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, 1998
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
--------------------------
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock par value $.83 1/3 per share American Stock Exchange
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Securities registered pursuant to Section 12 (g) of the Act:
Common Stock par value $.83 1/3 per share
-----------------------------------------
(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 (1,918,928) shares was $33,160,995 as of
December 14, 1998 of $17.281.
Indicate the number of shares outstanding of each of the
Registrant's classes of the latest practicable date.
Class Outstanding at December 14, 1998
- -------------------------------- --------------------------------
Common Stock, $.83 1/3 par value 2,193,912
Documents incorporated by reference:
Definitive Proxy Statement dated December 14, 1998 (Part III)
FALL RIVER GAS COMPANY
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1998 FORM 10-K ANNUAL REPORT
Table of Contents
PART I
Page
Item 1. Business 3
General 3
Sales And Transportation 4
Rates and Regulation 6
Gas Supply And Storage 9
Competition 12
Employees 14
Item 2. Properties 14
Item 3. Legal Proceedings/Environmental Matters 15
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
Item 5. Market for the Registrant's Common Stock and 19
Related Stockholder Matters
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of Financial 21
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 26-37
Item 9. Disagreements on Accounting and Financial Disclosure 36
PART III
Item 10. Directors and Executive Officers of the Registrant 36
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners and 36
Management
Item 13. Certain Relationships and Related Transactions 36
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports 37
of Form 8-K
2
PART I
ITEM 1. Business
General
The Company, 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 southeastern portion of the Commonwealth of Massachusetts.
The principal markets served by the Company are (1) residential customers
using gas for heating, 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.
The Company is engaged in only one line of business as described
above, and in activities incidental thereto. The Company 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 Company's gas service area. Earnings from the
Appliance Company are primarily the result of revenues from the rental of
water heaters and conversion burners. As of September 30, 1998, the water
heater program had 14,453 rentals in service and the conversion burner
program had 4,558 rentals in service. The Appliance Company also derives
revenues from the sale of central heating and air-conditioning systems and
water heaters.
This Annual Report contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, particularly in the "Management's Discussion and Analysis of
3
Financial Condition and Results of Operations-Liquidity and Capital
Resources" and "Business" sections. Forward-looking statements are generally
identified with the following phrases: "believes", "expects", and
"anticipates", or words of similar import. Actual results could differ
materially from those expressed or implied in such forward-looking statements
as a result of the risk factors set forth below and other information
contained elsewhere in the Annual Report. In addition to the other
information contained and incorporated by reference in this Annual Report,
the following factors should be carefully considered in evaluating the
Company and its business.
Sales and Transportation
The Company's service territory is approximately 50 square miles in
the area surrounding the City of Fall River, Massachusetts. The Company had
an average of 47,544 sales customers during the twelve months ended September
30, 1998, of which approximately 94% were residential and 6% were commercial
and industrial. For the twelve months ended September 30, 1998 approximately
71% of the Company's gas operating revenues were derived from sales to
residential customers and 29% were derived from sales or transportation to
commercial and industrial customers. At September 30, 1998 the Company had 38
commercial and industrial transportation customers, which, in the aggregate,
accounted for 22% of the total gas carried over the Company's pipeline system
("throughput") and approximately 4% of gas operating revenues for the twelve
months ended September 30, 1998. The Company's tariffs currently do not allow
for residential transportation service. The Company's residential customers
take service only under firm sales tariffs and use natural gas for heating,
cooking and water heating, of which heating use constitutes most of such
consumption. Commercial customers (such as stores, restaurants and offices)
generally use gas for cooking and heating. Under currently effective tariffs,
commercial
4
customers may take the Company's transportation service and purchase their
own gas. At this time, however, most commercial customers take firm sales
service from the Company. Industrial customers primarily use natural gas in
manufacturing and processing applications, such as for metal or textile
goods. Such firm industrial sales and transportation load is fairly level
throughout the year because generally a small part of those customers' usage
is for heating. Certain of the Company's industrial customers also take
interruptible service- either on a sales or transportation basis. These
customers are subject to service discontinuance on short notice as system
firm requirements may demand. Such customers generally use interruptible
natural gas service for boiler or plant heating and are able to change to an
alternate fuel when there are supply constraints (generally during the
heating season). Also, the prices of alternative sources of energy impact the
interruptible markets. Prices for these customers are based on the price of
the customers' alternative fuel.
The following table shows the Company's throughput during each of
the periods shown below in millions of cubic feet ("MMcf"):
5
For the Fiscal
Year Ended
September 30,
1998 1997 1996 1995 1994
-------------------------------
Residential........................ 3,823 4,063 4,351 3,858 4,309
Commercial......................... 1,302 1,400 1,454 1,262 1,327
Industrial-firm.................... 261 383 418 443 850
Industrial-interruptible........... 32 15 71 430 317
Special Contracts.................. 0 0 498 441 78
Transportation..................... 1,523 1,701 1,101 818 716
----- ----- ----- ----- -----
TOTAL.............................. 6,941 7,562 7,893 7,252 7,597
----- ----- ----- ----- -----
----- ----- ----- ----- -----
The Company's utility sales business is seasonal. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Seasonality".
Rates and Regulation
The Company is subject to the regulatory authority of the
Massachusetts Department of Telecommunications and Energy ("MDTE") with
respect to various matters, including the rates it charges for services,
financings, certain gas supply contracts and planning and safety matters.
The Company's principal firm sales rate classifications are
residential, commercial and industrial. The Company also provides
transportation service and, from time to time subject to specific MDTE
6
approval, may provide service under special contracts. As of and after
October 1, 1997, the Company had no special contracts. The Company's rate
structure is based on the cost of providing service to each class of
customer. The Company's firm rate structure is based on generally 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 Company has a seasonal cost of gas adjustment rate schedule (the "CGAC"),
which provides for the recovery from firm customers of all purchased gas
costs. Through the CGAC, the Company also imposes charges, subject to MDTE
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 difference is included as an
adjustment in the calculation of the CGAC charges for the two subsequent
six-month periods. Charges under the CGAC rate schedule are added to the base
rates and are designed generally to recover higher costs in the winter and
refund lower gas costs in the summer. Pursuant to MDTE approvals, the Company
has collected all Federal Energy Regulatory Commission ("FERC") Order 636
transition costs billed to it.
On May 17, 1996 the Company filed revised tariffs with the MDTE to
unbundle its commercial and industrial service classes and to increase annual
revenues. By order dated October 16, 1996, the MDTE authorized the Company to
increase its rates for sales of gas effective December 1, 1996. The amount of
this increase on an annualized basis was $3,200,000. That MDTE order also
approved various changes to the Company's commercial and industrial rates to
facilitate the ability of customers on such rates to choose between
purchasing their gas supplies from the Company on a "bundled" basis or
purchasing from third parties and having the Company transport and deliver
such supplies. Such rates were also designed to make the Company economically
indifferent to a customer's choice of bundled
7
sales service or transportation service. Such transition to local
distribution companies ("LDC's"), such as the Company, providing more service
by transporting, as opposed to selling, natural gas has continued. Over the
past year, LCDs, unregulated gas marketers, customer groups and the
Massachusetts Attorney General have worked together to address a variety of
issues relating to restructuring the natural gas industry. This effort, known
as the Massachusetts Gas Collaborative has led to further unbundling by
several Massachusetts LDCs and an agreement by such industry participants on
the basic rules governing the relationships and transactions between LDCs and
marketers. Such developments will likely lead to increased activity by
marketers and a greater percentage of LDCs' (including the Company's)
throughput being transportation rather than sales. Also the MDTE is currently
considering, and is expected soon to rule on, other issues that are central
to the structure and extent of competition within the natural gas industry in
Massachusetts. Specifically, the MDTE has undertaken to resolve the issue of
whether natural gas marketers or customers must accept portions of the LDC's
supply and transportation contract capacity rights when customers shift from
purchasing their gas supplies from LDCs to marketers. Other issues such as
LDCs auctioning their supply portfolio and exiting the business of selling
natural gas generally are also being considered.
The regulation of prices, terms and conditions of interstate
pipeline transportation and sales of natural gas is subject to the
jurisdiction of FERC. Although the Company is not under the direct
jurisdiction of FERC, the Company monitors, and periodically participates in,
proceedings before FERC that affect the Company's pipeline gas transporters,
the Company's operations and other matters pertinent to the Company's
business.
The Company 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
8
of pipeline facilities. The enforcement of these standards has been delegated
to the MDTE.
Gas Supply and Storage
For several decades, until 1993, the Company primarily relied upon a
single supplier, Algonquin Gas Transmission Company ("Algonquin"), for its
gas supply needs. In its merchant role, Algonquin provided all the Company's
pipeline-supplied natural gas and storage, as well as transported such
pipeline and storage supplies to the Company's system. This supply paradigm
changed, however, in 1993 following FERC's issuance of Order 636. Order 636
was intended to encourage more competition among natural gas suppliers and
required interstate pipelines to unbundle or separate gas sales,
transportation and storage services. With the implementation of Order 636,
most pipeline companies (including Algonquin) discontinued their traditional
merchant function. Order 636 allowed pipeline companies to recover from their
customers, gas distribution companies such as the Company, costs associated
with the service unbundling and discontinuation of merchant service. This
resulted in each local distribution company becoming responsible for
obtaining all of its gas supply in the open market. While unbundling of these
services allows a local distribution company, such as the Company, more
flexibility in selecting and managing the type of services required to
provide its customers with the lowest possible priced gas while maintaining a
reliable gas supply, it also places additional responsibility on a
distribution company to obtain its natural gas supply in the open market on a
timely basis to fulfill commitments during peak demand periods.
With the advent of FERC Order 636, which was implemented on June 1,
1993, the Company assumed the full responsibility for aggregating, gathering
and arranging for the transmission of all required pipeline gas supplies to
its distribution system.
9
The pipelines serving the Company, Algonquin and its affiliate Texas
Eastern Transmission Company ("Texas Eastern"), have made the required
compliance filings of tariff sheets and have fully implemented the provisions
of Order 636. The primary related issue of the billing by Algonquin and Texas
Eastern of transition costs has been resolved. The Company has made
appropriate arrangements for supplies to replace the sales service formerly
provided by Algonquin, or "Conversion Supplies".
The Company is required to obtain the approval of the MDTE for gas
supplies that are to be purchased over a period in excess of one year,
including any Conversion Supplies. Through its arrangements for the
Conversion Supplies, the Company has contracted for a "city gate management
service", which includes the provision of transportation, sales and storage
services by a third party. The Company has maintained 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.
Approximately 90% of the Company's Conversion Supplies are provided under a
multi-year contract with Sempra Energy Trading (formerly CNG Energy Services
Corporation) ("SEMPRA") in quantities described below. Such contract remains
effective through May,2000. In June 1995, the MDTE approved the Company's
contract with SEMPRA. The Company also has short-term arrangements in place
for supplemental supplies for the 1998-1999 winter heating season. The
Company is currently analyzing the proper amount of such supply for future
years and plans to file a "Forecast and Supply Plan" with the MDTE, in the
near future, along with a request for approval thereof and certain
supplemental supplies.
The Company has contracted with SEMPRA for the purchase of all
pipeline commodity supplies for delivery to the Company's distribution
system, as well as storage services, management of Company-owned pipeline and
storage capacity and provision of significant amounts of back-up
10
deliveries from a different gas production area. SEMPRA's firm, year-round
contract deliveries to the Company provide for an annual contract quantity of
5,219,255 Mcf delivered to the Company's facilities ("City Gate") on a
365-day basis and for deliveries into storage for the Company in an annual
amount of 841,355 Mcf. The maximum daily quantity ("MDQ") of City Gate
deliveries are 17,461 Mcf and the storage MDQ is 11,441 Mcf with 7,124 Mcf of
that total MDQ available for City Gate deliveries from November 16 through
April 15 as winter service supplies delivered via Algonquin.
The remainder of the MDQ is available each day of the year. All
commodity deliveries are priced at an index price reflective of the market
price. This type of pricing mechanism is designed to allow the Company to
obtain its gas supply at competitive prices. The SEMPRA supply contract
includes 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
gas supplied if the market is such that additional price security is deemed
prudent. The SEMPRA contract commenced on June 1, 1993 and continues for 7
years.
In addition to the supplemental gas supplies described below, the
Company has requirements for a supply of approximately 1,479,000 Mcf during
the 1998-1999 heating season (November through March). To fulfill this
portion of its supply portfolio, the Company has obtained bids from several
potential suppliers and has entered into supply contracts for a term
encompassing that period with Distrigas of Massachusetts Corporation
("DOMAC") and Duke Energy Services.
The Company has a renewable one-year Firm Liquid Contract with DOMAC
for 200,000 MMBTU of liquefied natural gas ("LNG"), to be delivered by truck
to the Company'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 Company also
maintains storage and send out facilities for liquefied propane gas ("LPG")
11
that provide an additional 88,000 MMBTU of sendout capacity when needed. The
Company's projected peak day requirements are 68,598 Mcf for the 1998-1999
heating season compared to the Company's peak day capacity of 70,000 Mcf.
The Company's peak day capacity is comprised of 29,859 Mcf of
pipeline deliveries pursuant to the SEMPRA contracts to the City Gate; 12,000
Mcf of DOMAC and Duke Energy gas, delivered by pipeline; vaporization of
Company stored liquid propane ("LP") into gas for injection (all by
Company-owned equipment) into the Company's distribution system in daily
amounts of about 10,000 Mcf; and vaporization of Company-stored LNG and
injection into the distribution system in daily amounts of about 20,000 Mcf.
Competition
Historically, the Company was not subject to competition from any
other gas public utility or gas marketers, but rather only from electricity,
oil, coal and other fuels for heating, water heating, cooking, air
conditioning and other purposes. As discussed above, however, the status of
competition among suppliers of natural gas service has significantly
increased with the level of marketer activity and tariff and regulatory
changes that facilitate competition. As a result, marketers are currently
selling natural gas to several large volume end-users to whom the Company has
historically made sales. Marketers can be expected to seek to provide an
increasing volume of sales services to end-users located within the Company's
service territory. At the current time, for all third-party commodity sales
that are occurring in the Company's service territory, the Company transports
those gas supplies within the Company's service territory and delivers the
supplies to the customers. The margins earned by the Company for such
transportation services are the same as margins earned on bundled
supply/delivery sales to the same end-users. Similar
12
opportunities may exist for the Company to broker gas to new or existing
customers, whether or not located within the Company's service territory,
although the Company has not done so to date.
The principal considerations in the competition between the Company
and suppliers of other 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, and in some cases whether a
customer will choose to transport gas supplied by marketers, or to purchase
from the Company.
The price of natural gas currently compares favorably to electricity
but is generally higher than fuel oil, especially the grade of oil used by
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, due to variations in price. Equipment operational
efficiencies and ease of delivery give natural gas advantages over oil and
also makes natural gas comparable to electricity in these respects. Because
of the environmental advantages associated with natural gas and the
efficiency and security of its supply, the demand for natural gas is expected
to continue to increase. 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 commercial and industrial customers.
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
Company estimates that its gas heating saturation in areas in which it has
been in active service is approximately 89%.
13
For all of these reasons, the Company believes that competition from
natural gas brokers and marketers, as well as from other fuel sources, will
intensify in the future.
Employees
The Company employed 166 full-time and 5 part-time employees as of
September 30, 1998. Of those employees, 74 are represented by the Utility
Workers Union of America, AFL-CIO, Local No. 431. The Company and its union
employees currently have a contract through April 30, 2002. The Company
believes that it enjoys generally good labor relations.
ITEM 2. Properties
The Company owns approximately 635 miles of distribution
mains, the major portion of which are constructed of coated steel, plastic or
cast iron. The Company owns and operates LP vaporizing equipment with an
approximate daily capacity of 14,000 Mcf and six LP storage tanks with a
total capacity of approximately 320,000 gallons. The Company also owns and
operates an LNG storage tank with a capacity of 45,000 barrels, equivalent to
approximately 157,000 Mcf of vaporized gas, and LNG vaporization equipment
with a daily vaporization rate of approximately 20,000 Mcf. The Company has
three gate stations receiving gas from the Algonquin pipeline. The Company
also owns four office and operations buildings in the service area.
All of the principal properties of the Company are owned in fee, subject
to the lien of the mortgage securing the Company's First Mortgage Bonds (the
"Indenture of First Mortgage"), and further subject to covenants,
restrictions, easements, leases, rights-of-way and other similar minor
encumbrances common to properties of comparable size and character, and none
of which, in the opinion of the Company's management, materially interferes
with the Company's use of its properties for the conduct of its
14
business. The Company's gas mains are primarily located under public highways
and streets. Where they are under private property, the Company has obtained
easements or rights-of-way from the record holders of title. These easements
and rights are deemed by the Company to be adequate for the purpose for which
they are being used.
ITEM 3. Legal Proceedings/Environmental Matters
In January 1990 the Company received notification from the Massachusetts
Department of Environmental Protection ("DEP") that 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 Company. The Company has entered
into an agreement with a group of other potentially responsible parties (the
"Group") to respond jointly and to share costs associated with the DEP's
investigation. The Group negotiated an agreement with the DEP to conduct
limited response actions at one of the sites without admission of liability,
at a cost of about $100,000 to the entire Group, pursuant to which members of
the Group would be released from any further liability at the site. Remedial
actions were commenced September 5, 1995 and are substantially complete,
subject to final DEP approval of the action taken. The investigation of the
second site is in the early stages and potential remediation costs at the
second site and the Company's degree of responsibility have not been
determined. The Company does not expect its allocated share of costs 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.
Although the Company is not involved in any material litigation at this
time, it may from time to time be involved in litigation in the ordinary
course of its business.
15
ITEM 4. Submission of Matters To A Vote Of Security Holders
On February 10, 1998 the holders of the Company's Common
Shares approved an amendment to the Company's Articles of Organization that
increased the number of authorized Common Shares by 750,000 shares to
2,951,334. The purpose of such change was to replenish the Company's shares
available for issuance to the public, where the Company had recently
completed a secondary offering of 390,000 shares and issues shares on an
ongoing basis through its Common Share Owner Dividend Reinvestment and Stock
Purchase Plan.
16
Additional Item - Executive Officers of the Registrant
Executive Officers:
Raymond H. Faxon*
Age 91, 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 60, 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 54, currently Senior Vice President and Treasurer
of the Registrant. His current business function is Chief Financial and
Accounting
17
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 52, 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.
Wallace E. Fletcher
Age 65, currently Comptroller and Assistant Treasurer.
His current business function is Comptroller and Assistant Treasurer of the
Registrant. Positions held with the Registrant for the past five years are as
follows:
5/27/92 to Present - Comptroller and Assistant Treasurer
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 office are to
be for one year or until their successors have been duly elected or appointed.
*Members of the Executive Committee.
18
PART II
ITEM 5. Market For The Registrant's Common Stock And Related
Stock-Holders Matters
(a) Common Stock Quotations
October 31, 1997 - Present AMEX
Prior to October 31, 1997 OTC Market
3 Months
Ended 9/30/98 6/30/98 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96
(See Note)
High 16-3/8 16-3/4 17-1/4 16-5/8 13-1/2 16 16-1/2 18-1/4
Low 14-3/8 14-1/4 14-7/8 13 12-3/4 13 16 16
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, 1998 is 819.
(c) Dividends:
1998 1997
---- ----
November 15, 1997 - $.24 November 15, 1996 - $.24
February 15, 1998 - .24 February 15, 1997 - .24
May 15, 1998 - .24 May 15, 1997 - .24
August 15, 1998 - .24 August 15, 1997 - .24
As of September 30, 1998 the Registrant had retained earnings
totalling $10,672,783 of which $6,693,309 was restricted against payment of
cash dividends under the terms of the Registrant's Indenture of Trust.
ITEM 6. Selected Financial Data
The following table summarizes certain consolidated financial data
and is qualified in its entirety by the more detailed Consolidated Financial
Statements included herein.
19
Selected Financial Data
Fall River Gas Company and Subsidiary
The following table summarizes certain consolidated financial data and
is qualified in its entirety by the more detailed Consolidated Financial
Statements included herein.
Twelve Months ended September 30,
1998 1997 1996 1995 1994
----------- ----------- ---------- ----------- --------
Balance Sheet Data:
Assets (in thousands)
Utility plant-net................... $39,650 $39,340 $38,653 $36,209 $33,213
Non-utility plant-net............... 4,248 2,924 2,762 2,613 2,327
Current assets...................... 11,269 10,154 9,088 9,934 12,150
Other assets........................ 472 2,517 2,688 2,201 1,936
-------- ------- ------- ------- -------
Total......................... $55,639 $54,935 $53,191 $50,957 $49,626
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Capitalization and liabilities
Capitalization
Common equity....................... $17,430 $12,618 $12,637 $12,922 $13,014
Long-term debt (less current
maturities)........................ 19,500 13,500 13,500 6,500 7,380
-------- ------- ------- ------- -------
Total.......................... 36,930 26,118 26,137 19,422 20,394
Current Liabilities................... 10,915 21,390 20,014 24,692 22,763
Other Liabilities..................... 7,794 7,427 7,040 6,843 6,469
-------- ------- ------- ------- -------
Total.......................... $55,639 $54,935 $53,191 $50,957 $49,626
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Income Statement Data:
Gas operating revenues................... $42,671 $45,261 $48,966 $44,418 $48,331
Operating expenses:
Cost of gas sold....................... 22,921 25,315 31,133 28,097 31,162
Other operation and maintenance........ 12,601 13,314 12,257 10,992 10,953
Depreciation........................... 2,050 1,935 1,609 1,499 1,392
Taxes-other than Federal income taxes.. 1,434 1,408 1,283 1,053 1,059
Federal income......................... 687 428 342 471 988
-------- ------- ------- ------- -------
Total........................... 39,693 42,400 46,624 42,112 45,554
-------- ------- ------- ------- -------
Operating income......................... 2,978 2,861 2,342 2,306 2,777
Other income-net of tax.................. 871 850 790 772 815
Total interest charges................... 1,769 2,086 1,708 1,461 1,101
-------- ------- ------- ------- -------
Net income............................... $2,080 $1,625 $1,424 $1,617 $2,491
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Shares outstanding-average............... 2,146,119 1,784,993 1,780,542 1,780,542 1,780,542
Earnings per share....................... $0.97 $0.91 $0.80 $0.91 $1.40
Dividends declared per share............. $0.96 $0.96 $0.96 $0.96 $0.98
Appliance Company net income............. $851 $825 $779 $753 $799
20
ITEM 7. Management's Discussion and Analysis
OVERVIEW
Operating results are derived from two major classifications - utility and
non-utility. Utility revenues are generated from the operations of the
regulated natural gas distribution company and include the sale and
distribution, as well as the transportation, of natural gas to firm and
interruptible customers. Non-utility revenues are almost entirely from the
rental of water heaters and conversion burners.
The sale and distribution, as well as the transportation, of natural gas to
customers on a year-round basis for heating, water heating, cooking and
processing are the sources of firm utility revenues, as described below. Firm
customers can be residential, commercial or industrial. The revenues from
firm sales customers are determined by regulated tariff schedules and through
Massachusetts Department of Telecommunications and Energy ("MDTE") approved
commodity charge factors. These factors include the Cost of Gas Adjustment
Clause ("CGAC"), which requires the Company to collect from or return to
customers changes in gas cost from those included in the regulated tariffs,
on a semi-annual basis. The CGAC also provides for collection of: (i)
carrying costs on gas purchases; (ii) pipeline transition costs; (iii) costs;
incentives and lost base revenues associated with demand side management,
(DSM) programs; and (iv) certain costs of compliance with environmental
regulations. In accordance with the Company's approved CGAC, increases or
decreases in the cost of gas sold continue to be passed directly to firm
customers, dollar for dollar.
Sales to other utilities ("off-system sales") and to dual-fuel customers
("interruptible sales") are made when excess gas supplies are available and
prices are competitive. Interruptible sales are generally made in non-winter
months and can be interrupted by the Company at any time.
Transportation, the delivery of gas purchased by customers from marketers and
other third parties through the Company's distribution system, has recently
become a growing portion of the Company's business. With the restructuring of
the natural gas pipeline industry and the development of the state-level
policy of unbundling of delivery and commodity sales functions, the Company's
largest customers have moved first from firm tariffed sales service to firm
sales service under special contracts and more recently to transportation
service. The movement to the Company's transportation service occurred
primarily after implementation of new rates on December 1, 1996. Under these
rates, the Company earns the same margins on transportation service as it
does on bundled commodity sales and delivery. Accordingly, the Company is
generally indifferent as to whether customers take bundled sales and delivery
or unbundled transportation service only. To date, only the Company's largest
customers have moved to transportation service, although it is likely that
additional customers will as well. Such movement to transportation results in
reduced gas operating revenues, because no commodity is bought by the Company
for such customers. Correspondingly, cost of gas sold is reduced.
Consequently, there is no impact on earnings because the Company earns no
margin on the sale of natural gas itself.
The Appliance Company generates non-utility revenues primarily from the
rental of water heaters and conversion burners. The Appliance Company also
sells such equipment and other gas-burning appliances such as central heating
and air conditioning systems and water heaters. Such rentals and sales are
made to the Company's gas customers and thereby assist the utility sales
efforts. For income statement purposes, the net earnings of the Appliance
Company are shown under "Other Income." A breakdown of the revenue and
expenses of the Appliance Company is found in the Notes to Consolidated
Financial Statements.
21
SEASONALITY
The nature of the Company's business is highly seasonal and
temperature-sensitive. As a result, the Company's operating results in any
given period reflect, in addition to other matters, the impact of the
weather, with colder temperatures resulting in increased sales and
transportation by the Company. The substantial impact of this sensitivity to
seasonal conditions is reflected in the Company's results of operations and
the Company anticipates that it will continue to be so reflected in future
periods.
Short-term borrowing requirements vary according to the seasonal nature of
sales and expense activities of the Company. Accordingly, there is a greater
need for short-term borrowings during periods when internally generated funds
are not sufficient to cover all capital and operating requirements,
particularly in the fall and winter. Short-term borrowings utilized for
construction expenditures generally are replaced by permanent financing when
it becomes economical and practical to do so and where appropriate to
maintain an acceptable relationship between borrowed and equity resources.
RESULTS OF OPERATION
Fiscal 1998 versus Fiscal 1997
Operating revenues in fiscal 1998 totalled $42,671,000 a decrease of 5.7%
from fiscal 1997. The decrease in revenues from the prior year was
attributable to a weather related decline in firm sales and a decrease in gas
costs recovered through the Company's CGAC. As discussed earlier,
fluctuations in the cost of gas does not impact the profitability of the
Company as these changes are recovered or returned to customers through the
CGAC.
Firm gas sendout, firm gas sales and firm transportation, was 6,910,000 Mcf
in fiscal 1998, a decrease of 6.1% from fiscal 1997. The primary factor for
the decline in gas sendout was weather, which was 8.4% warmer than a normal
year and 6.5% warmer than the prior year.
Cost of gas sold includes costs for gas operation including supplemental
fuels, such as, propane (LPG), liquefied natural gas (LNG), and storage,
which are used to augment the Company's primary supply of natural gas during
periods of peak usage. The average cost per Mcf of gas distributed in fiscal
1998 and 1997 was $4.39 and $4.46, respectively.
Other operations expense in fiscal 1998 totalled $11,113,000, a 2.0% decrease
from the prior period. A reduction in the costs of employee benefits and
pensions were primarily responsible for this decrease.
Maintenance expense totalled $1,487,000 in fiscal 1998, a 24.8% decrease from
the prior period. More efficient use of Company labor and a strict cost
cutting program generated substantial savings for the year.
Other income totalled $871,000 in fiscal 1998 and $850,000 in fiscal 1997.
Earnings of Fall River Gas Appliance Company, Inc., the Company's
wholly-owned subsidiary, totalled $850,000 and $824,000 in fiscals 1998 and
1997, respectively.
Fiscal 1998 interest expense was $1,769,000, a 15.2% decrease from the prior
fiscal period as a result of decreased short-term interest expense offset by
increased interest expense on long-term debt. The net proceeds of the Fall
River Gas Company debt and equity offerings during the first quarter of the
1998 fiscal year were used to reduce the short-term borrowing for utility
operations resulting in the decreased in interest expense.
22
Fiscal 1997 versus Fiscal 1996
Operating revenues in fiscal 1997 totalled $45,261,000, a decrease of 7.6%
from fiscal 1996. The decrease in revenues from the prior year was
attributable to a decrease of $4,562,000 in gas costs recovered in CGAC and
the transfer of customers from firm sales to firm transportation. While the
transfer of firm sales customers to transportation does not affect operating
margins, it does provide less revenue.
Firm gas sendout was 7,360,000 Mcf in fiscal 1997, slightly below the
7,580,000 that was recorded in the prior fiscal year due to a slight decrease
in degree days.
Other operations expense increased 10.4% over fiscal 1996. Wage increases,
esclating health care cost, and inflationary pressures on goods and services
were the primary factors causing this increase.
Depreciation expense increased by $326,000, 20.3%, due to increase in
depreciation accrual rates as authorized by the MDTE on October 16, 1996.
Other Income totalled to $850,000 in fiscal 1997 and $791,000 in fiscal 1996.
This increase was primarily the result of increased earnings in the appliance
company attributable to increased rental fees.
Interest expense increased by $379,000, 22.2%, due to increased cost on
Long-term Debt related to the issuance of $7,000,000 of 30 year Mortgage
Bonds with a 7.99% coupon rate, offset by lower interest cost on reduced
short-term borrowings. The proceeds from the debt issue were used to reduce
the Company's short-term borrowing.
LIQUIDITY AND CAPITAL RESOURCES
On October 31, 1997 the Company began trading on the American Stock Exchange
(AMEX) under the symbol "FAL".
During the first quarter of fiscal 1998 Fall River Gas Company issued 390,000
additional shares of common stock and $6,000,000 of 7.24% Mortgage Bonds due
2027. The net proceeds of these issues, $10,859,000 before deduction of
expenses payable by the Company, were used to reduce the short-term
indebtedness. These financings favorably impacted liquidity.
The Company's major capital requirements result from upgrading the efficiency
of existing plant and expanding plant to serve additional customers. Such
capital expenditures are primarily for expansion and improvements of the
Company's distribution system. For the fiscal year 1998, capital expenditures
totalled approximately $2,289,000 compared to $2,467,000 in fiscal 1997 and
$3,780,000 in fiscal 1996.
Capital expenditures and accounts receivable balances were financed by
internally generated funds and supplemented by short-term borrowings. During
fiscal 1998 gas cost billings were lower than the Company's cost of gas,
thereby having a negative impact on cash flow of approximately $1,837,000.
Lower gas cost billings also increased the Company's deferred gas balance to
$3,618,000 in fiscal 1998 from $1,781,000.
The Company's net cash generated from operating activities in fiscal 1998 was
$4,253,000 compared to $3,289,000 and $1,215,000 in fiscal years 1997, and
1996, respectively. The Company had capital expenditures for utility and
non-utility operations in the amounts of $2,672,000, $2,894,000, and
$4,247,000 in fiscal years 1998, 1997, and 1996, respectively.
23
As is customary in the utility industry, cash for construction requirements
in excess of internally generated funds are provided through short-term
borrowings under existing lines of credit, then from time to time repaid with
the proceeds from equity and long-term financing as deemed appropriate by
management. On September 30, 1998 the Company had $14,900,000 of available
borrowings under its lines of credit. These lines are reviewed annually by
our lending banks and management believes they will be renewed or replaced.
Management believes the available financings are sufficient to meet cash
requirements for the foreseeable future.
Cash flow patterns reflect the seasonality of the Company's business. Sales
of natural gas are seasonal, generating approximately seventy percent of the
Company's annual revenues between November 1 and March 31. The greatest
demand for cash is in the late fall and winter as construction projects are
brought to completion and accounts receivable balances rise.
The Company anticipates utility construction expenditures over the next
fiscal year to be approximately $2,500,000 and non-utility capital
expenditures to be approximately $400,000 over the same period. It is
anticipated that such expenditures will be financed from internally generated
sources supplemented, as required, by short-term borrowing.
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 CGAC 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
proceedings with resulting decreases in transportation margins; and
uncertainty as to environmental costs and as to regulatory approval of the
full recovery of environmental costs, transition costs and other regulatory
assets.
New Accounting Standards and Pronouncements
During fiscal year 1998, the Company implemented Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share," which establishes
standards for computing and presenting earnings per share and SFAS No. 129,
"Disclosure of Information about Capital Structure," which establishes
standards for disclosure repuirements regarding capital structure. Both SFAS
No. 128 and No. 129 have no material impact on the Company's financial
reporting.
The Financial Accounting Standards Board issued new accounting standards that
the Company will adopt in future periods. SFAS No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and the disclosure
of comprehensive income and its components. This standard is effective in
fiscal year 1999 and is not expected to have a material impact on the
Company's financial reporting. SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," requires disclosure of operating
segments, including disclosures about products and services, geographic areas
and major customers. It is effective in fiscal year 1999 and is not expected
to have a material impact on the Company's financial reporting.
24
SFAS No. 132, "Employer's Disclosures About Pensions and Other Postretirement
Benefits," revises employer's disclosures about pension and other
postretirement benefit plans. It does not change the measurement of
recognition of those plans. Effective in fiscal year 1999, no significant
affect is expected on the Company's financial reporting. SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," establishes
standards for recording all derivative instruments as assets and liabilities
measured at fair value. The standard is effective in quarter four of fiscal
year 1999 and the Company is currently evaluating the impact on financial
position.
The American Institute of Certified Public Accountants issued Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed
and Obtained for Internal Use," and SOP 98-5, "Reporting on the Costs of
Start-up Activities." Both are effective in fiscal year 2000 and adoption is
not expected to have a material impact on the Company's financial position.
The "Year 2000" Issue
The Company has evaluted its principal computer systems and noninformation
technology systems including, but not limited to, telecommunication systems,
automated meter reading systems, SCADA, regulator stations, plant remote
control systems and security systems to determine readiness for the year
2000. These systems are currently capable of processing the year 2000, or are
in the process of being upgraded or replaced by systems that are similarly
capable. All necessary program modifications and system upgrades and testing
are expected to be completed by the year 2000. Costs incurred to date and
costs expected to be incurred to complete the year 2000 readiness are not
significant and will not have a material impact on the Company's financial
position or results of operations. The Company is currently assessing year
2000 issues with material third parties. Except for the Company's major
pipeline supplier, who has provided assurance of compliance, the Company has
not determined the level of third-party risk. Preparation of a contingency
plan is in process and is expected to be finalized during fiscal year 1999.
25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Fall River Gas Company:
We have audited the accompanying consolidated balance sheets of FALL RIVER
GAS COMPANY (a Massachusetts corporation) and subsidiary as of September 30,
1998 and 1997 and the related consolidated statements of income, retained
earnings and cash flows for each of the three years in the period ended
September 30, 1998. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fall River Gas Company and
subsidiary as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 1998, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The financial statement
schedule under part IV, Item 14, presented for purposes of additional
analysis and is not a required part of the basic consolidated financial
statements. This information has been subject to the auditing procedures
applied in our audit of the basic consolidated financial statements and, in
our opinion, is fairly stated, in all material respects, in relation to the
basic consolidated financial statements taken as a whole.
/S/ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 17, 1998
26
CONSOLIDATED STATEMENTS OF INCOME
Fall River Gas Company and Subsidiary
For the Years Ended September 30, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
GAS OPERATING REVENUES....................... $42,670,838 $45,261,249 $48,965,547
OPERATING EXPENSES:
Operations -
Cost of gas sold.......................... 22,920,783 25,314,769 31,132,828
Other..................................... 11,113,369 11,337,000 10,268,772
Maintenance................................ 1,487,345 1,977,172 1,987,782
Depreciation .............................. 2,050,207 1,934,959 1,608,641
Taxes -
Local property and other.................. 1,433,887 1,408,507 1,283,389
Federal and state income (Note 3)......... 686,909 427,768 341,432
----------- ----------- -----------
39,692,500 42,400,175 46,622,844
----------- ----------- -----------
OPERATING INCOME.............................. 2,978,338 2,861,074 2,342,703
OTHER INCOME (EXPENSE):
Earnings of Fall River Gas Appliance
Company Inc.(Note 2)...................... 850,517 824,724 778,813
Interest income............................ 13,661 13,775 14,489
Other...................................... 6,836 11,375 (2,505)
----------- ----------- ------------
INCOME BEFORE INTEREST EXPENSE................ 3,849,352 3,710,948 3,133,500
----------- ----------- -----------
INTEREST EXPENSE:
Long-term debt............................ 1,534,900 1,172,900 683,387
Other..................................... 234,390 913,405 1,024,405
----------- ----------- -----------
1,769,290 2,086,305 1,707,792
----------- ----------- -----------
NET INCOME.................................... $ 2,080,062 $ 1,624,643 $ 1,425,708
----------- ----------- -----------
----------- ----------- -----------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING....... 2,146,119 1,784,993 1,780,542
----------- ----------- -----------
----------- ----------- -----------
EARNINGS PER AVERAGE COMMON SHARE............. $ 0.97 $ 0.91 $ 0.80
----------- ----------- -----------
----------- ----------- -----------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For the Years Ended September 30, 1998, 1997, and 1996
1998 1997 1996
---- ---- ----
BALANCE AT BEGINNING OF YEAR................. $10,693,309 $10,865,648 $11,149,260
Net Income................................... 2,080,062 1,624,643 1,425,708
----------- ----------- -----------
Total.................................... 12,773,371 12,490,291 12,574,968
Dividends declared........................... 2,100,588 1,796,982 1,709,320
----------- ----------- -----------
BALANCE AT END OF YEAR....................... $10,672,783 $10,693,309 $10,865,648
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
27
CONSOLIDATED BALANCE SHEETS
Fall River Gas Company and Subsidiary
September 30, 1998 and 1997
ASSETS
1998 1997
---- ----
PROPERTY, PLANT AND EQUIPMENT, at original cost:
Gas................................................... $ 60,448,647 $ 58,413,337
Nonutility, principally rented gas appliances......... 6,288,100 6,287,417
------------ ------------
66,736,747 64,700,754
Less-Accumulated depreciation......................... 22,839,053 21,152,109
------------ ------------
43,897,694 43,548,645
------------ ------------
CURRENT ASSETS:
Cash.................................................. 356,005 329,400
Accounts receivable, less allowance for doubtful accounts
of $957,000 in 1998 and $907,000 in 1997............. 1,807,487 1,972,301
Inventories, at average cost -
Liquefied natural gas, propane, and natural gas in storage 3,148,31 3,108,887
Materials and supplies................................ 1,273,772 1,341,567
Deferred gas costs.................................... 3,617,512 1,780,798
Prepaid taxes......................................... 401,160 990,515
Prepayments and other................................. 665,243 630,581
------------ ------------
11,269,490 10,154,049
------------ ------------
DEFERRED CHARGES:
Regulatory asset (Note 6)............................. 453,471 758,832
Other................................................. 18,885 473,901
------------ ------------
472,356 1,232,733
------------ ------------
$ 55,639,540 $ 54,935,427
------------ ------------
------------ ------------
The accompanying notes are an integral part of these consolidated
financial statement.
28
CONSOLIDATED BALANCE SHEETS(Cont.)
Fall River Gas Company and Subsidiary
September, 30, 1998 and 1997
CAPITALIZATION:
1998 1997
---- ----
Stockholders' investment-
Common stock, par value $.83-1/3 per share, 2,951,334
shares authorized and 2,201,334 issued................ $ 1,834,445 $ 1,834,445
Premium paid-in on common stock........................ 4,954,532 1,474,850
Retained earnings (Note 4)............................. 10,672,783 10,693,309
----------- -----------
17,461,760 14,002,604
Less - 9,326 shares in 1998 and 410,511 in 1997 of
common stock held in treasury, at cost................ 31,443 1,384,079
----------- -----------
17,430,317 12,618,525
Long-term debt (Note 4) 19,500,000 13,500,000
----------- ----------
Total capitalization.............................. 36,930,317 26,118,525
----------- -----------
CURRENT LIABILITIES:
Notes payable to banks (Note 4)......................... 5,100,000 15,400,000
Dividends payable....................................... 526,173 511,655
Accounts payable........................................ 3,074,673 3,545,644
Other................................................... 2,214,022 1,932,403
----------- -----------
10,914,868 21,389,702
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 7)
DEFERRED CREDITS:
Accumulated deferred income taxes (Note 3).............. 4,462,626 4,273,840
Unamortized investment tax credits (Note 3)............. 485,453 529,737
Other................................................... 2,390,716 2,129,057
Regulatory liability (Note 3)........................... 455,560 494,566
----------- -----------
7,794,355 7,427,200
----------- -----------
$55,639,540 $54,935,427
----------- -----------
----------- -----------
The accompanying notes are an integral part of these financial statements.
29
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fall River Gas Company and Subsidiary
For the Years Ended September 30, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
Cash Provided by (Used for)
Operating Activities:
Net Income........................................... $ 2,080,062 $ 1,624,643 $ 1,425,708
Items not requiring (providing) cash:
Depreciation....................................... 2,292,374 2,121,759 1,807,808
Deferred income taxes.............................. 188,786 149,854 218,869
Investment tax credits, net........................ (44,284) (37,958) (37,958)
Change in working capital.......................... (1,278,188) (939,194) (1,573,387)
Other sources, net................................. 1,013,970 370,037 (626,514)
----------- ----------- ------------
Net cash provided by operating activities......... 4,252,720 3,289,141 1,214,526
----------- ----------- -----------
Investing Activities:
Additions to utility property, plant and equipment... (2,288,562) (2,467,988) (3,779,718)
Additions to nonutility property..................... (383,801) (426,502) (466,862)
------------ ------------ ------------
Net cash used for investing activities............. (2,672,363) (2,894,490) (4,246,580)
------------ ------------ ------------
Financing Activities:
Cash dividends paid on common stock.................. (2,086,070) (1,712,657) (1,709,320)
Retirement of long-term debt through sinking fund.... 0 0 (880,000)
Common stock transactions............................ 4,832,318 153,471 0
Proceeds from long-term debt issue................... 6,000,000 0 7,000,000
Increase(decrease) in notes payable to banks, net.... (10,300,000) 1,100,000 (1,300,000)
------------ ------------ ------------
Net cash provided by (used for) financing activities. (1,553,752) (459,186) 3,110,680
Increase (decrease) in cash................................ 26,605 (64,535) 78,626
Cash, beginning of year.................................... 329,400 393,935 315,309
----------- ------------ -----------
Cash, end of year.......................................... $ 356,005 $ 329,400 $ 393,935
----------- ------------ -----------
----------- ------------ -----------
Changes in Components of Working Capital(excluding
cash): (Increase) decrease in current assets:
Accounts receivable................................. $ 164,814 $ 704,021 $ (517,152)
Inventories......................................... 28,371 179,311 (488,868)
Prepayments and other............................... 554,694 (434,175) (676,920)
Deferred gas cost................................... (1,836,714) (1,579,533) 2,607,617
Increase (decrease) in current liabilities:
Accounts payable.................................... (470,971) (8,980) (30,676)
Gas supplier refunds due customers.................. 0 0 (1,367,969)
Accrued taxes....................................... 0 0 (838,617)
Other............................................... 281,618 200,162 (260,802)
----------- ------------ -----------
Change in working capital.......................... $(1,278,188) $ (939,194) $(1,573,387)
------------ ------------ ------------
------------ ------------ ------------
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest............................................ $ 1,745,556 $ 2,015,215 $ 1,743,878
Income taxes........................................ 593,588 1,131,624 2,111,259
The accompanying notes are an integral part of these financial statements.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fall River Gas Company and Subsidiary
September 30, 1998
1) ACCOUNTING POLICIES
Principles of Consolidation
The Consolidated financial statements include the accounts of Fall River
Gas Company (the Company) and subsidiary, Fall River Gas Appliance Company,
Inc., (the Appliance Company). 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 Massachusetts Department of
Telecommunications & Energy (MDTE). The Company's accounting policies conform
to generally accepted accounting principles applicable to rate regulated
enterprises and the reported amounts of revenues and expenses during the
reported period.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reporting and disclosure of assets and
liabilities, including those that are of a contingent nature, at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
Depreciation & Amortization
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 3.5%. Rented gas appliances have estimated useful lives of 10 to 20
years. Installation costs of rented appliances are amortized over the
estimated life of the lease period.
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.
Regulatory Assets
Regulatory assets relate to unrecovered SFAS 106 expenses. These
regulatory assets do not earn a return on investment.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
2) 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,
1998, 1997, and 1996 is as follows:
1998 1997 1996
---- ---- ----
Operating revenues.......................... $3,409,506 $3,176,526 $2,941,885
Costs and expenses.......................... 1,976,501 1,786,944 1,629,693
---------- ---------- ----------
Income before income taxes.............. 1,433,005 1,389,582 1,312,192
Income tax expense.......................... 582,488 564,858 533,379
---------- ---------- ----------
Net income............................ $ 850,517 $ 824,724 $ 778,813
---------- ---------- ----------
---------- ---------- ----------
3) 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:
1998 1997 1996
-----------------------------------------------------------------------------
Federal State Federal State Federal State
Current.................... $891,431 $235,811 $693,858 $194,129 $ 535,480 $159,195
Deferred................... 155,731 33,056 123,690 26,164 181,356 37,513
Investment tax credits..... (44,284) - (37,958) - (37,958) -
-------- -------- -------- -------- ---------- --------
Total provision....... $1,002,878 $268,867 $779,590 $220,293 $ 678,878 $196,708
-------- -------- -------- -------- ---------- --------
-------- -------- -------- -------- ---------- --------
Provision for income taxes included in:
Operating expenses....... $562,784 $124,125 $348,708 $ 79,060 $ 277,028 $ 64,404
Other income-
Fall River Gas
Appliance Company... 438,145 144,343 424,858 140,001 401,207 132,172
Other.................... 1,949 399 6,024 1,232 643 132
-------- -------- -------- -------- ---------- --------
Total provision...... $1,002,878 $268,867 $779,590 $220,293 $ 678,878 $196,708
-------- -------- -------- -------- ---------- --------
-------- -------- -------- -------- ---------- --------
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 resulted
in the recognition of a regulatory liability of approximately $412,000 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.
The tax effect of the cumulative differences that gave rise to the deferred
tax liabilities and deferred tax assets for the year ended September 30, 1998
and 1997 are detailed on the following page (in thousands):
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
1998 1997
---- ----
Deferred Tax Assets:
Allowance for doubtful accounts............... $ 362,311 $ 343,472
Unamortized investment tax credits............ 189,326 206,597
Contributions in aid of construction.......... 226,199 202,018
Unbilled revenue.............................. 340,971 376,728
Deferred pension.............................. 253,461 253,461
Deferred compensation......................... 257,323 245,294
Regulatory liability.......................... 195,035 195,035
Other......................................... 903,024 619,218
---------- ----------
Total Deferred Tax Assets............................ $2,727,650 2,441,823
Deferred Tax Liabilities:
Property related.............................. 5,272,976 5,116,921
Deferred gas costs............................ 1,410,829 694,511
Other......................................... 513,494 301,337
---------- ----------
Total Deferred Tax Liabilities....................... 7,197,299 6,112,769
--------- ----------
Net Deferred Tax Liability........................... $4,469,649 $3,670,946
--------- ----------
--------- ----------
The combined Federal and State income tax provision set forth above
represents approximately 38% of income taxes in 1998, 1997 and 1996. The
combined statutory rate for Federal and State income tax was approximately
39% in 1998, 1997, and 1996. The difference between the effective income tax
rate and statutory rate results primarily from the amortization of investment
tax credits
Investment tax credits are amortized over the life of the property giving
rise to the credits.
4) CAPITALIZATION
Common Stock Issuance
During Fiscal 1998 the Company issued 390,000 shares of common stock out if its
treasury shares with net proceeds of approximately $5,000,000
Long-Term Debt And Notes Payable to Banks
Long-term debt consists of:
Amounts Outstanding
---------------------------
Amounts Sept 30, Sept. 30,
Authorized 1998 1997
---------- ------------ ------------
FIRST MORTGAGE BONDS:
9.44% Series, due 2020............ $6,500,000 $ 6,500,000 $ 6,500,000
7.99% Series, due 2026............ 7,000,000 7,000,000 7,000,000
7.24% Series, due 2027............ 6,000,000 6,000,000 -
----------- -----------
$19,500,000 $13,500,000
----------- -----------
----------- -----------
There are no aggregate maturities and sinking fund requirements for the
next five years applicable to the issues outstanding at September 30, 1998. 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 $6,865,648 were restricted against payment of dividends at
September 30, 1998.
If long-term debt outstanding at September 30, 1998 had been refinanced
using new issue debt rates of interest that are lower than the outstanding
rates, the present value of those obligations would have increased from the
amounts outstanding in the September 30, 1998 balance sheet by 26.5%.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Cont.)
The Company maintains lines of credit with various banks under which it
may borrow up to $20,000,000. 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 at rates ranging from 5/16 of 1% to 1/2 of 1%. At
September 30, 1998, there were $5,100,000 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, 1998 and 1997:
1998 1997
---- ----
Average daily balance outstanding for the period.... $ 6,917,000 $15,449,000
Weighted average interest rate for the period....... 6.2% 6.1%
Maximum amount outstanding during the
period based on month-end balances............. $16,900,000 $23,500,000
Weighted average interest rate at end of period..... 6.0% 7.1%
5) EMPLOYEES' PENSION PLANS
The 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, 1998 and 1997:
Actuarial present value of benefit obligations:
1998 1997
---- ----
Union Salaried Union Salaried
----- -------- ----- --------
Vested................................ $(6,365,981) $(6,261,757) $(6,292,407) $(5,678,595)
Non vested............................ (13,216) (44,939) (11,818) (35,926)
----------- ----------- ----------- -----------
Total accumulated benefit obligation... $(6,379,197) $(6,306,696) $(6,304,225) $(5,714,521)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Projected benefit obligation........... $(7,342,996) $(7,516,071) $(6,450,299 $(6,897,893)
Plan assets at fair value................... 7,888,434 7,619,218 7,085,208 6,382,336
----------- ----------- ----------- -----------
Projected benefit obligation (in excess)
or less than plan assets.................. 545,438 103,147 634,909 (515,557)
Unrecognized net gain....................... (1,070,741) (1,745,402) (1,244,143) (1,383,806)
Unrecognized prior service cost
due to plan amendment..................... 231,684 1,063,112 270,298 1,181,236
Unrecognized net obligation................. 299,616 112,883 374,520 141,102
----------- ----------- ----------- -----------
Prepaid pension cost (pension liability)
Recognized on the consolidated
balance sheet.......................... $ 5,997 $ (466,260) $ 35,584 $ (577,025)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net pension cost included the following components: 1998 1997 1996
---- ---- ----
Service cost........................... $ 422,619 $ 389,258 $ 365,511
Interest cost.......................... 1,067,855 1,041,044 906,500
Return on assets....................... (2,331,614) (2,178,265) (1,320,522)
Net deferral and amortization.......... 1,301,403 1,289,404 520,684
----------- ---------- ----------
Net periodic pension cost.............. $ 460,263 $ 541,441 $ 472,173
----------- ---------- ----------
----------- ---------- ----------
Assumptions used to determine the projected benefit obligation were as follows:
1998 1997
---- ----
Discount rate.............................................. 8.0% 8.0%
Rate of increase in future compensation levels............. 3.0% 3.0%
Expected long-term rate of return on assets-Salaried Plan.. 9.0% 9.0%
Expected long-term rate of return on assets-Union Plan..... 8.0% 9.0%
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
6) 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. 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 is recording
the transition obligation over a twenty year period.
The following table sets forth the status of the plans at September 30, 1998 and
1997:
Accumulated postretirement benefit obligation: 1998 1997
---- ----
Retirees................................... $(1,092,032) $ (943,560)
Fully eligible active plan participants.... ( 8,713) (26,808)
Other active plan participants............. (697,824) (898,620)
------------ -----------
(1,798,569) (1,868,988)
Plan assets..................................... 220,940 210,489
Unrecognized transition obligation.............. 2,120,800 2,262,177
Unrecognized past service costs................. 101,283 112,389
Unrecognized gain............................... (1,445,572) (1,360,927)
------------ -----------
Accrued postretirement benefit cost............. $ (801,118) $ (644,860)
------------ -----------
------------ -----------
Net periodic postretirement benefit cost for fiscal 1998, 1997 and 1996
included the following components:
1998 1997 1996
---- ---- ----
Service Costs-benefits attributable to service during the period..... $ 49,345 $ 58,403 $ 80,022
Iterest cost on accumulated postretirement benefit obligation........ 132,889 137,005 140,210
Net amortization and deferral........................................ 141,377 141,377 141,385
Recognized past service.............................................. 11,106 11,106 11,106
Recognized gain...................................................... (88,898) (74,678) (59,909)
-------- -------- --------
$ 245,819 $273,213 $312,814
-------- -------- --------
-------- -------- --------
For measurement purposes, a 7% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1998. 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, 1998 by $148,495 and the aggregate of the service
and the interest cost components of net periodic postretirement benefit cost
(NPPBC) for the year by $19,258. The discount rate was 7% for the development of
the NPPBC and for disclosure.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
As of September 30, 1998, the Company has a regulatory asset amounting to
$453,471 related to unrecovered SFAS 106 expenses. On October 16, 1996 the
MDTE approved a settlement agreement between the company and intervenors for
an increase in rates effective December 1, 1996. As part of the settlement
agreement, the Company was allowed recovery of annual SFAS 106 expenses, as
well as, amounts recorded as regulatory assets prior to December 1, 1996.
7) COMMITMENTS AND CONTINGENCIES
The Company and certain of its predecessors owned or operated facilities
for the manufacture of gas from coal, a process used through the mid-1900's
that produced by-products that may be considered contaminated or hazardous
under current law, and some of which may still be present at such facilities.
The Company accrues environmental investigation and clean-up costs with
respect to former manufacturing sites and other environmental matters when it
is probable that a liability exists and the amount or range of amounts is
reasonably certain.
8) UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is unaudited quarterly information for the fiscal years ended
September 30, 1998 and 1997. Quarterly variations between periods are caused
primarily by the seasonal nature of the gas distribution business.
Quarter Ended Quarter Ended
(Thousands except per share amounts) Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30
-------------------------------------------------------------------------
Operating Revenues............... $11,273 $18,513 $8,582 $4,303 $11,164 $20,401 $9,789 $3,907
Operating Income................. 791 1,791 429 (33) 453 1,956 556 (104)
Net Income....................... 548 1,512 249 (229) 129 1,596 271 (371)
Net Income per Share............. 0.27 0.69 0.11 (0.10) 0.07 0.90 0.15 (0.21)
ITEM 9. Disagreements On Accounting And Financial Disclosures
None.
PART III
ITEM 10. Directors and Executive Officers Of Registrant
Information required under this item regarding directors and
compliance with Section 16(A) of the Exchange Act is contained in the
Registrant's 1998 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). See also Additional Item - Executive Officers
of Registrant in above.
ITEM 11. Management Remuneration And Transactions
Information required under this item is contained in the Registrant's
1998 Proxy Statement, 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 1998 Proxy Statement, filed with the commission pursuant to
Regulation 14A, and is incorporated herein by reference, pursuant to Form 10K
General Instruction G(3).
ITEM 13. Certain Relationships And Related Transactions
Not applicable.
36
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, And Reports On Form 8-K
(a) (1) and (2) The response to this portion if Item 14 is
submitted in the following pages.
(b) The Registrant was not required to file a Form 8-K
during fiscal year 1998.
37
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 12/17/98
Vice Chairman of the
/S/ Raymond H. Faxon Board and Director 12/17/98
Senior Vice President
and Treasurer
(Chief Financial and
/S/ Peter H. Thanas Accounting Officer 12/17/98
/S/ Cindy L.J. Audette Director 12/17/98
/S/ Thomas K. Barry Director 12/17/98
/S/ Thomas H. Bilodeau Director 12/17/98
/S/ Ronald J. Ferris Director 12/17/98
/S/ Jack R. McCormick Director 12/17/98
/S/ Gilbert C. Oliveira Jr. Director 12/17/98
/S/ Donald R. Patnode Director 12/17/98
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
calender 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 By-Laws Exhibit 3b to Report
on Form 10-K for
calendar year ended
December 31, 1990
(3c) A copy of an Amendment to the By-Laws Exhibit 3c to Report
on Form 10-K for
calendar year ended
December 31, 1991
(3d) A copy of an Amendment to the Articles To report on Form 10-K
of Incorporation, dated December 31, 1993 for calendar year ended
to increase the number of Common Shares December 31, 1997
from 1,100,667 to 2,201,334 and to change
the Par Value from $1 2/3 to $0.83 1/3
(3e) A copy of an Amendment to the Articles of
Attached Hereto as Incorporation, dated
February 19, 1998 to Exhibit 3 (e) increase
the number of Common Shares from 2,201,334
to 2,951,334
(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
(4a) Thirteenth Supplemental Indenture To report Form 10-K for
between the Registrant and calendar year ended
State Street Bank and Trust Co. December 31, 1997
(10a) Purchase of F-1 from Algonquin Exhibit 10a to Report
Gas Transmission Company on Form 10-K for
calendar year ended
(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 May 1, 1984 December 31, 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
(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
39
Page Number or
Exhibit Incorporation Or
Numbers Description Reference to
- ------- ----------- ----------------
(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 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 Sup- Exhibit 10h to Report
plementary Agreement, and Amendment on Form 10-K for
to Agreement for Employment and calendar year ended
Consulting Services between the December 31, 1984
Registrant and Raymond H. Faxon
(10i) A copy of an Amendment to Employment Exhibit 10i to Report
and Consulting Agreement dated on Form 10-K for
January 1, 1987 between the Regi- calendar year ended
strant and Bradford J. Faxon December 31, 1986
(10j) A copy of an Amendment to Employment Exhibit 10j to Report
and Consulting Agreement dated on Form 10-K for
January 1, 1987 between the Regi- calendar year ended
strant and Norman J. Meyer December 31, 1986
(10k) A copy of an Employment and Consulting Exhibit 10k to Report
Agreement dated as of August 1, 1986 on Form 10-K for
between the Registrant and Peter H. calendar year ended
Thanas December 31, 1986
(10L) A copy of an Amendment to Employment Exhibit 10L to Report
and Consulting Agreement dated on Form 10-K for
January 1, 1987 between the Regi- calendar year ended
strant 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
(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 Firm Exhibit 10p to Report
Liquid Service between Distrigas on Form 10-K for
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 Firm Exhibit 10r to Report
Vapor Service between Distrigas on Form 10-K for
and Registrant calendar year ended
December 31, 1988
40
Page Number or
Incorporation Or
Numbers Description Reference To
- ------- ----------- ----------------
(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
(10x) A copy of the Contract between the Exhibit 10x 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, 1995 September 30, 1995
(10y) A copy of Gas Sales Agreement Exhibit 10y to Report
between CNG Gas Service Corporation on Form 10-K for fiscal
and Fall River Gas Company year ended
September 30, 1995
(10z) A copy of the Contract between the Attached Hereto as
Registrant and Utility Workers Exhibit 10(z)
Union of America, AFL-CIO and
Local 431, dated May 1, 1998 September 30, 1998
(22) The Registrant has one Subsidiary,
Fall River Gas Appliance Company, Inc.,
that is incorporated in Massachusetts,
and does business under said name
(23) Consent of Independent Public Accountants Attached
To the Stockholders and Board of Directors
of Fall River Gas Company
41
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 26
Fall River Gas Company and Subsidiary
Consolidated balance sheets - As of
September 30, 1998 and September 30, 1997 Page 28 & 29
Consolidated statements for the years ended
September 30, 1998, 1997, and 1996
Income Page 27
Retained earnings Page 27
Cash flows Page 30
Notes to consolidated financial statements Page 31-37
SCHEDULES
VIII - Valuation and Qualifying Accounts and Reserves for the
years ended September 30,
1998, 1997, and 1996 Attached
Schedules, other than the one listed to above, are either not required or not
applicable or the required information is shown in the financial statements or
notes thereto.
42
FALL RIVER GAS COMPANY AND SUBSIDIARY SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR YEAR ENDED SEPTEMBER 30, 1998
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 $907,357 $823,500 - $472,625 ($48,916) $1,307,148
-------------- -------------- -------------- --------------- ---------- ---------
FOR YEAR ENDED SEPTEMBER 30, 1997
ADDITIONS DEDUCTIONS
--------------- --------------
Balance at Balance at
Beginning Costs and to Other Which Reserves End of
Description of Period Expenses Accounts Were Created Other Period
- --------------------- -------------- -------------- -------------- --------------- ---------- ---------
Allowance for
doubtful accounts $670,038 $761,500 - $563,691 ($39,510) $907,357
-------------- -------------- -------------- --------------- ---------- ---------
FOR YEAR ENDED SEPTEMBER 30, 1996
ADDITIONS DEDUCTIONS
--------------- --------------
Balance at Balance at
Beginning Costs and to Other Which Reserves End of
Description of Period Expenses Accounts Were Created Other Period
- --------------------- -------------- -------------- -------------- --------------- ---------- ---------
Allowance for
doubtful accounts $686,650 $411,500 - $456,348 ($28,235) $670,038
-------------- -------------- -------------- --------------- ---------- ---------
43