<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 March 31, 1998 Commission file number 0-449
- --------------------------------------------------------------------------------
FALL RIVER GAS COMPANY
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(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 March 31,1998
- ------------------------------------- -----------------------------------------
Common stock, par value of $.83 1\3 2,102,760 shares
<PAGE>
FALL RIVER GAS COMPANY
----------------------
INDEX
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Page No.
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Part. I. Financial Position
Consolidated Condensed Balance Sheets -
March 31, 1998 and September 30, 1997 1
Consolidated Condensed Statements of Income -
Six Months Ended March 31, 1998 and 1997 2
Consolidated Statements of Cash Flows -
Six Months Ended March 31, 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
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
FALL RIVER GAS COMPANY AND SUBSIDIARY
-------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1997
----------- -------------
ASSETS
------
<S> <C> <C>
Gas Plant, at original cost $59,383,570 $58,413,337
less accumulated depreciation 20,344,158 19,073,197
----------- -----------
39,039,412 39,340,140
----------- -----------
Rental Property 6,383,574 6,287,417
less accumulated depreciation 2,035,646 2,078,911
----------- -----------
4,347,928 4,208,506
----------- -----------
Other Investments 447,135 425,765
----------- -----------
Current Assets:
Cash 584,174 329,400
Accounts receivable, less allowance for
doubtful accounts of $1,420,624 as of
3/31/98 and $907,357 as of 9/30/97 6,537,962 1,972,301
Inventories, at average cost
Liquefied natural gas and propane 1,751,498 3,108,887
Materials and Supplies 1,291,351 1,341,567
Purchased gas costs deferred 1,095,535 1,780,798
Prepaid and Deferred Taxes 0 990,515
Prepayments and Other 259,867 204,815
----------- -----------
11,520,387 9,728,283
----------- -----------
Deferred Charges:
Regulatory Asset 703,023 758,832
Other 0 473,901
----------- -----------
703,023 1,232,733
----------- -----------
$56,057,885 $54,935,427
----------- -----------
----------- -----------
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 4,882,047 1,474,850
Retained earnings ($6,693,309 restricted
against payment of cash dividends as
of 3/31/98 and $7,149,260 as of 9/30/97) 12,228,585 10,693,309
----------- -----------
18,945,077 14,002,604
Less Treasury stock, at cost (15,245 shares
as of 3/31/98 and 410,511 shares as of 9/30/97) 51,398 1,384,079
----------- -----------
18,893,679 12,618,525
----------- -----------
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
----------- -----------
19,500,000 13,500,000
----------- -----------
Total capitalization 38,393,679 26,118,525
----------- -----------
CURRENT LIABILITIES:
Notes payable to banks 4,800,000 15,400,000
Dividends Payable 0 511,655
Accounts Payable 2,587,037 3,545,644
Accrued Taxes 333,434 0
Other 2,404,398 1,932,403
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10,124,869 21,389,702
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DEFERRED CREDITS:
Accumulated deferred income taxes 4,273,840 4,273,840
Unamortized investment tax credits 507,595 529,737
Regulatory Liability 494,566 494,566
Other 2,263,336 2,129,057
----------- -----------
7,539,337 7,427,200
----------- -----------
$56,057,885 $54,935,427
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
<PAGE>
SUMMARIZED FINANCIAL INFORMATION
--------------------------------
FALL RIVER GAS COMPANY AND SUBSIDIARY
-------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
-----------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
--------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
GAS OPERATING REVENUES $18,513,220 $20,401,497 $29,785,997 $31,565,369
----------- ----------- ----------- -----------
OPERATING EXPENSES
Cost of gas sold 10,514,532 12,121,784 16,551,218 18,559,510
Other operation 3,351,671 3,265,425 6,477,695 6,280,060
Maintenance 379,783 569,175 764,237 1,145,707
Depreciation 1,046,360 1,034,377 1,494,474 1,480,603
General taxes 754,889 732,707 1,100,637 1,019,885
Federal income taxes 675,281 722,041 815,732 671,052
----------- ----------- ----------- -----------
Total operating expenses 16,722,516 18,445,509 27,203,993 29,156,817
----------- ----------- ----------- -----------
OPERATING INCOME 1,790,704 1,955,988 2,582,004 2,408,552
OTHER INCOME:
Net income of Fall River Gas Appliance
Company, Inc. (a wholly-owned subsidiary) 170,614 161,821 411,335 360,638
Other 2,068 9,026 6,551 12,866
----------- ----------- ----------- -----------
GROSS INCOME 1,963,386 2,126,835 2,999,890 2,782,056
----------- ----------- ----------- -----------
INTEREST EXPENSE AND OTHER:
Interest on long-term debt 401,825 293,225 731,250 586,450
Other interest 49,998 237,927 209,210 471,165
----------- ----------- ----------- -----------
451,823 531,152 940,460 1,057,615
----------- ----------- ----------- -----------
NET INCOME 1,511,563 1,595,683 2,059,430 1,724,441
RETAINED EARNINGS - BEGINNING OF PERIOD 11,241,176 10,994,406 10,693,309 10,865,648
ADD - Dividends declared
September 30, 1997 and
September 19, 1996, payable
November 15, 1997 and 1996 0 0 511,656 427,330
DEDUCT - Dividends paid 524,154 427,824 1,035,810 855,154
----------- ----------- ----------- -----------
RETAINED EARNINGS - END OF PERIOD
($6,693,309 restricted against payment of
cash dividends as of 3/31/98 and $7,149,260
as of 3/31/97) 12,228,585 12,162,265 12,228,585 12,162,265
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
BASIC EARNINGS PER SHARE 0.69 0.89 0.98 0.97
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DURING THE PERIOD 2,184,947 1,783,440 2,102,760 1,782,314
CASH DIVIDEND PAID PER COMMON SHARE 0.24 0.24 0.48 0.48
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
FALL RIVER GAS COMPANY AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
March 31
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash Provided by (used for)
Operating Activities:
Net income $2,059,430 $1,724,441
Items not requiring (providing) cash:
Depreciation 1,722,011 1,672,943
Amortization of Investment Tax Credit (22,142) (18,979)
Change in working capital (1,690,506) (1,178,050)
Other sources, net 5,322,385 525,613
------------ ------------
Net cash provided by
operating activities 7,391,178 2,725,968
------------ ------------
Investing Activities:
Additions to utility property, plant and equipment (1,146,983) (1,331,074)
Additions to nonutility property (353,609) (398,750)
------------ ------------
Net cash used by investing activities (1,500,592) (1,729,824)
------------ ------------
Financing activities:
Cash dividends on common stock (1,035,810) (855,154)
Addition of long-term debt First Mortgage Bond 6,000,000 0
Increase (Decrease) in notes payable to banks, net (10,600,000) 100,000
------------ ------------
Net cash provided by (used for)
financing activities (5,635,810) (755,154)
----------- ------------
Increase (Decrease) in cash $254,776 $240,990
----------- ------------
----------- ------------
Changes in Components of Working Capital
(excluding cash)
(Increase) decrease in current assets:
Special Deposits $0 ($30,050)
Accounts receivable (4,565,661) (4,991,720)
Inventories 1,407,606 1,489,813
Prepayments and other (55,052) (34,343)
Deferred gas cost 685,263 201,265
Prepaid and Deferred Taxes 990,515 555,984
Increase (decrease) in current liabilities:
Accounts payable (958,608) 509,981
Accrued taxes 333,434 93,426
Deferred gas cost 0 751,485
Other 471,997 276,109
----------- ------------
Change in Working Capital ($1,690,506) ($1,178,050)
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest 883,135 1,050,461
Income taxes 478,765 545,650
</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 second quarter of fiscal 1998 was $1,511,600 or
$0.69 per share as compared with earnings of $1,595,700 or $0.89 for the second
quarter in fiscal 1997. Basic earnings per share, for both the three and six
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 MDTE 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 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 into the Company's distribution system. These new rates
were effective for gas sold on or after December 1, 1996.
Gas operating revenues for the six months ended March 31, 1998 reflect
a decrease of 5.6% or $1,779,400. Revenues decreased from $31,565,400 recorded
in 1997 to $29,786,000, mainly due to a 4.3% decrease in firm sales volume due
to warmer weather in which degree days decreased 3.1% from 5,144 to 4,983. Firm
sales volume for six months ended March 31, 1998 is 3,868,875 MCF as compared to
the 4,041,984 MCF reported in 1997. Total sales for the six month period which
include Interruptible, Interruptible Transportation and Transportation
customers, decreased 5.1% from 4,984,797 MCF to 4,728,842 MCF in 1998. Cost of
gas (CGA) revenues increased by $96,000 due to the net differences in our CGA
decimal in the six months ended March 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 second quarter of 1998 warmer weather in which degree days
fell 9.7% from 3,018 in 1997 to 2,724 in 1998 and the continuing transfer of
commercial and industrial customers into unbundled rates (as stated above)
negatively impacted firm sales resulting in a decrease in operating revenues,
$1,888,300 lower than the comparable three months in 1997. Firm sales decreased
8.0%, from 2,626,545 MCF in 1997 to 2,416,546 MCF in 1998, with firm sales
revenues decreasing 9.8% from $19,907,200 in 1997 to $17,949,000 in 1998.
Total operating expenses, excluding federal and state income taxes, for
the six month comparisons reflected a 7.5% decrease from $28,344,700 to
$26,217,000 a decrease of $2,127,700. The most significant operation expense -
cost of gas sold - decreased by $2,008,300 for the six month 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 increased by $197,600, 3.1% higher than the comparable period
in 1997.
Operating expenses, excluding federal and state income taxes, for the
three month comparison decreased 9.5% from $17,573,900 in 1997 to $15,906,900 in
1998, a decrease of
4
<PAGE>
$1,667,000. The most significant operation expense - cost of gas sold -
decreased by $1,607,300 for the three month comparison mainly due to the reasons
discussed above. Other operation expenses including health benefits, payroll,
and materials and supplies have increased by $86,200, 2.6% higher than the
comparable period in 1997.
Interest expense decreased by $117,100, 11.1%, for the six month
comparison and $79,300, 14.9% 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
six months ended March 31, 1998, capital expenditures totaled approximately
$1,261,000.
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; and estimated costs of
environmental remediation and anticipated regulatory approval of recovery
mechanisms. 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 regulatory approval of the full
recovery of environmental costs, transition costs and other regulatory assets.
5
<PAGE>
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
<PAGE>
FALL RIVER GAS COMPANY AND SUBSIDIARY
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. The results of operation for the six month periods ending March 31,
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 March 31, 1998 and 1997, and the
results of operations for the six months ended and changes in financial
position for the six 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
March 31, 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 April 30, 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
INCOME STATEMENT AND CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED MARCH 31, 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 SIX MONTHS
ENDED MARCH 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-1-1997
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 39,039,412
<OTHER-PROPERTY-AND-INVEST> 4,795,063
<TOTAL-CURRENT-ASSETS> 11,520,387
<TOTAL-DEFERRED-CHARGES> 703,023
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 56,057,885
<COMMON> 1,834,445
<CAPITAL-SURPLUS-PAID-IN> 4,882,047
<RETAINED-EARNINGS> 12,228,585
<TOTAL-COMMON-STOCKHOLDERS-EQ> 18,945,077
0
0
<LONG-TERM-DEBT-NET> 19,500,000
<SHORT-TERM-NOTES> 4,800,000
<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> 12,812,808
<TOT-CAPITALIZATION-AND-LIAB> 56,057,885
<GROSS-OPERATING-REVENUE> 29,785,997
<INCOME-TAX-EXPENSE> 1,916,369
<OTHER-OPERATING-EXPENSES> 25,287,624
<TOTAL-OPERATING-EXPENSES> 27,203,993
<OPERATING-INCOME-LOSS> 2,582,004
<OTHER-INCOME-NET> 417,886
<INCOME-BEFORE-INTEREST-EXPEN> 2,999,890
<TOTAL-INTEREST-EXPENSE> 940,460
<NET-INCOME> 2,059,430
0
<EARNINGS-AVAILABLE-FOR-COMM> 5,535,272
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 7,391,178
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
</TABLE>
