-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, P00Sp8w0rN/ghZODPf3PdUfQQJWwQRPWPUEr30679ixHKn8Td73T3zK1t3PA7lTl hSlzqkaLyTDgKy1SVi+iPA== 0000950144-94-001952.txt : 19941116 0000950144-94-001952.hdr.sgml : 19941116 ACCESSION NUMBER: 0000950144-94-001952 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941110 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED CITIES GAS CO CENTRAL INDEX KEY: 0000101105 STANDARD INDUSTRIAL CLASSIFICATION: 4924 IRS NUMBER: 361801540 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-01284 FILM NUMBER: 94558722 BUSINESS ADDRESS: STREET 1: 5300 MARYLAND WAY CITY: BRENTWOOD STATE: TN ZIP: 37027 BUSINESS PHONE: 6153730104 MAIL ADDRESS: STREET 1: 5300 MARYLAND WAY CITY: BRENTWOOD STATE: TN ZIP: 37027 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHEASTERN ILLINOIS GAS CO DATE OF NAME CHANGE: 19670829 10-Q 1 UNITED CITIES GAS FORM 10-Q FOR 9/30/94 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . -------------- -------------- Commission file number 0-1284-3 UNITED CITIES GAS COMPANY - - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Illinois and Virginia 36-1801540 - - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 5300 Maryland Way, Brentwood, TN 37027 - - -------------------------------------------------------------------------------- (Address of principal (Zip Code) executive offices) (615) 373-5310 - - -------------------------------------------------------------------------------- Registrant's telephone number, including area code 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 preceeding 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. [X] Yes [ ] No At October 31, 1994, 10,479,975 shares of the common stock of the Registrant were outstanding. ================================================================================ 2 UNITED CITIES GAS COMPANY AND SUBSIDIARIES Quarterly Report on Form 10-Q For the Quarter Ended September 30, 1994 Table of Contents
Item Page Number PART I -- FINANCIAL INFORMATION Number ------ ------ 1 Financial Statements: Consolidated Statements of Income (Unaudited) for the Three, Nine and Twelve Months Ended September 30, 1994 and September 30, 1993. 3 Consolidated Statements of Cash Flows (Unaudited) for the Three, Nine and Twelve Months Ended September 30, 1994 and September 30, 1993. 4 Consolidated Balance Sheets at September 30, 1994 (Unaudited) 5 and December 31, 1993. Consolidated Statements of Capitalization at September 30, 1994 (Unaudited) and December 31, 1993. 6 Notes to Consolidated Financial Statements. 7 2 Management's Discussion and Analysis of Financial Condition and Results of Operations. 9 PART II -- OTHER INFORMATION 1 Legal Proceedings. 13 6 Exhibits and Reports on Form 8-K. 13 List of Exhibits. 14 Signature 15 11.01 Computation of Common Stock Earnings Per Share. 16 12.01 Computation of Ratio of Consolidated Earnings To Fixed Charges 17 27.01 Financial Data Schedule 18
2 3 UNITED CITIES GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended Twelve Months Ended September 30, September 30, September 30, -------------------- ---------------------- --------------------- (Unaudited, in thousands, except per share amounts) 1994 1993 1994 1993 1994 1993 ---- ---- ---- ---- ---- ---- Operating Revenues.........................................$ 34,143 $ 31,838 $ 206,686 $ 197,242 $ 296,951 $ 290,548 Natural gas cost........................................ 20,167 18,596 130,202 123,263 187,947 184,456 --------- --------- ---------- --------- ---------- --------- Operating Margin........................................... 13,976 13,242 76,484 73,979 109,004 106,092 --------- --------- ---------- --------- ---------- --------- Other Operating Expenses: Operations and maintenance.............................. 13,790 14,145 43,434 43,190 57,167 58,345 Depreciation and amortization........................... 3,568 3,310 10,502 9,727 13,878 11,860 Federal and state income taxes.......................... (3,744) (3,990) 1,163 1,165 3,472 4,304 Other taxes............................................. 2,503 2,258 8,060 7,652 10,694 10,230 --------- --------- ---------- --------- ---------- --------- Total other operating expenses........................ 16,117 15,723 63,159 61,734 85,211 84,739 --------- --------- ---------- --------- ---------- --------- Operating Income (Loss).................................... (2,141) (2,481) 13,325 12,245 23,793 21,353 --------- --------- ---------- --------- ---------- --------- Other Income (Loss): Operations of UCG Energy Corporation- Revenues............................................. 8,284 9,222 28,010 27,392 39,527 37,785 Operating expenses................................... 6,588 7,451 20,879 20,463 29,200 27,773 Interest expense..................................... 184 214 570 653 966 872 Depreciation and amortization........................ 870 859 2,606 2,583 3,489 3,387 Federal and state income taxes....................... 243 276 1,500 1,009 2,326 1,789 --------- --------- ---------- --------- ---------- --------- 399 422 2,455 2,684 3,546 3,964 --------- --------- ---------- --------- ---------- --------- Operations of United Cities Gas Storage Company......... 128 118 354 320 503 371 --------- --------- ---------- --------- ---------- -------- Other income (loss), net................................ (52) 154 (177) 38 27 128 --------- --------- ---------- --------- ---------- -------- Income (Loss) Before Interest Charges...................... (1,666) (1,787) 15,957 15,287 27,869 25,816 --------- --------- ---------- --------- ---------- -------- Interest Charges: Interest on long-term debt.............................. 3,066 3,176 9,283 9,581 12,458 12,635 Other interest charges.................................. 478 207 968 654 2,607 1,280 --------- --------- ---------- --------- ---------- --------- Total interest charges................................ 3,544 3,383 10,251 10,235 15,065 13,915 --------- --------- ---------- --------- ---------- --------- Net Income (Loss).......................................... (5,210) (5,170) 5,706 5,052 12,804 11,901 Preferred and Preference Stock Dividends................... - - - 30 - 48 --------- --------- ---------- --------- ---------- --------- Common Stock Earnings (Loss)...............................$ (5,210) $ (5,170) $ 5,706 $ 5,022 $ 12,804 $ 11,853 ========= ========= ========== ========= ========== ========= Common Stock Earnings (Loss) Per Share.....................$ (0.50) $ (0.50) $ 0.55 $ 0.49 $ 1.24 $ 1.17 ========= ========= ========== ========= ========== ========= Average Number of Common Shares Outstanding................ 10,407 10,248 10,370 10,167 10,349 10,132 ========= ========= ========== ========= ========== ========= Common Stock Dividends Per Share...........................$ .25 $ .245 $ .75 $ .735 $ 1.00 $ .98 ========= ========= ========== ========= ========== =========
3 4 UNITED CITIES GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Nine Months Ended Twelve Months Ended September 30, September 30, September 30, --------------------- ------------------- ------------------- (Unaudited, in thousands) 1994 1993 1994 1993 1994 1993 Cash Flows from Operating Activities: Net income (loss)..............................................$ (5,210) $ (5,170) $ 5,706 $ 5,052 $ 12,804 $ 11,901 -------- --------- --------- --------- --------- --------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization................................ 4,562 4,305 13,421 12,735 17,816 15,771 Deferred taxes............................................... (72) (192) (216) (210) 605 1,926 Investment tax credits, net.................................. (92) (93) (277) (280) (371) (378) Loss (gain) on sale of assets................................ 4 2 (3) 17 2 35 Changes in current assets and current liabilities: Receivables................................................ 2,596 4,583 33,246 35,196 (2,398) 929 Materials and supplies..................................... 308 (75) (91) 108 558 332 Gas in storage............................................. (9,031) (8,038) (4,018) (10,867) (11,792) (9,546) Gas costs to be billed in the future....................... (2,459) (2,609) (5,528) (2,775) (4,924) (3,510) Prepayments and other...................................... (12) 658 105 (296) (143) 1 Accounts payable........................................... (4,714) 782 (18,938) (10,920) 1,888 2,529 Customer deposits and advance payments..................... 4,064 2,770 712 (407) 2,659 (703) Accrued interest........................................... 2,538 2,234 1,351 2,380 (95) 337 Supplier refunds due customers............................. (1,684) (3,307) 1,116 (631) (2,412) 312 Accrued taxes.............................................. (2,786) (5,338) 324 (9,712) 2,615 (7,881) Other, net................................................. (965) (2,305) (427) 3,615 (1,543) 7,947 -------- --------- --------- --------- --------- --------- Total adjustments........................................ (7,743) (6,623) 20,777 17,953 2,465 8,101 -------- --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities.... (12,953) (11,793) 26,483 23,005 15,269 20,002 -------- --------- --------- --------- --------- --------- Cash Flows from Investing Activities: Additions to property - utility................................ (8,590) (7,119) (22,616) (19,948) (29,698) (26,058) Additions to property - non-utility............................ (1,193) (681) (2,639) (3,172) (3,404) (3,892) -------- --------- --------- --------- --------- --------- Net cash used in investing activities.................. (9,783) (7,800) (25,255) (23,120) (33,102) (29,950) -------- --------- --------- --------- --------- --------- Cash Flows from Financing Activities: Short-term borrowings - net.................................... 24,209 3,590 11,966 3,590 31,239 1,996 Proceeds from issuance of long-term debt....................... - - - 150 - 17,150 Proceeds from issuance of common stock......................... 385 361 1,010 1,439 1,520 1,667 Long-term debt retirements..................................... (1,476) (847) (7,154) (4,333) (7,399) (4,716) Dividends paid................................................. (2,289) (2,229) (6,853) (6,672) (9,128) (8,885) Redemption of preferred stock.................................. - - - (106) - (106) -------- --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities.... 20,829 875 (1,031) (5,932) 16,232 7,106 -------- --------- --------- --------- --------- --------- Net Increase (Decrease) in Cash and Temporary Investments.......... (1,907) (18,718) 197 (6,047) (1,601) (2,842) Cash and Temporary Investments at Beginning of Period.............. 2,902 21,314 798 8,643 2,596 5,438 -------- --------- --------- --------- --------- --------- Cash and Temporary Investments at End of Period....................$ 995 $ 2,596 $ 995 $ 2,596 $ 995 $ 2,596 ======== ========= ========= ========= ========= ========= Cash Paid During the Period for: Interest, net of amounts capitalized...........................$ 1,418 $ 1,746 $ 10,186 $ 9,250 $ 17,063 $ 15,458 ======== ========= ========= ========= ========= ========= Income taxes...................................................$ 154 $ 4,303 $ 3,016 $ 11,344 $ 3,630 $ 12,020 ======== ========= ========= ========= ========= ========= Noncash Investing and Financing Activities: Dividends reinvested...........................................$ 312 $ 283 $ 923 $ 834 $ 1,219 $ 1,097 ======== ========= ========= ========= ========= =========
4 5 UNITED CITIES GAS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, December 31, (In thousands) 1994 1993 ------------ ------------ ASSETS (Unaudited) Utility Plant: Plant in service, at cost........................................$ 395,398 $ 374,205 Less-accumulated depreciation.................................. 137,113 127,856 ------------ ----------- 258,285 246,349 ------------ ----------- Non-Utility Property: Property, plant, and equipment................................... 70,657 68,082 Less-accumulated depreciation.................................. 21,769 19,843 ------------ ----------- 48,888 48,239 ------------ ----------- Current Assets: Cash and temporary investments................................... 995 798 Receivables, less allowance for uncollectible accounts of $1,141 in 1994 and $1,150 in 1993........................... 17,116 50,362 Materials and supplies........................................... 5,464 5,373 Gas in storage................................................... 30,001 25,983 Gas costs to be billed in the future............................. 13,574 8,046 Prepayments and other............................................ 2,948 3,053 ------------ ----------- 70,098 93,615 ------------ ----------- Deferred Charges: Unamortized debt discount and expense, net....................... 2,630 2,788 Non-compete agreements, net...................................... 3,519 3,952 Deferred system improvement costs, net........................... 1,578 2,036 Other deferred charges........................................... 5,019 4,541 ------------ ----------- 12,746 13,317 ------------ ----------- $ 390,017 $ 401,520 ============ =========== CAPITALIZATION AND LIABILITIES Capitalization: Common stock equity..............................................$ 111,751 $ 111,888 Long-term debt................................................... 145,046 151,843 ------------ ----------- 256,797 263,731 ------------ ----------- Current Liabilities: Current portion of long-term obligations......................... 6,045 6,402 Notes payable.................................................... 34,829 22,863 Accounts payable for gas costs................................... 15,933 33,271 Other accounts payable........................................... 2,739 4,339 Accrued taxes.................................................... 4,210 3,886 Customer deposits and advance payments........................... 12,695 11,983 Accrued interest................................................. 5,808 4,457 Supplier refunds due customers................................... 5,330 4,214 Other............................................................ 7,889 7,630 ------------ ----------- 95,478 99,045 ------------ ----------- Deferred Credits: Accumulated deferred income tax.................................. 22,985 23,142 Deferred investment tax credits.................................. 4,738 5,015 Income taxes due customers....................................... 6,401 6,617 Other............................................................ 3,618 3,970 ------------ ----------- 37,742 38,744 ------------ ----------- $ 390,017 $ 401,520 ============ ===========
5 6 UNITED CITIES GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CAPITALIZATION
September 30, December 31, (In thousands, except share amounts) 1994 1993 ------------------ ------------------- Common Stock Equity: (Unaudited) Common stock without par value, authorized 40,000,000 shares, outstanding 10,434,413 in 1994 and 10,314,026 in 1993.......................................$ 69,039 $ 67,106 Capital surplus..................................................... 22,462 22,462 Retained earnings................................................... 20,250 22,320 --------- ---------- Total common stock equity......................................... 111,751 43.5% 111,888 42.4% --------- ------- ---------- ------- Long-Term Debt: First mortgage bonds ............................................... 129,000 133,955 Senior secured storage term notes due in installments through 2007........................................ 10,555 10,895 Rental property adjustable rate term notes due in installments through 1999........................................ 9,786 9,043 Other long-term obligations due in installments through 2013........ 1,750 4,352 --------- ---------- 151,091 158,245 Less-current requirements....................................... 6,045 6,402 --------- ---------- Total long-term debt, excluding amounts due within one year..... 145,046 56.5% 151,843 57.6% --------- ------- ---------- ------- Total Capitalization....................................................$ 256,797 100.0% $ 263,731 100.0% ========= ======= ========== =======
6 7 UNITED CITIES GAS COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements The accompanying unaudited financial statements reflect all adjustments (which are of a normal recurring nature) that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules and regulations. The statements should be read in conjunction with the Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements included in the Company's annual report for the year ended December 31, 1993. The Company's business is seasonal in nature resulting in greater earnings during the winter months. The results of operations for the three month and nine month periods ended September 30, 1994 are not necessarily indicative of the results to be expected for the full year. The Company was named, along with 17 other defendants, in a class action, anti-trust case filed March 5, 1993 in the United States District Court for the Eastern District of Tennessee, Knoxville Division (the Court). This action involves alleged price-fixing in the 1980's in eastern Tennessee by Holston Oil Co., Inc. (Holston), which at the time of the alleged events was a wholly-owned subsidiary of Tennessee-Virginia Energy Corporation (TVEC). Subsequent to the alleged events and prior to TVEC's merger with the Company in 1986, TVEC sold the common stock of Holston to an unrelated party. The Company has filed a Motion for Summary Judgment with regard to the entire matter and is awaiting the Court's ruling. The Court denied the plaintiffs' class certification motions, but granted the plaintiffs the right to pursue individual claims against the defendants, including the Company. The Tennessee attorney general has also filed a motion for class certification on behalf of all business in the east Tennessee area. The Company has or will file a Motion for Summary Judgment with regard to each claim filed. The matter is at the early stages of discovery and management cannot predict the outcome. The Company intends to vigorously defend this matter. The Company is the owner or previous owner of manufactured gas plant sites which were used to supply gas prior to the availability of natural gas. Manufactured gas was an inexpensive source of fuel for lighting and heating nationwide. As a result of the gas manufacturing process, certain by-products and waste materials, including coal-tar, were produced and may have been accumulated at the plant sites. This was an acceptable and satisfactory process at the time of operations. Under current environmental protection laws and regulations, the Company may be responsible for response action with respect to such materials, if response action is necessary. The Company identified a site in Columbus, Georgia, and along with other responsible parties, has performed response action. The Company's share of response action costs at this site totaled approximately $1,324,000. Of the amount, $1,275,000 was requested and approved to be recovered over a three year period in rates which were effective November, 1992. The approved amount did not include carrying costs on the deferred balance. The Company will request and expects approval to recover the remaining costs in its next rate proceeding in Georgia. The Company has joined with three other potentially responsible parties (PRPs) to fund a remedial investigation and feasibility study of a site in Keokuk, Iowa. The Company has incurred costs totaling $125,000 and has, based on available current information, accrued an additional $644,000 for its share of possible remedial action. The Company has deferred these costs and expects approval for recovery in its next rate proceeding in Iowa. The Company has estimated that it could be responsible for additional costs, if certain conditions exist, of up to $731,000 related to its share of remedial action at this site. The Company owns or may be the successor in interest to the previous owner of four additional former manufactured gas plant sites. The Company is unaware of any information which suggests that these sites give rise to a present environmental risk as a result of the manufactured gas process or that any response action will be necessary. Accordingly, the Company has not accrued any liabilities associated with these four sites. Pursuant to the Tennessee Petroleum Underground Storage Tank Act (the Act), the Company is required to upgrade or remove certain underground storage tanks (USTs) situated in Tennessee before December 22, 1994. As of September 30, 1994, the Company has identified six USTs in this category in Tennessee and has incurred $7,000 and has, based on available current information, accrued an additional $70,000 for the upgrade or removal of these USTs. The Company has estimated that it may incur, if certain conditions exist requiring corrective action, additional costs of up to $380,000 to bring the sites into compliance with the Act. On October 4, 1994, the Tennessee Public Service Commission granted the Company permission to defer, until its next rate case, all costs incurred in connection with complying with the Act. In addition, the Company expects to recover a portion of the corrective action costs from the State of Tennessee Trust Fund for all of the UST sites in Tennessee. 7 8 The Company has received a proposed Consent Order from the Kansas Department of Health and Environment (KDHE) regarding mercury contamination at gas pipeline sites. The KDHE has identified the need to investigate gas industry activities which utilize mercury equipment in Kansas. The Company is cooperating with the KDHE in preparing a Consent Order and a Work Plan for the remediation of mercury contamination at any site which is identified as exceeding the KDHE's established acceptable concentration levels. The Company has identified approximately 720 meter sites where mercury may have been used and has, based on available current information, accrued and deferred for recovery $280,000 as of September 30, 1994 for the investigation of these sites. The Company has estimated that it may incur an additional amount of up to $4,100,000 over the next seven years in responding to a future administrative order for those sites, if any, that exceed the KDHE's established acceptable concentration levels. Based on a recent decision by the Kansas State Corporation Commission concerning the recovery of costs associated with the remediation of a manufactured gas plant site, the Company expects recovery of the costs involved in the investigation and remediation of the mercury meter sites in Kansas. Management expects that expenditures related to response action at any site will be recovered through rates or insurance, or shared among other PRPs. Therefore, the costs of responding to these sites are not expected to materially affect the results of operations or financial condition of the Company. The Company has discovered defective polyethylene piping installed in certain of its service areas and has notified both the manufacturers and state regulatory commissions. An independent laboratory is conducting a study of the matter at the request of the gas industry and the Company continues to investigate the issue. The Company is unable to predict the extent of the problem or the expense which will be incurred to repair the defective piping but anticipates paying the cost as a normal maintenance expense and recovering such cost through the rate-making process. On October 19, 1994, UCG Energy Corporation (UCG Energy), a wholly owned subsidiary of the Company, signed a letter of intent to acquire a 45% interest in a limited liability company that would be formed by Woodward Marketing Inc., and its two shareholders. Woodward Marketing, Inc., is a Texas corporation providing gas marketing services to industrial customers, municipalities and local distribution companies. In exchange for the acquired interest, Woodward Marketing, Inc., would receive $5,000,000 in the Company's common stock and $750,000 in cash. Other conditions outlined in the acquisition proposal include the transfer of gas contracts from UCG Energy to the newly formed limited liability company, as well as the potential payment of $1,000,000 to be paid over a five-year period if certain earnings targets are met. The proposed acquisition is subject to the completion of a definitive purchase agreement and approval by various regulatory authorities as to the issuance of common stock. The targeted completion date for the transaction is on or before December 31, 1994. In 1991, the Illinois Commerce Commission ordered the Company to refund approximately $260,000 related to the reconciliation of the Purchased Gas Adjustment recovery mechanism for 1988. The Company filed an appeal with the Appellate Court of Illinois which in September, 1992, issued a decision upholding the commission's decision. The Company filed an appeal with the Illinois Supreme Court which in September, 1994, upheld the commission's and lower court's decision. The Company has asked for rehearing of this decision. The Company was granted a stay of the commission's order by the Appellate Court, including the refund obligation, pending the outcome of the appeal process. In management's opinion, the outcome of the appeal process will not have a material effect on the results of operations or financial condition of the Company. Certain reclassifications were made conforming prior year's financial statements with 1994 financial statement presentation. 8 9 UNITED CITIES GAS COMPANY AND SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The Company's 1994 third quarter common stock loss was $5,210,000 compared to the third quarter 1993 loss of $5,170,000. The loss per common share was $.50 for the third quarter in both 1994 and 1993. The common stock earnings for the first nine months of 1994 were $5,706,000 compared to $5,022,000 in 1993. Common stock earnings per share increased from $.49 in the nine month period in 1993 to $.55 in 1994 on an additional 203,000 average number of shares outstanding. Common stock earnings for the twelve month period ended September 30, 1994 were $12,804,000 compared to $11,853,000 for the twelve month period ended September 30, 1993. Common stock earnings per share increased from $1.17 in the twelve month period in 1993 to $1.24 in the twelve month period in 1994. Average number of shares outstanding increased by 217,000 for the twelve month period ended September 30, 1994. The following table summarizes certain information regarding the operation of each segment of the Company's business for the periods ended September 30:
Three Months Ended Nine Months Ended Twelve Months Ended -------------------- ---------------------- ---------------------- (Unaudited, in thousands) 1994 1993 1994 1993 1994 1993 ---- ---- ---- ---- ---- ---- Operating Revenues: Utility...............................$ 34,143 $ 31,838 $ 206,686 $ 197,242 $ 296,951 $ 290,548 --------- -------- ---------- --------- ---------- --------- Subsidiaries: UCG Energy Corporation- Propane Division................... 3,776 3,426 14,858 12,343 20,719 17,771 Rental Division.................... 1,568 1,650 4,826 4,964 6,494 6,779 Utility Services Division.......... 2,940 4,146 8,326 10,085 12,314 13,235 --------- -------- ---------- --------- ---------- --------- Total UCG Energy Corporation..... 8,284 9,222 28,010 27,392 39,527 37,785 United Cities Gas Storage Company.... 1,073 1,490 5,830 6,278 8,388 8,808 --------- -------- ---------- --------- ---------- --------- Total Subsidiaries............... 9,357 10,712 33,840 33,670 47,915 46,593 --------- -------- ---------- --------- ---------- --------- Total Revenues........................$ 43,500 $ 42,550 $ 240,526 $ 230,912 $ 344,866 $ 337,141 ========= ======== ========== ========= ========== ========= Common Stock Earnings (Loss): Utility...............................$ (5,737) $ (5,710) $ 2,897 $ 2,018 $ 8,755 $ 7,518 --------- -------- ---------- --------- ---------- --------- Subsidiaries: UCG Energy Corporation- Propane Division................... (250) (192) 448 432 1,026 905 Rental Division.................... 500 469 1,521 1,851 1,840 2,488 Utility Services Division.......... 149 145 486 401 680 571 --------- -------- ---------- --------- ---------- --------- Total UCG Energy Corporation..... 399 422 2,455 2,684 3,546 3,964 United Cities Gas Storage Company.... 128 118 354 320 503 371 --------- -------- ---------- --------- ---------- --------- Total Subsidiaries............... 527 540 2,809 3,004 4,049 4,335 --------- -------- ---------- --------- ---------- --------- Total Common Stock Earnings (Loss)....$ (5,210) $ (5,170) $ 5,706 $ 5,022 $ 12,804 $ 11,853 ========= ======== ========== ========= ========== =========
OPERATING RESULTS-UTILITY The utility loss increased slightly for the third quarter and utility income increased by $879,000 and $1,237,000, respectively, for the nine and twelve month periods in 1994 from the comparable 1993 periods due predominantly to the factors mentioned below: The operating margin increased from $13,242,000 in the third quarter of 1993 to $13,976,000 in the third quarter of 1994. The operating margin for the nine month period ended September 30, 1994 was $76,484,000 compared to $73,979,000 for the same period in 1993, and the margin increased $2,912,000 to $109,004,000 for the twelve months ended September 30, 1994. The increase in margin in all periods can be attributed to volumes sold to an increased number of residential and commercial natural gas customers and the Palmyra acquisition in March 1994. In addition, the increased margin in the nine and twelve month periods reflects rate increases in certain jurisdictions and the additional revenues from certain interruptible customers who did not go off the Company's system when curtailed during the extremely cold weather in the first quarter of 1994. 9 10 Item 2. Continued Operations and maintenance expenses other than natural gas cost decreased $355,000 for the third quarter and increased $244,000 for the nine month period ended September 30, 1994. Operations and maintenance expenses for the twelve month period ended September 30, 1994 decreased $1,178,000. This decrease reflects the December, 1992 adjustment to expense the difference in the approved amount of system improvement costs in Kansas and the amount previously deferred. Depreciation and amortization expense increased in the third quarter, nine and twelve month periods primarily due to depreciation expense on additional plant in service. Interest expense increased slightly in the quarter and nine month periods. Interest expense increased $1,150,000 in the twelve month period primarily as a result of interest assessed on additional income taxes related to the 1993 settlement of the Internal Revenue Service audit. The table below reflects operating revenues, gas sales volumes and weather data for the periods ended September 30: OPERATING STATISTICS-UTILITY
Three Months Ended Nine Months Ended Twelve Months Ended -------------------- ---------------------- ---------------------- (Unaudited, in thousands) 1994 1993 1994 1993 1994 1993 ---- ---- ---- ---- ---- ---- Operating Revenues: Residential.........................$ 10,574 $ 9,934 $ 93,306 $ 89,254 $ 138,908 $ 133,984 Commercial........................... 7,901 7,080 54,429 50,697 78,093 76,035 Industrial........................... 14,264 13,199 52,730 49,527 71,158 70,049 Transportation....................... 1,389 1,494 4,725 5,142 6,507 6,931 Other Revenues....................... 15 131 1,496 2,622 2,285 3,549 --------- -------- ---------- --------- ---------- --------- Total Operating Revenues.........$ 34,143 $ 31,838 $ 206,686 $ 197,242 $ 296,951 $ 290,548 ========= ======== ========== ========= ========== ========= Gas Sales (Mcf): Residential.......................... 1,318 1,269 14,871 15,049 22,876 22,628 Commercial........................... 1,547 1,412 10,107 9,773 14,770 14,340 Industrial- Firm............................... 1,607 1,335 6,143 5,369 8,283 7,342 Interruptible...................... 2,602 2,622 8,028 8,606 11,083 11,726 --------- -------- ---------- --------- ---------- --------- 7,074 6,638 39,149 38,797 57,012 56,036 ========= ======== ========== ========= ========== ========= Transported Volumes (Mcf).............. 2,902 2,686 8,813 8,851 11,844 11,588 ========= ======== ========== ========= ========== ========= Weather Data-colder (warmer) than normal*......................... ** ** (3.5%) 2.1% (.7%) 1.4% ========= ======== ========== ========= ========== =========
*Based on system weighted average. Data for 1994 is preliminary. **Not meaningful for third quarter. OPERATING RESULTS-SUBSIDIARIES Revenues of UCG Energy Corporation (UCG Energy) decreased $938,000 from the third quarter ended September 30, 1993 and increased $618,000 and $1,742,000 from the nine and twelve month periods then ended. The propane division's revenues increased from the third quarter, nine and twelve month periods ended September 30, 1993 due to additional propane volumes sold during those periods. The utility services division's revenues decreased in all periods from 1993 predominantly due to decreased brokerage sales to certain industrial customers, local distribution companies and others. Utility services' distribution sales of American Meter Company and other companies' products were lower during the nine and twelve month periods than comparative periods in 1993. The rental division's revenues decreased in all periods from last year due to lower rental rates on new rental units placed into service and the retirement of certain rental units at higher rental rates. Expenses of UCG Energy, including cost of sales, decreased $863,000 from the third quarter ended September 30, 1993 and increased $416,000 and $1,427,000 from the nine and twelve month periods then ended. Expenses increased in all periods in the propane division primarily due to the cost of additional volumes sold, normal increases in operating expenses, the acquisition of High Country Propane, Inc. in Boone, NC and the acquisition of Hurley's Propane Gas in Morristown, TN. Expenses in the utility services division decreased in all periods from 1993 due to lower sales levels. 10 11 Item 2. Continued UCG Energy's net income for the third quarter, nine and twelve month periods ended September 30, 1994 was $399,000, $2,455,000 and $3,546,000, respectively. This represents a decrease of $23,000, $229,000 and $418,000, respectively, from comparative periods ended September 30, 1993. The decrease in the third quarter is principally due to increased expenses in the propane division. The decrease in the nine and twelve month periods is primarily the result of the cumulative effect of a change in accounting principle that resulted from the adoption in 1993 of Statement No. 109 "Accounting for Income Taxes" issued by the Financial Accounting Standards Board. The effect of the implementation of the statement amounted to approximately $443,000 in 1993. United Cities Gas Storage Company had net income for the three, nine and twelve month periods of $128,000, $354,000 and $503,000, respectively, as compared to $118,000, $320,000 and $371,000 for the same periods in 1993. The revenues of the subsidiary were primarily derived from natural gas storage services and natural gas provided to United Cities Gas Company. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Total cash used in operations for the three month period ended September 30, 1994 was $12,953,000. Total cash provided by operations for the nine and twelve month periods ended September 30, 1994 was $26,483,000 and $15,269,000, respectively. The financing activities of all periods reflect the retirement of long-term debt, dividend payments and the net activity of short-term borrowings. The Company has authorized as of September 30, 1994, specific purchases and construction projects amounting to $22,174,000 of its 1994 utility capital budget of $28,200,000 and $3,069,000 of its non-utility capital budget of $3,400,000. The Company anticipates incurring capital expenditures of approximately $32,000,000 for each of 1995, 1996 and 1997. In addition, the Company is constructing a twenty-eight mile main which will connect two of its distribution systems in Middle Tennessee. The project has an estimated cost of approximately $8,200,000 and is scheduled to be completed by the fall heating season of 1995. As of September 30, 1994, capital expenditures of $4,537,000 had been authorized related to this project. The Company was named, along with 17 other defendants, in a class action, anti-trust case filed March 5, 1993 in the United States District Court for the Eastern District of Tennessee, Knoxville Division (the Court). This action involves alleged price-fixing in the 1980's in eastern Tennessee by Holston Oil Co., Inc. (Holston), which at the time of the alleged events was a wholly-owned subsidiary of Tennessee-Virginia Energy Corporation (TVEC). Subsequent to the alleged events and prior to TVEC's merger with the Company in 1986, TVEC sold the common stock of Holston to an unrelated party. The Company has filed a Motion for Summary Judgment with regard to the entire matter and is awaiting the Court's ruling. The Court denied the plaintiffs' class certification motions, but granted the plaintiffs the right to pursue individual claims against the defendants, including the Company. The Tennessee attorney general has also filed a motion for class certification on behalf of all business in the east Tennessee area. The Company has or will file a Motion for Summary Judgment with regard to each claim filed. The matter is at the early stages of discovery and management cannot predict the outcome. The Company intends to vigorously defend this matter. The Company is the owner or previous owner of manufactured gas plant sites which were used to supply gas prior to the availability of natural gas. Manufactured gas was an inexpensive source of fuel for lighting and heating nationwide. As a result of the gas manufacturing process, certain by-products and waste materials, including coal-tar, were produced and may have been accumulated at the plant sites. This was an acceptable and satisfactory process at the time of operations. Under current environmental protection laws and regulations, the Company may be responsible for response action with respect to such materials, if response action is necessary. The Company identified a site in Columbus, Georgia, and along with other responsible parties, has performed response action. The Company's share of response action costs at this site totaled approximately $1,324,000. Of the amount, $1,275,000 was requested and approved to be recovered over a three year period in rates which were effective November, 1992. The approved amount did not include carrying costs on the deferred balance. The Company will request and expects approval to recover the remaining costs in its next rate proceeding in Georgia. The Company has joined with three other potentially responsible parties (PRPs) to fund a remedial investigation and feasibility study of a site in Keokuk, Iowa. The Company has incurred costs totaling $125,000 and has, based on available current information, accrued an additional $644,000 for its share of possible remedial action. The Company has deferred these costs and expects approval for recovery in its next rate proceeding in Iowa. The Company has estimated that it could be responsible for additional costs, if certain conditions exist, of up to $731,000 related to its share of remedial action at this site. 11 12 Item 2. Continued The Company owns or may be the successor in interest to the previous owner of four additional former manufactured gas plant sites. The Company is unaware of any information which suggests that these sites give rise to a present environmental risk as a result of the manufactured gas process or that any response action will be necessary. Accordingly, the Company has not accrued any liabilities associated with these four sites. Pursuant to the Tennessee Petroleum Underground Storage Tank Act (the Act), the Company is required to upgrade or remove certain underground storage tanks (USTs) situated in Tennessee before December 22, 1994. As of September 30, 1994, the Company has identified six USTs in this category in Tennessee and has incurred $7,000 and has, based on available current information, accrued an additional $70,000 for the upgrade or removal of these USTs. The Company has estimated that it may incur, if certain conditions exist requiring corrective action, additional costs of up to $380,000 to bring the sites into compliance with the Act. On October 4, 1994, the Tennessee Public Service Commission granted the Company permission to defer, until its next rate case, all costs incurred in connection with complying with the Act. In addition, the Company expects to recover a portion of the corrective action costs from the State of Tennessee Trust Fund for all of the UST sites in Tennessee. The Company has received a proposed Consent Order from the Kansas Department of Health and Environment (KDHE) regarding mercury contamination at gas pipeline sites. The KDHE has identified the need to investigate gas industry activities which utilize mercury equipment in Kansas. The Company is cooperating with the KDHE in preparing a Consent Order and a Work Plan for the remediation of mercury contamination at any site which is identified as exceeding the KDHE's established acceptable concentration levels. The Company has identified approximately 720 meter sites where mercury may have been used and has, based on available current information, accrued and deferred for recovery $280,000 as of September 30, 1994 for the investigation of these sites. The Company has estimated that it may incur an additional amount of up to $4,100,000 over the next seven years in responding to a future administrative order for those sites, if any, that exceed the KDHE's established acceptable concentration levels. Based on a recent decision by the Kansas State Corporation Commission concerning the recovery of costs associated with the remediation of a manufactured gas plant site, the Company expects recovery of the costs involved in the investigation and remediation of the mercury meter sites in Kansas. Management expects that expenditures related to response action at any site will be recovered through rates or insurance, or shared among other PRPs. Therefore, the costs of responding to these sites are not expected to materially affect the results of operations or financial condition of the Company. The Company has discovered defective polyethylene piping installed in certain of its service areas and has notified both the manufacturers and state regulatory commissions. An independent laboratory is conducting a study of the matter at the request of the gas industry and the Company continues to investigate the issue. The Company is unable to predict the extent of the problem or the expense which will be incurred to repair the defective piping but anticipates paying the cost as a normal maintenance expense and recovering such cost through the rate-making process. On October 19, 1994, UCG Energy Corporation (UCG Energy), a wholly owned subsidiary of the Company, signed a letter of intent to acquire a 45% interest in a limited liability company that would be formed by Woodward Marketing, Inc., and its two shareholders. Woodward Marketing, Inc., is a Texas corporation providing gas marketing services to industrial customers, municipalities and local distribution companies. In exchange for the acquired interest, Woodward Marketing, Inc., would receive $5,000,000 in the Company's common stock and $750,000 in cash. Other conditions outlined in the acquisition proposal include the transfer of gas contracts from UCG Energy to the newly formed limited liability company, as well as the potential payment of $1,000,000 to be paid over a five-year period if certain earnings targets are met. The proposed acquisition is subject to the completion of a definitive purchase agreement and approval by various regulatory authorities as to the issuance of common stock. The targeted completion date for the transaction is on or before December 31, 1994. In 1991, the Illinois Commerce Commission ordered the Company to refund approximately $260,000 related to the reconciliation of the Purchased Gas Adjustment recovery mechanism for 1988. The Company filed an appeal with the Appellate Court of Illinois which in September, 1992, issued a decision upholding the commission's decision. The Company filed an appeal with the Illinois Supreme Court which in September, 1994, upheld the commission's and lower court's decision. The Company has asked for rehearing of this decision. The Company was granted a stay of the commission's order by the Appellate Court, including the refund obligation, pending the outcome of the appeal process. In management's opinion, the outcome of the appeal process will not have a material effect on the results of operations or financial condition of the Company. The Company believes its short-term lines of credit are sufficient to meet anticipated short-term requirements. At September 30, 1994, the Company had $84,000,000 in short-term lines of credit, including master and banker's acceptance notes, bearing interest primarily at the lesser of prime or a negotiated rate during the term of each borrowing. At September 30, 1994, $34,829,000 was outstanding under these arrangements. 12 13 UNITED CITIES GAS COMPANY AND SUBSIDIARIES PART II. OTHER INFORMATION For The Three Months Ended September 30, 1994 Item 1. Legal Proceedings. See December 31, 1993 Form 10-K Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits-See list of Exhibits on page 14 hereof. (b) Reports on Form 8-K. None 13 14 UNITED CITIES GAS COMPANY AND SUBSIDIARIES LIST OF EXHIBITS 11.01 Computation of Common Stock Earnings Per Share. (Page 16). 12.01 Computation of Ratio of Consolidated Earnings to Fixed Charges. (Page 17). 27.01 Financial Data Schedule. (Page 18). (For the SEC use only) 14 15 UNITED CITIES GAS COMPANY AND SUBSIDIARIES Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. UNITED CITIES GAS COMPANY /s/ James B. Ford --------------------------------------- James B. Ford Senior Vice President and Treasurer and Chief Financial Officer On behalf of the Registrant Date: November 9, 1994 15 EX-11.01 2 COMPUTATION OF COMMON STOCK EARNINGS PER SHARE 1 Exhibit 11.01 UNITED CITIES GAS COMPANY AND SUBSIDIARIES COMPUTATION OF COMMON STOCK EARNINGS PER SHARE
Three Months Ended Nine Months Ended Twelve Months Ended September 30, September 30, September 30, ----------------------- ---------------------- ---------------------- (Unaudited, in thousands, except per share amounts) 1994 1993 1994 1993 1994 1993 ---- ---- ---- ---- ---- ---- Common Stock Earnings (Loss)........................... $ (5,210) $ (5,170) $ 5,706 $ 5,022 $ 12,804 $ 11,853 Add: Preference Stock Dividends....................... - - - 30 - 48 ---------- --------- ---------- --------- ---------- --------- Common Stock Earnings (Loss) after Conversion.......... $ (5,210) $ (5,170) $ 5,706 $ 5,052 $ 12,804 $ 11,901 ========== ========= ========== ========= ========== ========= Average Number of Common Shares Outstanding During the Period................................... 10,407 10,248 10,370 10,167 10,349 10,132 Add: Conversion of 11 1/2% Preference Stock**......... - - - - - - ---------- --------- ---------- --------- ---------- --------- Average Number of Common Shares Outstanding after Conversion.................................... 10,407 10,248 10,370 10,167 10,349 10,132 ========== ========= ========== ========= ========== ========= Common Stock Earnings (Loss) per Share: Primary............................................. $ (0.50) $ (0.50) $ 0.55 $ 0.49 $ 1.24 $ 1.17 ========== ========= ========== ========= ========== ========= Fully Diluted....................................... $ (0.50) $ (0.50) $ 0.55 $ 0.50 * $ 1.24 $ 1.17 ========== ========= ========== ========= ========== =========
* This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result. ** There was no 11-1/2% Preference Stock outstanding at September 30, 1994 and 1993. 16 EX-12.01 3 COMPUTATION OF RATIO OF CONSOL. EARN. TO FIX. CHAR 1 Exhibit 12.01 UNITED CITIES GAS COMPANY AND SUBSIDIARIES COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES FOR THE TWELVE MONTHS ENDED
(Unaudited, in thousands, except ratio amounts) 9-30-94 12-31-93 12-31-92 12-31-91 12-31-90 12-31-89 ---------- --------- ---------- --------- ---------- --------- Fixed Charges, as defined: Interest on long-term debt.......................... $ 14,132 $ 14,553 $ 12,965 $ 11,111 $ 9,009 $ 6,663 Amortization of debt discount....................... 226 220 181 233 231 161 ---------- --------- ---------- --------- ---------- --------- Total............................................ $ 14,358 $ 14,773 $ 13,146 $ 11,344 $ 9,240 $ 6,824 ========== ========= ========== ========= ========== ========= Earnings, as defined: Net income.......................................... $ 12,804 $ 12,150 $ 10,218 $ 7,875 $ 3,373 $ 10,310 Taxes on income..................................... 6,141 5,681 5,171 2,564 532 4,811 Fixed charges, as above............................. 14,358 14,773 13,146 11,344 9,240 6,824 ---------- --------- ---------- --------- ---------- --------- Total............................................ $ 33,303 $ 32,604 $ 28,535 $ 21,783 $ 13,145 $ 21,945 ========== ========= ========== ========= ========== ========= Ratio of Consolidated Earnings to Fixed Charges........ 2.32 2.21 2.17 1.92 1.42 3.22 ========== ========= ========== ========= ========== =========
17 EX-27.01 4 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF INCOME, CASH FLOWS AND CAPITALIZATION, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1994 JAN-01-1994 SEP-30-1994 PER-BOOK 258,285 48,888 70,098 12,746 0 390,017 69,039 22,462 20,250 111,751 0 0 145,046 34,829 0 0 6,045 0 0 0 92,346 390,017 206,686 1,163 192,198 193,361 13,325 2,632 15,957 10,251 5,706 0 5,706 7,776 9,283 26,483 .55 .55
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