<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1998 Commission file number 0-449
- --------------------------------------------------------------------------------
FALL RIVER GAS COMPANY
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(Exact name of registrant as specified in its charter)
Massachusetts 04-1298780
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
155 North Main Street, Fall River, Massachusetts 02722
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 508-675-7811
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"Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _x_ No ___."
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this report.
Class Outstanding at June 30,1998
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Common stock,par value of $.83 1\3 2,131,076 shares
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FALL RIVER GAS COMPANY
----------------------
INDEX
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<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part. I. Financial Position
Consolidated Condensed Balance Sheets -
June 30, 1998 and September 30, 1997 1
Consolidated Condensed Statements of Income -
Nine Months Ended June 30, 1998 and 1997 2
Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 1998 and 1997 3
Management's discussion and Analysis of the
Consolidated Condensed Statements of Income 4,5,6
Notes to Consolidated Condensed Financial Statements 7
Part II. Other Information 7
</TABLE>
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PART I. FINANCIAL INFORMATION
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FALL RIVER GAS COMPANY AND SUBSIDIARY
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CONSOLIDATED CONDENSED BALANCE SHEETS
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<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
ASSETS 1998 1997
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(Unaudited)
<S> <C> <C>
Gas Plant, at original cost $59,870,922 $58,413,337
less accumulated depreciation 20,689,314 19,073,198
----------- -----------
39,181,608 39,340,139
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Rental Property 6,368,276 6,287,418
less accumulated depreciation 2,045,193 2,078,911
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4,323,083 4,208,507
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CURRENT ASSETS:
Cash 469,114 329,400
Accounts receivable, less allowance for
doubtful accounts of $1,452,521 as of
6/30/98 and $907,357 as of 9/30/97 2,752,724 1,972,301
Inventories, at average cost
Liquefied natural gas and propane 2,435,211 3,108,887
Materials and Supplies 1,293,576 1,341,567
Purchased gas costs deferred 1,511,517 1,780,798
Prepaid and Deferred Taxes 0 990,515
Prepayments and Other 706,711 630,580
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9,168,853 10,154,048
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Deferred Charges:
Regulatory Asset 675,118 758,832
Other 35,558 473,901
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710,676 1,232,733
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$53,384,220 $54,935,427
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STOCKHOLDERS' INVESTMENT AND LIABILITIES
----------------------------------------
CAPITALIZATION:
Stockholders' investment--
Common stock, par value $.83-1/3 per share,
2,201,334 shares authorized and issued $1,834,445 $1,834,445
Premium paid in on common stock 4,924,193 1,474,850
Retained earnings ($6,693,309 restricted
against payment of cash dividends as
of 6/30/98 and $7,149,260 as of 9/30/97) 11,427,601 10,693,309
----------- -----------
18,186,239 14,002,604
Less Treasury stock, at cost (12,033 shares
as of 6/30/98 and 410,511 shares as of 9/30/97) 40,572 1,384,079
----------- -----------
18,145,667 12,618,525
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Long-term debt, less current sinking
fund requirements
First Mortgage Bonds--9.44% due 2020 6,500,000 6,500,000
First Mortgage Bonds--7.99% due 2026 7,000,000 7,000,000
First Mortgage Bonds--7.24% due 2027 6,000,000 0
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19,500,000 13,500,000
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Total capitalization 37,645,667 26,118,525
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CURRENT LIABILITIES:
Notes payable to banks 1,400,000 15,400,000
Dividends Payable 525,584 511,655
Accounts Payable 3,638,864 3,545,644
Accrued Taxes 98,955 0
Other 1,842,546 1,932,403
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7,505,949 21,389,702
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COMMITMENTS AND CONTINGENCIES
DEFERRED CREDITS:
Accumulated deferred income taxes 4,273,840 4,273,840
Unamortized investment tax credits 496,524 529,737
Regulatory Liability 494,566 494,566
Other 2,967,674 2,129,057
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8,232,604 7,427,200
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$53,384,220 $54,935,427
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</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
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SUMMARIZED FINANCIAL INFORMATION
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FALL RIVER GAS COMPANY AND SUBSIDIARY
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CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
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1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
GAS OPERATING REVENUES $ 8,581,558 $ 9,788,594 $ 38,367,555 $ 41,353,963
------------ ------------ ------------ ------------
OPERATING EXPENSES
Cost of gas sold 4,481,567 5,250,646 21,032,784 23,810,156
Other operation 2,606,537 2,852,253 9,084,231 9,132,313
Maintenance 342,910 414,881 1,107,146 1,560,588
Depreciation 410,189 405,491 1,904,663 1,886,094
Local property and other 322,325 298,200 1,251,645 1,176,997
Federal and state income taxes (10,786) 10,783 976,263 822,923
------------ ------------ ------------ ------------
8,152,742 9,232,254 35,356,732 38,389,071
------------ ------------ ------------ ------------
OPERATING INCOME 428,816 556,340 3,010,823 2,964,892
OTHER INCOME:
Earnings of Fall River Gas Appliance
Company, Inc. (a wholly-owned subsidiary) 233,380 224,793 644,715 585,431
Other 8,262 8,200 14,813 21,066
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INCOME BEFORE INTEREST EXPENSE 670,458 789,333 3,670,351 3,571,389
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Long-term debt 401,825 293,225 1,133,075 879,675
Other 19,358 224,816 228,568 695,981
------------ ------------ ------------ ------------
421,183 518,041 1,361,643 1,575,656
------------ ------------ ------------ ------------
NET INCOME 249,275 271,292 2,308,708 1,995,733
RETAINED EARNINGS - BEGINNING OF PERIOD 12,228,585 12,162,264 10,693,309 10,865,648
ADD - Dividends declared
September 30, 1997 and
September 19, 1996, payable
November 15, 1997 and 1996, respectively 0 0 511,656 427,330
DEDUCT - Dividends paid on
Common Stock 524,675 428,361 1,560,488 1,283,516
Declared Payable
August 15, 1998 and 1997 525,584 429,142 525,584 429,142
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
RETAINED EARNINGS - END OF PERIOD
($6,693,309 restricted against payment
of cash dividends as of 6/30/98 and $7,149,260
as of 6/30/97) $ 11,427,601 $ 11,576,053 $ 11,427,601 $ 11,576,053
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
BASIC EARNINGS PER SHARE 0.11 0.15 1.08 1.12
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,187,706 1,786,013 2,131,076 1,783,547
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
CASH DIVIDEND PER COMMON SHARE 0.24 0.24 0.72 0.72
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
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FALL RIVER GAS COMPANY AND SUBSIDIARY
---------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
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<TABLE>
<CAPTION>
Nine Months Ended
June 30
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1998 1997
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<S> <C> <C>
Cash Provided by (used for)
Operating Activities:
Net income $ 2,308,708 $ 1,995,731
Items not requiring (providing) cash:
Depreciation 2,232,823 2,086,978
Investment Tax Credits, net (33,213) (28,468)
Change in working capital 1,260,491 2,135,313
Other sources, net 1,251,044 414,549
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Net cash provided by
operating activities 7,019,853 6,604,103
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Investing Activities:
Additions to utility property, plant and equipment (1,688,230) (1,804,632)
Additions to nonutility property (424,272) (373,367)
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Net cash used by investing activities (2,112,502) (2,177,999)
------------ ------------
Financing activities:
Cash dividends on common stock (1,560,487) (1,283,516)
Proceeds from long-term debt issue 6,000,000 0
Net proceeds from issuance of stock 4,792,850 0
Decrease in notes payable to banks, net (14,000,000) (3,100,000)
------------ ------------
Net cash used for
financing activities (4,767,637) (4,383,516)
------------ ------------
Increase in cash 139,714 42,588
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Cash, beginning of period 329,400 393,936
------------ ------------
Cash, end of period $ 469,114 $ 436,524
------------ ------------
------------ ------------
Changes in Components of Working Capital
(excluding cash)
(Increase) decrease in current assets:
Accounts receivable (780,422) (735,520)
Inventories 721,667 919,789
Prepaid and Deferred Taxes 990,515 303,741
Prepayments and other (42,867) (13,725)
Deferred gas cost 269,281 1,036,458
Increase (decrease) in current liabilities:
Accounts payable 93,219 59,222
Accrued taxes 98,955 0
Other (89,857) 565,348
------------ ------------
Change in Working Capital $ 1,260,491 $ 2,135,313
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest $ 1,130,917 $ 1,236,119
Income taxes $ 791,206 $ 786,299
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
FALL RIVER GAS COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Net income for the third quarter of fiscal 1998 was $249,275 or $.11
per share as compared with earnings of $271,292 or $.15 for the third quarter in
fiscal 1997. Basic earnings per share, for both the three and nine month
periods, have been impacted by the issuance of 390,000 shares of stock in the
first quarter 1998.
On May 17, 1996 the Company filed with the Massachusetts Department of
Telecommunications and Energy a request to increase its firm rates. After
responding to interrogatories and presenting witnesses in support of the
Company's filing, the Company was able to reach a settlement agreement with all
parties. Contained in this settlement was an increase in revenues of $3,200,000
along with the "unbundling" of its commercial and industrial tariffs. With
unbundled rates our commercial and industrial customers can now choose to buy
gas from the Company or purchase its own gas supply from a third party and have
it transported up to and through the Company's distribution system. These new
rates were effective for gas sold on or after December 1, 1996.
Gas operating revenues for the nine months ended June 30, 1998 reflect
a decrease of 7.2% or $2,986,408. Revenues decreased from $41,353,963 recorded
in 1997 to $38,367,555, mainly due to a 8.4% decrease in firm sales volume due
to warmer weather in which degree days decreased 5.8% from 6,131 to 5,773. Firm
sales volume for nine months ended June 30, 1998 is 4,935,858 MCF as compared to
the 5,390,124 MCF reported in 1997. Total sales for the nine month period which
include Interruptible, Interruptible Transportation and Transportation
customers, decreased 9.3% from 6,788,893 MCF to 6,155,577 MCF in 1998. Cost of
gas (CGA) revenues decreased by $340,000 due to the net differences in our CGA
decimal in the nine months ended June 1998 and 1997 respectively. The 1998 and
1997 CGA revenues, referred to above, have been computed on the current rate
structure. In accordance with the Company's approved CGAC, increases or
decreases in the cost of gas sold continue to be passed directly to our Firm
customers, dollar for dollar.
During the third quarter of 1998 warmer weather in which degree days
fell 20% from 987 in 1997 to 790 in 1998, in addition to the continuing transfer
of commercial and industrial customers into unbundled Transportation rates (as
stated above) negatively impacted firm sales resulting in a decrease in
operating revenues, $1,207,036 lower than the comparable third quarter of 1997.
Also during the quarter, firm sales decreased 20.8%, from 1,348,140 MCF in 1997
to 1,066,983 MCF in 1998, with firm sales revenues decreasing 13.2% from
$9,357,771 in 1997 to $8,123,314 in 1998.
Total operating expenses, excluding federal and state income taxes, for
the nine month comparisons reflected a 8.5% decrease from $37,566,146 to
$34,380,469, a decrease of $3,185,677. The most significant operating expense,
cost of gas sold, decreased by $2,777,372 for the nine month period comparison
due mainly to the decrease in the volumes of purchased gas and the lower
commodity cost. Other operation expenses including health benefits, payroll, and
materials and supplies have decreased by $48,082, 1% lower than the comparable
nine month
4
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period in 1997.
Operating expenses, excluding federal and state income taxes, for the
three month period comparison decreased 11.5% from $9,221,470 in 1997 to
$8,163,527 in 1998, a decrease of $1,057,943. The most significant operating
expense, cost of gas sold, decreased by $769,079 for the three month comparison
mainly due to the reasons discussed above. Other operation expenses including
health benefits, payroll, and materials and supplies have decreased by $245,716,
8.6% lower than the comparable three month period in 1997.
Interest expense decreased by $214,013, 13.6%, for the nine month
comparison and $96,858, 18.7%, for the three month comparison as a result of
decreased short term borrowing due to an equity financing. As reported, on
October 31, 1997 the Company issued 340,000 shares of common stock and began
trading on the American Stock Exchange (AMEX) under the symbol "FAL". On
November 26, 1997 the underwriter of this equity issue, First Albany
Corporation, exercised its over-allotment option to sell an additional 50,000
shares of common stock. The net proceeds of this offering of approximately
$4,700,000 were used to reduce short-term borrowings. The Company also issued
$6,000,000 of long-term debt with a coupon rate of 7.24% on December 12, 1997
through a private placement. The net proceeds from this offering was also used
to reduce short-term borrowings.
Capital Resources and Liquidity
The Company's major capital requirement results from upgrading the
efficiency of existing plant, as well as, to serve additional customers. For the
nine months ended June 30, 1998, capital expenditures totaled approximately
$1,458,000.
Cash flow patterns reflect the seasonality of the Company's business.
The greatest demand for cash is in the late fall and winter as construction
projects are brought to completion and accounts receivable balances rise.
Capital expenditures and accounts receivable balances were financed by
internally generated funds and supplemented by short- term borrowings.
Factors that May Affect Future Results
The Private Securities Litigation Reform Act of 1995 encourages the use
of cautionary statements accompanying forward-looking statements. The preceding
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes forward-looking statements concerning the impact of changes
in the cost of gas and of the CGA mechanism on total margin; projected capital
expenditures and sources of cash to fund expenditures. The Company's future
results, generally and with respect to such forward-looking statements, may be
affected by many factors, among which are uncertainty as to the regulatory
allowance of recovery of changes in the cost of gas; uncertain demands for
capital expenditures and the availability of cash from various sources;
uncertainty as to whether transportation rates will be reduced in future
regulatory proceeding with resulting decreases in transportation margins; and
uncertainty as to
5
<PAGE>
regulatory approval of the full recovery of environmental costs, transition
costs and other regulatory assets.
New Accounting Standards
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share," effective quarter ended December 31, 1997 and has
reflected basic earnings per share on the face of the statements of income.
See accompanying notes to consolidated financial statements
6
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FALL RIVER GAS COMPANY AND SUBSIDIARY
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. The results of operation for the nine month periods ending June 30,
1998 and 1997 are not necessarily indicative of the results to be
expected for the full year.
2. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
Company's financial position as of June 30, 1998 and 1997, and the
results of operations for the nine months ended and changes in
financial position for the nine months then ended.
3. The Company had no shares of its common stock reserved for officers and
employees, options, warrants, conversions or other requirements at
June 30, 1998.
PART II. OTHER INFORMATION
--------------------------
Not applicable.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
FALL RIVER GAS COMPANY
--------------------------
(Registrant)
Peter H. Thanas
--------------------------
(Signature)
Date July 31, 1998 Peter H. Thanas, Treasurer,
Chief Financial and
Accounting Officer
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET, INCOME STATEMENT AND CASH FLOW STATEMENT FOR THE NINE MONTHS
ENDED JUNE 30, 1998. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS APPEARING ON PAGE 7 OF
FORM 10-Q FOR NINE MONTHS ENDED JUNE 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 39,181,608
<OTHER-PROPERTY-AND-INVEST> 4,323,083
<TOTAL-CURRENT-ASSETS> 9,168,853
<TOTAL-DEFERRED-CHARGES> 710,676
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 53,384,220
<COMMON> 1,834,445
<CAPITAL-SURPLUS-PAID-IN> 4,924,193
<RETAINED-EARNINGS> 11,427,601
<TOTAL-COMMON-STOCKHOLDERS-EQ> 18,186,239
0
0
<LONG-TERM-DEBT-NET> 19,500,000
<SHORT-TERM-NOTES> 1,400,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 14,297,981
<TOT-CAPITALIZATION-AND-LIAB> 53,384,220
<GROSS-OPERATING-REVENUE> 38,367,555
<INCOME-TAX-EXPENSE> 2,227,908
<OTHER-OPERATING-EXPENSES> 33,128,824
<TOTAL-OPERATING-EXPENSES> 35,356,732
<OPERATING-INCOME-LOSS> 3,010,823
<OTHER-INCOME-NET> 659,528
<INCOME-BEFORE-INTEREST-EXPEN> 3,670,351
<TOTAL-INTEREST-EXPENSE> 1,361,643
<NET-INCOME> 2,308,708
0
<EARNINGS-AVAILABLE-FOR-COMM> 4,734,292
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 7,019,853
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
</TABLE>
