<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, 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
"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 31,1999
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Common stock,par value of $.83 1\3 2,194,362 shares
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FALL RIVER GAS COMPANY
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part. I. Financial Position
Consolidated Condensed Balance Sheets -
March 31, 1999 and September 30, 1998 1
Consolidated Condensed Statements of Income -
and Retained Earnings
Three and Six Months Ended March 31, 1999 and 1998 2
Consolidated Statements of Cash Flows -
Six Months Ended March 31, 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>
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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>
Unaudited
MARCH 31, SEPTEMBER 30,
ASSETS 1999 1998
-------------- -------------------------- --------------------------
<S> <C> <C>
Gas Plant, at original cost $61,301,857 $60,448,647
less accumulated depreciation 22,180,321 20,798,948
-------------------------- --------------------------
39,121,536 39,649,699
-------------------------- --------------------------
Rental Property 6,239,101 6,288,100
less accumulated depreciation 1,987,314 2,040,105
-------------------------- --------------------------
4,251,787 4,247,995
-------------------------- --------------------------
Current Assets:
Cash 420,595 356,005
Accounts receivable, less allowance for
doubtful accounts of $1,482,275 as of
3/31/99 and $957,149 as of 9/30/98 7,205,654 1,807,487
Inventories, at average cost
Liquefied natural gas and propane 2,354,730 3,148,311
Materials and Supplies 1,250,197 1,273,772
Purchased gas costs deferred 785,509 3,617,512
Prepaid and Deferred Taxes 0 401,160
Prepayments and Other 722,993 665,243
-------------------------- --------------------------
12,739,678 11,269,490
-------------------------- --------------------------
Deferred Charges:
Regulatory Asset 397,662 453,471
Other 0 18,885
-------------------------- --------------------------
397,662 472,356
-------------------------- --------------------------
$56,510,663 $55,639,540
-------------------------- --------------------------
-------------------------- --------------------------
</TABLE>
<TABLE>
STOCKHOLDERS' INVESTMENT AND LIABILITIES
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<S> <C> <C>
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 5,024,758 4,954,532
Retained earnings ($6,865,648 restricted
against payment of cash dividends as
of 3/31/99 and as of 9/30/98) 12,230,447 10,672,783
-------------------------- --------------------------
19,089,650 17,461,760
Less Treasury stock, at cost (4,051 shares
as of 3/31/99 and 9,326 shares as of 9/30/98) 13,659 31,443
-------------------------- --------------------------
19,075,991 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 38,575,991 36,930,317
-------------------------- --------------------------
CURRENT LIABILITIES:
Notes payable to banks 4,300,000 5,100,000
Dividends Payable 0 526,173
Accounts Payable 2,288,586 3,074,673
Accrued taxes 521,586 0
Other 2,613,070 2,214,022
-------------------------- --------------------------
9,723,242 10,914,868
-------------------------- --------------------------
DEFERRED CREDITS:
Accumulated deferred income taxes 4,462,626 4,462,626
Unamortized investment tax credits 463,311 485,453
Regulatory Liability 455,560 455,560
Other 2,829,933 2,390,716
-------------------------- --------------------------
8,211,430 7,794,355
-------------------------- --------------------------
$56,510,663 $55,639,540
-------------------------- --------------------------
-------------------------- --------------------------
See accompanying notes to consolidated condensed financial statements.
</TABLE>
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>
Unaudited Unaudited
Three Months Ended Six Months Ended
March 31 March 31
------------------------------- ---------------------------------
1999 1998 1999 1998
-------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
GAS OPERATING REVENUES $20,259,752 $18,513,220 $30,754,820 $29,785,997
-------------- -------------- ---------------- --------------
OPERATING EXPENSES
Cost of gas sold 11,866,472 10,514,532 17,511,411 16,551,218
Other operation 3,410,617 3,351,671 6,546,307 6,477,695
Maintenance 384,151 379,783 733,449 764,237
Depreciation 1,081,876 1,046,360 1,548,446 1,494,474
Local Property and Other 656,439 614,553 1,003,780 929,320
Federal and State income taxes 925,576 815,617 967,768 987,049
-------------- -------------- ---------------- --------------
Total operating expenses 18,325,131 16,722,516 28,311,161 27,203,993
-------------- -------------- ---------------- --------------
OPERATING INCOME $1,934,621 $1,790,704 $2,443,659 $2,582,004
OTHER INCOME:
Earnings of Fall River Gas Appliance
Company, Inc. (a wholly-owned subsidiary) 226,394 170,614 467,494 411,335
Other 135 2,068 5,140 6,551
-------------- -------------- ---------------- --------------
INCOME BEFORE INTEREST EXPENSE 2,161,150 1,963,386 2,916,293 2,999,890
-------------- -------------- ---------------- --------------
INTEREST EXPENSE AND OTHER:
Long-term debt 401,825 401,825 803,650 731,250
Other 15,965 49,998 28,260 209,210
-------------- -------------- ---------------- --------------
417,790 451,823 831,910 940,460
-------------- -------------- ---------------- --------------
NET INCOME $1,743,360 $1,511,563 $2,084,383 $2,059,430
RETAINED EARNINGS - BEGINNING OF PERIOD $11,013,808 $11,241,176 $10,672,783 $10,693,309
ADD - Dividends declared 0 0 526,173 511,656
DEDUCT - Dividends paid 526,721 524,154 1,052,892 1,035,810
-------------- -------------- ---------------- --------------
RETAINED EARNINGS - END OF PERIOD
($6,865,648 restricted against payment of
cash dividends as of 3/31/99 and 3/31/98 $12,230,447 $12,228,585 $12,230,447 $12,228,585
-------------- -------------- ---------------- --------------
-------------- -------------- ---------------- --------------
BASIC EARNINGS PER SHARE 0.79 0.69 0.95 0.98
-------------- -------------- ---------------- --------------
-------------- -------------- ---------------- --------------
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,195,585 2,184,947 2,194,362 2,102,760
CASH DIVIDEND PAID PER COMMON SHARE 0.24 0.24 0.48 0.48
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</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
Six Months Ended
March 31
----------------------
1999 1998
<S> <C> <C>
Cash Provided by (used for)
Operating Activities:
Net income $2,084,383 $2,059,430
Items not requiring (providing) cash:
Depreciation 1,785,775 1,722,011
Amortization of Investment Tax Credit (22,142) (22,142)
Change in working capital (1,252,997) (1,690,506)
Other sources, net 467,187 582,506
-------------- --------------
Net cash provided by
operating activities 3,062,206 2,651,299
-------------- --------------
Investing Activities:
Additions to utility property, plant and equipment (1,001,884) (1,146,983)
Additions to nonutility property (230,850) (353,609)
-------------- --------------
Net cash used by investing activities (1,232,734) (1,500,592)
-------------- --------------
Financing activities:
Cash dividends on common stock (1,052,892) (1,035,810)
Common stock transactions 88,010 4,739,879
Proceeds from long-term debt issue 0 6,000,000
Decrease in notes payable to banks, net (800,000) (10,600,000)
-------------- --------------
Net cash used for
financing activities (1,764,882) (895,931)
-------------- --------------
Increase (Decrease) in cash 64,590 254,776
Cash, beginning of period 356,005 329,400
-------------- --------------
Cash, end of period $420,595 $584,176
-------------- --------------
-------------- --------------
Changes in Components of Working Capital
(excluding cash)
(Increase) decrease in current assets:
Accounts receivable (5,398,167) (4,565,661)
Inventories 817,156 1,407,606
Prepayments and other (39,697) (55,052)
Deferred gas cost 2,832,003 685,263
Prepaid and Deferred Taxes 401,160 990,515
Increase (decrease) in current liabilities:
Accounts payable (786,087) (958,608)
Accrued taxes 521,586 333,434
Other 399,049 471,997
-------------- --------------
Change in Working Capital ($1,252,997) ($1,690,506)
-------------- --------------
-------------- --------------
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest 950,442 883,135
Income taxes 620,792 478,765
</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 1999 was $1,743,400 or
$0.79 per average share as compared with earnings of $1,511,600 or $0.69 for the
second quarter in fiscal 1998. Earnings for this period was positively impacted
by colder temperatures compared to the identical period in 1998. Net income for
the six months ended March 31, 1999 was $2,084,383 with earnings per average
share at $0.95 compared to net income of $2,059,430 and earnings per average
share of $0.98 for the same period in 1998. For the six month comparison, the
Company experienced warmer temperatures.
During the second quarter of 1999 colder weather in which effective
degree days rose 8.8% from 2,724 in 1998 to 2,964 in 1999 positively impacted
firm sales. Firm sales volumes increased 4.0%, from 2,416,500 MCF in 1998 to
2,506,400 MCF in 1999. Operating revenues for the three months ended March 31,
1999 increased $1,746,500 to $20,259,700 from $18,513,200 in 1998. Of this
increase of $1,746,500, $1,419,900 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 six months ended March 31, 1999
increased $968,800, 3.3%, from $29,786,000 in 1998 to $30,754,800 in 1999.
With the warmer weather that the Company experienced during this period, in
which effective degree days fell 1.4% from 4,983 in 1998 to 4,911 in 1999,
total sales volumes decreased by 1.2% from 4,728,800 Mcf to 4,680,800 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 six month comparisons reflected a 4.3% increase from $26,217,000 to
$27,343,400 an increase of $1,126,400. The most significant operation expense -
cost of gas sold - increased by $960,200 for the six 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 $68,600, 1.1% higher than the comparable period in 1998.
Operating expenses, excluding federal and state income taxes, for the
three month comparison increased 9.4% from $15,906,900 in 1998 to $17,399,600 in
1999, an increase of $1,492,700. The most significant operation expense - cost
of gas sold - increased by $1,351,900 for the three month comparison mainly due
to the higher CGA decimal being charged to our firm customers and increased
volumes of purchased gas. Other operation expenses including health benefits,
payroll, and materials and supplies have increased by $58,900, 1.8% higher than
the comparable period in 1998.
Interest expense decreased by $108,600, 11.5%, for the six month
comparison and $34,000, 7.5% 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
4
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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, 1999, capital expenditures totaled approximately
$1,081,000.
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 diluted earnings per
share.
The "Year 2000" Issue
5
<PAGE>
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. These systems are currently capable of processing
the year 2000, or are in the process of being upgraded or replaced by systems
that are similarly capable. All necessary program modifications and system
upgrades and testing are expected to be completed by the year 2000. 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 is currently
assessing year 2000 issues with material third parties. Except for the Company's
major pipeline supplier, who has provided assurance of compliance, the Company
has not determined the level of third-party risk. Preparation of a contingency
plan is in process and is expected to be finalized during fiscal year 1999.
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 six month periods ending March 31,
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 March 31, 1999 and 1998, 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, 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 May 12, 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 MARCH 31,
1999
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 420,595
<SECURITIES> 0
<RECEIVABLES> 8,687,929
<ALLOWANCES> (1,482,275)
<INVENTORY> 3,604,927
<CURRENT-ASSETS> 1,906,164
<PP&E> 67,540,958
<DEPRECIATION> (24,167,635)
<TOTAL-ASSETS> 56,510,663
<CURRENT-LIABILITIES> 17,921,013
<BONDS> 19,500,000
0
0
<COMMON> 1,834,445
<OTHER-SE> 17,255,205
<TOTAL-LIABILITY-AND-EQUITY> 56,510,663
<SALES> 30,754,820
<TOTAL-REVENUES> 31,227,454
<CGS> 17,511,411
<TOTAL-COSTS> 8,828,202
<OTHER-EXPENSES> 1,003,780
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 831,910
<INCOME-PRETAX> 4,055,931
<INCOME-TAX> 967,768
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,084,383
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
