-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C9NwDh/Ifx7nN8o1fPh+4K9Q1GwqB/flkH0lOotgEleYI9ggQ+2MgYSY5LYhrjox QajNWEi5Rn30uLZsj3s5Cg== 0000950144-97-005632.txt : 19970514 0000950144-97-005632.hdr.sgml : 19970514 ACCESSION NUMBER: 0000950144-97-005632 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED CITIES GAS CO CENTRAL INDEX KEY: 0000101105 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [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: 97602997 BUSINESS ADDRESS: STREET 1: 5300 MARYLAND WAY CITY: BRENTWOOD STATE: TN ZIP: 37027 BUSINESS PHONE: 6153735310 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 COMPANY FORM 10-Q 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 March 31, 1997. 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 0-1284-1 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 April 30, 1997, 13,283,787 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 MARCH 31, 1997 TABLE OF CONTENTS
ITEM PAGE NUMBER PART I -- FINANCIAL INFORMATION NUMBER - ------- ------ 1 Financial Statements: Consolidated Statements of Income (Unaudited) for the 3 Three and Twelve Months Ended March 31, 1997 and March 31, 1996. Consolidated Statements of Cash Flows (Unaudited) for the 4 Three and Twelve Months Ended March 31, 1997 and March 31, 1996. Consolidated Balance Sheets at March 31, 1997 (Unaudited) and 5 December 31, 1996. Consolidated Statements of Capitalization at March 31, 1997 6 (Unaudited) and December 31, 1996. Notes to Consolidated Financial Statements. 7 2 Management's Discussion and Analysis of Financial Condition 8 and Results of Operations. PART II -- OTHER INFORMATION 1 Legal Proceedings. 12 6 Exhibits and Reports on Form 8-K. 12 List of Exhibits. 13 Signature 14
2 3 UNITED CITIES GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED TWELVE MONTHS ENDED MARCH 31, MARCH 31, ------------------------- ------------------------- (Unaudited, in thousands, except per share amounts) .... 1997 1996 1997 1996 ---- ---- ---- ---- UTILITY OPERATING REVENUES ............................. $ 147,448 $ 144,709 $ 356,120 $ 310,563 Natural gas cost .................................... 96,886 93,803 230,448 191,057 --------- --------- --------- --------- UTILITY OPERATING MARGIN ............................... 50,562 50,906 125,672 119,506 --------- --------- --------- --------- OTHER UTILITY OPERATING EXPENSES: Operations and maintenance .......................... 15,873 16,250 62,328 62,838 Depreciation and amortization ....................... 4,290 4,246 16,658 15,701 Federal and state income taxes ...................... 8,789 8,676 7,136 5,848 Other taxes ......................................... 3,656 3,471 12,776 12,350 --------- --------- --------- --------- Total other utility operating expenses ............ 32,608 32,643 98,898 96,737 --------- --------- --------- --------- UTILITY OPERATING INCOME ............................... 17,954 18,263 26,774 22,769 OTHER UTILITY INCOME, NET OF TAX ....................... 107 152 424 848 --------- --------- --------- --------- 18,061 18,415 27,198 23,617 --------- --------- --------- --------- UTILITY INTEREST EXPENSE: Interest on long-term debt .......................... 3,119 3,316 12,575 12,311 Other interest expense .............................. 933 426 2,495 1,992 --------- --------- --------- --------- Total utility interest expense .................... 4,052 3,742 15,070 14,303 --------- --------- --------- --------- UTILITY INCOME ......................................... 14,009 14,673 12,128 9,314 --------- --------- --------- --------- OTHER INCOME: Operations of UCG Energy Corporation- Revenues ......................................... 13,748 18,672 38,977 40,722 Operating expenses ............................... (11,318) (14,604) (32,660) (31,467) Interest expense ................................. (340) (363) (1,343) (1,317) Depreciation and amortization .................... (1,005) (914) (3,910) (4,308) Other income, net ................................ 2,058 1,531 3,569 2,920 Federal and state income taxes ................... (1,193) (1,641) (1,759) (2,492) --------- --------- --------- --------- 1,950 2,681 2,874 4,058 --------- --------- --------- --------- Operations of United Cities Gas Storage Company- Revenues ......................................... 1,593 2,989 4,268 8,549 Operating expenses ............................... (1,027) (2,392) (1,750) (5,984) Interest expense ................................. (213) (222) (832) (955) Depreciation ..................................... (100) (98) (396) (374) Federal and state income taxes ................... (98) (108) (499) (477) --------- --------- --------- --------- 155 169 791 759 --------- --------- --------- --------- NET INCOME ............................................. $ 16,114 $ 17,523 $ 15,793 $ 14,131 ========= ========= ========= ========= NET INCOME PER SHARE ................................... $ 1.22 $ 1.35 $ 1.20 $ 1.14 ========= ========= ========= ========= AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ............ 13,242 12,962 13,156 12,358 ========= ========= ========= ========= COMMON STOCK DIVIDENDS PER SHARE ....................... $ 0.255 $ 0.255 $ 1.02 $ 1.02 ========= ========= ========= =========
3 4 UNITED CITIES GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED TWELVE MONTHS ENDED MARCH 31, MARCH 31, ------------------------ ----------------------- (Unaudited, in thousands) 1997 1996 1997 1996 ---- ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income .................................................... $ 16,114 $ 17,523 $ 15,793 $ 14,131 --------- --------- --------- --------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ............................. 5,395 5,258 20,964 20,383 Deferred taxes ............................................ (45) (46) 1,579 1,728 Investment tax credits, net ............................... (90) (90) (362) (363) Investment income from Woodward Marketing, LLC ............ (1,868) (1,267) (2,599) (2,047) Changes in current assets and current liabilities: Receivables ............................................ 17,005 (6,698) 9,287 (24,923) Materials and supplies ................................. 79 (70) (359) 435 Gas in storage ......................................... 12,322 9,367 (9,100) 3,437 Gas costs to be billed in the future ................... 4,528 4,432 2,688 (48) Prepayments and other .................................. 640 843 (1,562) (204) Accounts payable ....................................... (29,542) 1,863 (15,367) 10,065 Customer deposits and advance payments ................. (2,953) (4,600) 446 (3,481) Accrued interest ....................................... 3,257 2,744 380 808 Supplier refunds due customers ......................... 7,285 2,912 (1,280) (1,697) Accrued taxes .......................................... 7,689 13,015 1,198 5,730 Other, net ............................................. 43 2,011 (1,230) 2,215 --------- --------- --------- --------- Total adjustments .................................. 23,745 29,674 4,683 12,038 --------- --------- --------- --------- Net cash provided by operating activities ........ 39,859 47,197 20,476 26,169 --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property - utility ............................... (7,426) (7,106) (33,087) (32,553) Additions to property - non-utility ........................... (1,236) (1,607) (6,201) (5,385) Investment in Woodward Marketing, LLC, net .................... 125 215 705 (617) --------- --------- --------- --------- Net cash used in investing activities ............ (8,537) (8,498) (38,583) (38,555) --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-term borrowings - net ................................... (23,631) (24,010) 33,754 (9,758) Proceeds from issuance of long-term debt ...................... -- -- -- 27,000 Proceeds from issuance of common stock ........................ 613 583 2,670 22,587 Long-term debt retirements .................................... (2,346) (3,359) (12,804) (5,208) Dividends paid ................................................ (2,741) (2,745) (11,058) (10,584) --------- --------- --------- --------- Net cash provided by (used in) financing activities ............................. (28,105) (29,531) 12,562 24,037 --------- --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS ........ 3,217 9,168 (5,545) 11,651 CASH AND TEMPORARY INVESTMENTS AT BEGINNING OF PERIOD ............ 7,408 7,002 16,170 4,519 --------- --------- --------- --------- CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD .................. $ 10,625 $ 16,170 $ 10,625 $ 16,170 ========= ========= ========= ========= CASH PAID DURING THE PERIOD FOR: Interest, net of amounts capitalized .......................... $ 1,334 $ 1,414 $ 16,981 $ 15,579 ========= ========= ========= ========= Income taxes .................................................. $ 1,373 $ 278 $ 8,978 $ 6,733 ========= ========= ========= ========= NONCASH INVESTING AND FINANCING ACTIVITIES: Dividends reinvested .......................................... $ 636 $ 507 $ 2,310 $ 1,946 ========= ========= ========= ========= Debt incurred to acquire assets of Harlan LP Gas, Inc ......... $ 1,000 -- $ 1,000 -- ========= ========= ========= ========= Debt incurred to acquire assets of Duncan Gas Service ......... -- $ 2,957 -- $ 2,957 ========= ========= ========= ========= Common stock issued in investment in Woodward Marketing, LLC .. -- -- -- $ 5,000 ========= ========= ========= ========= Increase in common stock equity due to acquisition of Monarch Gas Company ........................................... -- $ 2,433 -- $ 2,433 ========= ========= ========= =========
4 5 UNITED CITIES GAS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, (In thousands) 1997 1996 ------------ ------------ ASSETS (Unaudited) UTILITY PLANT: Plant in service, at cost ................................. $485,173 $477,832 Less-accumulated depreciation ........................... 179,919 175,156 -------- -------- 305,254 302,676 -------- -------- NON-UTILITY PROPERTY: Property, plant, and equipment ............................ 77,684 76,480 Less-accumulated depreciation ........................... 21,405 21,536 -------- -------- 56,279 54,944 -------- -------- CURRENT ASSETS: Cash and temporary investments ............................ 10,625 7,408 Receivables, less allowance for uncollectible accounts of $2,547 in 1997 and $1,746 in 1996 .................... 51,928 68,933 Materials and supplies .................................... 5,343 5,422 Gas in storage ............................................ 16,376 28,698 Gas costs to be billed in the future ...................... 8,593 13,121 Prepayments and other ..................................... 2,747 3,387 -------- -------- 95,612 126,969 -------- -------- DEFERRED CHARGES: Unamortized debt discount and expense, net ................ 2,716 2,775 Investment in Woodward Marketing, LLC, net ................ 9,706 8,062 Non-compete agreements, net ............................... 3,139 3,183 Other deferred charges .................................... 14,918 15,040 -------- -------- 30,479 29,060 -------- -------- $487,624 $513,649 ======== ======== CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common stock equity ....................................... $171,270 $157,284 Long-term debt ............................................ 152,364 153,859 -------- -------- 323,634 311,143 -------- -------- CURRENT LIABILITIES: Current portion of long-term obligations .................. 7,828 7,679 Notes payable ............................................. 42,057 65,688 Accounts payable for gas costs ............................ 12,831 39,486 Other accounts payable .................................... 2,982 5,869 Accrued taxes ............................................. 18,633 10,944 Customer deposits and advance payments .................... 7,924 10,877 Accrued interest .......................................... 6,736 3,479 Supplier refunds due customers ............................ 8,086 801 Other ..................................................... 10,788 11,514 -------- -------- 117,865 156,337 -------- -------- DEFERRED CREDITS: Accumulated deferred income tax ........................... 32,999 33,017 Deferred investment tax credits ........................... 3,846 3,936 Income taxes due customers ................................ 4,881 4,943 Other ..................................................... 4,399 4,273 -------- -------- 46,125 46,169 -------- -------- $487,624 $513,649 ======== ========
5 6 UNITED CITIES GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CAPITALIZATION
MARCH 31, DECEMBER 31, (In thousands, except share amounts) 1997 1996 ---------------------------- ---------------------------- (Unaudited) COMMON STOCK EQUITY: Common stock without par value, authorized 40,000,000 shares, outstanding 13,277,584 in 1997 and 13,220,538 in 1996.................................... $109,305 $108,056 Capital surplus.................................................. 22,462 22,462 Retained earnings................................................ 39,503 26,766 ---------------- -------------- Total common stock equity...................................... 171,270 52.9% 157,284 50.6% ---------------- ----------- -------------- ------- LONG-TERM DEBT: First mortgage bonds............................................. 113,000 115,000 Medium term notes, 6.20% through 6.67%, due 2000 through 2025................................................... 22,000 22,000 Senior secured storage term notes, 7.45%, due in installments through 2007...................................... 9,200 9,353 Rental property adjustable rate term notes due in installments through 1999...................................... 4,368 4,497 Rental property fixed rate term note, 7.90%, due in installments through 2013...................................... 2,161 2,161 Propane term note, 6.99%, due in installments through 2002................................................... 4,500 4,500 Other long-term obligations due in installments through 2005..... 4,963 4,027 ---------------- -------------- 160,192 161,538 Less-current requirements.................................... 7,828 7,679 ---------------- -------------- Total long-term debt, excluding amounts due within one year.. 152,364 47.1% 153,859 49.4% ---------------- ----------- -------------- ------- TOTAL CAPITALIZATION $323,634 100.0% $311,143 100.0% ================ =========== ============== =======
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, 1996. The Company's business is seasonal in nature resulting in greater earnings during the winter months. The results of operations for the three-month period ended March 31, 1997, are not necessarily indicative of the results to be expected for the full year. Effective February 28, 1997, United Cities Propane Gas of Tennessee, Inc. (UCPT), a subsidiary of UCG Energy Corporation (UCG Energy), purchased substantially all of the propane assets of Harlan LP Gas, Inc., a retail propane distribution company, and Propane Sales and Service, Inc., a wholesale propane distribution company, for approximately $2,040,000. In addition, UCPT entered into four ten-year non-compete agreements with the prior owners totaling $150,000 to be paid over a ten-year period. This acquisition added approximately 3,100 propane customers in the Harlan, Kentucky and New Tazewell, Tennessee areas. On July 19, 1996, the Company and Atmos Energy Corporation (Atmos) entered into a definitive agreement whereby the Company will be merged with and into Atmos, with Atmos as the surviving corporation. Under the definitive agreement, one share of Atmos stock will be exchanged for each share of the Company's stock. The transaction is expected to be accounted for as a pooling of interests. The transaction was approved by the shareholders of the Company and Atmos on November 12, 1996. The Company and Atmos have received regulatory approval for the merger in all the states in which they operate that require approval, except Illinois. In a proposed order dated April 7, 1997, the Illinois hearing examiner recommended that the Illinois Commerce Commission deny approval of the merger. The Company is currently working with the Illinois Commerce Commission staff to resolve the issues in the proposed order. The Company expects to be successful in resolving these issues and the merger to be approved by mid-summer, 1997. Atmos is based in Dallas, Texas, and currently provides natural gas service to approximately 680,000 customers in Texas, Colorado, Kansas, Missouri, Louisiana and Kentucky. In February 1997, the Financial Accounting Standards Board issued Statement No. 128 (SFAS 128), "Earnings per Share." This statement establishes standards for computing and presenting earnings per share. SFAS 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997. Earlier application is not permitted. On a proforma basis for the periods presented herein, the net income per share as calculated under SFAS 128 is not materially different than the amounts presented. UCG Energy and Woodward Marketing, Inc. (WMI), sole shareholders of Woodward Marketing, L.L.C. (WMLLC), act as guarantors of a $12,500,000 credit facility for WMLLC with a certain bank. UCG Energy's 45% portion of the amount outstanding on this credit facility at March 31, 1997, was $4,275,000. UCG Energy and WMI also act as guarantors on certain purchases of natural gas and transportation services from suppliers by WMLLC. UCG Energy's 45% portion of these outstanding obligations amounted to $4,937,000 at March 31, 1997. UCG Energy and WMI are jointly and severally liable for the total amount outstanding under the above obligations. Certain reclassifications were made conforming prior year's financial statements with 1997 financial statement presentation. The Company's 1996 financial statements and other information have been restated to reflect the acquisition of Monarch Gas Company. 7 8 UNITED CITIES GAS COMPANY AND SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview The Company's 1997 first quarter net income was $16,114,000 compared to the first quarter 1996 net income of $17,523,000. Net income per share in the first quarter of 1997 was $1.22 compared to $1.35 for the first quarter of 1996. Net income for the twelve-month period ended March 31, 1997, was $15,793,000 compared to $14,131,000 for the twelve-month period ended March 31, 1996. Net income per share increased from $1.14 in the twelve-month period in 1996 to $1.20 in the twelve-month period in 1997. The following table summarizes certain information regarding the operation of each segment of the Company's business for the periods ended March 31:
THREE MONTHS ENDED TWELVE MONTHS ENDED ------------------ ------------------- (Unaudited, in thousands) 1997 1996 1997 1996 ---- ---- ---- ---- OPERATING REVENUES: Utility ...................................... $147,448 $144,709 $356,120 $310,563 -------- -------- -------- -------- Subsidiaries: UCG Energy Corporation- Propane Division ........................ 12,559 16,868 34,064 32,500 Rental Division ......................... 1,037 1,119 4,122 5,548 Utility Services Division ............... 152 685 791 2,674 -------- -------- -------- -------- Total UCG Energy Corporation .......... 13,748 18,672 38,977 40,722 United Cities Gas Storage Company ......... 1,593 2,989 4,268 8,549 -------- -------- -------- -------- Total Subsidiaries .................... 15,341 21,661 43,245 49,271 -------- -------- -------- -------- Total Operating Revenues ..................... $162,789 $166,370 $399,365 $359,834 ======== ======== ======== ======== NET INCOME: Utility ...................................... $ 14,009 $ 14,673 $ 12,128 $ 9,314 -------- -------- -------- -------- SUBSIDIARIES: UCG Energy Corporation- Propane Division ........................ 719 1,583 412 1,521 Rental Division ......................... 306 359 1,184 1,617 Utility Services Division ............... 925 739 1,278 920 -------- -------- -------- -------- Total UCG Energy Corporation .......... 1,950 2,681 2,874 4,058 United Cities Gas Storage Company ......... 155 169 791 759 -------- -------- -------- -------- Total Subsidiaries .................... 2,105 2,850 3,665 4,817 -------- -------- -------- -------- Total Net Income ............................. $ 16,114 $ 17,523 $ 15,793 $ 14,131 ======== ======== ======== ========
OPERATING RESULTS-UTILITY The utility income for the three months ended March 31, 1997, decreased $664,000 from the same period in 1996 and for the twelve-month period utility income increased $2,814,000 from the 1996 period due predominantly to the factors mentioned below: The operating margin for the first quarter decreased from $50,906,000 in 1996 to $50,562,000 in 1997 primarily due to the significantly warmer weather during 1997 as compared to 1996. The effect of the warmer weather was somewhat offset by the December 1996 rate increase in Georgia, the weather normalization adjustments (WNAs) in Tennessee and Georgia and an increased number of natural gas customers. During the first quarter of 1997 the net effect of the WNAs was an increase in revenues of $3,200,000 as opposed to a decrease in revenues of $1,200,000 in the 1996 first quarter. The operating margin for the twelve-month period increased from $119,506,000 in 1996 to $125,672,000 in 1997. The effect of the warmer weather during the 1997 period was more than offset by rate increases in various states, the weather normalization adjustments, the Monarch Gas Company acquisition and an increased number of natural gas customers. 8 9 ITEM 2. CONTINUED Utility operating expenses other than natural gas cost decreased $35,000 in the first quarter and increased $2,161,000 in the twelve-month period ended March 31, 1997, as compared to the previous year periods. The increase in the twelve-month period is primarily a result of increased distribution expenses and increased leasing expense on computer related equipment. In 1996, the Company began leasing computer related equipment as opposed to purchasing the equipment as was done in prior years. In addition, depreciation and amortization expense increased primarily due to additional plant in service and other taxes increased primarily as a result of franchise taxes on additional revenues. The effect of these increases in utility operating expenses was somewhat offset by a decrease in certain administrative expenses primarily attributable to the Virginia/East Tennessee Division consolidation that occurred in the third quarter of 1995. Five of the Company's local operations in this division were consolidated into two new operating centers. As a result, costs of approximately $900,000 ($550,000 after income taxes) related to early retirement and severance programs and employee relocation expenses were recorded in September 1995. In addition, outside services expense decreased from the twelve-month period ended March 31, 1996, to the current year period. Outside services expense for the 1996 period included incremental expenses related to addressing labor and personnel related activities, strategic planning and the IRS audit. Other utility income, net of tax decreased $45,000 and $424,000 in the first quarter and twelve-month period ended March 31, 1997, respectively, as compared to the previous year periods. The decrease in the twelve-month period is primarily a result of a decreased amount of revenues recognized by the Company related to the release of its excess firm capacity on the pipelines which serve the Company. The effect of this decrease in revenues from the prior year period was somewhat offset by additional revenues during the 1997 period from the incentive rate program in Tennessee. Utility interest expense increased in both the first quarter and twelve months ended March 31, 1997, as compared to the previous year periods. Other interest expense increased in both periods primarily as a result of increased outstanding balances of short-term debt. In addition, other interest expense for the twelve-month period ended March 31, 1996, was impacted by a $349,000 reduction to interest expense related to the capitalization of the debt portion of the allowance for funds used during construction of the twenty-eight mile main in Middle Tennessee. The effect of the increased interest expense in the twelve-month period for the reasons set forth above was slightly offset by decreased interest on lower outstanding balances of miscellaneous liabilities outstanding during the 1997 period. The table below reflects operating revenues, natural gas through-put and weather data for the periods ended March 31:
Operating Statistics-Utility ---------------------------- THREE MONTHS ENDED TWELVE MONTHS ENDED ---------------------- ----------------------- (Unaudited, in thousands) 1997 1996 1997 1996 ---- ---- ---- ---- UTILITY OPERATING REVENUES: Residential ............................... $ 77,569 $ 75,408 $168,083 $148,345 Commercial ................................ 41,864 40,581 96,967 82,312 Industrial ................................ 24,531 21,778 75,554 63,529 Transportation ............................ 2,675 2,850 10,390 8,851 Other Revenues ............................ 809 4,092 5,126 7,526 -------- -------- -------- -------- Total ................................ $147,448 $144,709 $356,120 $310,563 ======== ======== ======== ======== NATURAL GAS THROUGH-PUT (MCF): Residential ............................... 10,643 12,681 23,420 25,216 Commercial ................................ 6,276 7,271 15,711 16,191 Industrial- Firm .................................... 2,442 2,440 7,085 7,371 Interruptible ........................... 2,525 3,024 10,625 11,551 -------- -------- -------- -------- 21,886 25,416 56,841 60,329 Transportation ............................ 4,828 4,358 18,082 17,259 -------- -------- -------- -------- Total ................................ 26,714 29,774 74,923 77,588 ======== ======== ======== ======== WEATHER DATA-COLDER (WARMER) THAN NORMAL* .............................. (16.1%) 6.2% (6.0%) 7.3% ======== ======== ======== ========
*Based on system weighted average. Data for 1997 is preliminary. 9 10 ITEM 2. CONTINUED OPERATING RESULTS-NON-UTILITY Revenues of UCG Energy Corporation (UCG Energy) decreased from $18,672,000 and $40,722,000, respectively, in the first quarter and twelve-month period ended March 31, 1996, to $13,748,000 and $38,977,000, respectively, in the first quarter and twelve-month period ended March 31, 1997. The propane division's revenues decreased in the first quarter due to decreased retail and wholesale volumes sold because of warmer than normal weather as compared to the previous year period. For the twelve-month period, revenues increased because of an increase in annual fees billed to customers in October 1996, and an increase in the retail and wholesale price of propane volumes sold as compared to the previous year period. Revenues in the utility services division decreased from 1996 in both periods as a result of decreased gas brokerage sales due to the transfer of certain gas brokerage contracts to Woodward Marketing, L.L.C. (WMLLC). The rental division's revenues decreased from the first quarter and twelve months ended March 31, 1996, due to the elimination of rental revenues as a result of the transfer of certain rental units to the parent company. Expenses of UCG Energy, including cost of sales, decreased from $14,604,000 in the first quarter of 1996 to $11,318,000 in the first quarter of 1997 and increased from $31,467,000 in the twelve-month period ended March 31, 1996 to $32,660,000 in the twelve-month period ended March 31, 1997. Expenses decreased in the first quarter in the propane division principally as a result of lower cost of sales from decreased propane volumes sold due to warmer than normal weather as compared to the previous year period. Expenses increased in the twelve-month period as a result of the increased wholesale cost of propane volumes as compared to the previous year period. Also, contributing to the increase was increased general and administrative expenses due to normal increases and the acquisitions of Duncan Gas Service in January 1996, Arrow Propane, Inc. in September 1996 and Harlan LP Gas, Inc. and Propane Sales and Service, Inc. in February 1997. Expenses of the utility services division decreased in both periods as a result of lower cost of sales from decreased brokerage activities. Expenses increased only slightly in the quarter and twelve-month periods as compared to the previous year periods in the rental division. Other income, net of UCG Energy increased $527,000 and $649,000, respectively, in the first quarter and twelve-month period ended March 31, 1997, primarily as a result of increased investment income from WMLLC in the amounts of $601,000 and $552,000, respectively, as compared to the previous year periods. UCG Energy's net income decreased from $2,681,000 and $4,058,000, respectively, in the first quarter and twelve-month period ended March 31, 1996, to $1,950,000 and $2,874,000, respectively, for those same periods ended March 31, 1997. The decrease in net income for the first quarter can be attributed to decreased sales in the propane division partially offset by increased investment income from WMLLC. The decrease in net income for the twelve-month period can be primarily attributed to a combination of decreased volume sales, increased cost of sales and increased general and administrative expenses in the propane division. Contributing to the decrease was reduced rental revenues in the rental division. The decrease in net income was partially offset by increased investment income from WMLLC. Effective February 28, 1997, United Cities Propane Gas of Tennessee, Inc. (UCPT), a subsidiary of UCG Energy purchased substantially all of the propane assets of Harlan LP Gas, Inc., a retail propane distribution company, and Propane Sales and Service, Inc., a wholesale propane distribution company, for approximately $2,040,000. In addition, UCPT entered into four ten-year non-compete agreements with the prior owners totaling $150,000 to be paid over a ten-year period. This acquisition added approximately 3,100 propane customers in the Harlan, Kentucky and New Tazewell, Tennessee areas. United Cities Gas Storage Company had net income for the three and twelve-month periods ended March 31, 1997, of $155,000 and $791,000, respectively, as compared to $169,000 and $759,000 for the same periods in 1996. 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 provided by operations for the three and twelve-month periods ended March 31, 1997, was $39,859,000 and $20,476,000, respectively. Changes in accounts receivable, gas in storage and accounts payable were primarily a result of the weather sensitive nature of the Company's business. Changes in gas costs to be billed in the future and supplier refunds due customers were primarily a result of the timing of the recoveries from, or refunds to, customers of these costs through the Purchased Gas Adjustment mechanism. The financing activities for the three and twelve- 10 11 ITEM 2. CONTINUED month periods ended March 31, 1997, reflect the retirement of long-term debt, dividend payments, the issuance of stock through the Company's various stock purchase plans and the net activity of short-term borrowings. The Company had authorized as of March 31, 1997, specific purchases and construction projects amounting to $9,736,000 of its 1997 utility capital budget of $33,300,000 and $465,000 of its non-utility capital budget of $2,600,000. On July 19, 1996, the Company and Atmos Energy Corporation (Atmos) entered into a definitive agreement whereby the Company will be merged with and into Atmos, with Atmos as the surviving corporation. Under the definitive agreement, one share of Atmos stock will be exchanged for each share of the Company's stock. The transaction is expected to be accounted for as a pooling of interests. The transaction was approved by the shareholders of the Company and Atmos on November 12, 1996. The Company and Atmos have received regulatory approval for the merger in all the states in which they operate that require approval, except Illinois. In a proposed order dated April 7, 1997, the Illinois hearing examiner recommended that the Illinois Commerce Commission deny approval of the merger. The Company is currently working with the Illinois Commerce Commission staff to resolve the issues in the proposed order. The Company expects to be successful in resolving these issues and the merger to be approved by mid-summer, 1997. Atmos is based in Dallas, Texas, and currently provides natural gas service to approximately 680,000 customers in Texas, Colorado, Kansas, Missouri, Louisiana and Kentucky. In February 1997, the Financial Accounting Standards Board issued Statement No. 128 (SFAS 128), "Earnings per Share." This statement establishes standards for computing and presenting earnings per share. SFAS 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997. Earlier application is not permitted. On a proforma basis for the periods presented herein, the net income per share as calculated under SFAS 128 is not materially different than the amounts presented. UCG Energy and Woodward Marketing, Inc. (WMI), sole shareholders of WMLLC, act as guarantors of a $12,500,000 credit facility for WMLLC with a certain bank. UCG Energy's 45% portion of the amount outstanding on this credit facility at March 31, 1997, was $4,275,000. UCG Energy and WMI also act as guarantors on certain purchases of natural gas and transportation services from suppliers by WMLLC. UCG Energy's 45% portion of these outstanding obligations amounted to $4,937,000 at March 31, 1997. UCG Energy and WMI are jointly and severally liable for the total amount outstanding under the above obligations. The Company believes its short-term lines of credit are sufficient to meet anticipated short-term requirements. At March 31, 1997, the Company had $105,000,000 in short-term lines of credit available, including master and banker's acceptance notes, bearing interest primarily at the lesser of the prime rate or a negotiated rate during the term of each borrowing. Under these arrangements, $42,057,000 in short-term debt was outstanding at March 31, 1997. 11 12 UNITED CITIES GAS COMPANY AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. See December 31, 1996 Form 10-K. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits-See list of Exhibits on page 13 hereof. (b) The following Form 8-K was filed during the quarter ended March 31, 1997: 1. Form 8-K, Item 5 dated March 17, 1997. 12 13 UNITED CITIES GAS COMPANY AND SUBSIDIARIES LIST OF EXHIBITS 12.01 Computation of Ratio of Consolidated Earnings to Fixed Charges. (Page 15) 27 Financial Data Schedule (SEC use only) 13 14 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/ ADRIENNE H. BRANDON ------------------------------ ADRIENNE H. BRANDON Vice President and Controller On behalf of the Registrant Date: May 13, 1997 14 EX-12.01 2 COMPUTATION OF RATIOS 1 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)
3-31-97 12-31-96 12-31-95 12-31-94 12-31-93 12-31-92 ------- -------- -------- -------- -------- -------- Fixed Charges, as defined: Interest on long-term debt ........................... $14,418 $14,681 $13,697 $14,026 $14,553 $12,965 Amortization of debt discount ........................ 278 285 227 227 220 181 ------- ------- ------- ------- ------- ------- Total ............................................. $14,696 $14,966 $13,924 $14,253 $14,773 $13,146 ======= ======= ======= ======= ======= ======= Earnings, as defined: Net income ........................................... $15,793 $17,202 $ 9,935 $12,093 $12,150 $10,218 Taxes on income ...................................... 9,643 10,006 6,970 6,503 5,681 5,171 Fixed charges, as above .............................. 14,696 14,966 13,924 14,253 14,773 13,146 ------- ------- ------- ------- ------- ------- Total ............................................. $40,132 $42,174 $30,829 $32,849 $32,604 $28,535 ======= ======= ======= ======= ======= ======= Ratio of Consolidated Earnings to Fixed Charges ......... 2.73 2.82 2.21 2.30 2.21 2.17 ======= ======= ======= ======= ======= =======
15 EX-27 3 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 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 PER-BOOK 305,254 56,279 95,612 30,479 0 487,624 109,305 22,462 39,503 171,270 0 0 152,364 42,057 0 0 7,828 0 0 0 114,105 487,624 147,448 8,789 120,705 129,494 17,954 2,212 20,166 4,052 16,114 0 16,114 3,377 2,764 39,859 1.22 1.22
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