<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, 1999 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, 1999
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Common stock, par value of $.83 1\3 2,195,686 shares
<PAGE>
FALL RIVER GAS COMPANY
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I. Financial Position
Consolidated Condensed Balance Sheets -
June 30, 1999 and September 30, 1998 1
Consolidated Condensed Statements of Income
and Retained Earnings
Three and Nine Months Ended June 30, 1999 and 1998 2
Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 1999 and 1998 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>
<PAGE>
PART I. FINANCIAL INFORMATION
FALL RIVER GAS COMPANY AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
ASSETS June 30, September 30,
------ 1999 1998
----------- -----------
<S> <C> <C>
Gas Plant, at original cost $61,788,620 $60,448,647
less accumulated depreciation 22,532,635 20,798,948
----------- -----------
39,255,985 39,649,699
----------- -----------
Rental Property 6,162,558 6,288,100
less accumulated depreciation 1,977,236 2,040,105
----------- -----------
4,185,322 4,247,995
----------- -----------
Current Assets:
Cash 468,664 356,005
Accounts receivable, less
allowance for doubtful
accounts of $1,409,093 as of
6/30/99 and $957,149 as of
9/30/98 2,300,264 1,807,487
Inventories, at average cost
Liquefied natural gas and propane 2,831,418 3,148,311
Materials and Supplies 1,362,561 1,273,772
Purchased gas costs deferred 1,091,913 3,617,512
Prepaid and Deferred Taxes 0 401,160
Prepayments and Other 724,770 665,243
----------- -----------
8,779,590 11,269,490
----------- -----------
Deferred Charges:
Regulatory Asset 369,757 453,471
Other 0 18,885
----------- -----------
369,757 472,356
----------- -----------
$52,590,654 $55,639,540
=========== ===========
STOCKHOLDERS' INVESTMENT AND LIABILITIES
- ----------------------------------------
CAPITALIZATION:
Stockholders' investment--
Common stock, par value $.83-1/3
par, 2,951,334 authorized and
2,201,334 shares issued $ 1,834,445 $ 1,834,445
Premium paid in on common stock 5,046,666 4,954,532
Retained earnings ($6,865,648
restricted against payment of
cash dividends as of 6/30/99
and as of 9/30/98) 11,357,256 10,672,783
----------- -----------
18,238,367 17,461,760
Less Treasury stock, at cost
(1,914 shares as of 6/30/99
and 9,326 shares as of 9/30/98) 6,454 31,443
----------- -----------
18,231,913 17,430,317
----------- -----------
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 6,000,000
----------- -----------
19,500,000 19,500,000
----------- -----------
Total capitalization 37,731,913 36,930,317
----------- -----------
CURRENT LIABILITIES:
Notes payable to banks 1,700,000 5,100,000
Dividends Payable 528,016 526,173
Accounts Payable 1,603,071 3,074,673
Accrued taxes 270,950 0
Other 2,721,561 2,214,022
----------- -----------
6,823,598 10,914,868
----------- -----------
DEFERRED CREDITS:
Accumulated deferred income taxes 4,462,626 4,462,626
Unamortized investment tax credits 452,240 485,453
Regulatory Liability 455,560 455,560
Other 2,664,717 2,390,716
----------- -----------
8,035,143 7,794,355
----------- -----------
$52,590,654 $55,639,540
=========== ===========
</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>
Unaudited Unaudited
Three Months Ended Nine Months Ended
June 30 June 30
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
GAS OPERATING REVENUES $ 7,909,572 $ 8,581,558 $38,664,392 $38,367,555
----------- ----------- ----------- -----------
OPERATING EXPENSES
Cost of gas sold 3,891,581 4,481,567 21,402,992 21,032,784
Other operation 2,582,658 2,606,537 9,128,965 9,084,231
Maintenance 386,752 342,910 1,120,201 1,107,146
Depreciation 424,092 410,189 1,972,538 1,904,663
Local Property and Other 342,576 322,325 1,346,356 1,251,645
Federal and State income taxes (57,450) (10,786) 910,318 976,263
----------- ----------- ----------- -----------
Total operating expenses 7,570,209 8,152,742 35,881,370 35,356,732
----------- ----------- ----------- -----------
OPERATING INCOME $ 339,363 $ 428,816 $ 2,783,022 $ 3,010,823
OTHER INCOME:
Earnings of Fall River Gas Appliance
Company, Inc. (a wholly-owned
subsidiary) 240,644 233,380 708,138 644,715
Other 10,777 8,262 15,917 14,813
----------- ----------- ----------- -----------
INCOME BEFORE INTEREST EXPENSE 590,784 670,458 3,507,077 3,670,351
----------- ----------- ----------- -----------
INTEREST EXPENSE AND OTHER:
Long-term debt 401,825 401,825 1,205,475 1,133,075
Other 6,696 19,358 34,956 228,568
----------- ----------- ----------- -----------
408,521 421,183 1,240,431 1,361,643
----------- ----------- ----------- -----------
NET INCOME $ 182,263 $ 249,275 $ 2,266,646 $ 2,308,708
RETAINED EARNINGS - BEGINNING OF PERIOD $12,230,447 $12,228,585 $10,672,783 $10,693,309
ADD - Dividends declared October 6,
1998 and September 30, 1997,
payable November 15, 1998 and 1997,
respectively 0 0 526,173 511,656
DEDUCT - Dividends paid on Common Stock 527,438 524,675 1,580,330 1,560,488
Declared Payable August 15, 1999 and
1998 528,016 525,584 528,016 525,584
----------- ----------- ----------- -----------
RETAINED EARNINGS - END OF PERIOD
($6,865,648 restricted against payment
of cash dividends as of 6/30/99 and
6/30/98) $11,357,256 $11,427,601 $11,357,256 $11,427,601
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE 0.08 0.11 1.03 1.08
=========== =========== =========== ===========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,198,335 2,187,706 2,195,686 2,131,076
CASH DIVIDEND PAID PER COMMON SHARE 0.24 0.24 0.72 0.72
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
FALL RIVER GAS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited
Nine Months Ended
June 30,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash Provided by (used for)
Operating Activities:
Net income $ 2,266,645 $ 2,308,708
Items not requiring (providing) cash:
Depreciation 2,369,369 2,232,823
Amortization of Investment Tax Credit (33,213) (33,213)
Change in working capital 1,940,264 1,260,491
Other sources, net 274,666 1,251,044
------------ ------------
Net cash provided by operating activities 6,817,731 7,019,853
------------ ------------
Investing Activities:
Additions to utility property,
plant and equipment (1,523,136) (1,688,230)
Additions to nonutility property (318,730) (424,272)
------------ ------------
Net cash used for investing activities (1,841,866) (2,112,502)
------------ ------------
Financing activities:
Cash dividends on common stock (1,580,329) (1,560,487)
Common stock transactions 117,123 4,792,850
Proceeds from long-term debt issue 0 6,000,000
Increase (Decrease) in notes payable to
banks, net (3,400,000) (14,000,000)
------------ ------------
Net cash used for financing activities (4,863,206) (4,767,637)
------------ ------------
Increase (Decrease) in cash 112,659 139,714
Cash, beginning of period 356,005 329,400
------------ ------------
Cash, end of period $ 468,664 $ 469,114
============ ============
Changes in Components of Working Capital
(excluding cash)
(Increase) decrease in current assets:
Accounts receivable (492,777) (780,422)
Inventories 228,104 721,667
Prepayments and other (28,710) (42,867)
Deferred gas cost 2,525,599 269,281
Prepaid and Deferred Taxes 401,160 990,515
Increase (decrease) in current liabilities:
Accounts payable (1,471,602) 93,219
Accrued taxes 270,950 98,955
Other 507,540 (89,857)
------------ ------------
Change in Working Capital $ 1,940,264 $ 1,260,491
============ ============
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest $ 1,173,408 $ 1,130,917
Income taxes 936,201 791,206
</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 1999 was $182,300 or $0.08
per average share as compared with earnings of $249,300 or $0.11 for the third
quarter in fiscal 1998. Earnings for this period was negatively impacted by
warmer temperatures compared to the identical period in 1998. Net income for the
nine months ended June 30, 1999 was $2,266,700 with earnings per average share
at $1.03 compared to net income of $2,308,700 and earnings per average share of
$1.08 for the same period in 1998. For the nine month comparison, the Company
experienced warmer temperatures.
During the third quarter of 1999 warmer weather in which effective
degree days dropped 6.2% from 790 in 1998 to 741 in 1999 negatively impacted
firm sales. Firm sales volumes decreased 3.7%, from 1,067,000 MCF in 1998 to
1,027,200 MCF in 1999. Operating revenues for the three months ended June 30,
1999 decreased $672,000 to $7,909,600 from $8,581,600 in 1998. Of this decrease
of $672,000, $621,000 was attributable to the Company's application of its Cost
of Gas Adjustment Clause (CGA). This clause, as approved by the Massachusetts
Department of Telecommunications and Energy (MDTE), allows the Company to
collect from or return to customers, changes in gas cost. Though the application
of this clause has positively impacted operating revenues, the matching of gas
cost has negated any affect on net income.
Gas operating revenues for the nine months ended June 30, 1999
increased $296,800, .8%, from $38,367,600 in 1998 to $38,664,400 in 1999. With
the warmer weather that the Company experienced during this period, in which
effective degree days fell 2.1% from 5,773 in 1998 to 5,652 in 1999, total sales
volumes decreased by .8% from 6,155,600 Mcf to 6,106,600 Mcf in 1999. The
increase of operating revenues is attributable to increased CGA revenues and
conservation program revenues, offset by slightly lower base revenues due to
warmer weather.
Total operating expenses, excluding federal and state income taxes, for
the nine month comparisons reflected a 1.7% increase from $34,380,500 to
$34,971,000 an increase of $590,500. The most significant operation expense -
cost of gas sold - increased by $370,200 for the nine month comparison mainly
due to the higher CGA decimal being charged to our firm customers. Other
operation expenses including health benefits, payroll, and materials and
supplies have increased by $44,700, .5% higher than the comparable period in
1998.
Operating expenses, excluding federal and state income taxes, for the
three month comparison decreased 6.6% from $8,163,500 in 1998 to $7,627,700 in
1999, a decrease of $535,800. The most significant operation expense - cost of
gas sold - decreased by $590,000 for the three month comparison mainly due to
the higher CGA decimal being charged to our firm customers. Other operation
expenses including health benefits, payroll, and materials and supplies have
increased by $23,900, .9% higher than the comparable period in 1998.
Interest expense decreased by $121,200, 8.9%, for the nine month
comparison and $12,700, 3.0% for the three month comparison as a result of
decreased short term borrowing due to an equity and debt 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
4
<PAGE>
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, 1999, capital expenditures totaled approximately
$1,602,000.
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.
The Company had no factors that would create diluded earnings per
share.
The "Year 2000" Issue
The Company has evaluated its principal computer systems and
noninformation technology systems including, but not limited to,
telecommunications systems, automated meter reading systems, SCADA, regulator
stations, plant remote control systems and security systems to determine
readiness for the year 2000. As of June 30, 1999, all principal systems have
been modified, upgraded or replaced to ensure year 2000 capability. All
principal systems are scheduled for testing to begin in August 1999 and to be
completed by November 1999.
5
<PAGE>
In addition, the Company has identified material third party
relationships and has distributed surveys to material third parties to ensure
that they are capable of being in compliance with the year 2000 issue. As of
June 30, 1999, the majority of surveyed third parties have provided assurance of
compliance, including the Company's major pipeline supplier. For any third
parties who are determined to be critical to the Company's operation, it will
develop contingency plans in the event of third party non-compliance.
Costs incurred to date and costs expected to be incurred to complete
the year 2000 readiness are not significant and will not have a material impact
on the Company's financial position or results of operations. The Company has
initiated the development of a contingency plan in the event that one or more of
its principal systems or material third party systems experience a year 2000
failure. The contingency plan is expected to be finalized by October 1999.
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 nine month periods ending June 30, 1999
and 1998 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, 1999 and 1998, and the results of
operations for the nine months ended and changes in financial position for
the nine months then ended. On an interim basis, the Company allocates
depreciation, property taxes and pension costs on a normal revenue curve to
better match costs with related revenues.
3. The Company had no shares of its common stock reserved for officers and
employees, options, warrants, conversions or other requirements at June 30,
1999.
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 August 15, 1999 Peter H. Thanas, Treasurer,
---------------- Chief Financial and
Accounting Officer
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet, Income Statement, and Cash Flow Statement for the month
ended June 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 468,664
<SECURITIES> 0
<RECEIVABLES> 3,709,357
<ALLOWANCES> (1,409,093)
<INVENTORY> 4,193,979
<CURRENT-ASSETS> 2,186,440
<PP&E> 67,951,178
<DEPRECIATION> (24,509,871)
<TOTAL-ASSETS> 52,590,654
<CURRENT-LIABILITIES> 14,852,287
<BONDS> 19,500,000
0
0
<COMMON> 1,834,445
<OTHER-SE> 16,403,932
<TOTAL-LIABILITY-AND-EQUITY> 52,590,654
<SALES> 38,664,392
<TOTAL-REVENUES> 39,388,447
<CGS> 21,402,992
<TOTAL-COSTS> 12,221,704
<OTHER-EXPENSES> 1,346,356
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,240,431
<INCOME-PRETAX> 4,523,320
<INCOME-TAX> 910,318
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,266,646
<EPS-BASIC> 1.03
<EPS-DILUTED> 1.03
</TABLE>
