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 December 31, 1997 Commission file number 0-449
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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) Indentification No.)
155 North Main Street, Fall River, Massachusetts 02722
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 508-675-7811
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"Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No ."
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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 December 31,1997
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Common stock,par value of $.83 1\3 2,022,359 shares
FALL RIVER GAS COMPANY
INDEX
Page No.
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Part. I. Financial Position
Consolidated Condensed Balance Sheets -
December 31, 1997 and September 30, 1997 1
Consolidated Condensed Statements of Income -
Three Months Ended December 31, 1997 and 1996 2
Consolidated Statements of Cash Flows -
Three Months Ended December 31, 1997 and 1996 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
PART I. FINANCIAL INFORMATION
FALL RIVER GAS COMPANY AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
ASSETS 1997 1997
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Gas Plant, at original cost................................................... $ 58,902,117 $ 58,413,337
less accumulated depreciation............................................... 19,372,528 19,073,197
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39,529,589 39,340,140
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Rental Property............................................................... 6,377,304 6,287,417
less accumulated depreciation............................................... 2,088,514 2,078,911
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4,288,790 4,208,506
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Other Investments............................................................. 436,568 425,765
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Current Assets:
Cash........................................................................ 818,261 329,400
Accounts receivable, less allowance for
doubtful accounts of $1,241,818 as of 12/31/97 and $907,357 as of
9/30/97................................................................... 5,397,771 1,972,301
Inventories, at average cost
Liquefied natural gas and propane........................................... 3,083,789 3,108,887
Materials and Supplies...................................................... 1,292,204 1,341,567
Purchased gas costs deferred................................................ 3,771,587 1,780,798
Prepaid and Deferred Taxes.................................................. 722,084 990,515
Prepayments and Other....................................................... 364,605 204,815
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15,450,301 9,728,283
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Deferred Charges:
Regulatory Asset............................................................ 730,927 758,832
Other....................................................................... 216,755 473,901
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947,682 1,232,733
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$ 60,652,930 $ 54,935,427
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STOCKHOLDERS' INVESTMENT AND LIABILITIES
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CAPITALIZATION:
Stockholders' investment--
Common stock, par value $.83-1/3 per share, 2,201,334 shares
authorized and issued.................................................... $ 1,834,445 $ 1,834,445
Premium paid in on common stock............................................ 4,970,728 1,474,850
Retained earnings ($6,693,309 restricted against payment of cash
dividends as of 12/31/97 and $7,149,260 as of 9/30/97).................... 11,241,177 10,693,309
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18,046,350 14,002,604
Less Treasury stock, at cost (17,454 shares as of 12/31/97 and 410,511
shares as of 9/30/97)..................................................... 58,849 1,384,079
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17,987,501 12,618,525
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Long-term debt, less current sinking fund requirements
First Mortgage Bonds--9.44% due 2020........................................ 6,500,000 6,500,000
First Mortgage Bonds--7.99% due 2026........................................ 7,000,000 7,000,000
First Mortgage Bonds--7.24% due 2027........................................ 6,000,000 0
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19,500,000 13,500,000
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Total capitalization.................................................... 37,487,501 26,118,525
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CURRENT LIABILITIES:
Notes payable to banks...................................................... 10,400,000 15,400,000
Dividends Payable........................................................... 0 511,655
Accounts Payable............................................................ 2,931,871 3,545,644
Other....................................................................... 2,367,574 1,932,403
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15,699,445 21,389,702
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DEFERRED CREDITS:
Accumulated deferred income taxes........................................... 4,273,840 4,273,840
Unamortized investment tax credits.......................................... 518,666 529,737
Regulatory Liability........................................................ 494,566 494,566
Other....................................................................... 2,178,912 2,129,057
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7,465,984 7,427,200
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$ 60,652,930 $ 54,935,427
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See accompanying notes to consolidated condensed financial statements.
1
SUMMARIZED FINANCIAL INFORMATION
FALL RIVER GAS COMPANY AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
Three Months Ended
December 31
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1997 1996
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GAS OPERATING REVENUES.................................... 11,272,777 11,163,872
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OPERATING EXPENSES
Cost of gas sold........................................ 6,036,686 6,437,726
Other operation......................................... 3,126,024 3,014,635
Maintenance............................................. 384,454 576,532
Depreciation............................................ 448,114 446,226
General taxes........................................... 345,748 287,178
Federal income taxes.................................... 140,451 (50,989)
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Total operating expenses.............................. 10,481,477 10,711,308
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OPERATING INCOME.......................................... 791,300 452,564
OTHER INCOME:
Net income of Fall River Gas Appliance
Company, Inc. (a wholly-owned subsidiary)............ 240,721 198,817
Other.................................................. 4,483 3,840
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GROSS INCOME............................................. 1,036,504 655,221
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INTEREST EXPENSE AND OTHER:
Interest on long-term debt............................. 329,425 293,225
Other interest......................................... 159,212 233,238
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488,637 526,463
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NET INCOME............................................... 547,867 128,758
RETAINED EARNINGS - BEGINNING OF PERIOD.................. 10,693,309 10,865,648
DEDUCT - Dividends declared.............................. 0 0
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RETAINED EARNINGS - END OF PERIOD
($6,693,309 restricted against payment of
cash dividends as of 12/31/97 and $7,149,260
as of 12/31/96)..................................... 11,241,176 10,994,406
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BASIC EARNINGS PER SHARE................................ 0.27 0.07
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DURING THE PERIOD......................... 2,022,359 1,781,211
CASH DIVIDEND PER COMMON SHARE.......................... 0 0
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See accompanying notes to consolidated condensed financial statements.
2
FALL RIVER GAS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
December 31
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1997 1996
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Cash Provided by (used for)
Operating Activities:
Net income.......................................... $ 547,868 $ 128,758
Items not requiring (providing) cash:
Depreciation...................................... 548,757 538,153
Amortization of Investment Tax Credit............. (11,071) (9,490)
Change in working capital......................... (5,923,416) (2,818,432)
Other sources, net................................ 5,100,892 (22,490)
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Net cash provided by (used for)
operating activities.......................... 263,030 (2,183,501)
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Investing Activities:
Additions to utility property, plant and equipment.... (601,476) (862,438)
Additions to nonutility property...................... (172,694) (161,187)
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Net cash used by investing activities........... (774,170) (1,023,625)
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Financing activities:
Cash dividends on common stock........................ 0 0
Addition of long-term debt First Mortgage Bond........ 6,000,000 0
Increase (decrease) in notes payable to banks, net.... (5,000,000) 3,400,000
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Net cash provided by financing activities....... 1,000,000 3,400,000
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Increase in cash........................................ $ 488,860 $ 192,874
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Changes in Components of Working Capital
(excluding cash)
(Increase) decrease in current assets:
Accounts receivable............................... $(3,425,470) $ (3,134,023)
Inventories....................................... 74,460 (240,784)
Prepayments and other............................. (159,790) (214,272)
Deferred gas cost................................. (1,990,789) (1,147,654)
Prepaid and Deferred Taxes........................ 268,431 (272,658)
Increase (decrease) in current liabilities:
Accounts payable.................................. (613,774) 2,269,028
Other............................................. (76,484) (78,069)
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Change in Working Capital....................... $(5,923,416) $ (2,818,432)
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Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest............................................ $ 187,188 $ 217,668
Income taxes........................................ $ 53,325 $ 65,650
See accompanying notes to consolidated condensed financial statements.
3
FALL RIVER GAS COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Net income for the first quarter of fiscal 1998 rose to $548,000 compared
to $129,000 for the first quarter in fiscal 1997. Basic earnings per share rose
to $.27 compared to $.07 for the first quarter of 1997. Rate relief of $3.2
million annually granted in December 1996, as described below, was the primary
reason for this increase. The quarter ended December 31, 1996 contains a bare
half month of additional revenues, while the quarter ending December 31, 1997
fully reflects the impact of this relief.
On May 17, 1996 the Company filed with the MDPU a request to increase its
firm rates. After responding to interrogatories and presenting witnesses in
support of the Company's filing, the Company was able to reach a settlement
agreement with all parties. Contained in this settlement was an increase in
revenues of $3,200,000 along with the "unbundling" of its commercial and
industrial tariffs. With unbundled rates our customers can now choose to buy
gas from the Company or purchase its own gas supply from a third party and have
it transported up to and into the Company's distribution system. These new
rates were effective for gas sold on or after December 1, 1996.
Gas operating revenues for the three months ended December 31, 1997 reflect
an increase of 1.0% or $109,000. Revenues increased from $11,164,000 recorded
in 1996 to $11,273,000, mainly due to a 8.9% increase in CGA revenues as
discussed below. Firm sales volume for three months ended December 31, 1997 is
1,452,329 MCF as compared to the 1,415,439 MCF reported in 1996. Unlike the
increase in firm sales, total sales for the three month period which include
Special Contract, Interruptible, Interruptible Transportation and Transportation
customers, decreased 3.5% from 1,918,745 MCF to 1,851,427 MCF in 1997. During
the quarter, cost of gas (CGA) revenues increased by $602,000 due to the net
differences in our CGA decimal in the three months ended December 1997 and 1996
respectively. The 1997 and 1996 CGA revenues, referred to above, have been
computed on the current rate structure. In accordance with the Company's
approved CGAC increases or decreases in the cost of gas sold continue to be
passed directly to our Firm customers, dollar for
4
dollar. Colder weather has had an impact on both operating revenues and firm
sales volume. Degree Days in the three month comparison increased 6.3% from
2,126 to 2,259.
Total operating expenses, excluding federal and state income taxes, for the
three month comparisons reflected a 4.3% decrease from $10,771,000 to
$10,310,000 a decrease of $461,000. The most significant operation expense -
cost of gas sold - decreased by $401,000 for the three month comparison due to
the increase in deferral of gas costs. Other operation expenses including
health benefits, payroll, and materials and supplies have increased by $111,000,
3.7% higher than the comparable period in 1996.
Interest expense decreased by $38,000, 7.2%, for the three month comparison
as a result of decreased short term borrowing. As reported, on October 31, 1997
the Company issued 340,000 shares of common stock and began trading on the
American Stock Exchange (AMEX) under the symbol "FAL". On November 26, 1997 the
underwriter of this equity issue, First Albany Corporation, exercised its
over-allotment option to sell an additional 50,000 shares of common stock. The
net proceeds of this offering of approximately $4,700,000 were used to reduce
short-term borrowings. The Company also issued $6,000,000 of long-term debt
with a coupon rate of 7.24% on December 12, 1997 through a private placement.
The net proceeds from this offering will also be 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 three months ended December 31, 1997, capital expenditures totalled
approximately $720,000.
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.
5
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.
New Accounting Standards
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share," effective quarter ended December 31, 1997 and has
reflected basic earnings per share on the face of the statements of income.
See accompanying notes to consolidated financial statements
6
FALL RIVER GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results of operation for the three month periods ending December 31,
1997 and 1996 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 December 31, 1997 and 1996, and
the results of operations for the three months ended and
changes in financial position for the three 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 December
31, 1997.
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
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(Registrant)
Peter H. Thanas
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(Signature)
Date January 29, 1998 Peter H. Thanas, Treasurer,
---------------- Chief Financial and
Accounting Officer
7