
from customers.
The Company is subject to various federal, state and local laws and regulations
relating to the environment, which have not had a material effect on the
Company's financial position or results of operations.
Like many gas distribution companies, prior to the widespread availability of
natural gas, the Company manufactured gas for sale to its customers. In
contrast to some other companies which operated multiple manufactured gas
plants, the Company and its predecessor operated only one such plant, which
discontinued operations in 1933. The process for manufacturing gas produced
by-products and residuals, such as coal tar, and certain remnants of these
residuals are sometimes found at former gas manufacturing sites.
The Company conducted a preliminary assessment in 1994 of its former gas plant
site and has tested certain waters in the vicinity of the site. The Company
developed and has implemented a plan for the site based on the advice of
environmental consultants, which involves securing and monitoring the site, and
continued testing. Based on the results of tests to date, the Company does not
believe that the site currently poses any threat to human health or the
environment. While no conclusion can be reached at this time as to whether any
further remedial action might ultimately be required, based on currently
available information, it is believed that any costs with respect to the site
are likely to be immaterial, and the Company has therefore established no
reserve for such costs in its financial statements. The Company intends that,
should further investigation or changes in environmental laws or regulations
require material expenditures for investigation, remediation, or clean-up with
regard to the site, it would apply to the APSC for appropriate rate recovery of
such costs. However, there can be no assurance that the APSC would approve the
recovery of such costs or the amount and timing of any such recovery.
F-19
<PAGE> 40
The Company is involved in litigation arising in the normal course of business.
Management believes that the ultimate resolution of such litigation will not
have a material adverse effect on the consolidated financial statements of the
Company.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 1996 and 1995 is summarized as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------
Dec. 31 Mar. 31 Jun. 30 Sep. 30
<S> <C> <C> <C> <C>
1996
Total operating revenues $16,816 $28,222 $15,117 $11,223
Total operating income $ 4,115 $ 9,700 $ 3,475 $ 1,175
Net income $ 1,804 $ 5,315 $ 1,391 $ 121
Earnings per share of
common stock $ .56 $ 1.65 $ .44 $ .03
1995
Total operating revenues $13,784 $23,156 $12,039 $10,132
Total operating income $ 2,404 $ 5,817 $ 2,033 $ 1,340
Net income $ 740 $ 2,792 $ 439 $ 57
Earnings per share of
common stock $ .23 $ .87 $ .14 $ .02
</TABLE>
The pattern of quarterly earnings reflects a seasonal nature because weather
conditions strongly influence operating results.
12. SUBSEQUENT EVENT (UNAUDITED)
The Company issued $12,000,000 of 7.27% First Mortgage Bonds in late November
1996. The bonds mature beginning November 1, 2000 and ending November 1,
2006.
F-20
<PAGE> 41
SCHEDULE II
MOBILE GAS SERVICE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
(in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
----------------------
CHARGED CHARGED
BALANCE AT TO COSTS TO OTHER BALANCE
BEGINNING AND ACCOUNTS DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSES AMOUNT AMOUNT OF YEAR
----------- ------- -------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Reserves deducted from assets to
for doubtful accounts:
September 30, 1996 $266 $441 $358 (1) $349
September 30, 1995 $215 $293 $242 (1) $266
September 30, 1994 $205 $260 $250 (1) $215
</TABLE>
NOTES:
(1) Amounts written off - net of recoveries.
S-1
<PAGE> 42
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3(a) Restated Articles of Incorporation (incorporated by reference to Exhibit 3(i)-C to Form 8-K Current
Report dated January 26, 1996)
3(b) By-laws, adopted January 27, 1995 (incorporated by reference to Exhibit 3(b) to Form 8-K Current Report
dated January 27, 1995)
4(a)-1 Indenture of Mortgage and Deed of Trust of the Company dated as of December 1, 1941 (incorporated by
reference to Exhibit B-a to Registration Statement No. 2-4887)
Sup. Ind.
Dated as of File Reference Exhibit
----------- -------------- -------
4(a)-2 10/1/44 Reg. No. 2-5493 7-6
4(a)-3 7/1/52 Form 10-K for fiscal year ended 4(a)-3
September 30, 1985
4(a)-4 6/1/54 " 4(a)-4
4(a)-5 4/1/57 " 4(a)-5
4(a)-6 7/1/61 " 4(a)-6
4(a)-7 6/1/63 " 4(a)-7
4(a)-8 10/1/64 " 4(a)-8
4(a)-9 7/1/72 " 4(a)-9
4(a)-10 8/1/75 " 4(a)-10
4(a)-11 7/1/79 " 4(a)-11
4(a)-12 7/1/82 " 4(a)-12
4(a)-13 7/1/86 Form 10-K for fiscal year ended 4(a)-13
September 30, 1986
4(a)-14 10/1/88 Form 10-K for fiscal year ended 4(a)-14
September 30, 1989
4(a)-15 7/1/92 Form 10-K for fiscal year 4(a)-15
ended September 30, 1992
4(a)-16 7/1/93 Form 10-K for fiscal year 4(a)-16
ended September 30, 1993
4(a)-17 12/3/93 Form 10-K for fiscal year 4(a)-17
ended September 30, 1993
</TABLE>
E-1
<PAGE> 43
<TABLE>
<S> <C>
4(b) Southern Gas Transmission Company Indenture (incorporated by reference to Exhibit 4(b) to Form 10-K
for fiscal year ended September 30, 1992)
4(c)-1 Bay Gas Indenture dated as of October 1, 1992 (incorporated by reference to Exhibit 4(c) to Form 10-K
for fiscal year ended September 30, 1992)
4(c)-2 First Supplemental Indenture dated as of October 1, 1994 supplemental to Bay Gas Indenture
(incorporated by reference to Exhibit 4(c)-2 to Form 10-K for fiscal year ended September 30, 1995)
4(d) Promissory Note to the Utilities Board of the Town of Citronelle dated May 13, 1993 (incorporated by
reference to Exhibit 4(d) to Form 10-K for fiscal year ended September 30, 1993)
10(d)-2 Settlement Agreement with Koch Gateway Pipeline Company dated September 21, 1993 (incorporated by
reference to Exhibit 10(d)-2 to Form 10-K for fiscal year ended September 30, 1993)
10(d)-3 No Notice Service Agreements between Koch Gateway Pipeline Company and Mobile Gas Service Corporation
dated November 1, 1993 (incorporated by reference to Form S-1, Registration Statement No. 33-82498)
10(d)-4 Gas Supply Agreement between Mobile Gas Service Corporation and Koch Gas Services Company made as of
the 1st day of April, 1994 (incorporated by reference to Form S-1, Registration Statement No. 33-82498)
10(e)-1 Gas Sale and Purchase Contract between Shell Gas Trading Company as Seller and Mobile Gas Service
Corporation as Buyer dated January 1, 1992 (incorporated by reference to Exhibit 10(e) to Form 10-K for
year ended September 30, 1992)
10(e)-2 Amendment dated December 1, 1993 to Gas Sale and Purchase Contract with Shell (incorporated by
reference to Exhibit 10(e)-2 to Form 10-K for fiscal year ended September 30, 1993)
10(f)-1 Agreement for Sale and Purchase of Gas - Mobile Plant dated August 10, 1995 between Mobil Natural Gas
Inc. and Mobile Gas Service (incorporated by reference to Exhibit 10(f) to Form 10-K for fiscal year
ended September 30, 1995)
10(f)-2 * Letter dated June 26, 1996 with consent dated July 31, 1996 to assignment of Agreement for Sale and
Purchase of Gas - Mobile Plant to PanEnergy Trading and Market Services, L.L.C.
</TABLE>
E-2
<PAGE> 44
<TABLE>
<S> <C>
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 dated February 7, 1996)
10(i) Mobile Gas Service Corporation/Bay Gas Storage Company, Ltd. Gas Storage Agreement dated February 26,
1992 (incorporated by reference to Exhibit 10(i) to Form 10-K for fiscal year ended September 30, 1992)
10(j) Directors/Officers Indemnification Agreement (incorporated by reference to Exhibit 10(j) to Form 10-K
for fiscal year ended September 30, 1992)
10(k)-1 ** Amended and Restated Supplemental Deferred Compensation Agreement with Walter L. Hovell, dated December
11, 1992 (incorporated by reference to Exhibit 10(k) to Form 10-K for fiscal year ended September 30,
1992)
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 dated January 27, 1995)
10(l)-1 Bay Gas Agreement by and among Mobile Gas Service Corporation, MGS Storage Services, Inc., MGS Energy
Services, Inc. and Olin Corporation, dated December 5, 1991 (incorporated by reference to Exhibit 10(l)
to Form 10-K for fiscal year ended September 30, 1992)
10(m)-1 Limited Partnership Agreement between MGS Storage Services, Inc., as General Partner, and MGS Energy
Services, Inc., as Limited Partner (forming Bay Gas Storage Company, Ltd.), dated December 5, 1991
(incorporated by reference to Exhibit 10(m) to Form 10-K for fiscal year ended September 30, 1992)
10(m)-2 First Amendment to Limited Partnership Agreement dated as of April 6, 1992 and Second Amendment to
Limited Partnership Agreement dated as of September 12, 1994 (incorporated by reference to Exhibit
10(m)-2 to Form 10-K for fiscal year ended September 30, 1994)
10(n) Cavity Development and Storage Agreement between Olin Corporation and Bay Gas Storage Company, Ltd.,
dated January 14, 1992 (incorporated by reference to Exhibit 10(n) to Form 10-K for fiscal year ended
September 30, 1992)
10(o)-1 Transportation Agreement between Mobile Gas Service Corporation and Tuscaloosa Steel Corporation dated
as of May 15, 1995 (incorporated by reference to Exhibit 10(o) to Form 10-K for fiscal year ended
September 30, 1995)
</TABLE>
E-3
<PAGE> 45
<TABLE>
<S> <C>
10(o)-2 * Amendment dated August 23, 1996 to Transportation Agreement between Mobile Gas Service Corporation and
Tuscaloosa Steel Corporation
10(p) Note Guaranty Agreement between Mobile Gas Service Corporation and AmSouth Bank of Alabama, Trustee,
dated as of January 1, 1992, relating to Indenture of Southern Gas Transmission Company (incorporated
by reference to Exhibit 10(p) to Form 10-K for fiscal year ended September 30, 1992)
10(q) Guaranty Agreement by Mobile Gas Service Corporation, dated as of October 1, 1992, relating to
Indenture of Bay Gas Storage Company, Ltd. (incorporated by reference to Exhibit 10(q) to Form 10-K for
fiscal year ended September 30, 1992)
10(r) ** Mobile Gas Service Corporation 1992 Stock Option Plan (incorporated by reference to Exhibit A to
definitive proxy statement dated December 21, 1992)
10(s) ** Mobile Gas Service Corporation Incentive Compensation Plan (incorporated by reference to Exhibit B to
definitive proxy statement dated December 21, 1992)
10(t) Agreement for Purchase and Sale of Assets by and between The Utilities Board of the Town of Citronelle
and Mobile Gas Service Corporation dated January 28, 1993 (incorporated by reference to Exhibit 10(t)
to Form 10-K for fiscal year ended September 30, 1993)
10(u)-1 Revolving Credit Agreement dated July 17, 1995 by and among Mobile Gas Service Corporation as Borrower,
AmSouth Bank of Alabama as Agent, and AmSouth Bank of Alabama, First Alabama Bank, Whitney Bank of
Alabama, Bank of Mobile, SouthTrust Bank of Alabama, N.A., and Commonwealth National Bank as Lenders
(incorporated by reference to Exhibit 10(u) to Form 10-K for fiscal year ended September 30, 1995)
10(u)-2 * Amendment dated July 15, 1996 to Revolving Credit Agreement by and among Mobile Gas Service Corporation
as Borrower, AmSouth Bank of Alabama as Agent, and AmSouth Bank of Alabama, First Alabama Bank, Whitney
Bank of Alabama, Bank of Mobile, SouthTrust Bank of Alabama, N.A., and Commonwealth National Bank as
Lenders
10(x) ** Letter dated October 7, 1994 from Mobile Gas Service Corporation to John S. Davis confirming terms of
employment (incorporated by reference to Exhibit A to Form 8-K current report filed November 2, 1994)
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 dated January 27, 1995)
</TABLE>
E-4
<PAGE> 46
<TABLE>
<S> <C> <C>
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 dated January 27, 1995)
11 * Statement Re Computation of Per Share Earnings
21 * Subsidiaries of Registrant and Partnerships in which Registrant Owns an Interest
23 * Consent of Deloitte & Touche
27 * Financial Data Schedule
</TABLE>
* Filed herewith
** Management contract or compensatory plan or arrangement
E-5
<PAGE> 1
EXHIBIT 10(f)-2
Mobil Natural Gas Inc.
12450 GREENSPOINT DRIVE
HOUSTON, TEXAS 77060-1991
June 26, 1996
CERTIFIED, RETURN
RECEIPT REQUESTED
Mobile Gas Service
P.O.B. 2248, 2828 Dauphin Street, Mobile, AL 36652
RE: Creation of New Marketing Company Owned by Mobil Natural Gas Inc. and
PanEnergy Trading and Market Services, Inc.
Dear J. Harris Oswalt:
Effective August 1, 1996, Mobil Natural Gas Inc. (Mobil) and PanEnergy Trading
and Market Services, Inc. (PanEnergy) anticipate that they will begin
conducting the marketing activities related to their respective natural gas and
electric power assets through a new jointly owned Limited Liability Company
which will be doing business as PanEnergy Trading and Market Services, L.L.C..
The following contract which you have with Mobil is included in the assets to
be assigned by Mobil to this new marketing company.
Mobil Contract No.: S-6650, dated 11/01/91; between Mobil and Mobile Gas
Service
As of August 1, 1996, the contact information for PanEnergy Trading and Market
Services, L.L.C. (PanEnergy) will be as follows:
PanEnergy Trading and Market Services, L.L.C.
Attention: Sr. Vice-President
10777 Westheimer
Houston, Texas 77042
Phone: 713/260-1800
Fax: 713/260-6511
<PAGE> 2
In accordance with the terms of the referenced contract, Mobil hereby requests
your consent to assign the contract to PanEnergy effective August 1, 1996, by
so indicating in the space provided below and returning one executed original
of this letter to the undersigned at the letterhead address. If you have
questions, please do not hesitate to call me direct at 713/775-2361.
Very truly yours,
/s/ Larry A. Wall, Jr.
Larry A. Wall, Jr.
Agreed and consented to this 31st day of July, 1996.
By: /s/ Gerald S. Keen
Title: Vice President
<PAGE> 1
EXHIBIT 10(o)-2
AMENDMENT TO GAS TRANSPORTATION AGREEMENT
This Amendment to Gas Transportation Agreement (this "Amendment") is
made and entered into as of the 23rd day of August, 1996, by and between MOBILE
GAS SERVICE CORPORATION, an Alabama corporation with a mailing address of Post
Office Box 2248, Mobile, Alabama, 36652 (herein called "Mobile Gas"), and
TUSCALOOSA STEEL CORPORATION, an Alabama corporation with a mailing address of
1700 Holt Road, N.E., Tuscaloosa, Alabama 35404-1000 (herein called
"Customer").
WHEREAS, Mobile Gas and Customer entered into a Transportation
Agreement dated as of the 15th day of May, 1995 (the "Transportation
Agreement");
WHEREAS, Mobile Gas and Customer wish to amend the Transportation
Agreement as hereinafter set forth.
NOW, THEREFORE, for valuable consideration, and in consideration of
the mutual covenants herein contained, the parties do hereby amend the
Transportation Agreement, as follows:
1. Section 3.2 is amended by deleting the words "18 months after
the execution of this Agreement" appearing in the third sentence, and
substituting in lieu thereof the words "August 1, 1997."
2. Section 4.1 is amended to read in its entirety as follows:
4.1 The "Commencement Date" shall be the earlier of (i)
the date Customer first takes natural gas from the Facilities into the
Plant, or (ii) August 1, 1997.
3. An ARTICLE XVIII is added, as follows:
<PAGE> 2
ARTICLE XVIII - FORCED RELOCATION
18.1 If at any time during the initial term of this Agreement being
fifteen Contract Years, Mobile Gas is required by the Federal Highway
Administration, the State of Alabama or one of its political subdivisions, or
any other governmental entity having jurisdiction to relocate any pipeline (i)
located on an Interstate Highway right-of-way and (ii) installed by it for the
purpose of providing service pursuant to this Agreement, to the extent that
Mobile Gas is not otherwise reimbursed for the cost of such relocation after
Mobile Gas has made all reasonable efforts to obtain such reimbursement,
Customer shall reimburse Mobile Gas up to a maximum of [***proprietary
information omitted***]. The cost of such pipeline relocation to be reimbursed
by Customer shall only include costs directly related to the relocation of the
pipeline and shall not include loss of revenue or other consequential costs
incurred as a result of the relocation of the pipeline.
18.2 If Mobile Gas seeks reimbursement from Customer pursuant to
Section 18.1, Mobile Gas shall supply Customer with reasonable details and
documentation relating to its unreimbursed costs, and the first of the monthly
installments specified in Section 18.3 shall be payable not later than 60 days
after such information is supplied to Customer.
18.3 All unreimbursed costs due from Customer to Mobile Gas
pursuant to Section 18.1 shall be paid by Customer to Mobile Gas in monthly
installments over a period being the shorter of 60 months or the remaining full
months of the initial term of the Agreement, and the unpaid balance thereof
outstanding from time to time shall bear interest at a rate equal to the "prime
rate" in the "Money Rates" section of The Wall Street Journal, or any successor
thereto, on the last business day preceding the first monthly installment
payment from Customer to Mobile Gas.
4. Exhibit "A" to the agreement is amended by deleting therefrom
the following language which appears on the first page thereof:
Note: The above "Flat Rates" are contingent upon Mobile Gas
receiving specified concessions from the State and/or entities
as detailed in Exhibit "B", and are subject to the provisions
of Section 2.4 of this Agreement. In the event any of such
concessions are not obtained in a manner acceptable to Mobile
Gas, the Flat Rates shall be increased as set forth in Exhibit
"B".
5. Exhibit "B" to the Transportation Agreement is deleted in its
entirety.
6. Except as specifically amended or modified by this Amendment,
all of the terms and provisions of the Transportation Agreement remain in full
force and effect.
<PAGE> 3
IN WITNESS WHEREOF, each party hereto has caused this Amendment to the
Transportation Agreement to be executed by its officer thereunto duly
authorized as of the date first above written.
WITNESS: MOBILE GAS SERVICE CORPORATION
/s/ G. Edgar Downing, Jr. By: /s/ John S. Davis
- ------------------------- ----------------------------
Its: President
---------------------------
WITNESS: TUSCALOOSA STEEL CORPORATION
/s/ R. L. Humphrey, Jr. By: /s/ D. C. Wagg
- ---------------------------------- ----------------------------
Its: Vice President Finance
<PAGE> 1
EXHIBIT 10(u)-2
AMENDMENT TO
REVOLVING CREDIT AGREEMENT
BY AND AMONG
MOBILE GAS SERVICE CORPORATION,
AS BORROWER,
AND
AMSOUTH BANK OF ALABAMA, AS AGENT,
AND
AMSOUTH BANK OF ALABAMA, FIRST ALABAMA BANK,
WHITNEY BANK OF ALABAMA, BANK OF MOBILE
SOUTHTRUST BANK OF ALABAMA, N.A., AND COMMONWEALTH
NATIONAL BANK,
AS LENDERS
$20,000,000
JULY 15, 1996
<PAGE> 2
AMENDMENT TO REVOLVING CREDIT AGREEMENT
This Amendment to Revolving Credit Agreement ("this Amendment") is
entered into as of the 15th day of July, 1996, by and among Mobile Gas Service
Corporation, as Borrower ("Borrower"), AmSouth Bank of Alabama, as Agent for
Lenders ("Agent"), and AmSouth Bank of Alabama, First Alabama Bank, Whitney
Bank of Alabama, Bank of Mobile, SouthTrust Bank of Alabama, N.A., and
Commonwealth National Bank, as Lenders (collectively, "Lenders").
W I T N E S S E T H :
WHEREAS, Borrower, Agent and Lenders entered into a Revolving Credit
Agreement (the "Revolving Credit Agreement") as of the 17th day of July, 1995;
and
WHEREAS, Borrower, Agent and Lenders desire to amend the Revolving
Credit Agreement by extending the Commitment Termination Date, as defined in
Section 1.14 of the Revolving Credit Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and for other valuable consideration, the parties hereto agree as
follows:
1. Section 1.14 of the Revolving Credit Agreement is amended to
read in its entirety, as follows:
<PAGE> 3
Section 1.14. "Commitment Termination Date" shall mean the
earlier of (i) July 17, 1998, or, if such date is not a business day,
the business day next succeeding such date, unless the Lenders and
Borrower shall agree in writing by July 17, 1997 to the extension of
the date of payment of the indebtedness evidenced by the Notes for one
additional period of one (1) year, in which event the date of payment
of the indebtedness evidenced by the Notes, as thereby extended, shall
be the Commitment Termination Date, or (ii) the date on which the
Commitment is terminated by either Borrower or Lenders pursuant to the
provisions hereof.
2. The Revolving Credit Agreement, as hereby amended, remains in
full force and effect.
3. This Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same
agreement, and any of the parties hereto may execute this Amendment
by signing any such counterpart.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the day and year first above written.
BORROWER
MOBILE GAS SERVICE CORPORATION
By: /s/ John S. Davis
Title: President and Chief Executive Officer
2
<PAGE> 4
By: /s/ Charles P. Huffman
Title: Vice President, Chief Financial
Officer and Treasurer
AGENT
AmSOUTH BANK OF ALABAMA, as Agent for
Lenders Pursuant to the terms of the
Revolving Credit Agreement
By: /s/ Lester O. Hamiter
Title: Vice-President
LENDERS
AmSOUTH BANK OF ALABAMA
By: /s/ Lester O. Hamiter
Title: Vice-President
FIRST ALABAMA BANK
By: /s/ Peter P. Gaillard
Title: Sr. Vice-President
3
<PAGE> 5
WHITNEY BANK OF ALABAMA
By: /s/ Kyle C. Pugh
Title: Vice-President
BANK OF MOBILE
By: /s/ Robert S. Murray, Jr.
Title: Vice-President
SOUTHTRUST BANK OF ALABAMA, N.A.
By: /s/ Ricky L. Chastain
Title: Sr. Vice-President
COMMONWEALTH NATIONAL BANK
By: /s/ Al Johnson
Title: Chairman/President & CEO
4
<PAGE> 1
EXHIBIT 11
MOBILE GAS SERVICE CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE, AS SHOWN ON
CONSOLIDATED STATEMENTS OF INCOME
Earnings applicable to common stock $8,631 $4,028 $4,888
Average common shares outstanding 3,217 3,208 2,752
Incremental shares resulting from assumed
exercise of stock options 8
Average common shares, as adjusted 3,225 3,208 2,752
Primary earnings per share (1) $2.68 $1.26 $1.78
FULLY DILUTED EARNINGS PER SHARE
Earnings applicable to common stock $8,631 $4,028 $4,888
Average common shares outstanding 3,217 3,208 2,752
Incremental shares resulting from assumed
exercise of stock options 13
Average common shares, as adjusted 3,230 3,208 2,752
Fully diluted earnings per share (2) $2.67 $1.26 $1.78
</TABLE>
(1) Pursuant to footnote 2 to paragraph 14 of APB Opinion No. 15, the
Company is not required to include common stock equivalents resulting
from stock options when the effect is less 3%. The Company has chosen to
reflect the effect of such options within the computation of its earnings
per share.
(2) This calculation is submitted in accordance with Regulation S-K Item 601
(b)(11) although not required to be shown in the Consolidated Statements
of Income pursuant to footnote 2 to paragraph 14 of APB Opinion No. 15
because it results in dilution of less than 3%.
<PAGE> 1
EXHIBIT 21
MOBILE GAS SERVICE CORPORATION
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Percent of Voting State of
Subsidiary Securities Owned Incorporation
---------------------- -------------------- ------------------
<S> <C> <C>
MGS Energy Services, Inc. 100% Alabama
MGS Storage Services, Inc. 100% Alabama
MGS Marketing Services, Inc. 100% Alabama
</TABLE>
PARTNERSHIPS IN WHICH REGISTRANT OWNS AN INTEREST
<TABLE>
<CAPTION>
Partnership Equity Ownership
---------------------- --------------------
<S> <C>
Bay Gas Storage Company, Ltd. 87.5%
Southern Gas Transmission Co. 51%
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statements No.
2-74613 on Form S-16, No. 33-66474 on Form S-8, and No. 333-02271 on Form S-3
of Mobile Gas Service Corporation (the "Company") of our report dated November
7, 1996, appearing in this Annual Report on Form 10-K of the Company for the
year ended September 30, 1996.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
December 20, 1996
<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 YEAR ENDED SEPTEMBER 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S FORM 10-K FOR THE
YEAR ENDED SEPTEMBER 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 116,901
<OTHER-PROPERTY-AND-INVEST> 2,579
<TOTAL-CURRENT-ASSETS> 24,138
<TOTAL-DEFERRED-CHARGES> 1,463
<OTHER-ASSETS> 7,037
<TOTAL-ASSETS> 152,118
<COMMON> 8,055
<CAPITAL-SURPLUS-PAID-IN> 9,341
<RETAINED-EARNINGS> 33,004
<TOTAL-COMMON-STOCKHOLDERS-EQ> 50,400
0
0
<LONG-TERM-DEBT-NET> 54,509
<SHORT-TERM-NOTES> 15,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 2,818
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 29,391
<TOT-CAPITALIZATION-AND-LIAB> 152,118
<GROSS-OPERATING-REVENUE> 71,378
<INCOME-TAX-EXPENSE> 5,013
<OTHER-OPERATING-EXPENSES> 52,913
<TOTAL-OPERATING-EXPENSES> 52,913
<OPERATING-INCOME-LOSS> 18,465
<OTHER-INCOME-NET> (4,821)
<INCOME-BEFORE-INTEREST-EXPEN> 18,918
<TOTAL-INTEREST-EXPENSE> 5,274
<NET-INCOME> 8,631
0
<EARNINGS-AVAILABLE-FOR-COMM> 8,631
<COMMON-STOCK-DIVIDENDS> 3,539
<TOTAL-INTEREST-ON-BONDS> 4,549<F1>
<CASH-FLOW-OPERATIONS> 12,960
<EPS-PRIMARY> 2.68
<EPS-DILUTED> 2.67
<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>
