-----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, Ctb/wo0rIlDwTGvyKjSUiIRV6dW+XXn7ehNwuTXZZXUVkSCyBFtImTEodDmuVXtK sYsZliiSFegHfOIvV4FgiQ== 0000950144-96-005854.txt : 19960823 0000950144-96-005854.hdr.sgml : 19960823 ACCESSION NUMBER: 0000950144-96-005854 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960822 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-01284 FILM NUMBER: 96619410 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/A 1 UNITED CITIES GAS COMPANY FORM 10-Q/A 6-30-96 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996. 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 0-1284-2 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 preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No At July 31, 1996, 13,127,555 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 June 30, 1996 Table of Contents
Item Page Number Number ------ ------ PART I -- FINANCIAL INFORMATION 1 Financial Statements: Consolidated Statements of Income (Unaudited) for the Three, Six 3 and Twelve Months Ended June 30, 1996 and June 30, 1995. Consolidated Statements of Cash Flows (Unaudited) for the Three, Six 4 and Twelve Months Ended June 30, 1996 and June 30, 1995. Consolidated Balance Sheets at June 30, 1996 (Unaudited) and 5 December 31, 1995. Consolidated Statements of Capitalization at June 30, 1996 6 (Unaudited) and December 31, 1995. Notes to Consolidated Financial Statements. 7 2 Management's Discussion and Analysis of Financial Condition 9 and Results of Operations. PART II -- OTHER INFORMATION 1 Legal Proceedings. 14 4 Submission of Matters to a Vote of Security Holders. 14 6 Exhibits and Reports on Form 8-K. 14 List of Exhibits. 15 Signature 16
2 3 UNITED CITIES GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, ------------------ ---------------- ------------------ (Unaudited, in thousands, except per share amounts) 1996 1995 1996 1995 1996 1995 ---- ---- ---- ---- ---- ---- UTILITY OPERATING REVENUES...................................... $60,698 $42,246 $205,407 $148,252 $329,015 $256,693 Natural gas cost............................................. 39,872 24,023 133,675 85,945 206,906 148,879 ------- ------- -------- -------- -------- -------- UTILITY OPERATING MARGIN........................................ 20,826 18,223 71,732 62,307 122,109 107,814 ------- ------- -------- -------- -------- -------- OTHER UTILITY OPERATING EXPENSES: Operations and maintenance................................... 15,097 14,524 31,347 29,764 63,410 57,423 Depreciation and amortization................................ 3,922 3,708 8,168 7,372 15,916 14,371 Federal and state income taxes............................... (1,862) (2,430) 6,802 4,448 6,403 3,416 Other taxes.................................................. 3,148 2,978 6,618 6,397 12,521 11,579 ------- ------- -------- -------- -------- -------- Total other utility operating expenses..................... 20,305 18,780 52,935 47,981 98,250 86,789 ------- ------- -------- -------- -------- -------- UTILITY OPERATING INCOME (LOSS)................................. 521 (557) 18,797 14,326 23,859 21,025 OTHER UTILITY INCOME, NET OF TAX................................ 95 215 234 173 717 37 ------- ------- -------- -------- -------- -------- 616 (342) 19,031 14,499 24,576 21,062 ------- ------- -------- -------- -------- -------- UTILITY INTEREST EXPENSE: Interest on long-term debt................................... 3,221 2,980 6,537 6,017 12,552 12,149 Other interest expense....................................... 245 490 671 1,191 1,747 2,438 ------- ------- -------- -------- -------- -------- Total utility interest expense............................. 3,466 3,470 7,208 7,208 14,299 14,587 ------- ------- -------- -------- -------- -------- UTILITY INCOME (LOSS)........................................... (2,850) (3,812) 11,823 7,291 10,277 6,475 ------- ------- -------- -------- -------- -------- OTHER INCOME (LOSS): Operations of UCG Energy Corporation- Revenues.................................................. 19,890 4,444 38,562 16,827 56,168 35,485 Operating expenses........................................ (19,804) (4,015) (34,408) (12,777) (47,256) (26,834) Interest expense.......................................... (340) (283) (703) (521) (1,374) (909) Depreciation and amortization............................. (993) (1,007) (1,907) (1,991) (4,294) (3,819) Other income, net......................................... 459 372 1,990 1,313 3,007 1,659 Federal and state income taxes............................ 299 185 (1,342) (1,082) (2,378) (2,119) ------- ------- -------- -------- -------- -------- (489) (304) 2,192 1,769 3,873 3,463 ------- ------- -------- -------- -------- -------- Operations of United Cities Gas Storage Company- Revenues.................................................. 882 1,145 3,871 3,028 8,286 5,398 Operating expenses........................................ (224) (527) (2,616) (1,840) (5,681) (3,076) Interest expense.......................................... (191) (275) (413) (506) (872) (966) Depreciation.............................................. (98) (92) (196) (184) (380) (368) Federal and state income taxes............................ (142) (97) (250) (193) (522) (384) ------- ------- -------- -------- -------- -------- 227 154 396 305 831 604 ------- ------- -------- -------- -------- -------- COMMON STOCK EARNINGS (LOSS).................................... ($3,112) ($3,962) $14,411 $9,365 $14,981 $10,542 ======= ======= ======== ======== ======== ======== COMMON STOCK EARNINGS (LOSS) PER SHARE.......................... ($0.24) ($0.35) $1.11 $0.86 $1.17 $0.99 ======= ======= ======== ======== ======== ======== AVERAGE NUMBER OF COMMON SHARES OUTSTANDING..................... 13,053 11,197 13,007 10,937 12,819 10,700 ======= ======= ======== ======== ======== ======== COMMON STOCK DIVIDENDS PER SHARE................................ $.255 $.255 $.51 $.51 $1.02 $1.015 ======= ======= ======== ======== ======== ========
3 4 UNITED CITIES GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, ------------------ ---------------- ------------------ (Unaudited, in thousands) 1996 1995 1996 1995 1996 1995 ---- ---- ---- ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Common stock earnings (loss)..................................... ($3,112) ($3,962) $14,411 $9,365 $14,981 $10,542 ------- ------- ------- ------- ------- ------- Adjustments to reconcile common stock earnings (loss)to net cash provided by (used in) operating activities: Depreciation and amortization................................... 5,013 4,807 10,271 9,547 20,590 18,558 Deferred taxes.................................................. (46) 7 (92) 13 1,675 1,458 Investment tax credits, net..................................... (90) (91) (180) (182) (345) (367) Investment income from Woodward Marketing, L.L.C................ (116) (155) (1,383) (729) (1,989) (729) Changes in current assets and current liabilities: Receivables................................................... 31,077 20,073 24,379 27,111 (13,919) 3,493 Materials and supplies........................................ (147) (124) (217) (363) 412 229 Gas in storage................................................ (12,218) (7,293) (2,851) 8,445 (1,488) 2,964 Gas costs to be billed in the future.......................... 3,444 (1,901) 7,876 2,823 5,297 (2,019) Prepayments and other......................................... (1,245) (1,391) (402) (326) (58) 564 Accounts payable.............................................. (6,099) (845) (4,236) (8,903) 4,811 (3,116) Customer deposits and advance payments........................ 49 6 (4,551) (3,208) (3,438) 2,334 Accrued interest.............................................. (3,085) (2,542) (341) (339) 265 (264) Supplier refunds due customers................................ (2,518) (1,487) 394 4,135 (2,728) 2,562 Accrued taxes................................................. (4,834) (4,902) 8,181 428 5,798 (193) Other, net.................................................... 528 (1,228) 2,346 (2,527) 3,741 (2,639) ------- ------- ------- ------- ------- ------- Total adjustments........................................... 9,713 2,934 39,194 35,925 18,624 22,835 ------- ------- ------- ------- ------- ------- Net cash provided by (used in) operating activities....... 6,601 (1,028) 53,605 45,290 33,605 33,377 ------- ------- ------- -------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property - utility................................... (7,365) (8,085) (14,360) (17,798) (31,722) (34,660) Additions to property - non-utility............................... (1,368) (1,219) (2,975) (2,367) (5,534) (5,149) Investment in Woodward Marketing, L.L.C., net..................... 427 (832) 642 (832) 642 (832) ------- ------- ------- ------- ------- ------- Net cash used in investing activities..................... (8,306) (10,136) (16,693) (20,997) (36,614) (40,641) ------- ------- ------- ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-term borrowings - net....................................... 1,101 (5,109) (22,909) (33,236) (3,548) 2,332 Proceeds from issuance of long-term debt.......................... - - - - 27,000 - Proceeds from issuance of common stock............................ 973 20,400 1,556 21,710 3,160 24,347 Long-term debt retirements........................................ (8,384) (835) (11,661) (5,333) (12,675) (7,488) Dividends paid.................................................... (2,764) (2,391) (5,509) (4,758) (10,957) (9,409) ------- ------- ------- ------- ------- ------- Net cash provided by (used in) financing activities....... (9,074) 12,065 (38,523) (21,617) 2,980 9,782 ------- ------- ------- -------- ------- ------- NET INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS........... (10,779) 901 (1,611) 2,676 (29) 2,518 CASH AND TEMPORARY INVESTMENTS AT BEGINNING OF PERIOD............... 16,170 4,519 7,002 2,744 5,420 2,902 ------- ------- ------- ------- ------- ------- CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD..................... $5,391 $5,420 $5,391 $5,420 $5,391 $5,420 ======= ======= ======= ======= ======= ======= CASH PAID DURING THE PERIOD FOR: Interest, net of amounts capitalized.............................. $7,215 $6,570 $8,629 $8,574 $16,219 $16,726 ======= ======= ======= ======= ======= ======= Income taxes...................................................... $2,959 $2,901 $3,237 $5,069 $6,791 $5,927 ======= ======= ======= ======= ======= ======= NONCASH INVESTING AND FINANCING ACTIVITIES: Dividends reinvested.............................................. $514 $444 $1,021 $804 $2,016 $1,447 ======= ======= ======= ======= ======= ======= Debt incurred to acquire assets of Harrell Propane, Inc........... - - - $1,250 - $1,250 ======= ======= ======= ======= ======= ======= Debt incurred to acquire assets of Duncan Gas Service............. - - $2,957 - $2,957 - ======= ======= ======= ======= ======= ======= Common stock issued in investment in Woodward Marketing, L.L.C.... - $5,000 - $5,000 - $5,000 ======= ======= ======= ======= ======= ======= Increase in common stock equity due to acquisition of Monarch Gas - - $2,434 - $2,434 - ======= ======= ======= ======= ======= =======
4 5 UNITED CITIES GAS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31 1996 1995 ---- ---- (In thousands) (UNAUDITED) ASSETS UTILITY PLANT: Plant in service, at cost...................................... $461,777 $445,058 Less-accumulated depreciation................................ 167,521 157,968 -------- -------- 294,256 287,090 -------- -------- NON-UTILITY PROPERTY: Property, plant, and equipment................................. 73,559 67,423 Less-accumulated depreciation................................ 20,898 19,501 -------- -------- 52,661 47,922 -------- -------- CURRENT ASSETS: Cash and temporary investments................................. 5,391 7,002 Receivables, less allowance for uncollectible accounts of $1,747 in 1996 and $1,352 in 1995......................... 30,138 54,517 Materials and supplies......................................... 5,131 4,914 Gas in storage................................................. 19,494 16,643 Gas costs to be billed in the future........................... 7,837 15,713 Prepayments and other.......................................... 2,430 2,028 -------- -------- 70,421 100,817 -------- -------- DEFERRED CHARGES: Unamortized debt discount and expense, net..................... 2,841 2,896 Investment in Woodward Marketing, L.L.C., net.................. 7,561 7,012 Non-compete agreements,net.................................... 3,570 3,259 Other deferred charges......................................... 11,870 11,381 -------- -------- 25,842 24,548 -------- -------- $443,180 $460,377 ======== ======== CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common stock equity............................................ $158,963 $146,071 Long-term debt................................................. 158,192 163,160 -------- -------- 317,155 309,231 -------- -------- CURRENT LIABILITIES: Current portion of long-term obligations....................... 5,419 9,155 Notes payable.................................................. 9,404 32,313 Accounts payable for gas costs................................. 21,413 24,433 Other accounts payable......................................... 3,668 4,884 Accrued taxes.................................................. 12,601 4,420 Customer deposits and advance payments......................... 7,527 12,078 Accrued interest............................................... 3,271 3,612 Supplier refunds due customers................................. 6,848 6,454 Other.......................................................... 10,839 8,580 -------- -------- 80,990 105,929 -------- -------- DEFERRED CREDITS: Accumulated deferred income tax................................ 31,645 31,599 Deferred investment tax credits................................ 4,118 4,281 Income taxes due customers..................................... 5,067 5,190 Other.......................................................... 4,205 4,147 -------- -------- 45,035 45,217 -------- -------- $443,180 $460,377 ======== ========
5 6 UNITED CITIES GAS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CAPITALIZATION
JUNE 30, DECEMBER 31, 1996 1995 ------------------ ---------------- (In thousands, except share amounts) (UNAUDITED) COMMON STOCK EQUITY: Common stock without par value, authorized 40,000,000 shares, outstanding 13,102,913 in 1996 and 12,727,280 in 1995......................... $105,812 $101,735 Capital surplus....................................... 22,462 22,462 Retained earnings..................................... 30,689 21,874 -------- -------- Total common stock equity........................... 158,963 50.1% 146,071 47.2% -------- ----- -------- ----- LONG-TERM DEBT: First mortgage bonds ................................. 115,000 125,000 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.......................... 9,645 9,926 Rental property adjustable rate term notes due in installments through 1999.......................... 5,275 5,691 Rental property fixed rate term note, 7.90%, due in installments through 2013.......................... 2,292 2,292 Propane term note, 6.99%, due in installments through 2002....................................... 4,875 5,000 Other long-term obligations due in installments through 2004....................................... 4,524 2,406 -------- -------- 163,611 172,315 Less-current requirements......................... 5,419 9,155 -------- -------- Total long-term debt, excluding amounts due within one year............................... 158,192 49.9% 163,160 52.8% -------- ----- -------- ----- TOTAL CAPITALIZATION...................................... $317,155 100.0% $309,231 100.0% ======== ===== ======== =====
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, 1995. The Company's business is seasonal in nature resulting in greater earnings during the winter months. The results of operations for the three and six month periods ended June 30, 1996, are not necessarily indicative of the results to be expected for the full year. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." This statement imposes stricter criteria for regulatory assets by requiring that such assets be probable of future recovery at each balance sheet date. Because of the regulatory structure in which the Company operates, the adoption of SFAS 121 did not have a material effect on the results of operations, financial condition or cash flows of the Company. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." For fiscal years beginning after December 15, 1995, this statement requires new disclosures in the notes to the financial statements about stock-based compensation plans based on the fair value of equity instruments granted. Companies also may base the recognition of compensation cost for instruments issued under stock-based compensation plans on these fair values. The Company did not change the method of accounting for these plans. Effective January 1, 1996, United Cities Propane Gas of Tennessee, Inc., (UCPT), a subsidiary of UCG Energy Corporation, purchased substantially all of the propane assets of Duncan Gas Service for approximately $4,310,000. In addition, UCPT entered into a ten-year non-compete agreement with the prior owners for $250,000, to be paid over a ten-year period. This acquisition added approximately 2,000 customers in the Johnson City, Tennessee area. Effective May 17, 1996, the Company received an annual rate increase of $410,000 in the state of Iowa. Included in the rate increase was the recovery of $1,787,000 over a ten-year period related to the Company's agreement with Union Electric Company (Union Electric) whereby Union Electric agreed to assume responsibility for the Company's continuing investigation and environmental response action obligations as outlined in the feasibility study pertaining to a manufactured gas plant site in Keokuk, Iowa. On June 28, 1996, Monarch Gas Company (Monarch) was merged into the Company. The merger was accounted for as a pooling of interests in which the Company issued 207,366 shares of the Company's common stock in exchange for the common stock of Monarch. In addition, the Company entered into five-year non-compete agreements with the prior owners of Monarch totaling $400,000. The merger added approximately 2,900 customers in the Vandalia, Illinois area. The Company has not restated prior years' financial statements due to immateriality. 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. Subject to approval by the shareholders of both companies and the appropriate regulatory bodies, the transaction is expected to be completed by March 31, 1997. Atmos is based in Dallas, Texas, and currently provides natural gas service to approximately 673,000 customers in Texas, Colorado, Kansas, Missouri, Louisiana and Kentucky. 7 8 On August 1, 1996, Southern Union Company (Southern Union) filed a Schedule 13D with the Securities and Exchange Commission reporting that it owned 6.5% of the Company's outstanding common stock. On August 6, 1996, the Company and Atmos filed a joint complaint with the Missouri Public Service Commission against Southern Union alleging that Southern Union's purchases of the Company's common stock violated a Missouri statute which requires prior approval of the Missouri Public Service Commission for any public utility in Missouri to acquire the stock of another public utility in Missouri. The complaint asks for a declaration, among other things, that the purchases of the Company's stock by Southern Union be declared null and void and that Southern Union be prohibited from further purchases of the Company's stock. Certain reclassifications were made conforming prior year's financial statements with 1996 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 1996 second quarter common stock loss was $3,112,000 compared to the second quarter 1995 loss of $3,962,000. The loss per common share in the second quarter of 1996 was $.24 on an additional 1,856,000 average number of shares outstanding compared to the loss of $.35 for the comparable period in 1995. Common stock earnings for the six month period ended June 30, 1996, were $14,411,000 compared to $9,365,000 for the six month period ended June 30, 1995. Common stock earnings per share increased from $.86 in the six month period in 1995 to $1.11 in the six month period in 1996. Average shares outstanding increased by 2,070,000 for the six month period ended June 30, 1996. Common stock earnings for the twelve month period ended June 30, 1996, were $14,981,000 compared to $10,542,000 for the twelve month period ended June 30, 1995. Common stock earnings per share increased from $.99 in the twelve month period in 1995 to $1.17 in the twelve month period in 1996. Average shares outstanding increased by 2,119,000 for the twelve month period ended June 30, 1996. The following table summarizes certain information regarding the operation of each segment of the Company's business for the periods ended June 30:
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED ------------------- ---------------- ------------------- 1996 1995 1996 1995 1996 1995 ---- ---- ---- ---- ---- ---- (Unaudited, in thousands) OPERATING REVENUES: Utility......................................... $60,698 $42,246 $205,407 $148,252 $329,015 $256,693 ------- ------- -------- -------- -------- -------- Subsidiaries: UCG Energy Corporation- Propane Division............................ 3,124 1,825 19,992 10,843 33,801 20,548 Rental Division............................. 1,049 1,586 2,168 3,117 5,010 6,309 Utility Services Division................... 15,717 1,033 16,402 2,867 17,357 8,628 ------- ------- -------- -------- -------- -------- Total UCG Energy Corporation.............. 19,890 4,444 38,562 16,827 56,168 35,485 United Cities Gas Storage Company............. 882 1,145 3,871 3,028 8,286 5,398 ------- ------- -------- -------- -------- -------- Total Subsidiaries........................ 20,772 5,589 42,433 19,855 64,454 40,883 ------- ------- -------- -------- -------- -------- Total Operating Revenues........................ $81,470 $47,835 $247,840 $168,107 $393,469 $297,576 ======= ======= ======== ======== ======== ======== COMMON STOCK EARNINGS (LOSS): Utility......................................... $(2,850) $(3,812) $ 11,823 $ 7,291 $ 10,277 $ 6,475 ------- ------- -------- -------- -------- -------- Subsidiaries: UCG Energy Corporation- Propane Division............................ (813) (791) 770 395 1,499 819 Rental Division............................. 295 425 654 859 1,487 1,863 Utility Services Division................... 29 62 768 515 887 781 ------- ------- -------- -------- -------- -------- Total UCG Energy Corporation.............. (489) (304) 2,192 1,769 3,873 3,463 United Cities Gas Storage Company............. 227 154 396 305 831 604 ------- ------- -------- -------- -------- -------- Total Subsidiaries........................ (262) (150) 2,588 2,074 4,704 4,067 ------- ------- -------- -------- -------- -------- Total Common Stock Earnings (Loss).............. $(3,112) $(3,962) $ 14,411 $ 9,365 $ 14,981 $ 10,542 ======= ======= ======== ======== ======== ========
OPERATING RESULTS-UTILITY The utility loss decreased by $962,000 for the second quarter and utility earnings increased $4,532,000 and $3,802,000, respectively, for the six and twelve month periods in 1996 from the comparable 1995 periods due predominantly to the factors mentioned below. The operating margin for the second quarter increased from $18,223,000 in 1995 to $20,826,000 in 1996. The operating margin for the six month period ended June 30, 1996, was $71,732,000 compared to $62,307,000 for the same period in 1995, and the margin increased $14,295,000 to $122,109,000 for the twelve months ended June 30, 1996. The increase in all periods is a result of the colder weather in 1996 as compared to 1995; rate increases in Kansas, Virginia, Missouri, Tennessee and Iowa; the acquisition of Monarch Gas Company; and volumes sold to new residential and commercial natural gas customers. The increase in the six and twelve month periods was also a result of the additional revenues derived from penalties incurred by certain interruptible customers who elected not to go off the Company's system when curtailed during the first quarter of 1996. 9 10 ITEM 2. CONTINUED Operations and maintenance expenses other than natural gas cost increased $573,000, $1,583,000 and $5,987,000, respectively, in the three, six and twelve month periods ended June 30, 1996, from the comparable 1995 periods, primarily due to increased payroll and related benefits, expenses related to the consolidation of various division and corporate functions, and the additional operations and maintenance expenses of Monarch Gas Company. In addition, the increase in operations and maintenance expenses in the twelve month period can be attributed to additional expenses resulting from the consolidation of operations in the Company's Virginia/East Tennessee Division in the third quarter of 1995. Depreciation and amortization expense and other taxes increased in the second quarter, six and twelve month periods ended June 30, 1996, as compared to the same periods in 1995, primarily due to additional plant in service. Federal and state income taxes varied in all periods in relation to changes in income. Other utility income, net of tax decreased in the second quarter of 1996, as compared to the same period in 1995, as a result of an adjustment in the second quarter of 1995 to recognize revenues related to the release over the previous several months of the Company's excess firm capacity on the pipeline which serves the Company's Kansas operation. The recognition of these revenues is allowed by the Kansas Corporation Commission. This decrease was partially offset by increased interest income on deferred gas costs that are to be billed in the future and increased revenues from an incentive rate program in Tennessee. Effective April 1996, the Tennessee Public Service Commission issued an order which raised the amount of gains or losses to be recognized by the Company as a result of the incentive rate program from a maximum of $25,000 per month to $600,000 per year. Other utility income, net of tax increased in the six and twelve month periods from the previous year periods primarily as a result of revenues from the incentive rate program in Tennessee and increased interest income on deferred gas costs that are to be billed in the future, partially offset by decreased revenues generated by the release of the Company's excess firm capacity on the pipelines which serve the Company. In the twelve month period, the increase in other utility income, net of tax can also be attributed to a $171,000 credit made in September 1995 for the capitalization of the equity portion of the allowance for funds used during construction (AFUDC) of a twenty-eight mile main in Middle Tennessee. Interest expense remained constant in the three and six month periods ended June 30, 1996, as compared to the same periods in 1995. In both periods the decrease in interest on short-term debt outstanding was offset by interest on increased long-term debt. Interest expense decreased in the twelve month period ended June 30, 1996, as compared to the same period in 1995, because of less interest on short-term debt outstanding and a $349,000 reduction to interest expense related to the capitalization of the debt portion of the AFUDC of a twenty-eight mile main in Middle Tennessee. This decrease was slightly offset by interest on increased long-term debt. The table below reflects operating revenues, natural gas through-put and weather data for the periods ended June 30: OPERATING STATISTICS-UTILITY
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED ------------------- ---------------- ------------------- 1996 1995 1996 1995 1996 1995 ---- ---- ---- ---- ---- ---- (Unaudited, in thousands) UTILITY OPERATING REVENUES: Residential.................. $23,156 $16,424 $ 98,564 $ 71,090 $155,077 $117,877 Commercial................... 15,630 9,786 56,210 39,023 88,154 65,871 Industrial................... 17,625 13,642 39,403 32,665 67,513 63,268 Transportation............... 2,381 1,815 5,231 3,917 9,418 7,788 Other Revenues............... 1,906 579 5,999 1,557 8,853 1,889 ------- ------- -------- -------- -------- -------- Total................... $60,698 $42,246 $205,407 $148,252 $329,015 $256,693 ======= ======= ======== ======== ======== ======== NATURAL GAS THROUGH-PUT (MCF): Residential.................. 3,006 2,645 15,687 13,011 25,577 20,810 Commercial................... 2,507 2,143 9,778 8,388 16,555 13,944 Industrial- Firm....................... 1,415 1,691 3,855 4,122 7,058 7,720 Interruptible.............. 2,653 2,658 5,677 6,013 11,583 11,589 ------- ------- -------- -------- -------- -------- 9,581 9,137 34,997 31,534 60,773 54,063 Transportation............... 4,383 3,865 8,741 8,148 17,777 14,811 ------- ------- -------- -------- -------- -------- Total................... 13,964 13,002 43,738 39,682 78,550 68,874 ======= ======= ======== ======== ======== ======== WEATHER DATA-COLDER (WARMER) than normal*................. ** ** 7.5% (10.7%) 8.9% (14.4%) ======= ======= ======== ======== ======== ========
*Based on system weighted average. Data for 1996 is preliminary. **Not meaningful for second quarter. 10 11 ITEM 2. CONTINUED OPERATING RESULTS-NON-UTILITY Revenues of UCG Energy Corporation (UCG Energy) increased $15,446,000, $21,735,000 and $20,683,000, respectively, in the second quarter, six and twelve month periods ended June 30, 1996, as compared to the same periods in 1995. Revenues in the utility services division increased in all periods as a result of increased gas brokerage sales to Woodward Marketing, L.L.C. (WMLLC). The propane division's revenues increased in all periods due to increased retail and wholesale volumes sold and increased transport revenues, both due to colder than normal weather, and as a result of the acquisitions of Transpro South, Inc., in May 1995 and Duncan Gas Service in January 1996. The propane division's revenues also increased in the twelve month period as a result of the acquisition of Harrell Propane, Inc., in January 1995. The rental division's revenues decreased in all periods due to the transfer of certain rental units to the parent company. Expenses of UCG Energy, including cost of sales, increased $15,789,000, $21,631,000 and $20,422,000, respectively, in the second quarter, six and twelve month periods ended June 30, 1996, as compared to the same periods in 1995. Expenses of the utility services division increased in all periods as a result of increased cost of sales from increased gas brokerage activities. Expenses increased in all periods in the propane division principally as a result of the cost of increased propane volumes sold and increased administrative and general expenses, both due to colder than normal weather, and the acquisitions of Transpro South, Inc., and Duncan Gas Service. In addition, expenses of the propane division increased in the twelve month period as a result of the acquisition of Harrell Propane, Inc. Expenses increased only slightly in all periods from the previous year in the rental division. Other income, net of UCG Energy increased $87,000, $677,000 and $1,348,000, respectively, in the second quarter, six and twelve month periods ended June 30, 1996, as compared to the previous year periods. The increase in the second quarter was the result of increased income from investments in natural gas and oil exploration and production projects. The increase in the six and twelve month periods was primarily the result of increased investment income from WMLLC. Investment income from WMLLC, before income taxes, was $116,000, $1,383,000 and $1,989,000, respectively, for the second quarter, six and twelve month periods ended June 30, 1996. UCG Energy's net loss increased $185,000 in the second quarter while net income increased $423,000 and $410,000 in the six and twelve month periods ended June 30, 1996, as compared to the same periods in 1995. The increase in the net loss for the second quarter can be attributed to the transfer of certain rental units from the rental division to the parent company at the end of 1995 and the associated loss of rental income, partially offset by decreased depreciation expense related to those rental units. The increase in net income in the six month period is due to a combination of increased investment income from WMLLC and increased sales in the propane division. The increase in net income for the twelve month period can largely be attributed to increased sales in the propane division, partially offset by decreased rental income in the rental division. In the utility services division, the increase in investment income from WMLLC for the twelve month period was partially offset by increased amortization and interest expenses related to that investment. Effective January 1, 1996, United Cities Propane Gas of Tennessee, Inc. (UCPT), a subsidiary of UCG Energy, purchased substantially all of the propane assets of Duncan Gas Service for approximately $4,310,000. In addition, UCPT entered into a ten-year non-compete agreement with the prior owners for $250,000. This acquisition added approximately 2,000 customers in the Johnson City, Tennessee area. United Cities Gas Storage Company had net income for the three, six and twelve month periods of $227,000, $396,000 and $831,000, respectively, as compared to $154,000, $305,000 and $604,000 for the same periods in 1995. 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, six and twelve month periods ended June 30, 1996, was $6,601,000, $53,605,000 and $33,605,000, 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. 11 12 ITEM 2. CONTINUED The financing activities for the three, six and twelve month periods 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. In addition, the financing activities of the twelve month period reflect $22,000,000 of medium-term notes and a $5,000,000 term note in UCPT that were issued in the last quarter of 1995. The proceeds of these activities were used to repay short-term borrowings, retire long-term debt, finance the Company's construction program and for other corporate purposes. The Company had authorized as of June 30, 1996, specific purchases and construction projects amounting to $15,326,000 of its 1996 utility capital budget of $29,000,000 and $6,429,000 of its non-utility capital budget of $7,800,000. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." This statement imposes stricter criteria for regulatory assets by requiring that such assets be probable of future recovery at each balance sheet date. Because of the regulatory structure in which the Company operates, the adoption of SFAS 121 did not have a material effect on the results of operations, financial condition or cash flows of the Company. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." For fiscal years beginning after December 15, 1995, this statement requires new disclosures in the notes to the financial statements about stock-based compensation plans based on the fair value of equity instruments granted. Companies also may base the recognition of compensation cost for instruments issued under stock-based compensation plans on these fair values. The Company did not change the method of accounting for these plans. As a result of an election held on March 29, 1996, 20 employees in Hannibal, Missouri will be represented by a union. On April 19, 1996, an election was held in Columbus, Georgia for 97 employees to determine whether they would be represented by a union. The results of that election are pending the outcome of an administrative hearing. Effective May 17, 1996, the Company received an annual rate increase of $410,000 in the state of Iowa. The Company had filed to increase rates by $750,000 on an annual basis. Included in the rate increase was the recovery of $1,787,000 over a ten-year period related to the Company's agreement with Union Electric Company (Union Electric) whereby Union Electric agreed to assume responsibility for the Company's continuing investigation and environmental response action obligations as outlined in the feasibility study pertaining to a manufactured gas plant site in Keokuk, Iowa. On May 31, 1996, the Company filed to increase rates on an annual basis by $5,000,000 in the state of Georgia. The Company expects that any increase granted will be effective by the end of 1996. On June 28, 1996, Monarch Gas Company (Monarch) was merged into the Company. The merger was accounted for as a pooling of interests in which the Company issued 207,366 shares of the Company's common stock in exchange for the common stock of Monarch. In addition, the Company entered into five-year non-compete agreements with the prior owners of Monarch totaling $400,000. The merger added approximately 2,900 customers in the Vandalia, Illinois area. The Company has not restated prior years' financial statements due to immateriality. 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. Subject to approval by the shareholders of both companies and the appropriate regulatory bodies, the transaction is expected to be completed by March 31, 1997. Atmos is based in Dallas, Texas, and currently provides natural gas service to approximately 673,000 customers in Texas, Colorado, Kansas, Missouri, Louisiana and Kentucky. 12 13 ITEM 2. CONTINUED On August 1, 1996, Southern Union Company (Southern Union) filed a Schedule 13D with the Securities and Exchange Commission reporting that it owned 6.5% of the Company's outstanding common stock. On August 6, 1996, the Company and Atmos filed a joint complaint with the Missouri Public Service Commission against Southern Union alleging that Southern Union's purchases of the Company's common stock violated a Missouri statute which requires prior approval of the Missouri Public Service Commission for any public utility in Missouri to acquire the stock of another public utility in Missouri. The complaint asks for a declaration, among other things, that the purchases of the Company's stock by Southern Union be declared null and void and that Southern Union be prohibited from further purchases of the Company's stock. The Company believes its short-term lines of credit are sufficient to meet anticipated short-term requirements. At June 30, 1996, the Company had $93,000,000 in short-term lines of credit, 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, $9,404,000 in short-term debt was outstanding at June 30, 1996. 13 14 UNITED CITIES GAS COMPANY AND SUBSIDIARIES PART II. OTHER INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 ITEM 1. LEGAL PROCEEDINGS. See December 31, 1995 Form 10-K and Part I of this filing. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The annual meeting of Shareholders was held May 3, 1996. The matters voted upon were as follows: Proposal 1. The shareholders elected Jerry H. Ballengee, Richard W. Cardin, Vincent J. Lewis and Stirton Oman, Jr. to serve the Company as directors for a three-year term. Dale A. Keasling was elected to serve as a director for a two-year term. Directors of the Company who are continuing their terms are Dwight C. Baum, Thomas J. Garland, Gene C. Koonce, Dennis L. Mewberry, Timothy W. Triplett and George C. Woodruff, Jr. (See Amended By-laws of the Company filed with this report as Exhibit 3.02) Proposal 2. The shareholders approved an amendment to the Company's Articles of Incorporation concerning directors' liability. (See Amended Articles of Incorporation of the Company filed with this report as Exhibit 3.01) The results of the voting for each proposal were as follows:
FOR AGAINST WITHHELD NON-VOTE --- ------- -------- -------- Proposal 1. Ballengee 10,838,126 - 235,913 - Cardin 10,835,838 - 238,200 1 Keasling 10,830,211 - 243,828 - Lewis 10,853,059 - 220,979 1 Oman 10,844,773 - 229,266 - Proposal 2. 10,571,702 331,691 157,190 13,456
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits-See list of Exhibits on page 15 hereof. (b) The following Form 8-Ks were filed during the quarter ended June 30, 1996: 1. Form 8-K, Item 5 dated May 6, 1996. 2. Form 8-K, Item 5 dated May 29, 1996. 3. Form 8-K, Item 5 dated June 3, 1996. 14 15 UNITED CITIES GAS COMPANY AND SUBSIDIARIES LIST OF EXHIBITS 3.01* Amended Articles of Incorporation of Company as Amended May 3, 1996. 3.02* Amended By-Laws of Company as Amended May 3, 1996. 12.01* Computation of Ratio of Consolidated Earnings to Fixed Charges. 27.1* Financial Data Schedule Restated March 31, 1996 (for SEC use only) 27.2* Financial Data Schedule (for SEC use only) * previously filed 15 16 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: August 22, 1996 16 -----END PRIVACY-ENHANCED MESSAGE-----