SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED DEDEMBER 31, 1998 COMMISSION FILE NUMBER 0-449
- --------------------------------------------------------------------------------
FALL RIVER GAS COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1298780
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Indentification No.)
155 NORTH MAIN STREET, FALL RIVER, MASSACHUSETTS 02722
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 508-675-7811
- --------------------------------------------------------------------------------
"Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ."
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this report.
CLASS OUTSTANDING AT DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Common stock, par value of $.83 1\3 2,193,161 shares
FALL RIVER GAS COMPANY
INDEX
PAGE NO.
--------
Part. I. Financial Position
Consolidated Condensed Balance Sheets -
December 31, 1998 and September 30, 1998 1
Consolidated Condensed Statements of Income -
Three Months Ended December 31, 1998 and 1997 2
Consolidated Statments of Cash Flows -
Three Months Ended December 31, 1998 and 1997 3
Management's discussion and Analysis of the
Consolidated Condensed Statements of Income 4,5,6
Notes to Consolidated Condensed Financial Statements 7
Part II. Other Information 7
PART I. FINANCIAL INFORMATION
FALL RIVER GAS COMPANY AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
ASSETS 1998 1998
-------------- ----------------- ----------------
(Unaudited)
Gas Plant, at original cost $60,941,454 $60,448,647
less accumulated depreciation 21,131,507 20,798,948
-------------- --------------
39,809,947 39,649,699
-------------- --------------
Rental Property 6,220,853 6,288,100
less accumulated depreciation 2,015,842 2,040,105
-------------- --------------
4,205,011 4,247,995
-------------- --------------
CURRENT ASSETS:
Cash 267,439 356,005
Accounts receivable, less allowance for
doubtful accounts of $1,310,931 as of
12/31/98 and $957,149 as of 9/30/98 4,418,595 1,807,487
Inventories, at average cost
Liquefied natural gas and propane 3,272,106 3,148,311
Materials and Supplies 1,312,334 1,273,772
Purchased gas costs deferred 4,520,121 3,617,512
Prepaid and Deferred Taxes 237,696 401,160
Prepayments and Other 801,053 665,243
-------------- --------------
14,829,344 11,269,490
-------------- --------------
DEFERRED CHARGES:
Regulatory Asset 425,566 453,471
Other 0 18,885
-------------- --------------
425,566 472,356
-------------- --------------
$59,269,868 $55,639,540
-------------- --------------
-------------- --------------
STOCKHOLDERS' INVESTMENT AND LIABILITIES
CAPITALIZATION:
Stockholders' investment--
Common stock, par value $.83-1/3 par, 2,951,334 authorized
and 2,201,334 shares issued $1,834,445 $1,834,445
Premium paid in on common stock 4,984,291 4,954,532
Retained earnings ($6,865,648 restricted
against payment of cash dividends as
of 12/31/98 and as of 9/30/98) 11,013,808 10,672,783
-------------- --------------
17,832,544 17,461,760
Less Treasury stock, at cost (7,004 shares
as of 12/31/98 and 9,326 shares as of 9/30/98) 23,615 31,443
-------------- --------------
17,808,929 17,430,317
-------------- --------------
Long-term debt, less current sinking
fund requirements
First Mortgage Bonds--9.44% due 2020 6,500,000 6,500,000
First Mortgage Bonds--7.99% due 2026 7,000,000 7,000,000
First Mortgage Bonds--7.24% due 2027 6,000,000 6,000,000
-------------- --------------
19,500,000 19,500,000
-------------- --------------
Total capitalization 37,308,929 36,930,317
-------------- --------------
CURRENT LIABILITIES:
Notes payable to banks 9,000,000 5,100,000
Dividends Payable 0 526,173
Accounts Payable 2,485,942 3,074,673
Other - Commitment and Contingencies 2,575,437 2,214,022
-------------- --------------
14,061,379 10,914,868
-------------- --------------
DEFERRED CREDITS:
Accumulated deferred income taxes 4,462,626 4,462,626
Unamortized investment tax credits 474,382 485,453
Regulatory Liability 455,560 455,560
Other 2,506,992 2,390,716
-------------- --------------
7,899,560 7,794,355
-------------- --------------
$59,269,868 $55,639,540
-------------- --------------
-------------- --------------
See accompanying notes to consolidated condensed financial statements.
1
SUMMARIZED FINANCIAL INFORMATION
FALL RIVER GAS COMPANY AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
Three Months Ended
December 31
-------------------------------------------------
1998 1997
---------------- ----------------
GAS OPERATING REVENUES $10,495,068 $11,272,777
---------------- ----------------
OPERATING EXPENSES
Cost of gas sold 5,644,939 6,036,686
Other operation 3,135,690 3,126,024
Maintenance 349,298 384,454
Depreciation 466,570 448,114
Local Property and Other 347,341 314,767
Federal and State income taxes 42,192 171,432
---------------- ----------------
Total operating expenses 9,986,030 10,481,477
---------------- ----------------
OPERATING INCOME 509,038 791,300
OTHER INCOME:
Earnings of Fall River Gas Appliance
Company, Inc. (a wholly-owned subsidiary) 241,100 240,721
Other 5,005 4,483
---------------- ----------------
INCOME BEFORE INTEREST EXPENSE 755,143 1,036,504
---------------- ----------------
INTEREST EXPENSE AND OTHER:
Long-term debt 401,825 329,425
Other 12,295 159,212
---------------- ----------------
414,120 488,637
---------------- ----------------
NET INCOME $341,023 $547,867
RETAINED EARNINGS - BEGINNING OF PERIOD $10,672,783 $10,693,309
DEDUCT - Dividends declared (2) 0
---------------- ----------------
RETAINED EARNINGS - END OF PERIOD
($6,865,648 restricted against payment of
cash dividends as of 12/31/98 and 12/31/97 $11,013,808 $11,241,176
---------------- ----------------
---------------- ----------------
BASIC EARNINGS PER SHARE 0.16 0.27
---------------- ----------------
---------------- ----------------
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,193,161 2,022,359
See accompanying notes to consolidated condensed financial statements.
2
FALL RIVER GAS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
December 31
-------------------------------
1998 1997
----------- --------
Cash Provided by (used for)
Operating Activities:
Net income $ 341,025 $ 547,868
Items not requiring (providing) cash:
Depreciation 582,484 548,757
Deferred Income Taxes 163,465 268,431
Investment Tax Credits, net (11,071) (11,071)
Change in working capital (4,555,238) (6,191,847)
Other sources, net 134,833 279,783
----------- -----------
Net cash used for
operating activities (3,344,502) (4,558,079)
----------- -----------
Investing Activities:
Additions to utility property, plant and equipment (613,837) (601,476)
Additions to nonutility property (67,814) (172,694)
----------- -----------
Net cash used by investing activities (681,651) (774,170)
----------- -----------
Financing activities:
Common stock transactions 37,587 4,821,109
Proceeds from long-term debt issue 0 6,000,000
Increase (decrease) in notes payable to banks, net 3,900,000 (5,000,000)
----------- -----------
Net cash provided by
financing activities 3,937,587 5,821,109
----------- -----------
Increase (decrease) in cash (88,566) 488,860
Cash, beginning of period 356,005 329,400
----------- -----------
Cash, end of period $ 267,439 $ 818,260
----------- -----------
----------- -----------
Changes in Components of Working Capital
(excluding cash)
(Increase) decrease in current assets:
Accounts receivable ($2,611,108) ($3,425,470)
Inventories (162,357) 74,460
Prepayments and other (125,675) (159,790)
Deferred gas cost (902,609) (1,990,789)
Increase (decrease) in current liabilities:
Accounts payable (588,732) (613,774)
Other (164,757) (76,484)
----------- -----------
Change in Working Capital ($4,555,238) ($6,191,847)
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information: Cash paid
during year for:
Interest $ 283,553 $ 187,188
Income taxes $ 55,383 $ 53,325
See accompanying notes to consolidated condensed financial statements.
3
FALL RIVER GAS COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Net income for the first quarter of fiscal 1999 was $341,000 or $0.16
per share as compared with earnings of $548,000 or $0.27 for the first quarter
in fiscal 1998. Basic earnings per share, for the three month period, have been
impacted by the warmer weather recorded in fiscal 1999 as compared to the first
quarter fiscal 1998. Effective degree days as stated below show a 13.8% decrease
from the previous fiscal year.
Gas operating revenues for the three months ended December 31, 1998
reflect a decrease of 6.9% or $777,700. Revenues decreased from $11,272,800
recorded in fiscal 1998 to $10,495,100, mainly due to a 17.6% decrease in firm
sales volume due to warmer weather in which effective degree days decreased from
2,259 to 1,947. Firm sales volume for three months ended December 31, 1998 is
1,196,817 MCF as compared to the 1,452,329 MCF reported in fiscal 1998. Total
sales for the three month period which include Interruptible customers,
Interruptible Transportation and Transportation customers, decreased 9.9% from
1,851,427 MCF to 1,666,604 MCF in 1998. Cost of gas (CGA) revenues for the three
months ended December 31, 1998 decreased by $769,000 or 10.4%. Revenues
decreased from $7,391,800 recorded in fiscal 1998 to $6,622,700 in fiscal 1999
due to the net differences in our CGA decimal along with decreased firm sales
volume as stated above. The fiscal 1999 and 1998 CGA revenues, referred to
above, have been computed on the current rate structure. In accordance with the
Company's approved CGAC increases or decreases in the cost of gas sold continue
to be passed directly to our firm customers, dollar for dollar.
Total operating expenses, excluding federal and state income taxes, for
the three month comparisons reflected a 3.6% decrease from $10,310,000 to
$9,943,800 a decrease of $366,200. The most significant operation expense, cost
of gas sold, decreased by $391,700 for the three month comparison due mainly to
the decrease in the volumes of purchased gas and the lower commodity cost. Other
operation expenses including health benefits, payroll, and materials and
supplies have increased by $9,700, which was .3% higher than the comparable
period in fiscal 1998.
Interest expense decreased by $74,500, 15.3%, for the three month
comparison as a result of decreased short term borrowing due to an equity and
debt financing. As reported, on October 31, 1997 the Company issued 340,000
shares of common stock and began trading on the American Stock Exchange (AMEX)
under the symbol "FAL". On November 26, 1997 the underwriter of this equity
issue, First Albany Corporation, exercised its over-allotment option to sell an
additional 50,000 shares of common stock. The net proceeds of this offering of
approximately $4,700,000 were used to reduce short-term borrowings. The Company
also issued $6,000,000 of long-term debt with a coupon rate of 7.24% on December
12, 1997 through a private placement. The net proceeds from this offering was
also used to reduce short-term borrowings.
Capital Resources and Liquidity
4
The Company's major capital requirement results from upgrading the
efficiency of existing plant, as well as, to serve additional customers. For the
three months ended December 31, 1998, capital expenditures totaled approximately
$615,000.
Cash flow patterns reflect the seasonality of the Company's business.
The greatest demand for cash is in the late fall and winter as construction
projects are brought to completion and accounts receivable balances rise.
Capital expenditures and accounts receivable balances were financed by
internally generated funds and supplemented by short- term borrowings.
Factors that May Affect Future Results
The Private Securities Litigation Reform Act of 1995 encourages the use
of cautionary statements accompanying forward-looking statements. The preceding
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes forward-looking statements concerning the impact of changes
in the cost of gas and of the CGA mechanism on total margin; projected capital
expenditures and sources of cash to fund expenditures; and estimated costs of
environmental remediation and anticipated regulatory approval of recovery
mechanisms. The Company's future results, generally and with respect to such
forward-looking statements, may be affected by many factors, among which are
uncertainty as to the regulatory allowance of recovery of changes in the cost of
gas; uncertain demands for capital expenditures and the availability of cash
from various sources; uncertainty as to whether transportation rates will be
reduced in future regulatory proceeding with resulting decreases in
transportation margins; and uncertainty as to regulatory approval of the full
recovery of environmental costs, transition costs and other regulatory assets.
New Accounting Standards
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share," effective quarter ended December 31, 1997 and has
reflected basic earnings per share on the face of the statements of income.
The "Year 2000" Issue
The Company has evaluated its principal computer systems and
noninformation technology systems including, but not limited to,
telecommunications systems, automated meter reading systems, SCADA, regulator
stations, plant remote control systems and security systems to determine
readiness for the year 2000. 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
5
2000 issues with material third parties. Except for the Company's major pipeline
supplier, who has provided assurance of compliance, the Company has not
determined the level of third-party risk. Preparation of a contingency plan is
in process and is expected to be finalized during fiscal year 1999.
See accompanying notes to consolidated financial statements
6
FALL RIVER GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results of operation for the three month periods ending December 31,
1998 and 1997 are not necessarily indicative of the results to be expected
for the full year.
2. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the Company's
financial position as of December 31, 1998 and 1997, and the results of
operations for the three months ended and changes in financial position for
the three months then ended.
3. The Company had no shares of its common stock reserved for officers and
employees, options, warrants, conversions or other requirements at December
31, 1998.
PART II. OTHER INFORMATION
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FALL RIVER GAS COMPANY
----------------------
(Registrant)
PETER H. THANAS
----------------------
(Signature)
Date FEBRUARY 5, 1999 Peter H. Thanas, Treasurer,
- --------------------- Chief Financial and
Accounting Officer
7