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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 02720
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(Address or principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 675-7811
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Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
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NONE NONE
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Securities registered pursuant to Section 12 (g) of the Act:
Common Stock par value $.83 1/3 per share
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(Title of Class)
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 by check mark if disclosures of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by references in Part III of this Form 10-K
or any amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant (1,500,701) shares was $32,265,072 as of December 15, 1995 of
$21.50.
Indicate the number of shares outstanding of each of the Registrant's
classes of the latest practicable date.
Class Outstanding at December 15, 1995
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Common Stock, $.83 1/3 par value 1,780,542
Documents incorporated by reference:
Annual Report to security holders for the fiscal year ended September 30,
1995 (Part II)
Definitive Proxy Statement dated December 21, 1995 (Part III)
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FALL RIVER GAS COMPANY
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1995 FORM 10-K ANNUAL REPORT
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Table of Contents
PART I
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Page
Item 1. Business 3
Item 2. Properties 17
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters 19
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 8. Financial Statements and Supplementary Data 25
Item 9. Disagreements on Accounting and Financial Disclosure 34
PART III
Item 10. Directors and Executive Officers of the Registrant 34
Item 11. Management Remuneration and Transactions 35
Item 12. Security Ownership of Certain Beneficial Owners and
Management 35
Item 13. Certain Relationships and Related Transactions 35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
of Form 8-K 37
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PART I
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ITEM 1. Business
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General
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Fall River Gas Company ("Registrant"), organized as a Massachusetts
corporation on September 25, 1880, is an investor-owned public utility company
that sells, distributes and transports natural gas (mixed with propane and
liquefied natural gas during winter months) at retail through a pipeline
distribution system in the city of Fall River and the towns of Somerset,
Swansea and Westport, all located within the Commonwealth of Massachusetts.
The principal markets served by the Registrant are (1) residential customers
using gas for cooking and water heating, (2) industrial customers using gas for
processing items such as textile and metal goods, (3) commercial customers
using gas for cooking and heating, and (4) federal and state housing projects
using gas for heating, cooking and water heating. There have been no
significant changes in services rendered, markets served or methods of
distribution since the beginning of fiscal 1995.
The Registrant is engaged in only one line of business, as aforesaid,
and in activities incidental thereto. The Registrant has one wholly-owned
subsidiary, Fall River Gas Appliance Company, Inc., a Massachusetts
corporation, which rents water heaters and conversion burners (primarily for
residential use) in the city and towns in the Registrant's gas service area.
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No material expenditures were made during the fiscal year by the
Registrant or its wholly-owned subsidiary for research or development of new
products or services or for the improvement of existing products or services.
Competition
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Historically, the Registrant has not been subject to competition from
any other gas public utility or gas marketers, but rather only from
electricity, oil, coal, steam and other fuels for heating, water heating,
cooking, air conditioning and other purposes, including propane used by some
residential, commercial and industrial customers. As described below, however,
"gas on gas" competition does now exist. The principal considerations in the
competition between the Registrant and other suppliers of fuel or energy
include price, equipment operational efficiencies and ease of delivery. In
addition, the type of equipment already installed in the businesses and
residences significantly affects the customer's choice of fuel or energy
source.
The price of natural gas currently compares favorably to electricity
but is higher than fuel oil. Natural gas is slightly higher priced than oil for
certain commercial and industrial customers. As price is generally considered
the most significant factor affecting competition among the various energy
sources, there is always uncertainty in the continuing competition among such
energy sources. Equipment operational efficiencies and ease of delivery gives
natural gas advantages over oil and also makes natural gas comparable to
electricity in these respects. Because of
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natural gas' environmental advantages, efficiency and security of supply, the
demand for natural gas is expected to continue to increase and, thus,
natural gas will improve its competitive position relative to other fuels.
Also, manufacturing, processing and other equipment requirements are such that
the use of gas rather than another fuel, is virtually a necessity for certain
large consumers. Heating, water heating and other domestic or commercial
equipment is generally designed for a particular energy source, and especially
with respect to heating equipment, the cost of conversion is a disincentive for
individuals and businesses to change their energy source. Currently, the
Registrant estimates that its gas heating saturation in areas in which it has
been in active service is somewhat above 88%.
Over the past several years, some very significant developments have
occurred in the regulation of the natural gas industry, starting in October,
1985 when the Federal Regulatory Commission ("FERC") issued its Order 436 which
allowed for greater competition. These developments culminated in FERC's
issuance of its Order 636 in April, 1992, commonly known as "Order 636", which
substantially revised the regulation of interstate pipelines. FERC stated that
such action was necessary because of the significant changes in the gas
industry brought about by the institution of open-access transportation in 1985
(Order No. 436) and the passage by Congress of the Wellhead Decontrol Act of
1989 which eliminated price controls on wellhead sales. Order 636 was intended
to
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maximize consumer benefits of decontrol and competition at the wellhead and
establish a nationwide competitive gas market.
Order 636 mandated the unbundling of interstate pipeline sales and
transportation services and required pipelines to provide open-access
transportation on a basis equal in quality for all gas supplies whether
purchased from the pipeline or another seller. Order 636 also required access
to the pipelines' system storage, a capacity release program, changes in
pipelines' rate design, conditions for pregranted abandonment of services, and
the recovery of transition costs incurred by the pipelines. Moreover, Order 636
provided mechanisms permitting the interstate pipelines' customers, such as the
Registrant, to reduce the level of the firm services that they obtained from
such pipelines, as well as to "release" any excess capacity on a temporary or
permanent basis.
The pipelines serving the Registrant, the affiliated Algonquin Gas
Transmission Company ("Algonquin") and Texas Eastern Transmission Company
("Texas Eastern"), have made the required compliance filings of tariff sheets
and have fully implemented the provisions of Order 636 as required by Order
636. The primary related issue of the billing by Algonquin and Texas Eastern of
transition costs has been resolved, as discussed in greater detail below. The
Registrant has made appropriate arrangements for supplies to replace the sales
service formerly provided by Algonquin (such replacement supplies are
hereinafter referred to as "Conversion Supplies").
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The Registrant is required to obtain the approval of the
Massachusetts Department of Public Utilities ("MDPU") for gas supplies that are
to be purchased over a period in excess of one year, including any Conversion
Supplies. See "Gas Supply" below. Through its arrangements for the Conversion
Supplies, the Registrant has contracted for a "city gate management service",
which includes the provision of transportation, sales and storage services by a
third party. The Registrant expects to maintain reliability and flexibility of
service through this arrangement at a cost very competitive with any other
combination of unbundled services, but with much less administrative risk and
costs than would pertain to alternatives. The Registrant filed a request for
approval by the MDPU of its Conversion Supplies. In June 1995, the MDPU
approved the Registrant's contract for the bulk of Registrant's Conversion
Supplies from CNG Gas Services, Corp. in quantities described below. The
Registrant currently has short-term arrangements in place for the remainder of
its Conversion Supplies for the 1995-1996 heating season. The Registrant is
currently analyzing the proper amount of such supply for future years and
expects to enter appropriate contracts before the 1996-1997 heating season.
Overall, the Registrant's customers should benefit over the long-term
from the industry restructuring. However, during the near term, the Registrant
has been subject to the pass-through of
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additional costs from Algonquin and Texas Eastern associated with required rate
design revisions and transition costs incurred in fully implementing Order No.
636. As a direct result of the implementation of Order 636, the Registrant,
like most other local distribution companies, has incurred transition costs,
including the former pipeline company suppliers' costs of restructuring gas
supply contracts, costs of facilities that were supporting the gas sales
function and that are no longer used and useful for transportation-only
services, certain unrecovered gas costs and various miscellaneous other costs
related to restructuring. The Registrant has recovered such costs on an "as
incurred" basis through its rates, as permitted by the MDPU. See "Rates and
Regulation" below. All Algonquin transition costs have been billed to the
Registrant and collected from end-users. In addition, Texas Eastern transition
costs will be incurred on a volumetric basis over the next eight years.
Further, the Registrant will be required to incur additional regulatory and
legal expenses related to the negotiation and filing for approval of new gas
supply contracts from time to time. Additional staffing and expenditures may be
necessary to upgrade the Registrant's gas dispatch center's computer equipment
and software. The Registrant will continue to seek secure long-term supplies
for its customers while taking advantage of a competitive wellhead gas market
whose supply can eventually be moved freely through a national gas pipeline
system.
At the same time, however, the Registrant notes that the
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implementation of Order 636 has increased the potential for competition in gas
procurement, supply and sales. FERC's actions have sought to encourage
competition and natural gas market efficiency through deregulation and
"unbundling" of services at the interstate pipeline level. This unbundling has
changes the historical relationships of the natural gas industry, whereby
producers sold to pipelines, pipelines sold to local distribution companies
("LDCs"), such as the Registrant, and LDCs sold to end-users. Now, LDCs or
end-users may utilize pipeline services for purchases, or simply for the
transportation of gas purchased from third parties.
Consequently, while the Registrant has been subject to competition
from electricity, oil, propane, coal and other fuels, the regulatory changes
brought about by Order 636 have created the potential for competition among
existing and new suppliers or brokers of natural gas. As a result,
opportunities may arise for others to sell natural gas or provide brokerage
service to end-users to whom the Registrant might otherwise make sales or
otherwise arrange for transport service. Large volume end-users are most likely
to be the primary targets for third parties seeking to make such sales. If
third parties do, in fact, provide a substantial volume of sales or brokerage
services to end-users located within the Registrant's service territory, and
the Registrant does not increase its sales to other end-users, then the
Registrant would have a smaller sales base across which it can
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allocate fixed costs. That in turn could necessitate further requests for rate
relief, thereby affecting the Company's competitive position. At the current
time, however, only three third-party sales are occurring in the
Registrant's service territory, but the level of margins for the transportation
services the Registrant provides in connection with those sales by third
parties are almost as much as the margins the Registrant obtained from its
former sales to the same end-users. In certain cases, the Registrant has been
able to meet competitive challenges by offering special contracts, under which
sales are made at a price discounted from that of firm sales tariffs. Similar
opportunities may exist for the Registrant to broker gas to new or existing
customers, whether or not located within the Registrant's service territory.
For all of these reasons, the Registrant believes that competition
from other fuel sources, as well as from natural gas brokers, marketers and
other LDC's, will intensify in the future.
Rates and Regulations
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The Registrant is subject to the regulatory authority of the MDPU
with respect to various matters, including rates, financings, certain gas
supply contracts and planning and safety matters.
The Registrant's principal sale rate classifications are residential,
commercial and industrial. It also provides transportation service and service
under special contracts. The Registrant's rate structure is based on the cost
of providing
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service to each customer class. By orders dated July 19 and October 28, 1991,
the MDPU authorized the Registrant to increase its rates for sales of gas
effective November 1, 1991. The amount of this increase on an annualized basis
was $2,700,000.
The Registrant's firm rate structure is based on seasonal rates,
whereby base rates are higher in the winter (November through April) and lower
in the summer (May through October). In addition to its base rates, the
Registrant has a seasonal cost of gas adjustment rate schedule (the "CGA"),
which provides for the recovery, from firm customers, of purchased gas costs
not collected through base rates, i.e., generally costs relating to contract
demand charges. Through the CGA, the Registrant imposes charges, subject to
MDPU approval, that are estimated semi-annually and include credits for gas
pipeline refunds and profit margins applicable to interruptible sales. Actual
gas costs are reconciled annually and any differences are included as an
adjustment in the calculation of the decimals for the two subsequent six-month
periods.
Charges under the CGA rate schedule are added to the base rates, and
are designed to recover higher gas costs in the winter and refund lower gas
costs in the summer. See "Seasonal Nature of Business" below.
The Registrant is collecting FERC Order 636 transition costs from its
customers through the CGA as permitted by the MDPU.
Consistent with state policy, the Registrant has developed proposals
for demand-side management ("DSM"), (e.g., conservation). These proposals
recently have been approved by the
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MDPU, including a mechanism for recovery of lost margins associated with
DSM-induced reductions in sales and an incentive tied to documentable energy
savings from DSM efforts. After issuing a request for proposals and obtaining
several credible bids, the Registrant entered a contract, under which a third
party will provide the bulk of the services necessary for the implementation of
the Registrant's DSM program. Subject to the MDPU's review for reasonableness,
costs of these programs are also recoverable through the CGA.
The MDPU and the Massachusetts Energy Facilities Siting Council (now
known as the Massachusetts Energy Facilities Board, or "EFSB") were merged in
1992. The EFSB is now a division of the MDPU. Periodically, the Registrant is
required to file a long-term forecast of expected demand for its gas service.
The Registrant filed a long-range forecast with the EFSB on June 19, 1992.
Currently, the forecast filing is pending before the MDPU. In connection with
its efforts to arrange for a smaller portion of its long-term gas supply, in
addition to the supply from CNG Gas Services Corp. that is described above, the
Registrant is currently in the process of updating the long-range forecast
filed with the EFSB in 1992 and plans to file such forecast update upon its
completion.
The regulation of prices, terms and conditions of interstate pipeline
transportation and sales of natural gas is
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subject to the jurisdiction of FERC. Although the Registrant is not under the
direct jurisdiction of FERC, the Registrant monitors, and periodically
participates in, proceedings before FERC that affect the Registrant's pipeline
gas suppliers or transporters, the Registrant's operations and other matters
pertinent to the Registrant's business.
The Registrant is also subject to standards prescribed by the
Secretary of Transportation under the Natural Gas Pipeline Safety Act of 1968
with respect to the design, installation, testing, construction and maintenance
of pipeline facilities. The enforcement of these standards has been delegated
to the MDPU, which has taken an active role in such enforcement, including the
application of civil penalties and the requirement of remedial programs.
Seasonal Nature of Business
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The Registrant's business has distinct seasonal quality to it,
resulting from such a large percentage of its sendout going to serve
residential and commercial heating loads. Operating revenues from the sale of
natural gas reflect the seasonal nature of the business to the extent that such
revenues are affected by temperature variations between the heating and
non-heating seasons. See "Rates and Regulation" above.
Environmental Matters
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In January 1990 the Registrant notification from the Massachusetts
Department of Environmental Protection ("DEP") that
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it is one of numerous "potentially responsible parties" under Massachusetts
laws in connection with two sites in Massachusetts which were the subject of
alleged releases of hazardous materials, including lead, by a company which had
purchased scrap meters from various utilities including the Registrant. The
Registrant has entered into an agreement with a group of other potentially
responsible parties ("Group") to respond jointly and to share costs associated
with the DEP's investigation. The Group has negotiated an agreement in
principal with the DEP to conduct limited response actions at one of the sites
without admission of liability at an estimated cost of under $100,000, pursuant
to which the Registrant and other Group companies would be released from any
further liability at the site. Remedial actions were commenced September 5,
1995 and are substantially complete, subject to a final filing with DEP by the
Group and DEP's approval of the action taken. The investigation of the second
site is in the early stages and the cost to clean up at the second site and the
Registrant's degree of responsibility has not been determined. The Registrant
does not expect its allocated share of response actions at the first site or of
any response actions which it may take or which may be required at the second
site to be significant.
Gas Supply
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With the advent of FERC Order 636, which was implemented on June, 1,
1993, the Registrant assumed the full responsibility for aggregating, gathering
and arranging for the transmission of
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all required long line gas supplies to its city gate.
Order 636 called for the unbundling of commodity components from the
transportation or capacity components of gas service. Order 636 further called
for the unbundling of storage capacity and pipeline transportation capacity
related to such storage to yield totally separate services.
The Registrant has contracted with CNG Gas Services Corporation
("CNG")-for required services as follows:
A. Purchase of all long line commodity supplies for city gate delivery.
B. Purchase of commodity for injection into storage for future city
gate delivery.
C. Gathering and balancing of supply and deliveries in the producing
or production areas.
D. Management of capacity owned by Registrant on Eastern and Algonquin
Gas Transmission systems to facilitate efficient and cost effective
delivery of purchased commodity.
E. Management of Registrant controlled storage field capacity and
transportation per Registrant's directives.
F. Provision for Appalachian back-up commodity deliveries for up to
70% of long line contractual obligation in the event of curtailment
in the producing area or on Texas Eastern's system.
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G. Contract deliveries provide for the following:
Annual
Contract
Contract Type MDQ Quantity Availability
- ------------- --- -------- ------------
Firm Contract
(F-1, F-4, CD-1) 17,641 5,219,255 365 days
Storage Supplement
to F-1 (Firm)
SS-1 9,114 641,735 365 days (1)
FSS-1 327 19,620 365 days
STB 2,000 180,000 365 days
<FN>
(1) 7,124 of total MDQ available to city gate from 11/16
thru 4/15 as winter service supplies delivered via Algonquin.
The remainder of the MDQ is available at the city gate each day of
the year.
All commodity deliveries made under the above contract types are
priced at 100% of market index. This type of pricing mechanism assures that the
supplies delivered will be as competitive as is possible in today's volatile
market.
The Registrant has negotiated into the CNG supply contract a
mechanism whereby alternative market indices may be used in conjunction with
the futures market to fix the price of all or part of the portfolio if the
market is such that additional price security is deemed prudent.
The term of the CNG contract commenced on June 1, 1993 and continues
for six (6) years. The MDPU has approved the CNG contract.
In addition to the supplemental gas supplies described below, the
Registrant has a need for a supply of approximately 755,000 mmbtu during the
1995-1996 heating season (November through March).
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To fulfill this portion of its supply portfolio, the Registrant has obtained
bids from several potential suppliers and has entered a supply contract
with a term encompassing that period with Distrigas of Massachusetts
Corporation.
The Registrant has a renewable one-year Firm Liquid Contract with
Distrigas of Massachusetts Corporation for 150,000 MMBTU of liquefied natural
gas ("LNG"), to be delivered by truck to the Registrant's storage tank for use
in "peak shaving" operations which supplement pipeline volumes in peak
requirement situations.
In addition to the LNG peak shaving facilities, the Registrant also
maintains storage and sendout facilities for liquefied propane gas ("LPG") that
provide an additional 88,000 MMBTU of sendout capacity when needed.
The Registrant has a contract in force with the Bay State Gas Company
of Massachusetts to provide an additional "Winter Service" delivery in the form
of vapor displacement or, at Fall River's option, liquid delivery. Deliveries
are made from November through March in each year.
The contract provisions are:
Firm Annual Option Total
Contract Quantity Volume Available
----------------- ------ ---------
311,000 MMBTU 114,000 MMBTU 425,000 MMBTU
This contract expires in October 1996.
ITEM 2. Properties
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The Registrant has approximately 635 miles of distribution mains, the
major portion of which are constructed of coated steel, plastic or cast iron.
The Registrant owns and operates vaporizing
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equipment with an approximate daily capacity of 14,000 MCF and six LNG storage
tanks with a total capacity of approximately 320,000 gallons. The Registrant
also owns and operates an LNG storage tank with a capacity of 45,000 barrels
equivalent to approximately 157,000 MCF of vaporized gas, as well as and LNG
vaporization equipment with a daily vaporization rate of approximately 21,000
MCF. The Registrant has three gate stations receiving gas from the Algonquin
pipeline.
All of the principal properties of the Registrant are owned in fee,
subject to the lien of the mortgage securing the Registrant's First Mortgage
Bonds, and further subject to covenants, restrictions, easements, leases,
right-of-way and other similar minor encumbrances common to properties of
comparable size and character, and none of which, in the opinion of the
Registrant's management, materially interferes with the Registrant's use of its
properties for the conduct of its business. The Registrant's gas mains are
primarily located under public highways and streets. Where they are under
private property, the Registrant has obtained easements or rights-of-way from
the record holders of title. These easements and rights are deemed by the
Registrant to be adequate for the purpose for which they are being used.
ITEM 3. Legal Proceedings
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See Item 1. See Business-Environmental Matters above for a discussion
of potentially material legal proceedings.
ITEM 4. Submission of Matters To A Vote Of Security Holders
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Not applicable.
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PART II
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ITEM 5. Market For The Registrant's Common Stock And Related Stock-Holders
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Matters
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(a) Common Stock Quotations
(OTC market)
3 Months
Ended 9/30/95 6/30/95 3/31/95 12/31/94 9/30/94 6/30/94 3/31/94 12/31/93
(See Note)
High 25 25 25-1/2 25-3/4 25-1/2 24-3/4 22-1/2 20
Low 24 25 25 25-1/4 24-5/8 23 20 18
National Quotation Bureau
Because of the infrequency of trading of the Registrant's Common Stock,
such quotations may reflect inter-dealer prices, not actual transactions.
(b) Number of Stockholders at September 30, 1995 is 866.
(c) Dividends:
1995 1994
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November 15, 1994 - $.24 November 15, 1993 - $.24
February 15, 1995 - .24 February 15, 1994 - .24
May 15, 1995 - .24 May 15, 1994 - .26
August 15, 1995 - .24 August 15, 1994 - .24
<FN>
Note: Dividends prior to 12/31/93 adjusted to reflect 2 for 1 stock split.
As of September 30, 1995 the Registrant had retained earnings totalling
$11,149,260 of which $4,374,576 was restricted against payment of cash
dividends under the terms of the Registrant's Indenture of Trust.
ITEM 6. Selected Financial Data
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The following table summarizes certain consolidated financial data and is
qualified in its entirety by the more detailed Consolidated Financial
Statements included herein.
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SELECTED FINANCIAL DATA
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Twelve Months Nine Months Twelve Months
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1995 1994 1993 1992 1991
----------- ------------- ----------- ----------- ------------
Net Operating Revenues........ $44,418,114 $48,330,933 $44,818,763 $36,047,493 $41,704,063
Operating Expenses,
Other than
Income Taxes............. 41,641,929 44,564,940 40,932,252 33,082,762 39,923,856
Interest Expense.............. 1,460,927 1,101,280 1,242,756 948,168 1,361,212
Net Income.................... 1,616,206 2,491,100 2,352,360 1,819,882 986,845
Earnings per
Common Share (Note 2)... $.91 $1.40 $1.32 $1.02 $.55
Cash Dividend per
Common Share (Note 2)... $.96 $.98 $.97 $.92 $.92
Total Assets................... $51,357,772 $49,625,842 $46,501,414 $38,263,167 $45,498,157
Long-term Debt
(excluding current
maturities).............. $ 6,500,000 $ 7,380,000 $ 7,560,000 $ 7,680,000 $ 7,740,000
<FN>
NOTE: The Company changed its year end from December 31 to September 30
effective September 30, 1992. The amounts shown in 1992 are as of September 30,
1992 and the nine months ended September 30, 1992.
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ITEM 7. Management's Discussion And Analysis Of Financial Condition And
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Results Of Operations
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OVERVIEW
The Company's sales are largely influenced by changes in temperature as
the majority of its customers use natural gas for heating purposes. The Company
measures weather through the use of effective degree days. An effective degree
day is calculated by subtracting the average temperature for the day, adjusted
for wind and cloud cover, from 65 degrees Fahrenheit.
1995 1994 1993
---- ---- ----
Degree days............. 5,674 6,187 6,149
Percent colder (warmer). (8.3%) 0.6%
from prior year
20 year average......... 5,985
Earnings per common share for fiscal 1995 was $0.91 compared with $1.40
per common share in fiscal 1994 and $1.32 per common share in fiscal 1993.
Fiscal 1995 net income was $1,616,200, compared to $2,491,100 and $2,352,400 in
fiscal years 1994 and 1993, respectively.
RESULTS OF OPERATION
Fiscal 1995 versus Fiscal 1994
In fiscal 1995 operating revenues totalled $44,418,100, and 8.1 percent
decrease from fiscal 1994. Revenues from sales to firm customers decreased 8.5
percent from the prior fiscal year as a result of a $3,962,200 reduction in the
gas costs recovered through the Company's Cost of Adjustment Clause (CGAC) and
decreased gas sales. All changes in the price of fuel to serve our firm
customer requirements are recovered through the CGAC.
Gas sales to firm and special contract customers were 6,004,900 Mcf in
fiscal 1995, a decrease of 8.5 percent from the prior year. The major factor
causing this decrease was warmer weather. As can be seen from the table above,
effective degree days were 8.3 percent warmer than the prior fiscal year.
During fiscal 1995 interruptible sales increased by 34 percent over the prior
year. The profits from these sales are flowed back to our firm customers
through the CGAC.
Cost of gas sold includes costs for gas operation including supplemental
fuels, such as propane, liquefied natural gas and storage, which are used to
augment the Company's primary supply of natural gas in periods of peak usage.
The average cost of gas during fiscal 1995 was $4.17 per Mcf compared to $4.86
during the
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prior fiscal year. The decrease in gas costs is again primarily due to warmer
temperatures. Less supplemental sources were required to serve our customers.
Operations expenses decreased by 1.9 percent over fiscal 1994. Normal wage
increases and inflation in other areas were offset by decreases in the
Company's uncollectible expenses and the cost of health insurance.
Maintenance expense in fiscal 1995 was $1,994,400, an increase of 11.9
percent over the prior fiscal year. Expenses related to the Company's
distribution system are responsible for this increase.
Other income in fiscal 1995 was $772,400, a decrease of $42,500 from
fiscal 1994, a decrease of 5.5 percent. Earnings, net of taxes, of Fall River
Gas Appliance Company, Inc., the Company's wholly-owned subsidiary, were
$752,900 in fiscal 1995 and $799,300 in fiscal 1994, a decrease of 5.8 percent.
Earnings decreased as a result of fewer sales of appliances.
Interest expense in fiscal 1995 totalled $1,460,000, an increase of 32.7
percent over fiscal 1994. During the period our average daily balance of
short-term borrowing increased from $13,051,900 to $14,586,000 while weighted
average interest rose from 4.3 percent to 6.4 percent.
Fiscal 1994 versus Fiscal 1993
Operating revenues in fiscal 1994 totalled $48,330,900, an increase of 7.8
percent over fiscal 1993. Revenues from sales to firm customers increased 7.0
percent over the prior fiscal year as the result of increased billings through
the Company's CGAC. Billings through the CGAC were $30,382,900 in fiscal 1994
compared to $27,309,200 in fiscal 1993.
In fiscal 1994 firm gas sales volume was 6,486,000 Mcf compared to
6,504,000 in fiscal 1993. During fiscal 1994 the Company converted three high
use industrial customers to special contracts that had the effect of reducing
firm sales volume by 78,000 Mcf. The total volume of firm and special contract
sales were 1.0 percent higher than fiscal 1993, the result of slightly colder
weather.
Cost of gas sold includes the cost of fuel to serve our customers. The
average cost of gas was $4.86 in fiscal 1994 and $4.81 in fiscal 1993. In 1992
the Federal Regulatory Commission issued Order 636, which required the
unbundling of pipeline sales, storage, and transportation services. Cost of gas
sold includes a charge of $271,000 in fiscal 1994 and $2,734,000 in fiscal 1993
as transition costs relating to Order 636.
22
23
Other operations, excluding the cost of gas sold, increased 3.0 percent in
fiscal 1994. Wages and general inflation were primarily responsible for this
increase.
Other income was $814,900 in fiscal 1994 and $690,500 in fiscal 1993, an
increase of 18.1 percent. Earnings, net of tax, of Fall River Gas Appliance
Company, Inc. were $799,300 in fiscal 1994 and $682,900 in fiscal 1993, an
increase of 17.1 percent. Income improved primarily as a result of increases in
the rates charged for the rental of water heaters and conversion burners.
Interest expense totalled $1,101,300 in fiscal 1994 compared to $1,242,800
in fiscal 1993, a decrease of 11.4 percent. This decrease is the result of
lower outstanding balances, net of deferred gas cost, in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
Sales of natural gas are seasonal, generating approximately seventy
percent of its annual revenues between November 1 and March 31. Daily cash
requirements are met through internal generation and short-term borrowings
under the Company's lines of credit. Long-term financings and equity issues are
used to refinance short-term debt when deemed appropriate by management.
During fiscal 1995 gas cost billings were higher than the Company's cost
of gas, thereby having a positive cash flow of approximately $1.8 million. This
has also reduced our deferred gas cost balance from $4.6 million in fiscal
1994 to $2.8 million in fiscal 1995. Offsetting this positive cash generation
was an increase in federal and state taxes of approximately $2.1 million.
The Company's net cash generated from operating activities in fiscal 1995
was $5,507,200 compared to $6,783,600 and ($1,908,800) in fiscal years 1994 and
1993, respectively. Cash for investing activities in the amount of $4,883,400
in fiscal 1995, $4,303,100 in fiscal 1994 and $3,161,900 in fiscal 1993 was
used primarily for capital expenditures. In fiscal 1995 financing activities
used cash for the payment of dividends of $1,709,300 and the retirement of
long-term debt of $160,000, partially offsetting these uses was an increase in
short-term borrowing of $1,200,000.
Capital expenditures are primarily for the expansion and improvements in
the Company's distribution system. As is customary in the utility industry,
cash for construction requirements in excess of internally generated funds are
initially provided through short-term borrowing that is eventually funded with
permanent capital. At September 30, 1995 the Company had $7,100,000 of
available borrowings under its lines of credit.
Information on the sources and uses of cash for the past three years is
included in the Consolidated Statements of Cash Flows.
23
24
Report of Independent Public Accountants
To the Stockholders and Board of Directors of
Fall River Gas Company:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in Fall River Gas Company's Annual
Report to Stockholders, incorporated by reference in this Form 10-K, and have
issued our report thereon dated November 20, 1995. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the accompanying index is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/S/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 20, 1995
24
25
Item 8: Financial Statements and Supplementary Data
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------------
FALL RIVER GAS COMPANY AND SUBSIDIARY
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
1995 1994 1993
----------- ----------- -----------
GAS OPERATING REVENUES (Note 1)............. $44,418,114 $48,330,933 $44,818,763
----------- ----------- -----------
OPERATING EXPENSES:
Operations -
Cost of gas sold (Note 1)......... 28,097,557 31,161,990 28,052,672
Other............................. 8,998,223 9,170,829 8,901,574
Maintenance............................ 1,994,445 1,781,601 1,715,061
Depreciation (Note 1).................. 1,498,948 1,391,981 1,304,147
Taxes -
Local property and other.......... 1,052,756 1,058,539 958,798
Federal and state income (Note 4). 471,421 988,466 981,915
----------- ----------- -----------
42,113,350 45,553,406 41,914,167
----------- ----------- -----------
OPERATING INCOME............................ 2,304,764 2,777,527 2,904,596
OTHER INCOME (EXPENSE):
Earnings of Fall River Gas Appliance
Company, Inc. (Note 3)................. 752,913 799,326 682,904
Interest income........................ 15,059 15,944 19,794
Other.................................. 4,397 (417) (12,178)
----------- ----------- -----------
INCOME BEFORE INTEREST EXPENSE.............. 3,077,133 3,592,380 3,595,116
----------- ----------- -----------
INTEREST EXPENSE:
Long-term debt......................... 697,600 711,163 722,100
Other.................................. 763,327 390,117 520,656
----------- ----------- -----------
1,460,927 1,101,280 1,242,756
----------- ----------- -----------
NET INCOME.................................. $ 1,616,206 $ 2,491,100 $ 2,352,360
----------- ----------- -----------
NUMBER OF COMMON SHARES OUTSTANDING (Note 2) 1,780,542 1,780,542 1,780,542
=========== =========== ===========
EARNINGS PER SHARE (Note 2)................. $ 0.91 $ 1.40 $ 1.32
=========== =========== ===========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
- --------------------------------------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
1995 1994 1993
----------- ----------- -----------
BALANCE AT BEGINNING OF PERIOD.............. $11,242,375 $10,496,206 $ 9,862,069
Net Income.................................. 1,616,206 2,491,100 2,352,360
----------- ----------- -----------
Total.................................. 12,858,581 12,987,306 12,214,429
Dividends declared.......................... 1,709,321 1,744,931 1,718,223
----------- ----------- -----------
BALANCE AT END OF PERIOD.................... $11,149,260 $11,242,375 $10,496,206
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
25
26
Consolidated Balance Sheets
- ---------------------------
Fall River Gas Company and Subsidiary
September 30, 1995 and 1994
ASSETS
1995 1994
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at original cost:
Gas............................................ $52,770,211 $48,902,815
Nonutility, principally rented gas appliances.. 4,852,644 4,688,719
----------- -----------
57,622,855 53,591,534
Less-Accumulated depreciation (Note 1)......... 18,801,699 18,051,835
----------- -----------
38,821,156 35,539,699
CURRENT ASSETS:
Cash........................................... 315,309 360,818
Accounts receivable, less allowance for doubtful accounts
of $687,000 in 1995 and $702,000 in 1994...... 2,159,170 2,652,006
Inventories, at average cost-
Liquefied natural gas, propane, and natural gas
in storage................................... 2,754,655 2,906,789
Materials and supplies........................ 1,386,242 1,196,669
Deferred gas costs (Note 1).................... 2,808,882 4,596,819
Prepayments and other.......................... 510,001 437,127
----------- -----------
9,934,259 12,150,228
----------- -----------
DEFERRED CHARGES:
Regulatory asset (Note 7)...................... 527,025 343,290
Other.......................................... 1,674,067 1,592,625
----------- -----------
2,201,092 1,935,915
----------- -----------
$50,956,507 $49,625,842
=========== ===========
The accompanying notes are an integral part of these financial statements.
26
27
Consolidated Balance Steets(Con't)
- ----------------------------------
Fall River Gas Company and Subsidiary
September 30, 1995 and 1994
STOCKHOLDERS' INVESTMENT AND LIABILITIES
1995 1994
----------- -----------
CAPITALIZATION:
Stockholders' investment-
Common stock, par value $.83-1/3 per share,
2,201,334 shares authorized and issued
(Note 2)....................................... $ 1,834,445 $ 1,834,445
Premium paid in on common stock.................. 1,356,043 1,356,043
Retained earnings (Note 5)....................... 11,149,260 11,242,374
----------- -----------
14,339,748 14,432,862
Less-420,792 shares in 1995 and 1994 of common stock
held in treasury, at cost (Note 2)............... 1,418,743 1,418,743
----------- -----------
12,921,005 13,014,119
Long-term debt, less current sinking fund requirements
(Note 5)........................................... 6,500,000 7,380,000
----------- -----------
Total capitalization........................... 19,421,005 20,394,119
----------- -----------
CURRENT LIABILITIES:
Current sinking fund requirements (Note 5).......... 880,000 160,000
Notes payable to banks (Note 5)..................... 15,600,000 14,400,000
Dividends payable................................... 427,330 427,330
Accounts payable.................................... 3,585,300 3,273,833
Gas supplier refunds due customers.................. 1,367,969 1,130,603
Accrued taxes....................................... 838,617 1,499,233
Other............................................... 1,993,043 1,871,328
----------- -----------
24,692,259 22,762,327
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
DEFERRED CREDITS:
Accumulated deferred income taxes (Note 4).......... 3,905,117 3,630,933
Unamortized investment tax credits (Note 4)......... 605,653 643,702
Other............................................... 1,832,385 1,694,673
Regulatory liability (Note 4)....................... 500,088 500,088
----------- -----------
6,843,243 6,469,396
----------- -----------
$50,956,507 $49,625,842
=========== ===========
The accompanying notes are an integral part of these financial statements.
27
28
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------
FALL RIVER GAS COMPANY AND SUBSIDIARY
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
1995 1994 1993
---------- ---------- -----------
Cash Provided by (Used for)
Operating Activities:
Net Income....................................... $ 1,616,206 $ 2,491,100 $ 2,352,360
Items not requiring (providing) cash:
Depreciation................................... 1,695,854 1,587,278 1,513,745
Deferred income taxes.......................... 274,184 (734,131) 172,203
Investment tax credits, net.................... (38,049) (38,445) (41,028)
Change in working capital...................... 2,180,393 2,961,892 (5,987,492)
Other sources, net............................. (221,380) 515,933 81,364
----------- ----------- -----------
Net cash provided by (used for) operating
activities..................................... 5,507,208 6,783,627 (1,908,848)
----------- ----------- -----------
Investing Activities:
Additions to utility property, plant and equipment..... (4,294,225) (3,711,116) (2,687,235)
Additions to nonutility property....................... (589,172) (591,939) (474,631)
----------- ----------- -----------
Net cash used for investing activities .......... (4,883,397) (4,303,055) (3,161,866)
----------- ----------- -----------
Financing Activities:
Cash dividends paid on common stock.................... (1,709,320) (1,736,028) (1,709,321)
Retirement of long-term debt through sinking fund...... (160,000) (140,000) (120,000)
Increase (decrease) in notes payable to banks, net..... 1,200,000 (600,000) 7,050,000
----------- ----------- -----------
Net cash provided by (used for) financing
activities..................................... (669,320) (2,476,028) 5,220,679
Increase (decrease) in cash............................... (45,509) 4,544 149,965
Cash, beginning of period................................. 360,818 356,274 206,309
----------- ----------- -----------
Cash, end of period....................................... $ 315,309 $ 360,818 $ 356,274
=========== =========== ===========
Changes in Components of Working Capital (excluding cash):
(Increase) decrease in current assets:
Accounts receivable.................................. $ 492,836 $ (612,385) $15,583
Inventories.......................................... (37,438) 800,611 (1,763,764)
Prepayments and other................................ (72,874) (36,207) (51,459)
Deferred gas cost.................................... 1,787,937 (5,633) (5,172,312)
Increase (decrease) in current liabilities:
Accounts payable..................................... 311,467 1,168,353 608,977
Gas supplier refunds due customers................... 237,366 (390,890) 662,894
Accrued taxes........................................ (660,616) 1,499,233 (494,342)
Other................................................ 121,715 538,810 206,931
----------- ----------- -----------
Change in Working Capital................. $ 2,180,393 $ 2,961,892 $(5,987,492)
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest....................................... $ 1,695,329 $ 1,632,681 $ 1,248,569
Income taxes................................... 768,052 1,503,114 1,535,000
28
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Fall River Gas Company and Subsidiary
- -------------------------------------
September 30, 1995
- ------------------
1)ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of Fall River Gas Company and
subsidiary include the accounts of the Company and its
wholly-owned subsidiary, Fall River Gas Appliance Company, Inc. The
Company's principal business is the operation of a regulated gas
distribution company in southeastern Massachusetts, while its
wholly-owned subsidiary rents gas appliances. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Regulation
The Company's rates, operations, accounting and certain other practices
are subject to the regulatory authority of the Department of Public
Utilities of the Commonwealth of Massachusetts (MDPU).
Depreciation
Depreciation of property, plant and equipment is provided using the
straight-line method at rates designed to amortize the cost of these
assets over their estimated useful lives. The composite depreciation
rate for gas plant is 3%. Rented gas appliances have estimated useful
lives of 10 to 20 years.
Gas Operating Revenues and Cost of Gas Sold
Gas operating revenues are recorded based on meter readings made on a
cycle basis throughout the month. Accordingly, in any period, the
actual volume of gas supplied to customers may be more or less than the
usage for which the customers have been billed.
The Company's approved rate tariffs include a cost of gas adjustment
(CGAC) factor allowing dollar-for-dollar recovery of the cost of gas
sendout to firm customers. Actual costs incurred at the end of any
period may differ from amounts recovered through application of the
CGAC. Any excess or deficiency in amounts billed as compared to costs
is deferred and either refunded to, or recovered from, the customers
over a subsequent period.
2)STOCK SPLIT
On September 21, 1993 the stockholders of Fall River Gas Company
authorized a two-for-one common stock split. As a result, one
additional share of common stock was issued on January 14, 1994 and for
each share of common stock held on the close of business on December 31,
1993.
Per share data and weighted average shares outstanding for the periods
presented reflect the impact of this stock split. The authorized and
issued shares as of September 30, 1995 and 1994 on the Consolidated
Balance Sheets as well as treasury stock and the change in Common Stock,
par value $.83 also reflect the effect of the stock split.
3)FALL RIVER GAS APPLIANCE COMPANY, INC.
The earnings of the Fall River Gas Appliance Company, Inc. are shown as
Other Income in the accompanying Consolidated Statements of Income.
Condensed operating information of the Appliance Company for the years
ended September 30, 1995, 1994, and 1993, is as follows:
29
30
1995 1994 1993
---------- ---------- ----------
Operating revenues................. $2,680,609 $2,629,591 $2,320,822
Costs and expenses, net............ 1,412,244 1,285,120 1,176,560
---------- ---------- ----------
Income before income taxes......... 1,268,365 1,344,471 1,144,262
Income tax expense................. 515,452 545,145 461,358
---------- ---------- ----------
Net income......................... $ 752,913 $ 799,326 $ 682,904
========== ========== ==========
4)INCOME TAXES
The Company and its subsidiary file a consolidated Federal income tax return. Each company provides
Federal income taxes on a separate company basis. The following is a summary of the provision for
Federal and state income taxes:
1995 1994 1993
----------------------------------------------------------------------------
Federal State Federal State Federal State
----------------------------------------------------------------------------
Current.................. $583,815 $167,951 $1,024,154 $260,342 $1,048,351 $259,225
Deferred................. 227,763 46,421 239,018 47,902 144,855 27,348
Investment tax credits... (38,049) --- (38,445) --- (41,028) ---
Total provision.......... $773,529 $214,372 $1,224,727 $308,244 $1,152,178 $286,573
============================================================================
Provision for income taxes
included in:
Operating expenses..... $384,950 $ 86,471 $ 814,223 $174,243 $ 808,784 $173,131
Other income -
Fall River Gas
Appliance Company...... 387,725 127,727 411,035 134,110 347,148 114,210
Other.................. 854 174 (531) (109) (3,754) (768)
----------------------------------------------------------------------------
Total provision........... $773,529 $214,372 $1,224,727 $308,244 $1,152,178 $286,573
============================================================================
On October 1, 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") 109, "Accounting for Income Taxes". SFAS 109 requires
adjustments of deferred tax assets and liabilities to reflect the future tax
consequences, at currently enacted tax laws and rates, of items already
reflected in the financial statements. The implementation of SFAS 109, on
October 1, 1993 had no material impact on the earnings or cash flow of the
Company. Additionally, the Company does not believe SFAS 109 will significantly
impact future results of operations or cash flows based on current ratemaking
policy.
As a result, a regulatory liability of approximately $412,000 was established
for the tax benefit of unamortized investment tax credits, which SFAS 109
requires to be treated as a temporary difference. This benefit is being passed
on to customers over the lives of the property giving rise to the investment
tax credit. Also, a regulatory liability of approximately $88,000 was
established for the excess reserves for deferred taxes for pre-July 1987
deferred income taxes that were recorded in excess of the current Federal
statutory income tax rate.
The tax affect of the cumulative differences that gave rise to the deferred tax
liabilities and deferred tax assets for the year ended September 30, 1995 and
1994 are detailed on the following page (in thousands):
30
31
Notes to Consolidated Financial Statements (Cont.)
Deferred Tax Assets: 1995 1994
---------- ----------
Allowance for doubtful accounts.......... $ 267,794 $ 273,780
Unamortized investment tax credits....... 236,205 251,043
Contributions in aid of construction..... 198,765 187,419
Unbilled revenue......................... 308,759 221,841
Deferred Pension......................... 202,786 200,043
Deferred Compensation.................... 235,461 237,575
Regulatory Liability..................... 195,035 195,035
Other.................................... 254,267 283,929
---------- ----------
Total Deferred Tax Assets.................. 1,899,072 1,850,665
Deferred Tax Liabilities:
Property related......................... 5,044,529 4,793,466
Deferred gas costs....................... 1,095,464 1,792,760
Other.................................... 161,693 267,855
---------- ----------
Total Deferred Tax Liabilities............. 6,301,686 6,854,081
---------- ----------
Net Deferred Tax Liability................. $4,402,614 $5,003,416
========== ==========
Prior to the adoption of SFAS 109, income taxes were provided for the
tax effects of timing differences which resulted from including income and
expense for tax purposes in periods different from those used for financial
reporting purposes. Certain property related differences were flowed through for
both accounting and rate making purposes. The Company's current tax provision
also included current deferred income taxes which arose primarily from the
timing of unbilled revenues, the cost of gas adjustment clause and uncollectible
accounts for tax purposes. The provision for deferred income taxes represented
principally the tax effects arising from the use of accelerated depreciation
methods and shorter lives permitted by Federal income tax laws.
Investment tax credits are amortized over the life of the property
giving rise to the credits.
The combined Federal and state income tax provision set forth above
represents approximately 39% of income taxes in 1995 and 1994, and 38% in 1993.
The combined statutory rate for Federal and state income tax was approximately
39% in 1995 and 1994, and 38% in 1993. The difference between the effective
income tax rate and statutory rate results primarily from the amortization of
investment tax credits.
AMOUNTS OUTSTANDING
-------------------
5) LONG-TERM DEBT AND NOTES PAYABLE TO BANKS
Long-term debt consists of:
AMOUNTS SEPTEMBER 30 SEPTEMBER 30
FIRST MORTGAGE BONDS: AUTHORIZED 1995 1994
---------- ------------ ------------
8.75% Series, due 1996............... $3,200,000 $ 880,000 $1,040,000
9.44% Series, due 2020............... 6,500,000 6,500,000 6,500,000
---------- ----------
7,380,000 7,540,000
Less - Current sinking
fund requirements and maturities... 880,000 160,000
---------- ----------
$6,500,000 $7,380,000
Under the terms of the Indenture of First Mortgage, as amended,
aggregate indebtedness is limited to an amount not to exceed 65% of the
Company's total capitalization. In addition, subsequent borrowings are subject
to interest coverage restrictions. The aggregate maturities and sinking fund
requirements for the next five years applicable to the issues outstanding at
September 30, 1995 are $880,000 in 1996 and none in 1997, 1998, 1999, and 2000.
The First Mortgage Bonds are secured by a lien on substantially all of the
Company's gas plant. Under the terms of the most restrictive supplemental
indenture, retained earnings of $4,374,576 were restricted against payment of
dividends at September 30, 1995.
31
32
The Company maintains lines of credit with various banks under which it
may borrow up to $27,500,000. These lines are reviewed periodically by the
various banks and may be renewed or cancelled. The Company pays a commitment
fee on the lines of credit totaling $23,000,000 at rates ranging from 5/16 of
1% to 3/8 of 1%. The balance of the lines are uncommitted and carry no fee. At
September 30, 1995, there were $15,600,000 borrowings under these lines of
credit.
The following table summarizes certain information related to the
Company's short-term borrowings for the years ended September 30, 1995, and
1994:
1995 1994
----------- -----------
Average daily balance outstanding for the period $14,586,000 $13,051,944
Weighted average interest rate for the period 6.4% 4.3%
Maximum amount outstanding during the
period based on month-end balance $17,900,000 $16,100,000
Weighted average interest rate at end of period 7.5% 5.8%
6)EMPLOYEES' PENSION PLANS
Fall River Gas Company has defined benefit plans covering substantially
all of its employees. The benefits under these plans are based on years of
service and employees' compensation levels. The Company's policy is to fund
pension costs accrued including amortization of past service costs.
The following table sets forth the funding status of the pension plan as of September 30, 1995 and 1994:
1995 1994
---------------------------- ----------------------------
Actuarial present value of benefit obligations: UNION SALARIED UNION SALARIED
Vested...................................... $(5,119,504) $(4,449,398) $(5,358,714) $(4,305,570)
Non vested.................................. (9,224) (70,461) (6,565) (56,655)
----------- ----------- ----------- -----------
Total accumulated benefit obligation........ $(5,128,728) $(4,519,859) $(5,365,279) $(4,362,225)
=========== =========== =========== ===========
Projected benefit obligation................ $(5,508,398) $(5,822,854) $(5,842,435) $(5,841,694)
Plan assets at fair value...................... 6,037,834 4,293,447 5,688,667 3,348,548
----------- ----------- ----------- -----------
Projected benefit obligation (in excess)
or less than plan assets.................... 529,436 (1,529,407) (153,768) (2,493,146)
Unrecognized net gain.......................... (1,046,210) (804,592) (429,134) (10,877)
Unrecognized prior service cost
due to plan amendment....................... 0 1,417,484 0 1,535,608
Unrecognized net obligation.................... 524,328 197,540 599,232 225,759
----------- ----------- ----------- -----------
Prepaid pension cost (pension liability)
recognized on the consolidated
balance sheet............................... $ 7,554 $ (718,975) $ 16,330 $ (742,656)
=========== =========== =========== ===========
Net Pension cost included the following components:
1995 1994 1993
----------- ---------- ----------
Service Cost $ 375,838 $ 408,466 $ 315,580
Interest Cost 866,021 837,690 790,509
Return on Assets (1,287,810) (56,166) (474,692)
Net Deferral and Amortization (757,372) (463,664) (59,079)
----------- --------- ---------
Net Periodic Pension Cost $ 711,421 $(726,326) $(572,318)
=========== ========= =========
Assumptions used to determine the projected benefit obligation were:
1995 1994
-------- --------
Discount rate 8.0% 7.5%
Rate of increase in future compensation levels 4.0% 4.0%
Expected long-term rate of return on assets 8.0% 7.6%
32
33
Notes to Consolidated Financial Statements (Cont.)
7)OTHER POST-EMPLOYMENT BENEFITS
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits to qualified retired employees.
In 1994, the Company adopted Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (SFAS 106). Prior to 1994, expense was recognized when benefits were
paid, which was $188,000 in 1993. In accordance with SFAS 106, the Company
began recording the cost for this plan on an accrual basis for 1994. As
permitted by SFAS 106, the Company will record the transition obligation over a
twenty year period. The Company's cost under this plan for 1995 and 1994 was
$247,059 and $505,353 respectively. A regulatory asset of $183,735 has been
recorded, leaving a net expense of $63,324.
The following table sets forth the status of the plans at
September 30, 1995 and 1994:
1995 1994
Accumulated postretirement benefit obligation:
Retirees $ (871,487) $(1,009,654)
Fully eligible active plan participants (110,362) (143,255)
Other active plan participants (949,071) (1,876,705)
----------- -----------
(1,930,920) (3,029,614)
Unrecognized transition obligation 2,544,938 2,686,324
Unrecognized past service costs 134,600 ---
Unrecognized (Gain) (1,275,643) ---
----------- -----------
Accrued postretirement benefit cost $ (527,025) $ (343,290)
=========== ===========
Net periodic postretirement benefit cost for fiscal 1995 and 1994 included the
following components:
Service costs-benefits attributable to
service during the period $ 66,601 $144,234
Interest cost on accumulated
postretirement benefit obligation 107,320 219,734
Net amortization and deferral 141,385 141,385
Recognized past service 11,106 ---
Recognized gain (79,353) ---
-------- --------
247,059 505,353
Regulatory asset 183,735 343,290
-------- --------
Net expense $ 63,324 $162,063
======== ========
For measurement purposes, a 7% annual rate of increase in the per
capita cost of covered healthcare benefits was assumed for 1995, the rate was
assumed to decrease gradually to 4% by fiscal 2005, and to remain at that level
thereafter. The healthcare cost trend rate assumption has a significant effect
on the amounts reported. To illustrate, increasing the assumed health care cost
trend by 1% in each year would increase the accumulated postretirement benefit
obligation as of September 30, 1995 by $482,000 and the aggregate of the
service and the interest cost components of net periodic postretirement benefit
cost (NPPBC) for the year by $76,416. The discount rate was 8% for the
development of the NPPBC and for disclosure.
8)COMMITMENTS AND CONTINGENCIES
In January 1990, the Company received notification from the
Massachusetts Department of Environmental Protection that it is one of several
"potentially responsible parties" under Massachusetts law in connection with a
site operated by a company which purchased scrap meters from various utilities
including the Company. The investigation is in the discovery stage and the cost
to clean up the site and the Company's degree of responsibility has not yet
been determined. However, management does not expect the costs, if any, to be
significant.
9)UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is unaudited quarterly information for the fiscal years
ended September 30, 1995 and 1994. Quarterly variations between periods are
caused primarily by the seasonal nature of the gas distribution business.
(Thousands except per share amounts)
Quarter Ended Quarter Ended
Dec 31 Mar 31 June 30 Sept 30 Dec 31 Mar 31 June 30 Sept 30
- --------------------------------------------------------------------------------------------------------
Operating Revenues $9,990 $19,483 $9,858 $5,087 $11,196 $22,383 $9,584 $5,168
Operating Income 429 1,667 375 (166) 696 1,917 332 (167)
Net Income 263 1,449 233 (329) 603 1,809 283 (204)
Net Income per Share .15 .81 .13 (.18) .34 1.02 .16 (.12)
33
34
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
- ---------------------------------------------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
- --------------------------------------------------------------
Information required under this item is contained in the Registrant's
1995 Proxy Statement, to be filed with the commission pursuant to Regulation
14A, and is incorporated herein by reference, pursuant to Form 10-K General
Instruction G(3).
Executive Officers:
Raymond H. Faxon*
-----------------
Age 88, currently Vice Chairman of the Board of Directors and assistant
Treasurer of the Registrant. His current business function is Vice Chairman of
the Board of Directors and Assistant Treasurer. He is the father of Bradford J.
Faxon. Positions held for the past five years are as follows:
1/1/88 - 12/31/93 -- Chairman of the Board of Directors and Assistant
Treasurer
1/1/94 to Present -- Vice Chairman of the Board of Directors and Assistant
Treasurer.
His principal occupation for the past five years has been employment
with the Registrant.
Bradford J. Faxon*
------------------
Age 57, currently Chairman of the Board of Directors, President and a
Director of the Registrant. His current business function is Chief Executive
Officer. Positions held with the Registrant for the past five years are as
follows:
12/1/78 to Present -- Director
8/1/86 to Present -- President
1/1/94 to Present -- Chairman of the Board of Directors
He is the son of Raymond H. Faxon. His principal occupation for the
past five years has been employment with the Registrant.
Peter H. Thanas
---------------
Age 51, currently Senior Vice President and Treasurer of the Registrant
His current business function is Chief Financial and Accounting Officer of the
Registrant. Positions held for the past five years are as follows:
8/1/86 to 9/19/94 -- Financial Vice President and Treasurer
9/20/94 to Present -- Senior Vice President and Treasurer
His principal occupation for the past five years has been employment
with the Registrant.
John F. Fanning
---------------
Age 49, currently Vice President of Production and Gas Supply. His
current business function is Vice President of Production and Gas Supply of the
Registrant. Positions held with the Registrant for the past five years are as
follows:
7/1/87 - 12/31/89 -- Manager of Gas Supply
1/1/90 - 9/20/93 -- Superintendent of Production and Gas Supply
9/21/93 to Present-- Vice President of Production and Gas Supply
His principal occupation for the past five years has been employment
with the Registrant.
All officers are either elected or appointed at the Directors' meeting
following the annual Stockholders' meeting. Their terms of
34
35
office are to be for one year or until their successors have been duly elected
or appointed.
*Members of the Executive Committee.
Based soley upon a review of Forms 3 and 4 and amendments thereto
furnished to the Registrant pursuant to Rule 16a-3 (e) during its most recent
fiscal year, and Form 5 and amendments thereto furnished to the Registrant with
respect to its most recent fiscal year, and any other written representation as
set forth in Item 405(b) (2) (i) of Regulation S-K, the Registrant does not
know of any person who is required to file reports by Section 16(a) of the
Securities Exchange Act of 1934 during the most recent fiscal year or prior
fiscal years who has either failed to file, or has been late in filing, such
reports.
ITEM 11. Management Remuneration And Transactions
- --------------------------------------------------------
Information required under this item is contained in the Registrant's
1995 Proxy Statement, to be filed with the commission pursuant to Regulation
14A, and is incorporated herein by reference, pursuant to Form 10-K General
Instruction G(3).
ITEM 12. Security Ownership Of Certain Beneficial Owners And Management
- ------------------------------------------------------------------------------
Information required under this item is contained in the Registrant's
1995 Proxy Statement, to be filed with the commission pursuant to Regulation
14A, and is incorporated herein by reference, pursuant to Form 10-K General
Instruction G(3).
ITEM 13. Certain Relationships And Related Transactions
- --------------------------------------------------------------
Not applicable.
35
36
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) 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
By /S/ Peter H. Thanas
-----------------------------------
Senior Vice President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
President, Chairman of
the Board and Director
/S/ Bradford J. Faxon (Chief Executive Officer) 12/14/95
- ----------------------------- --------
Vice Chairman of the
/S/ Raymond H. Faxon Board and Director 12/14/95
- ----------------------------- --------
Senior Vice President
and Treasurer (Chief
Financial and
/S/ Peter H. Thanas Accounting Officer) 12/14/95
- ----------------------------- --------
/S/ Cindy L.J. Audette Director 12/14/95
- ----------------------------- --------
/S/ Thomas K. Barry Director 12/14/95
- ----------------------------- --------
/S/ Thomas H. Bilodeau Director 12/14/95
- ----------------------------- --------
/S/ Ronald J. Ferris Director 12/14/95
- ----------------------------- --------
/S/ Jack R. McCormick Director 12/14/95
- ----------------------------- --------
/S/ Gilbert C. Oliveira Jr. Director 12/14/95
- ----------------------------- --------
/S/ Donald R. Patnode Director 12/14/95
- ----------------------------- --------
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37
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, And Reports On Form 8-K
- --------------------------------------------------------------------------
(a) (1) and (2) The response to this portion of Item 14 is submitted in the
following pages.
(b) The Registrant was not required to file a Form 8-K during fiscal year
1995.
37
38
Page Number Or
Exhibit Incorporation Or
Numbers Description Reference To
- ------- ----------- ----------------
(3) Articles of Incorporation and Exhibit 3 to Report
By-Laws on Form 10-K for
calendar year ended
December 31, 1982
(3a) A copy of an Amendment to the Exhibit 3a to Report
Articles of Incorporation to on Form 10-K for
increase the number of Common calendar year ended
Shares from 366,889, to 1,100,667 December 31, 1987
and to change the par value from
$5.00 to $1-2/3
(3b) A copy of an Amendment to the Exhibit 3b to Report
By-Laws on Form 10-K for calendar
year ended December 31, 1990
(3c) A copy of an Amendment to the Exhibit 3c to Report
By-Laws on Form 10-K for
calendar year ended
December 31, 1991
(4) Instruments defining the rights Exhibit 4 to Report
of security holders, including on Form 10-K for
indentures calendar year ended
December 31, 1982
(10a) Purchase of F-1 from Algonquin Exhibit 10a to Report
Gas Transmission Company on Form 10-K for
Calendar year ended
December 31, 1982
(10b) Purchase of SNG from Algonquin Exhibit 10b to Report
Gas Transmission Company on Form 10-K for
calendar year ended
December 31, 1982
(10c) A copy of the contract between Exhibit 10c to Report
the Registrant and Utility on Form 10-K for
Workers Union of America, AFL-CIO calendar year ended
and Local No. 431, dated December 31, 1984
May 1, 1984
(10d) A copy of an employment and Con- Exhibit 10d to Report
sulting Agreement dated as of on Form 10-K for
September 18, 1984, between the calendar year ended
Registrant and Jack R. McCormick December 31, 1984
38
39
Page Number Or
Exhibit Incorporation Or
Numbers Description Reference To
- ------- ----------- ----------------
(10e) A copy of an Employment and con- Exhibit 10e to Report
sulting Agreement dated as of on Form 10-K for
September 18, 1984, between the calendar year ended
Registrant and Bradford J. Faxon December 31, 1984
(10f) A copy of an Employment and Con- Exhibit 10f to Report
sulting Agreement dated as of on Form 10-K for
September 18, 1984, between the calendar year ended
Registrant and Norman J. Meyer December 31, 1984
(10g) A copy of the Restatement of Con- Exhibit 10g to Report
sulting Agreement dated as of on Form 10-K for
December 13, 1983, between the calendar year ended
Registrant and Thomas H. Bilodeau December 31, 1984
(10h) A copy of an Agreement, Combined Exhibit 10h Report
Supplementary Agreement, and Amend- on Form 10-K for
ment to Agreement for Employment calendar year ended
and Consulting Services between December 31, 1984
the Registrant and Raymond H. Faxon
(10i) A copy of an Amendment to Exhibit 10i to Report
Employment and Consulting Agree- on Form 10-K for
ment dated January 1, 1987 calendar year ended
between the Registrant and December 31, 1986
Bradford J. Faxon
(10j) A copy of an Amendment to Employ- Exhibit 10j to Report
ment and Consulting Agreement on Form 10-K for
dated January 1, 1987 between the calendar year ended
Registrant and Norman J. Meyer December 31, 1986
(10k) A copy of an Employment and Con- Exhibit 10k to Report
sulting Agreement dated as of on Form 10-K for
August 1, 1986 between the calendar year ended
Registrant and Peter H. Thanas December 31, 1986
(10L) A copy of an Amendment to Employ- Exhibit 10L to Report
ment and Consulting Agreement dated on Form 10-K for
January 1, 1987 between the Regi- calendar year ended
trant and Peter H. Thanas December 31, 1986
(10m) A copy of the Contract between the Exhibit 10m to Report
Registrant and Utility Workers on Form 10-K for
Union of America, AFL-CIO and calendar year ended
Local 431, dated May 31, 1987 December 31, 1987
39
40
Page Number Or
Exhibit Incorporation Or
Numbers Description Reference To
- ------- ----------- ----------------
(10n) A copy of Precedent Agreement for Exhibit 10n to Report
Firm Sales Service under Rate on Form 10-K for
Schedule F-4 calendar year ended
December 31, 1987
(10o) Settlement Agreement between DOMAC Exhibit 10o to Report
and Registrant to terminate and on Form 10-K for
abandon GS-1 and TS-1 Service calendar year ended
Agreements December 31, 1988
(10p) A copy of Service Agreement for Exhibit 10p to Report
Firm Liquid Service between on Form 10-K for
Distrigas and Registrant calendar year ended
December 31, 1988
(10q) A copy of Service Agreement for Exhibit 10q to Report
Interruptible Vapor Service be- on Form 10-K for
tween Distrigas and Registrant calendar year ended
December 31, 1988
(10r) A copy of Service Agreement for Exhibit 10r to Report
Firm Vapor Service between on Form 10-K for
Distrigas and Registrant calendar year ended
December 31, 1988
(10s) A copy of a Deferred Compensation Exhibit 10s to Report
Agreement with Bradford J. Faxon on Form 10-K for
calendar year ended
December 31, 1989
(10t) A copy of a Deferred Compensation Exhibit 10t to Report
Agreement with Peter H. Thanas on Form 10-K for
calendar year ended
December 31, 1989
(10u) A copy of the Contract between the Exhibit 10u to Report
Registrant and Utility Workers on Form 10-K for
Union of America, AFL-CIO and calendar year ended
Local 431, dated May 1, 1990 December 31, 1990
(10v) A copy of an Employment Contract Exhibit 10v to Report
with Bradford J. Faxon on Form 10-K for
calendar year ended
December 31, 1991
(10w) A copy of an Employment Contract Exhibit 10w to Report
with Peter H. Thanas on Form 10-K for
calendar year ended
December 31, 1991
40
41
Page Number Or
Exhibit Incorporation Or
Numbers Description Reference To
- ------- ----------- ----------------
(22) The Registrant has one Subsidiary,
Fall River Gas Appliance Company,
Inc., that is incorporated in
Massachusetts, and does business
under said name
41
42
FALL RIVER GAS COMPANY AND SUBSIDIARY
-------------------------------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
(Submitted in Answer to Item 14 of Form 10-K,
Securities and Exchange Commission)
Reference
---------
Report of independent public accountants Page
Fall River Gas Company and Subsidiary-
Consolidated balance sheets - for the years ended
September 30, 1995 and September 30, 1994 Page
Consolidated statements for the years ended
September 30, 1995, 1994, and 1993
Income Page
Retained earnings Page
Cash flows in financial position Page
Notes to consolidated financial statements Page
Report to independent public accountants
on schedules Attached
SCHEDULES
---------
VII - Valuation and Qualifying Accounts and
Reserves for the years ended September 30,
1995, 1994, and 1993 Attached
The information required to be submitted in Schedules IX and X has been
included in the financial statements.
Schedules I to XIII not referred to above are omitted as not applicable or
not required.
42
43
FALL RIVER GAS COMPANY AND SUBSIDIARY SCHEDULE VII
------------------------------------------------------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
------------------------------------------------------
FOR YEAR ENDED SEPTEMBER 30, 1995
---------------------------------
ADDITIONS DEDUCTIONS
--------------------------- ------------------------------
Balance at Charges to Charges Charges for Balance at
Beginning Costs and to Other Which Reserves End of
Description of Period Expenses Accounts Were Created Other Period
- ----------- ---------- ---------- ---------- -------------- ---------- ----------
Allowance for
doubtful accounts $701,734 $311,500 $368,249 $(41,665) $686,650
======== ======== ======== ======== ======== ========
FOR YEAR ENDED SEPTEMBER 30, 1994
---------------------------------
ADDITIONS DEDUCTIONS
--------------------------- ------------------------------
Balance at Charges to Charges Charges for Balance at
Beginning Costs and to Other Which Reserves End of
Description of Period Expenses Accounts Were Created Other Period
- ----------- ---------- ---------- ---------- -------------- ---------- ----------
Allowance for
doubtful accounts $470,770 $575,500 $379,613 $(35,077) $701,734
======== ======== ======== ======== ======== ========
FOR YEAR ENDED SEPTEMBER 30, 1993
---------------------------------
ADDITIONS DEDUCTIONS
--------------------------- ------------------------------
Balance at Charges to Charges Charges for Balance at
Beginning Costs and to Other Which Reserves End of
Description of Period Expenses Accounts Were Created Other Period
- ----------- ---------- ---------- ---------- -------------- ---------- ----------
Allowance for
doubtful accounts $445,825 $369,500 $383,782 $(39,227) $470,770
======== ======== ======== ======== ======== ========
43